NOTES IN NEGOTIABLE INSTRUMENTS LAWClass of Atty Zarah Villanueva-Castro (FEU San Beda)I PRELIMINARY CONSIDERATIONSNegotiable Instrument - a written contract for the paymentof money which complies with the requirements of Sec 1 ofthe NIL which by its form and on its face is intended as asubstitute for money and passes from hand to hand as moneyso as to give the holder in due course (HDC) the right to holdthe instrument free from defenses available to prior parties(Reviewer on Commercial Law Sundiang and Aquino)Functions of Negotiable Instrument1 Substitute for money2 Medium of exchange3 Tool used in commercial transactionTwo Distinctive Features of NI1 Negotiability - it is that attribute or property whereby abill or note or check may pass from hand to hand similarto money so as to give the holder in due course theright to hold the instrument and to collect the sumpayable for himself free from defenses1048766 Requisites of Negotiabilitya It must be in writing and signed by the maker ordrawerb Must contain an unconditional promise or order topay a sum certain in moneyc Must be payable on demand or at a fixed ordeterminable future timed Must be payable to order or to bearer ande Where the instrument is addressed to a drawee hemust be named or otherwise indicated therein withreasonable certainty2 Accumulation of Secondary Contracts - secondarycontracts are picked up and carried along withNegotiable Instruments as they are negotiated from oneperson to another or in the course of negotiation ofnegotiable instruments a series of juridical ties betweenthe parties thereto arise either by law or by privity Theindorsers become secondarily liable to the holderDistinctions Negotiable and Non-Negotiable InstrumentsNEGOTIABLE NON-NEGOTIABLEMust contain all requisitesof sec1Does not contain allrequisites of sec1Transferable bynegotiation andassignmentTransferable byassignment onlyHDC can have rightsbetter than his transferorA transferee acquires nobetter right than histransferorPrior parties warrantpayment (secondaryliability)Prior parties do notwarrant payment butmerely the legality oftitleGoverned by NIL NIL only by analogyTransferee is a holder indue course

Transferee is assigneeonlyDefenses generally notavailableAll defenses availableagainst last transfereeClasses of Negotiable Instruments1 Promissory Note (PN) - unconditional promise in writingby one person to another signed by the maker engagingto pay on demand or at a fixed or determinable futuretime a sum certain in money to order or to bearer2 Bill of Exchange (BE) -an unconditional order in writingaddressed by one person to another signed by theperson giving it requiring the person to whom it isaddressed to pay on demand or at a fixed ordeterminable future time a sum certain in money toorder or to bearerBills in Set one composed of several parts each partnumbered and containing a reference to the other parts thewhole of the parts constituting but one billbull Rights of holders where parts are negotiatedseparately1 If both are HDC the holder whose title firstaccrues is considered the true owner of thebill2 But the person who accepts or pays in duecourse shall not be prejudicedbull Obligations of holder who indorses 2 or more partsof the Bill in Set1 The person shall be liable on every such part2 Every indorser subsequent to him is liable onthe part he has himself indorsed as if suchparts were separate billsDistinctions between a Negotiable Instrument and aNegotiable Document of TitleNEGOTIABLE INSTRUMENT NEGOTIABLE DOCUMENTOF TITLEThe subject is money The subject is goodsHas all the requisites ofSec 1 of NILDoes not have theserequisitesA holder of NI may runafter the secondary partiesfor payment if dishonoredby the party primarilyliableIntermediate parties arenot secondarily liable if thedocument is dishonoredA holder if HDC mayacquire rights over theinstrument better than hispredecessorsA holder can never acquirerights to the documentbetter than his predecessorsPROMISSORYNOTEBILL OF EXCHANGEUnconditional promise Unconditional orderInvolves 2 parties Involves 3 partiesMaker is primarily liable Drawer is only secondarilyliableOnly one presentment for

paymentTwo presentments foracceptance and forpaymentInstances when BILL may be treated as a NOTE1 Drawer and drawee are the same person1 Drawee is a fictitious person2 Drawee has no capacity to contract3 When instrument is so ambiguous the holder may treatit either as a BILL or a NOTEOther Forms of Negotiable Instruments1 Certificate of deposit issued by banks payable to thedepositor or his order or to bearer2 Trade acceptance3 Bonds which are in the nature of promissory notes4 Drafts which are bills of exchange drawn by one bankupon another1048766 All of these must comply with Sec 1 NILNote Letters of credit are not negotiableLegal TenderThat kind of money that the law compels a creditor to acceptin payment of his debt when tendered by the debtor in theright amountNote A negotiable instrument although intended to be asubstitute for money is generally not a legal tenderIncidents in ldquoLiferdquo of Negotiable Instrument1 Issue2 Delivery3 Negotiation4 Presentment for acceptance in certain kinds of bills ofexchange5 Acceptance6 Dishonor by non-acceptance7 Presentment for payment8 Dishonor by non-payment9 Notice of dishonor10 DischargeIssue - the first delivery of the instrument complete in formto a person who takes it as a holderDelivery - transfer of possession actual or constructive fromone person to anotherHolder ndash refers to thea The payee or indorsee of a bill or note who is inpossession of it orb The bearer thereof (sec191)Bearer - the person in possession of a bill or note which ispayable to bearerPerson - includes a body of persons whether incorporated ornotII FORM AND INTERPRETATION OF INSTRUMENTSRequisites of Negotiability (Sec 1 NILa It must be in writing and signed by the maker or drawerb Must contain an unconditional promise or order to pay asum certain in moneyc Must be payable on demand or at a fixed ordeterminable future timed Must be payable to order or to bearer ande Where the instrument is addressed to a drawee he mustbe named or otherwise indicated therein with reasonablecertainty1 Must be in writing signed by the maker or drawer- Otherwise it cannot be a substitute for money2 Must contain an unconditional promise or order to pay asum certain in moneyCertainty of sum payable

The sum payable is a sum certain although it is to be paida With interest orb By stated installments orc By stated installments with a provision that upondefault in payment of any installment or of interestthe whole shall become due ord With exchange whether at a fixed rate or at thecurrent rate ore With costs of collection or an attorneys fee in casepayment shall not be made at maturity (sec 2)Acceleration clause - renders whole debt due anddemandable upon failure of obligor to comply with certainconditionsWhen promise is unconditionalAn unqualified order or promise to pay is unconditionalthough coupled witha An indication of a particular fund out of whichreimbursement is to be made or a particularaccount to be debited with the amount orb A statement of the transaction which gives rise tothe instrument1048766 An order or promise to pay out of a particular fund is notunconditionalFUND FORREIMBURSEMENTPARTICULAR FUND FORPAYMENTDrawee pays the payeefrom his own fundsafterwards the draweepays himself from theparticular fund indicatedThere is only one act thedrawee pays directly fromthe particular fundindicated Payment issubject to the conditionthat the fund is sufficientParticular fund indicatedis NOT the direct sourceof payment but only thesource of reimbursementParticular fund indicated isthe direct source ofpaymentIndication in theinstrument does notaffect the unconditionalnature of the promise ororderIndication in theinstrument makes thepromise or orderconditional3 Payable on demand or at a fixed determinable futuretimeCertainty of time of paymentAn instrument is payable at a determinable future time whichis expressed to be payablea At a fixed period after date or sight orb On or before a fixed or determinable future timespecified therein orc On or at a fixed period after the occurrence of aspecified event which is certain to happen thoughthe time of happening be uncertain

1048766 An instrument payable upon a contingency is notnegotiable and the happening of the event does notcure the defect (sec 4)1048766 A promise to pay ldquowhen ablerdquo ldquoas soon as I canrdquo etcwithout specification of an absolute date is notnegotiable However there is a difference of opinion asto whether it is a conditional promise or an absolutepromise to pay at un unreasonable timea Under the first view negotiability is destroyedboth by the condition and by want of a fixedtime for paymentb Under the second view by the generalprinciple that a promise to pay within areasonable time is not so certain as to renderan instrument negotiableAftersight Draft - payable only after the expiration of thestipulated period from acceptance (legal sight)When payable on demanda When it is so expressed to be payable on demandor at sight or on presentation orb In which no time for payment is expressedNote Where an instrument is issued accepted or indorsedwhen overdue it is as regards the person so issuingaccepting or indorsing it payable on demand4 Payable to order or to bearerWhen payable to orderThe instrument is drawn payablea To the order of a specified person orb To him or his order1048766 The payee must be named or otherwise indicated thereinwith reasonable certainty1048766 It may be drawn payable to the order ofa A payee who is not maker drawer or drawee orb The drawer or maker orc The drawee ord Two or more payees jointly ore One or some of several payees orf The holder of an office for the time beingWhen payable to bearera When it is expressed to be so payable orb When it is payable to a person named therein orbearer orc When it is payable to the order of a fictitious ornon-existing person and such fact was known to theperson making it so payable ord When the name of the payee does not purport to bethe name of any person ore When the only or last indorsement is anindorsement in blank (Sec 9)5 Identification of the drawee1048766 Where the instrument is addressed to a drawee(meaning in a bill of exchange) he must be namedor otherwise indicated with reasonable certaintyThe holder must know to whom he should present itfor acceptance andor payment otherwise thepurpose of negotiable instrument as a tool incommercial dealings will be greatly hampered(Reviewer on Commercial Law Sundiang andAquino)1048766 A bill may be addressed to more than one draweejointly whether they are partners or not but not totwo or more drawers in the alternative or insuccession (Sec 128)Test of Negotiability presence of requirements in Section 1of NIL

Factors that Determine Negotiability1 The whole instrument itself2 Only what appears on the face of the instrument3 Provisions of the NIL Sec1BAR QUESTION (Q) Which of the followingstipulations or features of a promissory notes (PN)affect or do not affect its negotiability assumingthat the PN is otherwise negotiable Indicate youranswer by writing the paragraph number of thestipulation or feature of the PN as shown below andyour corresponding answer either lsquoAffectedrdquo orldquoNot affectedrdquo Explain(a) The date of the PN is ldquoFebruary 30 2002rdquo(b) The PN bears interest payable on the last dayof each calendar quarter at a rate equal to 5above the then prevailing 91-day Tbill rate aspublished at the beginning of such calendarquarter(c) The PN gives the maker the option to makepayment either in money or in quantity ofpalay of equivalent value(d) The PN gives the holder the option either torequire payment in money or to require themaker to serve as the bodyguard or escort ofthe holder for 0 daysSUGGESTED ANSWER (SA)(a) NOT AFFECTED The date is not one of therequirements for negotiability(b) NOT AFFECTED The interest is to be computedat a particular time and is determinable Itdoes not make the sum uncertain or thepromise conditional(c) AFFECTED Giving the maker an option rendersthe promise conditional(d) NOT AFFECTED Giving the holder an optiondoes not make the promise conditionalAdditional provisions not affecting negotiabilityGeneral Rule the instrument is non-negotiable if it containsa promise or order to do any act in addition to the paymentof moneyExceptionsa authorizes the sale of collateral securities in casethe instrument be not paid at maturity orb authorizes a confession of judgment if theinstrument be not paid at maturity orc waives the benefit of any law intended for theadvantage or protection of the obligor ord gives the holder an election to require something tobe done in lieu of payment of money1048766 Confession of judgment ndash a written statement signed bythe defendant setting forth the basis of liability andauthorizing the entry of judgment thereon1048766 Kinds of confession of judgmenta cognivit actiomen ndash literally means ldquohe hasconfessed actionrdquo It is a written confession ofaction by the defendant acknowledging isindebtedness to the plaintiff after the action hasbeen filed It is given after the action is brought tosave expensesb relicta verificationem ndash literally means ldquohispleadings being abandonedrdquo It is confession ofjudgment by withdrawal of the defenseNote However warrants of attorney to confess judgmentare not authorized nor contemplated by our law They arevoid as against public policy because they enlarge the field

for fraud because under these instruments the promissorybargains away his right to a day in court The NIL does notsanction nor validated any provision otherwise illegalOmissions and Provisions that do not affect Negotiability(Sec 6)The validity and negotiable character of an instrument arenot affected by the fact thata it is not dated orb does not specify the value given or that any valuehad been given therefore orc does not specify the place where it is drawn or theplace where it is payable ord bears a seal ore designates a particular kind of current money inwhich payment is to be made1048766 if it is not dated the instrument will be considered to bedated as of the time it was issued1048766 consideration for the instrument is presumed (art 154NCC amp sec 25 NIL)1048766 sec 73 specifies where presentment for payment shouldbe made when the place of payment is not specifiedRules of constructiona Where the sum payable is expressed in words and also infigures and there is a discrepancy between the two thesum denoted by the words is the sum payable but if thewords are ambiguous or uncertain reference may be hadto the figures to fix the amountb Where the instrument provides for the payment ofinterest without specifying the date from which interestis to run the interest runs from the date of theinstrument and if the instrument is undated from theissue thereofc Where the instrument is not dated it will be consideredto be dated as of the time it was issuedd Where there is a conflict between the written andprinted provisions of the instrument the writtenprovisions prevaile Where the instrument is so ambiguous that there isdoubt whether it is a bill or note the holder may treat itas either at his electionf Where a signature is so placed upon the instrument thatit is not clear in what capacity the person making thesame intended to sign he is to be deemed an indorserg Where an instrument containing the word I promise topay is signed by two or more persons they are deemedto be jointly and severally liable thereon (sec 17)Consideration1048766 Presumption of consideration - every negotiableinstrument is deemed prima facie to have been issuedfor a valuable consideration and every person whosesignature appears thereon to have become a partythereto for value1048766 Value - any consideration sufficient to support a simplecontract An antecedent or pre-existing debt constitutesvalue and is deemed such whether the instrument ispayable on demand or at a future time1048766 Holder for value ndash one who has given a valuableconsideration for the instrument issued or negotiated tohimbull What constitutes holder for valuewhere value has at any time been given for theinstrument the holder is deemed a holder for valuein respect to all parties who become such prior tothat timebull where the holder has a lien on the instrument

arising either from contract or by implication oflaw he is deemed a holder for value to the extentof his lien1048766 Effect of want of consideration a matter of defense asagainst any person not a holder in due course andpartial failure of consideration is a defense pro tantowhether the failure is an ascertained and liquidatedamount or otherwiseAbsence of consideration ndash total lack of any validconsideration for the contract is only a personaldefenseFailure of consideration ndash failure or refusal or one partyto do perform or comply with the consideration agreedupon is also only a personal defenseIII TRANSFER AND NEGOTIATIONTypes of transfers1 Assignment - transfer of title to the instrument with theassignee generally taking only such title as his assignorhas subject to all defenses available against hisassignor2 Negotiation - transfer of a negotiable instrument fromone person to another made in such a manner as toconstitute the transferee the holder thereof3 By Operation of Law ndash such as by succession byinsolvencyDistinctions between Negotiation and AssignmentNEGOTIATION ASSIGNMENT1 Refers only tonegotiableinstruments2 The transferee is aholder3 A holder in due courseis subject only to realdefenses4 A holder in due course1 Refers generally to anordinary contract2 The transferee is anassignee3 An assignee is subjectto both real andpersonal defenses4 Generally an assigneemay acquire a betterright than that of aprior party5 A general indorserwarrants the solvencyof prior parties6 An indorser is notliable unless there bepresentment andnotice of dishonor7 Negotiation isgoverned y the NILmerely steps into theshoes of the assignor5 An assignor does notwarrant the solvency ofprior parties unlessexpressly stipulated orthe insolvency is knownto him6 An assignor is liable

even without notice ofdishonor7 Governed by Arts 1624to 1635 (on assignmentof credits) of the CivilCodeMethods of negotiation1 Order Instrument ndash Indorsement and Delivery2 Bearer Instrument ndash Delivery onlyIndorsement - legal transaction effected by the writing ofones own name at thea back of the instrument orb upon a paper (allonge) attached thereto with orwithout additional words specifying the person towhom or to whose order the instrument is to bepayable whereby one not only transfers legal title tothe paper transferred but likewise enters into animplied guaranty that the instrument will be dulypaid1048766 General Rule indorsement must be of the entireinstrumentException where instrument has been paid in part itmay be indorsed as to the residue1048766 Kinds of indorsementa Special - specifies the person to whom or to whoseorder the instrument is to be payable (sec 34)b Blank - specifies no indorseebull Instrument is payable to bearer and may benegotiated by delivery (sec 34)bull May be converted to special indorsement bywriting over the signature of indorser in blankany contract consistent with character ofindorsementc Restrictive - when the indorsement eitheri Prohibits further negotiation of theinstrument orii Constitutes the indorsee the agent of theindorser oriii Vests the title in the indorsee in trust foror to the use of some other persons Butmere absence of words implying power tonegotiate does not make an indorsementrestrictivebull A restrictive indorsement confers upon theindorsee the righta To receive payment of theinstrumentb To bring any action thereon that theindorser could bringc To transfer his rights as such indorseewhere the form of the indorsementauthorizes him to do soBut all subsequent indorsees acquire only thetitle of the first indorsee under the restrictiveindorsement (sec 37)1048766 Such indorsement destroys the negotiability ofthe instrument and bars further negotiation toa holder in due coursed Qualified - constitutes the indorser a mere assignorof the title to the instrument (sec 38)bull made by adding to the indorsers signaturewords like sans recourserdquo ldquowithout recourseindorser not holder at the indorsers ownrisk etcbull The purpose of this kind of indorsement is to

transfer title without guaranteeing payment bythe primary partybull It does not mean however that the qualifiedindorser incurs no liability at all The effect ismerely to limit his liability He is secondarilyliable for breach of is warranties as an indorserunder Sec 65 Thus he is liable if theinstrument is dishonored by NON-ACCEPTANCEor NON-PAYMENT due toa forgeryb lack of good title to the instrumentindorsedc lack of capacity to contract on the part ofprior parties ord the fact that the instrument was valuelessor not valid at the time of the indorsementwhich fact was known to hime Conditional - right of the indorsee is made todepend on the happening of a contingent eventbull Party required to pay may disregard theconditionsbull This kind of indorsement has no effect on thefurther negotiation of the instrument Theparty required to pay if he chooses may makepayment disregarding the condition withoutincurring any liability because he is expresslyauthorized to do so under Sec 39 But theperson who received payment will hold theproceeds subject to the right of the conditionalindorserf Absolute - one by which indorser binds himself topayi upon no other condition than failure ofprior parties to do so andii upon due notice to him of such failureg Joint - indorsement of instrument payable to 2 ormore persons all must indorse in order for thetransaction to operate as a negotiationbull Exceptions to the rule requiring jointindorsementa Where the payees or indorsees arepartners andb Where the payee or indorsee indorsinghas authority to indorse for theothersh Irregular - a person who not otherwise a party toan instrument places thereon his signature in blankbefore delivery1048766 Rules on Indorsementsbull Effect of transfer without indorsementa transfer vests in the transferee such title as thetransferor had therein (assignment) andb the right to have the indorsement of thetransferor1048766 For the purpose of determining whether thetransferee is a holder in due course thenegotiation takes effect as of the time whenthe indorsement is actually made1048766 Applicable only to order instrumentsbull Indorsement of a bearer instrument where aninstrument payable to bearer is indorsed speciallyit may nevertheless be further negotiated bydelivery but the person indorsing specially is liableas indorser to only such holders as make titlethrough his indorsement

Note The rule only applies to originally bearerinstruments If it is originally a BEARER instrumentit will always be a BEARER instrument As opposedto an original order instrument becoming payable tobearer if the same is indorsed specifically it canNO LONGER be negotiated further by mere deliveryit has to be indorsedbull Striking out indorsements the holder may at anytime strike out any indorsement which is notnecessary to his title The indorser whoseindorsement is struck out and all indorserssubsequent to him are thereby relieved fromliability on the instrument1048766 If the instrument is payable to bearer on its facethen whether or not there are indorsements on theback of the instrument would be immaterial to thetitle of the bearer who is presumptively the ownerand holder by his mere possession of suchinstrument None of the indorsement would benecessary to itrsquos title since mere delivery wouldhave been sufficient to transfer title from oneholder to another1048766 Where the instrument is payable to order on itsface the situation is different First theindorsement of a special indorsee is necessary forthe further negotiation of the instrument Secondthe last indorsement controls the method of furthernegotiationbull When prior party (reacquirer) may negotiate where aninstrument is negotiated back to a prior party suchparty may reissue and further negotiate the same Buthe is not entitled to enforce payment thereof againstany intervening party to whom he was personally liable1048766 In the following cases a prior party cannot furthernegotiate the instrument1 Where it is payable to the order of a thirdperson and has been paid by the drawer2 Where it was made or accepted foraccommodation and has been paid by theparty accommodated3 In other cases where the instrument isdischarged when acquired by a prior partyIV HOLDERSClasses of holders1 simple holder (sec 51)2 holder for value (sec 26)3 holder in due course (sec52 57)Holder in Due Course1048766 holder who has taken the instrument under the followingconditionsa That it is complete and regular upon its faceb That he became the holder of it before it wasoverdue and without notice that it has beenpreviously dishonored if such was the factc That he took it in good faith and for valued That at the time it was negotiated to him he hadno notice of any infirmity in the instrument ordefect in the title of the person negotiating it1048766 When title defective - The title of a person whonegotiates an instrument is defective when he obtainedthe instrument or any signature thereto bya fraudb duress or force and fearc other unlawful meansd illegal consideration

e negotiation in breach of faithf circumstances amounting to fraud1048766 What constitutes notice of defect - The person towhom it is negotiated must havea actual knowledge of the infirmity or defect orb knowledge of such facts that his action in taking theinstrument amounted to bad faith (sec 56)1048766 Notice before full amount is paid - where thetransferee receives notice of any infirmity in theinstrument or defect in the title of the personnegotiating the same before he has paid the full amountagreed to be paid he will be deemed a holder in duecourse only to the extent of the amount paid by him1048766 When person not deemed a holder in due course -where an instrument payable on demand is negotiatedon an unreasonable length of time after its issue theholder is not deemed a holder in due coursebull Reasonable time what constitutes - regard is to behad to thea nature of the instrumentb the usage of trade or business with respect tosuch instruments and thec facts of the particular casebull Effect in the hands of any holder other than aholder in due course a negotiable instrument issubject to the same defenses as if it were nonnegotiable1048766 General Rule every holder is deemed prima facie to bea holder in due courseException when it is shown that the title of any personwho has negotiated the instrument was defective theburden is on the holder to prove that he or some personunder whom he claims acquired the title as holder in duecourse (shifting of burden of proof)Limitation the last-mentioned rule does not apply infavor of a party who became bound on the instrumentprior to the acquisition of such defective title (sec 59)1048766 Rights of a holder in due coursea he may sue on the instrument in his own nameb he may receive payment and if payment is in duecourse the instrument is dischargedc holds the instrument free from any defect of title ofprior partiesd holds the instrument free from defenses available toprior parties among themselves ande may enforce payment of the instrument for the fullamount thereof against all parties liable thereon1048766 Payment in due course is payment madea at or after the maturity of the instrumentb to the holder thereofc in good faith and without notice that his title isdefective1048766 Shelter Rulea derives his title through a holder in due course andb who is not himself a party to any fraud or illegalityaffecting the instrument has all the rights of suchformer holder in respect of all parties prior to thelatter1048766 Rights of a Holder NOT in Due Course1 He may sue on the instrument in his own name2 He may receive payment and if the payment is indue course the instrument is discharged3 He is entitled to the instrument but holds it subjectto the same defenses as if it were non-negotiableand4 He has all the rights of the holder in due course

from whom he derived his title in respect of allparties prior to such holder provided he is nothimself a party to any fraud or illegality affectingthe instrumentV LIABILITIES OF PARTIESPersons primarily liable on instrument the person who bythe terms of the instrument is absolutely required to pay thesame All other parties are secondarily liableClassification of parties according to liabilityIN A PROMISSORYNOTE1 Maker2 Indorser3 Persons negotiating by deliveryIN A BILL OFEXCHANGE1 Drawer2 Acceptor3 Indorsers4 Persons negotiating by delivery1 Parties Primarily Liablea Maker (Sec 60)bull engages to pay according to the tenor of theinstrument andbull admits the existence of the payee and his thencapacity to indorse at the time of the makingof the notebull A person placing his name on the face of a noteis prima facie a maker and liable as such andhe is presumed to have acted with care and tohave signed the instrument with full knowledgeof its contentsb Acceptor or Drawee (Sec 62)bull engages to pay according to the tenor of hisacceptancebull admits1 the existence of the drawer2 the genuineness of his signature and3 his capacity and authority to draw theinstrument and4 the existence of the payee and his thencapacity to indorseNote the drawee is not liable until he acceptsthe instrumentbull Where a check is certified by a bank it isequivalent to an acceptance Since certification isequivalent to acceptance a bank which hascertified a check whether at the request of theholder or of a drawer has the same liabilities andmakes the same warranties as an acceptor Itcannot after certification question thegenuineness of the drawerrsquos signature If itdiscovers that such signature is forged subsequentto certification but prior to payment it cannotrefuse to pay on the check If its discovery comesafter it has paid the check it cannot recoverback what it paid on the ground of mistakenpayment unless the holder is guilty of fraud ornegligencebull If a drawee-bank accepts or pays a check despitea stop payment order from the drawer throughoversight or otherwise it cannot refuse to paythe holder or recover what has been paid neithermay it debit the drawerrsquos account unless theacceptance nor payment was made prior to the

receipt of the order2 Parties Secondarily Liablea Drawer (Sec 61)bull admits the existence of the payee and hiscapacity to indorsebull engages that the instrument will be acceptedor paid by the party primarily liable andbull engages that if the instrument is dishonoredand proper proceedings are brought he willpay to the party entitled to be paidb General Indorser (Sec 66)bull Warrants1 genuineness of the instrument2 his good title to it3 capacity to contract of prior parties and4 instrument is valid and subsistingbull engages that the instrument will be acceptedor paid by the party primarily liable andbull engages that if the instrument is dishonoredand proper proceedings are taken he will payto the party entitled to be paidc Irregular Indorser ndash a person not otherwise a partyto an instrument places his signature thereon inblank before deliveryRulesbull If instrument payable to the order of a 3rdperson he is liable to the payee andsubsequent partiesbull If instrument payable to order of maker ordrawer he is liable to all parties subsequent tothe maker or drawerbull If he signs for accommodation of the payee heis liable to all parties subsequent to the payeeDistinctionsPRIMARY PARTY SECONDARY PARTY1 Unconditionally bound2Absolutely required topay upon the maturity ofthe instrument1 Conditionally bound2 Undertakes to pay onlyafter certain conditionshave been fulfilleda due presentment forpayment or acceptance toprimary partyb dishonor by suchparty andc the taking ofproceedings required bylaw after dishonorINDORSER DRAWER1 A party to either a noteor a bill2 Does not make anyadmission regarding theexistence of the payee andhis capacity to indorse and3 Has warranties1 A party only to a bill2 The drawer makes suchadmission3 Makes no warranties buthe engages to pay aftercertain conditions are

complied withGENERAL INDORSER IRREGULAR INDORSER1 Makes either a blank orspecial indorsement2 Indorses the instrumentafter its delivery to thepayee and3 Liable only to partiessubsequent to him1 Always makes a blankindorsement2 Indorses before itsdelivery3 Liable to the payee andsubsequent parties unlesshe signs for theaccommodation of thepayee in which case he isliable only to all partiessubsequent to the payee3 Parties with Limited Liability (sec 65 MetropolFinancing v Sambok 120 SCRA 864)a Qualified Indorser - warrants that1048766 instrument is genuine and in all respects whatit purports to be1048766 he has good title to it1048766 all prior parties had capacity to contract1048766 he has no knowledge of any fact which wouldimpair the validity of the instrument or renderit valuelessb Persons Negotiating by Delivery1048766 warranties same as those of qualified indorsersand1048766 warranties extend to immediate transfereeonlyLIABILITY WARRANTY1 To pay a sum certain2 Requires Notice ofDishonor3 Action can be broughtonly on maturity ofinstrument1 No obligation to pay2 Notice of Dishonor is not arequirement3 Action may be broughtanytimeBY MERE DELIVERY OR BYQUALIFIED INDORSEMENTGENERAL INDORSER1 No secondary liability1 With secondary liability2 Warrants that he has noknowledge of any factwhich would impair thevalidity of the instrumentor render it valueless2 Warrants that theinstrument is at the timeof his indorsement validand subsisting4 Other parties who may be liableGeneral Rule One whose signature does not appear on theinstrument shall not be liable thereonExceptions

1 The principal who signs through an agent is liable2 The forger is liable3 One who indorses in a separate instrument (allonge) isliable4 One who signs his assumed or trade name is liable and5 A person negotiating by delivery (as in the case of abearer instrument) is liable to his immediate indorseeRequisites for an Agent to escape liability1 must be duly authorized2 add words to his signature indicating that he signs as anagent that is for or on behalf of a principal or in arepresentative capacity and3 disclose his principal1048766 A signature by ldquoprocurationrdquo operates as notice that theagent has but a limited authority to sign and theprincipal is bound only in case the agent in so signingacted within the actual limits of his authority (sec 21)1048766 Indorsement or assignment of the NI by a corporation orby an infant passes the property thereinnotwithstanding that from want of capacity thecorporation or infant may incur no liability thereon(sec 22)Accomodation PartyOne who has signed the instrument as maker draweracceptor or indorser without receiving value therefor andfor the purpose of lending his name to some other person1048766 Liability such a person is liable on the instrument to aholder for value notwithstanding such holder at thetime of taking the instrument knew him to be only anaccommodation party1048766 Effects1 accommodation party is generally regarded as asurety for the party accommodated2 When accommodation party makes payment toholder of the note he has the right to sue theaccommodated party for reimbursement1048766 Rights of accommodation parties as against each otherthe other may demand contribution from his coaccommodationparty without first directing his actionagainst the principal debtor provided1 he made the payment by virtue of judicial demandor2 the principal debtor is insolventNote A corporation cannot act as an accommodationparty The issuance or indorsement of negotiableinstrument by a corporation without consideration andfor the accommodation of another is ultra vires(Crisologo v CA 117 SCRA 594)Order of liability of indorsers1 among themselves ndash indorsers are liable prima facie inthe order in which they indorse but evidence isadmissible to show that as between or amongthemselves they have agreed otherwise (sec 68)2 to the holder ndash indorsers are liable in any orderVI DEFENSESKinds1 RealAbsolute Defenses - those that attach to theinstrument itself and are available against all holderswhether in due course or notExamplesa Alterationb Non-delivery of incomplete instrumentc Duress amounting to forgeryd Fraud in factum or fraud in esse contractuse Minority

f Marriage in the case of a wifeg Insanity where the insane person has a guardianappointed by the courth Ultra vires acts of a corporation where thecorporation is absolutely prohibited by its charter orstatute from issuing any commercial paper underany circumstancesi Want of authority of agentj Execution of instrument between public enemiesk Illegality of contract where it is the contract orinstrument itself which is expressly made illegal bystatute andl Forgery2 PersonalEquitable Defenses ndash those which are availableonly against a person not a holder in due course or asubsequent holder who stands in privity with himExamplesa Absence or failure of consideration partial or totalb Want of delivery of complete instrumentc Insertion of wrong date in an instrument where it ispayable at a fixed period after date and it is issuedundated or where it is payable at a fixed periodafter sight and the acceptance is undatedd Filling up of blank contrary to authority given or notwithin reasonable time where the instrument isdeliverede Fraud in inducementf Acquisition of instrument by force duress or fearg Acquisition of the instrument by unlawful meansh Acquisition of the instrument for an illegalconsiderationi Negotiation in breach of faithj Negotiation under circumstances that amount tofraudk Mistakel Intoxication (according to better authority)m Ultra vires acts of corporations where thecorporation has the power to issue negotiable paperbut the issuance was not authorized for theparticular purpose for which it was issuedn Want of authority of agent where he haso apparent authorityp Insanity where there is no notice of insanity on thepart of the one contracting with the insane personandq Illegality of contract where the form orconsideration is illegalFRAUD IN FACTUM FRAUD IN INDUCEMENT1 It exists in those cases inwhich a person withoutnegligence has signed aninstrument which was infact a negotiableinstrument but wasdeceived as to thecharacter of the instrumentand without knowledge ofits as where a not wassigned by one under thebelief that he was signingas a witness to a deed1 It is that which relatedto the quality quantityvalue or character of theconsideration of the

instrument In this casethe signer is led bydeception to execute whathe knows is a negotiableinstrument It implies thatthe signer knew what hewas signing but that he wasinduced by fraud to sign2 This kind of fraud is areal defense because thereis no contract It impliesthat the person did notknow what he was signingBut where the signer by theexercise of reasonablediligence could havediscovered the nature ofthe instrument the fraudcannot be considered a realdefense as where a personwho can read signed a notebut failed to read it2 Such type of fraud is onlya personal defense becauseit does not prevent acontract1048766 Effects of Defenses1 Complete and undelivered instrumentbull as between immediate parties and as regards aremote party other than a holder in due course thedelivery must be authorized in order to be effectualbull where the instrument is in the hands of a holder indue course a valid delivery thereof by all partiesprior to him so as to make them liable to him isconclusively presumedbull where the instrument is no longer in the possessionof a party whose signature appears thereon a validand intentional delivery by him is presumed untilthe contrary is proved2 Incomplete but delivered instrumentbull where the instrument is wanting in any materialparticular the person in possession thereof has aprima facie authority to complete it by filling up theblanks thereinbull it must be filled up strictly in accordance with theauthority given and within a reasonable timebull if any such instrument after completion isnegotiated to a holder in due course it is valid andeffectual for all purposes in his hands and he mayenforce it as if it had been filled up strictly inaccordance with the authority given and within areasonable time3 Incomplete and undelivered instrumentbull it will not if completed and negotiated withoutauthority be a valid contract in the hands of anyholder as against any person whose signature wasplaced thereon before deliverybull However subsequent indorsers are liable4 Forgerybull counterfeit making or fraudulent alteration of anywriting which may consist of1 signing of anotherrsquos name with intent todefraud or2 alteration of an instrument in the nameamount name of payee etc with intent to

defraudbull Effect signature is wholly inoperative and no rightto retain the instrument or to give a dischargetherefore or to enforce payment thereof againstany party thereto can be acquired through or undersuch signaturebull Exception unless the party against whom it issought to enforce such right is precluded fromsetting up the forgery or want of authoritybull Cut-Off RuleGeneral Rule Parties prior to the forged signatureare cut-off from the parties after the forgery in thesense that prior parties cannot be held liable andcan raise the defense of forgery The holder canonly enforce the instrument against parties whobecame such after the forgeryException When the prior parties are precludedfrom setting up the defense of forgeryPersons precluded from setting up the defense offorgery are1 Those who by their acts silence or negligenceare estopped from setting up the defense offorgery2 Those who warrant or admit the genuineness ofthe signature in question These include acts oromissions that amount to ratification expressor impliedNote Persons precluded from setting up thedefense of forgery may still recover damages underthe NCC provisions on quasi-delictsbull Rules on ForgeryA Promissory Notes1 Makerrsquos signature forgedOrder Instrumenta Maker is not liable because he neverbecame a party to the instrumentb Indorsers subsequent to forgery are liablebecause of their warrantiesc Party who made the forgery is liableBearer Instrumenta Maker is not liableb Indorsers may be made liable to thosepersons who obtain title through theirindorsementsc Party who made the forgery is liable2 Payeersquos signature forgedOrder Instrumenta Maker and payee not liableb Indorsers subsequent to the forgery isliablec Party who made the forgery is liableBearer Instrumenta Maker is liable Indorsement is notnecessary to title and the maker engagesto pay holderb Party who made the forgery is liable3 Indorserrsquos signature forgedOrder Instrumenta Maker payee and indorser who signaturewas forged is not liableb Indorsers subsequent to forgery are liablebecause of their warrantiesc Party who made the forgery is liableBearer Instrumenta Maker is liable Indorsement is not

necessary to title and the maker engagesto pay holderb Indorser whose signature was forged is notliablec Party who made the forgery is liableB Bill of Exchange1 Drawerrsquos signature forgedIn an Order Instrumenta Drawer is not liableb Drawee is liable if it paid (nor recourse todrawer) because he admitted thegenuineness of the drawerrsquos signatureDrawee cannot recover from the collectingbank because there is no privity betweenthe collecting bank and the drawer Thereis no warranty as to the signature of thedrawer (Associated Bank v CA)c Indorsers subsequent to forgery are liabled Party who made the forgery is liableIn a Bearer Instrumenta Drawer is not liableb Drawee is liable if it paid Drawee cannotrecover from the collecting bank becauseit is bound to known the drawerrsquossignature since the latter is its depositorc Party who made the forgery is liable2 Payeersquos signature forgedOrder Instrumenta Drawer drawee and payee not liable Cutoffrule appliesb Indorsers subsequent to forgery are liablec Party who made the forgery is liableBearer Instrumenta Drawer is liable His indorsement is notnecessary to pass titleb Drawee is liable No privity betweendrawer and payee because indorsement ofpayee is not necessary (Ang Tek Lian case87 SCRA 383)c Payee is not liabled Collecting bank is liable because ofwarrantye Party who made the forgery is liable3 Indorserrsquos signature forgedOrder Instrumenta Drawer payee and indorser whosesignature was forged are not liableb Drawee is liable if it paidc Indorsers subsequent to forgery are liabled Party who made the forgery is liableBearer Instrumenta Drawer is liable Indorsement is notnecessary to pass titleb Drawee is liablec Indorser whose signature was forged isliable because indorsement is notnecessary to pass titled Party who made the forgery is liable5 Alterationbull Effect the instrument is avoidedbull Exceptions1 against a party who has himself madeauthorized or assented to the alteration2 subsequent indorsers3 holder in due course not a party to the

alteration - he may enforce payment accordingto its original tenorbull Changes constituting material alteration1 date2 sum payable either for principal or interest3 time or place of payment4 number or relations of the parties5 medium or currency in which payment is to bemade6 that which adds a place of payment where noplace of payment is specified and7 any other change or addition which alters theeffect of the instrument in any respectNote a material alteration is one that alters theeffect of the instrument one which changes theitems required to be stated under Sec 1 NILbull Spoliation ndash alteration made by a strangerbull The general rule denies the drawee bankrsquos right tocharge against the drawerrsquos account the amount ofan altered check However the latterrsquos negligencebefore or after the alteration may estop him fromsetting such alteration as against an innocentdrawee bank who has paid the checkbull In cases of altered checks and checks with forgedindorsements the drawee bank must notify andreturn them to the collecting bank before 400 pmof the next day of clearing but the drawee bankmay still return them even after such time providedhe does so within 24 hours from its discovery of thealteration or forged instruments so that recovery ofthe amount may be had BUT in no event beyondthe period fixed or provided by law for filing of alegal action by the returning bank against the banksending the sameNote Alteration is only a partial real defensebecause a holder in due course can still enforce itaccording to its original tenorVII ENFORCEMENT OF LIABILITYPresentment for payment ndash the presentation of aninstrument to the person primarily liable for the purpose ofdemanding and receiving paymentGeneral Rulesbull presentment for payment to charge personsprimarily liable is not necessarybull presentment for payment to charge personssecondarily liable is necessaryExceptionsa drawer - where he has no right to expect or requirethat the drawee or acceptor will pay the instrument(sec 79)b indorser - where the instrument was made oraccepted for his accommodation and he has noreason to expect that the instrument will be paid ifpresentedc when dispensedi where after the exercise of reasonablediligence presentment as required cannotbe madeii where the drawee is a fictitious personiii by waiver of presentment express orimplied (sec 82)d when the instrument has been dishonored by nonacceptance(sec 151)Sufficiency of presentmentIt must be

1 made by the holder or any person authorized toreceive payment on his behalf2 at a reasonable hour on a business day3 at a proper place4 to the person primarily liable or if he is absent orinaccessible to any person found at the placewhere the presentment is madeHow made1 personal demand for payment at the proper place and2 readiness to exhibit the instrument if required and toreceive payment and to surrender the instrument if thedebtor is willing to paybull Purpose of exhibitionTo enable the debtor toa determine the genuineness of the instrument andthe right of the holder to receive payment andb to enable him to reclaim possession upon paymentbull When exhibition excuseda when debtor does not demand to see the instrumentbut refuses payment on some other grounds andb when the instrument is lost or destroyedWhen madebull where the instrument is payable at a fixed ordeterminable future time presentment must be madeon the day it falls duebull where it is payable on demanda promissory note presentment must be made withina reasonable time after its issueb bill of exchange presentment for payment will besufficient if made within a reasonable time afterthe last negotiation thereofbull the check must be presented for payment within areasonable time after its issue or the drawer will bedischarged from liability thereon to the extent of theloss caused by the delayTime of maturitybull every negotiable instrument is payable at the time fixedtherein without gracebull when the day of maturity falls upon a Sunday or aholiday the instruments are to be presented forpayment on the next succeeding business daybull when the day of maturity falls upon a Saturday1048766 Instrument is payable at a fixed or determinablefuture time (time instrument) - presented forpayment is on the next succeeding business day1048766 instruments is payable on demand - at the option ofthe holder be presented for paymenta before 1200 noon on Saturday whenthat entire day is not a holiday orb the next succeeding business dayHow computed1048766 excluding the day from which the time is to begin torun and by including the date of payment1048766 applies to instruments which are payable at a fixedperiod after date after sight or after thathappening of a specified eventProper place for presentmenta Where a place of payment is specified in the instrumentand it is there presentedb Where no place of payment is specified but the addressof the person to make payment is given in theinstrument and it is there presentedc Where no place of payment is specified and no address isgiven and the instrument is presented at the usual placeof business or residence of the person to make payment

d In any other case if presented to the person to makepayment wherever he can be found or if presented athis last known place of business or residenceWhen delay in presentment excused ndash delay is caused bycircumstances beyond the control of the holder and notimputable to his default misconduct or negligence Whenthe cause of delay ceases to operate presentment must bemade with reasonable diligencePresentment for acceptance ndash the production or exhibitionof a bill of exchange to the drawee for his acceptance orpaymentGeneral Rule presentment for acceptance is not necessary torender any party to the bill liableException presentment for acceptance must be madea Where the bill is payable after sight or wherepresentment for acceptance is necessary in order tofix the maturity of the instrument orb Where the bill expressly stipulates that it shall bepresented for acceptance orc Where the bill is drawn payable elsewhere then atthe residence or place of business of the drawee(sec 143)Note in all the above cases the holder must either presentthe bill for acceptance or negotiate it within a reasonabletime otherwise the drawer and all indorsers are dischargedHow made1 made by or on behalf of the holder2 at a reasonable hour3 on a business day4 before the bill is overdue and within reasonabletime5 to the drawee or some person authorized to acceptor refuse acceptance on his behalfDays presentment may be made If date of presentment isa Sunday or a holiday ndash must be made on the nextsucceeding business dayb Saturday ndash before 1200 noon on Saturday providedthat it is not a holidayWhen delay for presentment excuseda bill is drawn payable elsewhere than at the place ofbusiness or the residence of the draweeb holder has no time with the exercise of reasonablediligence to present the bill for acceptance beforepresenting it for payment on the day that it fallsdueEffect does not discharge the drawers and indorsersWhere presentment is excuseda Where the drawee is dead or has absconded or is afictitious person or a person not having capacity tocontract by billb Where presentment can not be made after theexercise of reasonable diligencec Where although presentment has been irregularacceptance has been refused on some other groundNote bill may be treated as dishonored by nonacceptanceDuty of holder where bill not accepted - where a bill isduly presented for acceptance and is not accepted within theprescribed time (24 hours ndash sec 136) the person presentingit must treat the bill as dishonored by non-acceptance or heloses the right of recourse against the drawer and indorsersAcceptance the signification by the drawee of his assent tothe order of the drawer It is the act by which the draweemanifests his consent to comply with the request containedin the bill of exchange directed to himHow made

1) must be in writing2) signed by the drawee3) must not express that the drawee will perform hispromise by any other means than the payment ofmoneybull the holder of the bill presenting the same for acceptancemay require that the acceptance be written on the billand if such request is refused may treat the bill asdishonoredbull where an acceptance is written on a paper other thanthe bill itself it does not bind the acceptor except infavor of a person to whom it is shown and who on thefaith thereof receives the bill for valuePeriod for drawee to accept - allowed 24 hours afterpresentment in which to decide whether or not he will acceptthe bill if acceptance is given it dates as of the day ofpresentationConstructiveImplied acceptance where a drawee refuseswithin 24 hours after delivery or within such other period asthe holder may allow to return the bill accepted or nonacceptedto the holder he will be deemed to have acceptedthe sameNote same effect if the drawee destroys the instrumentKinds1 General - assents without qualification to the order ofthe drawer2 Qualified - which in express terms varies the effect ofthe bill as drawna Conditional - makes payment by the acceptordependent on the fulfillment of a conditiontherein statedb Partial - an acceptance to pay part only of theamount for which the bill is drawni Local - an acceptance to pay only at aparticular placeii Qualified as to timeiii The acceptance of some one or more ofthe drawees but not of all3 ConstructiveRights of parties as to qualified acceptancebull Holder he may refuse to take a qualified acceptanceand if he does not obtain an unqualified acceptance hemay treat the bill as dishonored by non-acceptancebull Drawer or indorser when he receives notice of aqualified acceptance he must within a reasonable timeexpress his dissent to the holder or he will be deemed tohave assented thereto (implied assent)Effect of taking a qualified acceptance the drawer andindorsers are discharged from liability on the bill unless theyhave expressly or impliedly authorized the holder to take aqualified acceptance or subsequently assent theretoOther rules of acceptancebull a bill may be accepted before it has been signed by thedrawer or while otherwise incomplete or when it isoverdue or after it has been dishonored by a previousrefusal to accept or by non paymentbull when a bill payable after sight is dishonored by nonacceptanceand the drawee subsequently accepts it theholder in the absence of any different agreement isentitled to have the bill accepted as of the date of thefirst presentmentbull an unconditional promise in writing to accept a billbefore it is drawn is deemed an actual acceptancein favor of every person who upon the faiththereof receives the bill for value

bull where a check is certified by the bank on which it isdrawn the certification is equivalent to anacceptanceEffect the drawer and all indorsers are dischargedfrom liability thereonAcceptance for Honor - an undertaking by a stranger to a billafter protest for the benefit of any party liable thereon or forthe honor of the person for whose account the bill is drawnwhich acceptance inures also to the benefit of all partiessubsequent to the person for whose honor it is accepted andconditioned to pay the bill when it becomes due if theoriginal drawee does not pay it1048766 Requisites1 the bill must have been protested for dishonorby non-acceptance or for better security2 the acceptor for honor must be a stranger andnot a party already liable on the instrument3 bill must not be overdue4 acceptance for honor must be with the consentof the holder of the instrument1048766 Formalities1 must be in writing2 must indicate that it is an acceptance forhonor3 signed by the acceptor for honor4 must contain an express or implied promise topay money5 the accepted bill for honor must be deliveredto the holderNotice of Dishonor - notice given by the holder or his agentto a party or parties secondarily liable that the instrumentwas dishonored by non-acceptance by the drawee of a bill orby non-payment by the acceptor of a bill or by non-paymentby a maker of a note- If such notice is given by a notary public it is calledPROTEST1048766 Effect of failure to give notice parties secondarily liableare discharged1048766 Requisites1 Given by holder or his agent or by any party whomay be compelled by the holder to pay2 Given to secondary party or his agent3 Given within the periods provided by law4 Given at the proper place1048766 When notice of dishonor dispensed with1 when party to be notified knows about the dishonoractually or constructively2 if waived and3 when after due diligence it cannot be given1048766 How given1 by bringing verbally or2 by writing to the knowledge of the person liable thefact that a specified instrument upon properproceedings taken has not been accepted or hasnot been paid and that the party notified isexpected to pay it1048766 To whom given1 Non-acceptance (bill) ndash to persons secondarilyliable namely the drawer and indorsers as the casemay be2 Non-payment (both bill and note) ndash indorsersNote Notice must be given to persons secondarilyliable Otherwise such parties are dischargedNotice may be given to the party himself or to hisagent

1048766 By whom given1 the holder2 another on behalf of the holder3 any party to the instrument who may be compelledto pay it to the holder and who would have a rightof reimbursement from the party to whom notice isgiven1048766 Notice of dishonor given by or on behalf of a holderinures to the benefit ofa all parties prior to the holder who have a rightof recourse against the party to whom thenotice is given andb all holders subsequent to the holder givingnotice1048766 Notice of dishonor given by or on behalf of a partyentitled to give notice inures to the benefit ofa the holder andb all parties subsequent to the party to whomnotice is given1048766 Where an instrument is dishonored in the hands of anagent he can do either of the ffa directly give notice to persons secondarilyliable thereon orb give notice to his principal In such case hemust give notice within the time allowed bylaw as if he were a holder1048766 A party giving notice is deemed to have given due noticewherea the notice of dishonor is duly addressed andb deposited in the post-office even when thereis miscarriage of mail1048766 Where a party receives notice of dishonor he has afterthe receipt of such notice the same time for givingnotice to antecedent parties that the holder has afterthe dishonor1048766 Notice may be waived either before the time of givingnotice or after the omission to give due notice Waivermay be expressed or implied1048766 As to who are affected by an express waiver depends onwhere the waiver is written1 if it appears in the body or on the face of theinstrument it binds all parties but2 if it is written above the signature of anindorser it binds him only1048766 Notice of dishonor is not required to be given to thedrawer in any of the ff cases1 drawer and drawee are the same2 drawee is a fictitious person or not having thecapacity to contract3 drawer is the person to whom the instrument ispresented for payment4 the drawer has no right to expect or requirethat the drawee or acceptor will honor theinstrument5 where the drawer has countermandedpayment1048766 Notice of dishonor is not required to be given to anindorser in the ff cases1 drawee is a fictitious person or does not havethe capacity to contract and indorser wasaware of that fact at the time he indorsed theinstrument2 indorser is the person to whom the instrumentis presented for payment3 instrument was made or accepted for his

accommodation1048766 If an instrument is not accepted by the drawee there isno sense presenting it again for payment and notice ofdishonor must at once be given If there wasacceptance presentment for payment is still requiredand if payment is refused there is a need for notice ofdishonor1048766 An omission to give notice of dishonor by non-acceptancedoes not prejudice the rights of a holder in due coursesubsequent to the omissionDishonor by Non-PaymentWhen instrument dishonored by non-paymenta it is duly presented for payment and payment isrefused or cannot be obtained orb presentment is excused and the instrument isoverdue and unpaidEffect of dishonor an immediate right of recourse to allparties secondarily liable thereon accrues to the holderDishonor by Non-AcceptanceInstancesa When it is duly presented for acceptance and suchan acceptance is refused or can not be obtained orb When presentment for acceptance is excused andthe bill is not accepted (sec 149)Effect an immediate right of recourse against thedrawer and indorsers accrues to the holder and nopresentment for payment is necessaryNote where a bill is duly presented for acceptance andis not accepted within the prescribed time (24 hours)the person presenting it must treat the bill as dishonoredby non-acceptanceWhen Instrument Considered to be Dishonoreda If it is not accepted when presented for acceptanceorb If it is not paid when presented for payment atmaturity orc If presentment is excused or waived and theinstrument is past due and unpaidProtest - the formal instrument executed usually by a notarypublic certifying that the legal steps necessary to fix theliability of the drawee and the indorsers have been taken1048766 Effect of waiver where protest is waived presentmentand notice of dishonor are also deemed waived Butwhere the notice of dishonor is waived presentment isnot waived1048766 Applicability protest is necessary only in case of foreignbills of exchange which have been dishonored by nonacceptanceor non-payment as the case may be If it isnot so protested the drawer and indorsers aredischarged1048766 Foreign Bill of Exchange1 Drawn in the Philippines but payable outside thePhilippines2 Payable in the Philippines but drawn outside thePhilippines1048766 Protest may be made by1 a notary public or2 any respectable resident of the place where the billis dishonored in the presence of 2 or more crediblewitnessesProtest for better security is one made by the holder of a billafter it has been accepted but before it matures against thedrawer and indorsers where the acceptor has been adjudgeda bankrupt or an insolvent or has made an assignment forthe benefit of the creditors

VIII DISCHARGEDischarge of instrument - a release of all parties whetherprimary or secondary from the obligations arisingthereunder It renders the instrument without force andeffect and consequently it can no longer be negotiatedInstances1 By payment in due course by or on behalf of theprincipal debtor2 Payment by accommodated party3 Intentional cancellation by the holder4 By any act which will discharge a simple contractfor the payment of money5 When the principal debtor becomes the holder ofthe instrument at or after maturity in his own rightBy any act which would discharge a simple contract1 Payment or performance2 Loss of the thing due3 Condonation or remission4 Confusion or Merger5 Compensation6 Novation7 Annulment or Rescission8 Fulfillment of a resolutory condition9 PrescriptionWhen persons secondarily liable on the instrument aredischarged1 By any act which discharges the instrument2 By the intentional cancellation of his signature bythe holder3 By the discharge of a prior party4 By a valid tender of payment made by a prior party5 By the release of the principal debtor unless theholderrsquos right of recourse against the partysecondarily liable is expressly reserved6 By any agreement binding upon the holder to extendthe time of payment or to postpone the holderrsquosright to enforce the instrument1048766 In the following cases the agreement to extend the timeof payment does not discharge a party secondarily liable1 where the extension of time is consented to by suchparty2 where the holder expressly reserves his right ofrecourse against such party1048766 Payment at or after maturity by a party secondarilyliable does not discharge the instrument It only cancelshis own liability and that of the parties subsequent tohimEffects of Renunciation1 A renunciation in favor of a secondary party may bemade by the holder before at or after maturity ofthe instrument Effect only such secondary party isdischarged and all parties subsequent to him but theinstrument itself remains in force2 A renunciation in favor of the principal debtor maybe effected at or after maturity Effect theinstrument is discharged and all parties theretoprovided the renunciation is made unconditionallyand absolutelyNote In either case renunciation does not affect therights of a holder in due course without notice1048766 Cancellation of an instrument includes tearing erasureobliteration or burning It is not limited to writing ofthe word lsquocancelledrdquo or ldquopaidrdquo or drawing of crisscrosslines across the instrumentPayment for Honor - payment made by a person whether a

party to the bill or not after it has been protested for nonpaymentfor the benefit of any party liable thereon or forthe benefit of the person for whose account it was drawn1048766 Requisites1 the bill has been dishonored by non-payment2 it has been protested for non-payment3 payment supra protest (another term for paymentfor honor because prior protest for non-payment isrequired) is made by any person even by a partythereto4 the payment is attested by a notarial act of honorwhich must be appended to the protest or form anextension of it5 the notarial act must be based on the declarationmade by the payor for honor or his agent of hisintention to pay the bill for honor and for whosehonor he paysNote If the above formalities are not complied withpayment will operate as a mere voluntary payment andthe payor will acquire no right to full reimbursementagainst the party for whose honor he pays1048766 In payment for honor the payee cannot refuse paymentIf he refuses he cannot recover from the parties whowould have been discharged had he accepted the sameIn acceptance for honor the holderrsquos consent isnecessary1048766 The payor for honor is given the right to receive both thebill and the protest obviously to enable him to enforcehis rights against the parties who are liable to himIX CHECKSCheck- a bill of exchange drawn on a bank payable ondemandCheck distinguished from and ordinary bill of exchangeBILLOF EXCHANGE CHECKNot necessarily drawnon a deposit The draweeneed not be a bankIt is necessary that a checkis drawn on a bank depositThe drawee is always abankDeath of a drawer of aBOE with the knowledgeof the bank does notrevoke the authority of thedrawee to payDeath of the drawer of acheck with the knowledgeof the bank revokes theauthority of the banker topayMay be presented forpayment within areasonable time after itslast negotiation because itmay be further negotiatedMust be presented forpayment within areasonable time after itsissueMay be payable on demandor at a fixed ordeterminable future timeAlways payable on demandKinds of checks

1 Managerrsquos Cashierrsquos Check ndash drawn by a bank on itselfand therefore it is a primary obligation of the banko It is accepted in advance by the act of itsissuance and is not subject tocountermand by the payor afterindorsemento The bankrsquos manager signs managerrsquos checkwhile cashierrsquos check is signed by the bankcashier2 Certified Check ndash one drawn by a depositor upon funds tohis credit in a bank which a proper officer of the bankcertifies will be paid when duly presented for payment3 Stale check ndash one which has not been presented forpayment within a reasonable time after its issue4 Crossed check ndash when 2 parallel lines are drawn acrossits face or across a corner thereof If the name of a bankappears between the parallel lines the check is said tobe specially crossed and payment should be made onlyif presented by the named bank If no name appearsbetween the parallel lines the check is said to begenerally crossed and payment should be made onlyupon presentment by some bankEffects of crossing a checka That the check may not be encashed but only bedeposited in the bankb That the check may be negotiated only once to onewho has an account with a bank andc That the act of crossing the check serves as awarning to the holder that the check has beenissued for a definite purpose so that he must inquireif he has received the check pursuant to thatpurpose5 Memorandum Check ndash it is like an ordinary check exceptthat the word ldquomemorandumrdquo ldquomemrdquo or ldquomemordquo iswritten upon the face of the check signifying that thedrawer engages to pay the bona fide holder absolutelyand not upon a condition to pay upon presentment atmaturity and if due notice of the presentment and nonpaymentshould be given6 Travelerrsquos check ndash one upon which the holderrsquos signaturemust appear twice one to be affixed by him at the timeit is issued and the second o counter-signature to beaffixed by him in the presence of the payee before it ispaid otherwise it is incompleteIron Clad Rule Prohibits the countermanding ofpayment of certified checks (Republic of the Philippinesv PNB GR No 16106 December 1 1961)

Transferee is assigneeonlyDefenses generally notavailableAll defenses availableagainst last transfereeClasses of Negotiable Instruments1 Promissory Note (PN) - unconditional promise in writingby one person to another signed by the maker engagingto pay on demand or at a fixed or determinable futuretime a sum certain in money to order or to bearer2 Bill of Exchange (BE) -an unconditional order in writingaddressed by one person to another signed by theperson giving it requiring the person to whom it isaddressed to pay on demand or at a fixed ordeterminable future time a sum certain in money toorder or to bearerBills in Set one composed of several parts each partnumbered and containing a reference to the other parts thewhole of the parts constituting but one billbull Rights of holders where parts are negotiatedseparately1 If both are HDC the holder whose title firstaccrues is considered the true owner of thebill2 But the person who accepts or pays in duecourse shall not be prejudicedbull Obligations of holder who indorses 2 or more partsof the Bill in Set1 The person shall be liable on every such part2 Every indorser subsequent to him is liable onthe part he has himself indorsed as if suchparts were separate billsDistinctions between a Negotiable Instrument and aNegotiable Document of TitleNEGOTIABLE INSTRUMENT NEGOTIABLE DOCUMENTOF TITLEThe subject is money The subject is goodsHas all the requisites ofSec 1 of NILDoes not have theserequisitesA holder of NI may runafter the secondary partiesfor payment if dishonoredby the party primarilyliableIntermediate parties arenot secondarily liable if thedocument is dishonoredA holder if HDC mayacquire rights over theinstrument better than hispredecessorsA holder can never acquirerights to the documentbetter than his predecessorsPROMISSORYNOTEBILL OF EXCHANGEUnconditional promise Unconditional orderInvolves 2 parties Involves 3 partiesMaker is primarily liable Drawer is only secondarilyliableOnly one presentment for

paymentTwo presentments foracceptance and forpaymentInstances when BILL may be treated as a NOTE1 Drawer and drawee are the same person1 Drawee is a fictitious person2 Drawee has no capacity to contract3 When instrument is so ambiguous the holder may treatit either as a BILL or a NOTEOther Forms of Negotiable Instruments1 Certificate of deposit issued by banks payable to thedepositor or his order or to bearer2 Trade acceptance3 Bonds which are in the nature of promissory notes4 Drafts which are bills of exchange drawn by one bankupon another1048766 All of these must comply with Sec 1 NILNote Letters of credit are not negotiableLegal TenderThat kind of money that the law compels a creditor to acceptin payment of his debt when tendered by the debtor in theright amountNote A negotiable instrument although intended to be asubstitute for money is generally not a legal tenderIncidents in ldquoLiferdquo of Negotiable Instrument1 Issue2 Delivery3 Negotiation4 Presentment for acceptance in certain kinds of bills ofexchange5 Acceptance6 Dishonor by non-acceptance7 Presentment for payment8 Dishonor by non-payment9 Notice of dishonor10 DischargeIssue - the first delivery of the instrument complete in formto a person who takes it as a holderDelivery - transfer of possession actual or constructive fromone person to anotherHolder ndash refers to thea The payee or indorsee of a bill or note who is inpossession of it orb The bearer thereof (sec191)Bearer - the person in possession of a bill or note which ispayable to bearerPerson - includes a body of persons whether incorporated ornotII FORM AND INTERPRETATION OF INSTRUMENTSRequisites of Negotiability (Sec 1 NILa It must be in writing and signed by the maker or drawerb Must contain an unconditional promise or order to pay asum certain in moneyc Must be payable on demand or at a fixed ordeterminable future timed Must be payable to order or to bearer ande Where the instrument is addressed to a drawee he mustbe named or otherwise indicated therein with reasonablecertainty1 Must be in writing signed by the maker or drawer- Otherwise it cannot be a substitute for money2 Must contain an unconditional promise or order to pay asum certain in moneyCertainty of sum payable

The sum payable is a sum certain although it is to be paida With interest orb By stated installments orc By stated installments with a provision that upondefault in payment of any installment or of interestthe whole shall become due ord With exchange whether at a fixed rate or at thecurrent rate ore With costs of collection or an attorneys fee in casepayment shall not be made at maturity (sec 2)Acceleration clause - renders whole debt due anddemandable upon failure of obligor to comply with certainconditionsWhen promise is unconditionalAn unqualified order or promise to pay is unconditionalthough coupled witha An indication of a particular fund out of whichreimbursement is to be made or a particularaccount to be debited with the amount orb A statement of the transaction which gives rise tothe instrument1048766 An order or promise to pay out of a particular fund is notunconditionalFUND FORREIMBURSEMENTPARTICULAR FUND FORPAYMENTDrawee pays the payeefrom his own fundsafterwards the draweepays himself from theparticular fund indicatedThere is only one act thedrawee pays directly fromthe particular fundindicated Payment issubject to the conditionthat the fund is sufficientParticular fund indicatedis NOT the direct sourceof payment but only thesource of reimbursementParticular fund indicated isthe direct source ofpaymentIndication in theinstrument does notaffect the unconditionalnature of the promise ororderIndication in theinstrument makes thepromise or orderconditional3 Payable on demand or at a fixed determinable futuretimeCertainty of time of paymentAn instrument is payable at a determinable future time whichis expressed to be payablea At a fixed period after date or sight orb On or before a fixed or determinable future timespecified therein orc On or at a fixed period after the occurrence of aspecified event which is certain to happen thoughthe time of happening be uncertain

1048766 An instrument payable upon a contingency is notnegotiable and the happening of the event does notcure the defect (sec 4)1048766 A promise to pay ldquowhen ablerdquo ldquoas soon as I canrdquo etcwithout specification of an absolute date is notnegotiable However there is a difference of opinion asto whether it is a conditional promise or an absolutepromise to pay at un unreasonable timea Under the first view negotiability is destroyedboth by the condition and by want of a fixedtime for paymentb Under the second view by the generalprinciple that a promise to pay within areasonable time is not so certain as to renderan instrument negotiableAftersight Draft - payable only after the expiration of thestipulated period from acceptance (legal sight)When payable on demanda When it is so expressed to be payable on demandor at sight or on presentation orb In which no time for payment is expressedNote Where an instrument is issued accepted or indorsedwhen overdue it is as regards the person so issuingaccepting or indorsing it payable on demand4 Payable to order or to bearerWhen payable to orderThe instrument is drawn payablea To the order of a specified person orb To him or his order1048766 The payee must be named or otherwise indicated thereinwith reasonable certainty1048766 It may be drawn payable to the order ofa A payee who is not maker drawer or drawee orb The drawer or maker orc The drawee ord Two or more payees jointly ore One or some of several payees orf The holder of an office for the time beingWhen payable to bearera When it is expressed to be so payable orb When it is payable to a person named therein orbearer orc When it is payable to the order of a fictitious ornon-existing person and such fact was known to theperson making it so payable ord When the name of the payee does not purport to bethe name of any person ore When the only or last indorsement is anindorsement in blank (Sec 9)5 Identification of the drawee1048766 Where the instrument is addressed to a drawee(meaning in a bill of exchange) he must be namedor otherwise indicated with reasonable certaintyThe holder must know to whom he should present itfor acceptance andor payment otherwise thepurpose of negotiable instrument as a tool incommercial dealings will be greatly hampered(Reviewer on Commercial Law Sundiang andAquino)1048766 A bill may be addressed to more than one draweejointly whether they are partners or not but not totwo or more drawers in the alternative or insuccession (Sec 128)Test of Negotiability presence of requirements in Section 1of NIL

Factors that Determine Negotiability1 The whole instrument itself2 Only what appears on the face of the instrument3 Provisions of the NIL Sec1BAR QUESTION (Q) Which of the followingstipulations or features of a promissory notes (PN)affect or do not affect its negotiability assumingthat the PN is otherwise negotiable Indicate youranswer by writing the paragraph number of thestipulation or feature of the PN as shown below andyour corresponding answer either lsquoAffectedrdquo orldquoNot affectedrdquo Explain(a) The date of the PN is ldquoFebruary 30 2002rdquo(b) The PN bears interest payable on the last dayof each calendar quarter at a rate equal to 5above the then prevailing 91-day Tbill rate aspublished at the beginning of such calendarquarter(c) The PN gives the maker the option to makepayment either in money or in quantity ofpalay of equivalent value(d) The PN gives the holder the option either torequire payment in money or to require themaker to serve as the bodyguard or escort ofthe holder for 0 daysSUGGESTED ANSWER (SA)(a) NOT AFFECTED The date is not one of therequirements for negotiability(b) NOT AFFECTED The interest is to be computedat a particular time and is determinable Itdoes not make the sum uncertain or thepromise conditional(c) AFFECTED Giving the maker an option rendersthe promise conditional(d) NOT AFFECTED Giving the holder an optiondoes not make the promise conditionalAdditional provisions not affecting negotiabilityGeneral Rule the instrument is non-negotiable if it containsa promise or order to do any act in addition to the paymentof moneyExceptionsa authorizes the sale of collateral securities in casethe instrument be not paid at maturity orb authorizes a confession of judgment if theinstrument be not paid at maturity orc waives the benefit of any law intended for theadvantage or protection of the obligor ord gives the holder an election to require something tobe done in lieu of payment of money1048766 Confession of judgment ndash a written statement signed bythe defendant setting forth the basis of liability andauthorizing the entry of judgment thereon1048766 Kinds of confession of judgmenta cognivit actiomen ndash literally means ldquohe hasconfessed actionrdquo It is a written confession ofaction by the defendant acknowledging isindebtedness to the plaintiff after the action hasbeen filed It is given after the action is brought tosave expensesb relicta verificationem ndash literally means ldquohispleadings being abandonedrdquo It is confession ofjudgment by withdrawal of the defenseNote However warrants of attorney to confess judgmentare not authorized nor contemplated by our law They arevoid as against public policy because they enlarge the field

for fraud because under these instruments the promissorybargains away his right to a day in court The NIL does notsanction nor validated any provision otherwise illegalOmissions and Provisions that do not affect Negotiability(Sec 6)The validity and negotiable character of an instrument arenot affected by the fact thata it is not dated orb does not specify the value given or that any valuehad been given therefore orc does not specify the place where it is drawn or theplace where it is payable ord bears a seal ore designates a particular kind of current money inwhich payment is to be made1048766 if it is not dated the instrument will be considered to bedated as of the time it was issued1048766 consideration for the instrument is presumed (art 154NCC amp sec 25 NIL)1048766 sec 73 specifies where presentment for payment shouldbe made when the place of payment is not specifiedRules of constructiona Where the sum payable is expressed in words and also infigures and there is a discrepancy between the two thesum denoted by the words is the sum payable but if thewords are ambiguous or uncertain reference may be hadto the figures to fix the amountb Where the instrument provides for the payment ofinterest without specifying the date from which interestis to run the interest runs from the date of theinstrument and if the instrument is undated from theissue thereofc Where the instrument is not dated it will be consideredto be dated as of the time it was issuedd Where there is a conflict between the written andprinted provisions of the instrument the writtenprovisions prevaile Where the instrument is so ambiguous that there isdoubt whether it is a bill or note the holder may treat itas either at his electionf Where a signature is so placed upon the instrument thatit is not clear in what capacity the person making thesame intended to sign he is to be deemed an indorserg Where an instrument containing the word I promise topay is signed by two or more persons they are deemedto be jointly and severally liable thereon (sec 17)Consideration1048766 Presumption of consideration - every negotiableinstrument is deemed prima facie to have been issuedfor a valuable consideration and every person whosesignature appears thereon to have become a partythereto for value1048766 Value - any consideration sufficient to support a simplecontract An antecedent or pre-existing debt constitutesvalue and is deemed such whether the instrument ispayable on demand or at a future time1048766 Holder for value ndash one who has given a valuableconsideration for the instrument issued or negotiated tohimbull What constitutes holder for valuewhere value has at any time been given for theinstrument the holder is deemed a holder for valuein respect to all parties who become such prior tothat timebull where the holder has a lien on the instrument

arising either from contract or by implication oflaw he is deemed a holder for value to the extentof his lien1048766 Effect of want of consideration a matter of defense asagainst any person not a holder in due course andpartial failure of consideration is a defense pro tantowhether the failure is an ascertained and liquidatedamount or otherwiseAbsence of consideration ndash total lack of any validconsideration for the contract is only a personaldefenseFailure of consideration ndash failure or refusal or one partyto do perform or comply with the consideration agreedupon is also only a personal defenseIII TRANSFER AND NEGOTIATIONTypes of transfers1 Assignment - transfer of title to the instrument with theassignee generally taking only such title as his assignorhas subject to all defenses available against hisassignor2 Negotiation - transfer of a negotiable instrument fromone person to another made in such a manner as toconstitute the transferee the holder thereof3 By Operation of Law ndash such as by succession byinsolvencyDistinctions between Negotiation and AssignmentNEGOTIATION ASSIGNMENT1 Refers only tonegotiableinstruments2 The transferee is aholder3 A holder in due courseis subject only to realdefenses4 A holder in due course1 Refers generally to anordinary contract2 The transferee is anassignee3 An assignee is subjectto both real andpersonal defenses4 Generally an assigneemay acquire a betterright than that of aprior party5 A general indorserwarrants the solvencyof prior parties6 An indorser is notliable unless there bepresentment andnotice of dishonor7 Negotiation isgoverned y the NILmerely steps into theshoes of the assignor5 An assignor does notwarrant the solvency ofprior parties unlessexpressly stipulated orthe insolvency is knownto him6 An assignor is liable

even without notice ofdishonor7 Governed by Arts 1624to 1635 (on assignmentof credits) of the CivilCodeMethods of negotiation1 Order Instrument ndash Indorsement and Delivery2 Bearer Instrument ndash Delivery onlyIndorsement - legal transaction effected by the writing ofones own name at thea back of the instrument orb upon a paper (allonge) attached thereto with orwithout additional words specifying the person towhom or to whose order the instrument is to bepayable whereby one not only transfers legal title tothe paper transferred but likewise enters into animplied guaranty that the instrument will be dulypaid1048766 General Rule indorsement must be of the entireinstrumentException where instrument has been paid in part itmay be indorsed as to the residue1048766 Kinds of indorsementa Special - specifies the person to whom or to whoseorder the instrument is to be payable (sec 34)b Blank - specifies no indorseebull Instrument is payable to bearer and may benegotiated by delivery (sec 34)bull May be converted to special indorsement bywriting over the signature of indorser in blankany contract consistent with character ofindorsementc Restrictive - when the indorsement eitheri Prohibits further negotiation of theinstrument orii Constitutes the indorsee the agent of theindorser oriii Vests the title in the indorsee in trust foror to the use of some other persons Butmere absence of words implying power tonegotiate does not make an indorsementrestrictivebull A restrictive indorsement confers upon theindorsee the righta To receive payment of theinstrumentb To bring any action thereon that theindorser could bringc To transfer his rights as such indorseewhere the form of the indorsementauthorizes him to do soBut all subsequent indorsees acquire only thetitle of the first indorsee under the restrictiveindorsement (sec 37)1048766 Such indorsement destroys the negotiability ofthe instrument and bars further negotiation toa holder in due coursed Qualified - constitutes the indorser a mere assignorof the title to the instrument (sec 38)bull made by adding to the indorsers signaturewords like sans recourserdquo ldquowithout recourseindorser not holder at the indorsers ownrisk etcbull The purpose of this kind of indorsement is to

transfer title without guaranteeing payment bythe primary partybull It does not mean however that the qualifiedindorser incurs no liability at all The effect ismerely to limit his liability He is secondarilyliable for breach of is warranties as an indorserunder Sec 65 Thus he is liable if theinstrument is dishonored by NON-ACCEPTANCEor NON-PAYMENT due toa forgeryb lack of good title to the instrumentindorsedc lack of capacity to contract on the part ofprior parties ord the fact that the instrument was valuelessor not valid at the time of the indorsementwhich fact was known to hime Conditional - right of the indorsee is made todepend on the happening of a contingent eventbull Party required to pay may disregard theconditionsbull This kind of indorsement has no effect on thefurther negotiation of the instrument Theparty required to pay if he chooses may makepayment disregarding the condition withoutincurring any liability because he is expresslyauthorized to do so under Sec 39 But theperson who received payment will hold theproceeds subject to the right of the conditionalindorserf Absolute - one by which indorser binds himself topayi upon no other condition than failure ofprior parties to do so andii upon due notice to him of such failureg Joint - indorsement of instrument payable to 2 ormore persons all must indorse in order for thetransaction to operate as a negotiationbull Exceptions to the rule requiring jointindorsementa Where the payees or indorsees arepartners andb Where the payee or indorsee indorsinghas authority to indorse for theothersh Irregular - a person who not otherwise a party toan instrument places thereon his signature in blankbefore delivery1048766 Rules on Indorsementsbull Effect of transfer without indorsementa transfer vests in the transferee such title as thetransferor had therein (assignment) andb the right to have the indorsement of thetransferor1048766 For the purpose of determining whether thetransferee is a holder in due course thenegotiation takes effect as of the time whenthe indorsement is actually made1048766 Applicable only to order instrumentsbull Indorsement of a bearer instrument where aninstrument payable to bearer is indorsed speciallyit may nevertheless be further negotiated bydelivery but the person indorsing specially is liableas indorser to only such holders as make titlethrough his indorsement

Note The rule only applies to originally bearerinstruments If it is originally a BEARER instrumentit will always be a BEARER instrument As opposedto an original order instrument becoming payable tobearer if the same is indorsed specifically it canNO LONGER be negotiated further by mere deliveryit has to be indorsedbull Striking out indorsements the holder may at anytime strike out any indorsement which is notnecessary to his title The indorser whoseindorsement is struck out and all indorserssubsequent to him are thereby relieved fromliability on the instrument1048766 If the instrument is payable to bearer on its facethen whether or not there are indorsements on theback of the instrument would be immaterial to thetitle of the bearer who is presumptively the ownerand holder by his mere possession of suchinstrument None of the indorsement would benecessary to itrsquos title since mere delivery wouldhave been sufficient to transfer title from oneholder to another1048766 Where the instrument is payable to order on itsface the situation is different First theindorsement of a special indorsee is necessary forthe further negotiation of the instrument Secondthe last indorsement controls the method of furthernegotiationbull When prior party (reacquirer) may negotiate where aninstrument is negotiated back to a prior party suchparty may reissue and further negotiate the same Buthe is not entitled to enforce payment thereof againstany intervening party to whom he was personally liable1048766 In the following cases a prior party cannot furthernegotiate the instrument1 Where it is payable to the order of a thirdperson and has been paid by the drawer2 Where it was made or accepted foraccommodation and has been paid by theparty accommodated3 In other cases where the instrument isdischarged when acquired by a prior partyIV HOLDERSClasses of holders1 simple holder (sec 51)2 holder for value (sec 26)3 holder in due course (sec52 57)Holder in Due Course1048766 holder who has taken the instrument under the followingconditionsa That it is complete and regular upon its faceb That he became the holder of it before it wasoverdue and without notice that it has beenpreviously dishonored if such was the factc That he took it in good faith and for valued That at the time it was negotiated to him he hadno notice of any infirmity in the instrument ordefect in the title of the person negotiating it1048766 When title defective - The title of a person whonegotiates an instrument is defective when he obtainedthe instrument or any signature thereto bya fraudb duress or force and fearc other unlawful meansd illegal consideration

e negotiation in breach of faithf circumstances amounting to fraud1048766 What constitutes notice of defect - The person towhom it is negotiated must havea actual knowledge of the infirmity or defect orb knowledge of such facts that his action in taking theinstrument amounted to bad faith (sec 56)1048766 Notice before full amount is paid - where thetransferee receives notice of any infirmity in theinstrument or defect in the title of the personnegotiating the same before he has paid the full amountagreed to be paid he will be deemed a holder in duecourse only to the extent of the amount paid by him1048766 When person not deemed a holder in due course -where an instrument payable on demand is negotiatedon an unreasonable length of time after its issue theholder is not deemed a holder in due coursebull Reasonable time what constitutes - regard is to behad to thea nature of the instrumentb the usage of trade or business with respect tosuch instruments and thec facts of the particular casebull Effect in the hands of any holder other than aholder in due course a negotiable instrument issubject to the same defenses as if it were nonnegotiable1048766 General Rule every holder is deemed prima facie to bea holder in due courseException when it is shown that the title of any personwho has negotiated the instrument was defective theburden is on the holder to prove that he or some personunder whom he claims acquired the title as holder in duecourse (shifting of burden of proof)Limitation the last-mentioned rule does not apply infavor of a party who became bound on the instrumentprior to the acquisition of such defective title (sec 59)1048766 Rights of a holder in due coursea he may sue on the instrument in his own nameb he may receive payment and if payment is in duecourse the instrument is dischargedc holds the instrument free from any defect of title ofprior partiesd holds the instrument free from defenses available toprior parties among themselves ande may enforce payment of the instrument for the fullamount thereof against all parties liable thereon1048766 Payment in due course is payment madea at or after the maturity of the instrumentb to the holder thereofc in good faith and without notice that his title isdefective1048766 Shelter Rulea derives his title through a holder in due course andb who is not himself a party to any fraud or illegalityaffecting the instrument has all the rights of suchformer holder in respect of all parties prior to thelatter1048766 Rights of a Holder NOT in Due Course1 He may sue on the instrument in his own name2 He may receive payment and if the payment is indue course the instrument is discharged3 He is entitled to the instrument but holds it subjectto the same defenses as if it were non-negotiableand4 He has all the rights of the holder in due course

from whom he derived his title in respect of allparties prior to such holder provided he is nothimself a party to any fraud or illegality affectingthe instrumentV LIABILITIES OF PARTIESPersons primarily liable on instrument the person who bythe terms of the instrument is absolutely required to pay thesame All other parties are secondarily liableClassification of parties according to liabilityIN A PROMISSORYNOTE1 Maker2 Indorser3 Persons negotiating by deliveryIN A BILL OFEXCHANGE1 Drawer2 Acceptor3 Indorsers4 Persons negotiating by delivery1 Parties Primarily Liablea Maker (Sec 60)bull engages to pay according to the tenor of theinstrument andbull admits the existence of the payee and his thencapacity to indorse at the time of the makingof the notebull A person placing his name on the face of a noteis prima facie a maker and liable as such andhe is presumed to have acted with care and tohave signed the instrument with full knowledgeof its contentsb Acceptor or Drawee (Sec 62)bull engages to pay according to the tenor of hisacceptancebull admits1 the existence of the drawer2 the genuineness of his signature and3 his capacity and authority to draw theinstrument and4 the existence of the payee and his thencapacity to indorseNote the drawee is not liable until he acceptsthe instrumentbull Where a check is certified by a bank it isequivalent to an acceptance Since certification isequivalent to acceptance a bank which hascertified a check whether at the request of theholder or of a drawer has the same liabilities andmakes the same warranties as an acceptor Itcannot after certification question thegenuineness of the drawerrsquos signature If itdiscovers that such signature is forged subsequentto certification but prior to payment it cannotrefuse to pay on the check If its discovery comesafter it has paid the check it cannot recoverback what it paid on the ground of mistakenpayment unless the holder is guilty of fraud ornegligencebull If a drawee-bank accepts or pays a check despitea stop payment order from the drawer throughoversight or otherwise it cannot refuse to paythe holder or recover what has been paid neithermay it debit the drawerrsquos account unless theacceptance nor payment was made prior to the

receipt of the order2 Parties Secondarily Liablea Drawer (Sec 61)bull admits the existence of the payee and hiscapacity to indorsebull engages that the instrument will be acceptedor paid by the party primarily liable andbull engages that if the instrument is dishonoredand proper proceedings are brought he willpay to the party entitled to be paidb General Indorser (Sec 66)bull Warrants1 genuineness of the instrument2 his good title to it3 capacity to contract of prior parties and4 instrument is valid and subsistingbull engages that the instrument will be acceptedor paid by the party primarily liable andbull engages that if the instrument is dishonoredand proper proceedings are taken he will payto the party entitled to be paidc Irregular Indorser ndash a person not otherwise a partyto an instrument places his signature thereon inblank before deliveryRulesbull If instrument payable to the order of a 3rdperson he is liable to the payee andsubsequent partiesbull If instrument payable to order of maker ordrawer he is liable to all parties subsequent tothe maker or drawerbull If he signs for accommodation of the payee heis liable to all parties subsequent to the payeeDistinctionsPRIMARY PARTY SECONDARY PARTY1 Unconditionally bound2Absolutely required topay upon the maturity ofthe instrument1 Conditionally bound2 Undertakes to pay onlyafter certain conditionshave been fulfilleda due presentment forpayment or acceptance toprimary partyb dishonor by suchparty andc the taking ofproceedings required bylaw after dishonorINDORSER DRAWER1 A party to either a noteor a bill2 Does not make anyadmission regarding theexistence of the payee andhis capacity to indorse and3 Has warranties1 A party only to a bill2 The drawer makes suchadmission3 Makes no warranties buthe engages to pay aftercertain conditions are

complied withGENERAL INDORSER IRREGULAR INDORSER1 Makes either a blank orspecial indorsement2 Indorses the instrumentafter its delivery to thepayee and3 Liable only to partiessubsequent to him1 Always makes a blankindorsement2 Indorses before itsdelivery3 Liable to the payee andsubsequent parties unlesshe signs for theaccommodation of thepayee in which case he isliable only to all partiessubsequent to the payee3 Parties with Limited Liability (sec 65 MetropolFinancing v Sambok 120 SCRA 864)a Qualified Indorser - warrants that1048766 instrument is genuine and in all respects whatit purports to be1048766 he has good title to it1048766 all prior parties had capacity to contract1048766 he has no knowledge of any fact which wouldimpair the validity of the instrument or renderit valuelessb Persons Negotiating by Delivery1048766 warranties same as those of qualified indorsersand1048766 warranties extend to immediate transfereeonlyLIABILITY WARRANTY1 To pay a sum certain2 Requires Notice ofDishonor3 Action can be broughtonly on maturity ofinstrument1 No obligation to pay2 Notice of Dishonor is not arequirement3 Action may be broughtanytimeBY MERE DELIVERY OR BYQUALIFIED INDORSEMENTGENERAL INDORSER1 No secondary liability1 With secondary liability2 Warrants that he has noknowledge of any factwhich would impair thevalidity of the instrumentor render it valueless2 Warrants that theinstrument is at the timeof his indorsement validand subsisting4 Other parties who may be liableGeneral Rule One whose signature does not appear on theinstrument shall not be liable thereonExceptions

1 The principal who signs through an agent is liable2 The forger is liable3 One who indorses in a separate instrument (allonge) isliable4 One who signs his assumed or trade name is liable and5 A person negotiating by delivery (as in the case of abearer instrument) is liable to his immediate indorseeRequisites for an Agent to escape liability1 must be duly authorized2 add words to his signature indicating that he signs as anagent that is for or on behalf of a principal or in arepresentative capacity and3 disclose his principal1048766 A signature by ldquoprocurationrdquo operates as notice that theagent has but a limited authority to sign and theprincipal is bound only in case the agent in so signingacted within the actual limits of his authority (sec 21)1048766 Indorsement or assignment of the NI by a corporation orby an infant passes the property thereinnotwithstanding that from want of capacity thecorporation or infant may incur no liability thereon(sec 22)Accomodation PartyOne who has signed the instrument as maker draweracceptor or indorser without receiving value therefor andfor the purpose of lending his name to some other person1048766 Liability such a person is liable on the instrument to aholder for value notwithstanding such holder at thetime of taking the instrument knew him to be only anaccommodation party1048766 Effects1 accommodation party is generally regarded as asurety for the party accommodated2 When accommodation party makes payment toholder of the note he has the right to sue theaccommodated party for reimbursement1048766 Rights of accommodation parties as against each otherthe other may demand contribution from his coaccommodationparty without first directing his actionagainst the principal debtor provided1 he made the payment by virtue of judicial demandor2 the principal debtor is insolventNote A corporation cannot act as an accommodationparty The issuance or indorsement of negotiableinstrument by a corporation without consideration andfor the accommodation of another is ultra vires(Crisologo v CA 117 SCRA 594)Order of liability of indorsers1 among themselves ndash indorsers are liable prima facie inthe order in which they indorse but evidence isadmissible to show that as between or amongthemselves they have agreed otherwise (sec 68)2 to the holder ndash indorsers are liable in any orderVI DEFENSESKinds1 RealAbsolute Defenses - those that attach to theinstrument itself and are available against all holderswhether in due course or notExamplesa Alterationb Non-delivery of incomplete instrumentc Duress amounting to forgeryd Fraud in factum or fraud in esse contractuse Minority

f Marriage in the case of a wifeg Insanity where the insane person has a guardianappointed by the courth Ultra vires acts of a corporation where thecorporation is absolutely prohibited by its charter orstatute from issuing any commercial paper underany circumstancesi Want of authority of agentj Execution of instrument between public enemiesk Illegality of contract where it is the contract orinstrument itself which is expressly made illegal bystatute andl Forgery2 PersonalEquitable Defenses ndash those which are availableonly against a person not a holder in due course or asubsequent holder who stands in privity with himExamplesa Absence or failure of consideration partial or totalb Want of delivery of complete instrumentc Insertion of wrong date in an instrument where it ispayable at a fixed period after date and it is issuedundated or where it is payable at a fixed periodafter sight and the acceptance is undatedd Filling up of blank contrary to authority given or notwithin reasonable time where the instrument isdeliverede Fraud in inducementf Acquisition of instrument by force duress or fearg Acquisition of the instrument by unlawful meansh Acquisition of the instrument for an illegalconsiderationi Negotiation in breach of faithj Negotiation under circumstances that amount tofraudk Mistakel Intoxication (according to better authority)m Ultra vires acts of corporations where thecorporation has the power to issue negotiable paperbut the issuance was not authorized for theparticular purpose for which it was issuedn Want of authority of agent where he haso apparent authorityp Insanity where there is no notice of insanity on thepart of the one contracting with the insane personandq Illegality of contract where the form orconsideration is illegalFRAUD IN FACTUM FRAUD IN INDUCEMENT1 It exists in those cases inwhich a person withoutnegligence has signed aninstrument which was infact a negotiableinstrument but wasdeceived as to thecharacter of the instrumentand without knowledge ofits as where a not wassigned by one under thebelief that he was signingas a witness to a deed1 It is that which relatedto the quality quantityvalue or character of theconsideration of the

instrument In this casethe signer is led bydeception to execute whathe knows is a negotiableinstrument It implies thatthe signer knew what hewas signing but that he wasinduced by fraud to sign2 This kind of fraud is areal defense because thereis no contract It impliesthat the person did notknow what he was signingBut where the signer by theexercise of reasonablediligence could havediscovered the nature ofthe instrument the fraudcannot be considered a realdefense as where a personwho can read signed a notebut failed to read it2 Such type of fraud is onlya personal defense becauseit does not prevent acontract1048766 Effects of Defenses1 Complete and undelivered instrumentbull as between immediate parties and as regards aremote party other than a holder in due course thedelivery must be authorized in order to be effectualbull where the instrument is in the hands of a holder indue course a valid delivery thereof by all partiesprior to him so as to make them liable to him isconclusively presumedbull where the instrument is no longer in the possessionof a party whose signature appears thereon a validand intentional delivery by him is presumed untilthe contrary is proved2 Incomplete but delivered instrumentbull where the instrument is wanting in any materialparticular the person in possession thereof has aprima facie authority to complete it by filling up theblanks thereinbull it must be filled up strictly in accordance with theauthority given and within a reasonable timebull if any such instrument after completion isnegotiated to a holder in due course it is valid andeffectual for all purposes in his hands and he mayenforce it as if it had been filled up strictly inaccordance with the authority given and within areasonable time3 Incomplete and undelivered instrumentbull it will not if completed and negotiated withoutauthority be a valid contract in the hands of anyholder as against any person whose signature wasplaced thereon before deliverybull However subsequent indorsers are liable4 Forgerybull counterfeit making or fraudulent alteration of anywriting which may consist of1 signing of anotherrsquos name with intent todefraud or2 alteration of an instrument in the nameamount name of payee etc with intent to

defraudbull Effect signature is wholly inoperative and no rightto retain the instrument or to give a dischargetherefore or to enforce payment thereof againstany party thereto can be acquired through or undersuch signaturebull Exception unless the party against whom it issought to enforce such right is precluded fromsetting up the forgery or want of authoritybull Cut-Off RuleGeneral Rule Parties prior to the forged signatureare cut-off from the parties after the forgery in thesense that prior parties cannot be held liable andcan raise the defense of forgery The holder canonly enforce the instrument against parties whobecame such after the forgeryException When the prior parties are precludedfrom setting up the defense of forgeryPersons precluded from setting up the defense offorgery are1 Those who by their acts silence or negligenceare estopped from setting up the defense offorgery2 Those who warrant or admit the genuineness ofthe signature in question These include acts oromissions that amount to ratification expressor impliedNote Persons precluded from setting up thedefense of forgery may still recover damages underthe NCC provisions on quasi-delictsbull Rules on ForgeryA Promissory Notes1 Makerrsquos signature forgedOrder Instrumenta Maker is not liable because he neverbecame a party to the instrumentb Indorsers subsequent to forgery are liablebecause of their warrantiesc Party who made the forgery is liableBearer Instrumenta Maker is not liableb Indorsers may be made liable to thosepersons who obtain title through theirindorsementsc Party who made the forgery is liable2 Payeersquos signature forgedOrder Instrumenta Maker and payee not liableb Indorsers subsequent to the forgery isliablec Party who made the forgery is liableBearer Instrumenta Maker is liable Indorsement is notnecessary to title and the maker engagesto pay holderb Party who made the forgery is liable3 Indorserrsquos signature forgedOrder Instrumenta Maker payee and indorser who signaturewas forged is not liableb Indorsers subsequent to forgery are liablebecause of their warrantiesc Party who made the forgery is liableBearer Instrumenta Maker is liable Indorsement is not

necessary to title and the maker engagesto pay holderb Indorser whose signature was forged is notliablec Party who made the forgery is liableB Bill of Exchange1 Drawerrsquos signature forgedIn an Order Instrumenta Drawer is not liableb Drawee is liable if it paid (nor recourse todrawer) because he admitted thegenuineness of the drawerrsquos signatureDrawee cannot recover from the collectingbank because there is no privity betweenthe collecting bank and the drawer Thereis no warranty as to the signature of thedrawer (Associated Bank v CA)c Indorsers subsequent to forgery are liabled Party who made the forgery is liableIn a Bearer Instrumenta Drawer is not liableb Drawee is liable if it paid Drawee cannotrecover from the collecting bank becauseit is bound to known the drawerrsquossignature since the latter is its depositorc Party who made the forgery is liable2 Payeersquos signature forgedOrder Instrumenta Drawer drawee and payee not liable Cutoffrule appliesb Indorsers subsequent to forgery are liablec Party who made the forgery is liableBearer Instrumenta Drawer is liable His indorsement is notnecessary to pass titleb Drawee is liable No privity betweendrawer and payee because indorsement ofpayee is not necessary (Ang Tek Lian case87 SCRA 383)c Payee is not liabled Collecting bank is liable because ofwarrantye Party who made the forgery is liable3 Indorserrsquos signature forgedOrder Instrumenta Drawer payee and indorser whosesignature was forged are not liableb Drawee is liable if it paidc Indorsers subsequent to forgery are liabled Party who made the forgery is liableBearer Instrumenta Drawer is liable Indorsement is notnecessary to pass titleb Drawee is liablec Indorser whose signature was forged isliable because indorsement is notnecessary to pass titled Party who made the forgery is liable5 Alterationbull Effect the instrument is avoidedbull Exceptions1 against a party who has himself madeauthorized or assented to the alteration2 subsequent indorsers3 holder in due course not a party to the

alteration - he may enforce payment accordingto its original tenorbull Changes constituting material alteration1 date2 sum payable either for principal or interest3 time or place of payment4 number or relations of the parties5 medium or currency in which payment is to bemade6 that which adds a place of payment where noplace of payment is specified and7 any other change or addition which alters theeffect of the instrument in any respectNote a material alteration is one that alters theeffect of the instrument one which changes theitems required to be stated under Sec 1 NILbull Spoliation ndash alteration made by a strangerbull The general rule denies the drawee bankrsquos right tocharge against the drawerrsquos account the amount ofan altered check However the latterrsquos negligencebefore or after the alteration may estop him fromsetting such alteration as against an innocentdrawee bank who has paid the checkbull In cases of altered checks and checks with forgedindorsements the drawee bank must notify andreturn them to the collecting bank before 400 pmof the next day of clearing but the drawee bankmay still return them even after such time providedhe does so within 24 hours from its discovery of thealteration or forged instruments so that recovery ofthe amount may be had BUT in no event beyondthe period fixed or provided by law for filing of alegal action by the returning bank against the banksending the sameNote Alteration is only a partial real defensebecause a holder in due course can still enforce itaccording to its original tenorVII ENFORCEMENT OF LIABILITYPresentment for payment ndash the presentation of aninstrument to the person primarily liable for the purpose ofdemanding and receiving paymentGeneral Rulesbull presentment for payment to charge personsprimarily liable is not necessarybull presentment for payment to charge personssecondarily liable is necessaryExceptionsa drawer - where he has no right to expect or requirethat the drawee or acceptor will pay the instrument(sec 79)b indorser - where the instrument was made oraccepted for his accommodation and he has noreason to expect that the instrument will be paid ifpresentedc when dispensedi where after the exercise of reasonablediligence presentment as required cannotbe madeii where the drawee is a fictitious personiii by waiver of presentment express orimplied (sec 82)d when the instrument has been dishonored by nonacceptance(sec 151)Sufficiency of presentmentIt must be

1 made by the holder or any person authorized toreceive payment on his behalf2 at a reasonable hour on a business day3 at a proper place4 to the person primarily liable or if he is absent orinaccessible to any person found at the placewhere the presentment is madeHow made1 personal demand for payment at the proper place and2 readiness to exhibit the instrument if required and toreceive payment and to surrender the instrument if thedebtor is willing to paybull Purpose of exhibitionTo enable the debtor toa determine the genuineness of the instrument andthe right of the holder to receive payment andb to enable him to reclaim possession upon paymentbull When exhibition excuseda when debtor does not demand to see the instrumentbut refuses payment on some other grounds andb when the instrument is lost or destroyedWhen madebull where the instrument is payable at a fixed ordeterminable future time presentment must be madeon the day it falls duebull where it is payable on demanda promissory note presentment must be made withina reasonable time after its issueb bill of exchange presentment for payment will besufficient if made within a reasonable time afterthe last negotiation thereofbull the check must be presented for payment within areasonable time after its issue or the drawer will bedischarged from liability thereon to the extent of theloss caused by the delayTime of maturitybull every negotiable instrument is payable at the time fixedtherein without gracebull when the day of maturity falls upon a Sunday or aholiday the instruments are to be presented forpayment on the next succeeding business daybull when the day of maturity falls upon a Saturday1048766 Instrument is payable at a fixed or determinablefuture time (time instrument) - presented forpayment is on the next succeeding business day1048766 instruments is payable on demand - at the option ofthe holder be presented for paymenta before 1200 noon on Saturday whenthat entire day is not a holiday orb the next succeeding business dayHow computed1048766 excluding the day from which the time is to begin torun and by including the date of payment1048766 applies to instruments which are payable at a fixedperiod after date after sight or after thathappening of a specified eventProper place for presentmenta Where a place of payment is specified in the instrumentand it is there presentedb Where no place of payment is specified but the addressof the person to make payment is given in theinstrument and it is there presentedc Where no place of payment is specified and no address isgiven and the instrument is presented at the usual placeof business or residence of the person to make payment

d In any other case if presented to the person to makepayment wherever he can be found or if presented athis last known place of business or residenceWhen delay in presentment excused ndash delay is caused bycircumstances beyond the control of the holder and notimputable to his default misconduct or negligence Whenthe cause of delay ceases to operate presentment must bemade with reasonable diligencePresentment for acceptance ndash the production or exhibitionof a bill of exchange to the drawee for his acceptance orpaymentGeneral Rule presentment for acceptance is not necessary torender any party to the bill liableException presentment for acceptance must be madea Where the bill is payable after sight or wherepresentment for acceptance is necessary in order tofix the maturity of the instrument orb Where the bill expressly stipulates that it shall bepresented for acceptance orc Where the bill is drawn payable elsewhere then atthe residence or place of business of the drawee(sec 143)Note in all the above cases the holder must either presentthe bill for acceptance or negotiate it within a reasonabletime otherwise the drawer and all indorsers are dischargedHow made1 made by or on behalf of the holder2 at a reasonable hour3 on a business day4 before the bill is overdue and within reasonabletime5 to the drawee or some person authorized to acceptor refuse acceptance on his behalfDays presentment may be made If date of presentment isa Sunday or a holiday ndash must be made on the nextsucceeding business dayb Saturday ndash before 1200 noon on Saturday providedthat it is not a holidayWhen delay for presentment excuseda bill is drawn payable elsewhere than at the place ofbusiness or the residence of the draweeb holder has no time with the exercise of reasonablediligence to present the bill for acceptance beforepresenting it for payment on the day that it fallsdueEffect does not discharge the drawers and indorsersWhere presentment is excuseda Where the drawee is dead or has absconded or is afictitious person or a person not having capacity tocontract by billb Where presentment can not be made after theexercise of reasonable diligencec Where although presentment has been irregularacceptance has been refused on some other groundNote bill may be treated as dishonored by nonacceptanceDuty of holder where bill not accepted - where a bill isduly presented for acceptance and is not accepted within theprescribed time (24 hours ndash sec 136) the person presentingit must treat the bill as dishonored by non-acceptance or heloses the right of recourse against the drawer and indorsersAcceptance the signification by the drawee of his assent tothe order of the drawer It is the act by which the draweemanifests his consent to comply with the request containedin the bill of exchange directed to himHow made

1) must be in writing2) signed by the drawee3) must not express that the drawee will perform hispromise by any other means than the payment ofmoneybull the holder of the bill presenting the same for acceptancemay require that the acceptance be written on the billand if such request is refused may treat the bill asdishonoredbull where an acceptance is written on a paper other thanthe bill itself it does not bind the acceptor except infavor of a person to whom it is shown and who on thefaith thereof receives the bill for valuePeriod for drawee to accept - allowed 24 hours afterpresentment in which to decide whether or not he will acceptthe bill if acceptance is given it dates as of the day ofpresentationConstructiveImplied acceptance where a drawee refuseswithin 24 hours after delivery or within such other period asthe holder may allow to return the bill accepted or nonacceptedto the holder he will be deemed to have acceptedthe sameNote same effect if the drawee destroys the instrumentKinds1 General - assents without qualification to the order ofthe drawer2 Qualified - which in express terms varies the effect ofthe bill as drawna Conditional - makes payment by the acceptordependent on the fulfillment of a conditiontherein statedb Partial - an acceptance to pay part only of theamount for which the bill is drawni Local - an acceptance to pay only at aparticular placeii Qualified as to timeiii The acceptance of some one or more ofthe drawees but not of all3 ConstructiveRights of parties as to qualified acceptancebull Holder he may refuse to take a qualified acceptanceand if he does not obtain an unqualified acceptance hemay treat the bill as dishonored by non-acceptancebull Drawer or indorser when he receives notice of aqualified acceptance he must within a reasonable timeexpress his dissent to the holder or he will be deemed tohave assented thereto (implied assent)Effect of taking a qualified acceptance the drawer andindorsers are discharged from liability on the bill unless theyhave expressly or impliedly authorized the holder to take aqualified acceptance or subsequently assent theretoOther rules of acceptancebull a bill may be accepted before it has been signed by thedrawer or while otherwise incomplete or when it isoverdue or after it has been dishonored by a previousrefusal to accept or by non paymentbull when a bill payable after sight is dishonored by nonacceptanceand the drawee subsequently accepts it theholder in the absence of any different agreement isentitled to have the bill accepted as of the date of thefirst presentmentbull an unconditional promise in writing to accept a billbefore it is drawn is deemed an actual acceptancein favor of every person who upon the faiththereof receives the bill for value

bull where a check is certified by the bank on which it isdrawn the certification is equivalent to anacceptanceEffect the drawer and all indorsers are dischargedfrom liability thereonAcceptance for Honor - an undertaking by a stranger to a billafter protest for the benefit of any party liable thereon or forthe honor of the person for whose account the bill is drawnwhich acceptance inures also to the benefit of all partiessubsequent to the person for whose honor it is accepted andconditioned to pay the bill when it becomes due if theoriginal drawee does not pay it1048766 Requisites1 the bill must have been protested for dishonorby non-acceptance or for better security2 the acceptor for honor must be a stranger andnot a party already liable on the instrument3 bill must not be overdue4 acceptance for honor must be with the consentof the holder of the instrument1048766 Formalities1 must be in writing2 must indicate that it is an acceptance forhonor3 signed by the acceptor for honor4 must contain an express or implied promise topay money5 the accepted bill for honor must be deliveredto the holderNotice of Dishonor - notice given by the holder or his agentto a party or parties secondarily liable that the instrumentwas dishonored by non-acceptance by the drawee of a bill orby non-payment by the acceptor of a bill or by non-paymentby a maker of a note- If such notice is given by a notary public it is calledPROTEST1048766 Effect of failure to give notice parties secondarily liableare discharged1048766 Requisites1 Given by holder or his agent or by any party whomay be compelled by the holder to pay2 Given to secondary party or his agent3 Given within the periods provided by law4 Given at the proper place1048766 When notice of dishonor dispensed with1 when party to be notified knows about the dishonoractually or constructively2 if waived and3 when after due diligence it cannot be given1048766 How given1 by bringing verbally or2 by writing to the knowledge of the person liable thefact that a specified instrument upon properproceedings taken has not been accepted or hasnot been paid and that the party notified isexpected to pay it1048766 To whom given1 Non-acceptance (bill) ndash to persons secondarilyliable namely the drawer and indorsers as the casemay be2 Non-payment (both bill and note) ndash indorsersNote Notice must be given to persons secondarilyliable Otherwise such parties are dischargedNotice may be given to the party himself or to hisagent

1048766 By whom given1 the holder2 another on behalf of the holder3 any party to the instrument who may be compelledto pay it to the holder and who would have a rightof reimbursement from the party to whom notice isgiven1048766 Notice of dishonor given by or on behalf of a holderinures to the benefit ofa all parties prior to the holder who have a rightof recourse against the party to whom thenotice is given andb all holders subsequent to the holder givingnotice1048766 Notice of dishonor given by or on behalf of a partyentitled to give notice inures to the benefit ofa the holder andb all parties subsequent to the party to whomnotice is given1048766 Where an instrument is dishonored in the hands of anagent he can do either of the ffa directly give notice to persons secondarilyliable thereon orb give notice to his principal In such case hemust give notice within the time allowed bylaw as if he were a holder1048766 A party giving notice is deemed to have given due noticewherea the notice of dishonor is duly addressed andb deposited in the post-office even when thereis miscarriage of mail1048766 Where a party receives notice of dishonor he has afterthe receipt of such notice the same time for givingnotice to antecedent parties that the holder has afterthe dishonor1048766 Notice may be waived either before the time of givingnotice or after the omission to give due notice Waivermay be expressed or implied1048766 As to who are affected by an express waiver depends onwhere the waiver is written1 if it appears in the body or on the face of theinstrument it binds all parties but2 if it is written above the signature of anindorser it binds him only1048766 Notice of dishonor is not required to be given to thedrawer in any of the ff cases1 drawer and drawee are the same2 drawee is a fictitious person or not having thecapacity to contract3 drawer is the person to whom the instrument ispresented for payment4 the drawer has no right to expect or requirethat the drawee or acceptor will honor theinstrument5 where the drawer has countermandedpayment1048766 Notice of dishonor is not required to be given to anindorser in the ff cases1 drawee is a fictitious person or does not havethe capacity to contract and indorser wasaware of that fact at the time he indorsed theinstrument2 indorser is the person to whom the instrumentis presented for payment3 instrument was made or accepted for his

accommodation1048766 If an instrument is not accepted by the drawee there isno sense presenting it again for payment and notice ofdishonor must at once be given If there wasacceptance presentment for payment is still requiredand if payment is refused there is a need for notice ofdishonor1048766 An omission to give notice of dishonor by non-acceptancedoes not prejudice the rights of a holder in due coursesubsequent to the omissionDishonor by Non-PaymentWhen instrument dishonored by non-paymenta it is duly presented for payment and payment isrefused or cannot be obtained orb presentment is excused and the instrument isoverdue and unpaidEffect of dishonor an immediate right of recourse to allparties secondarily liable thereon accrues to the holderDishonor by Non-AcceptanceInstancesa When it is duly presented for acceptance and suchan acceptance is refused or can not be obtained orb When presentment for acceptance is excused andthe bill is not accepted (sec 149)Effect an immediate right of recourse against thedrawer and indorsers accrues to the holder and nopresentment for payment is necessaryNote where a bill is duly presented for acceptance andis not accepted within the prescribed time (24 hours)the person presenting it must treat the bill as dishonoredby non-acceptanceWhen Instrument Considered to be Dishonoreda If it is not accepted when presented for acceptanceorb If it is not paid when presented for payment atmaturity orc If presentment is excused or waived and theinstrument is past due and unpaidProtest - the formal instrument executed usually by a notarypublic certifying that the legal steps necessary to fix theliability of the drawee and the indorsers have been taken1048766 Effect of waiver where protest is waived presentmentand notice of dishonor are also deemed waived Butwhere the notice of dishonor is waived presentment isnot waived1048766 Applicability protest is necessary only in case of foreignbills of exchange which have been dishonored by nonacceptanceor non-payment as the case may be If it isnot so protested the drawer and indorsers aredischarged1048766 Foreign Bill of Exchange1 Drawn in the Philippines but payable outside thePhilippines2 Payable in the Philippines but drawn outside thePhilippines1048766 Protest may be made by1 a notary public or2 any respectable resident of the place where the billis dishonored in the presence of 2 or more crediblewitnessesProtest for better security is one made by the holder of a billafter it has been accepted but before it matures against thedrawer and indorsers where the acceptor has been adjudgeda bankrupt or an insolvent or has made an assignment forthe benefit of the creditors

VIII DISCHARGEDischarge of instrument - a release of all parties whetherprimary or secondary from the obligations arisingthereunder It renders the instrument without force andeffect and consequently it can no longer be negotiatedInstances1 By payment in due course by or on behalf of theprincipal debtor2 Payment by accommodated party3 Intentional cancellation by the holder4 By any act which will discharge a simple contractfor the payment of money5 When the principal debtor becomes the holder ofthe instrument at or after maturity in his own rightBy any act which would discharge a simple contract1 Payment or performance2 Loss of the thing due3 Condonation or remission4 Confusion or Merger5 Compensation6 Novation7 Annulment or Rescission8 Fulfillment of a resolutory condition9 PrescriptionWhen persons secondarily liable on the instrument aredischarged1 By any act which discharges the instrument2 By the intentional cancellation of his signature bythe holder3 By the discharge of a prior party4 By a valid tender of payment made by a prior party5 By the release of the principal debtor unless theholderrsquos right of recourse against the partysecondarily liable is expressly reserved6 By any agreement binding upon the holder to extendthe time of payment or to postpone the holderrsquosright to enforce the instrument1048766 In the following cases the agreement to extend the timeof payment does not discharge a party secondarily liable1 where the extension of time is consented to by suchparty2 where the holder expressly reserves his right ofrecourse against such party1048766 Payment at or after maturity by a party secondarilyliable does not discharge the instrument It only cancelshis own liability and that of the parties subsequent tohimEffects of Renunciation1 A renunciation in favor of a secondary party may bemade by the holder before at or after maturity ofthe instrument Effect only such secondary party isdischarged and all parties subsequent to him but theinstrument itself remains in force2 A renunciation in favor of the principal debtor maybe effected at or after maturity Effect theinstrument is discharged and all parties theretoprovided the renunciation is made unconditionallyand absolutelyNote In either case renunciation does not affect therights of a holder in due course without notice1048766 Cancellation of an instrument includes tearing erasureobliteration or burning It is not limited to writing ofthe word lsquocancelledrdquo or ldquopaidrdquo or drawing of crisscrosslines across the instrumentPayment for Honor - payment made by a person whether a

party to the bill or not after it has been protested for nonpaymentfor the benefit of any party liable thereon or forthe benefit of the person for whose account it was drawn1048766 Requisites1 the bill has been dishonored by non-payment2 it has been protested for non-payment3 payment supra protest (another term for paymentfor honor because prior protest for non-payment isrequired) is made by any person even by a partythereto4 the payment is attested by a notarial act of honorwhich must be appended to the protest or form anextension of it5 the notarial act must be based on the declarationmade by the payor for honor or his agent of hisintention to pay the bill for honor and for whosehonor he paysNote If the above formalities are not complied withpayment will operate as a mere voluntary payment andthe payor will acquire no right to full reimbursementagainst the party for whose honor he pays1048766 In payment for honor the payee cannot refuse paymentIf he refuses he cannot recover from the parties whowould have been discharged had he accepted the sameIn acceptance for honor the holderrsquos consent isnecessary1048766 The payor for honor is given the right to receive both thebill and the protest obviously to enable him to enforcehis rights against the parties who are liable to himIX CHECKSCheck- a bill of exchange drawn on a bank payable ondemandCheck distinguished from and ordinary bill of exchangeBILLOF EXCHANGE CHECKNot necessarily drawnon a deposit The draweeneed not be a bankIt is necessary that a checkis drawn on a bank depositThe drawee is always abankDeath of a drawer of aBOE with the knowledgeof the bank does notrevoke the authority of thedrawee to payDeath of the drawer of acheck with the knowledgeof the bank revokes theauthority of the banker topayMay be presented forpayment within areasonable time after itslast negotiation because itmay be further negotiatedMust be presented forpayment within areasonable time after itsissueMay be payable on demandor at a fixed ordeterminable future timeAlways payable on demandKinds of checks

1 Managerrsquos Cashierrsquos Check ndash drawn by a bank on itselfand therefore it is a primary obligation of the banko It is accepted in advance by the act of itsissuance and is not subject tocountermand by the payor afterindorsemento The bankrsquos manager signs managerrsquos checkwhile cashierrsquos check is signed by the bankcashier2 Certified Check ndash one drawn by a depositor upon funds tohis credit in a bank which a proper officer of the bankcertifies will be paid when duly presented for payment3 Stale check ndash one which has not been presented forpayment within a reasonable time after its issue4 Crossed check ndash when 2 parallel lines are drawn acrossits face or across a corner thereof If the name of a bankappears between the parallel lines the check is said tobe specially crossed and payment should be made onlyif presented by the named bank If no name appearsbetween the parallel lines the check is said to begenerally crossed and payment should be made onlyupon presentment by some bankEffects of crossing a checka That the check may not be encashed but only bedeposited in the bankb That the check may be negotiated only once to onewho has an account with a bank andc That the act of crossing the check serves as awarning to the holder that the check has beenissued for a definite purpose so that he must inquireif he has received the check pursuant to thatpurpose5 Memorandum Check ndash it is like an ordinary check exceptthat the word ldquomemorandumrdquo ldquomemrdquo or ldquomemordquo iswritten upon the face of the check signifying that thedrawer engages to pay the bona fide holder absolutelyand not upon a condition to pay upon presentment atmaturity and if due notice of the presentment and nonpaymentshould be given6 Travelerrsquos check ndash one upon which the holderrsquos signaturemust appear twice one to be affixed by him at the timeit is issued and the second o counter-signature to beaffixed by him in the presence of the payee before it ispaid otherwise it is incompleteIron Clad Rule Prohibits the countermanding ofpayment of certified checks (Republic of the Philippinesv PNB GR No 16106 December 1 1961)

paymentTwo presentments foracceptance and forpaymentInstances when BILL may be treated as a NOTE1 Drawer and drawee are the same person1 Drawee is a fictitious person2 Drawee has no capacity to contract3 When instrument is so ambiguous the holder may treatit either as a BILL or a NOTEOther Forms of Negotiable Instruments1 Certificate of deposit issued by banks payable to thedepositor or his order or to bearer2 Trade acceptance3 Bonds which are in the nature of promissory notes4 Drafts which are bills of exchange drawn by one bankupon another1048766 All of these must comply with Sec 1 NILNote Letters of credit are not negotiableLegal TenderThat kind of money that the law compels a creditor to acceptin payment of his debt when tendered by the debtor in theright amountNote A negotiable instrument although intended to be asubstitute for money is generally not a legal tenderIncidents in ldquoLiferdquo of Negotiable Instrument1 Issue2 Delivery3 Negotiation4 Presentment for acceptance in certain kinds of bills ofexchange5 Acceptance6 Dishonor by non-acceptance7 Presentment for payment8 Dishonor by non-payment9 Notice of dishonor10 DischargeIssue - the first delivery of the instrument complete in formto a person who takes it as a holderDelivery - transfer of possession actual or constructive fromone person to anotherHolder ndash refers to thea The payee or indorsee of a bill or note who is inpossession of it orb The bearer thereof (sec191)Bearer - the person in possession of a bill or note which ispayable to bearerPerson - includes a body of persons whether incorporated ornotII FORM AND INTERPRETATION OF INSTRUMENTSRequisites of Negotiability (Sec 1 NILa It must be in writing and signed by the maker or drawerb Must contain an unconditional promise or order to pay asum certain in moneyc Must be payable on demand or at a fixed ordeterminable future timed Must be payable to order or to bearer ande Where the instrument is addressed to a drawee he mustbe named or otherwise indicated therein with reasonablecertainty1 Must be in writing signed by the maker or drawer- Otherwise it cannot be a substitute for money2 Must contain an unconditional promise or order to pay asum certain in moneyCertainty of sum payable

The sum payable is a sum certain although it is to be paida With interest orb By stated installments orc By stated installments with a provision that upondefault in payment of any installment or of interestthe whole shall become due ord With exchange whether at a fixed rate or at thecurrent rate ore With costs of collection or an attorneys fee in casepayment shall not be made at maturity (sec 2)Acceleration clause - renders whole debt due anddemandable upon failure of obligor to comply with certainconditionsWhen promise is unconditionalAn unqualified order or promise to pay is unconditionalthough coupled witha An indication of a particular fund out of whichreimbursement is to be made or a particularaccount to be debited with the amount orb A statement of the transaction which gives rise tothe instrument1048766 An order or promise to pay out of a particular fund is notunconditionalFUND FORREIMBURSEMENTPARTICULAR FUND FORPAYMENTDrawee pays the payeefrom his own fundsafterwards the draweepays himself from theparticular fund indicatedThere is only one act thedrawee pays directly fromthe particular fundindicated Payment issubject to the conditionthat the fund is sufficientParticular fund indicatedis NOT the direct sourceof payment but only thesource of reimbursementParticular fund indicated isthe direct source ofpaymentIndication in theinstrument does notaffect the unconditionalnature of the promise ororderIndication in theinstrument makes thepromise or orderconditional3 Payable on demand or at a fixed determinable futuretimeCertainty of time of paymentAn instrument is payable at a determinable future time whichis expressed to be payablea At a fixed period after date or sight orb On or before a fixed or determinable future timespecified therein orc On or at a fixed period after the occurrence of aspecified event which is certain to happen thoughthe time of happening be uncertain

1048766 An instrument payable upon a contingency is notnegotiable and the happening of the event does notcure the defect (sec 4)1048766 A promise to pay ldquowhen ablerdquo ldquoas soon as I canrdquo etcwithout specification of an absolute date is notnegotiable However there is a difference of opinion asto whether it is a conditional promise or an absolutepromise to pay at un unreasonable timea Under the first view negotiability is destroyedboth by the condition and by want of a fixedtime for paymentb Under the second view by the generalprinciple that a promise to pay within areasonable time is not so certain as to renderan instrument negotiableAftersight Draft - payable only after the expiration of thestipulated period from acceptance (legal sight)When payable on demanda When it is so expressed to be payable on demandor at sight or on presentation orb In which no time for payment is expressedNote Where an instrument is issued accepted or indorsedwhen overdue it is as regards the person so issuingaccepting or indorsing it payable on demand4 Payable to order or to bearerWhen payable to orderThe instrument is drawn payablea To the order of a specified person orb To him or his order1048766 The payee must be named or otherwise indicated thereinwith reasonable certainty1048766 It may be drawn payable to the order ofa A payee who is not maker drawer or drawee orb The drawer or maker orc The drawee ord Two or more payees jointly ore One or some of several payees orf The holder of an office for the time beingWhen payable to bearera When it is expressed to be so payable orb When it is payable to a person named therein orbearer orc When it is payable to the order of a fictitious ornon-existing person and such fact was known to theperson making it so payable ord When the name of the payee does not purport to bethe name of any person ore When the only or last indorsement is anindorsement in blank (Sec 9)5 Identification of the drawee1048766 Where the instrument is addressed to a drawee(meaning in a bill of exchange) he must be namedor otherwise indicated with reasonable certaintyThe holder must know to whom he should present itfor acceptance andor payment otherwise thepurpose of negotiable instrument as a tool incommercial dealings will be greatly hampered(Reviewer on Commercial Law Sundiang andAquino)1048766 A bill may be addressed to more than one draweejointly whether they are partners or not but not totwo or more drawers in the alternative or insuccession (Sec 128)Test of Negotiability presence of requirements in Section 1of NIL

Factors that Determine Negotiability1 The whole instrument itself2 Only what appears on the face of the instrument3 Provisions of the NIL Sec1BAR QUESTION (Q) Which of the followingstipulations or features of a promissory notes (PN)affect or do not affect its negotiability assumingthat the PN is otherwise negotiable Indicate youranswer by writing the paragraph number of thestipulation or feature of the PN as shown below andyour corresponding answer either lsquoAffectedrdquo orldquoNot affectedrdquo Explain(a) The date of the PN is ldquoFebruary 30 2002rdquo(b) The PN bears interest payable on the last dayof each calendar quarter at a rate equal to 5above the then prevailing 91-day Tbill rate aspublished at the beginning of such calendarquarter(c) The PN gives the maker the option to makepayment either in money or in quantity ofpalay of equivalent value(d) The PN gives the holder the option either torequire payment in money or to require themaker to serve as the bodyguard or escort ofthe holder for 0 daysSUGGESTED ANSWER (SA)(a) NOT AFFECTED The date is not one of therequirements for negotiability(b) NOT AFFECTED The interest is to be computedat a particular time and is determinable Itdoes not make the sum uncertain or thepromise conditional(c) AFFECTED Giving the maker an option rendersthe promise conditional(d) NOT AFFECTED Giving the holder an optiondoes not make the promise conditionalAdditional provisions not affecting negotiabilityGeneral Rule the instrument is non-negotiable if it containsa promise or order to do any act in addition to the paymentof moneyExceptionsa authorizes the sale of collateral securities in casethe instrument be not paid at maturity orb authorizes a confession of judgment if theinstrument be not paid at maturity orc waives the benefit of any law intended for theadvantage or protection of the obligor ord gives the holder an election to require something tobe done in lieu of payment of money1048766 Confession of judgment ndash a written statement signed bythe defendant setting forth the basis of liability andauthorizing the entry of judgment thereon1048766 Kinds of confession of judgmenta cognivit actiomen ndash literally means ldquohe hasconfessed actionrdquo It is a written confession ofaction by the defendant acknowledging isindebtedness to the plaintiff after the action hasbeen filed It is given after the action is brought tosave expensesb relicta verificationem ndash literally means ldquohispleadings being abandonedrdquo It is confession ofjudgment by withdrawal of the defenseNote However warrants of attorney to confess judgmentare not authorized nor contemplated by our law They arevoid as against public policy because they enlarge the field

for fraud because under these instruments the promissorybargains away his right to a day in court The NIL does notsanction nor validated any provision otherwise illegalOmissions and Provisions that do not affect Negotiability(Sec 6)The validity and negotiable character of an instrument arenot affected by the fact thata it is not dated orb does not specify the value given or that any valuehad been given therefore orc does not specify the place where it is drawn or theplace where it is payable ord bears a seal ore designates a particular kind of current money inwhich payment is to be made1048766 if it is not dated the instrument will be considered to bedated as of the time it was issued1048766 consideration for the instrument is presumed (art 154NCC amp sec 25 NIL)1048766 sec 73 specifies where presentment for payment shouldbe made when the place of payment is not specifiedRules of constructiona Where the sum payable is expressed in words and also infigures and there is a discrepancy between the two thesum denoted by the words is the sum payable but if thewords are ambiguous or uncertain reference may be hadto the figures to fix the amountb Where the instrument provides for the payment ofinterest without specifying the date from which interestis to run the interest runs from the date of theinstrument and if the instrument is undated from theissue thereofc Where the instrument is not dated it will be consideredto be dated as of the time it was issuedd Where there is a conflict between the written andprinted provisions of the instrument the writtenprovisions prevaile Where the instrument is so ambiguous that there isdoubt whether it is a bill or note the holder may treat itas either at his electionf Where a signature is so placed upon the instrument thatit is not clear in what capacity the person making thesame intended to sign he is to be deemed an indorserg Where an instrument containing the word I promise topay is signed by two or more persons they are deemedto be jointly and severally liable thereon (sec 17)Consideration1048766 Presumption of consideration - every negotiableinstrument is deemed prima facie to have been issuedfor a valuable consideration and every person whosesignature appears thereon to have become a partythereto for value1048766 Value - any consideration sufficient to support a simplecontract An antecedent or pre-existing debt constitutesvalue and is deemed such whether the instrument ispayable on demand or at a future time1048766 Holder for value ndash one who has given a valuableconsideration for the instrument issued or negotiated tohimbull What constitutes holder for valuewhere value has at any time been given for theinstrument the holder is deemed a holder for valuein respect to all parties who become such prior tothat timebull where the holder has a lien on the instrument

arising either from contract or by implication oflaw he is deemed a holder for value to the extentof his lien1048766 Effect of want of consideration a matter of defense asagainst any person not a holder in due course andpartial failure of consideration is a defense pro tantowhether the failure is an ascertained and liquidatedamount or otherwiseAbsence of consideration ndash total lack of any validconsideration for the contract is only a personaldefenseFailure of consideration ndash failure or refusal or one partyto do perform or comply with the consideration agreedupon is also only a personal defenseIII TRANSFER AND NEGOTIATIONTypes of transfers1 Assignment - transfer of title to the instrument with theassignee generally taking only such title as his assignorhas subject to all defenses available against hisassignor2 Negotiation - transfer of a negotiable instrument fromone person to another made in such a manner as toconstitute the transferee the holder thereof3 By Operation of Law ndash such as by succession byinsolvencyDistinctions between Negotiation and AssignmentNEGOTIATION ASSIGNMENT1 Refers only tonegotiableinstruments2 The transferee is aholder3 A holder in due courseis subject only to realdefenses4 A holder in due course1 Refers generally to anordinary contract2 The transferee is anassignee3 An assignee is subjectto both real andpersonal defenses4 Generally an assigneemay acquire a betterright than that of aprior party5 A general indorserwarrants the solvencyof prior parties6 An indorser is notliable unless there bepresentment andnotice of dishonor7 Negotiation isgoverned y the NILmerely steps into theshoes of the assignor5 An assignor does notwarrant the solvency ofprior parties unlessexpressly stipulated orthe insolvency is knownto him6 An assignor is liable

even without notice ofdishonor7 Governed by Arts 1624to 1635 (on assignmentof credits) of the CivilCodeMethods of negotiation1 Order Instrument ndash Indorsement and Delivery2 Bearer Instrument ndash Delivery onlyIndorsement - legal transaction effected by the writing ofones own name at thea back of the instrument orb upon a paper (allonge) attached thereto with orwithout additional words specifying the person towhom or to whose order the instrument is to bepayable whereby one not only transfers legal title tothe paper transferred but likewise enters into animplied guaranty that the instrument will be dulypaid1048766 General Rule indorsement must be of the entireinstrumentException where instrument has been paid in part itmay be indorsed as to the residue1048766 Kinds of indorsementa Special - specifies the person to whom or to whoseorder the instrument is to be payable (sec 34)b Blank - specifies no indorseebull Instrument is payable to bearer and may benegotiated by delivery (sec 34)bull May be converted to special indorsement bywriting over the signature of indorser in blankany contract consistent with character ofindorsementc Restrictive - when the indorsement eitheri Prohibits further negotiation of theinstrument orii Constitutes the indorsee the agent of theindorser oriii Vests the title in the indorsee in trust foror to the use of some other persons Butmere absence of words implying power tonegotiate does not make an indorsementrestrictivebull A restrictive indorsement confers upon theindorsee the righta To receive payment of theinstrumentb To bring any action thereon that theindorser could bringc To transfer his rights as such indorseewhere the form of the indorsementauthorizes him to do soBut all subsequent indorsees acquire only thetitle of the first indorsee under the restrictiveindorsement (sec 37)1048766 Such indorsement destroys the negotiability ofthe instrument and bars further negotiation toa holder in due coursed Qualified - constitutes the indorser a mere assignorof the title to the instrument (sec 38)bull made by adding to the indorsers signaturewords like sans recourserdquo ldquowithout recourseindorser not holder at the indorsers ownrisk etcbull The purpose of this kind of indorsement is to

transfer title without guaranteeing payment bythe primary partybull It does not mean however that the qualifiedindorser incurs no liability at all The effect ismerely to limit his liability He is secondarilyliable for breach of is warranties as an indorserunder Sec 65 Thus he is liable if theinstrument is dishonored by NON-ACCEPTANCEor NON-PAYMENT due toa forgeryb lack of good title to the instrumentindorsedc lack of capacity to contract on the part ofprior parties ord the fact that the instrument was valuelessor not valid at the time of the indorsementwhich fact was known to hime Conditional - right of the indorsee is made todepend on the happening of a contingent eventbull Party required to pay may disregard theconditionsbull This kind of indorsement has no effect on thefurther negotiation of the instrument Theparty required to pay if he chooses may makepayment disregarding the condition withoutincurring any liability because he is expresslyauthorized to do so under Sec 39 But theperson who received payment will hold theproceeds subject to the right of the conditionalindorserf Absolute - one by which indorser binds himself topayi upon no other condition than failure ofprior parties to do so andii upon due notice to him of such failureg Joint - indorsement of instrument payable to 2 ormore persons all must indorse in order for thetransaction to operate as a negotiationbull Exceptions to the rule requiring jointindorsementa Where the payees or indorsees arepartners andb Where the payee or indorsee indorsinghas authority to indorse for theothersh Irregular - a person who not otherwise a party toan instrument places thereon his signature in blankbefore delivery1048766 Rules on Indorsementsbull Effect of transfer without indorsementa transfer vests in the transferee such title as thetransferor had therein (assignment) andb the right to have the indorsement of thetransferor1048766 For the purpose of determining whether thetransferee is a holder in due course thenegotiation takes effect as of the time whenthe indorsement is actually made1048766 Applicable only to order instrumentsbull Indorsement of a bearer instrument where aninstrument payable to bearer is indorsed speciallyit may nevertheless be further negotiated bydelivery but the person indorsing specially is liableas indorser to only such holders as make titlethrough his indorsement

Note The rule only applies to originally bearerinstruments If it is originally a BEARER instrumentit will always be a BEARER instrument As opposedto an original order instrument becoming payable tobearer if the same is indorsed specifically it canNO LONGER be negotiated further by mere deliveryit has to be indorsedbull Striking out indorsements the holder may at anytime strike out any indorsement which is notnecessary to his title The indorser whoseindorsement is struck out and all indorserssubsequent to him are thereby relieved fromliability on the instrument1048766 If the instrument is payable to bearer on its facethen whether or not there are indorsements on theback of the instrument would be immaterial to thetitle of the bearer who is presumptively the ownerand holder by his mere possession of suchinstrument None of the indorsement would benecessary to itrsquos title since mere delivery wouldhave been sufficient to transfer title from oneholder to another1048766 Where the instrument is payable to order on itsface the situation is different First theindorsement of a special indorsee is necessary forthe further negotiation of the instrument Secondthe last indorsement controls the method of furthernegotiationbull When prior party (reacquirer) may negotiate where aninstrument is negotiated back to a prior party suchparty may reissue and further negotiate the same Buthe is not entitled to enforce payment thereof againstany intervening party to whom he was personally liable1048766 In the following cases a prior party cannot furthernegotiate the instrument1 Where it is payable to the order of a thirdperson and has been paid by the drawer2 Where it was made or accepted foraccommodation and has been paid by theparty accommodated3 In other cases where the instrument isdischarged when acquired by a prior partyIV HOLDERSClasses of holders1 simple holder (sec 51)2 holder for value (sec 26)3 holder in due course (sec52 57)Holder in Due Course1048766 holder who has taken the instrument under the followingconditionsa That it is complete and regular upon its faceb That he became the holder of it before it wasoverdue and without notice that it has beenpreviously dishonored if such was the factc That he took it in good faith and for valued That at the time it was negotiated to him he hadno notice of any infirmity in the instrument ordefect in the title of the person negotiating it1048766 When title defective - The title of a person whonegotiates an instrument is defective when he obtainedthe instrument or any signature thereto bya fraudb duress or force and fearc other unlawful meansd illegal consideration

e negotiation in breach of faithf circumstances amounting to fraud1048766 What constitutes notice of defect - The person towhom it is negotiated must havea actual knowledge of the infirmity or defect orb knowledge of such facts that his action in taking theinstrument amounted to bad faith (sec 56)1048766 Notice before full amount is paid - where thetransferee receives notice of any infirmity in theinstrument or defect in the title of the personnegotiating the same before he has paid the full amountagreed to be paid he will be deemed a holder in duecourse only to the extent of the amount paid by him1048766 When person not deemed a holder in due course -where an instrument payable on demand is negotiatedon an unreasonable length of time after its issue theholder is not deemed a holder in due coursebull Reasonable time what constitutes - regard is to behad to thea nature of the instrumentb the usage of trade or business with respect tosuch instruments and thec facts of the particular casebull Effect in the hands of any holder other than aholder in due course a negotiable instrument issubject to the same defenses as if it were nonnegotiable1048766 General Rule every holder is deemed prima facie to bea holder in due courseException when it is shown that the title of any personwho has negotiated the instrument was defective theburden is on the holder to prove that he or some personunder whom he claims acquired the title as holder in duecourse (shifting of burden of proof)Limitation the last-mentioned rule does not apply infavor of a party who became bound on the instrumentprior to the acquisition of such defective title (sec 59)1048766 Rights of a holder in due coursea he may sue on the instrument in his own nameb he may receive payment and if payment is in duecourse the instrument is dischargedc holds the instrument free from any defect of title ofprior partiesd holds the instrument free from defenses available toprior parties among themselves ande may enforce payment of the instrument for the fullamount thereof against all parties liable thereon1048766 Payment in due course is payment madea at or after the maturity of the instrumentb to the holder thereofc in good faith and without notice that his title isdefective1048766 Shelter Rulea derives his title through a holder in due course andb who is not himself a party to any fraud or illegalityaffecting the instrument has all the rights of suchformer holder in respect of all parties prior to thelatter1048766 Rights of a Holder NOT in Due Course1 He may sue on the instrument in his own name2 He may receive payment and if the payment is indue course the instrument is discharged3 He is entitled to the instrument but holds it subjectto the same defenses as if it were non-negotiableand4 He has all the rights of the holder in due course

from whom he derived his title in respect of allparties prior to such holder provided he is nothimself a party to any fraud or illegality affectingthe instrumentV LIABILITIES OF PARTIESPersons primarily liable on instrument the person who bythe terms of the instrument is absolutely required to pay thesame All other parties are secondarily liableClassification of parties according to liabilityIN A PROMISSORYNOTE1 Maker2 Indorser3 Persons negotiating by deliveryIN A BILL OFEXCHANGE1 Drawer2 Acceptor3 Indorsers4 Persons negotiating by delivery1 Parties Primarily Liablea Maker (Sec 60)bull engages to pay according to the tenor of theinstrument andbull admits the existence of the payee and his thencapacity to indorse at the time of the makingof the notebull A person placing his name on the face of a noteis prima facie a maker and liable as such andhe is presumed to have acted with care and tohave signed the instrument with full knowledgeof its contentsb Acceptor or Drawee (Sec 62)bull engages to pay according to the tenor of hisacceptancebull admits1 the existence of the drawer2 the genuineness of his signature and3 his capacity and authority to draw theinstrument and4 the existence of the payee and his thencapacity to indorseNote the drawee is not liable until he acceptsthe instrumentbull Where a check is certified by a bank it isequivalent to an acceptance Since certification isequivalent to acceptance a bank which hascertified a check whether at the request of theholder or of a drawer has the same liabilities andmakes the same warranties as an acceptor Itcannot after certification question thegenuineness of the drawerrsquos signature If itdiscovers that such signature is forged subsequentto certification but prior to payment it cannotrefuse to pay on the check If its discovery comesafter it has paid the check it cannot recoverback what it paid on the ground of mistakenpayment unless the holder is guilty of fraud ornegligencebull If a drawee-bank accepts or pays a check despitea stop payment order from the drawer throughoversight or otherwise it cannot refuse to paythe holder or recover what has been paid neithermay it debit the drawerrsquos account unless theacceptance nor payment was made prior to the

receipt of the order2 Parties Secondarily Liablea Drawer (Sec 61)bull admits the existence of the payee and hiscapacity to indorsebull engages that the instrument will be acceptedor paid by the party primarily liable andbull engages that if the instrument is dishonoredand proper proceedings are brought he willpay to the party entitled to be paidb General Indorser (Sec 66)bull Warrants1 genuineness of the instrument2 his good title to it3 capacity to contract of prior parties and4 instrument is valid and subsistingbull engages that the instrument will be acceptedor paid by the party primarily liable andbull engages that if the instrument is dishonoredand proper proceedings are taken he will payto the party entitled to be paidc Irregular Indorser ndash a person not otherwise a partyto an instrument places his signature thereon inblank before deliveryRulesbull If instrument payable to the order of a 3rdperson he is liable to the payee andsubsequent partiesbull If instrument payable to order of maker ordrawer he is liable to all parties subsequent tothe maker or drawerbull If he signs for accommodation of the payee heis liable to all parties subsequent to the payeeDistinctionsPRIMARY PARTY SECONDARY PARTY1 Unconditionally bound2Absolutely required topay upon the maturity ofthe instrument1 Conditionally bound2 Undertakes to pay onlyafter certain conditionshave been fulfilleda due presentment forpayment or acceptance toprimary partyb dishonor by suchparty andc the taking ofproceedings required bylaw after dishonorINDORSER DRAWER1 A party to either a noteor a bill2 Does not make anyadmission regarding theexistence of the payee andhis capacity to indorse and3 Has warranties1 A party only to a bill2 The drawer makes suchadmission3 Makes no warranties buthe engages to pay aftercertain conditions are

complied withGENERAL INDORSER IRREGULAR INDORSER1 Makes either a blank orspecial indorsement2 Indorses the instrumentafter its delivery to thepayee and3 Liable only to partiessubsequent to him1 Always makes a blankindorsement2 Indorses before itsdelivery3 Liable to the payee andsubsequent parties unlesshe signs for theaccommodation of thepayee in which case he isliable only to all partiessubsequent to the payee3 Parties with Limited Liability (sec 65 MetropolFinancing v Sambok 120 SCRA 864)a Qualified Indorser - warrants that1048766 instrument is genuine and in all respects whatit purports to be1048766 he has good title to it1048766 all prior parties had capacity to contract1048766 he has no knowledge of any fact which wouldimpair the validity of the instrument or renderit valuelessb Persons Negotiating by Delivery1048766 warranties same as those of qualified indorsersand1048766 warranties extend to immediate transfereeonlyLIABILITY WARRANTY1 To pay a sum certain2 Requires Notice ofDishonor3 Action can be broughtonly on maturity ofinstrument1 No obligation to pay2 Notice of Dishonor is not arequirement3 Action may be broughtanytimeBY MERE DELIVERY OR BYQUALIFIED INDORSEMENTGENERAL INDORSER1 No secondary liability1 With secondary liability2 Warrants that he has noknowledge of any factwhich would impair thevalidity of the instrumentor render it valueless2 Warrants that theinstrument is at the timeof his indorsement validand subsisting4 Other parties who may be liableGeneral Rule One whose signature does not appear on theinstrument shall not be liable thereonExceptions

1 The principal who signs through an agent is liable2 The forger is liable3 One who indorses in a separate instrument (allonge) isliable4 One who signs his assumed or trade name is liable and5 A person negotiating by delivery (as in the case of abearer instrument) is liable to his immediate indorseeRequisites for an Agent to escape liability1 must be duly authorized2 add words to his signature indicating that he signs as anagent that is for or on behalf of a principal or in arepresentative capacity and3 disclose his principal1048766 A signature by ldquoprocurationrdquo operates as notice that theagent has but a limited authority to sign and theprincipal is bound only in case the agent in so signingacted within the actual limits of his authority (sec 21)1048766 Indorsement or assignment of the NI by a corporation orby an infant passes the property thereinnotwithstanding that from want of capacity thecorporation or infant may incur no liability thereon(sec 22)Accomodation PartyOne who has signed the instrument as maker draweracceptor or indorser without receiving value therefor andfor the purpose of lending his name to some other person1048766 Liability such a person is liable on the instrument to aholder for value notwithstanding such holder at thetime of taking the instrument knew him to be only anaccommodation party1048766 Effects1 accommodation party is generally regarded as asurety for the party accommodated2 When accommodation party makes payment toholder of the note he has the right to sue theaccommodated party for reimbursement1048766 Rights of accommodation parties as against each otherthe other may demand contribution from his coaccommodationparty without first directing his actionagainst the principal debtor provided1 he made the payment by virtue of judicial demandor2 the principal debtor is insolventNote A corporation cannot act as an accommodationparty The issuance or indorsement of negotiableinstrument by a corporation without consideration andfor the accommodation of another is ultra vires(Crisologo v CA 117 SCRA 594)Order of liability of indorsers1 among themselves ndash indorsers are liable prima facie inthe order in which they indorse but evidence isadmissible to show that as between or amongthemselves they have agreed otherwise (sec 68)2 to the holder ndash indorsers are liable in any orderVI DEFENSESKinds1 RealAbsolute Defenses - those that attach to theinstrument itself and are available against all holderswhether in due course or notExamplesa Alterationb Non-delivery of incomplete instrumentc Duress amounting to forgeryd Fraud in factum or fraud in esse contractuse Minority

f Marriage in the case of a wifeg Insanity where the insane person has a guardianappointed by the courth Ultra vires acts of a corporation where thecorporation is absolutely prohibited by its charter orstatute from issuing any commercial paper underany circumstancesi Want of authority of agentj Execution of instrument between public enemiesk Illegality of contract where it is the contract orinstrument itself which is expressly made illegal bystatute andl Forgery2 PersonalEquitable Defenses ndash those which are availableonly against a person not a holder in due course or asubsequent holder who stands in privity with himExamplesa Absence or failure of consideration partial or totalb Want of delivery of complete instrumentc Insertion of wrong date in an instrument where it ispayable at a fixed period after date and it is issuedundated or where it is payable at a fixed periodafter sight and the acceptance is undatedd Filling up of blank contrary to authority given or notwithin reasonable time where the instrument isdeliverede Fraud in inducementf Acquisition of instrument by force duress or fearg Acquisition of the instrument by unlawful meansh Acquisition of the instrument for an illegalconsiderationi Negotiation in breach of faithj Negotiation under circumstances that amount tofraudk Mistakel Intoxication (according to better authority)m Ultra vires acts of corporations where thecorporation has the power to issue negotiable paperbut the issuance was not authorized for theparticular purpose for which it was issuedn Want of authority of agent where he haso apparent authorityp Insanity where there is no notice of insanity on thepart of the one contracting with the insane personandq Illegality of contract where the form orconsideration is illegalFRAUD IN FACTUM FRAUD IN INDUCEMENT1 It exists in those cases inwhich a person withoutnegligence has signed aninstrument which was infact a negotiableinstrument but wasdeceived as to thecharacter of the instrumentand without knowledge ofits as where a not wassigned by one under thebelief that he was signingas a witness to a deed1 It is that which relatedto the quality quantityvalue or character of theconsideration of the

instrument In this casethe signer is led bydeception to execute whathe knows is a negotiableinstrument It implies thatthe signer knew what hewas signing but that he wasinduced by fraud to sign2 This kind of fraud is areal defense because thereis no contract It impliesthat the person did notknow what he was signingBut where the signer by theexercise of reasonablediligence could havediscovered the nature ofthe instrument the fraudcannot be considered a realdefense as where a personwho can read signed a notebut failed to read it2 Such type of fraud is onlya personal defense becauseit does not prevent acontract1048766 Effects of Defenses1 Complete and undelivered instrumentbull as between immediate parties and as regards aremote party other than a holder in due course thedelivery must be authorized in order to be effectualbull where the instrument is in the hands of a holder indue course a valid delivery thereof by all partiesprior to him so as to make them liable to him isconclusively presumedbull where the instrument is no longer in the possessionof a party whose signature appears thereon a validand intentional delivery by him is presumed untilthe contrary is proved2 Incomplete but delivered instrumentbull where the instrument is wanting in any materialparticular the person in possession thereof has aprima facie authority to complete it by filling up theblanks thereinbull it must be filled up strictly in accordance with theauthority given and within a reasonable timebull if any such instrument after completion isnegotiated to a holder in due course it is valid andeffectual for all purposes in his hands and he mayenforce it as if it had been filled up strictly inaccordance with the authority given and within areasonable time3 Incomplete and undelivered instrumentbull it will not if completed and negotiated withoutauthority be a valid contract in the hands of anyholder as against any person whose signature wasplaced thereon before deliverybull However subsequent indorsers are liable4 Forgerybull counterfeit making or fraudulent alteration of anywriting which may consist of1 signing of anotherrsquos name with intent todefraud or2 alteration of an instrument in the nameamount name of payee etc with intent to

defraudbull Effect signature is wholly inoperative and no rightto retain the instrument or to give a dischargetherefore or to enforce payment thereof againstany party thereto can be acquired through or undersuch signaturebull Exception unless the party against whom it issought to enforce such right is precluded fromsetting up the forgery or want of authoritybull Cut-Off RuleGeneral Rule Parties prior to the forged signatureare cut-off from the parties after the forgery in thesense that prior parties cannot be held liable andcan raise the defense of forgery The holder canonly enforce the instrument against parties whobecame such after the forgeryException When the prior parties are precludedfrom setting up the defense of forgeryPersons precluded from setting up the defense offorgery are1 Those who by their acts silence or negligenceare estopped from setting up the defense offorgery2 Those who warrant or admit the genuineness ofthe signature in question These include acts oromissions that amount to ratification expressor impliedNote Persons precluded from setting up thedefense of forgery may still recover damages underthe NCC provisions on quasi-delictsbull Rules on ForgeryA Promissory Notes1 Makerrsquos signature forgedOrder Instrumenta Maker is not liable because he neverbecame a party to the instrumentb Indorsers subsequent to forgery are liablebecause of their warrantiesc Party who made the forgery is liableBearer Instrumenta Maker is not liableb Indorsers may be made liable to thosepersons who obtain title through theirindorsementsc Party who made the forgery is liable2 Payeersquos signature forgedOrder Instrumenta Maker and payee not liableb Indorsers subsequent to the forgery isliablec Party who made the forgery is liableBearer Instrumenta Maker is liable Indorsement is notnecessary to title and the maker engagesto pay holderb Party who made the forgery is liable3 Indorserrsquos signature forgedOrder Instrumenta Maker payee and indorser who signaturewas forged is not liableb Indorsers subsequent to forgery are liablebecause of their warrantiesc Party who made the forgery is liableBearer Instrumenta Maker is liable Indorsement is not

necessary to title and the maker engagesto pay holderb Indorser whose signature was forged is notliablec Party who made the forgery is liableB Bill of Exchange1 Drawerrsquos signature forgedIn an Order Instrumenta Drawer is not liableb Drawee is liable if it paid (nor recourse todrawer) because he admitted thegenuineness of the drawerrsquos signatureDrawee cannot recover from the collectingbank because there is no privity betweenthe collecting bank and the drawer Thereis no warranty as to the signature of thedrawer (Associated Bank v CA)c Indorsers subsequent to forgery are liabled Party who made the forgery is liableIn a Bearer Instrumenta Drawer is not liableb Drawee is liable if it paid Drawee cannotrecover from the collecting bank becauseit is bound to known the drawerrsquossignature since the latter is its depositorc Party who made the forgery is liable2 Payeersquos signature forgedOrder Instrumenta Drawer drawee and payee not liable Cutoffrule appliesb Indorsers subsequent to forgery are liablec Party who made the forgery is liableBearer Instrumenta Drawer is liable His indorsement is notnecessary to pass titleb Drawee is liable No privity betweendrawer and payee because indorsement ofpayee is not necessary (Ang Tek Lian case87 SCRA 383)c Payee is not liabled Collecting bank is liable because ofwarrantye Party who made the forgery is liable3 Indorserrsquos signature forgedOrder Instrumenta Drawer payee and indorser whosesignature was forged are not liableb Drawee is liable if it paidc Indorsers subsequent to forgery are liabled Party who made the forgery is liableBearer Instrumenta Drawer is liable Indorsement is notnecessary to pass titleb Drawee is liablec Indorser whose signature was forged isliable because indorsement is notnecessary to pass titled Party who made the forgery is liable5 Alterationbull Effect the instrument is avoidedbull Exceptions1 against a party who has himself madeauthorized or assented to the alteration2 subsequent indorsers3 holder in due course not a party to the

alteration - he may enforce payment accordingto its original tenorbull Changes constituting material alteration1 date2 sum payable either for principal or interest3 time or place of payment4 number or relations of the parties5 medium or currency in which payment is to bemade6 that which adds a place of payment where noplace of payment is specified and7 any other change or addition which alters theeffect of the instrument in any respectNote a material alteration is one that alters theeffect of the instrument one which changes theitems required to be stated under Sec 1 NILbull Spoliation ndash alteration made by a strangerbull The general rule denies the drawee bankrsquos right tocharge against the drawerrsquos account the amount ofan altered check However the latterrsquos negligencebefore or after the alteration may estop him fromsetting such alteration as against an innocentdrawee bank who has paid the checkbull In cases of altered checks and checks with forgedindorsements the drawee bank must notify andreturn them to the collecting bank before 400 pmof the next day of clearing but the drawee bankmay still return them even after such time providedhe does so within 24 hours from its discovery of thealteration or forged instruments so that recovery ofthe amount may be had BUT in no event beyondthe period fixed or provided by law for filing of alegal action by the returning bank against the banksending the sameNote Alteration is only a partial real defensebecause a holder in due course can still enforce itaccording to its original tenorVII ENFORCEMENT OF LIABILITYPresentment for payment ndash the presentation of aninstrument to the person primarily liable for the purpose ofdemanding and receiving paymentGeneral Rulesbull presentment for payment to charge personsprimarily liable is not necessarybull presentment for payment to charge personssecondarily liable is necessaryExceptionsa drawer - where he has no right to expect or requirethat the drawee or acceptor will pay the instrument(sec 79)b indorser - where the instrument was made oraccepted for his accommodation and he has noreason to expect that the instrument will be paid ifpresentedc when dispensedi where after the exercise of reasonablediligence presentment as required cannotbe madeii where the drawee is a fictitious personiii by waiver of presentment express orimplied (sec 82)d when the instrument has been dishonored by nonacceptance(sec 151)Sufficiency of presentmentIt must be

1 made by the holder or any person authorized toreceive payment on his behalf2 at a reasonable hour on a business day3 at a proper place4 to the person primarily liable or if he is absent orinaccessible to any person found at the placewhere the presentment is madeHow made1 personal demand for payment at the proper place and2 readiness to exhibit the instrument if required and toreceive payment and to surrender the instrument if thedebtor is willing to paybull Purpose of exhibitionTo enable the debtor toa determine the genuineness of the instrument andthe right of the holder to receive payment andb to enable him to reclaim possession upon paymentbull When exhibition excuseda when debtor does not demand to see the instrumentbut refuses payment on some other grounds andb when the instrument is lost or destroyedWhen madebull where the instrument is payable at a fixed ordeterminable future time presentment must be madeon the day it falls duebull where it is payable on demanda promissory note presentment must be made withina reasonable time after its issueb bill of exchange presentment for payment will besufficient if made within a reasonable time afterthe last negotiation thereofbull the check must be presented for payment within areasonable time after its issue or the drawer will bedischarged from liability thereon to the extent of theloss caused by the delayTime of maturitybull every negotiable instrument is payable at the time fixedtherein without gracebull when the day of maturity falls upon a Sunday or aholiday the instruments are to be presented forpayment on the next succeeding business daybull when the day of maturity falls upon a Saturday1048766 Instrument is payable at a fixed or determinablefuture time (time instrument) - presented forpayment is on the next succeeding business day1048766 instruments is payable on demand - at the option ofthe holder be presented for paymenta before 1200 noon on Saturday whenthat entire day is not a holiday orb the next succeeding business dayHow computed1048766 excluding the day from which the time is to begin torun and by including the date of payment1048766 applies to instruments which are payable at a fixedperiod after date after sight or after thathappening of a specified eventProper place for presentmenta Where a place of payment is specified in the instrumentand it is there presentedb Where no place of payment is specified but the addressof the person to make payment is given in theinstrument and it is there presentedc Where no place of payment is specified and no address isgiven and the instrument is presented at the usual placeof business or residence of the person to make payment

d In any other case if presented to the person to makepayment wherever he can be found or if presented athis last known place of business or residenceWhen delay in presentment excused ndash delay is caused bycircumstances beyond the control of the holder and notimputable to his default misconduct or negligence Whenthe cause of delay ceases to operate presentment must bemade with reasonable diligencePresentment for acceptance ndash the production or exhibitionof a bill of exchange to the drawee for his acceptance orpaymentGeneral Rule presentment for acceptance is not necessary torender any party to the bill liableException presentment for acceptance must be madea Where the bill is payable after sight or wherepresentment for acceptance is necessary in order tofix the maturity of the instrument orb Where the bill expressly stipulates that it shall bepresented for acceptance orc Where the bill is drawn payable elsewhere then atthe residence or place of business of the drawee(sec 143)Note in all the above cases the holder must either presentthe bill for acceptance or negotiate it within a reasonabletime otherwise the drawer and all indorsers are dischargedHow made1 made by or on behalf of the holder2 at a reasonable hour3 on a business day4 before the bill is overdue and within reasonabletime5 to the drawee or some person authorized to acceptor refuse acceptance on his behalfDays presentment may be made If date of presentment isa Sunday or a holiday ndash must be made on the nextsucceeding business dayb Saturday ndash before 1200 noon on Saturday providedthat it is not a holidayWhen delay for presentment excuseda bill is drawn payable elsewhere than at the place ofbusiness or the residence of the draweeb holder has no time with the exercise of reasonablediligence to present the bill for acceptance beforepresenting it for payment on the day that it fallsdueEffect does not discharge the drawers and indorsersWhere presentment is excuseda Where the drawee is dead or has absconded or is afictitious person or a person not having capacity tocontract by billb Where presentment can not be made after theexercise of reasonable diligencec Where although presentment has been irregularacceptance has been refused on some other groundNote bill may be treated as dishonored by nonacceptanceDuty of holder where bill not accepted - where a bill isduly presented for acceptance and is not accepted within theprescribed time (24 hours ndash sec 136) the person presentingit must treat the bill as dishonored by non-acceptance or heloses the right of recourse against the drawer and indorsersAcceptance the signification by the drawee of his assent tothe order of the drawer It is the act by which the draweemanifests his consent to comply with the request containedin the bill of exchange directed to himHow made

1) must be in writing2) signed by the drawee3) must not express that the drawee will perform hispromise by any other means than the payment ofmoneybull the holder of the bill presenting the same for acceptancemay require that the acceptance be written on the billand if such request is refused may treat the bill asdishonoredbull where an acceptance is written on a paper other thanthe bill itself it does not bind the acceptor except infavor of a person to whom it is shown and who on thefaith thereof receives the bill for valuePeriod for drawee to accept - allowed 24 hours afterpresentment in which to decide whether or not he will acceptthe bill if acceptance is given it dates as of the day ofpresentationConstructiveImplied acceptance where a drawee refuseswithin 24 hours after delivery or within such other period asthe holder may allow to return the bill accepted or nonacceptedto the holder he will be deemed to have acceptedthe sameNote same effect if the drawee destroys the instrumentKinds1 General - assents without qualification to the order ofthe drawer2 Qualified - which in express terms varies the effect ofthe bill as drawna Conditional - makes payment by the acceptordependent on the fulfillment of a conditiontherein statedb Partial - an acceptance to pay part only of theamount for which the bill is drawni Local - an acceptance to pay only at aparticular placeii Qualified as to timeiii The acceptance of some one or more ofthe drawees but not of all3 ConstructiveRights of parties as to qualified acceptancebull Holder he may refuse to take a qualified acceptanceand if he does not obtain an unqualified acceptance hemay treat the bill as dishonored by non-acceptancebull Drawer or indorser when he receives notice of aqualified acceptance he must within a reasonable timeexpress his dissent to the holder or he will be deemed tohave assented thereto (implied assent)Effect of taking a qualified acceptance the drawer andindorsers are discharged from liability on the bill unless theyhave expressly or impliedly authorized the holder to take aqualified acceptance or subsequently assent theretoOther rules of acceptancebull a bill may be accepted before it has been signed by thedrawer or while otherwise incomplete or when it isoverdue or after it has been dishonored by a previousrefusal to accept or by non paymentbull when a bill payable after sight is dishonored by nonacceptanceand the drawee subsequently accepts it theholder in the absence of any different agreement isentitled to have the bill accepted as of the date of thefirst presentmentbull an unconditional promise in writing to accept a billbefore it is drawn is deemed an actual acceptancein favor of every person who upon the faiththereof receives the bill for value

bull where a check is certified by the bank on which it isdrawn the certification is equivalent to anacceptanceEffect the drawer and all indorsers are dischargedfrom liability thereonAcceptance for Honor - an undertaking by a stranger to a billafter protest for the benefit of any party liable thereon or forthe honor of the person for whose account the bill is drawnwhich acceptance inures also to the benefit of all partiessubsequent to the person for whose honor it is accepted andconditioned to pay the bill when it becomes due if theoriginal drawee does not pay it1048766 Requisites1 the bill must have been protested for dishonorby non-acceptance or for better security2 the acceptor for honor must be a stranger andnot a party already liable on the instrument3 bill must not be overdue4 acceptance for honor must be with the consentof the holder of the instrument1048766 Formalities1 must be in writing2 must indicate that it is an acceptance forhonor3 signed by the acceptor for honor4 must contain an express or implied promise topay money5 the accepted bill for honor must be deliveredto the holderNotice of Dishonor - notice given by the holder or his agentto a party or parties secondarily liable that the instrumentwas dishonored by non-acceptance by the drawee of a bill orby non-payment by the acceptor of a bill or by non-paymentby a maker of a note- If such notice is given by a notary public it is calledPROTEST1048766 Effect of failure to give notice parties secondarily liableare discharged1048766 Requisites1 Given by holder or his agent or by any party whomay be compelled by the holder to pay2 Given to secondary party or his agent3 Given within the periods provided by law4 Given at the proper place1048766 When notice of dishonor dispensed with1 when party to be notified knows about the dishonoractually or constructively2 if waived and3 when after due diligence it cannot be given1048766 How given1 by bringing verbally or2 by writing to the knowledge of the person liable thefact that a specified instrument upon properproceedings taken has not been accepted or hasnot been paid and that the party notified isexpected to pay it1048766 To whom given1 Non-acceptance (bill) ndash to persons secondarilyliable namely the drawer and indorsers as the casemay be2 Non-payment (both bill and note) ndash indorsersNote Notice must be given to persons secondarilyliable Otherwise such parties are dischargedNotice may be given to the party himself or to hisagent

1048766 By whom given1 the holder2 another on behalf of the holder3 any party to the instrument who may be compelledto pay it to the holder and who would have a rightof reimbursement from the party to whom notice isgiven1048766 Notice of dishonor given by or on behalf of a holderinures to the benefit ofa all parties prior to the holder who have a rightof recourse against the party to whom thenotice is given andb all holders subsequent to the holder givingnotice1048766 Notice of dishonor given by or on behalf of a partyentitled to give notice inures to the benefit ofa the holder andb all parties subsequent to the party to whomnotice is given1048766 Where an instrument is dishonored in the hands of anagent he can do either of the ffa directly give notice to persons secondarilyliable thereon orb give notice to his principal In such case hemust give notice within the time allowed bylaw as if he were a holder1048766 A party giving notice is deemed to have given due noticewherea the notice of dishonor is duly addressed andb deposited in the post-office even when thereis miscarriage of mail1048766 Where a party receives notice of dishonor he has afterthe receipt of such notice the same time for givingnotice to antecedent parties that the holder has afterthe dishonor1048766 Notice may be waived either before the time of givingnotice or after the omission to give due notice Waivermay be expressed or implied1048766 As to who are affected by an express waiver depends onwhere the waiver is written1 if it appears in the body or on the face of theinstrument it binds all parties but2 if it is written above the signature of anindorser it binds him only1048766 Notice of dishonor is not required to be given to thedrawer in any of the ff cases1 drawer and drawee are the same2 drawee is a fictitious person or not having thecapacity to contract3 drawer is the person to whom the instrument ispresented for payment4 the drawer has no right to expect or requirethat the drawee or acceptor will honor theinstrument5 where the drawer has countermandedpayment1048766 Notice of dishonor is not required to be given to anindorser in the ff cases1 drawee is a fictitious person or does not havethe capacity to contract and indorser wasaware of that fact at the time he indorsed theinstrument2 indorser is the person to whom the instrumentis presented for payment3 instrument was made or accepted for his

accommodation1048766 If an instrument is not accepted by the drawee there isno sense presenting it again for payment and notice ofdishonor must at once be given If there wasacceptance presentment for payment is still requiredand if payment is refused there is a need for notice ofdishonor1048766 An omission to give notice of dishonor by non-acceptancedoes not prejudice the rights of a holder in due coursesubsequent to the omissionDishonor by Non-PaymentWhen instrument dishonored by non-paymenta it is duly presented for payment and payment isrefused or cannot be obtained orb presentment is excused and the instrument isoverdue and unpaidEffect of dishonor an immediate right of recourse to allparties secondarily liable thereon accrues to the holderDishonor by Non-AcceptanceInstancesa When it is duly presented for acceptance and suchan acceptance is refused or can not be obtained orb When presentment for acceptance is excused andthe bill is not accepted (sec 149)Effect an immediate right of recourse against thedrawer and indorsers accrues to the holder and nopresentment for payment is necessaryNote where a bill is duly presented for acceptance andis not accepted within the prescribed time (24 hours)the person presenting it must treat the bill as dishonoredby non-acceptanceWhen Instrument Considered to be Dishonoreda If it is not accepted when presented for acceptanceorb If it is not paid when presented for payment atmaturity orc If presentment is excused or waived and theinstrument is past due and unpaidProtest - the formal instrument executed usually by a notarypublic certifying that the legal steps necessary to fix theliability of the drawee and the indorsers have been taken1048766 Effect of waiver where protest is waived presentmentand notice of dishonor are also deemed waived Butwhere the notice of dishonor is waived presentment isnot waived1048766 Applicability protest is necessary only in case of foreignbills of exchange which have been dishonored by nonacceptanceor non-payment as the case may be If it isnot so protested the drawer and indorsers aredischarged1048766 Foreign Bill of Exchange1 Drawn in the Philippines but payable outside thePhilippines2 Payable in the Philippines but drawn outside thePhilippines1048766 Protest may be made by1 a notary public or2 any respectable resident of the place where the billis dishonored in the presence of 2 or more crediblewitnessesProtest for better security is one made by the holder of a billafter it has been accepted but before it matures against thedrawer and indorsers where the acceptor has been adjudgeda bankrupt or an insolvent or has made an assignment forthe benefit of the creditors

VIII DISCHARGEDischarge of instrument - a release of all parties whetherprimary or secondary from the obligations arisingthereunder It renders the instrument without force andeffect and consequently it can no longer be negotiatedInstances1 By payment in due course by or on behalf of theprincipal debtor2 Payment by accommodated party3 Intentional cancellation by the holder4 By any act which will discharge a simple contractfor the payment of money5 When the principal debtor becomes the holder ofthe instrument at or after maturity in his own rightBy any act which would discharge a simple contract1 Payment or performance2 Loss of the thing due3 Condonation or remission4 Confusion or Merger5 Compensation6 Novation7 Annulment or Rescission8 Fulfillment of a resolutory condition9 PrescriptionWhen persons secondarily liable on the instrument aredischarged1 By any act which discharges the instrument2 By the intentional cancellation of his signature bythe holder3 By the discharge of a prior party4 By a valid tender of payment made by a prior party5 By the release of the principal debtor unless theholderrsquos right of recourse against the partysecondarily liable is expressly reserved6 By any agreement binding upon the holder to extendthe time of payment or to postpone the holderrsquosright to enforce the instrument1048766 In the following cases the agreement to extend the timeof payment does not discharge a party secondarily liable1 where the extension of time is consented to by suchparty2 where the holder expressly reserves his right ofrecourse against such party1048766 Payment at or after maturity by a party secondarilyliable does not discharge the instrument It only cancelshis own liability and that of the parties subsequent tohimEffects of Renunciation1 A renunciation in favor of a secondary party may bemade by the holder before at or after maturity ofthe instrument Effect only such secondary party isdischarged and all parties subsequent to him but theinstrument itself remains in force2 A renunciation in favor of the principal debtor maybe effected at or after maturity Effect theinstrument is discharged and all parties theretoprovided the renunciation is made unconditionallyand absolutelyNote In either case renunciation does not affect therights of a holder in due course without notice1048766 Cancellation of an instrument includes tearing erasureobliteration or burning It is not limited to writing ofthe word lsquocancelledrdquo or ldquopaidrdquo or drawing of crisscrosslines across the instrumentPayment for Honor - payment made by a person whether a

party to the bill or not after it has been protested for nonpaymentfor the benefit of any party liable thereon or forthe benefit of the person for whose account it was drawn1048766 Requisites1 the bill has been dishonored by non-payment2 it has been protested for non-payment3 payment supra protest (another term for paymentfor honor because prior protest for non-payment isrequired) is made by any person even by a partythereto4 the payment is attested by a notarial act of honorwhich must be appended to the protest or form anextension of it5 the notarial act must be based on the declarationmade by the payor for honor or his agent of hisintention to pay the bill for honor and for whosehonor he paysNote If the above formalities are not complied withpayment will operate as a mere voluntary payment andthe payor will acquire no right to full reimbursementagainst the party for whose honor he pays1048766 In payment for honor the payee cannot refuse paymentIf he refuses he cannot recover from the parties whowould have been discharged had he accepted the sameIn acceptance for honor the holderrsquos consent isnecessary1048766 The payor for honor is given the right to receive both thebill and the protest obviously to enable him to enforcehis rights against the parties who are liable to himIX CHECKSCheck- a bill of exchange drawn on a bank payable ondemandCheck distinguished from and ordinary bill of exchangeBILLOF EXCHANGE CHECKNot necessarily drawnon a deposit The draweeneed not be a bankIt is necessary that a checkis drawn on a bank depositThe drawee is always abankDeath of a drawer of aBOE with the knowledgeof the bank does notrevoke the authority of thedrawee to payDeath of the drawer of acheck with the knowledgeof the bank revokes theauthority of the banker topayMay be presented forpayment within areasonable time after itslast negotiation because itmay be further negotiatedMust be presented forpayment within areasonable time after itsissueMay be payable on demandor at a fixed ordeterminable future timeAlways payable on demandKinds of checks

1 Managerrsquos Cashierrsquos Check ndash drawn by a bank on itselfand therefore it is a primary obligation of the banko It is accepted in advance by the act of itsissuance and is not subject tocountermand by the payor afterindorsemento The bankrsquos manager signs managerrsquos checkwhile cashierrsquos check is signed by the bankcashier2 Certified Check ndash one drawn by a depositor upon funds tohis credit in a bank which a proper officer of the bankcertifies will be paid when duly presented for payment3 Stale check ndash one which has not been presented forpayment within a reasonable time after its issue4 Crossed check ndash when 2 parallel lines are drawn acrossits face or across a corner thereof If the name of a bankappears between the parallel lines the check is said tobe specially crossed and payment should be made onlyif presented by the named bank If no name appearsbetween the parallel lines the check is said to begenerally crossed and payment should be made onlyupon presentment by some bankEffects of crossing a checka That the check may not be encashed but only bedeposited in the bankb That the check may be negotiated only once to onewho has an account with a bank andc That the act of crossing the check serves as awarning to the holder that the check has beenissued for a definite purpose so that he must inquireif he has received the check pursuant to thatpurpose5 Memorandum Check ndash it is like an ordinary check exceptthat the word ldquomemorandumrdquo ldquomemrdquo or ldquomemordquo iswritten upon the face of the check signifying that thedrawer engages to pay the bona fide holder absolutelyand not upon a condition to pay upon presentment atmaturity and if due notice of the presentment and nonpaymentshould be given6 Travelerrsquos check ndash one upon which the holderrsquos signaturemust appear twice one to be affixed by him at the timeit is issued and the second o counter-signature to beaffixed by him in the presence of the payee before it ispaid otherwise it is incompleteIron Clad Rule Prohibits the countermanding ofpayment of certified checks (Republic of the Philippinesv PNB GR No 16106 December 1 1961)

The sum payable is a sum certain although it is to be paida With interest orb By stated installments orc By stated installments with a provision that upondefault in payment of any installment or of interestthe whole shall become due ord With exchange whether at a fixed rate or at thecurrent rate ore With costs of collection or an attorneys fee in casepayment shall not be made at maturity (sec 2)Acceleration clause - renders whole debt due anddemandable upon failure of obligor to comply with certainconditionsWhen promise is unconditionalAn unqualified order or promise to pay is unconditionalthough coupled witha An indication of a particular fund out of whichreimbursement is to be made or a particularaccount to be debited with the amount orb A statement of the transaction which gives rise tothe instrument1048766 An order or promise to pay out of a particular fund is notunconditionalFUND FORREIMBURSEMENTPARTICULAR FUND FORPAYMENTDrawee pays the payeefrom his own fundsafterwards the draweepays himself from theparticular fund indicatedThere is only one act thedrawee pays directly fromthe particular fundindicated Payment issubject to the conditionthat the fund is sufficientParticular fund indicatedis NOT the direct sourceof payment but only thesource of reimbursementParticular fund indicated isthe direct source ofpaymentIndication in theinstrument does notaffect the unconditionalnature of the promise ororderIndication in theinstrument makes thepromise or orderconditional3 Payable on demand or at a fixed determinable futuretimeCertainty of time of paymentAn instrument is payable at a determinable future time whichis expressed to be payablea At a fixed period after date or sight orb On or before a fixed or determinable future timespecified therein orc On or at a fixed period after the occurrence of aspecified event which is certain to happen thoughthe time of happening be uncertain

1048766 An instrument payable upon a contingency is notnegotiable and the happening of the event does notcure the defect (sec 4)1048766 A promise to pay ldquowhen ablerdquo ldquoas soon as I canrdquo etcwithout specification of an absolute date is notnegotiable However there is a difference of opinion asto whether it is a conditional promise or an absolutepromise to pay at un unreasonable timea Under the first view negotiability is destroyedboth by the condition and by want of a fixedtime for paymentb Under the second view by the generalprinciple that a promise to pay within areasonable time is not so certain as to renderan instrument negotiableAftersight Draft - payable only after the expiration of thestipulated period from acceptance (legal sight)When payable on demanda When it is so expressed to be payable on demandor at sight or on presentation orb In which no time for payment is expressedNote Where an instrument is issued accepted or indorsedwhen overdue it is as regards the person so issuingaccepting or indorsing it payable on demand4 Payable to order or to bearerWhen payable to orderThe instrument is drawn payablea To the order of a specified person orb To him or his order1048766 The payee must be named or otherwise indicated thereinwith reasonable certainty1048766 It may be drawn payable to the order ofa A payee who is not maker drawer or drawee orb The drawer or maker orc The drawee ord Two or more payees jointly ore One or some of several payees orf The holder of an office for the time beingWhen payable to bearera When it is expressed to be so payable orb When it is payable to a person named therein orbearer orc When it is payable to the order of a fictitious ornon-existing person and such fact was known to theperson making it so payable ord When the name of the payee does not purport to bethe name of any person ore When the only or last indorsement is anindorsement in blank (Sec 9)5 Identification of the drawee1048766 Where the instrument is addressed to a drawee(meaning in a bill of exchange) he must be namedor otherwise indicated with reasonable certaintyThe holder must know to whom he should present itfor acceptance andor payment otherwise thepurpose of negotiable instrument as a tool incommercial dealings will be greatly hampered(Reviewer on Commercial Law Sundiang andAquino)1048766 A bill may be addressed to more than one draweejointly whether they are partners or not but not totwo or more drawers in the alternative or insuccession (Sec 128)Test of Negotiability presence of requirements in Section 1of NIL

Factors that Determine Negotiability1 The whole instrument itself2 Only what appears on the face of the instrument3 Provisions of the NIL Sec1BAR QUESTION (Q) Which of the followingstipulations or features of a promissory notes (PN)affect or do not affect its negotiability assumingthat the PN is otherwise negotiable Indicate youranswer by writing the paragraph number of thestipulation or feature of the PN as shown below andyour corresponding answer either lsquoAffectedrdquo orldquoNot affectedrdquo Explain(a) The date of the PN is ldquoFebruary 30 2002rdquo(b) The PN bears interest payable on the last dayof each calendar quarter at a rate equal to 5above the then prevailing 91-day Tbill rate aspublished at the beginning of such calendarquarter(c) The PN gives the maker the option to makepayment either in money or in quantity ofpalay of equivalent value(d) The PN gives the holder the option either torequire payment in money or to require themaker to serve as the bodyguard or escort ofthe holder for 0 daysSUGGESTED ANSWER (SA)(a) NOT AFFECTED The date is not one of therequirements for negotiability(b) NOT AFFECTED The interest is to be computedat a particular time and is determinable Itdoes not make the sum uncertain or thepromise conditional(c) AFFECTED Giving the maker an option rendersthe promise conditional(d) NOT AFFECTED Giving the holder an optiondoes not make the promise conditionalAdditional provisions not affecting negotiabilityGeneral Rule the instrument is non-negotiable if it containsa promise or order to do any act in addition to the paymentof moneyExceptionsa authorizes the sale of collateral securities in casethe instrument be not paid at maturity orb authorizes a confession of judgment if theinstrument be not paid at maturity orc waives the benefit of any law intended for theadvantage or protection of the obligor ord gives the holder an election to require something tobe done in lieu of payment of money1048766 Confession of judgment ndash a written statement signed bythe defendant setting forth the basis of liability andauthorizing the entry of judgment thereon1048766 Kinds of confession of judgmenta cognivit actiomen ndash literally means ldquohe hasconfessed actionrdquo It is a written confession ofaction by the defendant acknowledging isindebtedness to the plaintiff after the action hasbeen filed It is given after the action is brought tosave expensesb relicta verificationem ndash literally means ldquohispleadings being abandonedrdquo It is confession ofjudgment by withdrawal of the defenseNote However warrants of attorney to confess judgmentare not authorized nor contemplated by our law They arevoid as against public policy because they enlarge the field

for fraud because under these instruments the promissorybargains away his right to a day in court The NIL does notsanction nor validated any provision otherwise illegalOmissions and Provisions that do not affect Negotiability(Sec 6)The validity and negotiable character of an instrument arenot affected by the fact thata it is not dated orb does not specify the value given or that any valuehad been given therefore orc does not specify the place where it is drawn or theplace where it is payable ord bears a seal ore designates a particular kind of current money inwhich payment is to be made1048766 if it is not dated the instrument will be considered to bedated as of the time it was issued1048766 consideration for the instrument is presumed (art 154NCC amp sec 25 NIL)1048766 sec 73 specifies where presentment for payment shouldbe made when the place of payment is not specifiedRules of constructiona Where the sum payable is expressed in words and also infigures and there is a discrepancy between the two thesum denoted by the words is the sum payable but if thewords are ambiguous or uncertain reference may be hadto the figures to fix the amountb Where the instrument provides for the payment ofinterest without specifying the date from which interestis to run the interest runs from the date of theinstrument and if the instrument is undated from theissue thereofc Where the instrument is not dated it will be consideredto be dated as of the time it was issuedd Where there is a conflict between the written andprinted provisions of the instrument the writtenprovisions prevaile Where the instrument is so ambiguous that there isdoubt whether it is a bill or note the holder may treat itas either at his electionf Where a signature is so placed upon the instrument thatit is not clear in what capacity the person making thesame intended to sign he is to be deemed an indorserg Where an instrument containing the word I promise topay is signed by two or more persons they are deemedto be jointly and severally liable thereon (sec 17)Consideration1048766 Presumption of consideration - every negotiableinstrument is deemed prima facie to have been issuedfor a valuable consideration and every person whosesignature appears thereon to have become a partythereto for value1048766 Value - any consideration sufficient to support a simplecontract An antecedent or pre-existing debt constitutesvalue and is deemed such whether the instrument ispayable on demand or at a future time1048766 Holder for value ndash one who has given a valuableconsideration for the instrument issued or negotiated tohimbull What constitutes holder for valuewhere value has at any time been given for theinstrument the holder is deemed a holder for valuein respect to all parties who become such prior tothat timebull where the holder has a lien on the instrument

arising either from contract or by implication oflaw he is deemed a holder for value to the extentof his lien1048766 Effect of want of consideration a matter of defense asagainst any person not a holder in due course andpartial failure of consideration is a defense pro tantowhether the failure is an ascertained and liquidatedamount or otherwiseAbsence of consideration ndash total lack of any validconsideration for the contract is only a personaldefenseFailure of consideration ndash failure or refusal or one partyto do perform or comply with the consideration agreedupon is also only a personal defenseIII TRANSFER AND NEGOTIATIONTypes of transfers1 Assignment - transfer of title to the instrument with theassignee generally taking only such title as his assignorhas subject to all defenses available against hisassignor2 Negotiation - transfer of a negotiable instrument fromone person to another made in such a manner as toconstitute the transferee the holder thereof3 By Operation of Law ndash such as by succession byinsolvencyDistinctions between Negotiation and AssignmentNEGOTIATION ASSIGNMENT1 Refers only tonegotiableinstruments2 The transferee is aholder3 A holder in due courseis subject only to realdefenses4 A holder in due course1 Refers generally to anordinary contract2 The transferee is anassignee3 An assignee is subjectto both real andpersonal defenses4 Generally an assigneemay acquire a betterright than that of aprior party5 A general indorserwarrants the solvencyof prior parties6 An indorser is notliable unless there bepresentment andnotice of dishonor7 Negotiation isgoverned y the NILmerely steps into theshoes of the assignor5 An assignor does notwarrant the solvency ofprior parties unlessexpressly stipulated orthe insolvency is knownto him6 An assignor is liable

even without notice ofdishonor7 Governed by Arts 1624to 1635 (on assignmentof credits) of the CivilCodeMethods of negotiation1 Order Instrument ndash Indorsement and Delivery2 Bearer Instrument ndash Delivery onlyIndorsement - legal transaction effected by the writing ofones own name at thea back of the instrument orb upon a paper (allonge) attached thereto with orwithout additional words specifying the person towhom or to whose order the instrument is to bepayable whereby one not only transfers legal title tothe paper transferred but likewise enters into animplied guaranty that the instrument will be dulypaid1048766 General Rule indorsement must be of the entireinstrumentException where instrument has been paid in part itmay be indorsed as to the residue1048766 Kinds of indorsementa Special - specifies the person to whom or to whoseorder the instrument is to be payable (sec 34)b Blank - specifies no indorseebull Instrument is payable to bearer and may benegotiated by delivery (sec 34)bull May be converted to special indorsement bywriting over the signature of indorser in blankany contract consistent with character ofindorsementc Restrictive - when the indorsement eitheri Prohibits further negotiation of theinstrument orii Constitutes the indorsee the agent of theindorser oriii Vests the title in the indorsee in trust foror to the use of some other persons Butmere absence of words implying power tonegotiate does not make an indorsementrestrictivebull A restrictive indorsement confers upon theindorsee the righta To receive payment of theinstrumentb To bring any action thereon that theindorser could bringc To transfer his rights as such indorseewhere the form of the indorsementauthorizes him to do soBut all subsequent indorsees acquire only thetitle of the first indorsee under the restrictiveindorsement (sec 37)1048766 Such indorsement destroys the negotiability ofthe instrument and bars further negotiation toa holder in due coursed Qualified - constitutes the indorser a mere assignorof the title to the instrument (sec 38)bull made by adding to the indorsers signaturewords like sans recourserdquo ldquowithout recourseindorser not holder at the indorsers ownrisk etcbull The purpose of this kind of indorsement is to

transfer title without guaranteeing payment bythe primary partybull It does not mean however that the qualifiedindorser incurs no liability at all The effect ismerely to limit his liability He is secondarilyliable for breach of is warranties as an indorserunder Sec 65 Thus he is liable if theinstrument is dishonored by NON-ACCEPTANCEor NON-PAYMENT due toa forgeryb lack of good title to the instrumentindorsedc lack of capacity to contract on the part ofprior parties ord the fact that the instrument was valuelessor not valid at the time of the indorsementwhich fact was known to hime Conditional - right of the indorsee is made todepend on the happening of a contingent eventbull Party required to pay may disregard theconditionsbull This kind of indorsement has no effect on thefurther negotiation of the instrument Theparty required to pay if he chooses may makepayment disregarding the condition withoutincurring any liability because he is expresslyauthorized to do so under Sec 39 But theperson who received payment will hold theproceeds subject to the right of the conditionalindorserf Absolute - one by which indorser binds himself topayi upon no other condition than failure ofprior parties to do so andii upon due notice to him of such failureg Joint - indorsement of instrument payable to 2 ormore persons all must indorse in order for thetransaction to operate as a negotiationbull Exceptions to the rule requiring jointindorsementa Where the payees or indorsees arepartners andb Where the payee or indorsee indorsinghas authority to indorse for theothersh Irregular - a person who not otherwise a party toan instrument places thereon his signature in blankbefore delivery1048766 Rules on Indorsementsbull Effect of transfer without indorsementa transfer vests in the transferee such title as thetransferor had therein (assignment) andb the right to have the indorsement of thetransferor1048766 For the purpose of determining whether thetransferee is a holder in due course thenegotiation takes effect as of the time whenthe indorsement is actually made1048766 Applicable only to order instrumentsbull Indorsement of a bearer instrument where aninstrument payable to bearer is indorsed speciallyit may nevertheless be further negotiated bydelivery but the person indorsing specially is liableas indorser to only such holders as make titlethrough his indorsement

Note The rule only applies to originally bearerinstruments If it is originally a BEARER instrumentit will always be a BEARER instrument As opposedto an original order instrument becoming payable tobearer if the same is indorsed specifically it canNO LONGER be negotiated further by mere deliveryit has to be indorsedbull Striking out indorsements the holder may at anytime strike out any indorsement which is notnecessary to his title The indorser whoseindorsement is struck out and all indorserssubsequent to him are thereby relieved fromliability on the instrument1048766 If the instrument is payable to bearer on its facethen whether or not there are indorsements on theback of the instrument would be immaterial to thetitle of the bearer who is presumptively the ownerand holder by his mere possession of suchinstrument None of the indorsement would benecessary to itrsquos title since mere delivery wouldhave been sufficient to transfer title from oneholder to another1048766 Where the instrument is payable to order on itsface the situation is different First theindorsement of a special indorsee is necessary forthe further negotiation of the instrument Secondthe last indorsement controls the method of furthernegotiationbull When prior party (reacquirer) may negotiate where aninstrument is negotiated back to a prior party suchparty may reissue and further negotiate the same Buthe is not entitled to enforce payment thereof againstany intervening party to whom he was personally liable1048766 In the following cases a prior party cannot furthernegotiate the instrument1 Where it is payable to the order of a thirdperson and has been paid by the drawer2 Where it was made or accepted foraccommodation and has been paid by theparty accommodated3 In other cases where the instrument isdischarged when acquired by a prior partyIV HOLDERSClasses of holders1 simple holder (sec 51)2 holder for value (sec 26)3 holder in due course (sec52 57)Holder in Due Course1048766 holder who has taken the instrument under the followingconditionsa That it is complete and regular upon its faceb That he became the holder of it before it wasoverdue and without notice that it has beenpreviously dishonored if such was the factc That he took it in good faith and for valued That at the time it was negotiated to him he hadno notice of any infirmity in the instrument ordefect in the title of the person negotiating it1048766 When title defective - The title of a person whonegotiates an instrument is defective when he obtainedthe instrument or any signature thereto bya fraudb duress or force and fearc other unlawful meansd illegal consideration

e negotiation in breach of faithf circumstances amounting to fraud1048766 What constitutes notice of defect - The person towhom it is negotiated must havea actual knowledge of the infirmity or defect orb knowledge of such facts that his action in taking theinstrument amounted to bad faith (sec 56)1048766 Notice before full amount is paid - where thetransferee receives notice of any infirmity in theinstrument or defect in the title of the personnegotiating the same before he has paid the full amountagreed to be paid he will be deemed a holder in duecourse only to the extent of the amount paid by him1048766 When person not deemed a holder in due course -where an instrument payable on demand is negotiatedon an unreasonable length of time after its issue theholder is not deemed a holder in due coursebull Reasonable time what constitutes - regard is to behad to thea nature of the instrumentb the usage of trade or business with respect tosuch instruments and thec facts of the particular casebull Effect in the hands of any holder other than aholder in due course a negotiable instrument issubject to the same defenses as if it were nonnegotiable1048766 General Rule every holder is deemed prima facie to bea holder in due courseException when it is shown that the title of any personwho has negotiated the instrument was defective theburden is on the holder to prove that he or some personunder whom he claims acquired the title as holder in duecourse (shifting of burden of proof)Limitation the last-mentioned rule does not apply infavor of a party who became bound on the instrumentprior to the acquisition of such defective title (sec 59)1048766 Rights of a holder in due coursea he may sue on the instrument in his own nameb he may receive payment and if payment is in duecourse the instrument is dischargedc holds the instrument free from any defect of title ofprior partiesd holds the instrument free from defenses available toprior parties among themselves ande may enforce payment of the instrument for the fullamount thereof against all parties liable thereon1048766 Payment in due course is payment madea at or after the maturity of the instrumentb to the holder thereofc in good faith and without notice that his title isdefective1048766 Shelter Rulea derives his title through a holder in due course andb who is not himself a party to any fraud or illegalityaffecting the instrument has all the rights of suchformer holder in respect of all parties prior to thelatter1048766 Rights of a Holder NOT in Due Course1 He may sue on the instrument in his own name2 He may receive payment and if the payment is indue course the instrument is discharged3 He is entitled to the instrument but holds it subjectto the same defenses as if it were non-negotiableand4 He has all the rights of the holder in due course

from whom he derived his title in respect of allparties prior to such holder provided he is nothimself a party to any fraud or illegality affectingthe instrumentV LIABILITIES OF PARTIESPersons primarily liable on instrument the person who bythe terms of the instrument is absolutely required to pay thesame All other parties are secondarily liableClassification of parties according to liabilityIN A PROMISSORYNOTE1 Maker2 Indorser3 Persons negotiating by deliveryIN A BILL OFEXCHANGE1 Drawer2 Acceptor3 Indorsers4 Persons negotiating by delivery1 Parties Primarily Liablea Maker (Sec 60)bull engages to pay according to the tenor of theinstrument andbull admits the existence of the payee and his thencapacity to indorse at the time of the makingof the notebull A person placing his name on the face of a noteis prima facie a maker and liable as such andhe is presumed to have acted with care and tohave signed the instrument with full knowledgeof its contentsb Acceptor or Drawee (Sec 62)bull engages to pay according to the tenor of hisacceptancebull admits1 the existence of the drawer2 the genuineness of his signature and3 his capacity and authority to draw theinstrument and4 the existence of the payee and his thencapacity to indorseNote the drawee is not liable until he acceptsthe instrumentbull Where a check is certified by a bank it isequivalent to an acceptance Since certification isequivalent to acceptance a bank which hascertified a check whether at the request of theholder or of a drawer has the same liabilities andmakes the same warranties as an acceptor Itcannot after certification question thegenuineness of the drawerrsquos signature If itdiscovers that such signature is forged subsequentto certification but prior to payment it cannotrefuse to pay on the check If its discovery comesafter it has paid the check it cannot recoverback what it paid on the ground of mistakenpayment unless the holder is guilty of fraud ornegligencebull If a drawee-bank accepts or pays a check despitea stop payment order from the drawer throughoversight or otherwise it cannot refuse to paythe holder or recover what has been paid neithermay it debit the drawerrsquos account unless theacceptance nor payment was made prior to the

receipt of the order2 Parties Secondarily Liablea Drawer (Sec 61)bull admits the existence of the payee and hiscapacity to indorsebull engages that the instrument will be acceptedor paid by the party primarily liable andbull engages that if the instrument is dishonoredand proper proceedings are brought he willpay to the party entitled to be paidb General Indorser (Sec 66)bull Warrants1 genuineness of the instrument2 his good title to it3 capacity to contract of prior parties and4 instrument is valid and subsistingbull engages that the instrument will be acceptedor paid by the party primarily liable andbull engages that if the instrument is dishonoredand proper proceedings are taken he will payto the party entitled to be paidc Irregular Indorser ndash a person not otherwise a partyto an instrument places his signature thereon inblank before deliveryRulesbull If instrument payable to the order of a 3rdperson he is liable to the payee andsubsequent partiesbull If instrument payable to order of maker ordrawer he is liable to all parties subsequent tothe maker or drawerbull If he signs for accommodation of the payee heis liable to all parties subsequent to the payeeDistinctionsPRIMARY PARTY SECONDARY PARTY1 Unconditionally bound2Absolutely required topay upon the maturity ofthe instrument1 Conditionally bound2 Undertakes to pay onlyafter certain conditionshave been fulfilleda due presentment forpayment or acceptance toprimary partyb dishonor by suchparty andc the taking ofproceedings required bylaw after dishonorINDORSER DRAWER1 A party to either a noteor a bill2 Does not make anyadmission regarding theexistence of the payee andhis capacity to indorse and3 Has warranties1 A party only to a bill2 The drawer makes suchadmission3 Makes no warranties buthe engages to pay aftercertain conditions are

complied withGENERAL INDORSER IRREGULAR INDORSER1 Makes either a blank orspecial indorsement2 Indorses the instrumentafter its delivery to thepayee and3 Liable only to partiessubsequent to him1 Always makes a blankindorsement2 Indorses before itsdelivery3 Liable to the payee andsubsequent parties unlesshe signs for theaccommodation of thepayee in which case he isliable only to all partiessubsequent to the payee3 Parties with Limited Liability (sec 65 MetropolFinancing v Sambok 120 SCRA 864)a Qualified Indorser - warrants that1048766 instrument is genuine and in all respects whatit purports to be1048766 he has good title to it1048766 all prior parties had capacity to contract1048766 he has no knowledge of any fact which wouldimpair the validity of the instrument or renderit valuelessb Persons Negotiating by Delivery1048766 warranties same as those of qualified indorsersand1048766 warranties extend to immediate transfereeonlyLIABILITY WARRANTY1 To pay a sum certain2 Requires Notice ofDishonor3 Action can be broughtonly on maturity ofinstrument1 No obligation to pay2 Notice of Dishonor is not arequirement3 Action may be broughtanytimeBY MERE DELIVERY OR BYQUALIFIED INDORSEMENTGENERAL INDORSER1 No secondary liability1 With secondary liability2 Warrants that he has noknowledge of any factwhich would impair thevalidity of the instrumentor render it valueless2 Warrants that theinstrument is at the timeof his indorsement validand subsisting4 Other parties who may be liableGeneral Rule One whose signature does not appear on theinstrument shall not be liable thereonExceptions

1 The principal who signs through an agent is liable2 The forger is liable3 One who indorses in a separate instrument (allonge) isliable4 One who signs his assumed or trade name is liable and5 A person negotiating by delivery (as in the case of abearer instrument) is liable to his immediate indorseeRequisites for an Agent to escape liability1 must be duly authorized2 add words to his signature indicating that he signs as anagent that is for or on behalf of a principal or in arepresentative capacity and3 disclose his principal1048766 A signature by ldquoprocurationrdquo operates as notice that theagent has but a limited authority to sign and theprincipal is bound only in case the agent in so signingacted within the actual limits of his authority (sec 21)1048766 Indorsement or assignment of the NI by a corporation orby an infant passes the property thereinnotwithstanding that from want of capacity thecorporation or infant may incur no liability thereon(sec 22)Accomodation PartyOne who has signed the instrument as maker draweracceptor or indorser without receiving value therefor andfor the purpose of lending his name to some other person1048766 Liability such a person is liable on the instrument to aholder for value notwithstanding such holder at thetime of taking the instrument knew him to be only anaccommodation party1048766 Effects1 accommodation party is generally regarded as asurety for the party accommodated2 When accommodation party makes payment toholder of the note he has the right to sue theaccommodated party for reimbursement1048766 Rights of accommodation parties as against each otherthe other may demand contribution from his coaccommodationparty without first directing his actionagainst the principal debtor provided1 he made the payment by virtue of judicial demandor2 the principal debtor is insolventNote A corporation cannot act as an accommodationparty The issuance or indorsement of negotiableinstrument by a corporation without consideration andfor the accommodation of another is ultra vires(Crisologo v CA 117 SCRA 594)Order of liability of indorsers1 among themselves ndash indorsers are liable prima facie inthe order in which they indorse but evidence isadmissible to show that as between or amongthemselves they have agreed otherwise (sec 68)2 to the holder ndash indorsers are liable in any orderVI DEFENSESKinds1 RealAbsolute Defenses - those that attach to theinstrument itself and are available against all holderswhether in due course or notExamplesa Alterationb Non-delivery of incomplete instrumentc Duress amounting to forgeryd Fraud in factum or fraud in esse contractuse Minority

f Marriage in the case of a wifeg Insanity where the insane person has a guardianappointed by the courth Ultra vires acts of a corporation where thecorporation is absolutely prohibited by its charter orstatute from issuing any commercial paper underany circumstancesi Want of authority of agentj Execution of instrument between public enemiesk Illegality of contract where it is the contract orinstrument itself which is expressly made illegal bystatute andl Forgery2 PersonalEquitable Defenses ndash those which are availableonly against a person not a holder in due course or asubsequent holder who stands in privity with himExamplesa Absence or failure of consideration partial or totalb Want of delivery of complete instrumentc Insertion of wrong date in an instrument where it ispayable at a fixed period after date and it is issuedundated or where it is payable at a fixed periodafter sight and the acceptance is undatedd Filling up of blank contrary to authority given or notwithin reasonable time where the instrument isdeliverede Fraud in inducementf Acquisition of instrument by force duress or fearg Acquisition of the instrument by unlawful meansh Acquisition of the instrument for an illegalconsiderationi Negotiation in breach of faithj Negotiation under circumstances that amount tofraudk Mistakel Intoxication (according to better authority)m Ultra vires acts of corporations where thecorporation has the power to issue negotiable paperbut the issuance was not authorized for theparticular purpose for which it was issuedn Want of authority of agent where he haso apparent authorityp Insanity where there is no notice of insanity on thepart of the one contracting with the insane personandq Illegality of contract where the form orconsideration is illegalFRAUD IN FACTUM FRAUD IN INDUCEMENT1 It exists in those cases inwhich a person withoutnegligence has signed aninstrument which was infact a negotiableinstrument but wasdeceived as to thecharacter of the instrumentand without knowledge ofits as where a not wassigned by one under thebelief that he was signingas a witness to a deed1 It is that which relatedto the quality quantityvalue or character of theconsideration of the

instrument In this casethe signer is led bydeception to execute whathe knows is a negotiableinstrument It implies thatthe signer knew what hewas signing but that he wasinduced by fraud to sign2 This kind of fraud is areal defense because thereis no contract It impliesthat the person did notknow what he was signingBut where the signer by theexercise of reasonablediligence could havediscovered the nature ofthe instrument the fraudcannot be considered a realdefense as where a personwho can read signed a notebut failed to read it2 Such type of fraud is onlya personal defense becauseit does not prevent acontract1048766 Effects of Defenses1 Complete and undelivered instrumentbull as between immediate parties and as regards aremote party other than a holder in due course thedelivery must be authorized in order to be effectualbull where the instrument is in the hands of a holder indue course a valid delivery thereof by all partiesprior to him so as to make them liable to him isconclusively presumedbull where the instrument is no longer in the possessionof a party whose signature appears thereon a validand intentional delivery by him is presumed untilthe contrary is proved2 Incomplete but delivered instrumentbull where the instrument is wanting in any materialparticular the person in possession thereof has aprima facie authority to complete it by filling up theblanks thereinbull it must be filled up strictly in accordance with theauthority given and within a reasonable timebull if any such instrument after completion isnegotiated to a holder in due course it is valid andeffectual for all purposes in his hands and he mayenforce it as if it had been filled up strictly inaccordance with the authority given and within areasonable time3 Incomplete and undelivered instrumentbull it will not if completed and negotiated withoutauthority be a valid contract in the hands of anyholder as against any person whose signature wasplaced thereon before deliverybull However subsequent indorsers are liable4 Forgerybull counterfeit making or fraudulent alteration of anywriting which may consist of1 signing of anotherrsquos name with intent todefraud or2 alteration of an instrument in the nameamount name of payee etc with intent to

defraudbull Effect signature is wholly inoperative and no rightto retain the instrument or to give a dischargetherefore or to enforce payment thereof againstany party thereto can be acquired through or undersuch signaturebull Exception unless the party against whom it issought to enforce such right is precluded fromsetting up the forgery or want of authoritybull Cut-Off RuleGeneral Rule Parties prior to the forged signatureare cut-off from the parties after the forgery in thesense that prior parties cannot be held liable andcan raise the defense of forgery The holder canonly enforce the instrument against parties whobecame such after the forgeryException When the prior parties are precludedfrom setting up the defense of forgeryPersons precluded from setting up the defense offorgery are1 Those who by their acts silence or negligenceare estopped from setting up the defense offorgery2 Those who warrant or admit the genuineness ofthe signature in question These include acts oromissions that amount to ratification expressor impliedNote Persons precluded from setting up thedefense of forgery may still recover damages underthe NCC provisions on quasi-delictsbull Rules on ForgeryA Promissory Notes1 Makerrsquos signature forgedOrder Instrumenta Maker is not liable because he neverbecame a party to the instrumentb Indorsers subsequent to forgery are liablebecause of their warrantiesc Party who made the forgery is liableBearer Instrumenta Maker is not liableb Indorsers may be made liable to thosepersons who obtain title through theirindorsementsc Party who made the forgery is liable2 Payeersquos signature forgedOrder Instrumenta Maker and payee not liableb Indorsers subsequent to the forgery isliablec Party who made the forgery is liableBearer Instrumenta Maker is liable Indorsement is notnecessary to title and the maker engagesto pay holderb Party who made the forgery is liable3 Indorserrsquos signature forgedOrder Instrumenta Maker payee and indorser who signaturewas forged is not liableb Indorsers subsequent to forgery are liablebecause of their warrantiesc Party who made the forgery is liableBearer Instrumenta Maker is liable Indorsement is not

necessary to title and the maker engagesto pay holderb Indorser whose signature was forged is notliablec Party who made the forgery is liableB Bill of Exchange1 Drawerrsquos signature forgedIn an Order Instrumenta Drawer is not liableb Drawee is liable if it paid (nor recourse todrawer) because he admitted thegenuineness of the drawerrsquos signatureDrawee cannot recover from the collectingbank because there is no privity betweenthe collecting bank and the drawer Thereis no warranty as to the signature of thedrawer (Associated Bank v CA)c Indorsers subsequent to forgery are liabled Party who made the forgery is liableIn a Bearer Instrumenta Drawer is not liableb Drawee is liable if it paid Drawee cannotrecover from the collecting bank becauseit is bound to known the drawerrsquossignature since the latter is its depositorc Party who made the forgery is liable2 Payeersquos signature forgedOrder Instrumenta Drawer drawee and payee not liable Cutoffrule appliesb Indorsers subsequent to forgery are liablec Party who made the forgery is liableBearer Instrumenta Drawer is liable His indorsement is notnecessary to pass titleb Drawee is liable No privity betweendrawer and payee because indorsement ofpayee is not necessary (Ang Tek Lian case87 SCRA 383)c Payee is not liabled Collecting bank is liable because ofwarrantye Party who made the forgery is liable3 Indorserrsquos signature forgedOrder Instrumenta Drawer payee and indorser whosesignature was forged are not liableb Drawee is liable if it paidc Indorsers subsequent to forgery are liabled Party who made the forgery is liableBearer Instrumenta Drawer is liable Indorsement is notnecessary to pass titleb Drawee is liablec Indorser whose signature was forged isliable because indorsement is notnecessary to pass titled Party who made the forgery is liable5 Alterationbull Effect the instrument is avoidedbull Exceptions1 against a party who has himself madeauthorized or assented to the alteration2 subsequent indorsers3 holder in due course not a party to the

alteration - he may enforce payment accordingto its original tenorbull Changes constituting material alteration1 date2 sum payable either for principal or interest3 time or place of payment4 number or relations of the parties5 medium or currency in which payment is to bemade6 that which adds a place of payment where noplace of payment is specified and7 any other change or addition which alters theeffect of the instrument in any respectNote a material alteration is one that alters theeffect of the instrument one which changes theitems required to be stated under Sec 1 NILbull Spoliation ndash alteration made by a strangerbull The general rule denies the drawee bankrsquos right tocharge against the drawerrsquos account the amount ofan altered check However the latterrsquos negligencebefore or after the alteration may estop him fromsetting such alteration as against an innocentdrawee bank who has paid the checkbull In cases of altered checks and checks with forgedindorsements the drawee bank must notify andreturn them to the collecting bank before 400 pmof the next day of clearing but the drawee bankmay still return them even after such time providedhe does so within 24 hours from its discovery of thealteration or forged instruments so that recovery ofthe amount may be had BUT in no event beyondthe period fixed or provided by law for filing of alegal action by the returning bank against the banksending the sameNote Alteration is only a partial real defensebecause a holder in due course can still enforce itaccording to its original tenorVII ENFORCEMENT OF LIABILITYPresentment for payment ndash the presentation of aninstrument to the person primarily liable for the purpose ofdemanding and receiving paymentGeneral Rulesbull presentment for payment to charge personsprimarily liable is not necessarybull presentment for payment to charge personssecondarily liable is necessaryExceptionsa drawer - where he has no right to expect or requirethat the drawee or acceptor will pay the instrument(sec 79)b indorser - where the instrument was made oraccepted for his accommodation and he has noreason to expect that the instrument will be paid ifpresentedc when dispensedi where after the exercise of reasonablediligence presentment as required cannotbe madeii where the drawee is a fictitious personiii by waiver of presentment express orimplied (sec 82)d when the instrument has been dishonored by nonacceptance(sec 151)Sufficiency of presentmentIt must be

1 made by the holder or any person authorized toreceive payment on his behalf2 at a reasonable hour on a business day3 at a proper place4 to the person primarily liable or if he is absent orinaccessible to any person found at the placewhere the presentment is madeHow made1 personal demand for payment at the proper place and2 readiness to exhibit the instrument if required and toreceive payment and to surrender the instrument if thedebtor is willing to paybull Purpose of exhibitionTo enable the debtor toa determine the genuineness of the instrument andthe right of the holder to receive payment andb to enable him to reclaim possession upon paymentbull When exhibition excuseda when debtor does not demand to see the instrumentbut refuses payment on some other grounds andb when the instrument is lost or destroyedWhen madebull where the instrument is payable at a fixed ordeterminable future time presentment must be madeon the day it falls duebull where it is payable on demanda promissory note presentment must be made withina reasonable time after its issueb bill of exchange presentment for payment will besufficient if made within a reasonable time afterthe last negotiation thereofbull the check must be presented for payment within areasonable time after its issue or the drawer will bedischarged from liability thereon to the extent of theloss caused by the delayTime of maturitybull every negotiable instrument is payable at the time fixedtherein without gracebull when the day of maturity falls upon a Sunday or aholiday the instruments are to be presented forpayment on the next succeeding business daybull when the day of maturity falls upon a Saturday1048766 Instrument is payable at a fixed or determinablefuture time (time instrument) - presented forpayment is on the next succeeding business day1048766 instruments is payable on demand - at the option ofthe holder be presented for paymenta before 1200 noon on Saturday whenthat entire day is not a holiday orb the next succeeding business dayHow computed1048766 excluding the day from which the time is to begin torun and by including the date of payment1048766 applies to instruments which are payable at a fixedperiod after date after sight or after thathappening of a specified eventProper place for presentmenta Where a place of payment is specified in the instrumentand it is there presentedb Where no place of payment is specified but the addressof the person to make payment is given in theinstrument and it is there presentedc Where no place of payment is specified and no address isgiven and the instrument is presented at the usual placeof business or residence of the person to make payment

d In any other case if presented to the person to makepayment wherever he can be found or if presented athis last known place of business or residenceWhen delay in presentment excused ndash delay is caused bycircumstances beyond the control of the holder and notimputable to his default misconduct or negligence Whenthe cause of delay ceases to operate presentment must bemade with reasonable diligencePresentment for acceptance ndash the production or exhibitionof a bill of exchange to the drawee for his acceptance orpaymentGeneral Rule presentment for acceptance is not necessary torender any party to the bill liableException presentment for acceptance must be madea Where the bill is payable after sight or wherepresentment for acceptance is necessary in order tofix the maturity of the instrument orb Where the bill expressly stipulates that it shall bepresented for acceptance orc Where the bill is drawn payable elsewhere then atthe residence or place of business of the drawee(sec 143)Note in all the above cases the holder must either presentthe bill for acceptance or negotiate it within a reasonabletime otherwise the drawer and all indorsers are dischargedHow made1 made by or on behalf of the holder2 at a reasonable hour3 on a business day4 before the bill is overdue and within reasonabletime5 to the drawee or some person authorized to acceptor refuse acceptance on his behalfDays presentment may be made If date of presentment isa Sunday or a holiday ndash must be made on the nextsucceeding business dayb Saturday ndash before 1200 noon on Saturday providedthat it is not a holidayWhen delay for presentment excuseda bill is drawn payable elsewhere than at the place ofbusiness or the residence of the draweeb holder has no time with the exercise of reasonablediligence to present the bill for acceptance beforepresenting it for payment on the day that it fallsdueEffect does not discharge the drawers and indorsersWhere presentment is excuseda Where the drawee is dead or has absconded or is afictitious person or a person not having capacity tocontract by billb Where presentment can not be made after theexercise of reasonable diligencec Where although presentment has been irregularacceptance has been refused on some other groundNote bill may be treated as dishonored by nonacceptanceDuty of holder where bill not accepted - where a bill isduly presented for acceptance and is not accepted within theprescribed time (24 hours ndash sec 136) the person presentingit must treat the bill as dishonored by non-acceptance or heloses the right of recourse against the drawer and indorsersAcceptance the signification by the drawee of his assent tothe order of the drawer It is the act by which the draweemanifests his consent to comply with the request containedin the bill of exchange directed to himHow made

1) must be in writing2) signed by the drawee3) must not express that the drawee will perform hispromise by any other means than the payment ofmoneybull the holder of the bill presenting the same for acceptancemay require that the acceptance be written on the billand if such request is refused may treat the bill asdishonoredbull where an acceptance is written on a paper other thanthe bill itself it does not bind the acceptor except infavor of a person to whom it is shown and who on thefaith thereof receives the bill for valuePeriod for drawee to accept - allowed 24 hours afterpresentment in which to decide whether or not he will acceptthe bill if acceptance is given it dates as of the day ofpresentationConstructiveImplied acceptance where a drawee refuseswithin 24 hours after delivery or within such other period asthe holder may allow to return the bill accepted or nonacceptedto the holder he will be deemed to have acceptedthe sameNote same effect if the drawee destroys the instrumentKinds1 General - assents without qualification to the order ofthe drawer2 Qualified - which in express terms varies the effect ofthe bill as drawna Conditional - makes payment by the acceptordependent on the fulfillment of a conditiontherein statedb Partial - an acceptance to pay part only of theamount for which the bill is drawni Local - an acceptance to pay only at aparticular placeii Qualified as to timeiii The acceptance of some one or more ofthe drawees but not of all3 ConstructiveRights of parties as to qualified acceptancebull Holder he may refuse to take a qualified acceptanceand if he does not obtain an unqualified acceptance hemay treat the bill as dishonored by non-acceptancebull Drawer or indorser when he receives notice of aqualified acceptance he must within a reasonable timeexpress his dissent to the holder or he will be deemed tohave assented thereto (implied assent)Effect of taking a qualified acceptance the drawer andindorsers are discharged from liability on the bill unless theyhave expressly or impliedly authorized the holder to take aqualified acceptance or subsequently assent theretoOther rules of acceptancebull a bill may be accepted before it has been signed by thedrawer or while otherwise incomplete or when it isoverdue or after it has been dishonored by a previousrefusal to accept or by non paymentbull when a bill payable after sight is dishonored by nonacceptanceand the drawee subsequently accepts it theholder in the absence of any different agreement isentitled to have the bill accepted as of the date of thefirst presentmentbull an unconditional promise in writing to accept a billbefore it is drawn is deemed an actual acceptancein favor of every person who upon the faiththereof receives the bill for value

bull where a check is certified by the bank on which it isdrawn the certification is equivalent to anacceptanceEffect the drawer and all indorsers are dischargedfrom liability thereonAcceptance for Honor - an undertaking by a stranger to a billafter protest for the benefit of any party liable thereon or forthe honor of the person for whose account the bill is drawnwhich acceptance inures also to the benefit of all partiessubsequent to the person for whose honor it is accepted andconditioned to pay the bill when it becomes due if theoriginal drawee does not pay it1048766 Requisites1 the bill must have been protested for dishonorby non-acceptance or for better security2 the acceptor for honor must be a stranger andnot a party already liable on the instrument3 bill must not be overdue4 acceptance for honor must be with the consentof the holder of the instrument1048766 Formalities1 must be in writing2 must indicate that it is an acceptance forhonor3 signed by the acceptor for honor4 must contain an express or implied promise topay money5 the accepted bill for honor must be deliveredto the holderNotice of Dishonor - notice given by the holder or his agentto a party or parties secondarily liable that the instrumentwas dishonored by non-acceptance by the drawee of a bill orby non-payment by the acceptor of a bill or by non-paymentby a maker of a note- If such notice is given by a notary public it is calledPROTEST1048766 Effect of failure to give notice parties secondarily liableare discharged1048766 Requisites1 Given by holder or his agent or by any party whomay be compelled by the holder to pay2 Given to secondary party or his agent3 Given within the periods provided by law4 Given at the proper place1048766 When notice of dishonor dispensed with1 when party to be notified knows about the dishonoractually or constructively2 if waived and3 when after due diligence it cannot be given1048766 How given1 by bringing verbally or2 by writing to the knowledge of the person liable thefact that a specified instrument upon properproceedings taken has not been accepted or hasnot been paid and that the party notified isexpected to pay it1048766 To whom given1 Non-acceptance (bill) ndash to persons secondarilyliable namely the drawer and indorsers as the casemay be2 Non-payment (both bill and note) ndash indorsersNote Notice must be given to persons secondarilyliable Otherwise such parties are dischargedNotice may be given to the party himself or to hisagent

1048766 By whom given1 the holder2 another on behalf of the holder3 any party to the instrument who may be compelledto pay it to the holder and who would have a rightof reimbursement from the party to whom notice isgiven1048766 Notice of dishonor given by or on behalf of a holderinures to the benefit ofa all parties prior to the holder who have a rightof recourse against the party to whom thenotice is given andb all holders subsequent to the holder givingnotice1048766 Notice of dishonor given by or on behalf of a partyentitled to give notice inures to the benefit ofa the holder andb all parties subsequent to the party to whomnotice is given1048766 Where an instrument is dishonored in the hands of anagent he can do either of the ffa directly give notice to persons secondarilyliable thereon orb give notice to his principal In such case hemust give notice within the time allowed bylaw as if he were a holder1048766 A party giving notice is deemed to have given due noticewherea the notice of dishonor is duly addressed andb deposited in the post-office even when thereis miscarriage of mail1048766 Where a party receives notice of dishonor he has afterthe receipt of such notice the same time for givingnotice to antecedent parties that the holder has afterthe dishonor1048766 Notice may be waived either before the time of givingnotice or after the omission to give due notice Waivermay be expressed or implied1048766 As to who are affected by an express waiver depends onwhere the waiver is written1 if it appears in the body or on the face of theinstrument it binds all parties but2 if it is written above the signature of anindorser it binds him only1048766 Notice of dishonor is not required to be given to thedrawer in any of the ff cases1 drawer and drawee are the same2 drawee is a fictitious person or not having thecapacity to contract3 drawer is the person to whom the instrument ispresented for payment4 the drawer has no right to expect or requirethat the drawee or acceptor will honor theinstrument5 where the drawer has countermandedpayment1048766 Notice of dishonor is not required to be given to anindorser in the ff cases1 drawee is a fictitious person or does not havethe capacity to contract and indorser wasaware of that fact at the time he indorsed theinstrument2 indorser is the person to whom the instrumentis presented for payment3 instrument was made or accepted for his

accommodation1048766 If an instrument is not accepted by the drawee there isno sense presenting it again for payment and notice ofdishonor must at once be given If there wasacceptance presentment for payment is still requiredand if payment is refused there is a need for notice ofdishonor1048766 An omission to give notice of dishonor by non-acceptancedoes not prejudice the rights of a holder in due coursesubsequent to the omissionDishonor by Non-PaymentWhen instrument dishonored by non-paymenta it is duly presented for payment and payment isrefused or cannot be obtained orb presentment is excused and the instrument isoverdue and unpaidEffect of dishonor an immediate right of recourse to allparties secondarily liable thereon accrues to the holderDishonor by Non-AcceptanceInstancesa When it is duly presented for acceptance and suchan acceptance is refused or can not be obtained orb When presentment for acceptance is excused andthe bill is not accepted (sec 149)Effect an immediate right of recourse against thedrawer and indorsers accrues to the holder and nopresentment for payment is necessaryNote where a bill is duly presented for acceptance andis not accepted within the prescribed time (24 hours)the person presenting it must treat the bill as dishonoredby non-acceptanceWhen Instrument Considered to be Dishonoreda If it is not accepted when presented for acceptanceorb If it is not paid when presented for payment atmaturity orc If presentment is excused or waived and theinstrument is past due and unpaidProtest - the formal instrument executed usually by a notarypublic certifying that the legal steps necessary to fix theliability of the drawee and the indorsers have been taken1048766 Effect of waiver where protest is waived presentmentand notice of dishonor are also deemed waived Butwhere the notice of dishonor is waived presentment isnot waived1048766 Applicability protest is necessary only in case of foreignbills of exchange which have been dishonored by nonacceptanceor non-payment as the case may be If it isnot so protested the drawer and indorsers aredischarged1048766 Foreign Bill of Exchange1 Drawn in the Philippines but payable outside thePhilippines2 Payable in the Philippines but drawn outside thePhilippines1048766 Protest may be made by1 a notary public or2 any respectable resident of the place where the billis dishonored in the presence of 2 or more crediblewitnessesProtest for better security is one made by the holder of a billafter it has been accepted but before it matures against thedrawer and indorsers where the acceptor has been adjudgeda bankrupt or an insolvent or has made an assignment forthe benefit of the creditors

VIII DISCHARGEDischarge of instrument - a release of all parties whetherprimary or secondary from the obligations arisingthereunder It renders the instrument without force andeffect and consequently it can no longer be negotiatedInstances1 By payment in due course by or on behalf of theprincipal debtor2 Payment by accommodated party3 Intentional cancellation by the holder4 By any act which will discharge a simple contractfor the payment of money5 When the principal debtor becomes the holder ofthe instrument at or after maturity in his own rightBy any act which would discharge a simple contract1 Payment or performance2 Loss of the thing due3 Condonation or remission4 Confusion or Merger5 Compensation6 Novation7 Annulment or Rescission8 Fulfillment of a resolutory condition9 PrescriptionWhen persons secondarily liable on the instrument aredischarged1 By any act which discharges the instrument2 By the intentional cancellation of his signature bythe holder3 By the discharge of a prior party4 By a valid tender of payment made by a prior party5 By the release of the principal debtor unless theholderrsquos right of recourse against the partysecondarily liable is expressly reserved6 By any agreement binding upon the holder to extendthe time of payment or to postpone the holderrsquosright to enforce the instrument1048766 In the following cases the agreement to extend the timeof payment does not discharge a party secondarily liable1 where the extension of time is consented to by suchparty2 where the holder expressly reserves his right ofrecourse against such party1048766 Payment at or after maturity by a party secondarilyliable does not discharge the instrument It only cancelshis own liability and that of the parties subsequent tohimEffects of Renunciation1 A renunciation in favor of a secondary party may bemade by the holder before at or after maturity ofthe instrument Effect only such secondary party isdischarged and all parties subsequent to him but theinstrument itself remains in force2 A renunciation in favor of the principal debtor maybe effected at or after maturity Effect theinstrument is discharged and all parties theretoprovided the renunciation is made unconditionallyand absolutelyNote In either case renunciation does not affect therights of a holder in due course without notice1048766 Cancellation of an instrument includes tearing erasureobliteration or burning It is not limited to writing ofthe word lsquocancelledrdquo or ldquopaidrdquo or drawing of crisscrosslines across the instrumentPayment for Honor - payment made by a person whether a

party to the bill or not after it has been protested for nonpaymentfor the benefit of any party liable thereon or forthe benefit of the person for whose account it was drawn1048766 Requisites1 the bill has been dishonored by non-payment2 it has been protested for non-payment3 payment supra protest (another term for paymentfor honor because prior protest for non-payment isrequired) is made by any person even by a partythereto4 the payment is attested by a notarial act of honorwhich must be appended to the protest or form anextension of it5 the notarial act must be based on the declarationmade by the payor for honor or his agent of hisintention to pay the bill for honor and for whosehonor he paysNote If the above formalities are not complied withpayment will operate as a mere voluntary payment andthe payor will acquire no right to full reimbursementagainst the party for whose honor he pays1048766 In payment for honor the payee cannot refuse paymentIf he refuses he cannot recover from the parties whowould have been discharged had he accepted the sameIn acceptance for honor the holderrsquos consent isnecessary1048766 The payor for honor is given the right to receive both thebill and the protest obviously to enable him to enforcehis rights against the parties who are liable to himIX CHECKSCheck- a bill of exchange drawn on a bank payable ondemandCheck distinguished from and ordinary bill of exchangeBILLOF EXCHANGE CHECKNot necessarily drawnon a deposit The draweeneed not be a bankIt is necessary that a checkis drawn on a bank depositThe drawee is always abankDeath of a drawer of aBOE with the knowledgeof the bank does notrevoke the authority of thedrawee to payDeath of the drawer of acheck with the knowledgeof the bank revokes theauthority of the banker topayMay be presented forpayment within areasonable time after itslast negotiation because itmay be further negotiatedMust be presented forpayment within areasonable time after itsissueMay be payable on demandor at a fixed ordeterminable future timeAlways payable on demandKinds of checks

1 Managerrsquos Cashierrsquos Check ndash drawn by a bank on itselfand therefore it is a primary obligation of the banko It is accepted in advance by the act of itsissuance and is not subject tocountermand by the payor afterindorsemento The bankrsquos manager signs managerrsquos checkwhile cashierrsquos check is signed by the bankcashier2 Certified Check ndash one drawn by a depositor upon funds tohis credit in a bank which a proper officer of the bankcertifies will be paid when duly presented for payment3 Stale check ndash one which has not been presented forpayment within a reasonable time after its issue4 Crossed check ndash when 2 parallel lines are drawn acrossits face or across a corner thereof If the name of a bankappears between the parallel lines the check is said tobe specially crossed and payment should be made onlyif presented by the named bank If no name appearsbetween the parallel lines the check is said to begenerally crossed and payment should be made onlyupon presentment by some bankEffects of crossing a checka That the check may not be encashed but only bedeposited in the bankb That the check may be negotiated only once to onewho has an account with a bank andc That the act of crossing the check serves as awarning to the holder that the check has beenissued for a definite purpose so that he must inquireif he has received the check pursuant to thatpurpose5 Memorandum Check ndash it is like an ordinary check exceptthat the word ldquomemorandumrdquo ldquomemrdquo or ldquomemordquo iswritten upon the face of the check signifying that thedrawer engages to pay the bona fide holder absolutelyand not upon a condition to pay upon presentment atmaturity and if due notice of the presentment and nonpaymentshould be given6 Travelerrsquos check ndash one upon which the holderrsquos signaturemust appear twice one to be affixed by him at the timeit is issued and the second o counter-signature to beaffixed by him in the presence of the payee before it ispaid otherwise it is incompleteIron Clad Rule Prohibits the countermanding ofpayment of certified checks (Republic of the Philippinesv PNB GR No 16106 December 1 1961)

1048766 An instrument payable upon a contingency is notnegotiable and the happening of the event does notcure the defect (sec 4)1048766 A promise to pay ldquowhen ablerdquo ldquoas soon as I canrdquo etcwithout specification of an absolute date is notnegotiable However there is a difference of opinion asto whether it is a conditional promise or an absolutepromise to pay at un unreasonable timea Under the first view negotiability is destroyedboth by the condition and by want of a fixedtime for paymentb Under the second view by the generalprinciple that a promise to pay within areasonable time is not so certain as to renderan instrument negotiableAftersight Draft - payable only after the expiration of thestipulated period from acceptance (legal sight)When payable on demanda When it is so expressed to be payable on demandor at sight or on presentation orb In which no time for payment is expressedNote Where an instrument is issued accepted or indorsedwhen overdue it is as regards the person so issuingaccepting or indorsing it payable on demand4 Payable to order or to bearerWhen payable to orderThe instrument is drawn payablea To the order of a specified person orb To him or his order1048766 The payee must be named or otherwise indicated thereinwith reasonable certainty1048766 It may be drawn payable to the order ofa A payee who is not maker drawer or drawee orb The drawer or maker orc The drawee ord Two or more payees jointly ore One or some of several payees orf The holder of an office for the time beingWhen payable to bearera When it is expressed to be so payable orb When it is payable to a person named therein orbearer orc When it is payable to the order of a fictitious ornon-existing person and such fact was known to theperson making it so payable ord When the name of the payee does not purport to bethe name of any person ore When the only or last indorsement is anindorsement in blank (Sec 9)5 Identification of the drawee1048766 Where the instrument is addressed to a drawee(meaning in a bill of exchange) he must be namedor otherwise indicated with reasonable certaintyThe holder must know to whom he should present itfor acceptance andor payment otherwise thepurpose of negotiable instrument as a tool incommercial dealings will be greatly hampered(Reviewer on Commercial Law Sundiang andAquino)1048766 A bill may be addressed to more than one draweejointly whether they are partners or not but not totwo or more drawers in the alternative or insuccession (Sec 128)Test of Negotiability presence of requirements in Section 1of NIL

Factors that Determine Negotiability1 The whole instrument itself2 Only what appears on the face of the instrument3 Provisions of the NIL Sec1BAR QUESTION (Q) Which of the followingstipulations or features of a promissory notes (PN)affect or do not affect its negotiability assumingthat the PN is otherwise negotiable Indicate youranswer by writing the paragraph number of thestipulation or feature of the PN as shown below andyour corresponding answer either lsquoAffectedrdquo orldquoNot affectedrdquo Explain(a) The date of the PN is ldquoFebruary 30 2002rdquo(b) The PN bears interest payable on the last dayof each calendar quarter at a rate equal to 5above the then prevailing 91-day Tbill rate aspublished at the beginning of such calendarquarter(c) The PN gives the maker the option to makepayment either in money or in quantity ofpalay of equivalent value(d) The PN gives the holder the option either torequire payment in money or to require themaker to serve as the bodyguard or escort ofthe holder for 0 daysSUGGESTED ANSWER (SA)(a) NOT AFFECTED The date is not one of therequirements for negotiability(b) NOT AFFECTED The interest is to be computedat a particular time and is determinable Itdoes not make the sum uncertain or thepromise conditional(c) AFFECTED Giving the maker an option rendersthe promise conditional(d) NOT AFFECTED Giving the holder an optiondoes not make the promise conditionalAdditional provisions not affecting negotiabilityGeneral Rule the instrument is non-negotiable if it containsa promise or order to do any act in addition to the paymentof moneyExceptionsa authorizes the sale of collateral securities in casethe instrument be not paid at maturity orb authorizes a confession of judgment if theinstrument be not paid at maturity orc waives the benefit of any law intended for theadvantage or protection of the obligor ord gives the holder an election to require something tobe done in lieu of payment of money1048766 Confession of judgment ndash a written statement signed bythe defendant setting forth the basis of liability andauthorizing the entry of judgment thereon1048766 Kinds of confession of judgmenta cognivit actiomen ndash literally means ldquohe hasconfessed actionrdquo It is a written confession ofaction by the defendant acknowledging isindebtedness to the plaintiff after the action hasbeen filed It is given after the action is brought tosave expensesb relicta verificationem ndash literally means ldquohispleadings being abandonedrdquo It is confession ofjudgment by withdrawal of the defenseNote However warrants of attorney to confess judgmentare not authorized nor contemplated by our law They arevoid as against public policy because they enlarge the field

for fraud because under these instruments the promissorybargains away his right to a day in court The NIL does notsanction nor validated any provision otherwise illegalOmissions and Provisions that do not affect Negotiability(Sec 6)The validity and negotiable character of an instrument arenot affected by the fact thata it is not dated orb does not specify the value given or that any valuehad been given therefore orc does not specify the place where it is drawn or theplace where it is payable ord bears a seal ore designates a particular kind of current money inwhich payment is to be made1048766 if it is not dated the instrument will be considered to bedated as of the time it was issued1048766 consideration for the instrument is presumed (art 154NCC amp sec 25 NIL)1048766 sec 73 specifies where presentment for payment shouldbe made when the place of payment is not specifiedRules of constructiona Where the sum payable is expressed in words and also infigures and there is a discrepancy between the two thesum denoted by the words is the sum payable but if thewords are ambiguous or uncertain reference may be hadto the figures to fix the amountb Where the instrument provides for the payment ofinterest without specifying the date from which interestis to run the interest runs from the date of theinstrument and if the instrument is undated from theissue thereofc Where the instrument is not dated it will be consideredto be dated as of the time it was issuedd Where there is a conflict between the written andprinted provisions of the instrument the writtenprovisions prevaile Where the instrument is so ambiguous that there isdoubt whether it is a bill or note the holder may treat itas either at his electionf Where a signature is so placed upon the instrument thatit is not clear in what capacity the person making thesame intended to sign he is to be deemed an indorserg Where an instrument containing the word I promise topay is signed by two or more persons they are deemedto be jointly and severally liable thereon (sec 17)Consideration1048766 Presumption of consideration - every negotiableinstrument is deemed prima facie to have been issuedfor a valuable consideration and every person whosesignature appears thereon to have become a partythereto for value1048766 Value - any consideration sufficient to support a simplecontract An antecedent or pre-existing debt constitutesvalue and is deemed such whether the instrument ispayable on demand or at a future time1048766 Holder for value ndash one who has given a valuableconsideration for the instrument issued or negotiated tohimbull What constitutes holder for valuewhere value has at any time been given for theinstrument the holder is deemed a holder for valuein respect to all parties who become such prior tothat timebull where the holder has a lien on the instrument

arising either from contract or by implication oflaw he is deemed a holder for value to the extentof his lien1048766 Effect of want of consideration a matter of defense asagainst any person not a holder in due course andpartial failure of consideration is a defense pro tantowhether the failure is an ascertained and liquidatedamount or otherwiseAbsence of consideration ndash total lack of any validconsideration for the contract is only a personaldefenseFailure of consideration ndash failure or refusal or one partyto do perform or comply with the consideration agreedupon is also only a personal defenseIII TRANSFER AND NEGOTIATIONTypes of transfers1 Assignment - transfer of title to the instrument with theassignee generally taking only such title as his assignorhas subject to all defenses available against hisassignor2 Negotiation - transfer of a negotiable instrument fromone person to another made in such a manner as toconstitute the transferee the holder thereof3 By Operation of Law ndash such as by succession byinsolvencyDistinctions between Negotiation and AssignmentNEGOTIATION ASSIGNMENT1 Refers only tonegotiableinstruments2 The transferee is aholder3 A holder in due courseis subject only to realdefenses4 A holder in due course1 Refers generally to anordinary contract2 The transferee is anassignee3 An assignee is subjectto both real andpersonal defenses4 Generally an assigneemay acquire a betterright than that of aprior party5 A general indorserwarrants the solvencyof prior parties6 An indorser is notliable unless there bepresentment andnotice of dishonor7 Negotiation isgoverned y the NILmerely steps into theshoes of the assignor5 An assignor does notwarrant the solvency ofprior parties unlessexpressly stipulated orthe insolvency is knownto him6 An assignor is liable

even without notice ofdishonor7 Governed by Arts 1624to 1635 (on assignmentof credits) of the CivilCodeMethods of negotiation1 Order Instrument ndash Indorsement and Delivery2 Bearer Instrument ndash Delivery onlyIndorsement - legal transaction effected by the writing ofones own name at thea back of the instrument orb upon a paper (allonge) attached thereto with orwithout additional words specifying the person towhom or to whose order the instrument is to bepayable whereby one not only transfers legal title tothe paper transferred but likewise enters into animplied guaranty that the instrument will be dulypaid1048766 General Rule indorsement must be of the entireinstrumentException where instrument has been paid in part itmay be indorsed as to the residue1048766 Kinds of indorsementa Special - specifies the person to whom or to whoseorder the instrument is to be payable (sec 34)b Blank - specifies no indorseebull Instrument is payable to bearer and may benegotiated by delivery (sec 34)bull May be converted to special indorsement bywriting over the signature of indorser in blankany contract consistent with character ofindorsementc Restrictive - when the indorsement eitheri Prohibits further negotiation of theinstrument orii Constitutes the indorsee the agent of theindorser oriii Vests the title in the indorsee in trust foror to the use of some other persons Butmere absence of words implying power tonegotiate does not make an indorsementrestrictivebull A restrictive indorsement confers upon theindorsee the righta To receive payment of theinstrumentb To bring any action thereon that theindorser could bringc To transfer his rights as such indorseewhere the form of the indorsementauthorizes him to do soBut all subsequent indorsees acquire only thetitle of the first indorsee under the restrictiveindorsement (sec 37)1048766 Such indorsement destroys the negotiability ofthe instrument and bars further negotiation toa holder in due coursed Qualified - constitutes the indorser a mere assignorof the title to the instrument (sec 38)bull made by adding to the indorsers signaturewords like sans recourserdquo ldquowithout recourseindorser not holder at the indorsers ownrisk etcbull The purpose of this kind of indorsement is to

transfer title without guaranteeing payment bythe primary partybull It does not mean however that the qualifiedindorser incurs no liability at all The effect ismerely to limit his liability He is secondarilyliable for breach of is warranties as an indorserunder Sec 65 Thus he is liable if theinstrument is dishonored by NON-ACCEPTANCEor NON-PAYMENT due toa forgeryb lack of good title to the instrumentindorsedc lack of capacity to contract on the part ofprior parties ord the fact that the instrument was valuelessor not valid at the time of the indorsementwhich fact was known to hime Conditional - right of the indorsee is made todepend on the happening of a contingent eventbull Party required to pay may disregard theconditionsbull This kind of indorsement has no effect on thefurther negotiation of the instrument Theparty required to pay if he chooses may makepayment disregarding the condition withoutincurring any liability because he is expresslyauthorized to do so under Sec 39 But theperson who received payment will hold theproceeds subject to the right of the conditionalindorserf Absolute - one by which indorser binds himself topayi upon no other condition than failure ofprior parties to do so andii upon due notice to him of such failureg Joint - indorsement of instrument payable to 2 ormore persons all must indorse in order for thetransaction to operate as a negotiationbull Exceptions to the rule requiring jointindorsementa Where the payees or indorsees arepartners andb Where the payee or indorsee indorsinghas authority to indorse for theothersh Irregular - a person who not otherwise a party toan instrument places thereon his signature in blankbefore delivery1048766 Rules on Indorsementsbull Effect of transfer without indorsementa transfer vests in the transferee such title as thetransferor had therein (assignment) andb the right to have the indorsement of thetransferor1048766 For the purpose of determining whether thetransferee is a holder in due course thenegotiation takes effect as of the time whenthe indorsement is actually made1048766 Applicable only to order instrumentsbull Indorsement of a bearer instrument where aninstrument payable to bearer is indorsed speciallyit may nevertheless be further negotiated bydelivery but the person indorsing specially is liableas indorser to only such holders as make titlethrough his indorsement

Note The rule only applies to originally bearerinstruments If it is originally a BEARER instrumentit will always be a BEARER instrument As opposedto an original order instrument becoming payable tobearer if the same is indorsed specifically it canNO LONGER be negotiated further by mere deliveryit has to be indorsedbull Striking out indorsements the holder may at anytime strike out any indorsement which is notnecessary to his title The indorser whoseindorsement is struck out and all indorserssubsequent to him are thereby relieved fromliability on the instrument1048766 If the instrument is payable to bearer on its facethen whether or not there are indorsements on theback of the instrument would be immaterial to thetitle of the bearer who is presumptively the ownerand holder by his mere possession of suchinstrument None of the indorsement would benecessary to itrsquos title since mere delivery wouldhave been sufficient to transfer title from oneholder to another1048766 Where the instrument is payable to order on itsface the situation is different First theindorsement of a special indorsee is necessary forthe further negotiation of the instrument Secondthe last indorsement controls the method of furthernegotiationbull When prior party (reacquirer) may negotiate where aninstrument is negotiated back to a prior party suchparty may reissue and further negotiate the same Buthe is not entitled to enforce payment thereof againstany intervening party to whom he was personally liable1048766 In the following cases a prior party cannot furthernegotiate the instrument1 Where it is payable to the order of a thirdperson and has been paid by the drawer2 Where it was made or accepted foraccommodation and has been paid by theparty accommodated3 In other cases where the instrument isdischarged when acquired by a prior partyIV HOLDERSClasses of holders1 simple holder (sec 51)2 holder for value (sec 26)3 holder in due course (sec52 57)Holder in Due Course1048766 holder who has taken the instrument under the followingconditionsa That it is complete and regular upon its faceb That he became the holder of it before it wasoverdue and without notice that it has beenpreviously dishonored if such was the factc That he took it in good faith and for valued That at the time it was negotiated to him he hadno notice of any infirmity in the instrument ordefect in the title of the person negotiating it1048766 When title defective - The title of a person whonegotiates an instrument is defective when he obtainedthe instrument or any signature thereto bya fraudb duress or force and fearc other unlawful meansd illegal consideration

e negotiation in breach of faithf circumstances amounting to fraud1048766 What constitutes notice of defect - The person towhom it is negotiated must havea actual knowledge of the infirmity or defect orb knowledge of such facts that his action in taking theinstrument amounted to bad faith (sec 56)1048766 Notice before full amount is paid - where thetransferee receives notice of any infirmity in theinstrument or defect in the title of the personnegotiating the same before he has paid the full amountagreed to be paid he will be deemed a holder in duecourse only to the extent of the amount paid by him1048766 When person not deemed a holder in due course -where an instrument payable on demand is negotiatedon an unreasonable length of time after its issue theholder is not deemed a holder in due coursebull Reasonable time what constitutes - regard is to behad to thea nature of the instrumentb the usage of trade or business with respect tosuch instruments and thec facts of the particular casebull Effect in the hands of any holder other than aholder in due course a negotiable instrument issubject to the same defenses as if it were nonnegotiable1048766 General Rule every holder is deemed prima facie to bea holder in due courseException when it is shown that the title of any personwho has negotiated the instrument was defective theburden is on the holder to prove that he or some personunder whom he claims acquired the title as holder in duecourse (shifting of burden of proof)Limitation the last-mentioned rule does not apply infavor of a party who became bound on the instrumentprior to the acquisition of such defective title (sec 59)1048766 Rights of a holder in due coursea he may sue on the instrument in his own nameb he may receive payment and if payment is in duecourse the instrument is dischargedc holds the instrument free from any defect of title ofprior partiesd holds the instrument free from defenses available toprior parties among themselves ande may enforce payment of the instrument for the fullamount thereof against all parties liable thereon1048766 Payment in due course is payment madea at or after the maturity of the instrumentb to the holder thereofc in good faith and without notice that his title isdefective1048766 Shelter Rulea derives his title through a holder in due course andb who is not himself a party to any fraud or illegalityaffecting the instrument has all the rights of suchformer holder in respect of all parties prior to thelatter1048766 Rights of a Holder NOT in Due Course1 He may sue on the instrument in his own name2 He may receive payment and if the payment is indue course the instrument is discharged3 He is entitled to the instrument but holds it subjectto the same defenses as if it were non-negotiableand4 He has all the rights of the holder in due course

from whom he derived his title in respect of allparties prior to such holder provided he is nothimself a party to any fraud or illegality affectingthe instrumentV LIABILITIES OF PARTIESPersons primarily liable on instrument the person who bythe terms of the instrument is absolutely required to pay thesame All other parties are secondarily liableClassification of parties according to liabilityIN A PROMISSORYNOTE1 Maker2 Indorser3 Persons negotiating by deliveryIN A BILL OFEXCHANGE1 Drawer2 Acceptor3 Indorsers4 Persons negotiating by delivery1 Parties Primarily Liablea Maker (Sec 60)bull engages to pay according to the tenor of theinstrument andbull admits the existence of the payee and his thencapacity to indorse at the time of the makingof the notebull A person placing his name on the face of a noteis prima facie a maker and liable as such andhe is presumed to have acted with care and tohave signed the instrument with full knowledgeof its contentsb Acceptor or Drawee (Sec 62)bull engages to pay according to the tenor of hisacceptancebull admits1 the existence of the drawer2 the genuineness of his signature and3 his capacity and authority to draw theinstrument and4 the existence of the payee and his thencapacity to indorseNote the drawee is not liable until he acceptsthe instrumentbull Where a check is certified by a bank it isequivalent to an acceptance Since certification isequivalent to acceptance a bank which hascertified a check whether at the request of theholder or of a drawer has the same liabilities andmakes the same warranties as an acceptor Itcannot after certification question thegenuineness of the drawerrsquos signature If itdiscovers that such signature is forged subsequentto certification but prior to payment it cannotrefuse to pay on the check If its discovery comesafter it has paid the check it cannot recoverback what it paid on the ground of mistakenpayment unless the holder is guilty of fraud ornegligencebull If a drawee-bank accepts or pays a check despitea stop payment order from the drawer throughoversight or otherwise it cannot refuse to paythe holder or recover what has been paid neithermay it debit the drawerrsquos account unless theacceptance nor payment was made prior to the

receipt of the order2 Parties Secondarily Liablea Drawer (Sec 61)bull admits the existence of the payee and hiscapacity to indorsebull engages that the instrument will be acceptedor paid by the party primarily liable andbull engages that if the instrument is dishonoredand proper proceedings are brought he willpay to the party entitled to be paidb General Indorser (Sec 66)bull Warrants1 genuineness of the instrument2 his good title to it3 capacity to contract of prior parties and4 instrument is valid and subsistingbull engages that the instrument will be acceptedor paid by the party primarily liable andbull engages that if the instrument is dishonoredand proper proceedings are taken he will payto the party entitled to be paidc Irregular Indorser ndash a person not otherwise a partyto an instrument places his signature thereon inblank before deliveryRulesbull If instrument payable to the order of a 3rdperson he is liable to the payee andsubsequent partiesbull If instrument payable to order of maker ordrawer he is liable to all parties subsequent tothe maker or drawerbull If he signs for accommodation of the payee heis liable to all parties subsequent to the payeeDistinctionsPRIMARY PARTY SECONDARY PARTY1 Unconditionally bound2Absolutely required topay upon the maturity ofthe instrument1 Conditionally bound2 Undertakes to pay onlyafter certain conditionshave been fulfilleda due presentment forpayment or acceptance toprimary partyb dishonor by suchparty andc the taking ofproceedings required bylaw after dishonorINDORSER DRAWER1 A party to either a noteor a bill2 Does not make anyadmission regarding theexistence of the payee andhis capacity to indorse and3 Has warranties1 A party only to a bill2 The drawer makes suchadmission3 Makes no warranties buthe engages to pay aftercertain conditions are

complied withGENERAL INDORSER IRREGULAR INDORSER1 Makes either a blank orspecial indorsement2 Indorses the instrumentafter its delivery to thepayee and3 Liable only to partiessubsequent to him1 Always makes a blankindorsement2 Indorses before itsdelivery3 Liable to the payee andsubsequent parties unlesshe signs for theaccommodation of thepayee in which case he isliable only to all partiessubsequent to the payee3 Parties with Limited Liability (sec 65 MetropolFinancing v Sambok 120 SCRA 864)a Qualified Indorser - warrants that1048766 instrument is genuine and in all respects whatit purports to be1048766 he has good title to it1048766 all prior parties had capacity to contract1048766 he has no knowledge of any fact which wouldimpair the validity of the instrument or renderit valuelessb Persons Negotiating by Delivery1048766 warranties same as those of qualified indorsersand1048766 warranties extend to immediate transfereeonlyLIABILITY WARRANTY1 To pay a sum certain2 Requires Notice ofDishonor3 Action can be broughtonly on maturity ofinstrument1 No obligation to pay2 Notice of Dishonor is not arequirement3 Action may be broughtanytimeBY MERE DELIVERY OR BYQUALIFIED INDORSEMENTGENERAL INDORSER1 No secondary liability1 With secondary liability2 Warrants that he has noknowledge of any factwhich would impair thevalidity of the instrumentor render it valueless2 Warrants that theinstrument is at the timeof his indorsement validand subsisting4 Other parties who may be liableGeneral Rule One whose signature does not appear on theinstrument shall not be liable thereonExceptions

1 The principal who signs through an agent is liable2 The forger is liable3 One who indorses in a separate instrument (allonge) isliable4 One who signs his assumed or trade name is liable and5 A person negotiating by delivery (as in the case of abearer instrument) is liable to his immediate indorseeRequisites for an Agent to escape liability1 must be duly authorized2 add words to his signature indicating that he signs as anagent that is for or on behalf of a principal or in arepresentative capacity and3 disclose his principal1048766 A signature by ldquoprocurationrdquo operates as notice that theagent has but a limited authority to sign and theprincipal is bound only in case the agent in so signingacted within the actual limits of his authority (sec 21)1048766 Indorsement or assignment of the NI by a corporation orby an infant passes the property thereinnotwithstanding that from want of capacity thecorporation or infant may incur no liability thereon(sec 22)Accomodation PartyOne who has signed the instrument as maker draweracceptor or indorser without receiving value therefor andfor the purpose of lending his name to some other person1048766 Liability such a person is liable on the instrument to aholder for value notwithstanding such holder at thetime of taking the instrument knew him to be only anaccommodation party1048766 Effects1 accommodation party is generally regarded as asurety for the party accommodated2 When accommodation party makes payment toholder of the note he has the right to sue theaccommodated party for reimbursement1048766 Rights of accommodation parties as against each otherthe other may demand contribution from his coaccommodationparty without first directing his actionagainst the principal debtor provided1 he made the payment by virtue of judicial demandor2 the principal debtor is insolventNote A corporation cannot act as an accommodationparty The issuance or indorsement of negotiableinstrument by a corporation without consideration andfor the accommodation of another is ultra vires(Crisologo v CA 117 SCRA 594)Order of liability of indorsers1 among themselves ndash indorsers are liable prima facie inthe order in which they indorse but evidence isadmissible to show that as between or amongthemselves they have agreed otherwise (sec 68)2 to the holder ndash indorsers are liable in any orderVI DEFENSESKinds1 RealAbsolute Defenses - those that attach to theinstrument itself and are available against all holderswhether in due course or notExamplesa Alterationb Non-delivery of incomplete instrumentc Duress amounting to forgeryd Fraud in factum or fraud in esse contractuse Minority

f Marriage in the case of a wifeg Insanity where the insane person has a guardianappointed by the courth Ultra vires acts of a corporation where thecorporation is absolutely prohibited by its charter orstatute from issuing any commercial paper underany circumstancesi Want of authority of agentj Execution of instrument between public enemiesk Illegality of contract where it is the contract orinstrument itself which is expressly made illegal bystatute andl Forgery2 PersonalEquitable Defenses ndash those which are availableonly against a person not a holder in due course or asubsequent holder who stands in privity with himExamplesa Absence or failure of consideration partial or totalb Want of delivery of complete instrumentc Insertion of wrong date in an instrument where it ispayable at a fixed period after date and it is issuedundated or where it is payable at a fixed periodafter sight and the acceptance is undatedd Filling up of blank contrary to authority given or notwithin reasonable time where the instrument isdeliverede Fraud in inducementf Acquisition of instrument by force duress or fearg Acquisition of the instrument by unlawful meansh Acquisition of the instrument for an illegalconsiderationi Negotiation in breach of faithj Negotiation under circumstances that amount tofraudk Mistakel Intoxication (according to better authority)m Ultra vires acts of corporations where thecorporation has the power to issue negotiable paperbut the issuance was not authorized for theparticular purpose for which it was issuedn Want of authority of agent where he haso apparent authorityp Insanity where there is no notice of insanity on thepart of the one contracting with the insane personandq Illegality of contract where the form orconsideration is illegalFRAUD IN FACTUM FRAUD IN INDUCEMENT1 It exists in those cases inwhich a person withoutnegligence has signed aninstrument which was infact a negotiableinstrument but wasdeceived as to thecharacter of the instrumentand without knowledge ofits as where a not wassigned by one under thebelief that he was signingas a witness to a deed1 It is that which relatedto the quality quantityvalue or character of theconsideration of the

instrument In this casethe signer is led bydeception to execute whathe knows is a negotiableinstrument It implies thatthe signer knew what hewas signing but that he wasinduced by fraud to sign2 This kind of fraud is areal defense because thereis no contract It impliesthat the person did notknow what he was signingBut where the signer by theexercise of reasonablediligence could havediscovered the nature ofthe instrument the fraudcannot be considered a realdefense as where a personwho can read signed a notebut failed to read it2 Such type of fraud is onlya personal defense becauseit does not prevent acontract1048766 Effects of Defenses1 Complete and undelivered instrumentbull as between immediate parties and as regards aremote party other than a holder in due course thedelivery must be authorized in order to be effectualbull where the instrument is in the hands of a holder indue course a valid delivery thereof by all partiesprior to him so as to make them liable to him isconclusively presumedbull where the instrument is no longer in the possessionof a party whose signature appears thereon a validand intentional delivery by him is presumed untilthe contrary is proved2 Incomplete but delivered instrumentbull where the instrument is wanting in any materialparticular the person in possession thereof has aprima facie authority to complete it by filling up theblanks thereinbull it must be filled up strictly in accordance with theauthority given and within a reasonable timebull if any such instrument after completion isnegotiated to a holder in due course it is valid andeffectual for all purposes in his hands and he mayenforce it as if it had been filled up strictly inaccordance with the authority given and within areasonable time3 Incomplete and undelivered instrumentbull it will not if completed and negotiated withoutauthority be a valid contract in the hands of anyholder as against any person whose signature wasplaced thereon before deliverybull However subsequent indorsers are liable4 Forgerybull counterfeit making or fraudulent alteration of anywriting which may consist of1 signing of anotherrsquos name with intent todefraud or2 alteration of an instrument in the nameamount name of payee etc with intent to

defraudbull Effect signature is wholly inoperative and no rightto retain the instrument or to give a dischargetherefore or to enforce payment thereof againstany party thereto can be acquired through or undersuch signaturebull Exception unless the party against whom it issought to enforce such right is precluded fromsetting up the forgery or want of authoritybull Cut-Off RuleGeneral Rule Parties prior to the forged signatureare cut-off from the parties after the forgery in thesense that prior parties cannot be held liable andcan raise the defense of forgery The holder canonly enforce the instrument against parties whobecame such after the forgeryException When the prior parties are precludedfrom setting up the defense of forgeryPersons precluded from setting up the defense offorgery are1 Those who by their acts silence or negligenceare estopped from setting up the defense offorgery2 Those who warrant or admit the genuineness ofthe signature in question These include acts oromissions that amount to ratification expressor impliedNote Persons precluded from setting up thedefense of forgery may still recover damages underthe NCC provisions on quasi-delictsbull Rules on ForgeryA Promissory Notes1 Makerrsquos signature forgedOrder Instrumenta Maker is not liable because he neverbecame a party to the instrumentb Indorsers subsequent to forgery are liablebecause of their warrantiesc Party who made the forgery is liableBearer Instrumenta Maker is not liableb Indorsers may be made liable to thosepersons who obtain title through theirindorsementsc Party who made the forgery is liable2 Payeersquos signature forgedOrder Instrumenta Maker and payee not liableb Indorsers subsequent to the forgery isliablec Party who made the forgery is liableBearer Instrumenta Maker is liable Indorsement is notnecessary to title and the maker engagesto pay holderb Party who made the forgery is liable3 Indorserrsquos signature forgedOrder Instrumenta Maker payee and indorser who signaturewas forged is not liableb Indorsers subsequent to forgery are liablebecause of their warrantiesc Party who made the forgery is liableBearer Instrumenta Maker is liable Indorsement is not

necessary to title and the maker engagesto pay holderb Indorser whose signature was forged is notliablec Party who made the forgery is liableB Bill of Exchange1 Drawerrsquos signature forgedIn an Order Instrumenta Drawer is not liableb Drawee is liable if it paid (nor recourse todrawer) because he admitted thegenuineness of the drawerrsquos signatureDrawee cannot recover from the collectingbank because there is no privity betweenthe collecting bank and the drawer Thereis no warranty as to the signature of thedrawer (Associated Bank v CA)c Indorsers subsequent to forgery are liabled Party who made the forgery is liableIn a Bearer Instrumenta Drawer is not liableb Drawee is liable if it paid Drawee cannotrecover from the collecting bank becauseit is bound to known the drawerrsquossignature since the latter is its depositorc Party who made the forgery is liable2 Payeersquos signature forgedOrder Instrumenta Drawer drawee and payee not liable Cutoffrule appliesb Indorsers subsequent to forgery are liablec Party who made the forgery is liableBearer Instrumenta Drawer is liable His indorsement is notnecessary to pass titleb Drawee is liable No privity betweendrawer and payee because indorsement ofpayee is not necessary (Ang Tek Lian case87 SCRA 383)c Payee is not liabled Collecting bank is liable because ofwarrantye Party who made the forgery is liable3 Indorserrsquos signature forgedOrder Instrumenta Drawer payee and indorser whosesignature was forged are not liableb Drawee is liable if it paidc Indorsers subsequent to forgery are liabled Party who made the forgery is liableBearer Instrumenta Drawer is liable Indorsement is notnecessary to pass titleb Drawee is liablec Indorser whose signature was forged isliable because indorsement is notnecessary to pass titled Party who made the forgery is liable5 Alterationbull Effect the instrument is avoidedbull Exceptions1 against a party who has himself madeauthorized or assented to the alteration2 subsequent indorsers3 holder in due course not a party to the

alteration - he may enforce payment accordingto its original tenorbull Changes constituting material alteration1 date2 sum payable either for principal or interest3 time or place of payment4 number or relations of the parties5 medium or currency in which payment is to bemade6 that which adds a place of payment where noplace of payment is specified and7 any other change or addition which alters theeffect of the instrument in any respectNote a material alteration is one that alters theeffect of the instrument one which changes theitems required to be stated under Sec 1 NILbull Spoliation ndash alteration made by a strangerbull The general rule denies the drawee bankrsquos right tocharge against the drawerrsquos account the amount ofan altered check However the latterrsquos negligencebefore or after the alteration may estop him fromsetting such alteration as against an innocentdrawee bank who has paid the checkbull In cases of altered checks and checks with forgedindorsements the drawee bank must notify andreturn them to the collecting bank before 400 pmof the next day of clearing but the drawee bankmay still return them even after such time providedhe does so within 24 hours from its discovery of thealteration or forged instruments so that recovery ofthe amount may be had BUT in no event beyondthe period fixed or provided by law for filing of alegal action by the returning bank against the banksending the sameNote Alteration is only a partial real defensebecause a holder in due course can still enforce itaccording to its original tenorVII ENFORCEMENT OF LIABILITYPresentment for payment ndash the presentation of aninstrument to the person primarily liable for the purpose ofdemanding and receiving paymentGeneral Rulesbull presentment for payment to charge personsprimarily liable is not necessarybull presentment for payment to charge personssecondarily liable is necessaryExceptionsa drawer - where he has no right to expect or requirethat the drawee or acceptor will pay the instrument(sec 79)b indorser - where the instrument was made oraccepted for his accommodation and he has noreason to expect that the instrument will be paid ifpresentedc when dispensedi where after the exercise of reasonablediligence presentment as required cannotbe madeii where the drawee is a fictitious personiii by waiver of presentment express orimplied (sec 82)d when the instrument has been dishonored by nonacceptance(sec 151)Sufficiency of presentmentIt must be

1 made by the holder or any person authorized toreceive payment on his behalf2 at a reasonable hour on a business day3 at a proper place4 to the person primarily liable or if he is absent orinaccessible to any person found at the placewhere the presentment is madeHow made1 personal demand for payment at the proper place and2 readiness to exhibit the instrument if required and toreceive payment and to surrender the instrument if thedebtor is willing to paybull Purpose of exhibitionTo enable the debtor toa determine the genuineness of the instrument andthe right of the holder to receive payment andb to enable him to reclaim possession upon paymentbull When exhibition excuseda when debtor does not demand to see the instrumentbut refuses payment on some other grounds andb when the instrument is lost or destroyedWhen madebull where the instrument is payable at a fixed ordeterminable future time presentment must be madeon the day it falls duebull where it is payable on demanda promissory note presentment must be made withina reasonable time after its issueb bill of exchange presentment for payment will besufficient if made within a reasonable time afterthe last negotiation thereofbull the check must be presented for payment within areasonable time after its issue or the drawer will bedischarged from liability thereon to the extent of theloss caused by the delayTime of maturitybull every negotiable instrument is payable at the time fixedtherein without gracebull when the day of maturity falls upon a Sunday or aholiday the instruments are to be presented forpayment on the next succeeding business daybull when the day of maturity falls upon a Saturday1048766 Instrument is payable at a fixed or determinablefuture time (time instrument) - presented forpayment is on the next succeeding business day1048766 instruments is payable on demand - at the option ofthe holder be presented for paymenta before 1200 noon on Saturday whenthat entire day is not a holiday orb the next succeeding business dayHow computed1048766 excluding the day from which the time is to begin torun and by including the date of payment1048766 applies to instruments which are payable at a fixedperiod after date after sight or after thathappening of a specified eventProper place for presentmenta Where a place of payment is specified in the instrumentand it is there presentedb Where no place of payment is specified but the addressof the person to make payment is given in theinstrument and it is there presentedc Where no place of payment is specified and no address isgiven and the instrument is presented at the usual placeof business or residence of the person to make payment

d In any other case if presented to the person to makepayment wherever he can be found or if presented athis last known place of business or residenceWhen delay in presentment excused ndash delay is caused bycircumstances beyond the control of the holder and notimputable to his default misconduct or negligence Whenthe cause of delay ceases to operate presentment must bemade with reasonable diligencePresentment for acceptance ndash the production or exhibitionof a bill of exchange to the drawee for his acceptance orpaymentGeneral Rule presentment for acceptance is not necessary torender any party to the bill liableException presentment for acceptance must be madea Where the bill is payable after sight or wherepresentment for acceptance is necessary in order tofix the maturity of the instrument orb Where the bill expressly stipulates that it shall bepresented for acceptance orc Where the bill is drawn payable elsewhere then atthe residence or place of business of the drawee(sec 143)Note in all the above cases the holder must either presentthe bill for acceptance or negotiate it within a reasonabletime otherwise the drawer and all indorsers are dischargedHow made1 made by or on behalf of the holder2 at a reasonable hour3 on a business day4 before the bill is overdue and within reasonabletime5 to the drawee or some person authorized to acceptor refuse acceptance on his behalfDays presentment may be made If date of presentment isa Sunday or a holiday ndash must be made on the nextsucceeding business dayb Saturday ndash before 1200 noon on Saturday providedthat it is not a holidayWhen delay for presentment excuseda bill is drawn payable elsewhere than at the place ofbusiness or the residence of the draweeb holder has no time with the exercise of reasonablediligence to present the bill for acceptance beforepresenting it for payment on the day that it fallsdueEffect does not discharge the drawers and indorsersWhere presentment is excuseda Where the drawee is dead or has absconded or is afictitious person or a person not having capacity tocontract by billb Where presentment can not be made after theexercise of reasonable diligencec Where although presentment has been irregularacceptance has been refused on some other groundNote bill may be treated as dishonored by nonacceptanceDuty of holder where bill not accepted - where a bill isduly presented for acceptance and is not accepted within theprescribed time (24 hours ndash sec 136) the person presentingit must treat the bill as dishonored by non-acceptance or heloses the right of recourse against the drawer and indorsersAcceptance the signification by the drawee of his assent tothe order of the drawer It is the act by which the draweemanifests his consent to comply with the request containedin the bill of exchange directed to himHow made

1) must be in writing2) signed by the drawee3) must not express that the drawee will perform hispromise by any other means than the payment ofmoneybull the holder of the bill presenting the same for acceptancemay require that the acceptance be written on the billand if such request is refused may treat the bill asdishonoredbull where an acceptance is written on a paper other thanthe bill itself it does not bind the acceptor except infavor of a person to whom it is shown and who on thefaith thereof receives the bill for valuePeriod for drawee to accept - allowed 24 hours afterpresentment in which to decide whether or not he will acceptthe bill if acceptance is given it dates as of the day ofpresentationConstructiveImplied acceptance where a drawee refuseswithin 24 hours after delivery or within such other period asthe holder may allow to return the bill accepted or nonacceptedto the holder he will be deemed to have acceptedthe sameNote same effect if the drawee destroys the instrumentKinds1 General - assents without qualification to the order ofthe drawer2 Qualified - which in express terms varies the effect ofthe bill as drawna Conditional - makes payment by the acceptordependent on the fulfillment of a conditiontherein statedb Partial - an acceptance to pay part only of theamount for which the bill is drawni Local - an acceptance to pay only at aparticular placeii Qualified as to timeiii The acceptance of some one or more ofthe drawees but not of all3 ConstructiveRights of parties as to qualified acceptancebull Holder he may refuse to take a qualified acceptanceand if he does not obtain an unqualified acceptance hemay treat the bill as dishonored by non-acceptancebull Drawer or indorser when he receives notice of aqualified acceptance he must within a reasonable timeexpress his dissent to the holder or he will be deemed tohave assented thereto (implied assent)Effect of taking a qualified acceptance the drawer andindorsers are discharged from liability on the bill unless theyhave expressly or impliedly authorized the holder to take aqualified acceptance or subsequently assent theretoOther rules of acceptancebull a bill may be accepted before it has been signed by thedrawer or while otherwise incomplete or when it isoverdue or after it has been dishonored by a previousrefusal to accept or by non paymentbull when a bill payable after sight is dishonored by nonacceptanceand the drawee subsequently accepts it theholder in the absence of any different agreement isentitled to have the bill accepted as of the date of thefirst presentmentbull an unconditional promise in writing to accept a billbefore it is drawn is deemed an actual acceptancein favor of every person who upon the faiththereof receives the bill for value

bull where a check is certified by the bank on which it isdrawn the certification is equivalent to anacceptanceEffect the drawer and all indorsers are dischargedfrom liability thereonAcceptance for Honor - an undertaking by a stranger to a billafter protest for the benefit of any party liable thereon or forthe honor of the person for whose account the bill is drawnwhich acceptance inures also to the benefit of all partiessubsequent to the person for whose honor it is accepted andconditioned to pay the bill when it becomes due if theoriginal drawee does not pay it1048766 Requisites1 the bill must have been protested for dishonorby non-acceptance or for better security2 the acceptor for honor must be a stranger andnot a party already liable on the instrument3 bill must not be overdue4 acceptance for honor must be with the consentof the holder of the instrument1048766 Formalities1 must be in writing2 must indicate that it is an acceptance forhonor3 signed by the acceptor for honor4 must contain an express or implied promise topay money5 the accepted bill for honor must be deliveredto the holderNotice of Dishonor - notice given by the holder or his agentto a party or parties secondarily liable that the instrumentwas dishonored by non-acceptance by the drawee of a bill orby non-payment by the acceptor of a bill or by non-paymentby a maker of a note- If such notice is given by a notary public it is calledPROTEST1048766 Effect of failure to give notice parties secondarily liableare discharged1048766 Requisites1 Given by holder or his agent or by any party whomay be compelled by the holder to pay2 Given to secondary party or his agent3 Given within the periods provided by law4 Given at the proper place1048766 When notice of dishonor dispensed with1 when party to be notified knows about the dishonoractually or constructively2 if waived and3 when after due diligence it cannot be given1048766 How given1 by bringing verbally or2 by writing to the knowledge of the person liable thefact that a specified instrument upon properproceedings taken has not been accepted or hasnot been paid and that the party notified isexpected to pay it1048766 To whom given1 Non-acceptance (bill) ndash to persons secondarilyliable namely the drawer and indorsers as the casemay be2 Non-payment (both bill and note) ndash indorsersNote Notice must be given to persons secondarilyliable Otherwise such parties are dischargedNotice may be given to the party himself or to hisagent

1048766 By whom given1 the holder2 another on behalf of the holder3 any party to the instrument who may be compelledto pay it to the holder and who would have a rightof reimbursement from the party to whom notice isgiven1048766 Notice of dishonor given by or on behalf of a holderinures to the benefit ofa all parties prior to the holder who have a rightof recourse against the party to whom thenotice is given andb all holders subsequent to the holder givingnotice1048766 Notice of dishonor given by or on behalf of a partyentitled to give notice inures to the benefit ofa the holder andb all parties subsequent to the party to whomnotice is given1048766 Where an instrument is dishonored in the hands of anagent he can do either of the ffa directly give notice to persons secondarilyliable thereon orb give notice to his principal In such case hemust give notice within the time allowed bylaw as if he were a holder1048766 A party giving notice is deemed to have given due noticewherea the notice of dishonor is duly addressed andb deposited in the post-office even when thereis miscarriage of mail1048766 Where a party receives notice of dishonor he has afterthe receipt of such notice the same time for givingnotice to antecedent parties that the holder has afterthe dishonor1048766 Notice may be waived either before the time of givingnotice or after the omission to give due notice Waivermay be expressed or implied1048766 As to who are affected by an express waiver depends onwhere the waiver is written1 if it appears in the body or on the face of theinstrument it binds all parties but2 if it is written above the signature of anindorser it binds him only1048766 Notice of dishonor is not required to be given to thedrawer in any of the ff cases1 drawer and drawee are the same2 drawee is a fictitious person or not having thecapacity to contract3 drawer is the person to whom the instrument ispresented for payment4 the drawer has no right to expect or requirethat the drawee or acceptor will honor theinstrument5 where the drawer has countermandedpayment1048766 Notice of dishonor is not required to be given to anindorser in the ff cases1 drawee is a fictitious person or does not havethe capacity to contract and indorser wasaware of that fact at the time he indorsed theinstrument2 indorser is the person to whom the instrumentis presented for payment3 instrument was made or accepted for his

accommodation1048766 If an instrument is not accepted by the drawee there isno sense presenting it again for payment and notice ofdishonor must at once be given If there wasacceptance presentment for payment is still requiredand if payment is refused there is a need for notice ofdishonor1048766 An omission to give notice of dishonor by non-acceptancedoes not prejudice the rights of a holder in due coursesubsequent to the omissionDishonor by Non-PaymentWhen instrument dishonored by non-paymenta it is duly presented for payment and payment isrefused or cannot be obtained orb presentment is excused and the instrument isoverdue and unpaidEffect of dishonor an immediate right of recourse to allparties secondarily liable thereon accrues to the holderDishonor by Non-AcceptanceInstancesa When it is duly presented for acceptance and suchan acceptance is refused or can not be obtained orb When presentment for acceptance is excused andthe bill is not accepted (sec 149)Effect an immediate right of recourse against thedrawer and indorsers accrues to the holder and nopresentment for payment is necessaryNote where a bill is duly presented for acceptance andis not accepted within the prescribed time (24 hours)the person presenting it must treat the bill as dishonoredby non-acceptanceWhen Instrument Considered to be Dishonoreda If it is not accepted when presented for acceptanceorb If it is not paid when presented for payment atmaturity orc If presentment is excused or waived and theinstrument is past due and unpaidProtest - the formal instrument executed usually by a notarypublic certifying that the legal steps necessary to fix theliability of the drawee and the indorsers have been taken1048766 Effect of waiver where protest is waived presentmentand notice of dishonor are also deemed waived Butwhere the notice of dishonor is waived presentment isnot waived1048766 Applicability protest is necessary only in case of foreignbills of exchange which have been dishonored by nonacceptanceor non-payment as the case may be If it isnot so protested the drawer and indorsers aredischarged1048766 Foreign Bill of Exchange1 Drawn in the Philippines but payable outside thePhilippines2 Payable in the Philippines but drawn outside thePhilippines1048766 Protest may be made by1 a notary public or2 any respectable resident of the place where the billis dishonored in the presence of 2 or more crediblewitnessesProtest for better security is one made by the holder of a billafter it has been accepted but before it matures against thedrawer and indorsers where the acceptor has been adjudgeda bankrupt or an insolvent or has made an assignment forthe benefit of the creditors

VIII DISCHARGEDischarge of instrument - a release of all parties whetherprimary or secondary from the obligations arisingthereunder It renders the instrument without force andeffect and consequently it can no longer be negotiatedInstances1 By payment in due course by or on behalf of theprincipal debtor2 Payment by accommodated party3 Intentional cancellation by the holder4 By any act which will discharge a simple contractfor the payment of money5 When the principal debtor becomes the holder ofthe instrument at or after maturity in his own rightBy any act which would discharge a simple contract1 Payment or performance2 Loss of the thing due3 Condonation or remission4 Confusion or Merger5 Compensation6 Novation7 Annulment or Rescission8 Fulfillment of a resolutory condition9 PrescriptionWhen persons secondarily liable on the instrument aredischarged1 By any act which discharges the instrument2 By the intentional cancellation of his signature bythe holder3 By the discharge of a prior party4 By a valid tender of payment made by a prior party5 By the release of the principal debtor unless theholderrsquos right of recourse against the partysecondarily liable is expressly reserved6 By any agreement binding upon the holder to extendthe time of payment or to postpone the holderrsquosright to enforce the instrument1048766 In the following cases the agreement to extend the timeof payment does not discharge a party secondarily liable1 where the extension of time is consented to by suchparty2 where the holder expressly reserves his right ofrecourse against such party1048766 Payment at or after maturity by a party secondarilyliable does not discharge the instrument It only cancelshis own liability and that of the parties subsequent tohimEffects of Renunciation1 A renunciation in favor of a secondary party may bemade by the holder before at or after maturity ofthe instrument Effect only such secondary party isdischarged and all parties subsequent to him but theinstrument itself remains in force2 A renunciation in favor of the principal debtor maybe effected at or after maturity Effect theinstrument is discharged and all parties theretoprovided the renunciation is made unconditionallyand absolutelyNote In either case renunciation does not affect therights of a holder in due course without notice1048766 Cancellation of an instrument includes tearing erasureobliteration or burning It is not limited to writing ofthe word lsquocancelledrdquo or ldquopaidrdquo or drawing of crisscrosslines across the instrumentPayment for Honor - payment made by a person whether a

party to the bill or not after it has been protested for nonpaymentfor the benefit of any party liable thereon or forthe benefit of the person for whose account it was drawn1048766 Requisites1 the bill has been dishonored by non-payment2 it has been protested for non-payment3 payment supra protest (another term for paymentfor honor because prior protest for non-payment isrequired) is made by any person even by a partythereto4 the payment is attested by a notarial act of honorwhich must be appended to the protest or form anextension of it5 the notarial act must be based on the declarationmade by the payor for honor or his agent of hisintention to pay the bill for honor and for whosehonor he paysNote If the above formalities are not complied withpayment will operate as a mere voluntary payment andthe payor will acquire no right to full reimbursementagainst the party for whose honor he pays1048766 In payment for honor the payee cannot refuse paymentIf he refuses he cannot recover from the parties whowould have been discharged had he accepted the sameIn acceptance for honor the holderrsquos consent isnecessary1048766 The payor for honor is given the right to receive both thebill and the protest obviously to enable him to enforcehis rights against the parties who are liable to himIX CHECKSCheck- a bill of exchange drawn on a bank payable ondemandCheck distinguished from and ordinary bill of exchangeBILLOF EXCHANGE CHECKNot necessarily drawnon a deposit The draweeneed not be a bankIt is necessary that a checkis drawn on a bank depositThe drawee is always abankDeath of a drawer of aBOE with the knowledgeof the bank does notrevoke the authority of thedrawee to payDeath of the drawer of acheck with the knowledgeof the bank revokes theauthority of the banker topayMay be presented forpayment within areasonable time after itslast negotiation because itmay be further negotiatedMust be presented forpayment within areasonable time after itsissueMay be payable on demandor at a fixed ordeterminable future timeAlways payable on demandKinds of checks

1 Managerrsquos Cashierrsquos Check ndash drawn by a bank on itselfand therefore it is a primary obligation of the banko It is accepted in advance by the act of itsissuance and is not subject tocountermand by the payor afterindorsemento The bankrsquos manager signs managerrsquos checkwhile cashierrsquos check is signed by the bankcashier2 Certified Check ndash one drawn by a depositor upon funds tohis credit in a bank which a proper officer of the bankcertifies will be paid when duly presented for payment3 Stale check ndash one which has not been presented forpayment within a reasonable time after its issue4 Crossed check ndash when 2 parallel lines are drawn acrossits face or across a corner thereof If the name of a bankappears between the parallel lines the check is said tobe specially crossed and payment should be made onlyif presented by the named bank If no name appearsbetween the parallel lines the check is said to begenerally crossed and payment should be made onlyupon presentment by some bankEffects of crossing a checka That the check may not be encashed but only bedeposited in the bankb That the check may be negotiated only once to onewho has an account with a bank andc That the act of crossing the check serves as awarning to the holder that the check has beenissued for a definite purpose so that he must inquireif he has received the check pursuant to thatpurpose5 Memorandum Check ndash it is like an ordinary check exceptthat the word ldquomemorandumrdquo ldquomemrdquo or ldquomemordquo iswritten upon the face of the check signifying that thedrawer engages to pay the bona fide holder absolutelyand not upon a condition to pay upon presentment atmaturity and if due notice of the presentment and nonpaymentshould be given6 Travelerrsquos check ndash one upon which the holderrsquos signaturemust appear twice one to be affixed by him at the timeit is issued and the second o counter-signature to beaffixed by him in the presence of the payee before it ispaid otherwise it is incompleteIron Clad Rule Prohibits the countermanding ofpayment of certified checks (Republic of the Philippinesv PNB GR No 16106 December 1 1961)

Factors that Determine Negotiability1 The whole instrument itself2 Only what appears on the face of the instrument3 Provisions of the NIL Sec1BAR QUESTION (Q) Which of the followingstipulations or features of a promissory notes (PN)affect or do not affect its negotiability assumingthat the PN is otherwise negotiable Indicate youranswer by writing the paragraph number of thestipulation or feature of the PN as shown below andyour corresponding answer either lsquoAffectedrdquo orldquoNot affectedrdquo Explain(a) The date of the PN is ldquoFebruary 30 2002rdquo(b) The PN bears interest payable on the last dayof each calendar quarter at a rate equal to 5above the then prevailing 91-day Tbill rate aspublished at the beginning of such calendarquarter(c) The PN gives the maker the option to makepayment either in money or in quantity ofpalay of equivalent value(d) The PN gives the holder the option either torequire payment in money or to require themaker to serve as the bodyguard or escort ofthe holder for 0 daysSUGGESTED ANSWER (SA)(a) NOT AFFECTED The date is not one of therequirements for negotiability(b) NOT AFFECTED The interest is to be computedat a particular time and is determinable Itdoes not make the sum uncertain or thepromise conditional(c) AFFECTED Giving the maker an option rendersthe promise conditional(d) NOT AFFECTED Giving the holder an optiondoes not make the promise conditionalAdditional provisions not affecting negotiabilityGeneral Rule the instrument is non-negotiable if it containsa promise or order to do any act in addition to the paymentof moneyExceptionsa authorizes the sale of collateral securities in casethe instrument be not paid at maturity orb authorizes a confession of judgment if theinstrument be not paid at maturity orc waives the benefit of any law intended for theadvantage or protection of the obligor ord gives the holder an election to require something tobe done in lieu of payment of money1048766 Confession of judgment ndash a written statement signed bythe defendant setting forth the basis of liability andauthorizing the entry of judgment thereon1048766 Kinds of confession of judgmenta cognivit actiomen ndash literally means ldquohe hasconfessed actionrdquo It is a written confession ofaction by the defendant acknowledging isindebtedness to the plaintiff after the action hasbeen filed It is given after the action is brought tosave expensesb relicta verificationem ndash literally means ldquohispleadings being abandonedrdquo It is confession ofjudgment by withdrawal of the defenseNote However warrants of attorney to confess judgmentare not authorized nor contemplated by our law They arevoid as against public policy because they enlarge the field

for fraud because under these instruments the promissorybargains away his right to a day in court The NIL does notsanction nor validated any provision otherwise illegalOmissions and Provisions that do not affect Negotiability(Sec 6)The validity and negotiable character of an instrument arenot affected by the fact thata it is not dated orb does not specify the value given or that any valuehad been given therefore orc does not specify the place where it is drawn or theplace where it is payable ord bears a seal ore designates a particular kind of current money inwhich payment is to be made1048766 if it is not dated the instrument will be considered to bedated as of the time it was issued1048766 consideration for the instrument is presumed (art 154NCC amp sec 25 NIL)1048766 sec 73 specifies where presentment for payment shouldbe made when the place of payment is not specifiedRules of constructiona Where the sum payable is expressed in words and also infigures and there is a discrepancy between the two thesum denoted by the words is the sum payable but if thewords are ambiguous or uncertain reference may be hadto the figures to fix the amountb Where the instrument provides for the payment ofinterest without specifying the date from which interestis to run the interest runs from the date of theinstrument and if the instrument is undated from theissue thereofc Where the instrument is not dated it will be consideredto be dated as of the time it was issuedd Where there is a conflict between the written andprinted provisions of the instrument the writtenprovisions prevaile Where the instrument is so ambiguous that there isdoubt whether it is a bill or note the holder may treat itas either at his electionf Where a signature is so placed upon the instrument thatit is not clear in what capacity the person making thesame intended to sign he is to be deemed an indorserg Where an instrument containing the word I promise topay is signed by two or more persons they are deemedto be jointly and severally liable thereon (sec 17)Consideration1048766 Presumption of consideration - every negotiableinstrument is deemed prima facie to have been issuedfor a valuable consideration and every person whosesignature appears thereon to have become a partythereto for value1048766 Value - any consideration sufficient to support a simplecontract An antecedent or pre-existing debt constitutesvalue and is deemed such whether the instrument ispayable on demand or at a future time1048766 Holder for value ndash one who has given a valuableconsideration for the instrument issued or negotiated tohimbull What constitutes holder for valuewhere value has at any time been given for theinstrument the holder is deemed a holder for valuein respect to all parties who become such prior tothat timebull where the holder has a lien on the instrument

arising either from contract or by implication oflaw he is deemed a holder for value to the extentof his lien1048766 Effect of want of consideration a matter of defense asagainst any person not a holder in due course andpartial failure of consideration is a defense pro tantowhether the failure is an ascertained and liquidatedamount or otherwiseAbsence of consideration ndash total lack of any validconsideration for the contract is only a personaldefenseFailure of consideration ndash failure or refusal or one partyto do perform or comply with the consideration agreedupon is also only a personal defenseIII TRANSFER AND NEGOTIATIONTypes of transfers1 Assignment - transfer of title to the instrument with theassignee generally taking only such title as his assignorhas subject to all defenses available against hisassignor2 Negotiation - transfer of a negotiable instrument fromone person to another made in such a manner as toconstitute the transferee the holder thereof3 By Operation of Law ndash such as by succession byinsolvencyDistinctions between Negotiation and AssignmentNEGOTIATION ASSIGNMENT1 Refers only tonegotiableinstruments2 The transferee is aholder3 A holder in due courseis subject only to realdefenses4 A holder in due course1 Refers generally to anordinary contract2 The transferee is anassignee3 An assignee is subjectto both real andpersonal defenses4 Generally an assigneemay acquire a betterright than that of aprior party5 A general indorserwarrants the solvencyof prior parties6 An indorser is notliable unless there bepresentment andnotice of dishonor7 Negotiation isgoverned y the NILmerely steps into theshoes of the assignor5 An assignor does notwarrant the solvency ofprior parties unlessexpressly stipulated orthe insolvency is knownto him6 An assignor is liable

even without notice ofdishonor7 Governed by Arts 1624to 1635 (on assignmentof credits) of the CivilCodeMethods of negotiation1 Order Instrument ndash Indorsement and Delivery2 Bearer Instrument ndash Delivery onlyIndorsement - legal transaction effected by the writing ofones own name at thea back of the instrument orb upon a paper (allonge) attached thereto with orwithout additional words specifying the person towhom or to whose order the instrument is to bepayable whereby one not only transfers legal title tothe paper transferred but likewise enters into animplied guaranty that the instrument will be dulypaid1048766 General Rule indorsement must be of the entireinstrumentException where instrument has been paid in part itmay be indorsed as to the residue1048766 Kinds of indorsementa Special - specifies the person to whom or to whoseorder the instrument is to be payable (sec 34)b Blank - specifies no indorseebull Instrument is payable to bearer and may benegotiated by delivery (sec 34)bull May be converted to special indorsement bywriting over the signature of indorser in blankany contract consistent with character ofindorsementc Restrictive - when the indorsement eitheri Prohibits further negotiation of theinstrument orii Constitutes the indorsee the agent of theindorser oriii Vests the title in the indorsee in trust foror to the use of some other persons Butmere absence of words implying power tonegotiate does not make an indorsementrestrictivebull A restrictive indorsement confers upon theindorsee the righta To receive payment of theinstrumentb To bring any action thereon that theindorser could bringc To transfer his rights as such indorseewhere the form of the indorsementauthorizes him to do soBut all subsequent indorsees acquire only thetitle of the first indorsee under the restrictiveindorsement (sec 37)1048766 Such indorsement destroys the negotiability ofthe instrument and bars further negotiation toa holder in due coursed Qualified - constitutes the indorser a mere assignorof the title to the instrument (sec 38)bull made by adding to the indorsers signaturewords like sans recourserdquo ldquowithout recourseindorser not holder at the indorsers ownrisk etcbull The purpose of this kind of indorsement is to

transfer title without guaranteeing payment bythe primary partybull It does not mean however that the qualifiedindorser incurs no liability at all The effect ismerely to limit his liability He is secondarilyliable for breach of is warranties as an indorserunder Sec 65 Thus he is liable if theinstrument is dishonored by NON-ACCEPTANCEor NON-PAYMENT due toa forgeryb lack of good title to the instrumentindorsedc lack of capacity to contract on the part ofprior parties ord the fact that the instrument was valuelessor not valid at the time of the indorsementwhich fact was known to hime Conditional - right of the indorsee is made todepend on the happening of a contingent eventbull Party required to pay may disregard theconditionsbull This kind of indorsement has no effect on thefurther negotiation of the instrument Theparty required to pay if he chooses may makepayment disregarding the condition withoutincurring any liability because he is expresslyauthorized to do so under Sec 39 But theperson who received payment will hold theproceeds subject to the right of the conditionalindorserf Absolute - one by which indorser binds himself topayi upon no other condition than failure ofprior parties to do so andii upon due notice to him of such failureg Joint - indorsement of instrument payable to 2 ormore persons all must indorse in order for thetransaction to operate as a negotiationbull Exceptions to the rule requiring jointindorsementa Where the payees or indorsees arepartners andb Where the payee or indorsee indorsinghas authority to indorse for theothersh Irregular - a person who not otherwise a party toan instrument places thereon his signature in blankbefore delivery1048766 Rules on Indorsementsbull Effect of transfer without indorsementa transfer vests in the transferee such title as thetransferor had therein (assignment) andb the right to have the indorsement of thetransferor1048766 For the purpose of determining whether thetransferee is a holder in due course thenegotiation takes effect as of the time whenthe indorsement is actually made1048766 Applicable only to order instrumentsbull Indorsement of a bearer instrument where aninstrument payable to bearer is indorsed speciallyit may nevertheless be further negotiated bydelivery but the person indorsing specially is liableas indorser to only such holders as make titlethrough his indorsement

Note The rule only applies to originally bearerinstruments If it is originally a BEARER instrumentit will always be a BEARER instrument As opposedto an original order instrument becoming payable tobearer if the same is indorsed specifically it canNO LONGER be negotiated further by mere deliveryit has to be indorsedbull Striking out indorsements the holder may at anytime strike out any indorsement which is notnecessary to his title The indorser whoseindorsement is struck out and all indorserssubsequent to him are thereby relieved fromliability on the instrument1048766 If the instrument is payable to bearer on its facethen whether or not there are indorsements on theback of the instrument would be immaterial to thetitle of the bearer who is presumptively the ownerand holder by his mere possession of suchinstrument None of the indorsement would benecessary to itrsquos title since mere delivery wouldhave been sufficient to transfer title from oneholder to another1048766 Where the instrument is payable to order on itsface the situation is different First theindorsement of a special indorsee is necessary forthe further negotiation of the instrument Secondthe last indorsement controls the method of furthernegotiationbull When prior party (reacquirer) may negotiate where aninstrument is negotiated back to a prior party suchparty may reissue and further negotiate the same Buthe is not entitled to enforce payment thereof againstany intervening party to whom he was personally liable1048766 In the following cases a prior party cannot furthernegotiate the instrument1 Where it is payable to the order of a thirdperson and has been paid by the drawer2 Where it was made or accepted foraccommodation and has been paid by theparty accommodated3 In other cases where the instrument isdischarged when acquired by a prior partyIV HOLDERSClasses of holders1 simple holder (sec 51)2 holder for value (sec 26)3 holder in due course (sec52 57)Holder in Due Course1048766 holder who has taken the instrument under the followingconditionsa That it is complete and regular upon its faceb That he became the holder of it before it wasoverdue and without notice that it has beenpreviously dishonored if such was the factc That he took it in good faith and for valued That at the time it was negotiated to him he hadno notice of any infirmity in the instrument ordefect in the title of the person negotiating it1048766 When title defective - The title of a person whonegotiates an instrument is defective when he obtainedthe instrument or any signature thereto bya fraudb duress or force and fearc other unlawful meansd illegal consideration

e negotiation in breach of faithf circumstances amounting to fraud1048766 What constitutes notice of defect - The person towhom it is negotiated must havea actual knowledge of the infirmity or defect orb knowledge of such facts that his action in taking theinstrument amounted to bad faith (sec 56)1048766 Notice before full amount is paid - where thetransferee receives notice of any infirmity in theinstrument or defect in the title of the personnegotiating the same before he has paid the full amountagreed to be paid he will be deemed a holder in duecourse only to the extent of the amount paid by him1048766 When person not deemed a holder in due course -where an instrument payable on demand is negotiatedon an unreasonable length of time after its issue theholder is not deemed a holder in due coursebull Reasonable time what constitutes - regard is to behad to thea nature of the instrumentb the usage of trade or business with respect tosuch instruments and thec facts of the particular casebull Effect in the hands of any holder other than aholder in due course a negotiable instrument issubject to the same defenses as if it were nonnegotiable1048766 General Rule every holder is deemed prima facie to bea holder in due courseException when it is shown that the title of any personwho has negotiated the instrument was defective theburden is on the holder to prove that he or some personunder whom he claims acquired the title as holder in duecourse (shifting of burden of proof)Limitation the last-mentioned rule does not apply infavor of a party who became bound on the instrumentprior to the acquisition of such defective title (sec 59)1048766 Rights of a holder in due coursea he may sue on the instrument in his own nameb he may receive payment and if payment is in duecourse the instrument is dischargedc holds the instrument free from any defect of title ofprior partiesd holds the instrument free from defenses available toprior parties among themselves ande may enforce payment of the instrument for the fullamount thereof against all parties liable thereon1048766 Payment in due course is payment madea at or after the maturity of the instrumentb to the holder thereofc in good faith and without notice that his title isdefective1048766 Shelter Rulea derives his title through a holder in due course andb who is not himself a party to any fraud or illegalityaffecting the instrument has all the rights of suchformer holder in respect of all parties prior to thelatter1048766 Rights of a Holder NOT in Due Course1 He may sue on the instrument in his own name2 He may receive payment and if the payment is indue course the instrument is discharged3 He is entitled to the instrument but holds it subjectto the same defenses as if it were non-negotiableand4 He has all the rights of the holder in due course

from whom he derived his title in respect of allparties prior to such holder provided he is nothimself a party to any fraud or illegality affectingthe instrumentV LIABILITIES OF PARTIESPersons primarily liable on instrument the person who bythe terms of the instrument is absolutely required to pay thesame All other parties are secondarily liableClassification of parties according to liabilityIN A PROMISSORYNOTE1 Maker2 Indorser3 Persons negotiating by deliveryIN A BILL OFEXCHANGE1 Drawer2 Acceptor3 Indorsers4 Persons negotiating by delivery1 Parties Primarily Liablea Maker (Sec 60)bull engages to pay according to the tenor of theinstrument andbull admits the existence of the payee and his thencapacity to indorse at the time of the makingof the notebull A person placing his name on the face of a noteis prima facie a maker and liable as such andhe is presumed to have acted with care and tohave signed the instrument with full knowledgeof its contentsb Acceptor or Drawee (Sec 62)bull engages to pay according to the tenor of hisacceptancebull admits1 the existence of the drawer2 the genuineness of his signature and3 his capacity and authority to draw theinstrument and4 the existence of the payee and his thencapacity to indorseNote the drawee is not liable until he acceptsthe instrumentbull Where a check is certified by a bank it isequivalent to an acceptance Since certification isequivalent to acceptance a bank which hascertified a check whether at the request of theholder or of a drawer has the same liabilities andmakes the same warranties as an acceptor Itcannot after certification question thegenuineness of the drawerrsquos signature If itdiscovers that such signature is forged subsequentto certification but prior to payment it cannotrefuse to pay on the check If its discovery comesafter it has paid the check it cannot recoverback what it paid on the ground of mistakenpayment unless the holder is guilty of fraud ornegligencebull If a drawee-bank accepts or pays a check despitea stop payment order from the drawer throughoversight or otherwise it cannot refuse to paythe holder or recover what has been paid neithermay it debit the drawerrsquos account unless theacceptance nor payment was made prior to the

receipt of the order2 Parties Secondarily Liablea Drawer (Sec 61)bull admits the existence of the payee and hiscapacity to indorsebull engages that the instrument will be acceptedor paid by the party primarily liable andbull engages that if the instrument is dishonoredand proper proceedings are brought he willpay to the party entitled to be paidb General Indorser (Sec 66)bull Warrants1 genuineness of the instrument2 his good title to it3 capacity to contract of prior parties and4 instrument is valid and subsistingbull engages that the instrument will be acceptedor paid by the party primarily liable andbull engages that if the instrument is dishonoredand proper proceedings are taken he will payto the party entitled to be paidc Irregular Indorser ndash a person not otherwise a partyto an instrument places his signature thereon inblank before deliveryRulesbull If instrument payable to the order of a 3rdperson he is liable to the payee andsubsequent partiesbull If instrument payable to order of maker ordrawer he is liable to all parties subsequent tothe maker or drawerbull If he signs for accommodation of the payee heis liable to all parties subsequent to the payeeDistinctionsPRIMARY PARTY SECONDARY PARTY1 Unconditionally bound2Absolutely required topay upon the maturity ofthe instrument1 Conditionally bound2 Undertakes to pay onlyafter certain conditionshave been fulfilleda due presentment forpayment or acceptance toprimary partyb dishonor by suchparty andc the taking ofproceedings required bylaw after dishonorINDORSER DRAWER1 A party to either a noteor a bill2 Does not make anyadmission regarding theexistence of the payee andhis capacity to indorse and3 Has warranties1 A party only to a bill2 The drawer makes suchadmission3 Makes no warranties buthe engages to pay aftercertain conditions are

complied withGENERAL INDORSER IRREGULAR INDORSER1 Makes either a blank orspecial indorsement2 Indorses the instrumentafter its delivery to thepayee and3 Liable only to partiessubsequent to him1 Always makes a blankindorsement2 Indorses before itsdelivery3 Liable to the payee andsubsequent parties unlesshe signs for theaccommodation of thepayee in which case he isliable only to all partiessubsequent to the payee3 Parties with Limited Liability (sec 65 MetropolFinancing v Sambok 120 SCRA 864)a Qualified Indorser - warrants that1048766 instrument is genuine and in all respects whatit purports to be1048766 he has good title to it1048766 all prior parties had capacity to contract1048766 he has no knowledge of any fact which wouldimpair the validity of the instrument or renderit valuelessb Persons Negotiating by Delivery1048766 warranties same as those of qualified indorsersand1048766 warranties extend to immediate transfereeonlyLIABILITY WARRANTY1 To pay a sum certain2 Requires Notice ofDishonor3 Action can be broughtonly on maturity ofinstrument1 No obligation to pay2 Notice of Dishonor is not arequirement3 Action may be broughtanytimeBY MERE DELIVERY OR BYQUALIFIED INDORSEMENTGENERAL INDORSER1 No secondary liability1 With secondary liability2 Warrants that he has noknowledge of any factwhich would impair thevalidity of the instrumentor render it valueless2 Warrants that theinstrument is at the timeof his indorsement validand subsisting4 Other parties who may be liableGeneral Rule One whose signature does not appear on theinstrument shall not be liable thereonExceptions

1 The principal who signs through an agent is liable2 The forger is liable3 One who indorses in a separate instrument (allonge) isliable4 One who signs his assumed or trade name is liable and5 A person negotiating by delivery (as in the case of abearer instrument) is liable to his immediate indorseeRequisites for an Agent to escape liability1 must be duly authorized2 add words to his signature indicating that he signs as anagent that is for or on behalf of a principal or in arepresentative capacity and3 disclose his principal1048766 A signature by ldquoprocurationrdquo operates as notice that theagent has but a limited authority to sign and theprincipal is bound only in case the agent in so signingacted within the actual limits of his authority (sec 21)1048766 Indorsement or assignment of the NI by a corporation orby an infant passes the property thereinnotwithstanding that from want of capacity thecorporation or infant may incur no liability thereon(sec 22)Accomodation PartyOne who has signed the instrument as maker draweracceptor or indorser without receiving value therefor andfor the purpose of lending his name to some other person1048766 Liability such a person is liable on the instrument to aholder for value notwithstanding such holder at thetime of taking the instrument knew him to be only anaccommodation party1048766 Effects1 accommodation party is generally regarded as asurety for the party accommodated2 When accommodation party makes payment toholder of the note he has the right to sue theaccommodated party for reimbursement1048766 Rights of accommodation parties as against each otherthe other may demand contribution from his coaccommodationparty without first directing his actionagainst the principal debtor provided1 he made the payment by virtue of judicial demandor2 the principal debtor is insolventNote A corporation cannot act as an accommodationparty The issuance or indorsement of negotiableinstrument by a corporation without consideration andfor the accommodation of another is ultra vires(Crisologo v CA 117 SCRA 594)Order of liability of indorsers1 among themselves ndash indorsers are liable prima facie inthe order in which they indorse but evidence isadmissible to show that as between or amongthemselves they have agreed otherwise (sec 68)2 to the holder ndash indorsers are liable in any orderVI DEFENSESKinds1 RealAbsolute Defenses - those that attach to theinstrument itself and are available against all holderswhether in due course or notExamplesa Alterationb Non-delivery of incomplete instrumentc Duress amounting to forgeryd Fraud in factum or fraud in esse contractuse Minority

f Marriage in the case of a wifeg Insanity where the insane person has a guardianappointed by the courth Ultra vires acts of a corporation where thecorporation is absolutely prohibited by its charter orstatute from issuing any commercial paper underany circumstancesi Want of authority of agentj Execution of instrument between public enemiesk Illegality of contract where it is the contract orinstrument itself which is expressly made illegal bystatute andl Forgery2 PersonalEquitable Defenses ndash those which are availableonly against a person not a holder in due course or asubsequent holder who stands in privity with himExamplesa Absence or failure of consideration partial or totalb Want of delivery of complete instrumentc Insertion of wrong date in an instrument where it ispayable at a fixed period after date and it is issuedundated or where it is payable at a fixed periodafter sight and the acceptance is undatedd Filling up of blank contrary to authority given or notwithin reasonable time where the instrument isdeliverede Fraud in inducementf Acquisition of instrument by force duress or fearg Acquisition of the instrument by unlawful meansh Acquisition of the instrument for an illegalconsiderationi Negotiation in breach of faithj Negotiation under circumstances that amount tofraudk Mistakel Intoxication (according to better authority)m Ultra vires acts of corporations where thecorporation has the power to issue negotiable paperbut the issuance was not authorized for theparticular purpose for which it was issuedn Want of authority of agent where he haso apparent authorityp Insanity where there is no notice of insanity on thepart of the one contracting with the insane personandq Illegality of contract where the form orconsideration is illegalFRAUD IN FACTUM FRAUD IN INDUCEMENT1 It exists in those cases inwhich a person withoutnegligence has signed aninstrument which was infact a negotiableinstrument but wasdeceived as to thecharacter of the instrumentand without knowledge ofits as where a not wassigned by one under thebelief that he was signingas a witness to a deed1 It is that which relatedto the quality quantityvalue or character of theconsideration of the

instrument In this casethe signer is led bydeception to execute whathe knows is a negotiableinstrument It implies thatthe signer knew what hewas signing but that he wasinduced by fraud to sign2 This kind of fraud is areal defense because thereis no contract It impliesthat the person did notknow what he was signingBut where the signer by theexercise of reasonablediligence could havediscovered the nature ofthe instrument the fraudcannot be considered a realdefense as where a personwho can read signed a notebut failed to read it2 Such type of fraud is onlya personal defense becauseit does not prevent acontract1048766 Effects of Defenses1 Complete and undelivered instrumentbull as between immediate parties and as regards aremote party other than a holder in due course thedelivery must be authorized in order to be effectualbull where the instrument is in the hands of a holder indue course a valid delivery thereof by all partiesprior to him so as to make them liable to him isconclusively presumedbull where the instrument is no longer in the possessionof a party whose signature appears thereon a validand intentional delivery by him is presumed untilthe contrary is proved2 Incomplete but delivered instrumentbull where the instrument is wanting in any materialparticular the person in possession thereof has aprima facie authority to complete it by filling up theblanks thereinbull it must be filled up strictly in accordance with theauthority given and within a reasonable timebull if any such instrument after completion isnegotiated to a holder in due course it is valid andeffectual for all purposes in his hands and he mayenforce it as if it had been filled up strictly inaccordance with the authority given and within areasonable time3 Incomplete and undelivered instrumentbull it will not if completed and negotiated withoutauthority be a valid contract in the hands of anyholder as against any person whose signature wasplaced thereon before deliverybull However subsequent indorsers are liable4 Forgerybull counterfeit making or fraudulent alteration of anywriting which may consist of1 signing of anotherrsquos name with intent todefraud or2 alteration of an instrument in the nameamount name of payee etc with intent to

defraudbull Effect signature is wholly inoperative and no rightto retain the instrument or to give a dischargetherefore or to enforce payment thereof againstany party thereto can be acquired through or undersuch signaturebull Exception unless the party against whom it issought to enforce such right is precluded fromsetting up the forgery or want of authoritybull Cut-Off RuleGeneral Rule Parties prior to the forged signatureare cut-off from the parties after the forgery in thesense that prior parties cannot be held liable andcan raise the defense of forgery The holder canonly enforce the instrument against parties whobecame such after the forgeryException When the prior parties are precludedfrom setting up the defense of forgeryPersons precluded from setting up the defense offorgery are1 Those who by their acts silence or negligenceare estopped from setting up the defense offorgery2 Those who warrant or admit the genuineness ofthe signature in question These include acts oromissions that amount to ratification expressor impliedNote Persons precluded from setting up thedefense of forgery may still recover damages underthe NCC provisions on quasi-delictsbull Rules on ForgeryA Promissory Notes1 Makerrsquos signature forgedOrder Instrumenta Maker is not liable because he neverbecame a party to the instrumentb Indorsers subsequent to forgery are liablebecause of their warrantiesc Party who made the forgery is liableBearer Instrumenta Maker is not liableb Indorsers may be made liable to thosepersons who obtain title through theirindorsementsc Party who made the forgery is liable2 Payeersquos signature forgedOrder Instrumenta Maker and payee not liableb Indorsers subsequent to the forgery isliablec Party who made the forgery is liableBearer Instrumenta Maker is liable Indorsement is notnecessary to title and the maker engagesto pay holderb Party who made the forgery is liable3 Indorserrsquos signature forgedOrder Instrumenta Maker payee and indorser who signaturewas forged is not liableb Indorsers subsequent to forgery are liablebecause of their warrantiesc Party who made the forgery is liableBearer Instrumenta Maker is liable Indorsement is not

necessary to title and the maker engagesto pay holderb Indorser whose signature was forged is notliablec Party who made the forgery is liableB Bill of Exchange1 Drawerrsquos signature forgedIn an Order Instrumenta Drawer is not liableb Drawee is liable if it paid (nor recourse todrawer) because he admitted thegenuineness of the drawerrsquos signatureDrawee cannot recover from the collectingbank because there is no privity betweenthe collecting bank and the drawer Thereis no warranty as to the signature of thedrawer (Associated Bank v CA)c Indorsers subsequent to forgery are liabled Party who made the forgery is liableIn a Bearer Instrumenta Drawer is not liableb Drawee is liable if it paid Drawee cannotrecover from the collecting bank becauseit is bound to known the drawerrsquossignature since the latter is its depositorc Party who made the forgery is liable2 Payeersquos signature forgedOrder Instrumenta Drawer drawee and payee not liable Cutoffrule appliesb Indorsers subsequent to forgery are liablec Party who made the forgery is liableBearer Instrumenta Drawer is liable His indorsement is notnecessary to pass titleb Drawee is liable No privity betweendrawer and payee because indorsement ofpayee is not necessary (Ang Tek Lian case87 SCRA 383)c Payee is not liabled Collecting bank is liable because ofwarrantye Party who made the forgery is liable3 Indorserrsquos signature forgedOrder Instrumenta Drawer payee and indorser whosesignature was forged are not liableb Drawee is liable if it paidc Indorsers subsequent to forgery are liabled Party who made the forgery is liableBearer Instrumenta Drawer is liable Indorsement is notnecessary to pass titleb Drawee is liablec Indorser whose signature was forged isliable because indorsement is notnecessary to pass titled Party who made the forgery is liable5 Alterationbull Effect the instrument is avoidedbull Exceptions1 against a party who has himself madeauthorized or assented to the alteration2 subsequent indorsers3 holder in due course not a party to the

alteration - he may enforce payment accordingto its original tenorbull Changes constituting material alteration1 date2 sum payable either for principal or interest3 time or place of payment4 number or relations of the parties5 medium or currency in which payment is to bemade6 that which adds a place of payment where noplace of payment is specified and7 any other change or addition which alters theeffect of the instrument in any respectNote a material alteration is one that alters theeffect of the instrument one which changes theitems required to be stated under Sec 1 NILbull Spoliation ndash alteration made by a strangerbull The general rule denies the drawee bankrsquos right tocharge against the drawerrsquos account the amount ofan altered check However the latterrsquos negligencebefore or after the alteration may estop him fromsetting such alteration as against an innocentdrawee bank who has paid the checkbull In cases of altered checks and checks with forgedindorsements the drawee bank must notify andreturn them to the collecting bank before 400 pmof the next day of clearing but the drawee bankmay still return them even after such time providedhe does so within 24 hours from its discovery of thealteration or forged instruments so that recovery ofthe amount may be had BUT in no event beyondthe period fixed or provided by law for filing of alegal action by the returning bank against the banksending the sameNote Alteration is only a partial real defensebecause a holder in due course can still enforce itaccording to its original tenorVII ENFORCEMENT OF LIABILITYPresentment for payment ndash the presentation of aninstrument to the person primarily liable for the purpose ofdemanding and receiving paymentGeneral Rulesbull presentment for payment to charge personsprimarily liable is not necessarybull presentment for payment to charge personssecondarily liable is necessaryExceptionsa drawer - where he has no right to expect or requirethat the drawee or acceptor will pay the instrument(sec 79)b indorser - where the instrument was made oraccepted for his accommodation and he has noreason to expect that the instrument will be paid ifpresentedc when dispensedi where after the exercise of reasonablediligence presentment as required cannotbe madeii where the drawee is a fictitious personiii by waiver of presentment express orimplied (sec 82)d when the instrument has been dishonored by nonacceptance(sec 151)Sufficiency of presentmentIt must be

1 made by the holder or any person authorized toreceive payment on his behalf2 at a reasonable hour on a business day3 at a proper place4 to the person primarily liable or if he is absent orinaccessible to any person found at the placewhere the presentment is madeHow made1 personal demand for payment at the proper place and2 readiness to exhibit the instrument if required and toreceive payment and to surrender the instrument if thedebtor is willing to paybull Purpose of exhibitionTo enable the debtor toa determine the genuineness of the instrument andthe right of the holder to receive payment andb to enable him to reclaim possession upon paymentbull When exhibition excuseda when debtor does not demand to see the instrumentbut refuses payment on some other grounds andb when the instrument is lost or destroyedWhen madebull where the instrument is payable at a fixed ordeterminable future time presentment must be madeon the day it falls duebull where it is payable on demanda promissory note presentment must be made withina reasonable time after its issueb bill of exchange presentment for payment will besufficient if made within a reasonable time afterthe last negotiation thereofbull the check must be presented for payment within areasonable time after its issue or the drawer will bedischarged from liability thereon to the extent of theloss caused by the delayTime of maturitybull every negotiable instrument is payable at the time fixedtherein without gracebull when the day of maturity falls upon a Sunday or aholiday the instruments are to be presented forpayment on the next succeeding business daybull when the day of maturity falls upon a Saturday1048766 Instrument is payable at a fixed or determinablefuture time (time instrument) - presented forpayment is on the next succeeding business day1048766 instruments is payable on demand - at the option ofthe holder be presented for paymenta before 1200 noon on Saturday whenthat entire day is not a holiday orb the next succeeding business dayHow computed1048766 excluding the day from which the time is to begin torun and by including the date of payment1048766 applies to instruments which are payable at a fixedperiod after date after sight or after thathappening of a specified eventProper place for presentmenta Where a place of payment is specified in the instrumentand it is there presentedb Where no place of payment is specified but the addressof the person to make payment is given in theinstrument and it is there presentedc Where no place of payment is specified and no address isgiven and the instrument is presented at the usual placeof business or residence of the person to make payment

d In any other case if presented to the person to makepayment wherever he can be found or if presented athis last known place of business or residenceWhen delay in presentment excused ndash delay is caused bycircumstances beyond the control of the holder and notimputable to his default misconduct or negligence Whenthe cause of delay ceases to operate presentment must bemade with reasonable diligencePresentment for acceptance ndash the production or exhibitionof a bill of exchange to the drawee for his acceptance orpaymentGeneral Rule presentment for acceptance is not necessary torender any party to the bill liableException presentment for acceptance must be madea Where the bill is payable after sight or wherepresentment for acceptance is necessary in order tofix the maturity of the instrument orb Where the bill expressly stipulates that it shall bepresented for acceptance orc Where the bill is drawn payable elsewhere then atthe residence or place of business of the drawee(sec 143)Note in all the above cases the holder must either presentthe bill for acceptance or negotiate it within a reasonabletime otherwise the drawer and all indorsers are dischargedHow made1 made by or on behalf of the holder2 at a reasonable hour3 on a business day4 before the bill is overdue and within reasonabletime5 to the drawee or some person authorized to acceptor refuse acceptance on his behalfDays presentment may be made If date of presentment isa Sunday or a holiday ndash must be made on the nextsucceeding business dayb Saturday ndash before 1200 noon on Saturday providedthat it is not a holidayWhen delay for presentment excuseda bill is drawn payable elsewhere than at the place ofbusiness or the residence of the draweeb holder has no time with the exercise of reasonablediligence to present the bill for acceptance beforepresenting it for payment on the day that it fallsdueEffect does not discharge the drawers and indorsersWhere presentment is excuseda Where the drawee is dead or has absconded or is afictitious person or a person not having capacity tocontract by billb Where presentment can not be made after theexercise of reasonable diligencec Where although presentment has been irregularacceptance has been refused on some other groundNote bill may be treated as dishonored by nonacceptanceDuty of holder where bill not accepted - where a bill isduly presented for acceptance and is not accepted within theprescribed time (24 hours ndash sec 136) the person presentingit must treat the bill as dishonored by non-acceptance or heloses the right of recourse against the drawer and indorsersAcceptance the signification by the drawee of his assent tothe order of the drawer It is the act by which the draweemanifests his consent to comply with the request containedin the bill of exchange directed to himHow made

1) must be in writing2) signed by the drawee3) must not express that the drawee will perform hispromise by any other means than the payment ofmoneybull the holder of the bill presenting the same for acceptancemay require that the acceptance be written on the billand if such request is refused may treat the bill asdishonoredbull where an acceptance is written on a paper other thanthe bill itself it does not bind the acceptor except infavor of a person to whom it is shown and who on thefaith thereof receives the bill for valuePeriod for drawee to accept - allowed 24 hours afterpresentment in which to decide whether or not he will acceptthe bill if acceptance is given it dates as of the day ofpresentationConstructiveImplied acceptance where a drawee refuseswithin 24 hours after delivery or within such other period asthe holder may allow to return the bill accepted or nonacceptedto the holder he will be deemed to have acceptedthe sameNote same effect if the drawee destroys the instrumentKinds1 General - assents without qualification to the order ofthe drawer2 Qualified - which in express terms varies the effect ofthe bill as drawna Conditional - makes payment by the acceptordependent on the fulfillment of a conditiontherein statedb Partial - an acceptance to pay part only of theamount for which the bill is drawni Local - an acceptance to pay only at aparticular placeii Qualified as to timeiii The acceptance of some one or more ofthe drawees but not of all3 ConstructiveRights of parties as to qualified acceptancebull Holder he may refuse to take a qualified acceptanceand if he does not obtain an unqualified acceptance hemay treat the bill as dishonored by non-acceptancebull Drawer or indorser when he receives notice of aqualified acceptance he must within a reasonable timeexpress his dissent to the holder or he will be deemed tohave assented thereto (implied assent)Effect of taking a qualified acceptance the drawer andindorsers are discharged from liability on the bill unless theyhave expressly or impliedly authorized the holder to take aqualified acceptance or subsequently assent theretoOther rules of acceptancebull a bill may be accepted before it has been signed by thedrawer or while otherwise incomplete or when it isoverdue or after it has been dishonored by a previousrefusal to accept or by non paymentbull when a bill payable after sight is dishonored by nonacceptanceand the drawee subsequently accepts it theholder in the absence of any different agreement isentitled to have the bill accepted as of the date of thefirst presentmentbull an unconditional promise in writing to accept a billbefore it is drawn is deemed an actual acceptancein favor of every person who upon the faiththereof receives the bill for value

bull where a check is certified by the bank on which it isdrawn the certification is equivalent to anacceptanceEffect the drawer and all indorsers are dischargedfrom liability thereonAcceptance for Honor - an undertaking by a stranger to a billafter protest for the benefit of any party liable thereon or forthe honor of the person for whose account the bill is drawnwhich acceptance inures also to the benefit of all partiessubsequent to the person for whose honor it is accepted andconditioned to pay the bill when it becomes due if theoriginal drawee does not pay it1048766 Requisites1 the bill must have been protested for dishonorby non-acceptance or for better security2 the acceptor for honor must be a stranger andnot a party already liable on the instrument3 bill must not be overdue4 acceptance for honor must be with the consentof the holder of the instrument1048766 Formalities1 must be in writing2 must indicate that it is an acceptance forhonor3 signed by the acceptor for honor4 must contain an express or implied promise topay money5 the accepted bill for honor must be deliveredto the holderNotice of Dishonor - notice given by the holder or his agentto a party or parties secondarily liable that the instrumentwas dishonored by non-acceptance by the drawee of a bill orby non-payment by the acceptor of a bill or by non-paymentby a maker of a note- If such notice is given by a notary public it is calledPROTEST1048766 Effect of failure to give notice parties secondarily liableare discharged1048766 Requisites1 Given by holder or his agent or by any party whomay be compelled by the holder to pay2 Given to secondary party or his agent3 Given within the periods provided by law4 Given at the proper place1048766 When notice of dishonor dispensed with1 when party to be notified knows about the dishonoractually or constructively2 if waived and3 when after due diligence it cannot be given1048766 How given1 by bringing verbally or2 by writing to the knowledge of the person liable thefact that a specified instrument upon properproceedings taken has not been accepted or hasnot been paid and that the party notified isexpected to pay it1048766 To whom given1 Non-acceptance (bill) ndash to persons secondarilyliable namely the drawer and indorsers as the casemay be2 Non-payment (both bill and note) ndash indorsersNote Notice must be given to persons secondarilyliable Otherwise such parties are dischargedNotice may be given to the party himself or to hisagent

1048766 By whom given1 the holder2 another on behalf of the holder3 any party to the instrument who may be compelledto pay it to the holder and who would have a rightof reimbursement from the party to whom notice isgiven1048766 Notice of dishonor given by or on behalf of a holderinures to the benefit ofa all parties prior to the holder who have a rightof recourse against the party to whom thenotice is given andb all holders subsequent to the holder givingnotice1048766 Notice of dishonor given by or on behalf of a partyentitled to give notice inures to the benefit ofa the holder andb all parties subsequent to the party to whomnotice is given1048766 Where an instrument is dishonored in the hands of anagent he can do either of the ffa directly give notice to persons secondarilyliable thereon orb give notice to his principal In such case hemust give notice within the time allowed bylaw as if he were a holder1048766 A party giving notice is deemed to have given due noticewherea the notice of dishonor is duly addressed andb deposited in the post-office even when thereis miscarriage of mail1048766 Where a party receives notice of dishonor he has afterthe receipt of such notice the same time for givingnotice to antecedent parties that the holder has afterthe dishonor1048766 Notice may be waived either before the time of givingnotice or after the omission to give due notice Waivermay be expressed or implied1048766 As to who are affected by an express waiver depends onwhere the waiver is written1 if it appears in the body or on the face of theinstrument it binds all parties but2 if it is written above the signature of anindorser it binds him only1048766 Notice of dishonor is not required to be given to thedrawer in any of the ff cases1 drawer and drawee are the same2 drawee is a fictitious person or not having thecapacity to contract3 drawer is the person to whom the instrument ispresented for payment4 the drawer has no right to expect or requirethat the drawee or acceptor will honor theinstrument5 where the drawer has countermandedpayment1048766 Notice of dishonor is not required to be given to anindorser in the ff cases1 drawee is a fictitious person or does not havethe capacity to contract and indorser wasaware of that fact at the time he indorsed theinstrument2 indorser is the person to whom the instrumentis presented for payment3 instrument was made or accepted for his

accommodation1048766 If an instrument is not accepted by the drawee there isno sense presenting it again for payment and notice ofdishonor must at once be given If there wasacceptance presentment for payment is still requiredand if payment is refused there is a need for notice ofdishonor1048766 An omission to give notice of dishonor by non-acceptancedoes not prejudice the rights of a holder in due coursesubsequent to the omissionDishonor by Non-PaymentWhen instrument dishonored by non-paymenta it is duly presented for payment and payment isrefused or cannot be obtained orb presentment is excused and the instrument isoverdue and unpaidEffect of dishonor an immediate right of recourse to allparties secondarily liable thereon accrues to the holderDishonor by Non-AcceptanceInstancesa When it is duly presented for acceptance and suchan acceptance is refused or can not be obtained orb When presentment for acceptance is excused andthe bill is not accepted (sec 149)Effect an immediate right of recourse against thedrawer and indorsers accrues to the holder and nopresentment for payment is necessaryNote where a bill is duly presented for acceptance andis not accepted within the prescribed time (24 hours)the person presenting it must treat the bill as dishonoredby non-acceptanceWhen Instrument Considered to be Dishonoreda If it is not accepted when presented for acceptanceorb If it is not paid when presented for payment atmaturity orc If presentment is excused or waived and theinstrument is past due and unpaidProtest - the formal instrument executed usually by a notarypublic certifying that the legal steps necessary to fix theliability of the drawee and the indorsers have been taken1048766 Effect of waiver where protest is waived presentmentand notice of dishonor are also deemed waived Butwhere the notice of dishonor is waived presentment isnot waived1048766 Applicability protest is necessary only in case of foreignbills of exchange which have been dishonored by nonacceptanceor non-payment as the case may be If it isnot so protested the drawer and indorsers aredischarged1048766 Foreign Bill of Exchange1 Drawn in the Philippines but payable outside thePhilippines2 Payable in the Philippines but drawn outside thePhilippines1048766 Protest may be made by1 a notary public or2 any respectable resident of the place where the billis dishonored in the presence of 2 or more crediblewitnessesProtest for better security is one made by the holder of a billafter it has been accepted but before it matures against thedrawer and indorsers where the acceptor has been adjudgeda bankrupt or an insolvent or has made an assignment forthe benefit of the creditors

VIII DISCHARGEDischarge of instrument - a release of all parties whetherprimary or secondary from the obligations arisingthereunder It renders the instrument without force andeffect and consequently it can no longer be negotiatedInstances1 By payment in due course by or on behalf of theprincipal debtor2 Payment by accommodated party3 Intentional cancellation by the holder4 By any act which will discharge a simple contractfor the payment of money5 When the principal debtor becomes the holder ofthe instrument at or after maturity in his own rightBy any act which would discharge a simple contract1 Payment or performance2 Loss of the thing due3 Condonation or remission4 Confusion or Merger5 Compensation6 Novation7 Annulment or Rescission8 Fulfillment of a resolutory condition9 PrescriptionWhen persons secondarily liable on the instrument aredischarged1 By any act which discharges the instrument2 By the intentional cancellation of his signature bythe holder3 By the discharge of a prior party4 By a valid tender of payment made by a prior party5 By the release of the principal debtor unless theholderrsquos right of recourse against the partysecondarily liable is expressly reserved6 By any agreement binding upon the holder to extendthe time of payment or to postpone the holderrsquosright to enforce the instrument1048766 In the following cases the agreement to extend the timeof payment does not discharge a party secondarily liable1 where the extension of time is consented to by suchparty2 where the holder expressly reserves his right ofrecourse against such party1048766 Payment at or after maturity by a party secondarilyliable does not discharge the instrument It only cancelshis own liability and that of the parties subsequent tohimEffects of Renunciation1 A renunciation in favor of a secondary party may bemade by the holder before at or after maturity ofthe instrument Effect only such secondary party isdischarged and all parties subsequent to him but theinstrument itself remains in force2 A renunciation in favor of the principal debtor maybe effected at or after maturity Effect theinstrument is discharged and all parties theretoprovided the renunciation is made unconditionallyand absolutelyNote In either case renunciation does not affect therights of a holder in due course without notice1048766 Cancellation of an instrument includes tearing erasureobliteration or burning It is not limited to writing ofthe word lsquocancelledrdquo or ldquopaidrdquo or drawing of crisscrosslines across the instrumentPayment for Honor - payment made by a person whether a

party to the bill or not after it has been protested for nonpaymentfor the benefit of any party liable thereon or forthe benefit of the person for whose account it was drawn1048766 Requisites1 the bill has been dishonored by non-payment2 it has been protested for non-payment3 payment supra protest (another term for paymentfor honor because prior protest for non-payment isrequired) is made by any person even by a partythereto4 the payment is attested by a notarial act of honorwhich must be appended to the protest or form anextension of it5 the notarial act must be based on the declarationmade by the payor for honor or his agent of hisintention to pay the bill for honor and for whosehonor he paysNote If the above formalities are not complied withpayment will operate as a mere voluntary payment andthe payor will acquire no right to full reimbursementagainst the party for whose honor he pays1048766 In payment for honor the payee cannot refuse paymentIf he refuses he cannot recover from the parties whowould have been discharged had he accepted the sameIn acceptance for honor the holderrsquos consent isnecessary1048766 The payor for honor is given the right to receive both thebill and the protest obviously to enable him to enforcehis rights against the parties who are liable to himIX CHECKSCheck- a bill of exchange drawn on a bank payable ondemandCheck distinguished from and ordinary bill of exchangeBILLOF EXCHANGE CHECKNot necessarily drawnon a deposit The draweeneed not be a bankIt is necessary that a checkis drawn on a bank depositThe drawee is always abankDeath of a drawer of aBOE with the knowledgeof the bank does notrevoke the authority of thedrawee to payDeath of the drawer of acheck with the knowledgeof the bank revokes theauthority of the banker topayMay be presented forpayment within areasonable time after itslast negotiation because itmay be further negotiatedMust be presented forpayment within areasonable time after itsissueMay be payable on demandor at a fixed ordeterminable future timeAlways payable on demandKinds of checks

1 Managerrsquos Cashierrsquos Check ndash drawn by a bank on itselfand therefore it is a primary obligation of the banko It is accepted in advance by the act of itsissuance and is not subject tocountermand by the payor afterindorsemento The bankrsquos manager signs managerrsquos checkwhile cashierrsquos check is signed by the bankcashier2 Certified Check ndash one drawn by a depositor upon funds tohis credit in a bank which a proper officer of the bankcertifies will be paid when duly presented for payment3 Stale check ndash one which has not been presented forpayment within a reasonable time after its issue4 Crossed check ndash when 2 parallel lines are drawn acrossits face or across a corner thereof If the name of a bankappears between the parallel lines the check is said tobe specially crossed and payment should be made onlyif presented by the named bank If no name appearsbetween the parallel lines the check is said to begenerally crossed and payment should be made onlyupon presentment by some bankEffects of crossing a checka That the check may not be encashed but only bedeposited in the bankb That the check may be negotiated only once to onewho has an account with a bank andc That the act of crossing the check serves as awarning to the holder that the check has beenissued for a definite purpose so that he must inquireif he has received the check pursuant to thatpurpose5 Memorandum Check ndash it is like an ordinary check exceptthat the word ldquomemorandumrdquo ldquomemrdquo or ldquomemordquo iswritten upon the face of the check signifying that thedrawer engages to pay the bona fide holder absolutelyand not upon a condition to pay upon presentment atmaturity and if due notice of the presentment and nonpaymentshould be given6 Travelerrsquos check ndash one upon which the holderrsquos signaturemust appear twice one to be affixed by him at the timeit is issued and the second o counter-signature to beaffixed by him in the presence of the payee before it ispaid otherwise it is incompleteIron Clad Rule Prohibits the countermanding ofpayment of certified checks (Republic of the Philippinesv PNB GR No 16106 December 1 1961)

for fraud because under these instruments the promissorybargains away his right to a day in court The NIL does notsanction nor validated any provision otherwise illegalOmissions and Provisions that do not affect Negotiability(Sec 6)The validity and negotiable character of an instrument arenot affected by the fact thata it is not dated orb does not specify the value given or that any valuehad been given therefore orc does not specify the place where it is drawn or theplace where it is payable ord bears a seal ore designates a particular kind of current money inwhich payment is to be made1048766 if it is not dated the instrument will be considered to bedated as of the time it was issued1048766 consideration for the instrument is presumed (art 154NCC amp sec 25 NIL)1048766 sec 73 specifies where presentment for payment shouldbe made when the place of payment is not specifiedRules of constructiona Where the sum payable is expressed in words and also infigures and there is a discrepancy between the two thesum denoted by the words is the sum payable but if thewords are ambiguous or uncertain reference may be hadto the figures to fix the amountb Where the instrument provides for the payment ofinterest without specifying the date from which interestis to run the interest runs from the date of theinstrument and if the instrument is undated from theissue thereofc Where the instrument is not dated it will be consideredto be dated as of the time it was issuedd Where there is a conflict between the written andprinted provisions of the instrument the writtenprovisions prevaile Where the instrument is so ambiguous that there isdoubt whether it is a bill or note the holder may treat itas either at his electionf Where a signature is so placed upon the instrument thatit is not clear in what capacity the person making thesame intended to sign he is to be deemed an indorserg Where an instrument containing the word I promise topay is signed by two or more persons they are deemedto be jointly and severally liable thereon (sec 17)Consideration1048766 Presumption of consideration - every negotiableinstrument is deemed prima facie to have been issuedfor a valuable consideration and every person whosesignature appears thereon to have become a partythereto for value1048766 Value - any consideration sufficient to support a simplecontract An antecedent or pre-existing debt constitutesvalue and is deemed such whether the instrument ispayable on demand or at a future time1048766 Holder for value ndash one who has given a valuableconsideration for the instrument issued or negotiated tohimbull What constitutes holder for valuewhere value has at any time been given for theinstrument the holder is deemed a holder for valuein respect to all parties who become such prior tothat timebull where the holder has a lien on the instrument

arising either from contract or by implication oflaw he is deemed a holder for value to the extentof his lien1048766 Effect of want of consideration a matter of defense asagainst any person not a holder in due course andpartial failure of consideration is a defense pro tantowhether the failure is an ascertained and liquidatedamount or otherwiseAbsence of consideration ndash total lack of any validconsideration for the contract is only a personaldefenseFailure of consideration ndash failure or refusal or one partyto do perform or comply with the consideration agreedupon is also only a personal defenseIII TRANSFER AND NEGOTIATIONTypes of transfers1 Assignment - transfer of title to the instrument with theassignee generally taking only such title as his assignorhas subject to all defenses available against hisassignor2 Negotiation - transfer of a negotiable instrument fromone person to another made in such a manner as toconstitute the transferee the holder thereof3 By Operation of Law ndash such as by succession byinsolvencyDistinctions between Negotiation and AssignmentNEGOTIATION ASSIGNMENT1 Refers only tonegotiableinstruments2 The transferee is aholder3 A holder in due courseis subject only to realdefenses4 A holder in due course1 Refers generally to anordinary contract2 The transferee is anassignee3 An assignee is subjectto both real andpersonal defenses4 Generally an assigneemay acquire a betterright than that of aprior party5 A general indorserwarrants the solvencyof prior parties6 An indorser is notliable unless there bepresentment andnotice of dishonor7 Negotiation isgoverned y the NILmerely steps into theshoes of the assignor5 An assignor does notwarrant the solvency ofprior parties unlessexpressly stipulated orthe insolvency is knownto him6 An assignor is liable

even without notice ofdishonor7 Governed by Arts 1624to 1635 (on assignmentof credits) of the CivilCodeMethods of negotiation1 Order Instrument ndash Indorsement and Delivery2 Bearer Instrument ndash Delivery onlyIndorsement - legal transaction effected by the writing ofones own name at thea back of the instrument orb upon a paper (allonge) attached thereto with orwithout additional words specifying the person towhom or to whose order the instrument is to bepayable whereby one not only transfers legal title tothe paper transferred but likewise enters into animplied guaranty that the instrument will be dulypaid1048766 General Rule indorsement must be of the entireinstrumentException where instrument has been paid in part itmay be indorsed as to the residue1048766 Kinds of indorsementa Special - specifies the person to whom or to whoseorder the instrument is to be payable (sec 34)b Blank - specifies no indorseebull Instrument is payable to bearer and may benegotiated by delivery (sec 34)bull May be converted to special indorsement bywriting over the signature of indorser in blankany contract consistent with character ofindorsementc Restrictive - when the indorsement eitheri Prohibits further negotiation of theinstrument orii Constitutes the indorsee the agent of theindorser oriii Vests the title in the indorsee in trust foror to the use of some other persons Butmere absence of words implying power tonegotiate does not make an indorsementrestrictivebull A restrictive indorsement confers upon theindorsee the righta To receive payment of theinstrumentb To bring any action thereon that theindorser could bringc To transfer his rights as such indorseewhere the form of the indorsementauthorizes him to do soBut all subsequent indorsees acquire only thetitle of the first indorsee under the restrictiveindorsement (sec 37)1048766 Such indorsement destroys the negotiability ofthe instrument and bars further negotiation toa holder in due coursed Qualified - constitutes the indorser a mere assignorof the title to the instrument (sec 38)bull made by adding to the indorsers signaturewords like sans recourserdquo ldquowithout recourseindorser not holder at the indorsers ownrisk etcbull The purpose of this kind of indorsement is to

transfer title without guaranteeing payment bythe primary partybull It does not mean however that the qualifiedindorser incurs no liability at all The effect ismerely to limit his liability He is secondarilyliable for breach of is warranties as an indorserunder Sec 65 Thus he is liable if theinstrument is dishonored by NON-ACCEPTANCEor NON-PAYMENT due toa forgeryb lack of good title to the instrumentindorsedc lack of capacity to contract on the part ofprior parties ord the fact that the instrument was valuelessor not valid at the time of the indorsementwhich fact was known to hime Conditional - right of the indorsee is made todepend on the happening of a contingent eventbull Party required to pay may disregard theconditionsbull This kind of indorsement has no effect on thefurther negotiation of the instrument Theparty required to pay if he chooses may makepayment disregarding the condition withoutincurring any liability because he is expresslyauthorized to do so under Sec 39 But theperson who received payment will hold theproceeds subject to the right of the conditionalindorserf Absolute - one by which indorser binds himself topayi upon no other condition than failure ofprior parties to do so andii upon due notice to him of such failureg Joint - indorsement of instrument payable to 2 ormore persons all must indorse in order for thetransaction to operate as a negotiationbull Exceptions to the rule requiring jointindorsementa Where the payees or indorsees arepartners andb Where the payee or indorsee indorsinghas authority to indorse for theothersh Irregular - a person who not otherwise a party toan instrument places thereon his signature in blankbefore delivery1048766 Rules on Indorsementsbull Effect of transfer without indorsementa transfer vests in the transferee such title as thetransferor had therein (assignment) andb the right to have the indorsement of thetransferor1048766 For the purpose of determining whether thetransferee is a holder in due course thenegotiation takes effect as of the time whenthe indorsement is actually made1048766 Applicable only to order instrumentsbull Indorsement of a bearer instrument where aninstrument payable to bearer is indorsed speciallyit may nevertheless be further negotiated bydelivery but the person indorsing specially is liableas indorser to only such holders as make titlethrough his indorsement

Note The rule only applies to originally bearerinstruments If it is originally a BEARER instrumentit will always be a BEARER instrument As opposedto an original order instrument becoming payable tobearer if the same is indorsed specifically it canNO LONGER be negotiated further by mere deliveryit has to be indorsedbull Striking out indorsements the holder may at anytime strike out any indorsement which is notnecessary to his title The indorser whoseindorsement is struck out and all indorserssubsequent to him are thereby relieved fromliability on the instrument1048766 If the instrument is payable to bearer on its facethen whether or not there are indorsements on theback of the instrument would be immaterial to thetitle of the bearer who is presumptively the ownerand holder by his mere possession of suchinstrument None of the indorsement would benecessary to itrsquos title since mere delivery wouldhave been sufficient to transfer title from oneholder to another1048766 Where the instrument is payable to order on itsface the situation is different First theindorsement of a special indorsee is necessary forthe further negotiation of the instrument Secondthe last indorsement controls the method of furthernegotiationbull When prior party (reacquirer) may negotiate where aninstrument is negotiated back to a prior party suchparty may reissue and further negotiate the same Buthe is not entitled to enforce payment thereof againstany intervening party to whom he was personally liable1048766 In the following cases a prior party cannot furthernegotiate the instrument1 Where it is payable to the order of a thirdperson and has been paid by the drawer2 Where it was made or accepted foraccommodation and has been paid by theparty accommodated3 In other cases where the instrument isdischarged when acquired by a prior partyIV HOLDERSClasses of holders1 simple holder (sec 51)2 holder for value (sec 26)3 holder in due course (sec52 57)Holder in Due Course1048766 holder who has taken the instrument under the followingconditionsa That it is complete and regular upon its faceb That he became the holder of it before it wasoverdue and without notice that it has beenpreviously dishonored if such was the factc That he took it in good faith and for valued That at the time it was negotiated to him he hadno notice of any infirmity in the instrument ordefect in the title of the person negotiating it1048766 When title defective - The title of a person whonegotiates an instrument is defective when he obtainedthe instrument or any signature thereto bya fraudb duress or force and fearc other unlawful meansd illegal consideration

e negotiation in breach of faithf circumstances amounting to fraud1048766 What constitutes notice of defect - The person towhom it is negotiated must havea actual knowledge of the infirmity or defect orb knowledge of such facts that his action in taking theinstrument amounted to bad faith (sec 56)1048766 Notice before full amount is paid - where thetransferee receives notice of any infirmity in theinstrument or defect in the title of the personnegotiating the same before he has paid the full amountagreed to be paid he will be deemed a holder in duecourse only to the extent of the amount paid by him1048766 When person not deemed a holder in due course -where an instrument payable on demand is negotiatedon an unreasonable length of time after its issue theholder is not deemed a holder in due coursebull Reasonable time what constitutes - regard is to behad to thea nature of the instrumentb the usage of trade or business with respect tosuch instruments and thec facts of the particular casebull Effect in the hands of any holder other than aholder in due course a negotiable instrument issubject to the same defenses as if it were nonnegotiable1048766 General Rule every holder is deemed prima facie to bea holder in due courseException when it is shown that the title of any personwho has negotiated the instrument was defective theburden is on the holder to prove that he or some personunder whom he claims acquired the title as holder in duecourse (shifting of burden of proof)Limitation the last-mentioned rule does not apply infavor of a party who became bound on the instrumentprior to the acquisition of such defective title (sec 59)1048766 Rights of a holder in due coursea he may sue on the instrument in his own nameb he may receive payment and if payment is in duecourse the instrument is dischargedc holds the instrument free from any defect of title ofprior partiesd holds the instrument free from defenses available toprior parties among themselves ande may enforce payment of the instrument for the fullamount thereof against all parties liable thereon1048766 Payment in due course is payment madea at or after the maturity of the instrumentb to the holder thereofc in good faith and without notice that his title isdefective1048766 Shelter Rulea derives his title through a holder in due course andb who is not himself a party to any fraud or illegalityaffecting the instrument has all the rights of suchformer holder in respect of all parties prior to thelatter1048766 Rights of a Holder NOT in Due Course1 He may sue on the instrument in his own name2 He may receive payment and if the payment is indue course the instrument is discharged3 He is entitled to the instrument but holds it subjectto the same defenses as if it were non-negotiableand4 He has all the rights of the holder in due course

from whom he derived his title in respect of allparties prior to such holder provided he is nothimself a party to any fraud or illegality affectingthe instrumentV LIABILITIES OF PARTIESPersons primarily liable on instrument the person who bythe terms of the instrument is absolutely required to pay thesame All other parties are secondarily liableClassification of parties according to liabilityIN A PROMISSORYNOTE1 Maker2 Indorser3 Persons negotiating by deliveryIN A BILL OFEXCHANGE1 Drawer2 Acceptor3 Indorsers4 Persons negotiating by delivery1 Parties Primarily Liablea Maker (Sec 60)bull engages to pay according to the tenor of theinstrument andbull admits the existence of the payee and his thencapacity to indorse at the time of the makingof the notebull A person placing his name on the face of a noteis prima facie a maker and liable as such andhe is presumed to have acted with care and tohave signed the instrument with full knowledgeof its contentsb Acceptor or Drawee (Sec 62)bull engages to pay according to the tenor of hisacceptancebull admits1 the existence of the drawer2 the genuineness of his signature and3 his capacity and authority to draw theinstrument and4 the existence of the payee and his thencapacity to indorseNote the drawee is not liable until he acceptsthe instrumentbull Where a check is certified by a bank it isequivalent to an acceptance Since certification isequivalent to acceptance a bank which hascertified a check whether at the request of theholder or of a drawer has the same liabilities andmakes the same warranties as an acceptor Itcannot after certification question thegenuineness of the drawerrsquos signature If itdiscovers that such signature is forged subsequentto certification but prior to payment it cannotrefuse to pay on the check If its discovery comesafter it has paid the check it cannot recoverback what it paid on the ground of mistakenpayment unless the holder is guilty of fraud ornegligencebull If a drawee-bank accepts or pays a check despitea stop payment order from the drawer throughoversight or otherwise it cannot refuse to paythe holder or recover what has been paid neithermay it debit the drawerrsquos account unless theacceptance nor payment was made prior to the

receipt of the order2 Parties Secondarily Liablea Drawer (Sec 61)bull admits the existence of the payee and hiscapacity to indorsebull engages that the instrument will be acceptedor paid by the party primarily liable andbull engages that if the instrument is dishonoredand proper proceedings are brought he willpay to the party entitled to be paidb General Indorser (Sec 66)bull Warrants1 genuineness of the instrument2 his good title to it3 capacity to contract of prior parties and4 instrument is valid and subsistingbull engages that the instrument will be acceptedor paid by the party primarily liable andbull engages that if the instrument is dishonoredand proper proceedings are taken he will payto the party entitled to be paidc Irregular Indorser ndash a person not otherwise a partyto an instrument places his signature thereon inblank before deliveryRulesbull If instrument payable to the order of a 3rdperson he is liable to the payee andsubsequent partiesbull If instrument payable to order of maker ordrawer he is liable to all parties subsequent tothe maker or drawerbull If he signs for accommodation of the payee heis liable to all parties subsequent to the payeeDistinctionsPRIMARY PARTY SECONDARY PARTY1 Unconditionally bound2Absolutely required topay upon the maturity ofthe instrument1 Conditionally bound2 Undertakes to pay onlyafter certain conditionshave been fulfilleda due presentment forpayment or acceptance toprimary partyb dishonor by suchparty andc the taking ofproceedings required bylaw after dishonorINDORSER DRAWER1 A party to either a noteor a bill2 Does not make anyadmission regarding theexistence of the payee andhis capacity to indorse and3 Has warranties1 A party only to a bill2 The drawer makes suchadmission3 Makes no warranties buthe engages to pay aftercertain conditions are

complied withGENERAL INDORSER IRREGULAR INDORSER1 Makes either a blank orspecial indorsement2 Indorses the instrumentafter its delivery to thepayee and3 Liable only to partiessubsequent to him1 Always makes a blankindorsement2 Indorses before itsdelivery3 Liable to the payee andsubsequent parties unlesshe signs for theaccommodation of thepayee in which case he isliable only to all partiessubsequent to the payee3 Parties with Limited Liability (sec 65 MetropolFinancing v Sambok 120 SCRA 864)a Qualified Indorser - warrants that1048766 instrument is genuine and in all respects whatit purports to be1048766 he has good title to it1048766 all prior parties had capacity to contract1048766 he has no knowledge of any fact which wouldimpair the validity of the instrument or renderit valuelessb Persons Negotiating by Delivery1048766 warranties same as those of qualified indorsersand1048766 warranties extend to immediate transfereeonlyLIABILITY WARRANTY1 To pay a sum certain2 Requires Notice ofDishonor3 Action can be broughtonly on maturity ofinstrument1 No obligation to pay2 Notice of Dishonor is not arequirement3 Action may be broughtanytimeBY MERE DELIVERY OR BYQUALIFIED INDORSEMENTGENERAL INDORSER1 No secondary liability1 With secondary liability2 Warrants that he has noknowledge of any factwhich would impair thevalidity of the instrumentor render it valueless2 Warrants that theinstrument is at the timeof his indorsement validand subsisting4 Other parties who may be liableGeneral Rule One whose signature does not appear on theinstrument shall not be liable thereonExceptions

1 The principal who signs through an agent is liable2 The forger is liable3 One who indorses in a separate instrument (allonge) isliable4 One who signs his assumed or trade name is liable and5 A person negotiating by delivery (as in the case of abearer instrument) is liable to his immediate indorseeRequisites for an Agent to escape liability1 must be duly authorized2 add words to his signature indicating that he signs as anagent that is for or on behalf of a principal or in arepresentative capacity and3 disclose his principal1048766 A signature by ldquoprocurationrdquo operates as notice that theagent has but a limited authority to sign and theprincipal is bound only in case the agent in so signingacted within the actual limits of his authority (sec 21)1048766 Indorsement or assignment of the NI by a corporation orby an infant passes the property thereinnotwithstanding that from want of capacity thecorporation or infant may incur no liability thereon(sec 22)Accomodation PartyOne who has signed the instrument as maker draweracceptor or indorser without receiving value therefor andfor the purpose of lending his name to some other person1048766 Liability such a person is liable on the instrument to aholder for value notwithstanding such holder at thetime of taking the instrument knew him to be only anaccommodation party1048766 Effects1 accommodation party is generally regarded as asurety for the party accommodated2 When accommodation party makes payment toholder of the note he has the right to sue theaccommodated party for reimbursement1048766 Rights of accommodation parties as against each otherthe other may demand contribution from his coaccommodationparty without first directing his actionagainst the principal debtor provided1 he made the payment by virtue of judicial demandor2 the principal debtor is insolventNote A corporation cannot act as an accommodationparty The issuance or indorsement of negotiableinstrument by a corporation without consideration andfor the accommodation of another is ultra vires(Crisologo v CA 117 SCRA 594)Order of liability of indorsers1 among themselves ndash indorsers are liable prima facie inthe order in which they indorse but evidence isadmissible to show that as between or amongthemselves they have agreed otherwise (sec 68)2 to the holder ndash indorsers are liable in any orderVI DEFENSESKinds1 RealAbsolute Defenses - those that attach to theinstrument itself and are available against all holderswhether in due course or notExamplesa Alterationb Non-delivery of incomplete instrumentc Duress amounting to forgeryd Fraud in factum or fraud in esse contractuse Minority

f Marriage in the case of a wifeg Insanity where the insane person has a guardianappointed by the courth Ultra vires acts of a corporation where thecorporation is absolutely prohibited by its charter orstatute from issuing any commercial paper underany circumstancesi Want of authority of agentj Execution of instrument between public enemiesk Illegality of contract where it is the contract orinstrument itself which is expressly made illegal bystatute andl Forgery2 PersonalEquitable Defenses ndash those which are availableonly against a person not a holder in due course or asubsequent holder who stands in privity with himExamplesa Absence or failure of consideration partial or totalb Want of delivery of complete instrumentc Insertion of wrong date in an instrument where it ispayable at a fixed period after date and it is issuedundated or where it is payable at a fixed periodafter sight and the acceptance is undatedd Filling up of blank contrary to authority given or notwithin reasonable time where the instrument isdeliverede Fraud in inducementf Acquisition of instrument by force duress or fearg Acquisition of the instrument by unlawful meansh Acquisition of the instrument for an illegalconsiderationi Negotiation in breach of faithj Negotiation under circumstances that amount tofraudk Mistakel Intoxication (according to better authority)m Ultra vires acts of corporations where thecorporation has the power to issue negotiable paperbut the issuance was not authorized for theparticular purpose for which it was issuedn Want of authority of agent where he haso apparent authorityp Insanity where there is no notice of insanity on thepart of the one contracting with the insane personandq Illegality of contract where the form orconsideration is illegalFRAUD IN FACTUM FRAUD IN INDUCEMENT1 It exists in those cases inwhich a person withoutnegligence has signed aninstrument which was infact a negotiableinstrument but wasdeceived as to thecharacter of the instrumentand without knowledge ofits as where a not wassigned by one under thebelief that he was signingas a witness to a deed1 It is that which relatedto the quality quantityvalue or character of theconsideration of the

instrument In this casethe signer is led bydeception to execute whathe knows is a negotiableinstrument It implies thatthe signer knew what hewas signing but that he wasinduced by fraud to sign2 This kind of fraud is areal defense because thereis no contract It impliesthat the person did notknow what he was signingBut where the signer by theexercise of reasonablediligence could havediscovered the nature ofthe instrument the fraudcannot be considered a realdefense as where a personwho can read signed a notebut failed to read it2 Such type of fraud is onlya personal defense becauseit does not prevent acontract1048766 Effects of Defenses1 Complete and undelivered instrumentbull as between immediate parties and as regards aremote party other than a holder in due course thedelivery must be authorized in order to be effectualbull where the instrument is in the hands of a holder indue course a valid delivery thereof by all partiesprior to him so as to make them liable to him isconclusively presumedbull where the instrument is no longer in the possessionof a party whose signature appears thereon a validand intentional delivery by him is presumed untilthe contrary is proved2 Incomplete but delivered instrumentbull where the instrument is wanting in any materialparticular the person in possession thereof has aprima facie authority to complete it by filling up theblanks thereinbull it must be filled up strictly in accordance with theauthority given and within a reasonable timebull if any such instrument after completion isnegotiated to a holder in due course it is valid andeffectual for all purposes in his hands and he mayenforce it as if it had been filled up strictly inaccordance with the authority given and within areasonable time3 Incomplete and undelivered instrumentbull it will not if completed and negotiated withoutauthority be a valid contract in the hands of anyholder as against any person whose signature wasplaced thereon before deliverybull However subsequent indorsers are liable4 Forgerybull counterfeit making or fraudulent alteration of anywriting which may consist of1 signing of anotherrsquos name with intent todefraud or2 alteration of an instrument in the nameamount name of payee etc with intent to

defraudbull Effect signature is wholly inoperative and no rightto retain the instrument or to give a dischargetherefore or to enforce payment thereof againstany party thereto can be acquired through or undersuch signaturebull Exception unless the party against whom it issought to enforce such right is precluded fromsetting up the forgery or want of authoritybull Cut-Off RuleGeneral Rule Parties prior to the forged signatureare cut-off from the parties after the forgery in thesense that prior parties cannot be held liable andcan raise the defense of forgery The holder canonly enforce the instrument against parties whobecame such after the forgeryException When the prior parties are precludedfrom setting up the defense of forgeryPersons precluded from setting up the defense offorgery are1 Those who by their acts silence or negligenceare estopped from setting up the defense offorgery2 Those who warrant or admit the genuineness ofthe signature in question These include acts oromissions that amount to ratification expressor impliedNote Persons precluded from setting up thedefense of forgery may still recover damages underthe NCC provisions on quasi-delictsbull Rules on ForgeryA Promissory Notes1 Makerrsquos signature forgedOrder Instrumenta Maker is not liable because he neverbecame a party to the instrumentb Indorsers subsequent to forgery are liablebecause of their warrantiesc Party who made the forgery is liableBearer Instrumenta Maker is not liableb Indorsers may be made liable to thosepersons who obtain title through theirindorsementsc Party who made the forgery is liable2 Payeersquos signature forgedOrder Instrumenta Maker and payee not liableb Indorsers subsequent to the forgery isliablec Party who made the forgery is liableBearer Instrumenta Maker is liable Indorsement is notnecessary to title and the maker engagesto pay holderb Party who made the forgery is liable3 Indorserrsquos signature forgedOrder Instrumenta Maker payee and indorser who signaturewas forged is not liableb Indorsers subsequent to forgery are liablebecause of their warrantiesc Party who made the forgery is liableBearer Instrumenta Maker is liable Indorsement is not

necessary to title and the maker engagesto pay holderb Indorser whose signature was forged is notliablec Party who made the forgery is liableB Bill of Exchange1 Drawerrsquos signature forgedIn an Order Instrumenta Drawer is not liableb Drawee is liable if it paid (nor recourse todrawer) because he admitted thegenuineness of the drawerrsquos signatureDrawee cannot recover from the collectingbank because there is no privity betweenthe collecting bank and the drawer Thereis no warranty as to the signature of thedrawer (Associated Bank v CA)c Indorsers subsequent to forgery are liabled Party who made the forgery is liableIn a Bearer Instrumenta Drawer is not liableb Drawee is liable if it paid Drawee cannotrecover from the collecting bank becauseit is bound to known the drawerrsquossignature since the latter is its depositorc Party who made the forgery is liable2 Payeersquos signature forgedOrder Instrumenta Drawer drawee and payee not liable Cutoffrule appliesb Indorsers subsequent to forgery are liablec Party who made the forgery is liableBearer Instrumenta Drawer is liable His indorsement is notnecessary to pass titleb Drawee is liable No privity betweendrawer and payee because indorsement ofpayee is not necessary (Ang Tek Lian case87 SCRA 383)c Payee is not liabled Collecting bank is liable because ofwarrantye Party who made the forgery is liable3 Indorserrsquos signature forgedOrder Instrumenta Drawer payee and indorser whosesignature was forged are not liableb Drawee is liable if it paidc Indorsers subsequent to forgery are liabled Party who made the forgery is liableBearer Instrumenta Drawer is liable Indorsement is notnecessary to pass titleb Drawee is liablec Indorser whose signature was forged isliable because indorsement is notnecessary to pass titled Party who made the forgery is liable5 Alterationbull Effect the instrument is avoidedbull Exceptions1 against a party who has himself madeauthorized or assented to the alteration2 subsequent indorsers3 holder in due course not a party to the

alteration - he may enforce payment accordingto its original tenorbull Changes constituting material alteration1 date2 sum payable either for principal or interest3 time or place of payment4 number or relations of the parties5 medium or currency in which payment is to bemade6 that which adds a place of payment where noplace of payment is specified and7 any other change or addition which alters theeffect of the instrument in any respectNote a material alteration is one that alters theeffect of the instrument one which changes theitems required to be stated under Sec 1 NILbull Spoliation ndash alteration made by a strangerbull The general rule denies the drawee bankrsquos right tocharge against the drawerrsquos account the amount ofan altered check However the latterrsquos negligencebefore or after the alteration may estop him fromsetting such alteration as against an innocentdrawee bank who has paid the checkbull In cases of altered checks and checks with forgedindorsements the drawee bank must notify andreturn them to the collecting bank before 400 pmof the next day of clearing but the drawee bankmay still return them even after such time providedhe does so within 24 hours from its discovery of thealteration or forged instruments so that recovery ofthe amount may be had BUT in no event beyondthe period fixed or provided by law for filing of alegal action by the returning bank against the banksending the sameNote Alteration is only a partial real defensebecause a holder in due course can still enforce itaccording to its original tenorVII ENFORCEMENT OF LIABILITYPresentment for payment ndash the presentation of aninstrument to the person primarily liable for the purpose ofdemanding and receiving paymentGeneral Rulesbull presentment for payment to charge personsprimarily liable is not necessarybull presentment for payment to charge personssecondarily liable is necessaryExceptionsa drawer - where he has no right to expect or requirethat the drawee or acceptor will pay the instrument(sec 79)b indorser - where the instrument was made oraccepted for his accommodation and he has noreason to expect that the instrument will be paid ifpresentedc when dispensedi where after the exercise of reasonablediligence presentment as required cannotbe madeii where the drawee is a fictitious personiii by waiver of presentment express orimplied (sec 82)d when the instrument has been dishonored by nonacceptance(sec 151)Sufficiency of presentmentIt must be

1 made by the holder or any person authorized toreceive payment on his behalf2 at a reasonable hour on a business day3 at a proper place4 to the person primarily liable or if he is absent orinaccessible to any person found at the placewhere the presentment is madeHow made1 personal demand for payment at the proper place and2 readiness to exhibit the instrument if required and toreceive payment and to surrender the instrument if thedebtor is willing to paybull Purpose of exhibitionTo enable the debtor toa determine the genuineness of the instrument andthe right of the holder to receive payment andb to enable him to reclaim possession upon paymentbull When exhibition excuseda when debtor does not demand to see the instrumentbut refuses payment on some other grounds andb when the instrument is lost or destroyedWhen madebull where the instrument is payable at a fixed ordeterminable future time presentment must be madeon the day it falls duebull where it is payable on demanda promissory note presentment must be made withina reasonable time after its issueb bill of exchange presentment for payment will besufficient if made within a reasonable time afterthe last negotiation thereofbull the check must be presented for payment within areasonable time after its issue or the drawer will bedischarged from liability thereon to the extent of theloss caused by the delayTime of maturitybull every negotiable instrument is payable at the time fixedtherein without gracebull when the day of maturity falls upon a Sunday or aholiday the instruments are to be presented forpayment on the next succeeding business daybull when the day of maturity falls upon a Saturday1048766 Instrument is payable at a fixed or determinablefuture time (time instrument) - presented forpayment is on the next succeeding business day1048766 instruments is payable on demand - at the option ofthe holder be presented for paymenta before 1200 noon on Saturday whenthat entire day is not a holiday orb the next succeeding business dayHow computed1048766 excluding the day from which the time is to begin torun and by including the date of payment1048766 applies to instruments which are payable at a fixedperiod after date after sight or after thathappening of a specified eventProper place for presentmenta Where a place of payment is specified in the instrumentand it is there presentedb Where no place of payment is specified but the addressof the person to make payment is given in theinstrument and it is there presentedc Where no place of payment is specified and no address isgiven and the instrument is presented at the usual placeof business or residence of the person to make payment

d In any other case if presented to the person to makepayment wherever he can be found or if presented athis last known place of business or residenceWhen delay in presentment excused ndash delay is caused bycircumstances beyond the control of the holder and notimputable to his default misconduct or negligence Whenthe cause of delay ceases to operate presentment must bemade with reasonable diligencePresentment for acceptance ndash the production or exhibitionof a bill of exchange to the drawee for his acceptance orpaymentGeneral Rule presentment for acceptance is not necessary torender any party to the bill liableException presentment for acceptance must be madea Where the bill is payable after sight or wherepresentment for acceptance is necessary in order tofix the maturity of the instrument orb Where the bill expressly stipulates that it shall bepresented for acceptance orc Where the bill is drawn payable elsewhere then atthe residence or place of business of the drawee(sec 143)Note in all the above cases the holder must either presentthe bill for acceptance or negotiate it within a reasonabletime otherwise the drawer and all indorsers are dischargedHow made1 made by or on behalf of the holder2 at a reasonable hour3 on a business day4 before the bill is overdue and within reasonabletime5 to the drawee or some person authorized to acceptor refuse acceptance on his behalfDays presentment may be made If date of presentment isa Sunday or a holiday ndash must be made on the nextsucceeding business dayb Saturday ndash before 1200 noon on Saturday providedthat it is not a holidayWhen delay for presentment excuseda bill is drawn payable elsewhere than at the place ofbusiness or the residence of the draweeb holder has no time with the exercise of reasonablediligence to present the bill for acceptance beforepresenting it for payment on the day that it fallsdueEffect does not discharge the drawers and indorsersWhere presentment is excuseda Where the drawee is dead or has absconded or is afictitious person or a person not having capacity tocontract by billb Where presentment can not be made after theexercise of reasonable diligencec Where although presentment has been irregularacceptance has been refused on some other groundNote bill may be treated as dishonored by nonacceptanceDuty of holder where bill not accepted - where a bill isduly presented for acceptance and is not accepted within theprescribed time (24 hours ndash sec 136) the person presentingit must treat the bill as dishonored by non-acceptance or heloses the right of recourse against the drawer and indorsersAcceptance the signification by the drawee of his assent tothe order of the drawer It is the act by which the draweemanifests his consent to comply with the request containedin the bill of exchange directed to himHow made

1) must be in writing2) signed by the drawee3) must not express that the drawee will perform hispromise by any other means than the payment ofmoneybull the holder of the bill presenting the same for acceptancemay require that the acceptance be written on the billand if such request is refused may treat the bill asdishonoredbull where an acceptance is written on a paper other thanthe bill itself it does not bind the acceptor except infavor of a person to whom it is shown and who on thefaith thereof receives the bill for valuePeriod for drawee to accept - allowed 24 hours afterpresentment in which to decide whether or not he will acceptthe bill if acceptance is given it dates as of the day ofpresentationConstructiveImplied acceptance where a drawee refuseswithin 24 hours after delivery or within such other period asthe holder may allow to return the bill accepted or nonacceptedto the holder he will be deemed to have acceptedthe sameNote same effect if the drawee destroys the instrumentKinds1 General - assents without qualification to the order ofthe drawer2 Qualified - which in express terms varies the effect ofthe bill as drawna Conditional - makes payment by the acceptordependent on the fulfillment of a conditiontherein statedb Partial - an acceptance to pay part only of theamount for which the bill is drawni Local - an acceptance to pay only at aparticular placeii Qualified as to timeiii The acceptance of some one or more ofthe drawees but not of all3 ConstructiveRights of parties as to qualified acceptancebull Holder he may refuse to take a qualified acceptanceand if he does not obtain an unqualified acceptance hemay treat the bill as dishonored by non-acceptancebull Drawer or indorser when he receives notice of aqualified acceptance he must within a reasonable timeexpress his dissent to the holder or he will be deemed tohave assented thereto (implied assent)Effect of taking a qualified acceptance the drawer andindorsers are discharged from liability on the bill unless theyhave expressly or impliedly authorized the holder to take aqualified acceptance or subsequently assent theretoOther rules of acceptancebull a bill may be accepted before it has been signed by thedrawer or while otherwise incomplete or when it isoverdue or after it has been dishonored by a previousrefusal to accept or by non paymentbull when a bill payable after sight is dishonored by nonacceptanceand the drawee subsequently accepts it theholder in the absence of any different agreement isentitled to have the bill accepted as of the date of thefirst presentmentbull an unconditional promise in writing to accept a billbefore it is drawn is deemed an actual acceptancein favor of every person who upon the faiththereof receives the bill for value

bull where a check is certified by the bank on which it isdrawn the certification is equivalent to anacceptanceEffect the drawer and all indorsers are dischargedfrom liability thereonAcceptance for Honor - an undertaking by a stranger to a billafter protest for the benefit of any party liable thereon or forthe honor of the person for whose account the bill is drawnwhich acceptance inures also to the benefit of all partiessubsequent to the person for whose honor it is accepted andconditioned to pay the bill when it becomes due if theoriginal drawee does not pay it1048766 Requisites1 the bill must have been protested for dishonorby non-acceptance or for better security2 the acceptor for honor must be a stranger andnot a party already liable on the instrument3 bill must not be overdue4 acceptance for honor must be with the consentof the holder of the instrument1048766 Formalities1 must be in writing2 must indicate that it is an acceptance forhonor3 signed by the acceptor for honor4 must contain an express or implied promise topay money5 the accepted bill for honor must be deliveredto the holderNotice of Dishonor - notice given by the holder or his agentto a party or parties secondarily liable that the instrumentwas dishonored by non-acceptance by the drawee of a bill orby non-payment by the acceptor of a bill or by non-paymentby a maker of a note- If such notice is given by a notary public it is calledPROTEST1048766 Effect of failure to give notice parties secondarily liableare discharged1048766 Requisites1 Given by holder or his agent or by any party whomay be compelled by the holder to pay2 Given to secondary party or his agent3 Given within the periods provided by law4 Given at the proper place1048766 When notice of dishonor dispensed with1 when party to be notified knows about the dishonoractually or constructively2 if waived and3 when after due diligence it cannot be given1048766 How given1 by bringing verbally or2 by writing to the knowledge of the person liable thefact that a specified instrument upon properproceedings taken has not been accepted or hasnot been paid and that the party notified isexpected to pay it1048766 To whom given1 Non-acceptance (bill) ndash to persons secondarilyliable namely the drawer and indorsers as the casemay be2 Non-payment (both bill and note) ndash indorsersNote Notice must be given to persons secondarilyliable Otherwise such parties are dischargedNotice may be given to the party himself or to hisagent

1048766 By whom given1 the holder2 another on behalf of the holder3 any party to the instrument who may be compelledto pay it to the holder and who would have a rightof reimbursement from the party to whom notice isgiven1048766 Notice of dishonor given by or on behalf of a holderinures to the benefit ofa all parties prior to the holder who have a rightof recourse against the party to whom thenotice is given andb all holders subsequent to the holder givingnotice1048766 Notice of dishonor given by or on behalf of a partyentitled to give notice inures to the benefit ofa the holder andb all parties subsequent to the party to whomnotice is given1048766 Where an instrument is dishonored in the hands of anagent he can do either of the ffa directly give notice to persons secondarilyliable thereon orb give notice to his principal In such case hemust give notice within the time allowed bylaw as if he were a holder1048766 A party giving notice is deemed to have given due noticewherea the notice of dishonor is duly addressed andb deposited in the post-office even when thereis miscarriage of mail1048766 Where a party receives notice of dishonor he has afterthe receipt of such notice the same time for givingnotice to antecedent parties that the holder has afterthe dishonor1048766 Notice may be waived either before the time of givingnotice or after the omission to give due notice Waivermay be expressed or implied1048766 As to who are affected by an express waiver depends onwhere the waiver is written1 if it appears in the body or on the face of theinstrument it binds all parties but2 if it is written above the signature of anindorser it binds him only1048766 Notice of dishonor is not required to be given to thedrawer in any of the ff cases1 drawer and drawee are the same2 drawee is a fictitious person or not having thecapacity to contract3 drawer is the person to whom the instrument ispresented for payment4 the drawer has no right to expect or requirethat the drawee or acceptor will honor theinstrument5 where the drawer has countermandedpayment1048766 Notice of dishonor is not required to be given to anindorser in the ff cases1 drawee is a fictitious person or does not havethe capacity to contract and indorser wasaware of that fact at the time he indorsed theinstrument2 indorser is the person to whom the instrumentis presented for payment3 instrument was made or accepted for his

accommodation1048766 If an instrument is not accepted by the drawee there isno sense presenting it again for payment and notice ofdishonor must at once be given If there wasacceptance presentment for payment is still requiredand if payment is refused there is a need for notice ofdishonor1048766 An omission to give notice of dishonor by non-acceptancedoes not prejudice the rights of a holder in due coursesubsequent to the omissionDishonor by Non-PaymentWhen instrument dishonored by non-paymenta it is duly presented for payment and payment isrefused or cannot be obtained orb presentment is excused and the instrument isoverdue and unpaidEffect of dishonor an immediate right of recourse to allparties secondarily liable thereon accrues to the holderDishonor by Non-AcceptanceInstancesa When it is duly presented for acceptance and suchan acceptance is refused or can not be obtained orb When presentment for acceptance is excused andthe bill is not accepted (sec 149)Effect an immediate right of recourse against thedrawer and indorsers accrues to the holder and nopresentment for payment is necessaryNote where a bill is duly presented for acceptance andis not accepted within the prescribed time (24 hours)the person presenting it must treat the bill as dishonoredby non-acceptanceWhen Instrument Considered to be Dishonoreda If it is not accepted when presented for acceptanceorb If it is not paid when presented for payment atmaturity orc If presentment is excused or waived and theinstrument is past due and unpaidProtest - the formal instrument executed usually by a notarypublic certifying that the legal steps necessary to fix theliability of the drawee and the indorsers have been taken1048766 Effect of waiver where protest is waived presentmentand notice of dishonor are also deemed waived Butwhere the notice of dishonor is waived presentment isnot waived1048766 Applicability protest is necessary only in case of foreignbills of exchange which have been dishonored by nonacceptanceor non-payment as the case may be If it isnot so protested the drawer and indorsers aredischarged1048766 Foreign Bill of Exchange1 Drawn in the Philippines but payable outside thePhilippines2 Payable in the Philippines but drawn outside thePhilippines1048766 Protest may be made by1 a notary public or2 any respectable resident of the place where the billis dishonored in the presence of 2 or more crediblewitnessesProtest for better security is one made by the holder of a billafter it has been accepted but before it matures against thedrawer and indorsers where the acceptor has been adjudgeda bankrupt or an insolvent or has made an assignment forthe benefit of the creditors

VIII DISCHARGEDischarge of instrument - a release of all parties whetherprimary or secondary from the obligations arisingthereunder It renders the instrument without force andeffect and consequently it can no longer be negotiatedInstances1 By payment in due course by or on behalf of theprincipal debtor2 Payment by accommodated party3 Intentional cancellation by the holder4 By any act which will discharge a simple contractfor the payment of money5 When the principal debtor becomes the holder ofthe instrument at or after maturity in his own rightBy any act which would discharge a simple contract1 Payment or performance2 Loss of the thing due3 Condonation or remission4 Confusion or Merger5 Compensation6 Novation7 Annulment or Rescission8 Fulfillment of a resolutory condition9 PrescriptionWhen persons secondarily liable on the instrument aredischarged1 By any act which discharges the instrument2 By the intentional cancellation of his signature bythe holder3 By the discharge of a prior party4 By a valid tender of payment made by a prior party5 By the release of the principal debtor unless theholderrsquos right of recourse against the partysecondarily liable is expressly reserved6 By any agreement binding upon the holder to extendthe time of payment or to postpone the holderrsquosright to enforce the instrument1048766 In the following cases the agreement to extend the timeof payment does not discharge a party secondarily liable1 where the extension of time is consented to by suchparty2 where the holder expressly reserves his right ofrecourse against such party1048766 Payment at or after maturity by a party secondarilyliable does not discharge the instrument It only cancelshis own liability and that of the parties subsequent tohimEffects of Renunciation1 A renunciation in favor of a secondary party may bemade by the holder before at or after maturity ofthe instrument Effect only such secondary party isdischarged and all parties subsequent to him but theinstrument itself remains in force2 A renunciation in favor of the principal debtor maybe effected at or after maturity Effect theinstrument is discharged and all parties theretoprovided the renunciation is made unconditionallyand absolutelyNote In either case renunciation does not affect therights of a holder in due course without notice1048766 Cancellation of an instrument includes tearing erasureobliteration or burning It is not limited to writing ofthe word lsquocancelledrdquo or ldquopaidrdquo or drawing of crisscrosslines across the instrumentPayment for Honor - payment made by a person whether a

party to the bill or not after it has been protested for nonpaymentfor the benefit of any party liable thereon or forthe benefit of the person for whose account it was drawn1048766 Requisites1 the bill has been dishonored by non-payment2 it has been protested for non-payment3 payment supra protest (another term for paymentfor honor because prior protest for non-payment isrequired) is made by any person even by a partythereto4 the payment is attested by a notarial act of honorwhich must be appended to the protest or form anextension of it5 the notarial act must be based on the declarationmade by the payor for honor or his agent of hisintention to pay the bill for honor and for whosehonor he paysNote If the above formalities are not complied withpayment will operate as a mere voluntary payment andthe payor will acquire no right to full reimbursementagainst the party for whose honor he pays1048766 In payment for honor the payee cannot refuse paymentIf he refuses he cannot recover from the parties whowould have been discharged had he accepted the sameIn acceptance for honor the holderrsquos consent isnecessary1048766 The payor for honor is given the right to receive both thebill and the protest obviously to enable him to enforcehis rights against the parties who are liable to himIX CHECKSCheck- a bill of exchange drawn on a bank payable ondemandCheck distinguished from and ordinary bill of exchangeBILLOF EXCHANGE CHECKNot necessarily drawnon a deposit The draweeneed not be a bankIt is necessary that a checkis drawn on a bank depositThe drawee is always abankDeath of a drawer of aBOE with the knowledgeof the bank does notrevoke the authority of thedrawee to payDeath of the drawer of acheck with the knowledgeof the bank revokes theauthority of the banker topayMay be presented forpayment within areasonable time after itslast negotiation because itmay be further negotiatedMust be presented forpayment within areasonable time after itsissueMay be payable on demandor at a fixed ordeterminable future timeAlways payable on demandKinds of checks

1 Managerrsquos Cashierrsquos Check ndash drawn by a bank on itselfand therefore it is a primary obligation of the banko It is accepted in advance by the act of itsissuance and is not subject tocountermand by the payor afterindorsemento The bankrsquos manager signs managerrsquos checkwhile cashierrsquos check is signed by the bankcashier2 Certified Check ndash one drawn by a depositor upon funds tohis credit in a bank which a proper officer of the bankcertifies will be paid when duly presented for payment3 Stale check ndash one which has not been presented forpayment within a reasonable time after its issue4 Crossed check ndash when 2 parallel lines are drawn acrossits face or across a corner thereof If the name of a bankappears between the parallel lines the check is said tobe specially crossed and payment should be made onlyif presented by the named bank If no name appearsbetween the parallel lines the check is said to begenerally crossed and payment should be made onlyupon presentment by some bankEffects of crossing a checka That the check may not be encashed but only bedeposited in the bankb That the check may be negotiated only once to onewho has an account with a bank andc That the act of crossing the check serves as awarning to the holder that the check has beenissued for a definite purpose so that he must inquireif he has received the check pursuant to thatpurpose5 Memorandum Check ndash it is like an ordinary check exceptthat the word ldquomemorandumrdquo ldquomemrdquo or ldquomemordquo iswritten upon the face of the check signifying that thedrawer engages to pay the bona fide holder absolutelyand not upon a condition to pay upon presentment atmaturity and if due notice of the presentment and nonpaymentshould be given6 Travelerrsquos check ndash one upon which the holderrsquos signaturemust appear twice one to be affixed by him at the timeit is issued and the second o counter-signature to beaffixed by him in the presence of the payee before it ispaid otherwise it is incompleteIron Clad Rule Prohibits the countermanding ofpayment of certified checks (Republic of the Philippinesv PNB GR No 16106 December 1 1961)

arising either from contract or by implication oflaw he is deemed a holder for value to the extentof his lien1048766 Effect of want of consideration a matter of defense asagainst any person not a holder in due course andpartial failure of consideration is a defense pro tantowhether the failure is an ascertained and liquidatedamount or otherwiseAbsence of consideration ndash total lack of any validconsideration for the contract is only a personaldefenseFailure of consideration ndash failure or refusal or one partyto do perform or comply with the consideration agreedupon is also only a personal defenseIII TRANSFER AND NEGOTIATIONTypes of transfers1 Assignment - transfer of title to the instrument with theassignee generally taking only such title as his assignorhas subject to all defenses available against hisassignor2 Negotiation - transfer of a negotiable instrument fromone person to another made in such a manner as toconstitute the transferee the holder thereof3 By Operation of Law ndash such as by succession byinsolvencyDistinctions between Negotiation and AssignmentNEGOTIATION ASSIGNMENT1 Refers only tonegotiableinstruments2 The transferee is aholder3 A holder in due courseis subject only to realdefenses4 A holder in due course1 Refers generally to anordinary contract2 The transferee is anassignee3 An assignee is subjectto both real andpersonal defenses4 Generally an assigneemay acquire a betterright than that of aprior party5 A general indorserwarrants the solvencyof prior parties6 An indorser is notliable unless there bepresentment andnotice of dishonor7 Negotiation isgoverned y the NILmerely steps into theshoes of the assignor5 An assignor does notwarrant the solvency ofprior parties unlessexpressly stipulated orthe insolvency is knownto him6 An assignor is liable

even without notice ofdishonor7 Governed by Arts 1624to 1635 (on assignmentof credits) of the CivilCodeMethods of negotiation1 Order Instrument ndash Indorsement and Delivery2 Bearer Instrument ndash Delivery onlyIndorsement - legal transaction effected by the writing ofones own name at thea back of the instrument orb upon a paper (allonge) attached thereto with orwithout additional words specifying the person towhom or to whose order the instrument is to bepayable whereby one not only transfers legal title tothe paper transferred but likewise enters into animplied guaranty that the instrument will be dulypaid1048766 General Rule indorsement must be of the entireinstrumentException where instrument has been paid in part itmay be indorsed as to the residue1048766 Kinds of indorsementa Special - specifies the person to whom or to whoseorder the instrument is to be payable (sec 34)b Blank - specifies no indorseebull Instrument is payable to bearer and may benegotiated by delivery (sec 34)bull May be converted to special indorsement bywriting over the signature of indorser in blankany contract consistent with character ofindorsementc Restrictive - when the indorsement eitheri Prohibits further negotiation of theinstrument orii Constitutes the indorsee the agent of theindorser oriii Vests the title in the indorsee in trust foror to the use of some other persons Butmere absence of words implying power tonegotiate does not make an indorsementrestrictivebull A restrictive indorsement confers upon theindorsee the righta To receive payment of theinstrumentb To bring any action thereon that theindorser could bringc To transfer his rights as such indorseewhere the form of the indorsementauthorizes him to do soBut all subsequent indorsees acquire only thetitle of the first indorsee under the restrictiveindorsement (sec 37)1048766 Such indorsement destroys the negotiability ofthe instrument and bars further negotiation toa holder in due coursed Qualified - constitutes the indorser a mere assignorof the title to the instrument (sec 38)bull made by adding to the indorsers signaturewords like sans recourserdquo ldquowithout recourseindorser not holder at the indorsers ownrisk etcbull The purpose of this kind of indorsement is to

transfer title without guaranteeing payment bythe primary partybull It does not mean however that the qualifiedindorser incurs no liability at all The effect ismerely to limit his liability He is secondarilyliable for breach of is warranties as an indorserunder Sec 65 Thus he is liable if theinstrument is dishonored by NON-ACCEPTANCEor NON-PAYMENT due toa forgeryb lack of good title to the instrumentindorsedc lack of capacity to contract on the part ofprior parties ord the fact that the instrument was valuelessor not valid at the time of the indorsementwhich fact was known to hime Conditional - right of the indorsee is made todepend on the happening of a contingent eventbull Party required to pay may disregard theconditionsbull This kind of indorsement has no effect on thefurther negotiation of the instrument Theparty required to pay if he chooses may makepayment disregarding the condition withoutincurring any liability because he is expresslyauthorized to do so under Sec 39 But theperson who received payment will hold theproceeds subject to the right of the conditionalindorserf Absolute - one by which indorser binds himself topayi upon no other condition than failure ofprior parties to do so andii upon due notice to him of such failureg Joint - indorsement of instrument payable to 2 ormore persons all must indorse in order for thetransaction to operate as a negotiationbull Exceptions to the rule requiring jointindorsementa Where the payees or indorsees arepartners andb Where the payee or indorsee indorsinghas authority to indorse for theothersh Irregular - a person who not otherwise a party toan instrument places thereon his signature in blankbefore delivery1048766 Rules on Indorsementsbull Effect of transfer without indorsementa transfer vests in the transferee such title as thetransferor had therein (assignment) andb the right to have the indorsement of thetransferor1048766 For the purpose of determining whether thetransferee is a holder in due course thenegotiation takes effect as of the time whenthe indorsement is actually made1048766 Applicable only to order instrumentsbull Indorsement of a bearer instrument where aninstrument payable to bearer is indorsed speciallyit may nevertheless be further negotiated bydelivery but the person indorsing specially is liableas indorser to only such holders as make titlethrough his indorsement

Note The rule only applies to originally bearerinstruments If it is originally a BEARER instrumentit will always be a BEARER instrument As opposedto an original order instrument becoming payable tobearer if the same is indorsed specifically it canNO LONGER be negotiated further by mere deliveryit has to be indorsedbull Striking out indorsements the holder may at anytime strike out any indorsement which is notnecessary to his title The indorser whoseindorsement is struck out and all indorserssubsequent to him are thereby relieved fromliability on the instrument1048766 If the instrument is payable to bearer on its facethen whether or not there are indorsements on theback of the instrument would be immaterial to thetitle of the bearer who is presumptively the ownerand holder by his mere possession of suchinstrument None of the indorsement would benecessary to itrsquos title since mere delivery wouldhave been sufficient to transfer title from oneholder to another1048766 Where the instrument is payable to order on itsface the situation is different First theindorsement of a special indorsee is necessary forthe further negotiation of the instrument Secondthe last indorsement controls the method of furthernegotiationbull When prior party (reacquirer) may negotiate where aninstrument is negotiated back to a prior party suchparty may reissue and further negotiate the same Buthe is not entitled to enforce payment thereof againstany intervening party to whom he was personally liable1048766 In the following cases a prior party cannot furthernegotiate the instrument1 Where it is payable to the order of a thirdperson and has been paid by the drawer2 Where it was made or accepted foraccommodation and has been paid by theparty accommodated3 In other cases where the instrument isdischarged when acquired by a prior partyIV HOLDERSClasses of holders1 simple holder (sec 51)2 holder for value (sec 26)3 holder in due course (sec52 57)Holder in Due Course1048766 holder who has taken the instrument under the followingconditionsa That it is complete and regular upon its faceb That he became the holder of it before it wasoverdue and without notice that it has beenpreviously dishonored if such was the factc That he took it in good faith and for valued That at the time it was negotiated to him he hadno notice of any infirmity in the instrument ordefect in the title of the person negotiating it1048766 When title defective - The title of a person whonegotiates an instrument is defective when he obtainedthe instrument or any signature thereto bya fraudb duress or force and fearc other unlawful meansd illegal consideration

e negotiation in breach of faithf circumstances amounting to fraud1048766 What constitutes notice of defect - The person towhom it is negotiated must havea actual knowledge of the infirmity or defect orb knowledge of such facts that his action in taking theinstrument amounted to bad faith (sec 56)1048766 Notice before full amount is paid - where thetransferee receives notice of any infirmity in theinstrument or defect in the title of the personnegotiating the same before he has paid the full amountagreed to be paid he will be deemed a holder in duecourse only to the extent of the amount paid by him1048766 When person not deemed a holder in due course -where an instrument payable on demand is negotiatedon an unreasonable length of time after its issue theholder is not deemed a holder in due coursebull Reasonable time what constitutes - regard is to behad to thea nature of the instrumentb the usage of trade or business with respect tosuch instruments and thec facts of the particular casebull Effect in the hands of any holder other than aholder in due course a negotiable instrument issubject to the same defenses as if it were nonnegotiable1048766 General Rule every holder is deemed prima facie to bea holder in due courseException when it is shown that the title of any personwho has negotiated the instrument was defective theburden is on the holder to prove that he or some personunder whom he claims acquired the title as holder in duecourse (shifting of burden of proof)Limitation the last-mentioned rule does not apply infavor of a party who became bound on the instrumentprior to the acquisition of such defective title (sec 59)1048766 Rights of a holder in due coursea he may sue on the instrument in his own nameb he may receive payment and if payment is in duecourse the instrument is dischargedc holds the instrument free from any defect of title ofprior partiesd holds the instrument free from defenses available toprior parties among themselves ande may enforce payment of the instrument for the fullamount thereof against all parties liable thereon1048766 Payment in due course is payment madea at or after the maturity of the instrumentb to the holder thereofc in good faith and without notice that his title isdefective1048766 Shelter Rulea derives his title through a holder in due course andb who is not himself a party to any fraud or illegalityaffecting the instrument has all the rights of suchformer holder in respect of all parties prior to thelatter1048766 Rights of a Holder NOT in Due Course1 He may sue on the instrument in his own name2 He may receive payment and if the payment is indue course the instrument is discharged3 He is entitled to the instrument but holds it subjectto the same defenses as if it were non-negotiableand4 He has all the rights of the holder in due course

from whom he derived his title in respect of allparties prior to such holder provided he is nothimself a party to any fraud or illegality affectingthe instrumentV LIABILITIES OF PARTIESPersons primarily liable on instrument the person who bythe terms of the instrument is absolutely required to pay thesame All other parties are secondarily liableClassification of parties according to liabilityIN A PROMISSORYNOTE1 Maker2 Indorser3 Persons negotiating by deliveryIN A BILL OFEXCHANGE1 Drawer2 Acceptor3 Indorsers4 Persons negotiating by delivery1 Parties Primarily Liablea Maker (Sec 60)bull engages to pay according to the tenor of theinstrument andbull admits the existence of the payee and his thencapacity to indorse at the time of the makingof the notebull A person placing his name on the face of a noteis prima facie a maker and liable as such andhe is presumed to have acted with care and tohave signed the instrument with full knowledgeof its contentsb Acceptor or Drawee (Sec 62)bull engages to pay according to the tenor of hisacceptancebull admits1 the existence of the drawer2 the genuineness of his signature and3 his capacity and authority to draw theinstrument and4 the existence of the payee and his thencapacity to indorseNote the drawee is not liable until he acceptsthe instrumentbull Where a check is certified by a bank it isequivalent to an acceptance Since certification isequivalent to acceptance a bank which hascertified a check whether at the request of theholder or of a drawer has the same liabilities andmakes the same warranties as an acceptor Itcannot after certification question thegenuineness of the drawerrsquos signature If itdiscovers that such signature is forged subsequentto certification but prior to payment it cannotrefuse to pay on the check If its discovery comesafter it has paid the check it cannot recoverback what it paid on the ground of mistakenpayment unless the holder is guilty of fraud ornegligencebull If a drawee-bank accepts or pays a check despitea stop payment order from the drawer throughoversight or otherwise it cannot refuse to paythe holder or recover what has been paid neithermay it debit the drawerrsquos account unless theacceptance nor payment was made prior to the

receipt of the order2 Parties Secondarily Liablea Drawer (Sec 61)bull admits the existence of the payee and hiscapacity to indorsebull engages that the instrument will be acceptedor paid by the party primarily liable andbull engages that if the instrument is dishonoredand proper proceedings are brought he willpay to the party entitled to be paidb General Indorser (Sec 66)bull Warrants1 genuineness of the instrument2 his good title to it3 capacity to contract of prior parties and4 instrument is valid and subsistingbull engages that the instrument will be acceptedor paid by the party primarily liable andbull engages that if the instrument is dishonoredand proper proceedings are taken he will payto the party entitled to be paidc Irregular Indorser ndash a person not otherwise a partyto an instrument places his signature thereon inblank before deliveryRulesbull If instrument payable to the order of a 3rdperson he is liable to the payee andsubsequent partiesbull If instrument payable to order of maker ordrawer he is liable to all parties subsequent tothe maker or drawerbull If he signs for accommodation of the payee heis liable to all parties subsequent to the payeeDistinctionsPRIMARY PARTY SECONDARY PARTY1 Unconditionally bound2Absolutely required topay upon the maturity ofthe instrument1 Conditionally bound2 Undertakes to pay onlyafter certain conditionshave been fulfilleda due presentment forpayment or acceptance toprimary partyb dishonor by suchparty andc the taking ofproceedings required bylaw after dishonorINDORSER DRAWER1 A party to either a noteor a bill2 Does not make anyadmission regarding theexistence of the payee andhis capacity to indorse and3 Has warranties1 A party only to a bill2 The drawer makes suchadmission3 Makes no warranties buthe engages to pay aftercertain conditions are

complied withGENERAL INDORSER IRREGULAR INDORSER1 Makes either a blank orspecial indorsement2 Indorses the instrumentafter its delivery to thepayee and3 Liable only to partiessubsequent to him1 Always makes a blankindorsement2 Indorses before itsdelivery3 Liable to the payee andsubsequent parties unlesshe signs for theaccommodation of thepayee in which case he isliable only to all partiessubsequent to the payee3 Parties with Limited Liability (sec 65 MetropolFinancing v Sambok 120 SCRA 864)a Qualified Indorser - warrants that1048766 instrument is genuine and in all respects whatit purports to be1048766 he has good title to it1048766 all prior parties had capacity to contract1048766 he has no knowledge of any fact which wouldimpair the validity of the instrument or renderit valuelessb Persons Negotiating by Delivery1048766 warranties same as those of qualified indorsersand1048766 warranties extend to immediate transfereeonlyLIABILITY WARRANTY1 To pay a sum certain2 Requires Notice ofDishonor3 Action can be broughtonly on maturity ofinstrument1 No obligation to pay2 Notice of Dishonor is not arequirement3 Action may be broughtanytimeBY MERE DELIVERY OR BYQUALIFIED INDORSEMENTGENERAL INDORSER1 No secondary liability1 With secondary liability2 Warrants that he has noknowledge of any factwhich would impair thevalidity of the instrumentor render it valueless2 Warrants that theinstrument is at the timeof his indorsement validand subsisting4 Other parties who may be liableGeneral Rule One whose signature does not appear on theinstrument shall not be liable thereonExceptions

1 The principal who signs through an agent is liable2 The forger is liable3 One who indorses in a separate instrument (allonge) isliable4 One who signs his assumed or trade name is liable and5 A person negotiating by delivery (as in the case of abearer instrument) is liable to his immediate indorseeRequisites for an Agent to escape liability1 must be duly authorized2 add words to his signature indicating that he signs as anagent that is for or on behalf of a principal or in arepresentative capacity and3 disclose his principal1048766 A signature by ldquoprocurationrdquo operates as notice that theagent has but a limited authority to sign and theprincipal is bound only in case the agent in so signingacted within the actual limits of his authority (sec 21)1048766 Indorsement or assignment of the NI by a corporation orby an infant passes the property thereinnotwithstanding that from want of capacity thecorporation or infant may incur no liability thereon(sec 22)Accomodation PartyOne who has signed the instrument as maker draweracceptor or indorser without receiving value therefor andfor the purpose of lending his name to some other person1048766 Liability such a person is liable on the instrument to aholder for value notwithstanding such holder at thetime of taking the instrument knew him to be only anaccommodation party1048766 Effects1 accommodation party is generally regarded as asurety for the party accommodated2 When accommodation party makes payment toholder of the note he has the right to sue theaccommodated party for reimbursement1048766 Rights of accommodation parties as against each otherthe other may demand contribution from his coaccommodationparty without first directing his actionagainst the principal debtor provided1 he made the payment by virtue of judicial demandor2 the principal debtor is insolventNote A corporation cannot act as an accommodationparty The issuance or indorsement of negotiableinstrument by a corporation without consideration andfor the accommodation of another is ultra vires(Crisologo v CA 117 SCRA 594)Order of liability of indorsers1 among themselves ndash indorsers are liable prima facie inthe order in which they indorse but evidence isadmissible to show that as between or amongthemselves they have agreed otherwise (sec 68)2 to the holder ndash indorsers are liable in any orderVI DEFENSESKinds1 RealAbsolute Defenses - those that attach to theinstrument itself and are available against all holderswhether in due course or notExamplesa Alterationb Non-delivery of incomplete instrumentc Duress amounting to forgeryd Fraud in factum or fraud in esse contractuse Minority

f Marriage in the case of a wifeg Insanity where the insane person has a guardianappointed by the courth Ultra vires acts of a corporation where thecorporation is absolutely prohibited by its charter orstatute from issuing any commercial paper underany circumstancesi Want of authority of agentj Execution of instrument between public enemiesk Illegality of contract where it is the contract orinstrument itself which is expressly made illegal bystatute andl Forgery2 PersonalEquitable Defenses ndash those which are availableonly against a person not a holder in due course or asubsequent holder who stands in privity with himExamplesa Absence or failure of consideration partial or totalb Want of delivery of complete instrumentc Insertion of wrong date in an instrument where it ispayable at a fixed period after date and it is issuedundated or where it is payable at a fixed periodafter sight and the acceptance is undatedd Filling up of blank contrary to authority given or notwithin reasonable time where the instrument isdeliverede Fraud in inducementf Acquisition of instrument by force duress or fearg Acquisition of the instrument by unlawful meansh Acquisition of the instrument for an illegalconsiderationi Negotiation in breach of faithj Negotiation under circumstances that amount tofraudk Mistakel Intoxication (according to better authority)m Ultra vires acts of corporations where thecorporation has the power to issue negotiable paperbut the issuance was not authorized for theparticular purpose for which it was issuedn Want of authority of agent where he haso apparent authorityp Insanity where there is no notice of insanity on thepart of the one contracting with the insane personandq Illegality of contract where the form orconsideration is illegalFRAUD IN FACTUM FRAUD IN INDUCEMENT1 It exists in those cases inwhich a person withoutnegligence has signed aninstrument which was infact a negotiableinstrument but wasdeceived as to thecharacter of the instrumentand without knowledge ofits as where a not wassigned by one under thebelief that he was signingas a witness to a deed1 It is that which relatedto the quality quantityvalue or character of theconsideration of the

instrument In this casethe signer is led bydeception to execute whathe knows is a negotiableinstrument It implies thatthe signer knew what hewas signing but that he wasinduced by fraud to sign2 This kind of fraud is areal defense because thereis no contract It impliesthat the person did notknow what he was signingBut where the signer by theexercise of reasonablediligence could havediscovered the nature ofthe instrument the fraudcannot be considered a realdefense as where a personwho can read signed a notebut failed to read it2 Such type of fraud is onlya personal defense becauseit does not prevent acontract1048766 Effects of Defenses1 Complete and undelivered instrumentbull as between immediate parties and as regards aremote party other than a holder in due course thedelivery must be authorized in order to be effectualbull where the instrument is in the hands of a holder indue course a valid delivery thereof by all partiesprior to him so as to make them liable to him isconclusively presumedbull where the instrument is no longer in the possessionof a party whose signature appears thereon a validand intentional delivery by him is presumed untilthe contrary is proved2 Incomplete but delivered instrumentbull where the instrument is wanting in any materialparticular the person in possession thereof has aprima facie authority to complete it by filling up theblanks thereinbull it must be filled up strictly in accordance with theauthority given and within a reasonable timebull if any such instrument after completion isnegotiated to a holder in due course it is valid andeffectual for all purposes in his hands and he mayenforce it as if it had been filled up strictly inaccordance with the authority given and within areasonable time3 Incomplete and undelivered instrumentbull it will not if completed and negotiated withoutauthority be a valid contract in the hands of anyholder as against any person whose signature wasplaced thereon before deliverybull However subsequent indorsers are liable4 Forgerybull counterfeit making or fraudulent alteration of anywriting which may consist of1 signing of anotherrsquos name with intent todefraud or2 alteration of an instrument in the nameamount name of payee etc with intent to

defraudbull Effect signature is wholly inoperative and no rightto retain the instrument or to give a dischargetherefore or to enforce payment thereof againstany party thereto can be acquired through or undersuch signaturebull Exception unless the party against whom it issought to enforce such right is precluded fromsetting up the forgery or want of authoritybull Cut-Off RuleGeneral Rule Parties prior to the forged signatureare cut-off from the parties after the forgery in thesense that prior parties cannot be held liable andcan raise the defense of forgery The holder canonly enforce the instrument against parties whobecame such after the forgeryException When the prior parties are precludedfrom setting up the defense of forgeryPersons precluded from setting up the defense offorgery are1 Those who by their acts silence or negligenceare estopped from setting up the defense offorgery2 Those who warrant or admit the genuineness ofthe signature in question These include acts oromissions that amount to ratification expressor impliedNote Persons precluded from setting up thedefense of forgery may still recover damages underthe NCC provisions on quasi-delictsbull Rules on ForgeryA Promissory Notes1 Makerrsquos signature forgedOrder Instrumenta Maker is not liable because he neverbecame a party to the instrumentb Indorsers subsequent to forgery are liablebecause of their warrantiesc Party who made the forgery is liableBearer Instrumenta Maker is not liableb Indorsers may be made liable to thosepersons who obtain title through theirindorsementsc Party who made the forgery is liable2 Payeersquos signature forgedOrder Instrumenta Maker and payee not liableb Indorsers subsequent to the forgery isliablec Party who made the forgery is liableBearer Instrumenta Maker is liable Indorsement is notnecessary to title and the maker engagesto pay holderb Party who made the forgery is liable3 Indorserrsquos signature forgedOrder Instrumenta Maker payee and indorser who signaturewas forged is not liableb Indorsers subsequent to forgery are liablebecause of their warrantiesc Party who made the forgery is liableBearer Instrumenta Maker is liable Indorsement is not

necessary to title and the maker engagesto pay holderb Indorser whose signature was forged is notliablec Party who made the forgery is liableB Bill of Exchange1 Drawerrsquos signature forgedIn an Order Instrumenta Drawer is not liableb Drawee is liable if it paid (nor recourse todrawer) because he admitted thegenuineness of the drawerrsquos signatureDrawee cannot recover from the collectingbank because there is no privity betweenthe collecting bank and the drawer Thereis no warranty as to the signature of thedrawer (Associated Bank v CA)c Indorsers subsequent to forgery are liabled Party who made the forgery is liableIn a Bearer Instrumenta Drawer is not liableb Drawee is liable if it paid Drawee cannotrecover from the collecting bank becauseit is bound to known the drawerrsquossignature since the latter is its depositorc Party who made the forgery is liable2 Payeersquos signature forgedOrder Instrumenta Drawer drawee and payee not liable Cutoffrule appliesb Indorsers subsequent to forgery are liablec Party who made the forgery is liableBearer Instrumenta Drawer is liable His indorsement is notnecessary to pass titleb Drawee is liable No privity betweendrawer and payee because indorsement ofpayee is not necessary (Ang Tek Lian case87 SCRA 383)c Payee is not liabled Collecting bank is liable because ofwarrantye Party who made the forgery is liable3 Indorserrsquos signature forgedOrder Instrumenta Drawer payee and indorser whosesignature was forged are not liableb Drawee is liable if it paidc Indorsers subsequent to forgery are liabled Party who made the forgery is liableBearer Instrumenta Drawer is liable Indorsement is notnecessary to pass titleb Drawee is liablec Indorser whose signature was forged isliable because indorsement is notnecessary to pass titled Party who made the forgery is liable5 Alterationbull Effect the instrument is avoidedbull Exceptions1 against a party who has himself madeauthorized or assented to the alteration2 subsequent indorsers3 holder in due course not a party to the

alteration - he may enforce payment accordingto its original tenorbull Changes constituting material alteration1 date2 sum payable either for principal or interest3 time or place of payment4 number or relations of the parties5 medium or currency in which payment is to bemade6 that which adds a place of payment where noplace of payment is specified and7 any other change or addition which alters theeffect of the instrument in any respectNote a material alteration is one that alters theeffect of the instrument one which changes theitems required to be stated under Sec 1 NILbull Spoliation ndash alteration made by a strangerbull The general rule denies the drawee bankrsquos right tocharge against the drawerrsquos account the amount ofan altered check However the latterrsquos negligencebefore or after the alteration may estop him fromsetting such alteration as against an innocentdrawee bank who has paid the checkbull In cases of altered checks and checks with forgedindorsements the drawee bank must notify andreturn them to the collecting bank before 400 pmof the next day of clearing but the drawee bankmay still return them even after such time providedhe does so within 24 hours from its discovery of thealteration or forged instruments so that recovery ofthe amount may be had BUT in no event beyondthe period fixed or provided by law for filing of alegal action by the returning bank against the banksending the sameNote Alteration is only a partial real defensebecause a holder in due course can still enforce itaccording to its original tenorVII ENFORCEMENT OF LIABILITYPresentment for payment ndash the presentation of aninstrument to the person primarily liable for the purpose ofdemanding and receiving paymentGeneral Rulesbull presentment for payment to charge personsprimarily liable is not necessarybull presentment for payment to charge personssecondarily liable is necessaryExceptionsa drawer - where he has no right to expect or requirethat the drawee or acceptor will pay the instrument(sec 79)b indorser - where the instrument was made oraccepted for his accommodation and he has noreason to expect that the instrument will be paid ifpresentedc when dispensedi where after the exercise of reasonablediligence presentment as required cannotbe madeii where the drawee is a fictitious personiii by waiver of presentment express orimplied (sec 82)d when the instrument has been dishonored by nonacceptance(sec 151)Sufficiency of presentmentIt must be

1 made by the holder or any person authorized toreceive payment on his behalf2 at a reasonable hour on a business day3 at a proper place4 to the person primarily liable or if he is absent orinaccessible to any person found at the placewhere the presentment is madeHow made1 personal demand for payment at the proper place and2 readiness to exhibit the instrument if required and toreceive payment and to surrender the instrument if thedebtor is willing to paybull Purpose of exhibitionTo enable the debtor toa determine the genuineness of the instrument andthe right of the holder to receive payment andb to enable him to reclaim possession upon paymentbull When exhibition excuseda when debtor does not demand to see the instrumentbut refuses payment on some other grounds andb when the instrument is lost or destroyedWhen madebull where the instrument is payable at a fixed ordeterminable future time presentment must be madeon the day it falls duebull where it is payable on demanda promissory note presentment must be made withina reasonable time after its issueb bill of exchange presentment for payment will besufficient if made within a reasonable time afterthe last negotiation thereofbull the check must be presented for payment within areasonable time after its issue or the drawer will bedischarged from liability thereon to the extent of theloss caused by the delayTime of maturitybull every negotiable instrument is payable at the time fixedtherein without gracebull when the day of maturity falls upon a Sunday or aholiday the instruments are to be presented forpayment on the next succeeding business daybull when the day of maturity falls upon a Saturday1048766 Instrument is payable at a fixed or determinablefuture time (time instrument) - presented forpayment is on the next succeeding business day1048766 instruments is payable on demand - at the option ofthe holder be presented for paymenta before 1200 noon on Saturday whenthat entire day is not a holiday orb the next succeeding business dayHow computed1048766 excluding the day from which the time is to begin torun and by including the date of payment1048766 applies to instruments which are payable at a fixedperiod after date after sight or after thathappening of a specified eventProper place for presentmenta Where a place of payment is specified in the instrumentand it is there presentedb Where no place of payment is specified but the addressof the person to make payment is given in theinstrument and it is there presentedc Where no place of payment is specified and no address isgiven and the instrument is presented at the usual placeof business or residence of the person to make payment

d In any other case if presented to the person to makepayment wherever he can be found or if presented athis last known place of business or residenceWhen delay in presentment excused ndash delay is caused bycircumstances beyond the control of the holder and notimputable to his default misconduct or negligence Whenthe cause of delay ceases to operate presentment must bemade with reasonable diligencePresentment for acceptance ndash the production or exhibitionof a bill of exchange to the drawee for his acceptance orpaymentGeneral Rule presentment for acceptance is not necessary torender any party to the bill liableException presentment for acceptance must be madea Where the bill is payable after sight or wherepresentment for acceptance is necessary in order tofix the maturity of the instrument orb Where the bill expressly stipulates that it shall bepresented for acceptance orc Where the bill is drawn payable elsewhere then atthe residence or place of business of the drawee(sec 143)Note in all the above cases the holder must either presentthe bill for acceptance or negotiate it within a reasonabletime otherwise the drawer and all indorsers are dischargedHow made1 made by or on behalf of the holder2 at a reasonable hour3 on a business day4 before the bill is overdue and within reasonabletime5 to the drawee or some person authorized to acceptor refuse acceptance on his behalfDays presentment may be made If date of presentment isa Sunday or a holiday ndash must be made on the nextsucceeding business dayb Saturday ndash before 1200 noon on Saturday providedthat it is not a holidayWhen delay for presentment excuseda bill is drawn payable elsewhere than at the place ofbusiness or the residence of the draweeb holder has no time with the exercise of reasonablediligence to present the bill for acceptance beforepresenting it for payment on the day that it fallsdueEffect does not discharge the drawers and indorsersWhere presentment is excuseda Where the drawee is dead or has absconded or is afictitious person or a person not having capacity tocontract by billb Where presentment can not be made after theexercise of reasonable diligencec Where although presentment has been irregularacceptance has been refused on some other groundNote bill may be treated as dishonored by nonacceptanceDuty of holder where bill not accepted - where a bill isduly presented for acceptance and is not accepted within theprescribed time (24 hours ndash sec 136) the person presentingit must treat the bill as dishonored by non-acceptance or heloses the right of recourse against the drawer and indorsersAcceptance the signification by the drawee of his assent tothe order of the drawer It is the act by which the draweemanifests his consent to comply with the request containedin the bill of exchange directed to himHow made

1) must be in writing2) signed by the drawee3) must not express that the drawee will perform hispromise by any other means than the payment ofmoneybull the holder of the bill presenting the same for acceptancemay require that the acceptance be written on the billand if such request is refused may treat the bill asdishonoredbull where an acceptance is written on a paper other thanthe bill itself it does not bind the acceptor except infavor of a person to whom it is shown and who on thefaith thereof receives the bill for valuePeriod for drawee to accept - allowed 24 hours afterpresentment in which to decide whether or not he will acceptthe bill if acceptance is given it dates as of the day ofpresentationConstructiveImplied acceptance where a drawee refuseswithin 24 hours after delivery or within such other period asthe holder may allow to return the bill accepted or nonacceptedto the holder he will be deemed to have acceptedthe sameNote same effect if the drawee destroys the instrumentKinds1 General - assents without qualification to the order ofthe drawer2 Qualified - which in express terms varies the effect ofthe bill as drawna Conditional - makes payment by the acceptordependent on the fulfillment of a conditiontherein statedb Partial - an acceptance to pay part only of theamount for which the bill is drawni Local - an acceptance to pay only at aparticular placeii Qualified as to timeiii The acceptance of some one or more ofthe drawees but not of all3 ConstructiveRights of parties as to qualified acceptancebull Holder he may refuse to take a qualified acceptanceand if he does not obtain an unqualified acceptance hemay treat the bill as dishonored by non-acceptancebull Drawer or indorser when he receives notice of aqualified acceptance he must within a reasonable timeexpress his dissent to the holder or he will be deemed tohave assented thereto (implied assent)Effect of taking a qualified acceptance the drawer andindorsers are discharged from liability on the bill unless theyhave expressly or impliedly authorized the holder to take aqualified acceptance or subsequently assent theretoOther rules of acceptancebull a bill may be accepted before it has been signed by thedrawer or while otherwise incomplete or when it isoverdue or after it has been dishonored by a previousrefusal to accept or by non paymentbull when a bill payable after sight is dishonored by nonacceptanceand the drawee subsequently accepts it theholder in the absence of any different agreement isentitled to have the bill accepted as of the date of thefirst presentmentbull an unconditional promise in writing to accept a billbefore it is drawn is deemed an actual acceptancein favor of every person who upon the faiththereof receives the bill for value

bull where a check is certified by the bank on which it isdrawn the certification is equivalent to anacceptanceEffect the drawer and all indorsers are dischargedfrom liability thereonAcceptance for Honor - an undertaking by a stranger to a billafter protest for the benefit of any party liable thereon or forthe honor of the person for whose account the bill is drawnwhich acceptance inures also to the benefit of all partiessubsequent to the person for whose honor it is accepted andconditioned to pay the bill when it becomes due if theoriginal drawee does not pay it1048766 Requisites1 the bill must have been protested for dishonorby non-acceptance or for better security2 the acceptor for honor must be a stranger andnot a party already liable on the instrument3 bill must not be overdue4 acceptance for honor must be with the consentof the holder of the instrument1048766 Formalities1 must be in writing2 must indicate that it is an acceptance forhonor3 signed by the acceptor for honor4 must contain an express or implied promise topay money5 the accepted bill for honor must be deliveredto the holderNotice of Dishonor - notice given by the holder or his agentto a party or parties secondarily liable that the instrumentwas dishonored by non-acceptance by the drawee of a bill orby non-payment by the acceptor of a bill or by non-paymentby a maker of a note- If such notice is given by a notary public it is calledPROTEST1048766 Effect of failure to give notice parties secondarily liableare discharged1048766 Requisites1 Given by holder or his agent or by any party whomay be compelled by the holder to pay2 Given to secondary party or his agent3 Given within the periods provided by law4 Given at the proper place1048766 When notice of dishonor dispensed with1 when party to be notified knows about the dishonoractually or constructively2 if waived and3 when after due diligence it cannot be given1048766 How given1 by bringing verbally or2 by writing to the knowledge of the person liable thefact that a specified instrument upon properproceedings taken has not been accepted or hasnot been paid and that the party notified isexpected to pay it1048766 To whom given1 Non-acceptance (bill) ndash to persons secondarilyliable namely the drawer and indorsers as the casemay be2 Non-payment (both bill and note) ndash indorsersNote Notice must be given to persons secondarilyliable Otherwise such parties are dischargedNotice may be given to the party himself or to hisagent

1048766 By whom given1 the holder2 another on behalf of the holder3 any party to the instrument who may be compelledto pay it to the holder and who would have a rightof reimbursement from the party to whom notice isgiven1048766 Notice of dishonor given by or on behalf of a holderinures to the benefit ofa all parties prior to the holder who have a rightof recourse against the party to whom thenotice is given andb all holders subsequent to the holder givingnotice1048766 Notice of dishonor given by or on behalf of a partyentitled to give notice inures to the benefit ofa the holder andb all parties subsequent to the party to whomnotice is given1048766 Where an instrument is dishonored in the hands of anagent he can do either of the ffa directly give notice to persons secondarilyliable thereon orb give notice to his principal In such case hemust give notice within the time allowed bylaw as if he were a holder1048766 A party giving notice is deemed to have given due noticewherea the notice of dishonor is duly addressed andb deposited in the post-office even when thereis miscarriage of mail1048766 Where a party receives notice of dishonor he has afterthe receipt of such notice the same time for givingnotice to antecedent parties that the holder has afterthe dishonor1048766 Notice may be waived either before the time of givingnotice or after the omission to give due notice Waivermay be expressed or implied1048766 As to who are affected by an express waiver depends onwhere the waiver is written1 if it appears in the body or on the face of theinstrument it binds all parties but2 if it is written above the signature of anindorser it binds him only1048766 Notice of dishonor is not required to be given to thedrawer in any of the ff cases1 drawer and drawee are the same2 drawee is a fictitious person or not having thecapacity to contract3 drawer is the person to whom the instrument ispresented for payment4 the drawer has no right to expect or requirethat the drawee or acceptor will honor theinstrument5 where the drawer has countermandedpayment1048766 Notice of dishonor is not required to be given to anindorser in the ff cases1 drawee is a fictitious person or does not havethe capacity to contract and indorser wasaware of that fact at the time he indorsed theinstrument2 indorser is the person to whom the instrumentis presented for payment3 instrument was made or accepted for his

accommodation1048766 If an instrument is not accepted by the drawee there isno sense presenting it again for payment and notice ofdishonor must at once be given If there wasacceptance presentment for payment is still requiredand if payment is refused there is a need for notice ofdishonor1048766 An omission to give notice of dishonor by non-acceptancedoes not prejudice the rights of a holder in due coursesubsequent to the omissionDishonor by Non-PaymentWhen instrument dishonored by non-paymenta it is duly presented for payment and payment isrefused or cannot be obtained orb presentment is excused and the instrument isoverdue and unpaidEffect of dishonor an immediate right of recourse to allparties secondarily liable thereon accrues to the holderDishonor by Non-AcceptanceInstancesa When it is duly presented for acceptance and suchan acceptance is refused or can not be obtained orb When presentment for acceptance is excused andthe bill is not accepted (sec 149)Effect an immediate right of recourse against thedrawer and indorsers accrues to the holder and nopresentment for payment is necessaryNote where a bill is duly presented for acceptance andis not accepted within the prescribed time (24 hours)the person presenting it must treat the bill as dishonoredby non-acceptanceWhen Instrument Considered to be Dishonoreda If it is not accepted when presented for acceptanceorb If it is not paid when presented for payment atmaturity orc If presentment is excused or waived and theinstrument is past due and unpaidProtest - the formal instrument executed usually by a notarypublic certifying that the legal steps necessary to fix theliability of the drawee and the indorsers have been taken1048766 Effect of waiver where protest is waived presentmentand notice of dishonor are also deemed waived Butwhere the notice of dishonor is waived presentment isnot waived1048766 Applicability protest is necessary only in case of foreignbills of exchange which have been dishonored by nonacceptanceor non-payment as the case may be If it isnot so protested the drawer and indorsers aredischarged1048766 Foreign Bill of Exchange1 Drawn in the Philippines but payable outside thePhilippines2 Payable in the Philippines but drawn outside thePhilippines1048766 Protest may be made by1 a notary public or2 any respectable resident of the place where the billis dishonored in the presence of 2 or more crediblewitnessesProtest for better security is one made by the holder of a billafter it has been accepted but before it matures against thedrawer and indorsers where the acceptor has been adjudgeda bankrupt or an insolvent or has made an assignment forthe benefit of the creditors

VIII DISCHARGEDischarge of instrument - a release of all parties whetherprimary or secondary from the obligations arisingthereunder It renders the instrument without force andeffect and consequently it can no longer be negotiatedInstances1 By payment in due course by or on behalf of theprincipal debtor2 Payment by accommodated party3 Intentional cancellation by the holder4 By any act which will discharge a simple contractfor the payment of money5 When the principal debtor becomes the holder ofthe instrument at or after maturity in his own rightBy any act which would discharge a simple contract1 Payment or performance2 Loss of the thing due3 Condonation or remission4 Confusion or Merger5 Compensation6 Novation7 Annulment or Rescission8 Fulfillment of a resolutory condition9 PrescriptionWhen persons secondarily liable on the instrument aredischarged1 By any act which discharges the instrument2 By the intentional cancellation of his signature bythe holder3 By the discharge of a prior party4 By a valid tender of payment made by a prior party5 By the release of the principal debtor unless theholderrsquos right of recourse against the partysecondarily liable is expressly reserved6 By any agreement binding upon the holder to extendthe time of payment or to postpone the holderrsquosright to enforce the instrument1048766 In the following cases the agreement to extend the timeof payment does not discharge a party secondarily liable1 where the extension of time is consented to by suchparty2 where the holder expressly reserves his right ofrecourse against such party1048766 Payment at or after maturity by a party secondarilyliable does not discharge the instrument It only cancelshis own liability and that of the parties subsequent tohimEffects of Renunciation1 A renunciation in favor of a secondary party may bemade by the holder before at or after maturity ofthe instrument Effect only such secondary party isdischarged and all parties subsequent to him but theinstrument itself remains in force2 A renunciation in favor of the principal debtor maybe effected at or after maturity Effect theinstrument is discharged and all parties theretoprovided the renunciation is made unconditionallyand absolutelyNote In either case renunciation does not affect therights of a holder in due course without notice1048766 Cancellation of an instrument includes tearing erasureobliteration or burning It is not limited to writing ofthe word lsquocancelledrdquo or ldquopaidrdquo or drawing of crisscrosslines across the instrumentPayment for Honor - payment made by a person whether a

party to the bill or not after it has been protested for nonpaymentfor the benefit of any party liable thereon or forthe benefit of the person for whose account it was drawn1048766 Requisites1 the bill has been dishonored by non-payment2 it has been protested for non-payment3 payment supra protest (another term for paymentfor honor because prior protest for non-payment isrequired) is made by any person even by a partythereto4 the payment is attested by a notarial act of honorwhich must be appended to the protest or form anextension of it5 the notarial act must be based on the declarationmade by the payor for honor or his agent of hisintention to pay the bill for honor and for whosehonor he paysNote If the above formalities are not complied withpayment will operate as a mere voluntary payment andthe payor will acquire no right to full reimbursementagainst the party for whose honor he pays1048766 In payment for honor the payee cannot refuse paymentIf he refuses he cannot recover from the parties whowould have been discharged had he accepted the sameIn acceptance for honor the holderrsquos consent isnecessary1048766 The payor for honor is given the right to receive both thebill and the protest obviously to enable him to enforcehis rights against the parties who are liable to himIX CHECKSCheck- a bill of exchange drawn on a bank payable ondemandCheck distinguished from and ordinary bill of exchangeBILLOF EXCHANGE CHECKNot necessarily drawnon a deposit The draweeneed not be a bankIt is necessary that a checkis drawn on a bank depositThe drawee is always abankDeath of a drawer of aBOE with the knowledgeof the bank does notrevoke the authority of thedrawee to payDeath of the drawer of acheck with the knowledgeof the bank revokes theauthority of the banker topayMay be presented forpayment within areasonable time after itslast negotiation because itmay be further negotiatedMust be presented forpayment within areasonable time after itsissueMay be payable on demandor at a fixed ordeterminable future timeAlways payable on demandKinds of checks

1 Managerrsquos Cashierrsquos Check ndash drawn by a bank on itselfand therefore it is a primary obligation of the banko It is accepted in advance by the act of itsissuance and is not subject tocountermand by the payor afterindorsemento The bankrsquos manager signs managerrsquos checkwhile cashierrsquos check is signed by the bankcashier2 Certified Check ndash one drawn by a depositor upon funds tohis credit in a bank which a proper officer of the bankcertifies will be paid when duly presented for payment3 Stale check ndash one which has not been presented forpayment within a reasonable time after its issue4 Crossed check ndash when 2 parallel lines are drawn acrossits face or across a corner thereof If the name of a bankappears between the parallel lines the check is said tobe specially crossed and payment should be made onlyif presented by the named bank If no name appearsbetween the parallel lines the check is said to begenerally crossed and payment should be made onlyupon presentment by some bankEffects of crossing a checka That the check may not be encashed but only bedeposited in the bankb That the check may be negotiated only once to onewho has an account with a bank andc That the act of crossing the check serves as awarning to the holder that the check has beenissued for a definite purpose so that he must inquireif he has received the check pursuant to thatpurpose5 Memorandum Check ndash it is like an ordinary check exceptthat the word ldquomemorandumrdquo ldquomemrdquo or ldquomemordquo iswritten upon the face of the check signifying that thedrawer engages to pay the bona fide holder absolutelyand not upon a condition to pay upon presentment atmaturity and if due notice of the presentment and nonpaymentshould be given6 Travelerrsquos check ndash one upon which the holderrsquos signaturemust appear twice one to be affixed by him at the timeit is issued and the second o counter-signature to beaffixed by him in the presence of the payee before it ispaid otherwise it is incompleteIron Clad Rule Prohibits the countermanding ofpayment of certified checks (Republic of the Philippinesv PNB GR No 16106 December 1 1961)

even without notice ofdishonor7 Governed by Arts 1624to 1635 (on assignmentof credits) of the CivilCodeMethods of negotiation1 Order Instrument ndash Indorsement and Delivery2 Bearer Instrument ndash Delivery onlyIndorsement - legal transaction effected by the writing ofones own name at thea back of the instrument orb upon a paper (allonge) attached thereto with orwithout additional words specifying the person towhom or to whose order the instrument is to bepayable whereby one not only transfers legal title tothe paper transferred but likewise enters into animplied guaranty that the instrument will be dulypaid1048766 General Rule indorsement must be of the entireinstrumentException where instrument has been paid in part itmay be indorsed as to the residue1048766 Kinds of indorsementa Special - specifies the person to whom or to whoseorder the instrument is to be payable (sec 34)b Blank - specifies no indorseebull Instrument is payable to bearer and may benegotiated by delivery (sec 34)bull May be converted to special indorsement bywriting over the signature of indorser in blankany contract consistent with character ofindorsementc Restrictive - when the indorsement eitheri Prohibits further negotiation of theinstrument orii Constitutes the indorsee the agent of theindorser oriii Vests the title in the indorsee in trust foror to the use of some other persons Butmere absence of words implying power tonegotiate does not make an indorsementrestrictivebull A restrictive indorsement confers upon theindorsee the righta To receive payment of theinstrumentb To bring any action thereon that theindorser could bringc To transfer his rights as such indorseewhere the form of the indorsementauthorizes him to do soBut all subsequent indorsees acquire only thetitle of the first indorsee under the restrictiveindorsement (sec 37)1048766 Such indorsement destroys the negotiability ofthe instrument and bars further negotiation toa holder in due coursed Qualified - constitutes the indorser a mere assignorof the title to the instrument (sec 38)bull made by adding to the indorsers signaturewords like sans recourserdquo ldquowithout recourseindorser not holder at the indorsers ownrisk etcbull The purpose of this kind of indorsement is to

transfer title without guaranteeing payment bythe primary partybull It does not mean however that the qualifiedindorser incurs no liability at all The effect ismerely to limit his liability He is secondarilyliable for breach of is warranties as an indorserunder Sec 65 Thus he is liable if theinstrument is dishonored by NON-ACCEPTANCEor NON-PAYMENT due toa forgeryb lack of good title to the instrumentindorsedc lack of capacity to contract on the part ofprior parties ord the fact that the instrument was valuelessor not valid at the time of the indorsementwhich fact was known to hime Conditional - right of the indorsee is made todepend on the happening of a contingent eventbull Party required to pay may disregard theconditionsbull This kind of indorsement has no effect on thefurther negotiation of the instrument Theparty required to pay if he chooses may makepayment disregarding the condition withoutincurring any liability because he is expresslyauthorized to do so under Sec 39 But theperson who received payment will hold theproceeds subject to the right of the conditionalindorserf Absolute - one by which indorser binds himself topayi upon no other condition than failure ofprior parties to do so andii upon due notice to him of such failureg Joint - indorsement of instrument payable to 2 ormore persons all must indorse in order for thetransaction to operate as a negotiationbull Exceptions to the rule requiring jointindorsementa Where the payees or indorsees arepartners andb Where the payee or indorsee indorsinghas authority to indorse for theothersh Irregular - a person who not otherwise a party toan instrument places thereon his signature in blankbefore delivery1048766 Rules on Indorsementsbull Effect of transfer without indorsementa transfer vests in the transferee such title as thetransferor had therein (assignment) andb the right to have the indorsement of thetransferor1048766 For the purpose of determining whether thetransferee is a holder in due course thenegotiation takes effect as of the time whenthe indorsement is actually made1048766 Applicable only to order instrumentsbull Indorsement of a bearer instrument where aninstrument payable to bearer is indorsed speciallyit may nevertheless be further negotiated bydelivery but the person indorsing specially is liableas indorser to only such holders as make titlethrough his indorsement

Note The rule only applies to originally bearerinstruments If it is originally a BEARER instrumentit will always be a BEARER instrument As opposedto an original order instrument becoming payable tobearer if the same is indorsed specifically it canNO LONGER be negotiated further by mere deliveryit has to be indorsedbull Striking out indorsements the holder may at anytime strike out any indorsement which is notnecessary to his title The indorser whoseindorsement is struck out and all indorserssubsequent to him are thereby relieved fromliability on the instrument1048766 If the instrument is payable to bearer on its facethen whether or not there are indorsements on theback of the instrument would be immaterial to thetitle of the bearer who is presumptively the ownerand holder by his mere possession of suchinstrument None of the indorsement would benecessary to itrsquos title since mere delivery wouldhave been sufficient to transfer title from oneholder to another1048766 Where the instrument is payable to order on itsface the situation is different First theindorsement of a special indorsee is necessary forthe further negotiation of the instrument Secondthe last indorsement controls the method of furthernegotiationbull When prior party (reacquirer) may negotiate where aninstrument is negotiated back to a prior party suchparty may reissue and further negotiate the same Buthe is not entitled to enforce payment thereof againstany intervening party to whom he was personally liable1048766 In the following cases a prior party cannot furthernegotiate the instrument1 Where it is payable to the order of a thirdperson and has been paid by the drawer2 Where it was made or accepted foraccommodation and has been paid by theparty accommodated3 In other cases where the instrument isdischarged when acquired by a prior partyIV HOLDERSClasses of holders1 simple holder (sec 51)2 holder for value (sec 26)3 holder in due course (sec52 57)Holder in Due Course1048766 holder who has taken the instrument under the followingconditionsa That it is complete and regular upon its faceb That he became the holder of it before it wasoverdue and without notice that it has beenpreviously dishonored if such was the factc That he took it in good faith and for valued That at the time it was negotiated to him he hadno notice of any infirmity in the instrument ordefect in the title of the person negotiating it1048766 When title defective - The title of a person whonegotiates an instrument is defective when he obtainedthe instrument or any signature thereto bya fraudb duress or force and fearc other unlawful meansd illegal consideration

e negotiation in breach of faithf circumstances amounting to fraud1048766 What constitutes notice of defect - The person towhom it is negotiated must havea actual knowledge of the infirmity or defect orb knowledge of such facts that his action in taking theinstrument amounted to bad faith (sec 56)1048766 Notice before full amount is paid - where thetransferee receives notice of any infirmity in theinstrument or defect in the title of the personnegotiating the same before he has paid the full amountagreed to be paid he will be deemed a holder in duecourse only to the extent of the amount paid by him1048766 When person not deemed a holder in due course -where an instrument payable on demand is negotiatedon an unreasonable length of time after its issue theholder is not deemed a holder in due coursebull Reasonable time what constitutes - regard is to behad to thea nature of the instrumentb the usage of trade or business with respect tosuch instruments and thec facts of the particular casebull Effect in the hands of any holder other than aholder in due course a negotiable instrument issubject to the same defenses as if it were nonnegotiable1048766 General Rule every holder is deemed prima facie to bea holder in due courseException when it is shown that the title of any personwho has negotiated the instrument was defective theburden is on the holder to prove that he or some personunder whom he claims acquired the title as holder in duecourse (shifting of burden of proof)Limitation the last-mentioned rule does not apply infavor of a party who became bound on the instrumentprior to the acquisition of such defective title (sec 59)1048766 Rights of a holder in due coursea he may sue on the instrument in his own nameb he may receive payment and if payment is in duecourse the instrument is dischargedc holds the instrument free from any defect of title ofprior partiesd holds the instrument free from defenses available toprior parties among themselves ande may enforce payment of the instrument for the fullamount thereof against all parties liable thereon1048766 Payment in due course is payment madea at or after the maturity of the instrumentb to the holder thereofc in good faith and without notice that his title isdefective1048766 Shelter Rulea derives his title through a holder in due course andb who is not himself a party to any fraud or illegalityaffecting the instrument has all the rights of suchformer holder in respect of all parties prior to thelatter1048766 Rights of a Holder NOT in Due Course1 He may sue on the instrument in his own name2 He may receive payment and if the payment is indue course the instrument is discharged3 He is entitled to the instrument but holds it subjectto the same defenses as if it were non-negotiableand4 He has all the rights of the holder in due course

from whom he derived his title in respect of allparties prior to such holder provided he is nothimself a party to any fraud or illegality affectingthe instrumentV LIABILITIES OF PARTIESPersons primarily liable on instrument the person who bythe terms of the instrument is absolutely required to pay thesame All other parties are secondarily liableClassification of parties according to liabilityIN A PROMISSORYNOTE1 Maker2 Indorser3 Persons negotiating by deliveryIN A BILL OFEXCHANGE1 Drawer2 Acceptor3 Indorsers4 Persons negotiating by delivery1 Parties Primarily Liablea Maker (Sec 60)bull engages to pay according to the tenor of theinstrument andbull admits the existence of the payee and his thencapacity to indorse at the time of the makingof the notebull A person placing his name on the face of a noteis prima facie a maker and liable as such andhe is presumed to have acted with care and tohave signed the instrument with full knowledgeof its contentsb Acceptor or Drawee (Sec 62)bull engages to pay according to the tenor of hisacceptancebull admits1 the existence of the drawer2 the genuineness of his signature and3 his capacity and authority to draw theinstrument and4 the existence of the payee and his thencapacity to indorseNote the drawee is not liable until he acceptsthe instrumentbull Where a check is certified by a bank it isequivalent to an acceptance Since certification isequivalent to acceptance a bank which hascertified a check whether at the request of theholder or of a drawer has the same liabilities andmakes the same warranties as an acceptor Itcannot after certification question thegenuineness of the drawerrsquos signature If itdiscovers that such signature is forged subsequentto certification but prior to payment it cannotrefuse to pay on the check If its discovery comesafter it has paid the check it cannot recoverback what it paid on the ground of mistakenpayment unless the holder is guilty of fraud ornegligencebull If a drawee-bank accepts or pays a check despitea stop payment order from the drawer throughoversight or otherwise it cannot refuse to paythe holder or recover what has been paid neithermay it debit the drawerrsquos account unless theacceptance nor payment was made prior to the

receipt of the order2 Parties Secondarily Liablea Drawer (Sec 61)bull admits the existence of the payee and hiscapacity to indorsebull engages that the instrument will be acceptedor paid by the party primarily liable andbull engages that if the instrument is dishonoredand proper proceedings are brought he willpay to the party entitled to be paidb General Indorser (Sec 66)bull Warrants1 genuineness of the instrument2 his good title to it3 capacity to contract of prior parties and4 instrument is valid and subsistingbull engages that the instrument will be acceptedor paid by the party primarily liable andbull engages that if the instrument is dishonoredand proper proceedings are taken he will payto the party entitled to be paidc Irregular Indorser ndash a person not otherwise a partyto an instrument places his signature thereon inblank before deliveryRulesbull If instrument payable to the order of a 3rdperson he is liable to the payee andsubsequent partiesbull If instrument payable to order of maker ordrawer he is liable to all parties subsequent tothe maker or drawerbull If he signs for accommodation of the payee heis liable to all parties subsequent to the payeeDistinctionsPRIMARY PARTY SECONDARY PARTY1 Unconditionally bound2Absolutely required topay upon the maturity ofthe instrument1 Conditionally bound2 Undertakes to pay onlyafter certain conditionshave been fulfilleda due presentment forpayment or acceptance toprimary partyb dishonor by suchparty andc the taking ofproceedings required bylaw after dishonorINDORSER DRAWER1 A party to either a noteor a bill2 Does not make anyadmission regarding theexistence of the payee andhis capacity to indorse and3 Has warranties1 A party only to a bill2 The drawer makes suchadmission3 Makes no warranties buthe engages to pay aftercertain conditions are

complied withGENERAL INDORSER IRREGULAR INDORSER1 Makes either a blank orspecial indorsement2 Indorses the instrumentafter its delivery to thepayee and3 Liable only to partiessubsequent to him1 Always makes a blankindorsement2 Indorses before itsdelivery3 Liable to the payee andsubsequent parties unlesshe signs for theaccommodation of thepayee in which case he isliable only to all partiessubsequent to the payee3 Parties with Limited Liability (sec 65 MetropolFinancing v Sambok 120 SCRA 864)a Qualified Indorser - warrants that1048766 instrument is genuine and in all respects whatit purports to be1048766 he has good title to it1048766 all prior parties had capacity to contract1048766 he has no knowledge of any fact which wouldimpair the validity of the instrument or renderit valuelessb Persons Negotiating by Delivery1048766 warranties same as those of qualified indorsersand1048766 warranties extend to immediate transfereeonlyLIABILITY WARRANTY1 To pay a sum certain2 Requires Notice ofDishonor3 Action can be broughtonly on maturity ofinstrument1 No obligation to pay2 Notice of Dishonor is not arequirement3 Action may be broughtanytimeBY MERE DELIVERY OR BYQUALIFIED INDORSEMENTGENERAL INDORSER1 No secondary liability1 With secondary liability2 Warrants that he has noknowledge of any factwhich would impair thevalidity of the instrumentor render it valueless2 Warrants that theinstrument is at the timeof his indorsement validand subsisting4 Other parties who may be liableGeneral Rule One whose signature does not appear on theinstrument shall not be liable thereonExceptions

1 The principal who signs through an agent is liable2 The forger is liable3 One who indorses in a separate instrument (allonge) isliable4 One who signs his assumed or trade name is liable and5 A person negotiating by delivery (as in the case of abearer instrument) is liable to his immediate indorseeRequisites for an Agent to escape liability1 must be duly authorized2 add words to his signature indicating that he signs as anagent that is for or on behalf of a principal or in arepresentative capacity and3 disclose his principal1048766 A signature by ldquoprocurationrdquo operates as notice that theagent has but a limited authority to sign and theprincipal is bound only in case the agent in so signingacted within the actual limits of his authority (sec 21)1048766 Indorsement or assignment of the NI by a corporation orby an infant passes the property thereinnotwithstanding that from want of capacity thecorporation or infant may incur no liability thereon(sec 22)Accomodation PartyOne who has signed the instrument as maker draweracceptor or indorser without receiving value therefor andfor the purpose of lending his name to some other person1048766 Liability such a person is liable on the instrument to aholder for value notwithstanding such holder at thetime of taking the instrument knew him to be only anaccommodation party1048766 Effects1 accommodation party is generally regarded as asurety for the party accommodated2 When accommodation party makes payment toholder of the note he has the right to sue theaccommodated party for reimbursement1048766 Rights of accommodation parties as against each otherthe other may demand contribution from his coaccommodationparty without first directing his actionagainst the principal debtor provided1 he made the payment by virtue of judicial demandor2 the principal debtor is insolventNote A corporation cannot act as an accommodationparty The issuance or indorsement of negotiableinstrument by a corporation without consideration andfor the accommodation of another is ultra vires(Crisologo v CA 117 SCRA 594)Order of liability of indorsers1 among themselves ndash indorsers are liable prima facie inthe order in which they indorse but evidence isadmissible to show that as between or amongthemselves they have agreed otherwise (sec 68)2 to the holder ndash indorsers are liable in any orderVI DEFENSESKinds1 RealAbsolute Defenses - those that attach to theinstrument itself and are available against all holderswhether in due course or notExamplesa Alterationb Non-delivery of incomplete instrumentc Duress amounting to forgeryd Fraud in factum or fraud in esse contractuse Minority

f Marriage in the case of a wifeg Insanity where the insane person has a guardianappointed by the courth Ultra vires acts of a corporation where thecorporation is absolutely prohibited by its charter orstatute from issuing any commercial paper underany circumstancesi Want of authority of agentj Execution of instrument between public enemiesk Illegality of contract where it is the contract orinstrument itself which is expressly made illegal bystatute andl Forgery2 PersonalEquitable Defenses ndash those which are availableonly against a person not a holder in due course or asubsequent holder who stands in privity with himExamplesa Absence or failure of consideration partial or totalb Want of delivery of complete instrumentc Insertion of wrong date in an instrument where it ispayable at a fixed period after date and it is issuedundated or where it is payable at a fixed periodafter sight and the acceptance is undatedd Filling up of blank contrary to authority given or notwithin reasonable time where the instrument isdeliverede Fraud in inducementf Acquisition of instrument by force duress or fearg Acquisition of the instrument by unlawful meansh Acquisition of the instrument for an illegalconsiderationi Negotiation in breach of faithj Negotiation under circumstances that amount tofraudk Mistakel Intoxication (according to better authority)m Ultra vires acts of corporations where thecorporation has the power to issue negotiable paperbut the issuance was not authorized for theparticular purpose for which it was issuedn Want of authority of agent where he haso apparent authorityp Insanity where there is no notice of insanity on thepart of the one contracting with the insane personandq Illegality of contract where the form orconsideration is illegalFRAUD IN FACTUM FRAUD IN INDUCEMENT1 It exists in those cases inwhich a person withoutnegligence has signed aninstrument which was infact a negotiableinstrument but wasdeceived as to thecharacter of the instrumentand without knowledge ofits as where a not wassigned by one under thebelief that he was signingas a witness to a deed1 It is that which relatedto the quality quantityvalue or character of theconsideration of the

instrument In this casethe signer is led bydeception to execute whathe knows is a negotiableinstrument It implies thatthe signer knew what hewas signing but that he wasinduced by fraud to sign2 This kind of fraud is areal defense because thereis no contract It impliesthat the person did notknow what he was signingBut where the signer by theexercise of reasonablediligence could havediscovered the nature ofthe instrument the fraudcannot be considered a realdefense as where a personwho can read signed a notebut failed to read it2 Such type of fraud is onlya personal defense becauseit does not prevent acontract1048766 Effects of Defenses1 Complete and undelivered instrumentbull as between immediate parties and as regards aremote party other than a holder in due course thedelivery must be authorized in order to be effectualbull where the instrument is in the hands of a holder indue course a valid delivery thereof by all partiesprior to him so as to make them liable to him isconclusively presumedbull where the instrument is no longer in the possessionof a party whose signature appears thereon a validand intentional delivery by him is presumed untilthe contrary is proved2 Incomplete but delivered instrumentbull where the instrument is wanting in any materialparticular the person in possession thereof has aprima facie authority to complete it by filling up theblanks thereinbull it must be filled up strictly in accordance with theauthority given and within a reasonable timebull if any such instrument after completion isnegotiated to a holder in due course it is valid andeffectual for all purposes in his hands and he mayenforce it as if it had been filled up strictly inaccordance with the authority given and within areasonable time3 Incomplete and undelivered instrumentbull it will not if completed and negotiated withoutauthority be a valid contract in the hands of anyholder as against any person whose signature wasplaced thereon before deliverybull However subsequent indorsers are liable4 Forgerybull counterfeit making or fraudulent alteration of anywriting which may consist of1 signing of anotherrsquos name with intent todefraud or2 alteration of an instrument in the nameamount name of payee etc with intent to

defraudbull Effect signature is wholly inoperative and no rightto retain the instrument or to give a dischargetherefore or to enforce payment thereof againstany party thereto can be acquired through or undersuch signaturebull Exception unless the party against whom it issought to enforce such right is precluded fromsetting up the forgery or want of authoritybull Cut-Off RuleGeneral Rule Parties prior to the forged signatureare cut-off from the parties after the forgery in thesense that prior parties cannot be held liable andcan raise the defense of forgery The holder canonly enforce the instrument against parties whobecame such after the forgeryException When the prior parties are precludedfrom setting up the defense of forgeryPersons precluded from setting up the defense offorgery are1 Those who by their acts silence or negligenceare estopped from setting up the defense offorgery2 Those who warrant or admit the genuineness ofthe signature in question These include acts oromissions that amount to ratification expressor impliedNote Persons precluded from setting up thedefense of forgery may still recover damages underthe NCC provisions on quasi-delictsbull Rules on ForgeryA Promissory Notes1 Makerrsquos signature forgedOrder Instrumenta Maker is not liable because he neverbecame a party to the instrumentb Indorsers subsequent to forgery are liablebecause of their warrantiesc Party who made the forgery is liableBearer Instrumenta Maker is not liableb Indorsers may be made liable to thosepersons who obtain title through theirindorsementsc Party who made the forgery is liable2 Payeersquos signature forgedOrder Instrumenta Maker and payee not liableb Indorsers subsequent to the forgery isliablec Party who made the forgery is liableBearer Instrumenta Maker is liable Indorsement is notnecessary to title and the maker engagesto pay holderb Party who made the forgery is liable3 Indorserrsquos signature forgedOrder Instrumenta Maker payee and indorser who signaturewas forged is not liableb Indorsers subsequent to forgery are liablebecause of their warrantiesc Party who made the forgery is liableBearer Instrumenta Maker is liable Indorsement is not

necessary to title and the maker engagesto pay holderb Indorser whose signature was forged is notliablec Party who made the forgery is liableB Bill of Exchange1 Drawerrsquos signature forgedIn an Order Instrumenta Drawer is not liableb Drawee is liable if it paid (nor recourse todrawer) because he admitted thegenuineness of the drawerrsquos signatureDrawee cannot recover from the collectingbank because there is no privity betweenthe collecting bank and the drawer Thereis no warranty as to the signature of thedrawer (Associated Bank v CA)c Indorsers subsequent to forgery are liabled Party who made the forgery is liableIn a Bearer Instrumenta Drawer is not liableb Drawee is liable if it paid Drawee cannotrecover from the collecting bank becauseit is bound to known the drawerrsquossignature since the latter is its depositorc Party who made the forgery is liable2 Payeersquos signature forgedOrder Instrumenta Drawer drawee and payee not liable Cutoffrule appliesb Indorsers subsequent to forgery are liablec Party who made the forgery is liableBearer Instrumenta Drawer is liable His indorsement is notnecessary to pass titleb Drawee is liable No privity betweendrawer and payee because indorsement ofpayee is not necessary (Ang Tek Lian case87 SCRA 383)c Payee is not liabled Collecting bank is liable because ofwarrantye Party who made the forgery is liable3 Indorserrsquos signature forgedOrder Instrumenta Drawer payee and indorser whosesignature was forged are not liableb Drawee is liable if it paidc Indorsers subsequent to forgery are liabled Party who made the forgery is liableBearer Instrumenta Drawer is liable Indorsement is notnecessary to pass titleb Drawee is liablec Indorser whose signature was forged isliable because indorsement is notnecessary to pass titled Party who made the forgery is liable5 Alterationbull Effect the instrument is avoidedbull Exceptions1 against a party who has himself madeauthorized or assented to the alteration2 subsequent indorsers3 holder in due course not a party to the

alteration - he may enforce payment accordingto its original tenorbull Changes constituting material alteration1 date2 sum payable either for principal or interest3 time or place of payment4 number or relations of the parties5 medium or currency in which payment is to bemade6 that which adds a place of payment where noplace of payment is specified and7 any other change or addition which alters theeffect of the instrument in any respectNote a material alteration is one that alters theeffect of the instrument one which changes theitems required to be stated under Sec 1 NILbull Spoliation ndash alteration made by a strangerbull The general rule denies the drawee bankrsquos right tocharge against the drawerrsquos account the amount ofan altered check However the latterrsquos negligencebefore or after the alteration may estop him fromsetting such alteration as against an innocentdrawee bank who has paid the checkbull In cases of altered checks and checks with forgedindorsements the drawee bank must notify andreturn them to the collecting bank before 400 pmof the next day of clearing but the drawee bankmay still return them even after such time providedhe does so within 24 hours from its discovery of thealteration or forged instruments so that recovery ofthe amount may be had BUT in no event beyondthe period fixed or provided by law for filing of alegal action by the returning bank against the banksending the sameNote Alteration is only a partial real defensebecause a holder in due course can still enforce itaccording to its original tenorVII ENFORCEMENT OF LIABILITYPresentment for payment ndash the presentation of aninstrument to the person primarily liable for the purpose ofdemanding and receiving paymentGeneral Rulesbull presentment for payment to charge personsprimarily liable is not necessarybull presentment for payment to charge personssecondarily liable is necessaryExceptionsa drawer - where he has no right to expect or requirethat the drawee or acceptor will pay the instrument(sec 79)b indorser - where the instrument was made oraccepted for his accommodation and he has noreason to expect that the instrument will be paid ifpresentedc when dispensedi where after the exercise of reasonablediligence presentment as required cannotbe madeii where the drawee is a fictitious personiii by waiver of presentment express orimplied (sec 82)d when the instrument has been dishonored by nonacceptance(sec 151)Sufficiency of presentmentIt must be

1 made by the holder or any person authorized toreceive payment on his behalf2 at a reasonable hour on a business day3 at a proper place4 to the person primarily liable or if he is absent orinaccessible to any person found at the placewhere the presentment is madeHow made1 personal demand for payment at the proper place and2 readiness to exhibit the instrument if required and toreceive payment and to surrender the instrument if thedebtor is willing to paybull Purpose of exhibitionTo enable the debtor toa determine the genuineness of the instrument andthe right of the holder to receive payment andb to enable him to reclaim possession upon paymentbull When exhibition excuseda when debtor does not demand to see the instrumentbut refuses payment on some other grounds andb when the instrument is lost or destroyedWhen madebull where the instrument is payable at a fixed ordeterminable future time presentment must be madeon the day it falls duebull where it is payable on demanda promissory note presentment must be made withina reasonable time after its issueb bill of exchange presentment for payment will besufficient if made within a reasonable time afterthe last negotiation thereofbull the check must be presented for payment within areasonable time after its issue or the drawer will bedischarged from liability thereon to the extent of theloss caused by the delayTime of maturitybull every negotiable instrument is payable at the time fixedtherein without gracebull when the day of maturity falls upon a Sunday or aholiday the instruments are to be presented forpayment on the next succeeding business daybull when the day of maturity falls upon a Saturday1048766 Instrument is payable at a fixed or determinablefuture time (time instrument) - presented forpayment is on the next succeeding business day1048766 instruments is payable on demand - at the option ofthe holder be presented for paymenta before 1200 noon on Saturday whenthat entire day is not a holiday orb the next succeeding business dayHow computed1048766 excluding the day from which the time is to begin torun and by including the date of payment1048766 applies to instruments which are payable at a fixedperiod after date after sight or after thathappening of a specified eventProper place for presentmenta Where a place of payment is specified in the instrumentand it is there presentedb Where no place of payment is specified but the addressof the person to make payment is given in theinstrument and it is there presentedc Where no place of payment is specified and no address isgiven and the instrument is presented at the usual placeof business or residence of the person to make payment

d In any other case if presented to the person to makepayment wherever he can be found or if presented athis last known place of business or residenceWhen delay in presentment excused ndash delay is caused bycircumstances beyond the control of the holder and notimputable to his default misconduct or negligence Whenthe cause of delay ceases to operate presentment must bemade with reasonable diligencePresentment for acceptance ndash the production or exhibitionof a bill of exchange to the drawee for his acceptance orpaymentGeneral Rule presentment for acceptance is not necessary torender any party to the bill liableException presentment for acceptance must be madea Where the bill is payable after sight or wherepresentment for acceptance is necessary in order tofix the maturity of the instrument orb Where the bill expressly stipulates that it shall bepresented for acceptance orc Where the bill is drawn payable elsewhere then atthe residence or place of business of the drawee(sec 143)Note in all the above cases the holder must either presentthe bill for acceptance or negotiate it within a reasonabletime otherwise the drawer and all indorsers are dischargedHow made1 made by or on behalf of the holder2 at a reasonable hour3 on a business day4 before the bill is overdue and within reasonabletime5 to the drawee or some person authorized to acceptor refuse acceptance on his behalfDays presentment may be made If date of presentment isa Sunday or a holiday ndash must be made on the nextsucceeding business dayb Saturday ndash before 1200 noon on Saturday providedthat it is not a holidayWhen delay for presentment excuseda bill is drawn payable elsewhere than at the place ofbusiness or the residence of the draweeb holder has no time with the exercise of reasonablediligence to present the bill for acceptance beforepresenting it for payment on the day that it fallsdueEffect does not discharge the drawers and indorsersWhere presentment is excuseda Where the drawee is dead or has absconded or is afictitious person or a person not having capacity tocontract by billb Where presentment can not be made after theexercise of reasonable diligencec Where although presentment has been irregularacceptance has been refused on some other groundNote bill may be treated as dishonored by nonacceptanceDuty of holder where bill not accepted - where a bill isduly presented for acceptance and is not accepted within theprescribed time (24 hours ndash sec 136) the person presentingit must treat the bill as dishonored by non-acceptance or heloses the right of recourse against the drawer and indorsersAcceptance the signification by the drawee of his assent tothe order of the drawer It is the act by which the draweemanifests his consent to comply with the request containedin the bill of exchange directed to himHow made

1) must be in writing2) signed by the drawee3) must not express that the drawee will perform hispromise by any other means than the payment ofmoneybull the holder of the bill presenting the same for acceptancemay require that the acceptance be written on the billand if such request is refused may treat the bill asdishonoredbull where an acceptance is written on a paper other thanthe bill itself it does not bind the acceptor except infavor of a person to whom it is shown and who on thefaith thereof receives the bill for valuePeriod for drawee to accept - allowed 24 hours afterpresentment in which to decide whether or not he will acceptthe bill if acceptance is given it dates as of the day ofpresentationConstructiveImplied acceptance where a drawee refuseswithin 24 hours after delivery or within such other period asthe holder may allow to return the bill accepted or nonacceptedto the holder he will be deemed to have acceptedthe sameNote same effect if the drawee destroys the instrumentKinds1 General - assents without qualification to the order ofthe drawer2 Qualified - which in express terms varies the effect ofthe bill as drawna Conditional - makes payment by the acceptordependent on the fulfillment of a conditiontherein statedb Partial - an acceptance to pay part only of theamount for which the bill is drawni Local - an acceptance to pay only at aparticular placeii Qualified as to timeiii The acceptance of some one or more ofthe drawees but not of all3 ConstructiveRights of parties as to qualified acceptancebull Holder he may refuse to take a qualified acceptanceand if he does not obtain an unqualified acceptance hemay treat the bill as dishonored by non-acceptancebull Drawer or indorser when he receives notice of aqualified acceptance he must within a reasonable timeexpress his dissent to the holder or he will be deemed tohave assented thereto (implied assent)Effect of taking a qualified acceptance the drawer andindorsers are discharged from liability on the bill unless theyhave expressly or impliedly authorized the holder to take aqualified acceptance or subsequently assent theretoOther rules of acceptancebull a bill may be accepted before it has been signed by thedrawer or while otherwise incomplete or when it isoverdue or after it has been dishonored by a previousrefusal to accept or by non paymentbull when a bill payable after sight is dishonored by nonacceptanceand the drawee subsequently accepts it theholder in the absence of any different agreement isentitled to have the bill accepted as of the date of thefirst presentmentbull an unconditional promise in writing to accept a billbefore it is drawn is deemed an actual acceptancein favor of every person who upon the faiththereof receives the bill for value

bull where a check is certified by the bank on which it isdrawn the certification is equivalent to anacceptanceEffect the drawer and all indorsers are dischargedfrom liability thereonAcceptance for Honor - an undertaking by a stranger to a billafter protest for the benefit of any party liable thereon or forthe honor of the person for whose account the bill is drawnwhich acceptance inures also to the benefit of all partiessubsequent to the person for whose honor it is accepted andconditioned to pay the bill when it becomes due if theoriginal drawee does not pay it1048766 Requisites1 the bill must have been protested for dishonorby non-acceptance or for better security2 the acceptor for honor must be a stranger andnot a party already liable on the instrument3 bill must not be overdue4 acceptance for honor must be with the consentof the holder of the instrument1048766 Formalities1 must be in writing2 must indicate that it is an acceptance forhonor3 signed by the acceptor for honor4 must contain an express or implied promise topay money5 the accepted bill for honor must be deliveredto the holderNotice of Dishonor - notice given by the holder or his agentto a party or parties secondarily liable that the instrumentwas dishonored by non-acceptance by the drawee of a bill orby non-payment by the acceptor of a bill or by non-paymentby a maker of a note- If such notice is given by a notary public it is calledPROTEST1048766 Effect of failure to give notice parties secondarily liableare discharged1048766 Requisites1 Given by holder or his agent or by any party whomay be compelled by the holder to pay2 Given to secondary party or his agent3 Given within the periods provided by law4 Given at the proper place1048766 When notice of dishonor dispensed with1 when party to be notified knows about the dishonoractually or constructively2 if waived and3 when after due diligence it cannot be given1048766 How given1 by bringing verbally or2 by writing to the knowledge of the person liable thefact that a specified instrument upon properproceedings taken has not been accepted or hasnot been paid and that the party notified isexpected to pay it1048766 To whom given1 Non-acceptance (bill) ndash to persons secondarilyliable namely the drawer and indorsers as the casemay be2 Non-payment (both bill and note) ndash indorsersNote Notice must be given to persons secondarilyliable Otherwise such parties are dischargedNotice may be given to the party himself or to hisagent

1048766 By whom given1 the holder2 another on behalf of the holder3 any party to the instrument who may be compelledto pay it to the holder and who would have a rightof reimbursement from the party to whom notice isgiven1048766 Notice of dishonor given by or on behalf of a holderinures to the benefit ofa all parties prior to the holder who have a rightof recourse against the party to whom thenotice is given andb all holders subsequent to the holder givingnotice1048766 Notice of dishonor given by or on behalf of a partyentitled to give notice inures to the benefit ofa the holder andb all parties subsequent to the party to whomnotice is given1048766 Where an instrument is dishonored in the hands of anagent he can do either of the ffa directly give notice to persons secondarilyliable thereon orb give notice to his principal In such case hemust give notice within the time allowed bylaw as if he were a holder1048766 A party giving notice is deemed to have given due noticewherea the notice of dishonor is duly addressed andb deposited in the post-office even when thereis miscarriage of mail1048766 Where a party receives notice of dishonor he has afterthe receipt of such notice the same time for givingnotice to antecedent parties that the holder has afterthe dishonor1048766 Notice may be waived either before the time of givingnotice or after the omission to give due notice Waivermay be expressed or implied1048766 As to who are affected by an express waiver depends onwhere the waiver is written1 if it appears in the body or on the face of theinstrument it binds all parties but2 if it is written above the signature of anindorser it binds him only1048766 Notice of dishonor is not required to be given to thedrawer in any of the ff cases1 drawer and drawee are the same2 drawee is a fictitious person or not having thecapacity to contract3 drawer is the person to whom the instrument ispresented for payment4 the drawer has no right to expect or requirethat the drawee or acceptor will honor theinstrument5 where the drawer has countermandedpayment1048766 Notice of dishonor is not required to be given to anindorser in the ff cases1 drawee is a fictitious person or does not havethe capacity to contract and indorser wasaware of that fact at the time he indorsed theinstrument2 indorser is the person to whom the instrumentis presented for payment3 instrument was made or accepted for his

accommodation1048766 If an instrument is not accepted by the drawee there isno sense presenting it again for payment and notice ofdishonor must at once be given If there wasacceptance presentment for payment is still requiredand if payment is refused there is a need for notice ofdishonor1048766 An omission to give notice of dishonor by non-acceptancedoes not prejudice the rights of a holder in due coursesubsequent to the omissionDishonor by Non-PaymentWhen instrument dishonored by non-paymenta it is duly presented for payment and payment isrefused or cannot be obtained orb presentment is excused and the instrument isoverdue and unpaidEffect of dishonor an immediate right of recourse to allparties secondarily liable thereon accrues to the holderDishonor by Non-AcceptanceInstancesa When it is duly presented for acceptance and suchan acceptance is refused or can not be obtained orb When presentment for acceptance is excused andthe bill is not accepted (sec 149)Effect an immediate right of recourse against thedrawer and indorsers accrues to the holder and nopresentment for payment is necessaryNote where a bill is duly presented for acceptance andis not accepted within the prescribed time (24 hours)the person presenting it must treat the bill as dishonoredby non-acceptanceWhen Instrument Considered to be Dishonoreda If it is not accepted when presented for acceptanceorb If it is not paid when presented for payment atmaturity orc If presentment is excused or waived and theinstrument is past due and unpaidProtest - the formal instrument executed usually by a notarypublic certifying that the legal steps necessary to fix theliability of the drawee and the indorsers have been taken1048766 Effect of waiver where protest is waived presentmentand notice of dishonor are also deemed waived Butwhere the notice of dishonor is waived presentment isnot waived1048766 Applicability protest is necessary only in case of foreignbills of exchange which have been dishonored by nonacceptanceor non-payment as the case may be If it isnot so protested the drawer and indorsers aredischarged1048766 Foreign Bill of Exchange1 Drawn in the Philippines but payable outside thePhilippines2 Payable in the Philippines but drawn outside thePhilippines1048766 Protest may be made by1 a notary public or2 any respectable resident of the place where the billis dishonored in the presence of 2 or more crediblewitnessesProtest for better security is one made by the holder of a billafter it has been accepted but before it matures against thedrawer and indorsers where the acceptor has been adjudgeda bankrupt or an insolvent or has made an assignment forthe benefit of the creditors

VIII DISCHARGEDischarge of instrument - a release of all parties whetherprimary or secondary from the obligations arisingthereunder It renders the instrument without force andeffect and consequently it can no longer be negotiatedInstances1 By payment in due course by or on behalf of theprincipal debtor2 Payment by accommodated party3 Intentional cancellation by the holder4 By any act which will discharge a simple contractfor the payment of money5 When the principal debtor becomes the holder ofthe instrument at or after maturity in his own rightBy any act which would discharge a simple contract1 Payment or performance2 Loss of the thing due3 Condonation or remission4 Confusion or Merger5 Compensation6 Novation7 Annulment or Rescission8 Fulfillment of a resolutory condition9 PrescriptionWhen persons secondarily liable on the instrument aredischarged1 By any act which discharges the instrument2 By the intentional cancellation of his signature bythe holder3 By the discharge of a prior party4 By a valid tender of payment made by a prior party5 By the release of the principal debtor unless theholderrsquos right of recourse against the partysecondarily liable is expressly reserved6 By any agreement binding upon the holder to extendthe time of payment or to postpone the holderrsquosright to enforce the instrument1048766 In the following cases the agreement to extend the timeof payment does not discharge a party secondarily liable1 where the extension of time is consented to by suchparty2 where the holder expressly reserves his right ofrecourse against such party1048766 Payment at or after maturity by a party secondarilyliable does not discharge the instrument It only cancelshis own liability and that of the parties subsequent tohimEffects of Renunciation1 A renunciation in favor of a secondary party may bemade by the holder before at or after maturity ofthe instrument Effect only such secondary party isdischarged and all parties subsequent to him but theinstrument itself remains in force2 A renunciation in favor of the principal debtor maybe effected at or after maturity Effect theinstrument is discharged and all parties theretoprovided the renunciation is made unconditionallyand absolutelyNote In either case renunciation does not affect therights of a holder in due course without notice1048766 Cancellation of an instrument includes tearing erasureobliteration or burning It is not limited to writing ofthe word lsquocancelledrdquo or ldquopaidrdquo or drawing of crisscrosslines across the instrumentPayment for Honor - payment made by a person whether a

party to the bill or not after it has been protested for nonpaymentfor the benefit of any party liable thereon or forthe benefit of the person for whose account it was drawn1048766 Requisites1 the bill has been dishonored by non-payment2 it has been protested for non-payment3 payment supra protest (another term for paymentfor honor because prior protest for non-payment isrequired) is made by any person even by a partythereto4 the payment is attested by a notarial act of honorwhich must be appended to the protest or form anextension of it5 the notarial act must be based on the declarationmade by the payor for honor or his agent of hisintention to pay the bill for honor and for whosehonor he paysNote If the above formalities are not complied withpayment will operate as a mere voluntary payment andthe payor will acquire no right to full reimbursementagainst the party for whose honor he pays1048766 In payment for honor the payee cannot refuse paymentIf he refuses he cannot recover from the parties whowould have been discharged had he accepted the sameIn acceptance for honor the holderrsquos consent isnecessary1048766 The payor for honor is given the right to receive both thebill and the protest obviously to enable him to enforcehis rights against the parties who are liable to himIX CHECKSCheck- a bill of exchange drawn on a bank payable ondemandCheck distinguished from and ordinary bill of exchangeBILLOF EXCHANGE CHECKNot necessarily drawnon a deposit The draweeneed not be a bankIt is necessary that a checkis drawn on a bank depositThe drawee is always abankDeath of a drawer of aBOE with the knowledgeof the bank does notrevoke the authority of thedrawee to payDeath of the drawer of acheck with the knowledgeof the bank revokes theauthority of the banker topayMay be presented forpayment within areasonable time after itslast negotiation because itmay be further negotiatedMust be presented forpayment within areasonable time after itsissueMay be payable on demandor at a fixed ordeterminable future timeAlways payable on demandKinds of checks

1 Managerrsquos Cashierrsquos Check ndash drawn by a bank on itselfand therefore it is a primary obligation of the banko It is accepted in advance by the act of itsissuance and is not subject tocountermand by the payor afterindorsemento The bankrsquos manager signs managerrsquos checkwhile cashierrsquos check is signed by the bankcashier2 Certified Check ndash one drawn by a depositor upon funds tohis credit in a bank which a proper officer of the bankcertifies will be paid when duly presented for payment3 Stale check ndash one which has not been presented forpayment within a reasonable time after its issue4 Crossed check ndash when 2 parallel lines are drawn acrossits face or across a corner thereof If the name of a bankappears between the parallel lines the check is said tobe specially crossed and payment should be made onlyif presented by the named bank If no name appearsbetween the parallel lines the check is said to begenerally crossed and payment should be made onlyupon presentment by some bankEffects of crossing a checka That the check may not be encashed but only bedeposited in the bankb That the check may be negotiated only once to onewho has an account with a bank andc That the act of crossing the check serves as awarning to the holder that the check has beenissued for a definite purpose so that he must inquireif he has received the check pursuant to thatpurpose5 Memorandum Check ndash it is like an ordinary check exceptthat the word ldquomemorandumrdquo ldquomemrdquo or ldquomemordquo iswritten upon the face of the check signifying that thedrawer engages to pay the bona fide holder absolutelyand not upon a condition to pay upon presentment atmaturity and if due notice of the presentment and nonpaymentshould be given6 Travelerrsquos check ndash one upon which the holderrsquos signaturemust appear twice one to be affixed by him at the timeit is issued and the second o counter-signature to beaffixed by him in the presence of the payee before it ispaid otherwise it is incompleteIron Clad Rule Prohibits the countermanding ofpayment of certified checks (Republic of the Philippinesv PNB GR No 16106 December 1 1961)

transfer title without guaranteeing payment bythe primary partybull It does not mean however that the qualifiedindorser incurs no liability at all The effect ismerely to limit his liability He is secondarilyliable for breach of is warranties as an indorserunder Sec 65 Thus he is liable if theinstrument is dishonored by NON-ACCEPTANCEor NON-PAYMENT due toa forgeryb lack of good title to the instrumentindorsedc lack of capacity to contract on the part ofprior parties ord the fact that the instrument was valuelessor not valid at the time of the indorsementwhich fact was known to hime Conditional - right of the indorsee is made todepend on the happening of a contingent eventbull Party required to pay may disregard theconditionsbull This kind of indorsement has no effect on thefurther negotiation of the instrument Theparty required to pay if he chooses may makepayment disregarding the condition withoutincurring any liability because he is expresslyauthorized to do so under Sec 39 But theperson who received payment will hold theproceeds subject to the right of the conditionalindorserf Absolute - one by which indorser binds himself topayi upon no other condition than failure ofprior parties to do so andii upon due notice to him of such failureg Joint - indorsement of instrument payable to 2 ormore persons all must indorse in order for thetransaction to operate as a negotiationbull Exceptions to the rule requiring jointindorsementa Where the payees or indorsees arepartners andb Where the payee or indorsee indorsinghas authority to indorse for theothersh Irregular - a person who not otherwise a party toan instrument places thereon his signature in blankbefore delivery1048766 Rules on Indorsementsbull Effect of transfer without indorsementa transfer vests in the transferee such title as thetransferor had therein (assignment) andb the right to have the indorsement of thetransferor1048766 For the purpose of determining whether thetransferee is a holder in due course thenegotiation takes effect as of the time whenthe indorsement is actually made1048766 Applicable only to order instrumentsbull Indorsement of a bearer instrument where aninstrument payable to bearer is indorsed speciallyit may nevertheless be further negotiated bydelivery but the person indorsing specially is liableas indorser to only such holders as make titlethrough his indorsement

Note The rule only applies to originally bearerinstruments If it is originally a BEARER instrumentit will always be a BEARER instrument As opposedto an original order instrument becoming payable tobearer if the same is indorsed specifically it canNO LONGER be negotiated further by mere deliveryit has to be indorsedbull Striking out indorsements the holder may at anytime strike out any indorsement which is notnecessary to his title The indorser whoseindorsement is struck out and all indorserssubsequent to him are thereby relieved fromliability on the instrument1048766 If the instrument is payable to bearer on its facethen whether or not there are indorsements on theback of the instrument would be immaterial to thetitle of the bearer who is presumptively the ownerand holder by his mere possession of suchinstrument None of the indorsement would benecessary to itrsquos title since mere delivery wouldhave been sufficient to transfer title from oneholder to another1048766 Where the instrument is payable to order on itsface the situation is different First theindorsement of a special indorsee is necessary forthe further negotiation of the instrument Secondthe last indorsement controls the method of furthernegotiationbull When prior party (reacquirer) may negotiate where aninstrument is negotiated back to a prior party suchparty may reissue and further negotiate the same Buthe is not entitled to enforce payment thereof againstany intervening party to whom he was personally liable1048766 In the following cases a prior party cannot furthernegotiate the instrument1 Where it is payable to the order of a thirdperson and has been paid by the drawer2 Where it was made or accepted foraccommodation and has been paid by theparty accommodated3 In other cases where the instrument isdischarged when acquired by a prior partyIV HOLDERSClasses of holders1 simple holder (sec 51)2 holder for value (sec 26)3 holder in due course (sec52 57)Holder in Due Course1048766 holder who has taken the instrument under the followingconditionsa That it is complete and regular upon its faceb That he became the holder of it before it wasoverdue and without notice that it has beenpreviously dishonored if such was the factc That he took it in good faith and for valued That at the time it was negotiated to him he hadno notice of any infirmity in the instrument ordefect in the title of the person negotiating it1048766 When title defective - The title of a person whonegotiates an instrument is defective when he obtainedthe instrument or any signature thereto bya fraudb duress or force and fearc other unlawful meansd illegal consideration

e negotiation in breach of faithf circumstances amounting to fraud1048766 What constitutes notice of defect - The person towhom it is negotiated must havea actual knowledge of the infirmity or defect orb knowledge of such facts that his action in taking theinstrument amounted to bad faith (sec 56)1048766 Notice before full amount is paid - where thetransferee receives notice of any infirmity in theinstrument or defect in the title of the personnegotiating the same before he has paid the full amountagreed to be paid he will be deemed a holder in duecourse only to the extent of the amount paid by him1048766 When person not deemed a holder in due course -where an instrument payable on demand is negotiatedon an unreasonable length of time after its issue theholder is not deemed a holder in due coursebull Reasonable time what constitutes - regard is to behad to thea nature of the instrumentb the usage of trade or business with respect tosuch instruments and thec facts of the particular casebull Effect in the hands of any holder other than aholder in due course a negotiable instrument issubject to the same defenses as if it were nonnegotiable1048766 General Rule every holder is deemed prima facie to bea holder in due courseException when it is shown that the title of any personwho has negotiated the instrument was defective theburden is on the holder to prove that he or some personunder whom he claims acquired the title as holder in duecourse (shifting of burden of proof)Limitation the last-mentioned rule does not apply infavor of a party who became bound on the instrumentprior to the acquisition of such defective title (sec 59)1048766 Rights of a holder in due coursea he may sue on the instrument in his own nameb he may receive payment and if payment is in duecourse the instrument is dischargedc holds the instrument free from any defect of title ofprior partiesd holds the instrument free from defenses available toprior parties among themselves ande may enforce payment of the instrument for the fullamount thereof against all parties liable thereon1048766 Payment in due course is payment madea at or after the maturity of the instrumentb to the holder thereofc in good faith and without notice that his title isdefective1048766 Shelter Rulea derives his title through a holder in due course andb who is not himself a party to any fraud or illegalityaffecting the instrument has all the rights of suchformer holder in respect of all parties prior to thelatter1048766 Rights of a Holder NOT in Due Course1 He may sue on the instrument in his own name2 He may receive payment and if the payment is indue course the instrument is discharged3 He is entitled to the instrument but holds it subjectto the same defenses as if it were non-negotiableand4 He has all the rights of the holder in due course

from whom he derived his title in respect of allparties prior to such holder provided he is nothimself a party to any fraud or illegality affectingthe instrumentV LIABILITIES OF PARTIESPersons primarily liable on instrument the person who bythe terms of the instrument is absolutely required to pay thesame All other parties are secondarily liableClassification of parties according to liabilityIN A PROMISSORYNOTE1 Maker2 Indorser3 Persons negotiating by deliveryIN A BILL OFEXCHANGE1 Drawer2 Acceptor3 Indorsers4 Persons negotiating by delivery1 Parties Primarily Liablea Maker (Sec 60)bull engages to pay according to the tenor of theinstrument andbull admits the existence of the payee and his thencapacity to indorse at the time of the makingof the notebull A person placing his name on the face of a noteis prima facie a maker and liable as such andhe is presumed to have acted with care and tohave signed the instrument with full knowledgeof its contentsb Acceptor or Drawee (Sec 62)bull engages to pay according to the tenor of hisacceptancebull admits1 the existence of the drawer2 the genuineness of his signature and3 his capacity and authority to draw theinstrument and4 the existence of the payee and his thencapacity to indorseNote the drawee is not liable until he acceptsthe instrumentbull Where a check is certified by a bank it isequivalent to an acceptance Since certification isequivalent to acceptance a bank which hascertified a check whether at the request of theholder or of a drawer has the same liabilities andmakes the same warranties as an acceptor Itcannot after certification question thegenuineness of the drawerrsquos signature If itdiscovers that such signature is forged subsequentto certification but prior to payment it cannotrefuse to pay on the check If its discovery comesafter it has paid the check it cannot recoverback what it paid on the ground of mistakenpayment unless the holder is guilty of fraud ornegligencebull If a drawee-bank accepts or pays a check despitea stop payment order from the drawer throughoversight or otherwise it cannot refuse to paythe holder or recover what has been paid neithermay it debit the drawerrsquos account unless theacceptance nor payment was made prior to the

receipt of the order2 Parties Secondarily Liablea Drawer (Sec 61)bull admits the existence of the payee and hiscapacity to indorsebull engages that the instrument will be acceptedor paid by the party primarily liable andbull engages that if the instrument is dishonoredand proper proceedings are brought he willpay to the party entitled to be paidb General Indorser (Sec 66)bull Warrants1 genuineness of the instrument2 his good title to it3 capacity to contract of prior parties and4 instrument is valid and subsistingbull engages that the instrument will be acceptedor paid by the party primarily liable andbull engages that if the instrument is dishonoredand proper proceedings are taken he will payto the party entitled to be paidc Irregular Indorser ndash a person not otherwise a partyto an instrument places his signature thereon inblank before deliveryRulesbull If instrument payable to the order of a 3rdperson he is liable to the payee andsubsequent partiesbull If instrument payable to order of maker ordrawer he is liable to all parties subsequent tothe maker or drawerbull If he signs for accommodation of the payee heis liable to all parties subsequent to the payeeDistinctionsPRIMARY PARTY SECONDARY PARTY1 Unconditionally bound2Absolutely required topay upon the maturity ofthe instrument1 Conditionally bound2 Undertakes to pay onlyafter certain conditionshave been fulfilleda due presentment forpayment or acceptance toprimary partyb dishonor by suchparty andc the taking ofproceedings required bylaw after dishonorINDORSER DRAWER1 A party to either a noteor a bill2 Does not make anyadmission regarding theexistence of the payee andhis capacity to indorse and3 Has warranties1 A party only to a bill2 The drawer makes suchadmission3 Makes no warranties buthe engages to pay aftercertain conditions are

complied withGENERAL INDORSER IRREGULAR INDORSER1 Makes either a blank orspecial indorsement2 Indorses the instrumentafter its delivery to thepayee and3 Liable only to partiessubsequent to him1 Always makes a blankindorsement2 Indorses before itsdelivery3 Liable to the payee andsubsequent parties unlesshe signs for theaccommodation of thepayee in which case he isliable only to all partiessubsequent to the payee3 Parties with Limited Liability (sec 65 MetropolFinancing v Sambok 120 SCRA 864)a Qualified Indorser - warrants that1048766 instrument is genuine and in all respects whatit purports to be1048766 he has good title to it1048766 all prior parties had capacity to contract1048766 he has no knowledge of any fact which wouldimpair the validity of the instrument or renderit valuelessb Persons Negotiating by Delivery1048766 warranties same as those of qualified indorsersand1048766 warranties extend to immediate transfereeonlyLIABILITY WARRANTY1 To pay a sum certain2 Requires Notice ofDishonor3 Action can be broughtonly on maturity ofinstrument1 No obligation to pay2 Notice of Dishonor is not arequirement3 Action may be broughtanytimeBY MERE DELIVERY OR BYQUALIFIED INDORSEMENTGENERAL INDORSER1 No secondary liability1 With secondary liability2 Warrants that he has noknowledge of any factwhich would impair thevalidity of the instrumentor render it valueless2 Warrants that theinstrument is at the timeof his indorsement validand subsisting4 Other parties who may be liableGeneral Rule One whose signature does not appear on theinstrument shall not be liable thereonExceptions

1 The principal who signs through an agent is liable2 The forger is liable3 One who indorses in a separate instrument (allonge) isliable4 One who signs his assumed or trade name is liable and5 A person negotiating by delivery (as in the case of abearer instrument) is liable to his immediate indorseeRequisites for an Agent to escape liability1 must be duly authorized2 add words to his signature indicating that he signs as anagent that is for or on behalf of a principal or in arepresentative capacity and3 disclose his principal1048766 A signature by ldquoprocurationrdquo operates as notice that theagent has but a limited authority to sign and theprincipal is bound only in case the agent in so signingacted within the actual limits of his authority (sec 21)1048766 Indorsement or assignment of the NI by a corporation orby an infant passes the property thereinnotwithstanding that from want of capacity thecorporation or infant may incur no liability thereon(sec 22)Accomodation PartyOne who has signed the instrument as maker draweracceptor or indorser without receiving value therefor andfor the purpose of lending his name to some other person1048766 Liability such a person is liable on the instrument to aholder for value notwithstanding such holder at thetime of taking the instrument knew him to be only anaccommodation party1048766 Effects1 accommodation party is generally regarded as asurety for the party accommodated2 When accommodation party makes payment toholder of the note he has the right to sue theaccommodated party for reimbursement1048766 Rights of accommodation parties as against each otherthe other may demand contribution from his coaccommodationparty without first directing his actionagainst the principal debtor provided1 he made the payment by virtue of judicial demandor2 the principal debtor is insolventNote A corporation cannot act as an accommodationparty The issuance or indorsement of negotiableinstrument by a corporation without consideration andfor the accommodation of another is ultra vires(Crisologo v CA 117 SCRA 594)Order of liability of indorsers1 among themselves ndash indorsers are liable prima facie inthe order in which they indorse but evidence isadmissible to show that as between or amongthemselves they have agreed otherwise (sec 68)2 to the holder ndash indorsers are liable in any orderVI DEFENSESKinds1 RealAbsolute Defenses - those that attach to theinstrument itself and are available against all holderswhether in due course or notExamplesa Alterationb Non-delivery of incomplete instrumentc Duress amounting to forgeryd Fraud in factum or fraud in esse contractuse Minority

f Marriage in the case of a wifeg Insanity where the insane person has a guardianappointed by the courth Ultra vires acts of a corporation where thecorporation is absolutely prohibited by its charter orstatute from issuing any commercial paper underany circumstancesi Want of authority of agentj Execution of instrument between public enemiesk Illegality of contract where it is the contract orinstrument itself which is expressly made illegal bystatute andl Forgery2 PersonalEquitable Defenses ndash those which are availableonly against a person not a holder in due course or asubsequent holder who stands in privity with himExamplesa Absence or failure of consideration partial or totalb Want of delivery of complete instrumentc Insertion of wrong date in an instrument where it ispayable at a fixed period after date and it is issuedundated or where it is payable at a fixed periodafter sight and the acceptance is undatedd Filling up of blank contrary to authority given or notwithin reasonable time where the instrument isdeliverede Fraud in inducementf Acquisition of instrument by force duress or fearg Acquisition of the instrument by unlawful meansh Acquisition of the instrument for an illegalconsiderationi Negotiation in breach of faithj Negotiation under circumstances that amount tofraudk Mistakel Intoxication (according to better authority)m Ultra vires acts of corporations where thecorporation has the power to issue negotiable paperbut the issuance was not authorized for theparticular purpose for which it was issuedn Want of authority of agent where he haso apparent authorityp Insanity where there is no notice of insanity on thepart of the one contracting with the insane personandq Illegality of contract where the form orconsideration is illegalFRAUD IN FACTUM FRAUD IN INDUCEMENT1 It exists in those cases inwhich a person withoutnegligence has signed aninstrument which was infact a negotiableinstrument but wasdeceived as to thecharacter of the instrumentand without knowledge ofits as where a not wassigned by one under thebelief that he was signingas a witness to a deed1 It is that which relatedto the quality quantityvalue or character of theconsideration of the

instrument In this casethe signer is led bydeception to execute whathe knows is a negotiableinstrument It implies thatthe signer knew what hewas signing but that he wasinduced by fraud to sign2 This kind of fraud is areal defense because thereis no contract It impliesthat the person did notknow what he was signingBut where the signer by theexercise of reasonablediligence could havediscovered the nature ofthe instrument the fraudcannot be considered a realdefense as where a personwho can read signed a notebut failed to read it2 Such type of fraud is onlya personal defense becauseit does not prevent acontract1048766 Effects of Defenses1 Complete and undelivered instrumentbull as between immediate parties and as regards aremote party other than a holder in due course thedelivery must be authorized in order to be effectualbull where the instrument is in the hands of a holder indue course a valid delivery thereof by all partiesprior to him so as to make them liable to him isconclusively presumedbull where the instrument is no longer in the possessionof a party whose signature appears thereon a validand intentional delivery by him is presumed untilthe contrary is proved2 Incomplete but delivered instrumentbull where the instrument is wanting in any materialparticular the person in possession thereof has aprima facie authority to complete it by filling up theblanks thereinbull it must be filled up strictly in accordance with theauthority given and within a reasonable timebull if any such instrument after completion isnegotiated to a holder in due course it is valid andeffectual for all purposes in his hands and he mayenforce it as if it had been filled up strictly inaccordance with the authority given and within areasonable time3 Incomplete and undelivered instrumentbull it will not if completed and negotiated withoutauthority be a valid contract in the hands of anyholder as against any person whose signature wasplaced thereon before deliverybull However subsequent indorsers are liable4 Forgerybull counterfeit making or fraudulent alteration of anywriting which may consist of1 signing of anotherrsquos name with intent todefraud or2 alteration of an instrument in the nameamount name of payee etc with intent to

defraudbull Effect signature is wholly inoperative and no rightto retain the instrument or to give a dischargetherefore or to enforce payment thereof againstany party thereto can be acquired through or undersuch signaturebull Exception unless the party against whom it issought to enforce such right is precluded fromsetting up the forgery or want of authoritybull Cut-Off RuleGeneral Rule Parties prior to the forged signatureare cut-off from the parties after the forgery in thesense that prior parties cannot be held liable andcan raise the defense of forgery The holder canonly enforce the instrument against parties whobecame such after the forgeryException When the prior parties are precludedfrom setting up the defense of forgeryPersons precluded from setting up the defense offorgery are1 Those who by their acts silence or negligenceare estopped from setting up the defense offorgery2 Those who warrant or admit the genuineness ofthe signature in question These include acts oromissions that amount to ratification expressor impliedNote Persons precluded from setting up thedefense of forgery may still recover damages underthe NCC provisions on quasi-delictsbull Rules on ForgeryA Promissory Notes1 Makerrsquos signature forgedOrder Instrumenta Maker is not liable because he neverbecame a party to the instrumentb Indorsers subsequent to forgery are liablebecause of their warrantiesc Party who made the forgery is liableBearer Instrumenta Maker is not liableb Indorsers may be made liable to thosepersons who obtain title through theirindorsementsc Party who made the forgery is liable2 Payeersquos signature forgedOrder Instrumenta Maker and payee not liableb Indorsers subsequent to the forgery isliablec Party who made the forgery is liableBearer Instrumenta Maker is liable Indorsement is notnecessary to title and the maker engagesto pay holderb Party who made the forgery is liable3 Indorserrsquos signature forgedOrder Instrumenta Maker payee and indorser who signaturewas forged is not liableb Indorsers subsequent to forgery are liablebecause of their warrantiesc Party who made the forgery is liableBearer Instrumenta Maker is liable Indorsement is not

necessary to title and the maker engagesto pay holderb Indorser whose signature was forged is notliablec Party who made the forgery is liableB Bill of Exchange1 Drawerrsquos signature forgedIn an Order Instrumenta Drawer is not liableb Drawee is liable if it paid (nor recourse todrawer) because he admitted thegenuineness of the drawerrsquos signatureDrawee cannot recover from the collectingbank because there is no privity betweenthe collecting bank and the drawer Thereis no warranty as to the signature of thedrawer (Associated Bank v CA)c Indorsers subsequent to forgery are liabled Party who made the forgery is liableIn a Bearer Instrumenta Drawer is not liableb Drawee is liable if it paid Drawee cannotrecover from the collecting bank becauseit is bound to known the drawerrsquossignature since the latter is its depositorc Party who made the forgery is liable2 Payeersquos signature forgedOrder Instrumenta Drawer drawee and payee not liable Cutoffrule appliesb Indorsers subsequent to forgery are liablec Party who made the forgery is liableBearer Instrumenta Drawer is liable His indorsement is notnecessary to pass titleb Drawee is liable No privity betweendrawer and payee because indorsement ofpayee is not necessary (Ang Tek Lian case87 SCRA 383)c Payee is not liabled Collecting bank is liable because ofwarrantye Party who made the forgery is liable3 Indorserrsquos signature forgedOrder Instrumenta Drawer payee and indorser whosesignature was forged are not liableb Drawee is liable if it paidc Indorsers subsequent to forgery are liabled Party who made the forgery is liableBearer Instrumenta Drawer is liable Indorsement is notnecessary to pass titleb Drawee is liablec Indorser whose signature was forged isliable because indorsement is notnecessary to pass titled Party who made the forgery is liable5 Alterationbull Effect the instrument is avoidedbull Exceptions1 against a party who has himself madeauthorized or assented to the alteration2 subsequent indorsers3 holder in due course not a party to the

alteration - he may enforce payment accordingto its original tenorbull Changes constituting material alteration1 date2 sum payable either for principal or interest3 time or place of payment4 number or relations of the parties5 medium or currency in which payment is to bemade6 that which adds a place of payment where noplace of payment is specified and7 any other change or addition which alters theeffect of the instrument in any respectNote a material alteration is one that alters theeffect of the instrument one which changes theitems required to be stated under Sec 1 NILbull Spoliation ndash alteration made by a strangerbull The general rule denies the drawee bankrsquos right tocharge against the drawerrsquos account the amount ofan altered check However the latterrsquos negligencebefore or after the alteration may estop him fromsetting such alteration as against an innocentdrawee bank who has paid the checkbull In cases of altered checks and checks with forgedindorsements the drawee bank must notify andreturn them to the collecting bank before 400 pmof the next day of clearing but the drawee bankmay still return them even after such time providedhe does so within 24 hours from its discovery of thealteration or forged instruments so that recovery ofthe amount may be had BUT in no event beyondthe period fixed or provided by law for filing of alegal action by the returning bank against the banksending the sameNote Alteration is only a partial real defensebecause a holder in due course can still enforce itaccording to its original tenorVII ENFORCEMENT OF LIABILITYPresentment for payment ndash the presentation of aninstrument to the person primarily liable for the purpose ofdemanding and receiving paymentGeneral Rulesbull presentment for payment to charge personsprimarily liable is not necessarybull presentment for payment to charge personssecondarily liable is necessaryExceptionsa drawer - where he has no right to expect or requirethat the drawee or acceptor will pay the instrument(sec 79)b indorser - where the instrument was made oraccepted for his accommodation and he has noreason to expect that the instrument will be paid ifpresentedc when dispensedi where after the exercise of reasonablediligence presentment as required cannotbe madeii where the drawee is a fictitious personiii by waiver of presentment express orimplied (sec 82)d when the instrument has been dishonored by nonacceptance(sec 151)Sufficiency of presentmentIt must be

1 made by the holder or any person authorized toreceive payment on his behalf2 at a reasonable hour on a business day3 at a proper place4 to the person primarily liable or if he is absent orinaccessible to any person found at the placewhere the presentment is madeHow made1 personal demand for payment at the proper place and2 readiness to exhibit the instrument if required and toreceive payment and to surrender the instrument if thedebtor is willing to paybull Purpose of exhibitionTo enable the debtor toa determine the genuineness of the instrument andthe right of the holder to receive payment andb to enable him to reclaim possession upon paymentbull When exhibition excuseda when debtor does not demand to see the instrumentbut refuses payment on some other grounds andb when the instrument is lost or destroyedWhen madebull where the instrument is payable at a fixed ordeterminable future time presentment must be madeon the day it falls duebull where it is payable on demanda promissory note presentment must be made withina reasonable time after its issueb bill of exchange presentment for payment will besufficient if made within a reasonable time afterthe last negotiation thereofbull the check must be presented for payment within areasonable time after its issue or the drawer will bedischarged from liability thereon to the extent of theloss caused by the delayTime of maturitybull every negotiable instrument is payable at the time fixedtherein without gracebull when the day of maturity falls upon a Sunday or aholiday the instruments are to be presented forpayment on the next succeeding business daybull when the day of maturity falls upon a Saturday1048766 Instrument is payable at a fixed or determinablefuture time (time instrument) - presented forpayment is on the next succeeding business day1048766 instruments is payable on demand - at the option ofthe holder be presented for paymenta before 1200 noon on Saturday whenthat entire day is not a holiday orb the next succeeding business dayHow computed1048766 excluding the day from which the time is to begin torun and by including the date of payment1048766 applies to instruments which are payable at a fixedperiod after date after sight or after thathappening of a specified eventProper place for presentmenta Where a place of payment is specified in the instrumentand it is there presentedb Where no place of payment is specified but the addressof the person to make payment is given in theinstrument and it is there presentedc Where no place of payment is specified and no address isgiven and the instrument is presented at the usual placeof business or residence of the person to make payment

d In any other case if presented to the person to makepayment wherever he can be found or if presented athis last known place of business or residenceWhen delay in presentment excused ndash delay is caused bycircumstances beyond the control of the holder and notimputable to his default misconduct or negligence Whenthe cause of delay ceases to operate presentment must bemade with reasonable diligencePresentment for acceptance ndash the production or exhibitionof a bill of exchange to the drawee for his acceptance orpaymentGeneral Rule presentment for acceptance is not necessary torender any party to the bill liableException presentment for acceptance must be madea Where the bill is payable after sight or wherepresentment for acceptance is necessary in order tofix the maturity of the instrument orb Where the bill expressly stipulates that it shall bepresented for acceptance orc Where the bill is drawn payable elsewhere then atthe residence or place of business of the drawee(sec 143)Note in all the above cases the holder must either presentthe bill for acceptance or negotiate it within a reasonabletime otherwise the drawer and all indorsers are dischargedHow made1 made by or on behalf of the holder2 at a reasonable hour3 on a business day4 before the bill is overdue and within reasonabletime5 to the drawee or some person authorized to acceptor refuse acceptance on his behalfDays presentment may be made If date of presentment isa Sunday or a holiday ndash must be made on the nextsucceeding business dayb Saturday ndash before 1200 noon on Saturday providedthat it is not a holidayWhen delay for presentment excuseda bill is drawn payable elsewhere than at the place ofbusiness or the residence of the draweeb holder has no time with the exercise of reasonablediligence to present the bill for acceptance beforepresenting it for payment on the day that it fallsdueEffect does not discharge the drawers and indorsersWhere presentment is excuseda Where the drawee is dead or has absconded or is afictitious person or a person not having capacity tocontract by billb Where presentment can not be made after theexercise of reasonable diligencec Where although presentment has been irregularacceptance has been refused on some other groundNote bill may be treated as dishonored by nonacceptanceDuty of holder where bill not accepted - where a bill isduly presented for acceptance and is not accepted within theprescribed time (24 hours ndash sec 136) the person presentingit must treat the bill as dishonored by non-acceptance or heloses the right of recourse against the drawer and indorsersAcceptance the signification by the drawee of his assent tothe order of the drawer It is the act by which the draweemanifests his consent to comply with the request containedin the bill of exchange directed to himHow made

1) must be in writing2) signed by the drawee3) must not express that the drawee will perform hispromise by any other means than the payment ofmoneybull the holder of the bill presenting the same for acceptancemay require that the acceptance be written on the billand if such request is refused may treat the bill asdishonoredbull where an acceptance is written on a paper other thanthe bill itself it does not bind the acceptor except infavor of a person to whom it is shown and who on thefaith thereof receives the bill for valuePeriod for drawee to accept - allowed 24 hours afterpresentment in which to decide whether or not he will acceptthe bill if acceptance is given it dates as of the day ofpresentationConstructiveImplied acceptance where a drawee refuseswithin 24 hours after delivery or within such other period asthe holder may allow to return the bill accepted or nonacceptedto the holder he will be deemed to have acceptedthe sameNote same effect if the drawee destroys the instrumentKinds1 General - assents without qualification to the order ofthe drawer2 Qualified - which in express terms varies the effect ofthe bill as drawna Conditional - makes payment by the acceptordependent on the fulfillment of a conditiontherein statedb Partial - an acceptance to pay part only of theamount for which the bill is drawni Local - an acceptance to pay only at aparticular placeii Qualified as to timeiii The acceptance of some one or more ofthe drawees but not of all3 ConstructiveRights of parties as to qualified acceptancebull Holder he may refuse to take a qualified acceptanceand if he does not obtain an unqualified acceptance hemay treat the bill as dishonored by non-acceptancebull Drawer or indorser when he receives notice of aqualified acceptance he must within a reasonable timeexpress his dissent to the holder or he will be deemed tohave assented thereto (implied assent)Effect of taking a qualified acceptance the drawer andindorsers are discharged from liability on the bill unless theyhave expressly or impliedly authorized the holder to take aqualified acceptance or subsequently assent theretoOther rules of acceptancebull a bill may be accepted before it has been signed by thedrawer or while otherwise incomplete or when it isoverdue or after it has been dishonored by a previousrefusal to accept or by non paymentbull when a bill payable after sight is dishonored by nonacceptanceand the drawee subsequently accepts it theholder in the absence of any different agreement isentitled to have the bill accepted as of the date of thefirst presentmentbull an unconditional promise in writing to accept a billbefore it is drawn is deemed an actual acceptancein favor of every person who upon the faiththereof receives the bill for value

bull where a check is certified by the bank on which it isdrawn the certification is equivalent to anacceptanceEffect the drawer and all indorsers are dischargedfrom liability thereonAcceptance for Honor - an undertaking by a stranger to a billafter protest for the benefit of any party liable thereon or forthe honor of the person for whose account the bill is drawnwhich acceptance inures also to the benefit of all partiessubsequent to the person for whose honor it is accepted andconditioned to pay the bill when it becomes due if theoriginal drawee does not pay it1048766 Requisites1 the bill must have been protested for dishonorby non-acceptance or for better security2 the acceptor for honor must be a stranger andnot a party already liable on the instrument3 bill must not be overdue4 acceptance for honor must be with the consentof the holder of the instrument1048766 Formalities1 must be in writing2 must indicate that it is an acceptance forhonor3 signed by the acceptor for honor4 must contain an express or implied promise topay money5 the accepted bill for honor must be deliveredto the holderNotice of Dishonor - notice given by the holder or his agentto a party or parties secondarily liable that the instrumentwas dishonored by non-acceptance by the drawee of a bill orby non-payment by the acceptor of a bill or by non-paymentby a maker of a note- If such notice is given by a notary public it is calledPROTEST1048766 Effect of failure to give notice parties secondarily liableare discharged1048766 Requisites1 Given by holder or his agent or by any party whomay be compelled by the holder to pay2 Given to secondary party or his agent3 Given within the periods provided by law4 Given at the proper place1048766 When notice of dishonor dispensed with1 when party to be notified knows about the dishonoractually or constructively2 if waived and3 when after due diligence it cannot be given1048766 How given1 by bringing verbally or2 by writing to the knowledge of the person liable thefact that a specified instrument upon properproceedings taken has not been accepted or hasnot been paid and that the party notified isexpected to pay it1048766 To whom given1 Non-acceptance (bill) ndash to persons secondarilyliable namely the drawer and indorsers as the casemay be2 Non-payment (both bill and note) ndash indorsersNote Notice must be given to persons secondarilyliable Otherwise such parties are dischargedNotice may be given to the party himself or to hisagent

1048766 By whom given1 the holder2 another on behalf of the holder3 any party to the instrument who may be compelledto pay it to the holder and who would have a rightof reimbursement from the party to whom notice isgiven1048766 Notice of dishonor given by or on behalf of a holderinures to the benefit ofa all parties prior to the holder who have a rightof recourse against the party to whom thenotice is given andb all holders subsequent to the holder givingnotice1048766 Notice of dishonor given by or on behalf of a partyentitled to give notice inures to the benefit ofa the holder andb all parties subsequent to the party to whomnotice is given1048766 Where an instrument is dishonored in the hands of anagent he can do either of the ffa directly give notice to persons secondarilyliable thereon orb give notice to his principal In such case hemust give notice within the time allowed bylaw as if he were a holder1048766 A party giving notice is deemed to have given due noticewherea the notice of dishonor is duly addressed andb deposited in the post-office even when thereis miscarriage of mail1048766 Where a party receives notice of dishonor he has afterthe receipt of such notice the same time for givingnotice to antecedent parties that the holder has afterthe dishonor1048766 Notice may be waived either before the time of givingnotice or after the omission to give due notice Waivermay be expressed or implied1048766 As to who are affected by an express waiver depends onwhere the waiver is written1 if it appears in the body or on the face of theinstrument it binds all parties but2 if it is written above the signature of anindorser it binds him only1048766 Notice of dishonor is not required to be given to thedrawer in any of the ff cases1 drawer and drawee are the same2 drawee is a fictitious person or not having thecapacity to contract3 drawer is the person to whom the instrument ispresented for payment4 the drawer has no right to expect or requirethat the drawee or acceptor will honor theinstrument5 where the drawer has countermandedpayment1048766 Notice of dishonor is not required to be given to anindorser in the ff cases1 drawee is a fictitious person or does not havethe capacity to contract and indorser wasaware of that fact at the time he indorsed theinstrument2 indorser is the person to whom the instrumentis presented for payment3 instrument was made or accepted for his

accommodation1048766 If an instrument is not accepted by the drawee there isno sense presenting it again for payment and notice ofdishonor must at once be given If there wasacceptance presentment for payment is still requiredand if payment is refused there is a need for notice ofdishonor1048766 An omission to give notice of dishonor by non-acceptancedoes not prejudice the rights of a holder in due coursesubsequent to the omissionDishonor by Non-PaymentWhen instrument dishonored by non-paymenta it is duly presented for payment and payment isrefused or cannot be obtained orb presentment is excused and the instrument isoverdue and unpaidEffect of dishonor an immediate right of recourse to allparties secondarily liable thereon accrues to the holderDishonor by Non-AcceptanceInstancesa When it is duly presented for acceptance and suchan acceptance is refused or can not be obtained orb When presentment for acceptance is excused andthe bill is not accepted (sec 149)Effect an immediate right of recourse against thedrawer and indorsers accrues to the holder and nopresentment for payment is necessaryNote where a bill is duly presented for acceptance andis not accepted within the prescribed time (24 hours)the person presenting it must treat the bill as dishonoredby non-acceptanceWhen Instrument Considered to be Dishonoreda If it is not accepted when presented for acceptanceorb If it is not paid when presented for payment atmaturity orc If presentment is excused or waived and theinstrument is past due and unpaidProtest - the formal instrument executed usually by a notarypublic certifying that the legal steps necessary to fix theliability of the drawee and the indorsers have been taken1048766 Effect of waiver where protest is waived presentmentand notice of dishonor are also deemed waived Butwhere the notice of dishonor is waived presentment isnot waived1048766 Applicability protest is necessary only in case of foreignbills of exchange which have been dishonored by nonacceptanceor non-payment as the case may be If it isnot so protested the drawer and indorsers aredischarged1048766 Foreign Bill of Exchange1 Drawn in the Philippines but payable outside thePhilippines2 Payable in the Philippines but drawn outside thePhilippines1048766 Protest may be made by1 a notary public or2 any respectable resident of the place where the billis dishonored in the presence of 2 or more crediblewitnessesProtest for better security is one made by the holder of a billafter it has been accepted but before it matures against thedrawer and indorsers where the acceptor has been adjudgeda bankrupt or an insolvent or has made an assignment forthe benefit of the creditors

VIII DISCHARGEDischarge of instrument - a release of all parties whetherprimary or secondary from the obligations arisingthereunder It renders the instrument without force andeffect and consequently it can no longer be negotiatedInstances1 By payment in due course by or on behalf of theprincipal debtor2 Payment by accommodated party3 Intentional cancellation by the holder4 By any act which will discharge a simple contractfor the payment of money5 When the principal debtor becomes the holder ofthe instrument at or after maturity in his own rightBy any act which would discharge a simple contract1 Payment or performance2 Loss of the thing due3 Condonation or remission4 Confusion or Merger5 Compensation6 Novation7 Annulment or Rescission8 Fulfillment of a resolutory condition9 PrescriptionWhen persons secondarily liable on the instrument aredischarged1 By any act which discharges the instrument2 By the intentional cancellation of his signature bythe holder3 By the discharge of a prior party4 By a valid tender of payment made by a prior party5 By the release of the principal debtor unless theholderrsquos right of recourse against the partysecondarily liable is expressly reserved6 By any agreement binding upon the holder to extendthe time of payment or to postpone the holderrsquosright to enforce the instrument1048766 In the following cases the agreement to extend the timeof payment does not discharge a party secondarily liable1 where the extension of time is consented to by suchparty2 where the holder expressly reserves his right ofrecourse against such party1048766 Payment at or after maturity by a party secondarilyliable does not discharge the instrument It only cancelshis own liability and that of the parties subsequent tohimEffects of Renunciation1 A renunciation in favor of a secondary party may bemade by the holder before at or after maturity ofthe instrument Effect only such secondary party isdischarged and all parties subsequent to him but theinstrument itself remains in force2 A renunciation in favor of the principal debtor maybe effected at or after maturity Effect theinstrument is discharged and all parties theretoprovided the renunciation is made unconditionallyand absolutelyNote In either case renunciation does not affect therights of a holder in due course without notice1048766 Cancellation of an instrument includes tearing erasureobliteration or burning It is not limited to writing ofthe word lsquocancelledrdquo or ldquopaidrdquo or drawing of crisscrosslines across the instrumentPayment for Honor - payment made by a person whether a

party to the bill or not after it has been protested for nonpaymentfor the benefit of any party liable thereon or forthe benefit of the person for whose account it was drawn1048766 Requisites1 the bill has been dishonored by non-payment2 it has been protested for non-payment3 payment supra protest (another term for paymentfor honor because prior protest for non-payment isrequired) is made by any person even by a partythereto4 the payment is attested by a notarial act of honorwhich must be appended to the protest or form anextension of it5 the notarial act must be based on the declarationmade by the payor for honor or his agent of hisintention to pay the bill for honor and for whosehonor he paysNote If the above formalities are not complied withpayment will operate as a mere voluntary payment andthe payor will acquire no right to full reimbursementagainst the party for whose honor he pays1048766 In payment for honor the payee cannot refuse paymentIf he refuses he cannot recover from the parties whowould have been discharged had he accepted the sameIn acceptance for honor the holderrsquos consent isnecessary1048766 The payor for honor is given the right to receive both thebill and the protest obviously to enable him to enforcehis rights against the parties who are liable to himIX CHECKSCheck- a bill of exchange drawn on a bank payable ondemandCheck distinguished from and ordinary bill of exchangeBILLOF EXCHANGE CHECKNot necessarily drawnon a deposit The draweeneed not be a bankIt is necessary that a checkis drawn on a bank depositThe drawee is always abankDeath of a drawer of aBOE with the knowledgeof the bank does notrevoke the authority of thedrawee to payDeath of the drawer of acheck with the knowledgeof the bank revokes theauthority of the banker topayMay be presented forpayment within areasonable time after itslast negotiation because itmay be further negotiatedMust be presented forpayment within areasonable time after itsissueMay be payable on demandor at a fixed ordeterminable future timeAlways payable on demandKinds of checks

1 Managerrsquos Cashierrsquos Check ndash drawn by a bank on itselfand therefore it is a primary obligation of the banko It is accepted in advance by the act of itsissuance and is not subject tocountermand by the payor afterindorsemento The bankrsquos manager signs managerrsquos checkwhile cashierrsquos check is signed by the bankcashier2 Certified Check ndash one drawn by a depositor upon funds tohis credit in a bank which a proper officer of the bankcertifies will be paid when duly presented for payment3 Stale check ndash one which has not been presented forpayment within a reasonable time after its issue4 Crossed check ndash when 2 parallel lines are drawn acrossits face or across a corner thereof If the name of a bankappears between the parallel lines the check is said tobe specially crossed and payment should be made onlyif presented by the named bank If no name appearsbetween the parallel lines the check is said to begenerally crossed and payment should be made onlyupon presentment by some bankEffects of crossing a checka That the check may not be encashed but only bedeposited in the bankb That the check may be negotiated only once to onewho has an account with a bank andc That the act of crossing the check serves as awarning to the holder that the check has beenissued for a definite purpose so that he must inquireif he has received the check pursuant to thatpurpose5 Memorandum Check ndash it is like an ordinary check exceptthat the word ldquomemorandumrdquo ldquomemrdquo or ldquomemordquo iswritten upon the face of the check signifying that thedrawer engages to pay the bona fide holder absolutelyand not upon a condition to pay upon presentment atmaturity and if due notice of the presentment and nonpaymentshould be given6 Travelerrsquos check ndash one upon which the holderrsquos signaturemust appear twice one to be affixed by him at the timeit is issued and the second o counter-signature to beaffixed by him in the presence of the payee before it ispaid otherwise it is incompleteIron Clad Rule Prohibits the countermanding ofpayment of certified checks (Republic of the Philippinesv PNB GR No 16106 December 1 1961)

Note The rule only applies to originally bearerinstruments If it is originally a BEARER instrumentit will always be a BEARER instrument As opposedto an original order instrument becoming payable tobearer if the same is indorsed specifically it canNO LONGER be negotiated further by mere deliveryit has to be indorsedbull Striking out indorsements the holder may at anytime strike out any indorsement which is notnecessary to his title The indorser whoseindorsement is struck out and all indorserssubsequent to him are thereby relieved fromliability on the instrument1048766 If the instrument is payable to bearer on its facethen whether or not there are indorsements on theback of the instrument would be immaterial to thetitle of the bearer who is presumptively the ownerand holder by his mere possession of suchinstrument None of the indorsement would benecessary to itrsquos title since mere delivery wouldhave been sufficient to transfer title from oneholder to another1048766 Where the instrument is payable to order on itsface the situation is different First theindorsement of a special indorsee is necessary forthe further negotiation of the instrument Secondthe last indorsement controls the method of furthernegotiationbull When prior party (reacquirer) may negotiate where aninstrument is negotiated back to a prior party suchparty may reissue and further negotiate the same Buthe is not entitled to enforce payment thereof againstany intervening party to whom he was personally liable1048766 In the following cases a prior party cannot furthernegotiate the instrument1 Where it is payable to the order of a thirdperson and has been paid by the drawer2 Where it was made or accepted foraccommodation and has been paid by theparty accommodated3 In other cases where the instrument isdischarged when acquired by a prior partyIV HOLDERSClasses of holders1 simple holder (sec 51)2 holder for value (sec 26)3 holder in due course (sec52 57)Holder in Due Course1048766 holder who has taken the instrument under the followingconditionsa That it is complete and regular upon its faceb That he became the holder of it before it wasoverdue and without notice that it has beenpreviously dishonored if such was the factc That he took it in good faith and for valued That at the time it was negotiated to him he hadno notice of any infirmity in the instrument ordefect in the title of the person negotiating it1048766 When title defective - The title of a person whonegotiates an instrument is defective when he obtainedthe instrument or any signature thereto bya fraudb duress or force and fearc other unlawful meansd illegal consideration

e negotiation in breach of faithf circumstances amounting to fraud1048766 What constitutes notice of defect - The person towhom it is negotiated must havea actual knowledge of the infirmity or defect orb knowledge of such facts that his action in taking theinstrument amounted to bad faith (sec 56)1048766 Notice before full amount is paid - where thetransferee receives notice of any infirmity in theinstrument or defect in the title of the personnegotiating the same before he has paid the full amountagreed to be paid he will be deemed a holder in duecourse only to the extent of the amount paid by him1048766 When person not deemed a holder in due course -where an instrument payable on demand is negotiatedon an unreasonable length of time after its issue theholder is not deemed a holder in due coursebull Reasonable time what constitutes - regard is to behad to thea nature of the instrumentb the usage of trade or business with respect tosuch instruments and thec facts of the particular casebull Effect in the hands of any holder other than aholder in due course a negotiable instrument issubject to the same defenses as if it were nonnegotiable1048766 General Rule every holder is deemed prima facie to bea holder in due courseException when it is shown that the title of any personwho has negotiated the instrument was defective theburden is on the holder to prove that he or some personunder whom he claims acquired the title as holder in duecourse (shifting of burden of proof)Limitation the last-mentioned rule does not apply infavor of a party who became bound on the instrumentprior to the acquisition of such defective title (sec 59)1048766 Rights of a holder in due coursea he may sue on the instrument in his own nameb he may receive payment and if payment is in duecourse the instrument is dischargedc holds the instrument free from any defect of title ofprior partiesd holds the instrument free from defenses available toprior parties among themselves ande may enforce payment of the instrument for the fullamount thereof against all parties liable thereon1048766 Payment in due course is payment madea at or after the maturity of the instrumentb to the holder thereofc in good faith and without notice that his title isdefective1048766 Shelter Rulea derives his title through a holder in due course andb who is not himself a party to any fraud or illegalityaffecting the instrument has all the rights of suchformer holder in respect of all parties prior to thelatter1048766 Rights of a Holder NOT in Due Course1 He may sue on the instrument in his own name2 He may receive payment and if the payment is indue course the instrument is discharged3 He is entitled to the instrument but holds it subjectto the same defenses as if it were non-negotiableand4 He has all the rights of the holder in due course

from whom he derived his title in respect of allparties prior to such holder provided he is nothimself a party to any fraud or illegality affectingthe instrumentV LIABILITIES OF PARTIESPersons primarily liable on instrument the person who bythe terms of the instrument is absolutely required to pay thesame All other parties are secondarily liableClassification of parties according to liabilityIN A PROMISSORYNOTE1 Maker2 Indorser3 Persons negotiating by deliveryIN A BILL OFEXCHANGE1 Drawer2 Acceptor3 Indorsers4 Persons negotiating by delivery1 Parties Primarily Liablea Maker (Sec 60)bull engages to pay according to the tenor of theinstrument andbull admits the existence of the payee and his thencapacity to indorse at the time of the makingof the notebull A person placing his name on the face of a noteis prima facie a maker and liable as such andhe is presumed to have acted with care and tohave signed the instrument with full knowledgeof its contentsb Acceptor or Drawee (Sec 62)bull engages to pay according to the tenor of hisacceptancebull admits1 the existence of the drawer2 the genuineness of his signature and3 his capacity and authority to draw theinstrument and4 the existence of the payee and his thencapacity to indorseNote the drawee is not liable until he acceptsthe instrumentbull Where a check is certified by a bank it isequivalent to an acceptance Since certification isequivalent to acceptance a bank which hascertified a check whether at the request of theholder or of a drawer has the same liabilities andmakes the same warranties as an acceptor Itcannot after certification question thegenuineness of the drawerrsquos signature If itdiscovers that such signature is forged subsequentto certification but prior to payment it cannotrefuse to pay on the check If its discovery comesafter it has paid the check it cannot recoverback what it paid on the ground of mistakenpayment unless the holder is guilty of fraud ornegligencebull If a drawee-bank accepts or pays a check despitea stop payment order from the drawer throughoversight or otherwise it cannot refuse to paythe holder or recover what has been paid neithermay it debit the drawerrsquos account unless theacceptance nor payment was made prior to the

receipt of the order2 Parties Secondarily Liablea Drawer (Sec 61)bull admits the existence of the payee and hiscapacity to indorsebull engages that the instrument will be acceptedor paid by the party primarily liable andbull engages that if the instrument is dishonoredand proper proceedings are brought he willpay to the party entitled to be paidb General Indorser (Sec 66)bull Warrants1 genuineness of the instrument2 his good title to it3 capacity to contract of prior parties and4 instrument is valid and subsistingbull engages that the instrument will be acceptedor paid by the party primarily liable andbull engages that if the instrument is dishonoredand proper proceedings are taken he will payto the party entitled to be paidc Irregular Indorser ndash a person not otherwise a partyto an instrument places his signature thereon inblank before deliveryRulesbull If instrument payable to the order of a 3rdperson he is liable to the payee andsubsequent partiesbull If instrument payable to order of maker ordrawer he is liable to all parties subsequent tothe maker or drawerbull If he signs for accommodation of the payee heis liable to all parties subsequent to the payeeDistinctionsPRIMARY PARTY SECONDARY PARTY1 Unconditionally bound2Absolutely required topay upon the maturity ofthe instrument1 Conditionally bound2 Undertakes to pay onlyafter certain conditionshave been fulfilleda due presentment forpayment or acceptance toprimary partyb dishonor by suchparty andc the taking ofproceedings required bylaw after dishonorINDORSER DRAWER1 A party to either a noteor a bill2 Does not make anyadmission regarding theexistence of the payee andhis capacity to indorse and3 Has warranties1 A party only to a bill2 The drawer makes suchadmission3 Makes no warranties buthe engages to pay aftercertain conditions are

complied withGENERAL INDORSER IRREGULAR INDORSER1 Makes either a blank orspecial indorsement2 Indorses the instrumentafter its delivery to thepayee and3 Liable only to partiessubsequent to him1 Always makes a blankindorsement2 Indorses before itsdelivery3 Liable to the payee andsubsequent parties unlesshe signs for theaccommodation of thepayee in which case he isliable only to all partiessubsequent to the payee3 Parties with Limited Liability (sec 65 MetropolFinancing v Sambok 120 SCRA 864)a Qualified Indorser - warrants that1048766 instrument is genuine and in all respects whatit purports to be1048766 he has good title to it1048766 all prior parties had capacity to contract1048766 he has no knowledge of any fact which wouldimpair the validity of the instrument or renderit valuelessb Persons Negotiating by Delivery1048766 warranties same as those of qualified indorsersand1048766 warranties extend to immediate transfereeonlyLIABILITY WARRANTY1 To pay a sum certain2 Requires Notice ofDishonor3 Action can be broughtonly on maturity ofinstrument1 No obligation to pay2 Notice of Dishonor is not arequirement3 Action may be broughtanytimeBY MERE DELIVERY OR BYQUALIFIED INDORSEMENTGENERAL INDORSER1 No secondary liability1 With secondary liability2 Warrants that he has noknowledge of any factwhich would impair thevalidity of the instrumentor render it valueless2 Warrants that theinstrument is at the timeof his indorsement validand subsisting4 Other parties who may be liableGeneral Rule One whose signature does not appear on theinstrument shall not be liable thereonExceptions

1 The principal who signs through an agent is liable2 The forger is liable3 One who indorses in a separate instrument (allonge) isliable4 One who signs his assumed or trade name is liable and5 A person negotiating by delivery (as in the case of abearer instrument) is liable to his immediate indorseeRequisites for an Agent to escape liability1 must be duly authorized2 add words to his signature indicating that he signs as anagent that is for or on behalf of a principal or in arepresentative capacity and3 disclose his principal1048766 A signature by ldquoprocurationrdquo operates as notice that theagent has but a limited authority to sign and theprincipal is bound only in case the agent in so signingacted within the actual limits of his authority (sec 21)1048766 Indorsement or assignment of the NI by a corporation orby an infant passes the property thereinnotwithstanding that from want of capacity thecorporation or infant may incur no liability thereon(sec 22)Accomodation PartyOne who has signed the instrument as maker draweracceptor or indorser without receiving value therefor andfor the purpose of lending his name to some other person1048766 Liability such a person is liable on the instrument to aholder for value notwithstanding such holder at thetime of taking the instrument knew him to be only anaccommodation party1048766 Effects1 accommodation party is generally regarded as asurety for the party accommodated2 When accommodation party makes payment toholder of the note he has the right to sue theaccommodated party for reimbursement1048766 Rights of accommodation parties as against each otherthe other may demand contribution from his coaccommodationparty without first directing his actionagainst the principal debtor provided1 he made the payment by virtue of judicial demandor2 the principal debtor is insolventNote A corporation cannot act as an accommodationparty The issuance or indorsement of negotiableinstrument by a corporation without consideration andfor the accommodation of another is ultra vires(Crisologo v CA 117 SCRA 594)Order of liability of indorsers1 among themselves ndash indorsers are liable prima facie inthe order in which they indorse but evidence isadmissible to show that as between or amongthemselves they have agreed otherwise (sec 68)2 to the holder ndash indorsers are liable in any orderVI DEFENSESKinds1 RealAbsolute Defenses - those that attach to theinstrument itself and are available against all holderswhether in due course or notExamplesa Alterationb Non-delivery of incomplete instrumentc Duress amounting to forgeryd Fraud in factum or fraud in esse contractuse Minority

f Marriage in the case of a wifeg Insanity where the insane person has a guardianappointed by the courth Ultra vires acts of a corporation where thecorporation is absolutely prohibited by its charter orstatute from issuing any commercial paper underany circumstancesi Want of authority of agentj Execution of instrument between public enemiesk Illegality of contract where it is the contract orinstrument itself which is expressly made illegal bystatute andl Forgery2 PersonalEquitable Defenses ndash those which are availableonly against a person not a holder in due course or asubsequent holder who stands in privity with himExamplesa Absence or failure of consideration partial or totalb Want of delivery of complete instrumentc Insertion of wrong date in an instrument where it ispayable at a fixed period after date and it is issuedundated or where it is payable at a fixed periodafter sight and the acceptance is undatedd Filling up of blank contrary to authority given or notwithin reasonable time where the instrument isdeliverede Fraud in inducementf Acquisition of instrument by force duress or fearg Acquisition of the instrument by unlawful meansh Acquisition of the instrument for an illegalconsiderationi Negotiation in breach of faithj Negotiation under circumstances that amount tofraudk Mistakel Intoxication (according to better authority)m Ultra vires acts of corporations where thecorporation has the power to issue negotiable paperbut the issuance was not authorized for theparticular purpose for which it was issuedn Want of authority of agent where he haso apparent authorityp Insanity where there is no notice of insanity on thepart of the one contracting with the insane personandq Illegality of contract where the form orconsideration is illegalFRAUD IN FACTUM FRAUD IN INDUCEMENT1 It exists in those cases inwhich a person withoutnegligence has signed aninstrument which was infact a negotiableinstrument but wasdeceived as to thecharacter of the instrumentand without knowledge ofits as where a not wassigned by one under thebelief that he was signingas a witness to a deed1 It is that which relatedto the quality quantityvalue or character of theconsideration of the

instrument In this casethe signer is led bydeception to execute whathe knows is a negotiableinstrument It implies thatthe signer knew what hewas signing but that he wasinduced by fraud to sign2 This kind of fraud is areal defense because thereis no contract It impliesthat the person did notknow what he was signingBut where the signer by theexercise of reasonablediligence could havediscovered the nature ofthe instrument the fraudcannot be considered a realdefense as where a personwho can read signed a notebut failed to read it2 Such type of fraud is onlya personal defense becauseit does not prevent acontract1048766 Effects of Defenses1 Complete and undelivered instrumentbull as between immediate parties and as regards aremote party other than a holder in due course thedelivery must be authorized in order to be effectualbull where the instrument is in the hands of a holder indue course a valid delivery thereof by all partiesprior to him so as to make them liable to him isconclusively presumedbull where the instrument is no longer in the possessionof a party whose signature appears thereon a validand intentional delivery by him is presumed untilthe contrary is proved2 Incomplete but delivered instrumentbull where the instrument is wanting in any materialparticular the person in possession thereof has aprima facie authority to complete it by filling up theblanks thereinbull it must be filled up strictly in accordance with theauthority given and within a reasonable timebull if any such instrument after completion isnegotiated to a holder in due course it is valid andeffectual for all purposes in his hands and he mayenforce it as if it had been filled up strictly inaccordance with the authority given and within areasonable time3 Incomplete and undelivered instrumentbull it will not if completed and negotiated withoutauthority be a valid contract in the hands of anyholder as against any person whose signature wasplaced thereon before deliverybull However subsequent indorsers are liable4 Forgerybull counterfeit making or fraudulent alteration of anywriting which may consist of1 signing of anotherrsquos name with intent todefraud or2 alteration of an instrument in the nameamount name of payee etc with intent to

defraudbull Effect signature is wholly inoperative and no rightto retain the instrument or to give a dischargetherefore or to enforce payment thereof againstany party thereto can be acquired through or undersuch signaturebull Exception unless the party against whom it issought to enforce such right is precluded fromsetting up the forgery or want of authoritybull Cut-Off RuleGeneral Rule Parties prior to the forged signatureare cut-off from the parties after the forgery in thesense that prior parties cannot be held liable andcan raise the defense of forgery The holder canonly enforce the instrument against parties whobecame such after the forgeryException When the prior parties are precludedfrom setting up the defense of forgeryPersons precluded from setting up the defense offorgery are1 Those who by their acts silence or negligenceare estopped from setting up the defense offorgery2 Those who warrant or admit the genuineness ofthe signature in question These include acts oromissions that amount to ratification expressor impliedNote Persons precluded from setting up thedefense of forgery may still recover damages underthe NCC provisions on quasi-delictsbull Rules on ForgeryA Promissory Notes1 Makerrsquos signature forgedOrder Instrumenta Maker is not liable because he neverbecame a party to the instrumentb Indorsers subsequent to forgery are liablebecause of their warrantiesc Party who made the forgery is liableBearer Instrumenta Maker is not liableb Indorsers may be made liable to thosepersons who obtain title through theirindorsementsc Party who made the forgery is liable2 Payeersquos signature forgedOrder Instrumenta Maker and payee not liableb Indorsers subsequent to the forgery isliablec Party who made the forgery is liableBearer Instrumenta Maker is liable Indorsement is notnecessary to title and the maker engagesto pay holderb Party who made the forgery is liable3 Indorserrsquos signature forgedOrder Instrumenta Maker payee and indorser who signaturewas forged is not liableb Indorsers subsequent to forgery are liablebecause of their warrantiesc Party who made the forgery is liableBearer Instrumenta Maker is liable Indorsement is not

necessary to title and the maker engagesto pay holderb Indorser whose signature was forged is notliablec Party who made the forgery is liableB Bill of Exchange1 Drawerrsquos signature forgedIn an Order Instrumenta Drawer is not liableb Drawee is liable if it paid (nor recourse todrawer) because he admitted thegenuineness of the drawerrsquos signatureDrawee cannot recover from the collectingbank because there is no privity betweenthe collecting bank and the drawer Thereis no warranty as to the signature of thedrawer (Associated Bank v CA)c Indorsers subsequent to forgery are liabled Party who made the forgery is liableIn a Bearer Instrumenta Drawer is not liableb Drawee is liable if it paid Drawee cannotrecover from the collecting bank becauseit is bound to known the drawerrsquossignature since the latter is its depositorc Party who made the forgery is liable2 Payeersquos signature forgedOrder Instrumenta Drawer drawee and payee not liable Cutoffrule appliesb Indorsers subsequent to forgery are liablec Party who made the forgery is liableBearer Instrumenta Drawer is liable His indorsement is notnecessary to pass titleb Drawee is liable No privity betweendrawer and payee because indorsement ofpayee is not necessary (Ang Tek Lian case87 SCRA 383)c Payee is not liabled Collecting bank is liable because ofwarrantye Party who made the forgery is liable3 Indorserrsquos signature forgedOrder Instrumenta Drawer payee and indorser whosesignature was forged are not liableb Drawee is liable if it paidc Indorsers subsequent to forgery are liabled Party who made the forgery is liableBearer Instrumenta Drawer is liable Indorsement is notnecessary to pass titleb Drawee is liablec Indorser whose signature was forged isliable because indorsement is notnecessary to pass titled Party who made the forgery is liable5 Alterationbull Effect the instrument is avoidedbull Exceptions1 against a party who has himself madeauthorized or assented to the alteration2 subsequent indorsers3 holder in due course not a party to the

alteration - he may enforce payment accordingto its original tenorbull Changes constituting material alteration1 date2 sum payable either for principal or interest3 time or place of payment4 number or relations of the parties5 medium or currency in which payment is to bemade6 that which adds a place of payment where noplace of payment is specified and7 any other change or addition which alters theeffect of the instrument in any respectNote a material alteration is one that alters theeffect of the instrument one which changes theitems required to be stated under Sec 1 NILbull Spoliation ndash alteration made by a strangerbull The general rule denies the drawee bankrsquos right tocharge against the drawerrsquos account the amount ofan altered check However the latterrsquos negligencebefore or after the alteration may estop him fromsetting such alteration as against an innocentdrawee bank who has paid the checkbull In cases of altered checks and checks with forgedindorsements the drawee bank must notify andreturn them to the collecting bank before 400 pmof the next day of clearing but the drawee bankmay still return them even after such time providedhe does so within 24 hours from its discovery of thealteration or forged instruments so that recovery ofthe amount may be had BUT in no event beyondthe period fixed or provided by law for filing of alegal action by the returning bank against the banksending the sameNote Alteration is only a partial real defensebecause a holder in due course can still enforce itaccording to its original tenorVII ENFORCEMENT OF LIABILITYPresentment for payment ndash the presentation of aninstrument to the person primarily liable for the purpose ofdemanding and receiving paymentGeneral Rulesbull presentment for payment to charge personsprimarily liable is not necessarybull presentment for payment to charge personssecondarily liable is necessaryExceptionsa drawer - where he has no right to expect or requirethat the drawee or acceptor will pay the instrument(sec 79)b indorser - where the instrument was made oraccepted for his accommodation and he has noreason to expect that the instrument will be paid ifpresentedc when dispensedi where after the exercise of reasonablediligence presentment as required cannotbe madeii where the drawee is a fictitious personiii by waiver of presentment express orimplied (sec 82)d when the instrument has been dishonored by nonacceptance(sec 151)Sufficiency of presentmentIt must be

1 made by the holder or any person authorized toreceive payment on his behalf2 at a reasonable hour on a business day3 at a proper place4 to the person primarily liable or if he is absent orinaccessible to any person found at the placewhere the presentment is madeHow made1 personal demand for payment at the proper place and2 readiness to exhibit the instrument if required and toreceive payment and to surrender the instrument if thedebtor is willing to paybull Purpose of exhibitionTo enable the debtor toa determine the genuineness of the instrument andthe right of the holder to receive payment andb to enable him to reclaim possession upon paymentbull When exhibition excuseda when debtor does not demand to see the instrumentbut refuses payment on some other grounds andb when the instrument is lost or destroyedWhen madebull where the instrument is payable at a fixed ordeterminable future time presentment must be madeon the day it falls duebull where it is payable on demanda promissory note presentment must be made withina reasonable time after its issueb bill of exchange presentment for payment will besufficient if made within a reasonable time afterthe last negotiation thereofbull the check must be presented for payment within areasonable time after its issue or the drawer will bedischarged from liability thereon to the extent of theloss caused by the delayTime of maturitybull every negotiable instrument is payable at the time fixedtherein without gracebull when the day of maturity falls upon a Sunday or aholiday the instruments are to be presented forpayment on the next succeeding business daybull when the day of maturity falls upon a Saturday1048766 Instrument is payable at a fixed or determinablefuture time (time instrument) - presented forpayment is on the next succeeding business day1048766 instruments is payable on demand - at the option ofthe holder be presented for paymenta before 1200 noon on Saturday whenthat entire day is not a holiday orb the next succeeding business dayHow computed1048766 excluding the day from which the time is to begin torun and by including the date of payment1048766 applies to instruments which are payable at a fixedperiod after date after sight or after thathappening of a specified eventProper place for presentmenta Where a place of payment is specified in the instrumentand it is there presentedb Where no place of payment is specified but the addressof the person to make payment is given in theinstrument and it is there presentedc Where no place of payment is specified and no address isgiven and the instrument is presented at the usual placeof business or residence of the person to make payment

d In any other case if presented to the person to makepayment wherever he can be found or if presented athis last known place of business or residenceWhen delay in presentment excused ndash delay is caused bycircumstances beyond the control of the holder and notimputable to his default misconduct or negligence Whenthe cause of delay ceases to operate presentment must bemade with reasonable diligencePresentment for acceptance ndash the production or exhibitionof a bill of exchange to the drawee for his acceptance orpaymentGeneral Rule presentment for acceptance is not necessary torender any party to the bill liableException presentment for acceptance must be madea Where the bill is payable after sight or wherepresentment for acceptance is necessary in order tofix the maturity of the instrument orb Where the bill expressly stipulates that it shall bepresented for acceptance orc Where the bill is drawn payable elsewhere then atthe residence or place of business of the drawee(sec 143)Note in all the above cases the holder must either presentthe bill for acceptance or negotiate it within a reasonabletime otherwise the drawer and all indorsers are dischargedHow made1 made by or on behalf of the holder2 at a reasonable hour3 on a business day4 before the bill is overdue and within reasonabletime5 to the drawee or some person authorized to acceptor refuse acceptance on his behalfDays presentment may be made If date of presentment isa Sunday or a holiday ndash must be made on the nextsucceeding business dayb Saturday ndash before 1200 noon on Saturday providedthat it is not a holidayWhen delay for presentment excuseda bill is drawn payable elsewhere than at the place ofbusiness or the residence of the draweeb holder has no time with the exercise of reasonablediligence to present the bill for acceptance beforepresenting it for payment on the day that it fallsdueEffect does not discharge the drawers and indorsersWhere presentment is excuseda Where the drawee is dead or has absconded or is afictitious person or a person not having capacity tocontract by billb Where presentment can not be made after theexercise of reasonable diligencec Where although presentment has been irregularacceptance has been refused on some other groundNote bill may be treated as dishonored by nonacceptanceDuty of holder where bill not accepted - where a bill isduly presented for acceptance and is not accepted within theprescribed time (24 hours ndash sec 136) the person presentingit must treat the bill as dishonored by non-acceptance or heloses the right of recourse against the drawer and indorsersAcceptance the signification by the drawee of his assent tothe order of the drawer It is the act by which the draweemanifests his consent to comply with the request containedin the bill of exchange directed to himHow made

1) must be in writing2) signed by the drawee3) must not express that the drawee will perform hispromise by any other means than the payment ofmoneybull the holder of the bill presenting the same for acceptancemay require that the acceptance be written on the billand if such request is refused may treat the bill asdishonoredbull where an acceptance is written on a paper other thanthe bill itself it does not bind the acceptor except infavor of a person to whom it is shown and who on thefaith thereof receives the bill for valuePeriod for drawee to accept - allowed 24 hours afterpresentment in which to decide whether or not he will acceptthe bill if acceptance is given it dates as of the day ofpresentationConstructiveImplied acceptance where a drawee refuseswithin 24 hours after delivery or within such other period asthe holder may allow to return the bill accepted or nonacceptedto the holder he will be deemed to have acceptedthe sameNote same effect if the drawee destroys the instrumentKinds1 General - assents without qualification to the order ofthe drawer2 Qualified - which in express terms varies the effect ofthe bill as drawna Conditional - makes payment by the acceptordependent on the fulfillment of a conditiontherein statedb Partial - an acceptance to pay part only of theamount for which the bill is drawni Local - an acceptance to pay only at aparticular placeii Qualified as to timeiii The acceptance of some one or more ofthe drawees but not of all3 ConstructiveRights of parties as to qualified acceptancebull Holder he may refuse to take a qualified acceptanceand if he does not obtain an unqualified acceptance hemay treat the bill as dishonored by non-acceptancebull Drawer or indorser when he receives notice of aqualified acceptance he must within a reasonable timeexpress his dissent to the holder or he will be deemed tohave assented thereto (implied assent)Effect of taking a qualified acceptance the drawer andindorsers are discharged from liability on the bill unless theyhave expressly or impliedly authorized the holder to take aqualified acceptance or subsequently assent theretoOther rules of acceptancebull a bill may be accepted before it has been signed by thedrawer or while otherwise incomplete or when it isoverdue or after it has been dishonored by a previousrefusal to accept or by non paymentbull when a bill payable after sight is dishonored by nonacceptanceand the drawee subsequently accepts it theholder in the absence of any different agreement isentitled to have the bill accepted as of the date of thefirst presentmentbull an unconditional promise in writing to accept a billbefore it is drawn is deemed an actual acceptancein favor of every person who upon the faiththereof receives the bill for value

bull where a check is certified by the bank on which it isdrawn the certification is equivalent to anacceptanceEffect the drawer and all indorsers are dischargedfrom liability thereonAcceptance for Honor - an undertaking by a stranger to a billafter protest for the benefit of any party liable thereon or forthe honor of the person for whose account the bill is drawnwhich acceptance inures also to the benefit of all partiessubsequent to the person for whose honor it is accepted andconditioned to pay the bill when it becomes due if theoriginal drawee does not pay it1048766 Requisites1 the bill must have been protested for dishonorby non-acceptance or for better security2 the acceptor for honor must be a stranger andnot a party already liable on the instrument3 bill must not be overdue4 acceptance for honor must be with the consentof the holder of the instrument1048766 Formalities1 must be in writing2 must indicate that it is an acceptance forhonor3 signed by the acceptor for honor4 must contain an express or implied promise topay money5 the accepted bill for honor must be deliveredto the holderNotice of Dishonor - notice given by the holder or his agentto a party or parties secondarily liable that the instrumentwas dishonored by non-acceptance by the drawee of a bill orby non-payment by the acceptor of a bill or by non-paymentby a maker of a note- If such notice is given by a notary public it is calledPROTEST1048766 Effect of failure to give notice parties secondarily liableare discharged1048766 Requisites1 Given by holder or his agent or by any party whomay be compelled by the holder to pay2 Given to secondary party or his agent3 Given within the periods provided by law4 Given at the proper place1048766 When notice of dishonor dispensed with1 when party to be notified knows about the dishonoractually or constructively2 if waived and3 when after due diligence it cannot be given1048766 How given1 by bringing verbally or2 by writing to the knowledge of the person liable thefact that a specified instrument upon properproceedings taken has not been accepted or hasnot been paid and that the party notified isexpected to pay it1048766 To whom given1 Non-acceptance (bill) ndash to persons secondarilyliable namely the drawer and indorsers as the casemay be2 Non-payment (both bill and note) ndash indorsersNote Notice must be given to persons secondarilyliable Otherwise such parties are dischargedNotice may be given to the party himself or to hisagent

1048766 By whom given1 the holder2 another on behalf of the holder3 any party to the instrument who may be compelledto pay it to the holder and who would have a rightof reimbursement from the party to whom notice isgiven1048766 Notice of dishonor given by or on behalf of a holderinures to the benefit ofa all parties prior to the holder who have a rightof recourse against the party to whom thenotice is given andb all holders subsequent to the holder givingnotice1048766 Notice of dishonor given by or on behalf of a partyentitled to give notice inures to the benefit ofa the holder andb all parties subsequent to the party to whomnotice is given1048766 Where an instrument is dishonored in the hands of anagent he can do either of the ffa directly give notice to persons secondarilyliable thereon orb give notice to his principal In such case hemust give notice within the time allowed bylaw as if he were a holder1048766 A party giving notice is deemed to have given due noticewherea the notice of dishonor is duly addressed andb deposited in the post-office even when thereis miscarriage of mail1048766 Where a party receives notice of dishonor he has afterthe receipt of such notice the same time for givingnotice to antecedent parties that the holder has afterthe dishonor1048766 Notice may be waived either before the time of givingnotice or after the omission to give due notice Waivermay be expressed or implied1048766 As to who are affected by an express waiver depends onwhere the waiver is written1 if it appears in the body or on the face of theinstrument it binds all parties but2 if it is written above the signature of anindorser it binds him only1048766 Notice of dishonor is not required to be given to thedrawer in any of the ff cases1 drawer and drawee are the same2 drawee is a fictitious person or not having thecapacity to contract3 drawer is the person to whom the instrument ispresented for payment4 the drawer has no right to expect or requirethat the drawee or acceptor will honor theinstrument5 where the drawer has countermandedpayment1048766 Notice of dishonor is not required to be given to anindorser in the ff cases1 drawee is a fictitious person or does not havethe capacity to contract and indorser wasaware of that fact at the time he indorsed theinstrument2 indorser is the person to whom the instrumentis presented for payment3 instrument was made or accepted for his

accommodation1048766 If an instrument is not accepted by the drawee there isno sense presenting it again for payment and notice ofdishonor must at once be given If there wasacceptance presentment for payment is still requiredand if payment is refused there is a need for notice ofdishonor1048766 An omission to give notice of dishonor by non-acceptancedoes not prejudice the rights of a holder in due coursesubsequent to the omissionDishonor by Non-PaymentWhen instrument dishonored by non-paymenta it is duly presented for payment and payment isrefused or cannot be obtained orb presentment is excused and the instrument isoverdue and unpaidEffect of dishonor an immediate right of recourse to allparties secondarily liable thereon accrues to the holderDishonor by Non-AcceptanceInstancesa When it is duly presented for acceptance and suchan acceptance is refused or can not be obtained orb When presentment for acceptance is excused andthe bill is not accepted (sec 149)Effect an immediate right of recourse against thedrawer and indorsers accrues to the holder and nopresentment for payment is necessaryNote where a bill is duly presented for acceptance andis not accepted within the prescribed time (24 hours)the person presenting it must treat the bill as dishonoredby non-acceptanceWhen Instrument Considered to be Dishonoreda If it is not accepted when presented for acceptanceorb If it is not paid when presented for payment atmaturity orc If presentment is excused or waived and theinstrument is past due and unpaidProtest - the formal instrument executed usually by a notarypublic certifying that the legal steps necessary to fix theliability of the drawee and the indorsers have been taken1048766 Effect of waiver where protest is waived presentmentand notice of dishonor are also deemed waived Butwhere the notice of dishonor is waived presentment isnot waived1048766 Applicability protest is necessary only in case of foreignbills of exchange which have been dishonored by nonacceptanceor non-payment as the case may be If it isnot so protested the drawer and indorsers aredischarged1048766 Foreign Bill of Exchange1 Drawn in the Philippines but payable outside thePhilippines2 Payable in the Philippines but drawn outside thePhilippines1048766 Protest may be made by1 a notary public or2 any respectable resident of the place where the billis dishonored in the presence of 2 or more crediblewitnessesProtest for better security is one made by the holder of a billafter it has been accepted but before it matures against thedrawer and indorsers where the acceptor has been adjudgeda bankrupt or an insolvent or has made an assignment forthe benefit of the creditors

VIII DISCHARGEDischarge of instrument - a release of all parties whetherprimary or secondary from the obligations arisingthereunder It renders the instrument without force andeffect and consequently it can no longer be negotiatedInstances1 By payment in due course by or on behalf of theprincipal debtor2 Payment by accommodated party3 Intentional cancellation by the holder4 By any act which will discharge a simple contractfor the payment of money5 When the principal debtor becomes the holder ofthe instrument at or after maturity in his own rightBy any act which would discharge a simple contract1 Payment or performance2 Loss of the thing due3 Condonation or remission4 Confusion or Merger5 Compensation6 Novation7 Annulment or Rescission8 Fulfillment of a resolutory condition9 PrescriptionWhen persons secondarily liable on the instrument aredischarged1 By any act which discharges the instrument2 By the intentional cancellation of his signature bythe holder3 By the discharge of a prior party4 By a valid tender of payment made by a prior party5 By the release of the principal debtor unless theholderrsquos right of recourse against the partysecondarily liable is expressly reserved6 By any agreement binding upon the holder to extendthe time of payment or to postpone the holderrsquosright to enforce the instrument1048766 In the following cases the agreement to extend the timeof payment does not discharge a party secondarily liable1 where the extension of time is consented to by suchparty2 where the holder expressly reserves his right ofrecourse against such party1048766 Payment at or after maturity by a party secondarilyliable does not discharge the instrument It only cancelshis own liability and that of the parties subsequent tohimEffects of Renunciation1 A renunciation in favor of a secondary party may bemade by the holder before at or after maturity ofthe instrument Effect only such secondary party isdischarged and all parties subsequent to him but theinstrument itself remains in force2 A renunciation in favor of the principal debtor maybe effected at or after maturity Effect theinstrument is discharged and all parties theretoprovided the renunciation is made unconditionallyand absolutelyNote In either case renunciation does not affect therights of a holder in due course without notice1048766 Cancellation of an instrument includes tearing erasureobliteration or burning It is not limited to writing ofthe word lsquocancelledrdquo or ldquopaidrdquo or drawing of crisscrosslines across the instrumentPayment for Honor - payment made by a person whether a

party to the bill or not after it has been protested for nonpaymentfor the benefit of any party liable thereon or forthe benefit of the person for whose account it was drawn1048766 Requisites1 the bill has been dishonored by non-payment2 it has been protested for non-payment3 payment supra protest (another term for paymentfor honor because prior protest for non-payment isrequired) is made by any person even by a partythereto4 the payment is attested by a notarial act of honorwhich must be appended to the protest or form anextension of it5 the notarial act must be based on the declarationmade by the payor for honor or his agent of hisintention to pay the bill for honor and for whosehonor he paysNote If the above formalities are not complied withpayment will operate as a mere voluntary payment andthe payor will acquire no right to full reimbursementagainst the party for whose honor he pays1048766 In payment for honor the payee cannot refuse paymentIf he refuses he cannot recover from the parties whowould have been discharged had he accepted the sameIn acceptance for honor the holderrsquos consent isnecessary1048766 The payor for honor is given the right to receive both thebill and the protest obviously to enable him to enforcehis rights against the parties who are liable to himIX CHECKSCheck- a bill of exchange drawn on a bank payable ondemandCheck distinguished from and ordinary bill of exchangeBILLOF EXCHANGE CHECKNot necessarily drawnon a deposit The draweeneed not be a bankIt is necessary that a checkis drawn on a bank depositThe drawee is always abankDeath of a drawer of aBOE with the knowledgeof the bank does notrevoke the authority of thedrawee to payDeath of the drawer of acheck with the knowledgeof the bank revokes theauthority of the banker topayMay be presented forpayment within areasonable time after itslast negotiation because itmay be further negotiatedMust be presented forpayment within areasonable time after itsissueMay be payable on demandor at a fixed ordeterminable future timeAlways payable on demandKinds of checks

1 Managerrsquos Cashierrsquos Check ndash drawn by a bank on itselfand therefore it is a primary obligation of the banko It is accepted in advance by the act of itsissuance and is not subject tocountermand by the payor afterindorsemento The bankrsquos manager signs managerrsquos checkwhile cashierrsquos check is signed by the bankcashier2 Certified Check ndash one drawn by a depositor upon funds tohis credit in a bank which a proper officer of the bankcertifies will be paid when duly presented for payment3 Stale check ndash one which has not been presented forpayment within a reasonable time after its issue4 Crossed check ndash when 2 parallel lines are drawn acrossits face or across a corner thereof If the name of a bankappears between the parallel lines the check is said tobe specially crossed and payment should be made onlyif presented by the named bank If no name appearsbetween the parallel lines the check is said to begenerally crossed and payment should be made onlyupon presentment by some bankEffects of crossing a checka That the check may not be encashed but only bedeposited in the bankb That the check may be negotiated only once to onewho has an account with a bank andc That the act of crossing the check serves as awarning to the holder that the check has beenissued for a definite purpose so that he must inquireif he has received the check pursuant to thatpurpose5 Memorandum Check ndash it is like an ordinary check exceptthat the word ldquomemorandumrdquo ldquomemrdquo or ldquomemordquo iswritten upon the face of the check signifying that thedrawer engages to pay the bona fide holder absolutelyand not upon a condition to pay upon presentment atmaturity and if due notice of the presentment and nonpaymentshould be given6 Travelerrsquos check ndash one upon which the holderrsquos signaturemust appear twice one to be affixed by him at the timeit is issued and the second o counter-signature to beaffixed by him in the presence of the payee before it ispaid otherwise it is incompleteIron Clad Rule Prohibits the countermanding ofpayment of certified checks (Republic of the Philippinesv PNB GR No 16106 December 1 1961)

e negotiation in breach of faithf circumstances amounting to fraud1048766 What constitutes notice of defect - The person towhom it is negotiated must havea actual knowledge of the infirmity or defect orb knowledge of such facts that his action in taking theinstrument amounted to bad faith (sec 56)1048766 Notice before full amount is paid - where thetransferee receives notice of any infirmity in theinstrument or defect in the title of the personnegotiating the same before he has paid the full amountagreed to be paid he will be deemed a holder in duecourse only to the extent of the amount paid by him1048766 When person not deemed a holder in due course -where an instrument payable on demand is negotiatedon an unreasonable length of time after its issue theholder is not deemed a holder in due coursebull Reasonable time what constitutes - regard is to behad to thea nature of the instrumentb the usage of trade or business with respect tosuch instruments and thec facts of the particular casebull Effect in the hands of any holder other than aholder in due course a negotiable instrument issubject to the same defenses as if it were nonnegotiable1048766 General Rule every holder is deemed prima facie to bea holder in due courseException when it is shown that the title of any personwho has negotiated the instrument was defective theburden is on the holder to prove that he or some personunder whom he claims acquired the title as holder in duecourse (shifting of burden of proof)Limitation the last-mentioned rule does not apply infavor of a party who became bound on the instrumentprior to the acquisition of such defective title (sec 59)1048766 Rights of a holder in due coursea he may sue on the instrument in his own nameb he may receive payment and if payment is in duecourse the instrument is dischargedc holds the instrument free from any defect of title ofprior partiesd holds the instrument free from defenses available toprior parties among themselves ande may enforce payment of the instrument for the fullamount thereof against all parties liable thereon1048766 Payment in due course is payment madea at or after the maturity of the instrumentb to the holder thereofc in good faith and without notice that his title isdefective1048766 Shelter Rulea derives his title through a holder in due course andb who is not himself a party to any fraud or illegalityaffecting the instrument has all the rights of suchformer holder in respect of all parties prior to thelatter1048766 Rights of a Holder NOT in Due Course1 He may sue on the instrument in his own name2 He may receive payment and if the payment is indue course the instrument is discharged3 He is entitled to the instrument but holds it subjectto the same defenses as if it were non-negotiableand4 He has all the rights of the holder in due course

from whom he derived his title in respect of allparties prior to such holder provided he is nothimself a party to any fraud or illegality affectingthe instrumentV LIABILITIES OF PARTIESPersons primarily liable on instrument the person who bythe terms of the instrument is absolutely required to pay thesame All other parties are secondarily liableClassification of parties according to liabilityIN A PROMISSORYNOTE1 Maker2 Indorser3 Persons negotiating by deliveryIN A BILL OFEXCHANGE1 Drawer2 Acceptor3 Indorsers4 Persons negotiating by delivery1 Parties Primarily Liablea Maker (Sec 60)bull engages to pay according to the tenor of theinstrument andbull admits the existence of the payee and his thencapacity to indorse at the time of the makingof the notebull A person placing his name on the face of a noteis prima facie a maker and liable as such andhe is presumed to have acted with care and tohave signed the instrument with full knowledgeof its contentsb Acceptor or Drawee (Sec 62)bull engages to pay according to the tenor of hisacceptancebull admits1 the existence of the drawer2 the genuineness of his signature and3 his capacity and authority to draw theinstrument and4 the existence of the payee and his thencapacity to indorseNote the drawee is not liable until he acceptsthe instrumentbull Where a check is certified by a bank it isequivalent to an acceptance Since certification isequivalent to acceptance a bank which hascertified a check whether at the request of theholder or of a drawer has the same liabilities andmakes the same warranties as an acceptor Itcannot after certification question thegenuineness of the drawerrsquos signature If itdiscovers that such signature is forged subsequentto certification but prior to payment it cannotrefuse to pay on the check If its discovery comesafter it has paid the check it cannot recoverback what it paid on the ground of mistakenpayment unless the holder is guilty of fraud ornegligencebull If a drawee-bank accepts or pays a check despitea stop payment order from the drawer throughoversight or otherwise it cannot refuse to paythe holder or recover what has been paid neithermay it debit the drawerrsquos account unless theacceptance nor payment was made prior to the

receipt of the order2 Parties Secondarily Liablea Drawer (Sec 61)bull admits the existence of the payee and hiscapacity to indorsebull engages that the instrument will be acceptedor paid by the party primarily liable andbull engages that if the instrument is dishonoredand proper proceedings are brought he willpay to the party entitled to be paidb General Indorser (Sec 66)bull Warrants1 genuineness of the instrument2 his good title to it3 capacity to contract of prior parties and4 instrument is valid and subsistingbull engages that the instrument will be acceptedor paid by the party primarily liable andbull engages that if the instrument is dishonoredand proper proceedings are taken he will payto the party entitled to be paidc Irregular Indorser ndash a person not otherwise a partyto an instrument places his signature thereon inblank before deliveryRulesbull If instrument payable to the order of a 3rdperson he is liable to the payee andsubsequent partiesbull If instrument payable to order of maker ordrawer he is liable to all parties subsequent tothe maker or drawerbull If he signs for accommodation of the payee heis liable to all parties subsequent to the payeeDistinctionsPRIMARY PARTY SECONDARY PARTY1 Unconditionally bound2Absolutely required topay upon the maturity ofthe instrument1 Conditionally bound2 Undertakes to pay onlyafter certain conditionshave been fulfilleda due presentment forpayment or acceptance toprimary partyb dishonor by suchparty andc the taking ofproceedings required bylaw after dishonorINDORSER DRAWER1 A party to either a noteor a bill2 Does not make anyadmission regarding theexistence of the payee andhis capacity to indorse and3 Has warranties1 A party only to a bill2 The drawer makes suchadmission3 Makes no warranties buthe engages to pay aftercertain conditions are

complied withGENERAL INDORSER IRREGULAR INDORSER1 Makes either a blank orspecial indorsement2 Indorses the instrumentafter its delivery to thepayee and3 Liable only to partiessubsequent to him1 Always makes a blankindorsement2 Indorses before itsdelivery3 Liable to the payee andsubsequent parties unlesshe signs for theaccommodation of thepayee in which case he isliable only to all partiessubsequent to the payee3 Parties with Limited Liability (sec 65 MetropolFinancing v Sambok 120 SCRA 864)a Qualified Indorser - warrants that1048766 instrument is genuine and in all respects whatit purports to be1048766 he has good title to it1048766 all prior parties had capacity to contract1048766 he has no knowledge of any fact which wouldimpair the validity of the instrument or renderit valuelessb Persons Negotiating by Delivery1048766 warranties same as those of qualified indorsersand1048766 warranties extend to immediate transfereeonlyLIABILITY WARRANTY1 To pay a sum certain2 Requires Notice ofDishonor3 Action can be broughtonly on maturity ofinstrument1 No obligation to pay2 Notice of Dishonor is not arequirement3 Action may be broughtanytimeBY MERE DELIVERY OR BYQUALIFIED INDORSEMENTGENERAL INDORSER1 No secondary liability1 With secondary liability2 Warrants that he has noknowledge of any factwhich would impair thevalidity of the instrumentor render it valueless2 Warrants that theinstrument is at the timeof his indorsement validand subsisting4 Other parties who may be liableGeneral Rule One whose signature does not appear on theinstrument shall not be liable thereonExceptions

1 The principal who signs through an agent is liable2 The forger is liable3 One who indorses in a separate instrument (allonge) isliable4 One who signs his assumed or trade name is liable and5 A person negotiating by delivery (as in the case of abearer instrument) is liable to his immediate indorseeRequisites for an Agent to escape liability1 must be duly authorized2 add words to his signature indicating that he signs as anagent that is for or on behalf of a principal or in arepresentative capacity and3 disclose his principal1048766 A signature by ldquoprocurationrdquo operates as notice that theagent has but a limited authority to sign and theprincipal is bound only in case the agent in so signingacted within the actual limits of his authority (sec 21)1048766 Indorsement or assignment of the NI by a corporation orby an infant passes the property thereinnotwithstanding that from want of capacity thecorporation or infant may incur no liability thereon(sec 22)Accomodation PartyOne who has signed the instrument as maker draweracceptor or indorser without receiving value therefor andfor the purpose of lending his name to some other person1048766 Liability such a person is liable on the instrument to aholder for value notwithstanding such holder at thetime of taking the instrument knew him to be only anaccommodation party1048766 Effects1 accommodation party is generally regarded as asurety for the party accommodated2 When accommodation party makes payment toholder of the note he has the right to sue theaccommodated party for reimbursement1048766 Rights of accommodation parties as against each otherthe other may demand contribution from his coaccommodationparty without first directing his actionagainst the principal debtor provided1 he made the payment by virtue of judicial demandor2 the principal debtor is insolventNote A corporation cannot act as an accommodationparty The issuance or indorsement of negotiableinstrument by a corporation without consideration andfor the accommodation of another is ultra vires(Crisologo v CA 117 SCRA 594)Order of liability of indorsers1 among themselves ndash indorsers are liable prima facie inthe order in which they indorse but evidence isadmissible to show that as between or amongthemselves they have agreed otherwise (sec 68)2 to the holder ndash indorsers are liable in any orderVI DEFENSESKinds1 RealAbsolute Defenses - those that attach to theinstrument itself and are available against all holderswhether in due course or notExamplesa Alterationb Non-delivery of incomplete instrumentc Duress amounting to forgeryd Fraud in factum or fraud in esse contractuse Minority

f Marriage in the case of a wifeg Insanity where the insane person has a guardianappointed by the courth Ultra vires acts of a corporation where thecorporation is absolutely prohibited by its charter orstatute from issuing any commercial paper underany circumstancesi Want of authority of agentj Execution of instrument between public enemiesk Illegality of contract where it is the contract orinstrument itself which is expressly made illegal bystatute andl Forgery2 PersonalEquitable Defenses ndash those which are availableonly against a person not a holder in due course or asubsequent holder who stands in privity with himExamplesa Absence or failure of consideration partial or totalb Want of delivery of complete instrumentc Insertion of wrong date in an instrument where it ispayable at a fixed period after date and it is issuedundated or where it is payable at a fixed periodafter sight and the acceptance is undatedd Filling up of blank contrary to authority given or notwithin reasonable time where the instrument isdeliverede Fraud in inducementf Acquisition of instrument by force duress or fearg Acquisition of the instrument by unlawful meansh Acquisition of the instrument for an illegalconsiderationi Negotiation in breach of faithj Negotiation under circumstances that amount tofraudk Mistakel Intoxication (according to better authority)m Ultra vires acts of corporations where thecorporation has the power to issue negotiable paperbut the issuance was not authorized for theparticular purpose for which it was issuedn Want of authority of agent where he haso apparent authorityp Insanity where there is no notice of insanity on thepart of the one contracting with the insane personandq Illegality of contract where the form orconsideration is illegalFRAUD IN FACTUM FRAUD IN INDUCEMENT1 It exists in those cases inwhich a person withoutnegligence has signed aninstrument which was infact a negotiableinstrument but wasdeceived as to thecharacter of the instrumentand without knowledge ofits as where a not wassigned by one under thebelief that he was signingas a witness to a deed1 It is that which relatedto the quality quantityvalue or character of theconsideration of the

instrument In this casethe signer is led bydeception to execute whathe knows is a negotiableinstrument It implies thatthe signer knew what hewas signing but that he wasinduced by fraud to sign2 This kind of fraud is areal defense because thereis no contract It impliesthat the person did notknow what he was signingBut where the signer by theexercise of reasonablediligence could havediscovered the nature ofthe instrument the fraudcannot be considered a realdefense as where a personwho can read signed a notebut failed to read it2 Such type of fraud is onlya personal defense becauseit does not prevent acontract1048766 Effects of Defenses1 Complete and undelivered instrumentbull as between immediate parties and as regards aremote party other than a holder in due course thedelivery must be authorized in order to be effectualbull where the instrument is in the hands of a holder indue course a valid delivery thereof by all partiesprior to him so as to make them liable to him isconclusively presumedbull where the instrument is no longer in the possessionof a party whose signature appears thereon a validand intentional delivery by him is presumed untilthe contrary is proved2 Incomplete but delivered instrumentbull where the instrument is wanting in any materialparticular the person in possession thereof has aprima facie authority to complete it by filling up theblanks thereinbull it must be filled up strictly in accordance with theauthority given and within a reasonable timebull if any such instrument after completion isnegotiated to a holder in due course it is valid andeffectual for all purposes in his hands and he mayenforce it as if it had been filled up strictly inaccordance with the authority given and within areasonable time3 Incomplete and undelivered instrumentbull it will not if completed and negotiated withoutauthority be a valid contract in the hands of anyholder as against any person whose signature wasplaced thereon before deliverybull However subsequent indorsers are liable4 Forgerybull counterfeit making or fraudulent alteration of anywriting which may consist of1 signing of anotherrsquos name with intent todefraud or2 alteration of an instrument in the nameamount name of payee etc with intent to

defraudbull Effect signature is wholly inoperative and no rightto retain the instrument or to give a dischargetherefore or to enforce payment thereof againstany party thereto can be acquired through or undersuch signaturebull Exception unless the party against whom it issought to enforce such right is precluded fromsetting up the forgery or want of authoritybull Cut-Off RuleGeneral Rule Parties prior to the forged signatureare cut-off from the parties after the forgery in thesense that prior parties cannot be held liable andcan raise the defense of forgery The holder canonly enforce the instrument against parties whobecame such after the forgeryException When the prior parties are precludedfrom setting up the defense of forgeryPersons precluded from setting up the defense offorgery are1 Those who by their acts silence or negligenceare estopped from setting up the defense offorgery2 Those who warrant or admit the genuineness ofthe signature in question These include acts oromissions that amount to ratification expressor impliedNote Persons precluded from setting up thedefense of forgery may still recover damages underthe NCC provisions on quasi-delictsbull Rules on ForgeryA Promissory Notes1 Makerrsquos signature forgedOrder Instrumenta Maker is not liable because he neverbecame a party to the instrumentb Indorsers subsequent to forgery are liablebecause of their warrantiesc Party who made the forgery is liableBearer Instrumenta Maker is not liableb Indorsers may be made liable to thosepersons who obtain title through theirindorsementsc Party who made the forgery is liable2 Payeersquos signature forgedOrder Instrumenta Maker and payee not liableb Indorsers subsequent to the forgery isliablec Party who made the forgery is liableBearer Instrumenta Maker is liable Indorsement is notnecessary to title and the maker engagesto pay holderb Party who made the forgery is liable3 Indorserrsquos signature forgedOrder Instrumenta Maker payee and indorser who signaturewas forged is not liableb Indorsers subsequent to forgery are liablebecause of their warrantiesc Party who made the forgery is liableBearer Instrumenta Maker is liable Indorsement is not

necessary to title and the maker engagesto pay holderb Indorser whose signature was forged is notliablec Party who made the forgery is liableB Bill of Exchange1 Drawerrsquos signature forgedIn an Order Instrumenta Drawer is not liableb Drawee is liable if it paid (nor recourse todrawer) because he admitted thegenuineness of the drawerrsquos signatureDrawee cannot recover from the collectingbank because there is no privity betweenthe collecting bank and the drawer Thereis no warranty as to the signature of thedrawer (Associated Bank v CA)c Indorsers subsequent to forgery are liabled Party who made the forgery is liableIn a Bearer Instrumenta Drawer is not liableb Drawee is liable if it paid Drawee cannotrecover from the collecting bank becauseit is bound to known the drawerrsquossignature since the latter is its depositorc Party who made the forgery is liable2 Payeersquos signature forgedOrder Instrumenta Drawer drawee and payee not liable Cutoffrule appliesb Indorsers subsequent to forgery are liablec Party who made the forgery is liableBearer Instrumenta Drawer is liable His indorsement is notnecessary to pass titleb Drawee is liable No privity betweendrawer and payee because indorsement ofpayee is not necessary (Ang Tek Lian case87 SCRA 383)c Payee is not liabled Collecting bank is liable because ofwarrantye Party who made the forgery is liable3 Indorserrsquos signature forgedOrder Instrumenta Drawer payee and indorser whosesignature was forged are not liableb Drawee is liable if it paidc Indorsers subsequent to forgery are liabled Party who made the forgery is liableBearer Instrumenta Drawer is liable Indorsement is notnecessary to pass titleb Drawee is liablec Indorser whose signature was forged isliable because indorsement is notnecessary to pass titled Party who made the forgery is liable5 Alterationbull Effect the instrument is avoidedbull Exceptions1 against a party who has himself madeauthorized or assented to the alteration2 subsequent indorsers3 holder in due course not a party to the

alteration - he may enforce payment accordingto its original tenorbull Changes constituting material alteration1 date2 sum payable either for principal or interest3 time or place of payment4 number or relations of the parties5 medium or currency in which payment is to bemade6 that which adds a place of payment where noplace of payment is specified and7 any other change or addition which alters theeffect of the instrument in any respectNote a material alteration is one that alters theeffect of the instrument one which changes theitems required to be stated under Sec 1 NILbull Spoliation ndash alteration made by a strangerbull The general rule denies the drawee bankrsquos right tocharge against the drawerrsquos account the amount ofan altered check However the latterrsquos negligencebefore or after the alteration may estop him fromsetting such alteration as against an innocentdrawee bank who has paid the checkbull In cases of altered checks and checks with forgedindorsements the drawee bank must notify andreturn them to the collecting bank before 400 pmof the next day of clearing but the drawee bankmay still return them even after such time providedhe does so within 24 hours from its discovery of thealteration or forged instruments so that recovery ofthe amount may be had BUT in no event beyondthe period fixed or provided by law for filing of alegal action by the returning bank against the banksending the sameNote Alteration is only a partial real defensebecause a holder in due course can still enforce itaccording to its original tenorVII ENFORCEMENT OF LIABILITYPresentment for payment ndash the presentation of aninstrument to the person primarily liable for the purpose ofdemanding and receiving paymentGeneral Rulesbull presentment for payment to charge personsprimarily liable is not necessarybull presentment for payment to charge personssecondarily liable is necessaryExceptionsa drawer - where he has no right to expect or requirethat the drawee or acceptor will pay the instrument(sec 79)b indorser - where the instrument was made oraccepted for his accommodation and he has noreason to expect that the instrument will be paid ifpresentedc when dispensedi where after the exercise of reasonablediligence presentment as required cannotbe madeii where the drawee is a fictitious personiii by waiver of presentment express orimplied (sec 82)d when the instrument has been dishonored by nonacceptance(sec 151)Sufficiency of presentmentIt must be

1 made by the holder or any person authorized toreceive payment on his behalf2 at a reasonable hour on a business day3 at a proper place4 to the person primarily liable or if he is absent orinaccessible to any person found at the placewhere the presentment is madeHow made1 personal demand for payment at the proper place and2 readiness to exhibit the instrument if required and toreceive payment and to surrender the instrument if thedebtor is willing to paybull Purpose of exhibitionTo enable the debtor toa determine the genuineness of the instrument andthe right of the holder to receive payment andb to enable him to reclaim possession upon paymentbull When exhibition excuseda when debtor does not demand to see the instrumentbut refuses payment on some other grounds andb when the instrument is lost or destroyedWhen madebull where the instrument is payable at a fixed ordeterminable future time presentment must be madeon the day it falls duebull where it is payable on demanda promissory note presentment must be made withina reasonable time after its issueb bill of exchange presentment for payment will besufficient if made within a reasonable time afterthe last negotiation thereofbull the check must be presented for payment within areasonable time after its issue or the drawer will bedischarged from liability thereon to the extent of theloss caused by the delayTime of maturitybull every negotiable instrument is payable at the time fixedtherein without gracebull when the day of maturity falls upon a Sunday or aholiday the instruments are to be presented forpayment on the next succeeding business daybull when the day of maturity falls upon a Saturday1048766 Instrument is payable at a fixed or determinablefuture time (time instrument) - presented forpayment is on the next succeeding business day1048766 instruments is payable on demand - at the option ofthe holder be presented for paymenta before 1200 noon on Saturday whenthat entire day is not a holiday orb the next succeeding business dayHow computed1048766 excluding the day from which the time is to begin torun and by including the date of payment1048766 applies to instruments which are payable at a fixedperiod after date after sight or after thathappening of a specified eventProper place for presentmenta Where a place of payment is specified in the instrumentand it is there presentedb Where no place of payment is specified but the addressof the person to make payment is given in theinstrument and it is there presentedc Where no place of payment is specified and no address isgiven and the instrument is presented at the usual placeof business or residence of the person to make payment

d In any other case if presented to the person to makepayment wherever he can be found or if presented athis last known place of business or residenceWhen delay in presentment excused ndash delay is caused bycircumstances beyond the control of the holder and notimputable to his default misconduct or negligence Whenthe cause of delay ceases to operate presentment must bemade with reasonable diligencePresentment for acceptance ndash the production or exhibitionof a bill of exchange to the drawee for his acceptance orpaymentGeneral Rule presentment for acceptance is not necessary torender any party to the bill liableException presentment for acceptance must be madea Where the bill is payable after sight or wherepresentment for acceptance is necessary in order tofix the maturity of the instrument orb Where the bill expressly stipulates that it shall bepresented for acceptance orc Where the bill is drawn payable elsewhere then atthe residence or place of business of the drawee(sec 143)Note in all the above cases the holder must either presentthe bill for acceptance or negotiate it within a reasonabletime otherwise the drawer and all indorsers are dischargedHow made1 made by or on behalf of the holder2 at a reasonable hour3 on a business day4 before the bill is overdue and within reasonabletime5 to the drawee or some person authorized to acceptor refuse acceptance on his behalfDays presentment may be made If date of presentment isa Sunday or a holiday ndash must be made on the nextsucceeding business dayb Saturday ndash before 1200 noon on Saturday providedthat it is not a holidayWhen delay for presentment excuseda bill is drawn payable elsewhere than at the place ofbusiness or the residence of the draweeb holder has no time with the exercise of reasonablediligence to present the bill for acceptance beforepresenting it for payment on the day that it fallsdueEffect does not discharge the drawers and indorsersWhere presentment is excuseda Where the drawee is dead or has absconded or is afictitious person or a person not having capacity tocontract by billb Where presentment can not be made after theexercise of reasonable diligencec Where although presentment has been irregularacceptance has been refused on some other groundNote bill may be treated as dishonored by nonacceptanceDuty of holder where bill not accepted - where a bill isduly presented for acceptance and is not accepted within theprescribed time (24 hours ndash sec 136) the person presentingit must treat the bill as dishonored by non-acceptance or heloses the right of recourse against the drawer and indorsersAcceptance the signification by the drawee of his assent tothe order of the drawer It is the act by which the draweemanifests his consent to comply with the request containedin the bill of exchange directed to himHow made

1) must be in writing2) signed by the drawee3) must not express that the drawee will perform hispromise by any other means than the payment ofmoneybull the holder of the bill presenting the same for acceptancemay require that the acceptance be written on the billand if such request is refused may treat the bill asdishonoredbull where an acceptance is written on a paper other thanthe bill itself it does not bind the acceptor except infavor of a person to whom it is shown and who on thefaith thereof receives the bill for valuePeriod for drawee to accept - allowed 24 hours afterpresentment in which to decide whether or not he will acceptthe bill if acceptance is given it dates as of the day ofpresentationConstructiveImplied acceptance where a drawee refuseswithin 24 hours after delivery or within such other period asthe holder may allow to return the bill accepted or nonacceptedto the holder he will be deemed to have acceptedthe sameNote same effect if the drawee destroys the instrumentKinds1 General - assents without qualification to the order ofthe drawer2 Qualified - which in express terms varies the effect ofthe bill as drawna Conditional - makes payment by the acceptordependent on the fulfillment of a conditiontherein statedb Partial - an acceptance to pay part only of theamount for which the bill is drawni Local - an acceptance to pay only at aparticular placeii Qualified as to timeiii The acceptance of some one or more ofthe drawees but not of all3 ConstructiveRights of parties as to qualified acceptancebull Holder he may refuse to take a qualified acceptanceand if he does not obtain an unqualified acceptance hemay treat the bill as dishonored by non-acceptancebull Drawer or indorser when he receives notice of aqualified acceptance he must within a reasonable timeexpress his dissent to the holder or he will be deemed tohave assented thereto (implied assent)Effect of taking a qualified acceptance the drawer andindorsers are discharged from liability on the bill unless theyhave expressly or impliedly authorized the holder to take aqualified acceptance or subsequently assent theretoOther rules of acceptancebull a bill may be accepted before it has been signed by thedrawer or while otherwise incomplete or when it isoverdue or after it has been dishonored by a previousrefusal to accept or by non paymentbull when a bill payable after sight is dishonored by nonacceptanceand the drawee subsequently accepts it theholder in the absence of any different agreement isentitled to have the bill accepted as of the date of thefirst presentmentbull an unconditional promise in writing to accept a billbefore it is drawn is deemed an actual acceptancein favor of every person who upon the faiththereof receives the bill for value

bull where a check is certified by the bank on which it isdrawn the certification is equivalent to anacceptanceEffect the drawer and all indorsers are dischargedfrom liability thereonAcceptance for Honor - an undertaking by a stranger to a billafter protest for the benefit of any party liable thereon or forthe honor of the person for whose account the bill is drawnwhich acceptance inures also to the benefit of all partiessubsequent to the person for whose honor it is accepted andconditioned to pay the bill when it becomes due if theoriginal drawee does not pay it1048766 Requisites1 the bill must have been protested for dishonorby non-acceptance or for better security2 the acceptor for honor must be a stranger andnot a party already liable on the instrument3 bill must not be overdue4 acceptance for honor must be with the consentof the holder of the instrument1048766 Formalities1 must be in writing2 must indicate that it is an acceptance forhonor3 signed by the acceptor for honor4 must contain an express or implied promise topay money5 the accepted bill for honor must be deliveredto the holderNotice of Dishonor - notice given by the holder or his agentto a party or parties secondarily liable that the instrumentwas dishonored by non-acceptance by the drawee of a bill orby non-payment by the acceptor of a bill or by non-paymentby a maker of a note- If such notice is given by a notary public it is calledPROTEST1048766 Effect of failure to give notice parties secondarily liableare discharged1048766 Requisites1 Given by holder or his agent or by any party whomay be compelled by the holder to pay2 Given to secondary party or his agent3 Given within the periods provided by law4 Given at the proper place1048766 When notice of dishonor dispensed with1 when party to be notified knows about the dishonoractually or constructively2 if waived and3 when after due diligence it cannot be given1048766 How given1 by bringing verbally or2 by writing to the knowledge of the person liable thefact that a specified instrument upon properproceedings taken has not been accepted or hasnot been paid and that the party notified isexpected to pay it1048766 To whom given1 Non-acceptance (bill) ndash to persons secondarilyliable namely the drawer and indorsers as the casemay be2 Non-payment (both bill and note) ndash indorsersNote Notice must be given to persons secondarilyliable Otherwise such parties are dischargedNotice may be given to the party himself or to hisagent

1048766 By whom given1 the holder2 another on behalf of the holder3 any party to the instrument who may be compelledto pay it to the holder and who would have a rightof reimbursement from the party to whom notice isgiven1048766 Notice of dishonor given by or on behalf of a holderinures to the benefit ofa all parties prior to the holder who have a rightof recourse against the party to whom thenotice is given andb all holders subsequent to the holder givingnotice1048766 Notice of dishonor given by or on behalf of a partyentitled to give notice inures to the benefit ofa the holder andb all parties subsequent to the party to whomnotice is given1048766 Where an instrument is dishonored in the hands of anagent he can do either of the ffa directly give notice to persons secondarilyliable thereon orb give notice to his principal In such case hemust give notice within the time allowed bylaw as if he were a holder1048766 A party giving notice is deemed to have given due noticewherea the notice of dishonor is duly addressed andb deposited in the post-office even when thereis miscarriage of mail1048766 Where a party receives notice of dishonor he has afterthe receipt of such notice the same time for givingnotice to antecedent parties that the holder has afterthe dishonor1048766 Notice may be waived either before the time of givingnotice or after the omission to give due notice Waivermay be expressed or implied1048766 As to who are affected by an express waiver depends onwhere the waiver is written1 if it appears in the body or on the face of theinstrument it binds all parties but2 if it is written above the signature of anindorser it binds him only1048766 Notice of dishonor is not required to be given to thedrawer in any of the ff cases1 drawer and drawee are the same2 drawee is a fictitious person or not having thecapacity to contract3 drawer is the person to whom the instrument ispresented for payment4 the drawer has no right to expect or requirethat the drawee or acceptor will honor theinstrument5 where the drawer has countermandedpayment1048766 Notice of dishonor is not required to be given to anindorser in the ff cases1 drawee is a fictitious person or does not havethe capacity to contract and indorser wasaware of that fact at the time he indorsed theinstrument2 indorser is the person to whom the instrumentis presented for payment3 instrument was made or accepted for his

accommodation1048766 If an instrument is not accepted by the drawee there isno sense presenting it again for payment and notice ofdishonor must at once be given If there wasacceptance presentment for payment is still requiredand if payment is refused there is a need for notice ofdishonor1048766 An omission to give notice of dishonor by non-acceptancedoes not prejudice the rights of a holder in due coursesubsequent to the omissionDishonor by Non-PaymentWhen instrument dishonored by non-paymenta it is duly presented for payment and payment isrefused or cannot be obtained orb presentment is excused and the instrument isoverdue and unpaidEffect of dishonor an immediate right of recourse to allparties secondarily liable thereon accrues to the holderDishonor by Non-AcceptanceInstancesa When it is duly presented for acceptance and suchan acceptance is refused or can not be obtained orb When presentment for acceptance is excused andthe bill is not accepted (sec 149)Effect an immediate right of recourse against thedrawer and indorsers accrues to the holder and nopresentment for payment is necessaryNote where a bill is duly presented for acceptance andis not accepted within the prescribed time (24 hours)the person presenting it must treat the bill as dishonoredby non-acceptanceWhen Instrument Considered to be Dishonoreda If it is not accepted when presented for acceptanceorb If it is not paid when presented for payment atmaturity orc If presentment is excused or waived and theinstrument is past due and unpaidProtest - the formal instrument executed usually by a notarypublic certifying that the legal steps necessary to fix theliability of the drawee and the indorsers have been taken1048766 Effect of waiver where protest is waived presentmentand notice of dishonor are also deemed waived Butwhere the notice of dishonor is waived presentment isnot waived1048766 Applicability protest is necessary only in case of foreignbills of exchange which have been dishonored by nonacceptanceor non-payment as the case may be If it isnot so protested the drawer and indorsers aredischarged1048766 Foreign Bill of Exchange1 Drawn in the Philippines but payable outside thePhilippines2 Payable in the Philippines but drawn outside thePhilippines1048766 Protest may be made by1 a notary public or2 any respectable resident of the place where the billis dishonored in the presence of 2 or more crediblewitnessesProtest for better security is one made by the holder of a billafter it has been accepted but before it matures against thedrawer and indorsers where the acceptor has been adjudgeda bankrupt or an insolvent or has made an assignment forthe benefit of the creditors

VIII DISCHARGEDischarge of instrument - a release of all parties whetherprimary or secondary from the obligations arisingthereunder It renders the instrument without force andeffect and consequently it can no longer be negotiatedInstances1 By payment in due course by or on behalf of theprincipal debtor2 Payment by accommodated party3 Intentional cancellation by the holder4 By any act which will discharge a simple contractfor the payment of money5 When the principal debtor becomes the holder ofthe instrument at or after maturity in his own rightBy any act which would discharge a simple contract1 Payment or performance2 Loss of the thing due3 Condonation or remission4 Confusion or Merger5 Compensation6 Novation7 Annulment or Rescission8 Fulfillment of a resolutory condition9 PrescriptionWhen persons secondarily liable on the instrument aredischarged1 By any act which discharges the instrument2 By the intentional cancellation of his signature bythe holder3 By the discharge of a prior party4 By a valid tender of payment made by a prior party5 By the release of the principal debtor unless theholderrsquos right of recourse against the partysecondarily liable is expressly reserved6 By any agreement binding upon the holder to extendthe time of payment or to postpone the holderrsquosright to enforce the instrument1048766 In the following cases the agreement to extend the timeof payment does not discharge a party secondarily liable1 where the extension of time is consented to by suchparty2 where the holder expressly reserves his right ofrecourse against such party1048766 Payment at or after maturity by a party secondarilyliable does not discharge the instrument It only cancelshis own liability and that of the parties subsequent tohimEffects of Renunciation1 A renunciation in favor of a secondary party may bemade by the holder before at or after maturity ofthe instrument Effect only such secondary party isdischarged and all parties subsequent to him but theinstrument itself remains in force2 A renunciation in favor of the principal debtor maybe effected at or after maturity Effect theinstrument is discharged and all parties theretoprovided the renunciation is made unconditionallyand absolutelyNote In either case renunciation does not affect therights of a holder in due course without notice1048766 Cancellation of an instrument includes tearing erasureobliteration or burning It is not limited to writing ofthe word lsquocancelledrdquo or ldquopaidrdquo or drawing of crisscrosslines across the instrumentPayment for Honor - payment made by a person whether a

party to the bill or not after it has been protested for nonpaymentfor the benefit of any party liable thereon or forthe benefit of the person for whose account it was drawn1048766 Requisites1 the bill has been dishonored by non-payment2 it has been protested for non-payment3 payment supra protest (another term for paymentfor honor because prior protest for non-payment isrequired) is made by any person even by a partythereto4 the payment is attested by a notarial act of honorwhich must be appended to the protest or form anextension of it5 the notarial act must be based on the declarationmade by the payor for honor or his agent of hisintention to pay the bill for honor and for whosehonor he paysNote If the above formalities are not complied withpayment will operate as a mere voluntary payment andthe payor will acquire no right to full reimbursementagainst the party for whose honor he pays1048766 In payment for honor the payee cannot refuse paymentIf he refuses he cannot recover from the parties whowould have been discharged had he accepted the sameIn acceptance for honor the holderrsquos consent isnecessary1048766 The payor for honor is given the right to receive both thebill and the protest obviously to enable him to enforcehis rights against the parties who are liable to himIX CHECKSCheck- a bill of exchange drawn on a bank payable ondemandCheck distinguished from and ordinary bill of exchangeBILLOF EXCHANGE CHECKNot necessarily drawnon a deposit The draweeneed not be a bankIt is necessary that a checkis drawn on a bank depositThe drawee is always abankDeath of a drawer of aBOE with the knowledgeof the bank does notrevoke the authority of thedrawee to payDeath of the drawer of acheck with the knowledgeof the bank revokes theauthority of the banker topayMay be presented forpayment within areasonable time after itslast negotiation because itmay be further negotiatedMust be presented forpayment within areasonable time after itsissueMay be payable on demandor at a fixed ordeterminable future timeAlways payable on demandKinds of checks

1 Managerrsquos Cashierrsquos Check ndash drawn by a bank on itselfand therefore it is a primary obligation of the banko It is accepted in advance by the act of itsissuance and is not subject tocountermand by the payor afterindorsemento The bankrsquos manager signs managerrsquos checkwhile cashierrsquos check is signed by the bankcashier2 Certified Check ndash one drawn by a depositor upon funds tohis credit in a bank which a proper officer of the bankcertifies will be paid when duly presented for payment3 Stale check ndash one which has not been presented forpayment within a reasonable time after its issue4 Crossed check ndash when 2 parallel lines are drawn acrossits face or across a corner thereof If the name of a bankappears between the parallel lines the check is said tobe specially crossed and payment should be made onlyif presented by the named bank If no name appearsbetween the parallel lines the check is said to begenerally crossed and payment should be made onlyupon presentment by some bankEffects of crossing a checka That the check may not be encashed but only bedeposited in the bankb That the check may be negotiated only once to onewho has an account with a bank andc That the act of crossing the check serves as awarning to the holder that the check has beenissued for a definite purpose so that he must inquireif he has received the check pursuant to thatpurpose5 Memorandum Check ndash it is like an ordinary check exceptthat the word ldquomemorandumrdquo ldquomemrdquo or ldquomemordquo iswritten upon the face of the check signifying that thedrawer engages to pay the bona fide holder absolutelyand not upon a condition to pay upon presentment atmaturity and if due notice of the presentment and nonpaymentshould be given6 Travelerrsquos check ndash one upon which the holderrsquos signaturemust appear twice one to be affixed by him at the timeit is issued and the second o counter-signature to beaffixed by him in the presence of the payee before it ispaid otherwise it is incompleteIron Clad Rule Prohibits the countermanding ofpayment of certified checks (Republic of the Philippinesv PNB GR No 16106 December 1 1961)

from whom he derived his title in respect of allparties prior to such holder provided he is nothimself a party to any fraud or illegality affectingthe instrumentV LIABILITIES OF PARTIESPersons primarily liable on instrument the person who bythe terms of the instrument is absolutely required to pay thesame All other parties are secondarily liableClassification of parties according to liabilityIN A PROMISSORYNOTE1 Maker2 Indorser3 Persons negotiating by deliveryIN A BILL OFEXCHANGE1 Drawer2 Acceptor3 Indorsers4 Persons negotiating by delivery1 Parties Primarily Liablea Maker (Sec 60)bull engages to pay according to the tenor of theinstrument andbull admits the existence of the payee and his thencapacity to indorse at the time of the makingof the notebull A person placing his name on the face of a noteis prima facie a maker and liable as such andhe is presumed to have acted with care and tohave signed the instrument with full knowledgeof its contentsb Acceptor or Drawee (Sec 62)bull engages to pay according to the tenor of hisacceptancebull admits1 the existence of the drawer2 the genuineness of his signature and3 his capacity and authority to draw theinstrument and4 the existence of the payee and his thencapacity to indorseNote the drawee is not liable until he acceptsthe instrumentbull Where a check is certified by a bank it isequivalent to an acceptance Since certification isequivalent to acceptance a bank which hascertified a check whether at the request of theholder or of a drawer has the same liabilities andmakes the same warranties as an acceptor Itcannot after certification question thegenuineness of the drawerrsquos signature If itdiscovers that such signature is forged subsequentto certification but prior to payment it cannotrefuse to pay on the check If its discovery comesafter it has paid the check it cannot recoverback what it paid on the ground of mistakenpayment unless the holder is guilty of fraud ornegligencebull If a drawee-bank accepts or pays a check despitea stop payment order from the drawer throughoversight or otherwise it cannot refuse to paythe holder or recover what has been paid neithermay it debit the drawerrsquos account unless theacceptance nor payment was made prior to the

receipt of the order2 Parties Secondarily Liablea Drawer (Sec 61)bull admits the existence of the payee and hiscapacity to indorsebull engages that the instrument will be acceptedor paid by the party primarily liable andbull engages that if the instrument is dishonoredand proper proceedings are brought he willpay to the party entitled to be paidb General Indorser (Sec 66)bull Warrants1 genuineness of the instrument2 his good title to it3 capacity to contract of prior parties and4 instrument is valid and subsistingbull engages that the instrument will be acceptedor paid by the party primarily liable andbull engages that if the instrument is dishonoredand proper proceedings are taken he will payto the party entitled to be paidc Irregular Indorser ndash a person not otherwise a partyto an instrument places his signature thereon inblank before deliveryRulesbull If instrument payable to the order of a 3rdperson he is liable to the payee andsubsequent partiesbull If instrument payable to order of maker ordrawer he is liable to all parties subsequent tothe maker or drawerbull If he signs for accommodation of the payee heis liable to all parties subsequent to the payeeDistinctionsPRIMARY PARTY SECONDARY PARTY1 Unconditionally bound2Absolutely required topay upon the maturity ofthe instrument1 Conditionally bound2 Undertakes to pay onlyafter certain conditionshave been fulfilleda due presentment forpayment or acceptance toprimary partyb dishonor by suchparty andc the taking ofproceedings required bylaw after dishonorINDORSER DRAWER1 A party to either a noteor a bill2 Does not make anyadmission regarding theexistence of the payee andhis capacity to indorse and3 Has warranties1 A party only to a bill2 The drawer makes suchadmission3 Makes no warranties buthe engages to pay aftercertain conditions are

complied withGENERAL INDORSER IRREGULAR INDORSER1 Makes either a blank orspecial indorsement2 Indorses the instrumentafter its delivery to thepayee and3 Liable only to partiessubsequent to him1 Always makes a blankindorsement2 Indorses before itsdelivery3 Liable to the payee andsubsequent parties unlesshe signs for theaccommodation of thepayee in which case he isliable only to all partiessubsequent to the payee3 Parties with Limited Liability (sec 65 MetropolFinancing v Sambok 120 SCRA 864)a Qualified Indorser - warrants that1048766 instrument is genuine and in all respects whatit purports to be1048766 he has good title to it1048766 all prior parties had capacity to contract1048766 he has no knowledge of any fact which wouldimpair the validity of the instrument or renderit valuelessb Persons Negotiating by Delivery1048766 warranties same as those of qualified indorsersand1048766 warranties extend to immediate transfereeonlyLIABILITY WARRANTY1 To pay a sum certain2 Requires Notice ofDishonor3 Action can be broughtonly on maturity ofinstrument1 No obligation to pay2 Notice of Dishonor is not arequirement3 Action may be broughtanytimeBY MERE DELIVERY OR BYQUALIFIED INDORSEMENTGENERAL INDORSER1 No secondary liability1 With secondary liability2 Warrants that he has noknowledge of any factwhich would impair thevalidity of the instrumentor render it valueless2 Warrants that theinstrument is at the timeof his indorsement validand subsisting4 Other parties who may be liableGeneral Rule One whose signature does not appear on theinstrument shall not be liable thereonExceptions

1 The principal who signs through an agent is liable2 The forger is liable3 One who indorses in a separate instrument (allonge) isliable4 One who signs his assumed or trade name is liable and5 A person negotiating by delivery (as in the case of abearer instrument) is liable to his immediate indorseeRequisites for an Agent to escape liability1 must be duly authorized2 add words to his signature indicating that he signs as anagent that is for or on behalf of a principal or in arepresentative capacity and3 disclose his principal1048766 A signature by ldquoprocurationrdquo operates as notice that theagent has but a limited authority to sign and theprincipal is bound only in case the agent in so signingacted within the actual limits of his authority (sec 21)1048766 Indorsement or assignment of the NI by a corporation orby an infant passes the property thereinnotwithstanding that from want of capacity thecorporation or infant may incur no liability thereon(sec 22)Accomodation PartyOne who has signed the instrument as maker draweracceptor or indorser without receiving value therefor andfor the purpose of lending his name to some other person1048766 Liability such a person is liable on the instrument to aholder for value notwithstanding such holder at thetime of taking the instrument knew him to be only anaccommodation party1048766 Effects1 accommodation party is generally regarded as asurety for the party accommodated2 When accommodation party makes payment toholder of the note he has the right to sue theaccommodated party for reimbursement1048766 Rights of accommodation parties as against each otherthe other may demand contribution from his coaccommodationparty without first directing his actionagainst the principal debtor provided1 he made the payment by virtue of judicial demandor2 the principal debtor is insolventNote A corporation cannot act as an accommodationparty The issuance or indorsement of negotiableinstrument by a corporation without consideration andfor the accommodation of another is ultra vires(Crisologo v CA 117 SCRA 594)Order of liability of indorsers1 among themselves ndash indorsers are liable prima facie inthe order in which they indorse but evidence isadmissible to show that as between or amongthemselves they have agreed otherwise (sec 68)2 to the holder ndash indorsers are liable in any orderVI DEFENSESKinds1 RealAbsolute Defenses - those that attach to theinstrument itself and are available against all holderswhether in due course or notExamplesa Alterationb Non-delivery of incomplete instrumentc Duress amounting to forgeryd Fraud in factum or fraud in esse contractuse Minority

f Marriage in the case of a wifeg Insanity where the insane person has a guardianappointed by the courth Ultra vires acts of a corporation where thecorporation is absolutely prohibited by its charter orstatute from issuing any commercial paper underany circumstancesi Want of authority of agentj Execution of instrument between public enemiesk Illegality of contract where it is the contract orinstrument itself which is expressly made illegal bystatute andl Forgery2 PersonalEquitable Defenses ndash those which are availableonly against a person not a holder in due course or asubsequent holder who stands in privity with himExamplesa Absence or failure of consideration partial or totalb Want of delivery of complete instrumentc Insertion of wrong date in an instrument where it ispayable at a fixed period after date and it is issuedundated or where it is payable at a fixed periodafter sight and the acceptance is undatedd Filling up of blank contrary to authority given or notwithin reasonable time where the instrument isdeliverede Fraud in inducementf Acquisition of instrument by force duress or fearg Acquisition of the instrument by unlawful meansh Acquisition of the instrument for an illegalconsiderationi Negotiation in breach of faithj Negotiation under circumstances that amount tofraudk Mistakel Intoxication (according to better authority)m Ultra vires acts of corporations where thecorporation has the power to issue negotiable paperbut the issuance was not authorized for theparticular purpose for which it was issuedn Want of authority of agent where he haso apparent authorityp Insanity where there is no notice of insanity on thepart of the one contracting with the insane personandq Illegality of contract where the form orconsideration is illegalFRAUD IN FACTUM FRAUD IN INDUCEMENT1 It exists in those cases inwhich a person withoutnegligence has signed aninstrument which was infact a negotiableinstrument but wasdeceived as to thecharacter of the instrumentand without knowledge ofits as where a not wassigned by one under thebelief that he was signingas a witness to a deed1 It is that which relatedto the quality quantityvalue or character of theconsideration of the

instrument In this casethe signer is led bydeception to execute whathe knows is a negotiableinstrument It implies thatthe signer knew what hewas signing but that he wasinduced by fraud to sign2 This kind of fraud is areal defense because thereis no contract It impliesthat the person did notknow what he was signingBut where the signer by theexercise of reasonablediligence could havediscovered the nature ofthe instrument the fraudcannot be considered a realdefense as where a personwho can read signed a notebut failed to read it2 Such type of fraud is onlya personal defense becauseit does not prevent acontract1048766 Effects of Defenses1 Complete and undelivered instrumentbull as between immediate parties and as regards aremote party other than a holder in due course thedelivery must be authorized in order to be effectualbull where the instrument is in the hands of a holder indue course a valid delivery thereof by all partiesprior to him so as to make them liable to him isconclusively presumedbull where the instrument is no longer in the possessionof a party whose signature appears thereon a validand intentional delivery by him is presumed untilthe contrary is proved2 Incomplete but delivered instrumentbull where the instrument is wanting in any materialparticular the person in possession thereof has aprima facie authority to complete it by filling up theblanks thereinbull it must be filled up strictly in accordance with theauthority given and within a reasonable timebull if any such instrument after completion isnegotiated to a holder in due course it is valid andeffectual for all purposes in his hands and he mayenforce it as if it had been filled up strictly inaccordance with the authority given and within areasonable time3 Incomplete and undelivered instrumentbull it will not if completed and negotiated withoutauthority be a valid contract in the hands of anyholder as against any person whose signature wasplaced thereon before deliverybull However subsequent indorsers are liable4 Forgerybull counterfeit making or fraudulent alteration of anywriting which may consist of1 signing of anotherrsquos name with intent todefraud or2 alteration of an instrument in the nameamount name of payee etc with intent to

defraudbull Effect signature is wholly inoperative and no rightto retain the instrument or to give a dischargetherefore or to enforce payment thereof againstany party thereto can be acquired through or undersuch signaturebull Exception unless the party against whom it issought to enforce such right is precluded fromsetting up the forgery or want of authoritybull Cut-Off RuleGeneral Rule Parties prior to the forged signatureare cut-off from the parties after the forgery in thesense that prior parties cannot be held liable andcan raise the defense of forgery The holder canonly enforce the instrument against parties whobecame such after the forgeryException When the prior parties are precludedfrom setting up the defense of forgeryPersons precluded from setting up the defense offorgery are1 Those who by their acts silence or negligenceare estopped from setting up the defense offorgery2 Those who warrant or admit the genuineness ofthe signature in question These include acts oromissions that amount to ratification expressor impliedNote Persons precluded from setting up thedefense of forgery may still recover damages underthe NCC provisions on quasi-delictsbull Rules on ForgeryA Promissory Notes1 Makerrsquos signature forgedOrder Instrumenta Maker is not liable because he neverbecame a party to the instrumentb Indorsers subsequent to forgery are liablebecause of their warrantiesc Party who made the forgery is liableBearer Instrumenta Maker is not liableb Indorsers may be made liable to thosepersons who obtain title through theirindorsementsc Party who made the forgery is liable2 Payeersquos signature forgedOrder Instrumenta Maker and payee not liableb Indorsers subsequent to the forgery isliablec Party who made the forgery is liableBearer Instrumenta Maker is liable Indorsement is notnecessary to title and the maker engagesto pay holderb Party who made the forgery is liable3 Indorserrsquos signature forgedOrder Instrumenta Maker payee and indorser who signaturewas forged is not liableb Indorsers subsequent to forgery are liablebecause of their warrantiesc Party who made the forgery is liableBearer Instrumenta Maker is liable Indorsement is not

necessary to title and the maker engagesto pay holderb Indorser whose signature was forged is notliablec Party who made the forgery is liableB Bill of Exchange1 Drawerrsquos signature forgedIn an Order Instrumenta Drawer is not liableb Drawee is liable if it paid (nor recourse todrawer) because he admitted thegenuineness of the drawerrsquos signatureDrawee cannot recover from the collectingbank because there is no privity betweenthe collecting bank and the drawer Thereis no warranty as to the signature of thedrawer (Associated Bank v CA)c Indorsers subsequent to forgery are liabled Party who made the forgery is liableIn a Bearer Instrumenta Drawer is not liableb Drawee is liable if it paid Drawee cannotrecover from the collecting bank becauseit is bound to known the drawerrsquossignature since the latter is its depositorc Party who made the forgery is liable2 Payeersquos signature forgedOrder Instrumenta Drawer drawee and payee not liable Cutoffrule appliesb Indorsers subsequent to forgery are liablec Party who made the forgery is liableBearer Instrumenta Drawer is liable His indorsement is notnecessary to pass titleb Drawee is liable No privity betweendrawer and payee because indorsement ofpayee is not necessary (Ang Tek Lian case87 SCRA 383)c Payee is not liabled Collecting bank is liable because ofwarrantye Party who made the forgery is liable3 Indorserrsquos signature forgedOrder Instrumenta Drawer payee and indorser whosesignature was forged are not liableb Drawee is liable if it paidc Indorsers subsequent to forgery are liabled Party who made the forgery is liableBearer Instrumenta Drawer is liable Indorsement is notnecessary to pass titleb Drawee is liablec Indorser whose signature was forged isliable because indorsement is notnecessary to pass titled Party who made the forgery is liable5 Alterationbull Effect the instrument is avoidedbull Exceptions1 against a party who has himself madeauthorized or assented to the alteration2 subsequent indorsers3 holder in due course not a party to the

alteration - he may enforce payment accordingto its original tenorbull Changes constituting material alteration1 date2 sum payable either for principal or interest3 time or place of payment4 number or relations of the parties5 medium or currency in which payment is to bemade6 that which adds a place of payment where noplace of payment is specified and7 any other change or addition which alters theeffect of the instrument in any respectNote a material alteration is one that alters theeffect of the instrument one which changes theitems required to be stated under Sec 1 NILbull Spoliation ndash alteration made by a strangerbull The general rule denies the drawee bankrsquos right tocharge against the drawerrsquos account the amount ofan altered check However the latterrsquos negligencebefore or after the alteration may estop him fromsetting such alteration as against an innocentdrawee bank who has paid the checkbull In cases of altered checks and checks with forgedindorsements the drawee bank must notify andreturn them to the collecting bank before 400 pmof the next day of clearing but the drawee bankmay still return them even after such time providedhe does so within 24 hours from its discovery of thealteration or forged instruments so that recovery ofthe amount may be had BUT in no event beyondthe period fixed or provided by law for filing of alegal action by the returning bank against the banksending the sameNote Alteration is only a partial real defensebecause a holder in due course can still enforce itaccording to its original tenorVII ENFORCEMENT OF LIABILITYPresentment for payment ndash the presentation of aninstrument to the person primarily liable for the purpose ofdemanding and receiving paymentGeneral Rulesbull presentment for payment to charge personsprimarily liable is not necessarybull presentment for payment to charge personssecondarily liable is necessaryExceptionsa drawer - where he has no right to expect or requirethat the drawee or acceptor will pay the instrument(sec 79)b indorser - where the instrument was made oraccepted for his accommodation and he has noreason to expect that the instrument will be paid ifpresentedc when dispensedi where after the exercise of reasonablediligence presentment as required cannotbe madeii where the drawee is a fictitious personiii by waiver of presentment express orimplied (sec 82)d when the instrument has been dishonored by nonacceptance(sec 151)Sufficiency of presentmentIt must be

1 made by the holder or any person authorized toreceive payment on his behalf2 at a reasonable hour on a business day3 at a proper place4 to the person primarily liable or if he is absent orinaccessible to any person found at the placewhere the presentment is madeHow made1 personal demand for payment at the proper place and2 readiness to exhibit the instrument if required and toreceive payment and to surrender the instrument if thedebtor is willing to paybull Purpose of exhibitionTo enable the debtor toa determine the genuineness of the instrument andthe right of the holder to receive payment andb to enable him to reclaim possession upon paymentbull When exhibition excuseda when debtor does not demand to see the instrumentbut refuses payment on some other grounds andb when the instrument is lost or destroyedWhen madebull where the instrument is payable at a fixed ordeterminable future time presentment must be madeon the day it falls duebull where it is payable on demanda promissory note presentment must be made withina reasonable time after its issueb bill of exchange presentment for payment will besufficient if made within a reasonable time afterthe last negotiation thereofbull the check must be presented for payment within areasonable time after its issue or the drawer will bedischarged from liability thereon to the extent of theloss caused by the delayTime of maturitybull every negotiable instrument is payable at the time fixedtherein without gracebull when the day of maturity falls upon a Sunday or aholiday the instruments are to be presented forpayment on the next succeeding business daybull when the day of maturity falls upon a Saturday1048766 Instrument is payable at a fixed or determinablefuture time (time instrument) - presented forpayment is on the next succeeding business day1048766 instruments is payable on demand - at the option ofthe holder be presented for paymenta before 1200 noon on Saturday whenthat entire day is not a holiday orb the next succeeding business dayHow computed1048766 excluding the day from which the time is to begin torun and by including the date of payment1048766 applies to instruments which are payable at a fixedperiod after date after sight or after thathappening of a specified eventProper place for presentmenta Where a place of payment is specified in the instrumentand it is there presentedb Where no place of payment is specified but the addressof the person to make payment is given in theinstrument and it is there presentedc Where no place of payment is specified and no address isgiven and the instrument is presented at the usual placeof business or residence of the person to make payment

d In any other case if presented to the person to makepayment wherever he can be found or if presented athis last known place of business or residenceWhen delay in presentment excused ndash delay is caused bycircumstances beyond the control of the holder and notimputable to his default misconduct or negligence Whenthe cause of delay ceases to operate presentment must bemade with reasonable diligencePresentment for acceptance ndash the production or exhibitionof a bill of exchange to the drawee for his acceptance orpaymentGeneral Rule presentment for acceptance is not necessary torender any party to the bill liableException presentment for acceptance must be madea Where the bill is payable after sight or wherepresentment for acceptance is necessary in order tofix the maturity of the instrument orb Where the bill expressly stipulates that it shall bepresented for acceptance orc Where the bill is drawn payable elsewhere then atthe residence or place of business of the drawee(sec 143)Note in all the above cases the holder must either presentthe bill for acceptance or negotiate it within a reasonabletime otherwise the drawer and all indorsers are dischargedHow made1 made by or on behalf of the holder2 at a reasonable hour3 on a business day4 before the bill is overdue and within reasonabletime5 to the drawee or some person authorized to acceptor refuse acceptance on his behalfDays presentment may be made If date of presentment isa Sunday or a holiday ndash must be made on the nextsucceeding business dayb Saturday ndash before 1200 noon on Saturday providedthat it is not a holidayWhen delay for presentment excuseda bill is drawn payable elsewhere than at the place ofbusiness or the residence of the draweeb holder has no time with the exercise of reasonablediligence to present the bill for acceptance beforepresenting it for payment on the day that it fallsdueEffect does not discharge the drawers and indorsersWhere presentment is excuseda Where the drawee is dead or has absconded or is afictitious person or a person not having capacity tocontract by billb Where presentment can not be made after theexercise of reasonable diligencec Where although presentment has been irregularacceptance has been refused on some other groundNote bill may be treated as dishonored by nonacceptanceDuty of holder where bill not accepted - where a bill isduly presented for acceptance and is not accepted within theprescribed time (24 hours ndash sec 136) the person presentingit must treat the bill as dishonored by non-acceptance or heloses the right of recourse against the drawer and indorsersAcceptance the signification by the drawee of his assent tothe order of the drawer It is the act by which the draweemanifests his consent to comply with the request containedin the bill of exchange directed to himHow made

1) must be in writing2) signed by the drawee3) must not express that the drawee will perform hispromise by any other means than the payment ofmoneybull the holder of the bill presenting the same for acceptancemay require that the acceptance be written on the billand if such request is refused may treat the bill asdishonoredbull where an acceptance is written on a paper other thanthe bill itself it does not bind the acceptor except infavor of a person to whom it is shown and who on thefaith thereof receives the bill for valuePeriod for drawee to accept - allowed 24 hours afterpresentment in which to decide whether or not he will acceptthe bill if acceptance is given it dates as of the day ofpresentationConstructiveImplied acceptance where a drawee refuseswithin 24 hours after delivery or within such other period asthe holder may allow to return the bill accepted or nonacceptedto the holder he will be deemed to have acceptedthe sameNote same effect if the drawee destroys the instrumentKinds1 General - assents without qualification to the order ofthe drawer2 Qualified - which in express terms varies the effect ofthe bill as drawna Conditional - makes payment by the acceptordependent on the fulfillment of a conditiontherein statedb Partial - an acceptance to pay part only of theamount for which the bill is drawni Local - an acceptance to pay only at aparticular placeii Qualified as to timeiii The acceptance of some one or more ofthe drawees but not of all3 ConstructiveRights of parties as to qualified acceptancebull Holder he may refuse to take a qualified acceptanceand if he does not obtain an unqualified acceptance hemay treat the bill as dishonored by non-acceptancebull Drawer or indorser when he receives notice of aqualified acceptance he must within a reasonable timeexpress his dissent to the holder or he will be deemed tohave assented thereto (implied assent)Effect of taking a qualified acceptance the drawer andindorsers are discharged from liability on the bill unless theyhave expressly or impliedly authorized the holder to take aqualified acceptance or subsequently assent theretoOther rules of acceptancebull a bill may be accepted before it has been signed by thedrawer or while otherwise incomplete or when it isoverdue or after it has been dishonored by a previousrefusal to accept or by non paymentbull when a bill payable after sight is dishonored by nonacceptanceand the drawee subsequently accepts it theholder in the absence of any different agreement isentitled to have the bill accepted as of the date of thefirst presentmentbull an unconditional promise in writing to accept a billbefore it is drawn is deemed an actual acceptancein favor of every person who upon the faiththereof receives the bill for value

bull where a check is certified by the bank on which it isdrawn the certification is equivalent to anacceptanceEffect the drawer and all indorsers are dischargedfrom liability thereonAcceptance for Honor - an undertaking by a stranger to a billafter protest for the benefit of any party liable thereon or forthe honor of the person for whose account the bill is drawnwhich acceptance inures also to the benefit of all partiessubsequent to the person for whose honor it is accepted andconditioned to pay the bill when it becomes due if theoriginal drawee does not pay it1048766 Requisites1 the bill must have been protested for dishonorby non-acceptance or for better security2 the acceptor for honor must be a stranger andnot a party already liable on the instrument3 bill must not be overdue4 acceptance for honor must be with the consentof the holder of the instrument1048766 Formalities1 must be in writing2 must indicate that it is an acceptance forhonor3 signed by the acceptor for honor4 must contain an express or implied promise topay money5 the accepted bill for honor must be deliveredto the holderNotice of Dishonor - notice given by the holder or his agentto a party or parties secondarily liable that the instrumentwas dishonored by non-acceptance by the drawee of a bill orby non-payment by the acceptor of a bill or by non-paymentby a maker of a note- If such notice is given by a notary public it is calledPROTEST1048766 Effect of failure to give notice parties secondarily liableare discharged1048766 Requisites1 Given by holder or his agent or by any party whomay be compelled by the holder to pay2 Given to secondary party or his agent3 Given within the periods provided by law4 Given at the proper place1048766 When notice of dishonor dispensed with1 when party to be notified knows about the dishonoractually or constructively2 if waived and3 when after due diligence it cannot be given1048766 How given1 by bringing verbally or2 by writing to the knowledge of the person liable thefact that a specified instrument upon properproceedings taken has not been accepted or hasnot been paid and that the party notified isexpected to pay it1048766 To whom given1 Non-acceptance (bill) ndash to persons secondarilyliable namely the drawer and indorsers as the casemay be2 Non-payment (both bill and note) ndash indorsersNote Notice must be given to persons secondarilyliable Otherwise such parties are dischargedNotice may be given to the party himself or to hisagent

1048766 By whom given1 the holder2 another on behalf of the holder3 any party to the instrument who may be compelledto pay it to the holder and who would have a rightof reimbursement from the party to whom notice isgiven1048766 Notice of dishonor given by or on behalf of a holderinures to the benefit ofa all parties prior to the holder who have a rightof recourse against the party to whom thenotice is given andb all holders subsequent to the holder givingnotice1048766 Notice of dishonor given by or on behalf of a partyentitled to give notice inures to the benefit ofa the holder andb all parties subsequent to the party to whomnotice is given1048766 Where an instrument is dishonored in the hands of anagent he can do either of the ffa directly give notice to persons secondarilyliable thereon orb give notice to his principal In such case hemust give notice within the time allowed bylaw as if he were a holder1048766 A party giving notice is deemed to have given due noticewherea the notice of dishonor is duly addressed andb deposited in the post-office even when thereis miscarriage of mail1048766 Where a party receives notice of dishonor he has afterthe receipt of such notice the same time for givingnotice to antecedent parties that the holder has afterthe dishonor1048766 Notice may be waived either before the time of givingnotice or after the omission to give due notice Waivermay be expressed or implied1048766 As to who are affected by an express waiver depends onwhere the waiver is written1 if it appears in the body or on the face of theinstrument it binds all parties but2 if it is written above the signature of anindorser it binds him only1048766 Notice of dishonor is not required to be given to thedrawer in any of the ff cases1 drawer and drawee are the same2 drawee is a fictitious person or not having thecapacity to contract3 drawer is the person to whom the instrument ispresented for payment4 the drawer has no right to expect or requirethat the drawee or acceptor will honor theinstrument5 where the drawer has countermandedpayment1048766 Notice of dishonor is not required to be given to anindorser in the ff cases1 drawee is a fictitious person or does not havethe capacity to contract and indorser wasaware of that fact at the time he indorsed theinstrument2 indorser is the person to whom the instrumentis presented for payment3 instrument was made or accepted for his

accommodation1048766 If an instrument is not accepted by the drawee there isno sense presenting it again for payment and notice ofdishonor must at once be given If there wasacceptance presentment for payment is still requiredand if payment is refused there is a need for notice ofdishonor1048766 An omission to give notice of dishonor by non-acceptancedoes not prejudice the rights of a holder in due coursesubsequent to the omissionDishonor by Non-PaymentWhen instrument dishonored by non-paymenta it is duly presented for payment and payment isrefused or cannot be obtained orb presentment is excused and the instrument isoverdue and unpaidEffect of dishonor an immediate right of recourse to allparties secondarily liable thereon accrues to the holderDishonor by Non-AcceptanceInstancesa When it is duly presented for acceptance and suchan acceptance is refused or can not be obtained orb When presentment for acceptance is excused andthe bill is not accepted (sec 149)Effect an immediate right of recourse against thedrawer and indorsers accrues to the holder and nopresentment for payment is necessaryNote where a bill is duly presented for acceptance andis not accepted within the prescribed time (24 hours)the person presenting it must treat the bill as dishonoredby non-acceptanceWhen Instrument Considered to be Dishonoreda If it is not accepted when presented for acceptanceorb If it is not paid when presented for payment atmaturity orc If presentment is excused or waived and theinstrument is past due and unpaidProtest - the formal instrument executed usually by a notarypublic certifying that the legal steps necessary to fix theliability of the drawee and the indorsers have been taken1048766 Effect of waiver where protest is waived presentmentand notice of dishonor are also deemed waived Butwhere the notice of dishonor is waived presentment isnot waived1048766 Applicability protest is necessary only in case of foreignbills of exchange which have been dishonored by nonacceptanceor non-payment as the case may be If it isnot so protested the drawer and indorsers aredischarged1048766 Foreign Bill of Exchange1 Drawn in the Philippines but payable outside thePhilippines2 Payable in the Philippines but drawn outside thePhilippines1048766 Protest may be made by1 a notary public or2 any respectable resident of the place where the billis dishonored in the presence of 2 or more crediblewitnessesProtest for better security is one made by the holder of a billafter it has been accepted but before it matures against thedrawer and indorsers where the acceptor has been adjudgeda bankrupt or an insolvent or has made an assignment forthe benefit of the creditors

VIII DISCHARGEDischarge of instrument - a release of all parties whetherprimary or secondary from the obligations arisingthereunder It renders the instrument without force andeffect and consequently it can no longer be negotiatedInstances1 By payment in due course by or on behalf of theprincipal debtor2 Payment by accommodated party3 Intentional cancellation by the holder4 By any act which will discharge a simple contractfor the payment of money5 When the principal debtor becomes the holder ofthe instrument at or after maturity in his own rightBy any act which would discharge a simple contract1 Payment or performance2 Loss of the thing due3 Condonation or remission4 Confusion or Merger5 Compensation6 Novation7 Annulment or Rescission8 Fulfillment of a resolutory condition9 PrescriptionWhen persons secondarily liable on the instrument aredischarged1 By any act which discharges the instrument2 By the intentional cancellation of his signature bythe holder3 By the discharge of a prior party4 By a valid tender of payment made by a prior party5 By the release of the principal debtor unless theholderrsquos right of recourse against the partysecondarily liable is expressly reserved6 By any agreement binding upon the holder to extendthe time of payment or to postpone the holderrsquosright to enforce the instrument1048766 In the following cases the agreement to extend the timeof payment does not discharge a party secondarily liable1 where the extension of time is consented to by suchparty2 where the holder expressly reserves his right ofrecourse against such party1048766 Payment at or after maturity by a party secondarilyliable does not discharge the instrument It only cancelshis own liability and that of the parties subsequent tohimEffects of Renunciation1 A renunciation in favor of a secondary party may bemade by the holder before at or after maturity ofthe instrument Effect only such secondary party isdischarged and all parties subsequent to him but theinstrument itself remains in force2 A renunciation in favor of the principal debtor maybe effected at or after maturity Effect theinstrument is discharged and all parties theretoprovided the renunciation is made unconditionallyand absolutelyNote In either case renunciation does not affect therights of a holder in due course without notice1048766 Cancellation of an instrument includes tearing erasureobliteration or burning It is not limited to writing ofthe word lsquocancelledrdquo or ldquopaidrdquo or drawing of crisscrosslines across the instrumentPayment for Honor - payment made by a person whether a

party to the bill or not after it has been protested for nonpaymentfor the benefit of any party liable thereon or forthe benefit of the person for whose account it was drawn1048766 Requisites1 the bill has been dishonored by non-payment2 it has been protested for non-payment3 payment supra protest (another term for paymentfor honor because prior protest for non-payment isrequired) is made by any person even by a partythereto4 the payment is attested by a notarial act of honorwhich must be appended to the protest or form anextension of it5 the notarial act must be based on the declarationmade by the payor for honor or his agent of hisintention to pay the bill for honor and for whosehonor he paysNote If the above formalities are not complied withpayment will operate as a mere voluntary payment andthe payor will acquire no right to full reimbursementagainst the party for whose honor he pays1048766 In payment for honor the payee cannot refuse paymentIf he refuses he cannot recover from the parties whowould have been discharged had he accepted the sameIn acceptance for honor the holderrsquos consent isnecessary1048766 The payor for honor is given the right to receive both thebill and the protest obviously to enable him to enforcehis rights against the parties who are liable to himIX CHECKSCheck- a bill of exchange drawn on a bank payable ondemandCheck distinguished from and ordinary bill of exchangeBILLOF EXCHANGE CHECKNot necessarily drawnon a deposit The draweeneed not be a bankIt is necessary that a checkis drawn on a bank depositThe drawee is always abankDeath of a drawer of aBOE with the knowledgeof the bank does notrevoke the authority of thedrawee to payDeath of the drawer of acheck with the knowledgeof the bank revokes theauthority of the banker topayMay be presented forpayment within areasonable time after itslast negotiation because itmay be further negotiatedMust be presented forpayment within areasonable time after itsissueMay be payable on demandor at a fixed ordeterminable future timeAlways payable on demandKinds of checks

1 Managerrsquos Cashierrsquos Check ndash drawn by a bank on itselfand therefore it is a primary obligation of the banko It is accepted in advance by the act of itsissuance and is not subject tocountermand by the payor afterindorsemento The bankrsquos manager signs managerrsquos checkwhile cashierrsquos check is signed by the bankcashier2 Certified Check ndash one drawn by a depositor upon funds tohis credit in a bank which a proper officer of the bankcertifies will be paid when duly presented for payment3 Stale check ndash one which has not been presented forpayment within a reasonable time after its issue4 Crossed check ndash when 2 parallel lines are drawn acrossits face or across a corner thereof If the name of a bankappears between the parallel lines the check is said tobe specially crossed and payment should be made onlyif presented by the named bank If no name appearsbetween the parallel lines the check is said to begenerally crossed and payment should be made onlyupon presentment by some bankEffects of crossing a checka That the check may not be encashed but only bedeposited in the bankb That the check may be negotiated only once to onewho has an account with a bank andc That the act of crossing the check serves as awarning to the holder that the check has beenissued for a definite purpose so that he must inquireif he has received the check pursuant to thatpurpose5 Memorandum Check ndash it is like an ordinary check exceptthat the word ldquomemorandumrdquo ldquomemrdquo or ldquomemordquo iswritten upon the face of the check signifying that thedrawer engages to pay the bona fide holder absolutelyand not upon a condition to pay upon presentment atmaturity and if due notice of the presentment and nonpaymentshould be given6 Travelerrsquos check ndash one upon which the holderrsquos signaturemust appear twice one to be affixed by him at the timeit is issued and the second o counter-signature to beaffixed by him in the presence of the payee before it ispaid otherwise it is incompleteIron Clad Rule Prohibits the countermanding ofpayment of certified checks (Republic of the Philippinesv PNB GR No 16106 December 1 1961)

receipt of the order2 Parties Secondarily Liablea Drawer (Sec 61)bull admits the existence of the payee and hiscapacity to indorsebull engages that the instrument will be acceptedor paid by the party primarily liable andbull engages that if the instrument is dishonoredand proper proceedings are brought he willpay to the party entitled to be paidb General Indorser (Sec 66)bull Warrants1 genuineness of the instrument2 his good title to it3 capacity to contract of prior parties and4 instrument is valid and subsistingbull engages that the instrument will be acceptedor paid by the party primarily liable andbull engages that if the instrument is dishonoredand proper proceedings are taken he will payto the party entitled to be paidc Irregular Indorser ndash a person not otherwise a partyto an instrument places his signature thereon inblank before deliveryRulesbull If instrument payable to the order of a 3rdperson he is liable to the payee andsubsequent partiesbull If instrument payable to order of maker ordrawer he is liable to all parties subsequent tothe maker or drawerbull If he signs for accommodation of the payee heis liable to all parties subsequent to the payeeDistinctionsPRIMARY PARTY SECONDARY PARTY1 Unconditionally bound2Absolutely required topay upon the maturity ofthe instrument1 Conditionally bound2 Undertakes to pay onlyafter certain conditionshave been fulfilleda due presentment forpayment or acceptance toprimary partyb dishonor by suchparty andc the taking ofproceedings required bylaw after dishonorINDORSER DRAWER1 A party to either a noteor a bill2 Does not make anyadmission regarding theexistence of the payee andhis capacity to indorse and3 Has warranties1 A party only to a bill2 The drawer makes suchadmission3 Makes no warranties buthe engages to pay aftercertain conditions are

complied withGENERAL INDORSER IRREGULAR INDORSER1 Makes either a blank orspecial indorsement2 Indorses the instrumentafter its delivery to thepayee and3 Liable only to partiessubsequent to him1 Always makes a blankindorsement2 Indorses before itsdelivery3 Liable to the payee andsubsequent parties unlesshe signs for theaccommodation of thepayee in which case he isliable only to all partiessubsequent to the payee3 Parties with Limited Liability (sec 65 MetropolFinancing v Sambok 120 SCRA 864)a Qualified Indorser - warrants that1048766 instrument is genuine and in all respects whatit purports to be1048766 he has good title to it1048766 all prior parties had capacity to contract1048766 he has no knowledge of any fact which wouldimpair the validity of the instrument or renderit valuelessb Persons Negotiating by Delivery1048766 warranties same as those of qualified indorsersand1048766 warranties extend to immediate transfereeonlyLIABILITY WARRANTY1 To pay a sum certain2 Requires Notice ofDishonor3 Action can be broughtonly on maturity ofinstrument1 No obligation to pay2 Notice of Dishonor is not arequirement3 Action may be broughtanytimeBY MERE DELIVERY OR BYQUALIFIED INDORSEMENTGENERAL INDORSER1 No secondary liability1 With secondary liability2 Warrants that he has noknowledge of any factwhich would impair thevalidity of the instrumentor render it valueless2 Warrants that theinstrument is at the timeof his indorsement validand subsisting4 Other parties who may be liableGeneral Rule One whose signature does not appear on theinstrument shall not be liable thereonExceptions

1 The principal who signs through an agent is liable2 The forger is liable3 One who indorses in a separate instrument (allonge) isliable4 One who signs his assumed or trade name is liable and5 A person negotiating by delivery (as in the case of abearer instrument) is liable to his immediate indorseeRequisites for an Agent to escape liability1 must be duly authorized2 add words to his signature indicating that he signs as anagent that is for or on behalf of a principal or in arepresentative capacity and3 disclose his principal1048766 A signature by ldquoprocurationrdquo operates as notice that theagent has but a limited authority to sign and theprincipal is bound only in case the agent in so signingacted within the actual limits of his authority (sec 21)1048766 Indorsement or assignment of the NI by a corporation orby an infant passes the property thereinnotwithstanding that from want of capacity thecorporation or infant may incur no liability thereon(sec 22)Accomodation PartyOne who has signed the instrument as maker draweracceptor or indorser without receiving value therefor andfor the purpose of lending his name to some other person1048766 Liability such a person is liable on the instrument to aholder for value notwithstanding such holder at thetime of taking the instrument knew him to be only anaccommodation party1048766 Effects1 accommodation party is generally regarded as asurety for the party accommodated2 When accommodation party makes payment toholder of the note he has the right to sue theaccommodated party for reimbursement1048766 Rights of accommodation parties as against each otherthe other may demand contribution from his coaccommodationparty without first directing his actionagainst the principal debtor provided1 he made the payment by virtue of judicial demandor2 the principal debtor is insolventNote A corporation cannot act as an accommodationparty The issuance or indorsement of negotiableinstrument by a corporation without consideration andfor the accommodation of another is ultra vires(Crisologo v CA 117 SCRA 594)Order of liability of indorsers1 among themselves ndash indorsers are liable prima facie inthe order in which they indorse but evidence isadmissible to show that as between or amongthemselves they have agreed otherwise (sec 68)2 to the holder ndash indorsers are liable in any orderVI DEFENSESKinds1 RealAbsolute Defenses - those that attach to theinstrument itself and are available against all holderswhether in due course or notExamplesa Alterationb Non-delivery of incomplete instrumentc Duress amounting to forgeryd Fraud in factum or fraud in esse contractuse Minority

f Marriage in the case of a wifeg Insanity where the insane person has a guardianappointed by the courth Ultra vires acts of a corporation where thecorporation is absolutely prohibited by its charter orstatute from issuing any commercial paper underany circumstancesi Want of authority of agentj Execution of instrument between public enemiesk Illegality of contract where it is the contract orinstrument itself which is expressly made illegal bystatute andl Forgery2 PersonalEquitable Defenses ndash those which are availableonly against a person not a holder in due course or asubsequent holder who stands in privity with himExamplesa Absence or failure of consideration partial or totalb Want of delivery of complete instrumentc Insertion of wrong date in an instrument where it ispayable at a fixed period after date and it is issuedundated or where it is payable at a fixed periodafter sight and the acceptance is undatedd Filling up of blank contrary to authority given or notwithin reasonable time where the instrument isdeliverede Fraud in inducementf Acquisition of instrument by force duress or fearg Acquisition of the instrument by unlawful meansh Acquisition of the instrument for an illegalconsiderationi Negotiation in breach of faithj Negotiation under circumstances that amount tofraudk Mistakel Intoxication (according to better authority)m Ultra vires acts of corporations where thecorporation has the power to issue negotiable paperbut the issuance was not authorized for theparticular purpose for which it was issuedn Want of authority of agent where he haso apparent authorityp Insanity where there is no notice of insanity on thepart of the one contracting with the insane personandq Illegality of contract where the form orconsideration is illegalFRAUD IN FACTUM FRAUD IN INDUCEMENT1 It exists in those cases inwhich a person withoutnegligence has signed aninstrument which was infact a negotiableinstrument but wasdeceived as to thecharacter of the instrumentand without knowledge ofits as where a not wassigned by one under thebelief that he was signingas a witness to a deed1 It is that which relatedto the quality quantityvalue or character of theconsideration of the

instrument In this casethe signer is led bydeception to execute whathe knows is a negotiableinstrument It implies thatthe signer knew what hewas signing but that he wasinduced by fraud to sign2 This kind of fraud is areal defense because thereis no contract It impliesthat the person did notknow what he was signingBut where the signer by theexercise of reasonablediligence could havediscovered the nature ofthe instrument the fraudcannot be considered a realdefense as where a personwho can read signed a notebut failed to read it2 Such type of fraud is onlya personal defense becauseit does not prevent acontract1048766 Effects of Defenses1 Complete and undelivered instrumentbull as between immediate parties and as regards aremote party other than a holder in due course thedelivery must be authorized in order to be effectualbull where the instrument is in the hands of a holder indue course a valid delivery thereof by all partiesprior to him so as to make them liable to him isconclusively presumedbull where the instrument is no longer in the possessionof a party whose signature appears thereon a validand intentional delivery by him is presumed untilthe contrary is proved2 Incomplete but delivered instrumentbull where the instrument is wanting in any materialparticular the person in possession thereof has aprima facie authority to complete it by filling up theblanks thereinbull it must be filled up strictly in accordance with theauthority given and within a reasonable timebull if any such instrument after completion isnegotiated to a holder in due course it is valid andeffectual for all purposes in his hands and he mayenforce it as if it had been filled up strictly inaccordance with the authority given and within areasonable time3 Incomplete and undelivered instrumentbull it will not if completed and negotiated withoutauthority be a valid contract in the hands of anyholder as against any person whose signature wasplaced thereon before deliverybull However subsequent indorsers are liable4 Forgerybull counterfeit making or fraudulent alteration of anywriting which may consist of1 signing of anotherrsquos name with intent todefraud or2 alteration of an instrument in the nameamount name of payee etc with intent to

defraudbull Effect signature is wholly inoperative and no rightto retain the instrument or to give a dischargetherefore or to enforce payment thereof againstany party thereto can be acquired through or undersuch signaturebull Exception unless the party against whom it issought to enforce such right is precluded fromsetting up the forgery or want of authoritybull Cut-Off RuleGeneral Rule Parties prior to the forged signatureare cut-off from the parties after the forgery in thesense that prior parties cannot be held liable andcan raise the defense of forgery The holder canonly enforce the instrument against parties whobecame such after the forgeryException When the prior parties are precludedfrom setting up the defense of forgeryPersons precluded from setting up the defense offorgery are1 Those who by their acts silence or negligenceare estopped from setting up the defense offorgery2 Those who warrant or admit the genuineness ofthe signature in question These include acts oromissions that amount to ratification expressor impliedNote Persons precluded from setting up thedefense of forgery may still recover damages underthe NCC provisions on quasi-delictsbull Rules on ForgeryA Promissory Notes1 Makerrsquos signature forgedOrder Instrumenta Maker is not liable because he neverbecame a party to the instrumentb Indorsers subsequent to forgery are liablebecause of their warrantiesc Party who made the forgery is liableBearer Instrumenta Maker is not liableb Indorsers may be made liable to thosepersons who obtain title through theirindorsementsc Party who made the forgery is liable2 Payeersquos signature forgedOrder Instrumenta Maker and payee not liableb Indorsers subsequent to the forgery isliablec Party who made the forgery is liableBearer Instrumenta Maker is liable Indorsement is notnecessary to title and the maker engagesto pay holderb Party who made the forgery is liable3 Indorserrsquos signature forgedOrder Instrumenta Maker payee and indorser who signaturewas forged is not liableb Indorsers subsequent to forgery are liablebecause of their warrantiesc Party who made the forgery is liableBearer Instrumenta Maker is liable Indorsement is not

necessary to title and the maker engagesto pay holderb Indorser whose signature was forged is notliablec Party who made the forgery is liableB Bill of Exchange1 Drawerrsquos signature forgedIn an Order Instrumenta Drawer is not liableb Drawee is liable if it paid (nor recourse todrawer) because he admitted thegenuineness of the drawerrsquos signatureDrawee cannot recover from the collectingbank because there is no privity betweenthe collecting bank and the drawer Thereis no warranty as to the signature of thedrawer (Associated Bank v CA)c Indorsers subsequent to forgery are liabled Party who made the forgery is liableIn a Bearer Instrumenta Drawer is not liableb Drawee is liable if it paid Drawee cannotrecover from the collecting bank becauseit is bound to known the drawerrsquossignature since the latter is its depositorc Party who made the forgery is liable2 Payeersquos signature forgedOrder Instrumenta Drawer drawee and payee not liable Cutoffrule appliesb Indorsers subsequent to forgery are liablec Party who made the forgery is liableBearer Instrumenta Drawer is liable His indorsement is notnecessary to pass titleb Drawee is liable No privity betweendrawer and payee because indorsement ofpayee is not necessary (Ang Tek Lian case87 SCRA 383)c Payee is not liabled Collecting bank is liable because ofwarrantye Party who made the forgery is liable3 Indorserrsquos signature forgedOrder Instrumenta Drawer payee and indorser whosesignature was forged are not liableb Drawee is liable if it paidc Indorsers subsequent to forgery are liabled Party who made the forgery is liableBearer Instrumenta Drawer is liable Indorsement is notnecessary to pass titleb Drawee is liablec Indorser whose signature was forged isliable because indorsement is notnecessary to pass titled Party who made the forgery is liable5 Alterationbull Effect the instrument is avoidedbull Exceptions1 against a party who has himself madeauthorized or assented to the alteration2 subsequent indorsers3 holder in due course not a party to the

alteration - he may enforce payment accordingto its original tenorbull Changes constituting material alteration1 date2 sum payable either for principal or interest3 time or place of payment4 number or relations of the parties5 medium or currency in which payment is to bemade6 that which adds a place of payment where noplace of payment is specified and7 any other change or addition which alters theeffect of the instrument in any respectNote a material alteration is one that alters theeffect of the instrument one which changes theitems required to be stated under Sec 1 NILbull Spoliation ndash alteration made by a strangerbull The general rule denies the drawee bankrsquos right tocharge against the drawerrsquos account the amount ofan altered check However the latterrsquos negligencebefore or after the alteration may estop him fromsetting such alteration as against an innocentdrawee bank who has paid the checkbull In cases of altered checks and checks with forgedindorsements the drawee bank must notify andreturn them to the collecting bank before 400 pmof the next day of clearing but the drawee bankmay still return them even after such time providedhe does so within 24 hours from its discovery of thealteration or forged instruments so that recovery ofthe amount may be had BUT in no event beyondthe period fixed or provided by law for filing of alegal action by the returning bank against the banksending the sameNote Alteration is only a partial real defensebecause a holder in due course can still enforce itaccording to its original tenorVII ENFORCEMENT OF LIABILITYPresentment for payment ndash the presentation of aninstrument to the person primarily liable for the purpose ofdemanding and receiving paymentGeneral Rulesbull presentment for payment to charge personsprimarily liable is not necessarybull presentment for payment to charge personssecondarily liable is necessaryExceptionsa drawer - where he has no right to expect or requirethat the drawee or acceptor will pay the instrument(sec 79)b indorser - where the instrument was made oraccepted for his accommodation and he has noreason to expect that the instrument will be paid ifpresentedc when dispensedi where after the exercise of reasonablediligence presentment as required cannotbe madeii where the drawee is a fictitious personiii by waiver of presentment express orimplied (sec 82)d when the instrument has been dishonored by nonacceptance(sec 151)Sufficiency of presentmentIt must be

1 made by the holder or any person authorized toreceive payment on his behalf2 at a reasonable hour on a business day3 at a proper place4 to the person primarily liable or if he is absent orinaccessible to any person found at the placewhere the presentment is madeHow made1 personal demand for payment at the proper place and2 readiness to exhibit the instrument if required and toreceive payment and to surrender the instrument if thedebtor is willing to paybull Purpose of exhibitionTo enable the debtor toa determine the genuineness of the instrument andthe right of the holder to receive payment andb to enable him to reclaim possession upon paymentbull When exhibition excuseda when debtor does not demand to see the instrumentbut refuses payment on some other grounds andb when the instrument is lost or destroyedWhen madebull where the instrument is payable at a fixed ordeterminable future time presentment must be madeon the day it falls duebull where it is payable on demanda promissory note presentment must be made withina reasonable time after its issueb bill of exchange presentment for payment will besufficient if made within a reasonable time afterthe last negotiation thereofbull the check must be presented for payment within areasonable time after its issue or the drawer will bedischarged from liability thereon to the extent of theloss caused by the delayTime of maturitybull every negotiable instrument is payable at the time fixedtherein without gracebull when the day of maturity falls upon a Sunday or aholiday the instruments are to be presented forpayment on the next succeeding business daybull when the day of maturity falls upon a Saturday1048766 Instrument is payable at a fixed or determinablefuture time (time instrument) - presented forpayment is on the next succeeding business day1048766 instruments is payable on demand - at the option ofthe holder be presented for paymenta before 1200 noon on Saturday whenthat entire day is not a holiday orb the next succeeding business dayHow computed1048766 excluding the day from which the time is to begin torun and by including the date of payment1048766 applies to instruments which are payable at a fixedperiod after date after sight or after thathappening of a specified eventProper place for presentmenta Where a place of payment is specified in the instrumentand it is there presentedb Where no place of payment is specified but the addressof the person to make payment is given in theinstrument and it is there presentedc Where no place of payment is specified and no address isgiven and the instrument is presented at the usual placeof business or residence of the person to make payment

d In any other case if presented to the person to makepayment wherever he can be found or if presented athis last known place of business or residenceWhen delay in presentment excused ndash delay is caused bycircumstances beyond the control of the holder and notimputable to his default misconduct or negligence Whenthe cause of delay ceases to operate presentment must bemade with reasonable diligencePresentment for acceptance ndash the production or exhibitionof a bill of exchange to the drawee for his acceptance orpaymentGeneral Rule presentment for acceptance is not necessary torender any party to the bill liableException presentment for acceptance must be madea Where the bill is payable after sight or wherepresentment for acceptance is necessary in order tofix the maturity of the instrument orb Where the bill expressly stipulates that it shall bepresented for acceptance orc Where the bill is drawn payable elsewhere then atthe residence or place of business of the drawee(sec 143)Note in all the above cases the holder must either presentthe bill for acceptance or negotiate it within a reasonabletime otherwise the drawer and all indorsers are dischargedHow made1 made by or on behalf of the holder2 at a reasonable hour3 on a business day4 before the bill is overdue and within reasonabletime5 to the drawee or some person authorized to acceptor refuse acceptance on his behalfDays presentment may be made If date of presentment isa Sunday or a holiday ndash must be made on the nextsucceeding business dayb Saturday ndash before 1200 noon on Saturday providedthat it is not a holidayWhen delay for presentment excuseda bill is drawn payable elsewhere than at the place ofbusiness or the residence of the draweeb holder has no time with the exercise of reasonablediligence to present the bill for acceptance beforepresenting it for payment on the day that it fallsdueEffect does not discharge the drawers and indorsersWhere presentment is excuseda Where the drawee is dead or has absconded or is afictitious person or a person not having capacity tocontract by billb Where presentment can not be made after theexercise of reasonable diligencec Where although presentment has been irregularacceptance has been refused on some other groundNote bill may be treated as dishonored by nonacceptanceDuty of holder where bill not accepted - where a bill isduly presented for acceptance and is not accepted within theprescribed time (24 hours ndash sec 136) the person presentingit must treat the bill as dishonored by non-acceptance or heloses the right of recourse against the drawer and indorsersAcceptance the signification by the drawee of his assent tothe order of the drawer It is the act by which the draweemanifests his consent to comply with the request containedin the bill of exchange directed to himHow made

1) must be in writing2) signed by the drawee3) must not express that the drawee will perform hispromise by any other means than the payment ofmoneybull the holder of the bill presenting the same for acceptancemay require that the acceptance be written on the billand if such request is refused may treat the bill asdishonoredbull where an acceptance is written on a paper other thanthe bill itself it does not bind the acceptor except infavor of a person to whom it is shown and who on thefaith thereof receives the bill for valuePeriod for drawee to accept - allowed 24 hours afterpresentment in which to decide whether or not he will acceptthe bill if acceptance is given it dates as of the day ofpresentationConstructiveImplied acceptance where a drawee refuseswithin 24 hours after delivery or within such other period asthe holder may allow to return the bill accepted or nonacceptedto the holder he will be deemed to have acceptedthe sameNote same effect if the drawee destroys the instrumentKinds1 General - assents without qualification to the order ofthe drawer2 Qualified - which in express terms varies the effect ofthe bill as drawna Conditional - makes payment by the acceptordependent on the fulfillment of a conditiontherein statedb Partial - an acceptance to pay part only of theamount for which the bill is drawni Local - an acceptance to pay only at aparticular placeii Qualified as to timeiii The acceptance of some one or more ofthe drawees but not of all3 ConstructiveRights of parties as to qualified acceptancebull Holder he may refuse to take a qualified acceptanceand if he does not obtain an unqualified acceptance hemay treat the bill as dishonored by non-acceptancebull Drawer or indorser when he receives notice of aqualified acceptance he must within a reasonable timeexpress his dissent to the holder or he will be deemed tohave assented thereto (implied assent)Effect of taking a qualified acceptance the drawer andindorsers are discharged from liability on the bill unless theyhave expressly or impliedly authorized the holder to take aqualified acceptance or subsequently assent theretoOther rules of acceptancebull a bill may be accepted before it has been signed by thedrawer or while otherwise incomplete or when it isoverdue or after it has been dishonored by a previousrefusal to accept or by non paymentbull when a bill payable after sight is dishonored by nonacceptanceand the drawee subsequently accepts it theholder in the absence of any different agreement isentitled to have the bill accepted as of the date of thefirst presentmentbull an unconditional promise in writing to accept a billbefore it is drawn is deemed an actual acceptancein favor of every person who upon the faiththereof receives the bill for value

bull where a check is certified by the bank on which it isdrawn the certification is equivalent to anacceptanceEffect the drawer and all indorsers are dischargedfrom liability thereonAcceptance for Honor - an undertaking by a stranger to a billafter protest for the benefit of any party liable thereon or forthe honor of the person for whose account the bill is drawnwhich acceptance inures also to the benefit of all partiessubsequent to the person for whose honor it is accepted andconditioned to pay the bill when it becomes due if theoriginal drawee does not pay it1048766 Requisites1 the bill must have been protested for dishonorby non-acceptance or for better security2 the acceptor for honor must be a stranger andnot a party already liable on the instrument3 bill must not be overdue4 acceptance for honor must be with the consentof the holder of the instrument1048766 Formalities1 must be in writing2 must indicate that it is an acceptance forhonor3 signed by the acceptor for honor4 must contain an express or implied promise topay money5 the accepted bill for honor must be deliveredto the holderNotice of Dishonor - notice given by the holder or his agentto a party or parties secondarily liable that the instrumentwas dishonored by non-acceptance by the drawee of a bill orby non-payment by the acceptor of a bill or by non-paymentby a maker of a note- If such notice is given by a notary public it is calledPROTEST1048766 Effect of failure to give notice parties secondarily liableare discharged1048766 Requisites1 Given by holder or his agent or by any party whomay be compelled by the holder to pay2 Given to secondary party or his agent3 Given within the periods provided by law4 Given at the proper place1048766 When notice of dishonor dispensed with1 when party to be notified knows about the dishonoractually or constructively2 if waived and3 when after due diligence it cannot be given1048766 How given1 by bringing verbally or2 by writing to the knowledge of the person liable thefact that a specified instrument upon properproceedings taken has not been accepted or hasnot been paid and that the party notified isexpected to pay it1048766 To whom given1 Non-acceptance (bill) ndash to persons secondarilyliable namely the drawer and indorsers as the casemay be2 Non-payment (both bill and note) ndash indorsersNote Notice must be given to persons secondarilyliable Otherwise such parties are dischargedNotice may be given to the party himself or to hisagent

1048766 By whom given1 the holder2 another on behalf of the holder3 any party to the instrument who may be compelledto pay it to the holder and who would have a rightof reimbursement from the party to whom notice isgiven1048766 Notice of dishonor given by or on behalf of a holderinures to the benefit ofa all parties prior to the holder who have a rightof recourse against the party to whom thenotice is given andb all holders subsequent to the holder givingnotice1048766 Notice of dishonor given by or on behalf of a partyentitled to give notice inures to the benefit ofa the holder andb all parties subsequent to the party to whomnotice is given1048766 Where an instrument is dishonored in the hands of anagent he can do either of the ffa directly give notice to persons secondarilyliable thereon orb give notice to his principal In such case hemust give notice within the time allowed bylaw as if he were a holder1048766 A party giving notice is deemed to have given due noticewherea the notice of dishonor is duly addressed andb deposited in the post-office even when thereis miscarriage of mail1048766 Where a party receives notice of dishonor he has afterthe receipt of such notice the same time for givingnotice to antecedent parties that the holder has afterthe dishonor1048766 Notice may be waived either before the time of givingnotice or after the omission to give due notice Waivermay be expressed or implied1048766 As to who are affected by an express waiver depends onwhere the waiver is written1 if it appears in the body or on the face of theinstrument it binds all parties but2 if it is written above the signature of anindorser it binds him only1048766 Notice of dishonor is not required to be given to thedrawer in any of the ff cases1 drawer and drawee are the same2 drawee is a fictitious person or not having thecapacity to contract3 drawer is the person to whom the instrument ispresented for payment4 the drawer has no right to expect or requirethat the drawee or acceptor will honor theinstrument5 where the drawer has countermandedpayment1048766 Notice of dishonor is not required to be given to anindorser in the ff cases1 drawee is a fictitious person or does not havethe capacity to contract and indorser wasaware of that fact at the time he indorsed theinstrument2 indorser is the person to whom the instrumentis presented for payment3 instrument was made or accepted for his

accommodation1048766 If an instrument is not accepted by the drawee there isno sense presenting it again for payment and notice ofdishonor must at once be given If there wasacceptance presentment for payment is still requiredand if payment is refused there is a need for notice ofdishonor1048766 An omission to give notice of dishonor by non-acceptancedoes not prejudice the rights of a holder in due coursesubsequent to the omissionDishonor by Non-PaymentWhen instrument dishonored by non-paymenta it is duly presented for payment and payment isrefused or cannot be obtained orb presentment is excused and the instrument isoverdue and unpaidEffect of dishonor an immediate right of recourse to allparties secondarily liable thereon accrues to the holderDishonor by Non-AcceptanceInstancesa When it is duly presented for acceptance and suchan acceptance is refused or can not be obtained orb When presentment for acceptance is excused andthe bill is not accepted (sec 149)Effect an immediate right of recourse against thedrawer and indorsers accrues to the holder and nopresentment for payment is necessaryNote where a bill is duly presented for acceptance andis not accepted within the prescribed time (24 hours)the person presenting it must treat the bill as dishonoredby non-acceptanceWhen Instrument Considered to be Dishonoreda If it is not accepted when presented for acceptanceorb If it is not paid when presented for payment atmaturity orc If presentment is excused or waived and theinstrument is past due and unpaidProtest - the formal instrument executed usually by a notarypublic certifying that the legal steps necessary to fix theliability of the drawee and the indorsers have been taken1048766 Effect of waiver where protest is waived presentmentand notice of dishonor are also deemed waived Butwhere the notice of dishonor is waived presentment isnot waived1048766 Applicability protest is necessary only in case of foreignbills of exchange which have been dishonored by nonacceptanceor non-payment as the case may be If it isnot so protested the drawer and indorsers aredischarged1048766 Foreign Bill of Exchange1 Drawn in the Philippines but payable outside thePhilippines2 Payable in the Philippines but drawn outside thePhilippines1048766 Protest may be made by1 a notary public or2 any respectable resident of the place where the billis dishonored in the presence of 2 or more crediblewitnessesProtest for better security is one made by the holder of a billafter it has been accepted but before it matures against thedrawer and indorsers where the acceptor has been adjudgeda bankrupt or an insolvent or has made an assignment forthe benefit of the creditors

VIII DISCHARGEDischarge of instrument - a release of all parties whetherprimary or secondary from the obligations arisingthereunder It renders the instrument without force andeffect and consequently it can no longer be negotiatedInstances1 By payment in due course by or on behalf of theprincipal debtor2 Payment by accommodated party3 Intentional cancellation by the holder4 By any act which will discharge a simple contractfor the payment of money5 When the principal debtor becomes the holder ofthe instrument at or after maturity in his own rightBy any act which would discharge a simple contract1 Payment or performance2 Loss of the thing due3 Condonation or remission4 Confusion or Merger5 Compensation6 Novation7 Annulment or Rescission8 Fulfillment of a resolutory condition9 PrescriptionWhen persons secondarily liable on the instrument aredischarged1 By any act which discharges the instrument2 By the intentional cancellation of his signature bythe holder3 By the discharge of a prior party4 By a valid tender of payment made by a prior party5 By the release of the principal debtor unless theholderrsquos right of recourse against the partysecondarily liable is expressly reserved6 By any agreement binding upon the holder to extendthe time of payment or to postpone the holderrsquosright to enforce the instrument1048766 In the following cases the agreement to extend the timeof payment does not discharge a party secondarily liable1 where the extension of time is consented to by suchparty2 where the holder expressly reserves his right ofrecourse against such party1048766 Payment at or after maturity by a party secondarilyliable does not discharge the instrument It only cancelshis own liability and that of the parties subsequent tohimEffects of Renunciation1 A renunciation in favor of a secondary party may bemade by the holder before at or after maturity ofthe instrument Effect only such secondary party isdischarged and all parties subsequent to him but theinstrument itself remains in force2 A renunciation in favor of the principal debtor maybe effected at or after maturity Effect theinstrument is discharged and all parties theretoprovided the renunciation is made unconditionallyand absolutelyNote In either case renunciation does not affect therights of a holder in due course without notice1048766 Cancellation of an instrument includes tearing erasureobliteration or burning It is not limited to writing ofthe word lsquocancelledrdquo or ldquopaidrdquo or drawing of crisscrosslines across the instrumentPayment for Honor - payment made by a person whether a

party to the bill or not after it has been protested for nonpaymentfor the benefit of any party liable thereon or forthe benefit of the person for whose account it was drawn1048766 Requisites1 the bill has been dishonored by non-payment2 it has been protested for non-payment3 payment supra protest (another term for paymentfor honor because prior protest for non-payment isrequired) is made by any person even by a partythereto4 the payment is attested by a notarial act of honorwhich must be appended to the protest or form anextension of it5 the notarial act must be based on the declarationmade by the payor for honor or his agent of hisintention to pay the bill for honor and for whosehonor he paysNote If the above formalities are not complied withpayment will operate as a mere voluntary payment andthe payor will acquire no right to full reimbursementagainst the party for whose honor he pays1048766 In payment for honor the payee cannot refuse paymentIf he refuses he cannot recover from the parties whowould have been discharged had he accepted the sameIn acceptance for honor the holderrsquos consent isnecessary1048766 The payor for honor is given the right to receive both thebill and the protest obviously to enable him to enforcehis rights against the parties who are liable to himIX CHECKSCheck- a bill of exchange drawn on a bank payable ondemandCheck distinguished from and ordinary bill of exchangeBILLOF EXCHANGE CHECKNot necessarily drawnon a deposit The draweeneed not be a bankIt is necessary that a checkis drawn on a bank depositThe drawee is always abankDeath of a drawer of aBOE with the knowledgeof the bank does notrevoke the authority of thedrawee to payDeath of the drawer of acheck with the knowledgeof the bank revokes theauthority of the banker topayMay be presented forpayment within areasonable time after itslast negotiation because itmay be further negotiatedMust be presented forpayment within areasonable time after itsissueMay be payable on demandor at a fixed ordeterminable future timeAlways payable on demandKinds of checks

1 Managerrsquos Cashierrsquos Check ndash drawn by a bank on itselfand therefore it is a primary obligation of the banko It is accepted in advance by the act of itsissuance and is not subject tocountermand by the payor afterindorsemento The bankrsquos manager signs managerrsquos checkwhile cashierrsquos check is signed by the bankcashier2 Certified Check ndash one drawn by a depositor upon funds tohis credit in a bank which a proper officer of the bankcertifies will be paid when duly presented for payment3 Stale check ndash one which has not been presented forpayment within a reasonable time after its issue4 Crossed check ndash when 2 parallel lines are drawn acrossits face or across a corner thereof If the name of a bankappears between the parallel lines the check is said tobe specially crossed and payment should be made onlyif presented by the named bank If no name appearsbetween the parallel lines the check is said to begenerally crossed and payment should be made onlyupon presentment by some bankEffects of crossing a checka That the check may not be encashed but only bedeposited in the bankb That the check may be negotiated only once to onewho has an account with a bank andc That the act of crossing the check serves as awarning to the holder that the check has beenissued for a definite purpose so that he must inquireif he has received the check pursuant to thatpurpose5 Memorandum Check ndash it is like an ordinary check exceptthat the word ldquomemorandumrdquo ldquomemrdquo or ldquomemordquo iswritten upon the face of the check signifying that thedrawer engages to pay the bona fide holder absolutelyand not upon a condition to pay upon presentment atmaturity and if due notice of the presentment and nonpaymentshould be given6 Travelerrsquos check ndash one upon which the holderrsquos signaturemust appear twice one to be affixed by him at the timeit is issued and the second o counter-signature to beaffixed by him in the presence of the payee before it ispaid otherwise it is incompleteIron Clad Rule Prohibits the countermanding ofpayment of certified checks (Republic of the Philippinesv PNB GR No 16106 December 1 1961)

complied withGENERAL INDORSER IRREGULAR INDORSER1 Makes either a blank orspecial indorsement2 Indorses the instrumentafter its delivery to thepayee and3 Liable only to partiessubsequent to him1 Always makes a blankindorsement2 Indorses before itsdelivery3 Liable to the payee andsubsequent parties unlesshe signs for theaccommodation of thepayee in which case he isliable only to all partiessubsequent to the payee3 Parties with Limited Liability (sec 65 MetropolFinancing v Sambok 120 SCRA 864)a Qualified Indorser - warrants that1048766 instrument is genuine and in all respects whatit purports to be1048766 he has good title to it1048766 all prior parties had capacity to contract1048766 he has no knowledge of any fact which wouldimpair the validity of the instrument or renderit valuelessb Persons Negotiating by Delivery1048766 warranties same as those of qualified indorsersand1048766 warranties extend to immediate transfereeonlyLIABILITY WARRANTY1 To pay a sum certain2 Requires Notice ofDishonor3 Action can be broughtonly on maturity ofinstrument1 No obligation to pay2 Notice of Dishonor is not arequirement3 Action may be broughtanytimeBY MERE DELIVERY OR BYQUALIFIED INDORSEMENTGENERAL INDORSER1 No secondary liability1 With secondary liability2 Warrants that he has noknowledge of any factwhich would impair thevalidity of the instrumentor render it valueless2 Warrants that theinstrument is at the timeof his indorsement validand subsisting4 Other parties who may be liableGeneral Rule One whose signature does not appear on theinstrument shall not be liable thereonExceptions

1 The principal who signs through an agent is liable2 The forger is liable3 One who indorses in a separate instrument (allonge) isliable4 One who signs his assumed or trade name is liable and5 A person negotiating by delivery (as in the case of abearer instrument) is liable to his immediate indorseeRequisites for an Agent to escape liability1 must be duly authorized2 add words to his signature indicating that he signs as anagent that is for or on behalf of a principal or in arepresentative capacity and3 disclose his principal1048766 A signature by ldquoprocurationrdquo operates as notice that theagent has but a limited authority to sign and theprincipal is bound only in case the agent in so signingacted within the actual limits of his authority (sec 21)1048766 Indorsement or assignment of the NI by a corporation orby an infant passes the property thereinnotwithstanding that from want of capacity thecorporation or infant may incur no liability thereon(sec 22)Accomodation PartyOne who has signed the instrument as maker draweracceptor or indorser without receiving value therefor andfor the purpose of lending his name to some other person1048766 Liability such a person is liable on the instrument to aholder for value notwithstanding such holder at thetime of taking the instrument knew him to be only anaccommodation party1048766 Effects1 accommodation party is generally regarded as asurety for the party accommodated2 When accommodation party makes payment toholder of the note he has the right to sue theaccommodated party for reimbursement1048766 Rights of accommodation parties as against each otherthe other may demand contribution from his coaccommodationparty without first directing his actionagainst the principal debtor provided1 he made the payment by virtue of judicial demandor2 the principal debtor is insolventNote A corporation cannot act as an accommodationparty The issuance or indorsement of negotiableinstrument by a corporation without consideration andfor the accommodation of another is ultra vires(Crisologo v CA 117 SCRA 594)Order of liability of indorsers1 among themselves ndash indorsers are liable prima facie inthe order in which they indorse but evidence isadmissible to show that as between or amongthemselves they have agreed otherwise (sec 68)2 to the holder ndash indorsers are liable in any orderVI DEFENSESKinds1 RealAbsolute Defenses - those that attach to theinstrument itself and are available against all holderswhether in due course or notExamplesa Alterationb Non-delivery of incomplete instrumentc Duress amounting to forgeryd Fraud in factum or fraud in esse contractuse Minority

f Marriage in the case of a wifeg Insanity where the insane person has a guardianappointed by the courth Ultra vires acts of a corporation where thecorporation is absolutely prohibited by its charter orstatute from issuing any commercial paper underany circumstancesi Want of authority of agentj Execution of instrument between public enemiesk Illegality of contract where it is the contract orinstrument itself which is expressly made illegal bystatute andl Forgery2 PersonalEquitable Defenses ndash those which are availableonly against a person not a holder in due course or asubsequent holder who stands in privity with himExamplesa Absence or failure of consideration partial or totalb Want of delivery of complete instrumentc Insertion of wrong date in an instrument where it ispayable at a fixed period after date and it is issuedundated or where it is payable at a fixed periodafter sight and the acceptance is undatedd Filling up of blank contrary to authority given or notwithin reasonable time where the instrument isdeliverede Fraud in inducementf Acquisition of instrument by force duress or fearg Acquisition of the instrument by unlawful meansh Acquisition of the instrument for an illegalconsiderationi Negotiation in breach of faithj Negotiation under circumstances that amount tofraudk Mistakel Intoxication (according to better authority)m Ultra vires acts of corporations where thecorporation has the power to issue negotiable paperbut the issuance was not authorized for theparticular purpose for which it was issuedn Want of authority of agent where he haso apparent authorityp Insanity where there is no notice of insanity on thepart of the one contracting with the insane personandq Illegality of contract where the form orconsideration is illegalFRAUD IN FACTUM FRAUD IN INDUCEMENT1 It exists in those cases inwhich a person withoutnegligence has signed aninstrument which was infact a negotiableinstrument but wasdeceived as to thecharacter of the instrumentand without knowledge ofits as where a not wassigned by one under thebelief that he was signingas a witness to a deed1 It is that which relatedto the quality quantityvalue or character of theconsideration of the

instrument In this casethe signer is led bydeception to execute whathe knows is a negotiableinstrument It implies thatthe signer knew what hewas signing but that he wasinduced by fraud to sign2 This kind of fraud is areal defense because thereis no contract It impliesthat the person did notknow what he was signingBut where the signer by theexercise of reasonablediligence could havediscovered the nature ofthe instrument the fraudcannot be considered a realdefense as where a personwho can read signed a notebut failed to read it2 Such type of fraud is onlya personal defense becauseit does not prevent acontract1048766 Effects of Defenses1 Complete and undelivered instrumentbull as between immediate parties and as regards aremote party other than a holder in due course thedelivery must be authorized in order to be effectualbull where the instrument is in the hands of a holder indue course a valid delivery thereof by all partiesprior to him so as to make them liable to him isconclusively presumedbull where the instrument is no longer in the possessionof a party whose signature appears thereon a validand intentional delivery by him is presumed untilthe contrary is proved2 Incomplete but delivered instrumentbull where the instrument is wanting in any materialparticular the person in possession thereof has aprima facie authority to complete it by filling up theblanks thereinbull it must be filled up strictly in accordance with theauthority given and within a reasonable timebull if any such instrument after completion isnegotiated to a holder in due course it is valid andeffectual for all purposes in his hands and he mayenforce it as if it had been filled up strictly inaccordance with the authority given and within areasonable time3 Incomplete and undelivered instrumentbull it will not if completed and negotiated withoutauthority be a valid contract in the hands of anyholder as against any person whose signature wasplaced thereon before deliverybull However subsequent indorsers are liable4 Forgerybull counterfeit making or fraudulent alteration of anywriting which may consist of1 signing of anotherrsquos name with intent todefraud or2 alteration of an instrument in the nameamount name of payee etc with intent to

defraudbull Effect signature is wholly inoperative and no rightto retain the instrument or to give a dischargetherefore or to enforce payment thereof againstany party thereto can be acquired through or undersuch signaturebull Exception unless the party against whom it issought to enforce such right is precluded fromsetting up the forgery or want of authoritybull Cut-Off RuleGeneral Rule Parties prior to the forged signatureare cut-off from the parties after the forgery in thesense that prior parties cannot be held liable andcan raise the defense of forgery The holder canonly enforce the instrument against parties whobecame such after the forgeryException When the prior parties are precludedfrom setting up the defense of forgeryPersons precluded from setting up the defense offorgery are1 Those who by their acts silence or negligenceare estopped from setting up the defense offorgery2 Those who warrant or admit the genuineness ofthe signature in question These include acts oromissions that amount to ratification expressor impliedNote Persons precluded from setting up thedefense of forgery may still recover damages underthe NCC provisions on quasi-delictsbull Rules on ForgeryA Promissory Notes1 Makerrsquos signature forgedOrder Instrumenta Maker is not liable because he neverbecame a party to the instrumentb Indorsers subsequent to forgery are liablebecause of their warrantiesc Party who made the forgery is liableBearer Instrumenta Maker is not liableb Indorsers may be made liable to thosepersons who obtain title through theirindorsementsc Party who made the forgery is liable2 Payeersquos signature forgedOrder Instrumenta Maker and payee not liableb Indorsers subsequent to the forgery isliablec Party who made the forgery is liableBearer Instrumenta Maker is liable Indorsement is notnecessary to title and the maker engagesto pay holderb Party who made the forgery is liable3 Indorserrsquos signature forgedOrder Instrumenta Maker payee and indorser who signaturewas forged is not liableb Indorsers subsequent to forgery are liablebecause of their warrantiesc Party who made the forgery is liableBearer Instrumenta Maker is liable Indorsement is not

necessary to title and the maker engagesto pay holderb Indorser whose signature was forged is notliablec Party who made the forgery is liableB Bill of Exchange1 Drawerrsquos signature forgedIn an Order Instrumenta Drawer is not liableb Drawee is liable if it paid (nor recourse todrawer) because he admitted thegenuineness of the drawerrsquos signatureDrawee cannot recover from the collectingbank because there is no privity betweenthe collecting bank and the drawer Thereis no warranty as to the signature of thedrawer (Associated Bank v CA)c Indorsers subsequent to forgery are liabled Party who made the forgery is liableIn a Bearer Instrumenta Drawer is not liableb Drawee is liable if it paid Drawee cannotrecover from the collecting bank becauseit is bound to known the drawerrsquossignature since the latter is its depositorc Party who made the forgery is liable2 Payeersquos signature forgedOrder Instrumenta Drawer drawee and payee not liable Cutoffrule appliesb Indorsers subsequent to forgery are liablec Party who made the forgery is liableBearer Instrumenta Drawer is liable His indorsement is notnecessary to pass titleb Drawee is liable No privity betweendrawer and payee because indorsement ofpayee is not necessary (Ang Tek Lian case87 SCRA 383)c Payee is not liabled Collecting bank is liable because ofwarrantye Party who made the forgery is liable3 Indorserrsquos signature forgedOrder Instrumenta Drawer payee and indorser whosesignature was forged are not liableb Drawee is liable if it paidc Indorsers subsequent to forgery are liabled Party who made the forgery is liableBearer Instrumenta Drawer is liable Indorsement is notnecessary to pass titleb Drawee is liablec Indorser whose signature was forged isliable because indorsement is notnecessary to pass titled Party who made the forgery is liable5 Alterationbull Effect the instrument is avoidedbull Exceptions1 against a party who has himself madeauthorized or assented to the alteration2 subsequent indorsers3 holder in due course not a party to the

alteration - he may enforce payment accordingto its original tenorbull Changes constituting material alteration1 date2 sum payable either for principal or interest3 time or place of payment4 number or relations of the parties5 medium or currency in which payment is to bemade6 that which adds a place of payment where noplace of payment is specified and7 any other change or addition which alters theeffect of the instrument in any respectNote a material alteration is one that alters theeffect of the instrument one which changes theitems required to be stated under Sec 1 NILbull Spoliation ndash alteration made by a strangerbull The general rule denies the drawee bankrsquos right tocharge against the drawerrsquos account the amount ofan altered check However the latterrsquos negligencebefore or after the alteration may estop him fromsetting such alteration as against an innocentdrawee bank who has paid the checkbull In cases of altered checks and checks with forgedindorsements the drawee bank must notify andreturn them to the collecting bank before 400 pmof the next day of clearing but the drawee bankmay still return them even after such time providedhe does so within 24 hours from its discovery of thealteration or forged instruments so that recovery ofthe amount may be had BUT in no event beyondthe period fixed or provided by law for filing of alegal action by the returning bank against the banksending the sameNote Alteration is only a partial real defensebecause a holder in due course can still enforce itaccording to its original tenorVII ENFORCEMENT OF LIABILITYPresentment for payment ndash the presentation of aninstrument to the person primarily liable for the purpose ofdemanding and receiving paymentGeneral Rulesbull presentment for payment to charge personsprimarily liable is not necessarybull presentment for payment to charge personssecondarily liable is necessaryExceptionsa drawer - where he has no right to expect or requirethat the drawee or acceptor will pay the instrument(sec 79)b indorser - where the instrument was made oraccepted for his accommodation and he has noreason to expect that the instrument will be paid ifpresentedc when dispensedi where after the exercise of reasonablediligence presentment as required cannotbe madeii where the drawee is a fictitious personiii by waiver of presentment express orimplied (sec 82)d when the instrument has been dishonored by nonacceptance(sec 151)Sufficiency of presentmentIt must be

1 made by the holder or any person authorized toreceive payment on his behalf2 at a reasonable hour on a business day3 at a proper place4 to the person primarily liable or if he is absent orinaccessible to any person found at the placewhere the presentment is madeHow made1 personal demand for payment at the proper place and2 readiness to exhibit the instrument if required and toreceive payment and to surrender the instrument if thedebtor is willing to paybull Purpose of exhibitionTo enable the debtor toa determine the genuineness of the instrument andthe right of the holder to receive payment andb to enable him to reclaim possession upon paymentbull When exhibition excuseda when debtor does not demand to see the instrumentbut refuses payment on some other grounds andb when the instrument is lost or destroyedWhen madebull where the instrument is payable at a fixed ordeterminable future time presentment must be madeon the day it falls duebull where it is payable on demanda promissory note presentment must be made withina reasonable time after its issueb bill of exchange presentment for payment will besufficient if made within a reasonable time afterthe last negotiation thereofbull the check must be presented for payment within areasonable time after its issue or the drawer will bedischarged from liability thereon to the extent of theloss caused by the delayTime of maturitybull every negotiable instrument is payable at the time fixedtherein without gracebull when the day of maturity falls upon a Sunday or aholiday the instruments are to be presented forpayment on the next succeeding business daybull when the day of maturity falls upon a Saturday1048766 Instrument is payable at a fixed or determinablefuture time (time instrument) - presented forpayment is on the next succeeding business day1048766 instruments is payable on demand - at the option ofthe holder be presented for paymenta before 1200 noon on Saturday whenthat entire day is not a holiday orb the next succeeding business dayHow computed1048766 excluding the day from which the time is to begin torun and by including the date of payment1048766 applies to instruments which are payable at a fixedperiod after date after sight or after thathappening of a specified eventProper place for presentmenta Where a place of payment is specified in the instrumentand it is there presentedb Where no place of payment is specified but the addressof the person to make payment is given in theinstrument and it is there presentedc Where no place of payment is specified and no address isgiven and the instrument is presented at the usual placeof business or residence of the person to make payment

d In any other case if presented to the person to makepayment wherever he can be found or if presented athis last known place of business or residenceWhen delay in presentment excused ndash delay is caused bycircumstances beyond the control of the holder and notimputable to his default misconduct or negligence Whenthe cause of delay ceases to operate presentment must bemade with reasonable diligencePresentment for acceptance ndash the production or exhibitionof a bill of exchange to the drawee for his acceptance orpaymentGeneral Rule presentment for acceptance is not necessary torender any party to the bill liableException presentment for acceptance must be madea Where the bill is payable after sight or wherepresentment for acceptance is necessary in order tofix the maturity of the instrument orb Where the bill expressly stipulates that it shall bepresented for acceptance orc Where the bill is drawn payable elsewhere then atthe residence or place of business of the drawee(sec 143)Note in all the above cases the holder must either presentthe bill for acceptance or negotiate it within a reasonabletime otherwise the drawer and all indorsers are dischargedHow made1 made by or on behalf of the holder2 at a reasonable hour3 on a business day4 before the bill is overdue and within reasonabletime5 to the drawee or some person authorized to acceptor refuse acceptance on his behalfDays presentment may be made If date of presentment isa Sunday or a holiday ndash must be made on the nextsucceeding business dayb Saturday ndash before 1200 noon on Saturday providedthat it is not a holidayWhen delay for presentment excuseda bill is drawn payable elsewhere than at the place ofbusiness or the residence of the draweeb holder has no time with the exercise of reasonablediligence to present the bill for acceptance beforepresenting it for payment on the day that it fallsdueEffect does not discharge the drawers and indorsersWhere presentment is excuseda Where the drawee is dead or has absconded or is afictitious person or a person not having capacity tocontract by billb Where presentment can not be made after theexercise of reasonable diligencec Where although presentment has been irregularacceptance has been refused on some other groundNote bill may be treated as dishonored by nonacceptanceDuty of holder where bill not accepted - where a bill isduly presented for acceptance and is not accepted within theprescribed time (24 hours ndash sec 136) the person presentingit must treat the bill as dishonored by non-acceptance or heloses the right of recourse against the drawer and indorsersAcceptance the signification by the drawee of his assent tothe order of the drawer It is the act by which the draweemanifests his consent to comply with the request containedin the bill of exchange directed to himHow made

1) must be in writing2) signed by the drawee3) must not express that the drawee will perform hispromise by any other means than the payment ofmoneybull the holder of the bill presenting the same for acceptancemay require that the acceptance be written on the billand if such request is refused may treat the bill asdishonoredbull where an acceptance is written on a paper other thanthe bill itself it does not bind the acceptor except infavor of a person to whom it is shown and who on thefaith thereof receives the bill for valuePeriod for drawee to accept - allowed 24 hours afterpresentment in which to decide whether or not he will acceptthe bill if acceptance is given it dates as of the day ofpresentationConstructiveImplied acceptance where a drawee refuseswithin 24 hours after delivery or within such other period asthe holder may allow to return the bill accepted or nonacceptedto the holder he will be deemed to have acceptedthe sameNote same effect if the drawee destroys the instrumentKinds1 General - assents without qualification to the order ofthe drawer2 Qualified - which in express terms varies the effect ofthe bill as drawna Conditional - makes payment by the acceptordependent on the fulfillment of a conditiontherein statedb Partial - an acceptance to pay part only of theamount for which the bill is drawni Local - an acceptance to pay only at aparticular placeii Qualified as to timeiii The acceptance of some one or more ofthe drawees but not of all3 ConstructiveRights of parties as to qualified acceptancebull Holder he may refuse to take a qualified acceptanceand if he does not obtain an unqualified acceptance hemay treat the bill as dishonored by non-acceptancebull Drawer or indorser when he receives notice of aqualified acceptance he must within a reasonable timeexpress his dissent to the holder or he will be deemed tohave assented thereto (implied assent)Effect of taking a qualified acceptance the drawer andindorsers are discharged from liability on the bill unless theyhave expressly or impliedly authorized the holder to take aqualified acceptance or subsequently assent theretoOther rules of acceptancebull a bill may be accepted before it has been signed by thedrawer or while otherwise incomplete or when it isoverdue or after it has been dishonored by a previousrefusal to accept or by non paymentbull when a bill payable after sight is dishonored by nonacceptanceand the drawee subsequently accepts it theholder in the absence of any different agreement isentitled to have the bill accepted as of the date of thefirst presentmentbull an unconditional promise in writing to accept a billbefore it is drawn is deemed an actual acceptancein favor of every person who upon the faiththereof receives the bill for value

bull where a check is certified by the bank on which it isdrawn the certification is equivalent to anacceptanceEffect the drawer and all indorsers are dischargedfrom liability thereonAcceptance for Honor - an undertaking by a stranger to a billafter protest for the benefit of any party liable thereon or forthe honor of the person for whose account the bill is drawnwhich acceptance inures also to the benefit of all partiessubsequent to the person for whose honor it is accepted andconditioned to pay the bill when it becomes due if theoriginal drawee does not pay it1048766 Requisites1 the bill must have been protested for dishonorby non-acceptance or for better security2 the acceptor for honor must be a stranger andnot a party already liable on the instrument3 bill must not be overdue4 acceptance for honor must be with the consentof the holder of the instrument1048766 Formalities1 must be in writing2 must indicate that it is an acceptance forhonor3 signed by the acceptor for honor4 must contain an express or implied promise topay money5 the accepted bill for honor must be deliveredto the holderNotice of Dishonor - notice given by the holder or his agentto a party or parties secondarily liable that the instrumentwas dishonored by non-acceptance by the drawee of a bill orby non-payment by the acceptor of a bill or by non-paymentby a maker of a note- If such notice is given by a notary public it is calledPROTEST1048766 Effect of failure to give notice parties secondarily liableare discharged1048766 Requisites1 Given by holder or his agent or by any party whomay be compelled by the holder to pay2 Given to secondary party or his agent3 Given within the periods provided by law4 Given at the proper place1048766 When notice of dishonor dispensed with1 when party to be notified knows about the dishonoractually or constructively2 if waived and3 when after due diligence it cannot be given1048766 How given1 by bringing verbally or2 by writing to the knowledge of the person liable thefact that a specified instrument upon properproceedings taken has not been accepted or hasnot been paid and that the party notified isexpected to pay it1048766 To whom given1 Non-acceptance (bill) ndash to persons secondarilyliable namely the drawer and indorsers as the casemay be2 Non-payment (both bill and note) ndash indorsersNote Notice must be given to persons secondarilyliable Otherwise such parties are dischargedNotice may be given to the party himself or to hisagent

1048766 By whom given1 the holder2 another on behalf of the holder3 any party to the instrument who may be compelledto pay it to the holder and who would have a rightof reimbursement from the party to whom notice isgiven1048766 Notice of dishonor given by or on behalf of a holderinures to the benefit ofa all parties prior to the holder who have a rightof recourse against the party to whom thenotice is given andb all holders subsequent to the holder givingnotice1048766 Notice of dishonor given by or on behalf of a partyentitled to give notice inures to the benefit ofa the holder andb all parties subsequent to the party to whomnotice is given1048766 Where an instrument is dishonored in the hands of anagent he can do either of the ffa directly give notice to persons secondarilyliable thereon orb give notice to his principal In such case hemust give notice within the time allowed bylaw as if he were a holder1048766 A party giving notice is deemed to have given due noticewherea the notice of dishonor is duly addressed andb deposited in the post-office even when thereis miscarriage of mail1048766 Where a party receives notice of dishonor he has afterthe receipt of such notice the same time for givingnotice to antecedent parties that the holder has afterthe dishonor1048766 Notice may be waived either before the time of givingnotice or after the omission to give due notice Waivermay be expressed or implied1048766 As to who are affected by an express waiver depends onwhere the waiver is written1 if it appears in the body or on the face of theinstrument it binds all parties but2 if it is written above the signature of anindorser it binds him only1048766 Notice of dishonor is not required to be given to thedrawer in any of the ff cases1 drawer and drawee are the same2 drawee is a fictitious person or not having thecapacity to contract3 drawer is the person to whom the instrument ispresented for payment4 the drawer has no right to expect or requirethat the drawee or acceptor will honor theinstrument5 where the drawer has countermandedpayment1048766 Notice of dishonor is not required to be given to anindorser in the ff cases1 drawee is a fictitious person or does not havethe capacity to contract and indorser wasaware of that fact at the time he indorsed theinstrument2 indorser is the person to whom the instrumentis presented for payment3 instrument was made or accepted for his

accommodation1048766 If an instrument is not accepted by the drawee there isno sense presenting it again for payment and notice ofdishonor must at once be given If there wasacceptance presentment for payment is still requiredand if payment is refused there is a need for notice ofdishonor1048766 An omission to give notice of dishonor by non-acceptancedoes not prejudice the rights of a holder in due coursesubsequent to the omissionDishonor by Non-PaymentWhen instrument dishonored by non-paymenta it is duly presented for payment and payment isrefused or cannot be obtained orb presentment is excused and the instrument isoverdue and unpaidEffect of dishonor an immediate right of recourse to allparties secondarily liable thereon accrues to the holderDishonor by Non-AcceptanceInstancesa When it is duly presented for acceptance and suchan acceptance is refused or can not be obtained orb When presentment for acceptance is excused andthe bill is not accepted (sec 149)Effect an immediate right of recourse against thedrawer and indorsers accrues to the holder and nopresentment for payment is necessaryNote where a bill is duly presented for acceptance andis not accepted within the prescribed time (24 hours)the person presenting it must treat the bill as dishonoredby non-acceptanceWhen Instrument Considered to be Dishonoreda If it is not accepted when presented for acceptanceorb If it is not paid when presented for payment atmaturity orc If presentment is excused or waived and theinstrument is past due and unpaidProtest - the formal instrument executed usually by a notarypublic certifying that the legal steps necessary to fix theliability of the drawee and the indorsers have been taken1048766 Effect of waiver where protest is waived presentmentand notice of dishonor are also deemed waived Butwhere the notice of dishonor is waived presentment isnot waived1048766 Applicability protest is necessary only in case of foreignbills of exchange which have been dishonored by nonacceptanceor non-payment as the case may be If it isnot so protested the drawer and indorsers aredischarged1048766 Foreign Bill of Exchange1 Drawn in the Philippines but payable outside thePhilippines2 Payable in the Philippines but drawn outside thePhilippines1048766 Protest may be made by1 a notary public or2 any respectable resident of the place where the billis dishonored in the presence of 2 or more crediblewitnessesProtest for better security is one made by the holder of a billafter it has been accepted but before it matures against thedrawer and indorsers where the acceptor has been adjudgeda bankrupt or an insolvent or has made an assignment forthe benefit of the creditors

VIII DISCHARGEDischarge of instrument - a release of all parties whetherprimary or secondary from the obligations arisingthereunder It renders the instrument without force andeffect and consequently it can no longer be negotiatedInstances1 By payment in due course by or on behalf of theprincipal debtor2 Payment by accommodated party3 Intentional cancellation by the holder4 By any act which will discharge a simple contractfor the payment of money5 When the principal debtor becomes the holder ofthe instrument at or after maturity in his own rightBy any act which would discharge a simple contract1 Payment or performance2 Loss of the thing due3 Condonation or remission4 Confusion or Merger5 Compensation6 Novation7 Annulment or Rescission8 Fulfillment of a resolutory condition9 PrescriptionWhen persons secondarily liable on the instrument aredischarged1 By any act which discharges the instrument2 By the intentional cancellation of his signature bythe holder3 By the discharge of a prior party4 By a valid tender of payment made by a prior party5 By the release of the principal debtor unless theholderrsquos right of recourse against the partysecondarily liable is expressly reserved6 By any agreement binding upon the holder to extendthe time of payment or to postpone the holderrsquosright to enforce the instrument1048766 In the following cases the agreement to extend the timeof payment does not discharge a party secondarily liable1 where the extension of time is consented to by suchparty2 where the holder expressly reserves his right ofrecourse against such party1048766 Payment at or after maturity by a party secondarilyliable does not discharge the instrument It only cancelshis own liability and that of the parties subsequent tohimEffects of Renunciation1 A renunciation in favor of a secondary party may bemade by the holder before at or after maturity ofthe instrument Effect only such secondary party isdischarged and all parties subsequent to him but theinstrument itself remains in force2 A renunciation in favor of the principal debtor maybe effected at or after maturity Effect theinstrument is discharged and all parties theretoprovided the renunciation is made unconditionallyand absolutelyNote In either case renunciation does not affect therights of a holder in due course without notice1048766 Cancellation of an instrument includes tearing erasureobliteration or burning It is not limited to writing ofthe word lsquocancelledrdquo or ldquopaidrdquo or drawing of crisscrosslines across the instrumentPayment for Honor - payment made by a person whether a

party to the bill or not after it has been protested for nonpaymentfor the benefit of any party liable thereon or forthe benefit of the person for whose account it was drawn1048766 Requisites1 the bill has been dishonored by non-payment2 it has been protested for non-payment3 payment supra protest (another term for paymentfor honor because prior protest for non-payment isrequired) is made by any person even by a partythereto4 the payment is attested by a notarial act of honorwhich must be appended to the protest or form anextension of it5 the notarial act must be based on the declarationmade by the payor for honor or his agent of hisintention to pay the bill for honor and for whosehonor he paysNote If the above formalities are not complied withpayment will operate as a mere voluntary payment andthe payor will acquire no right to full reimbursementagainst the party for whose honor he pays1048766 In payment for honor the payee cannot refuse paymentIf he refuses he cannot recover from the parties whowould have been discharged had he accepted the sameIn acceptance for honor the holderrsquos consent isnecessary1048766 The payor for honor is given the right to receive both thebill and the protest obviously to enable him to enforcehis rights against the parties who are liable to himIX CHECKSCheck- a bill of exchange drawn on a bank payable ondemandCheck distinguished from and ordinary bill of exchangeBILLOF EXCHANGE CHECKNot necessarily drawnon a deposit The draweeneed not be a bankIt is necessary that a checkis drawn on a bank depositThe drawee is always abankDeath of a drawer of aBOE with the knowledgeof the bank does notrevoke the authority of thedrawee to payDeath of the drawer of acheck with the knowledgeof the bank revokes theauthority of the banker topayMay be presented forpayment within areasonable time after itslast negotiation because itmay be further negotiatedMust be presented forpayment within areasonable time after itsissueMay be payable on demandor at a fixed ordeterminable future timeAlways payable on demandKinds of checks

1 Managerrsquos Cashierrsquos Check ndash drawn by a bank on itselfand therefore it is a primary obligation of the banko It is accepted in advance by the act of itsissuance and is not subject tocountermand by the payor afterindorsemento The bankrsquos manager signs managerrsquos checkwhile cashierrsquos check is signed by the bankcashier2 Certified Check ndash one drawn by a depositor upon funds tohis credit in a bank which a proper officer of the bankcertifies will be paid when duly presented for payment3 Stale check ndash one which has not been presented forpayment within a reasonable time after its issue4 Crossed check ndash when 2 parallel lines are drawn acrossits face or across a corner thereof If the name of a bankappears between the parallel lines the check is said tobe specially crossed and payment should be made onlyif presented by the named bank If no name appearsbetween the parallel lines the check is said to begenerally crossed and payment should be made onlyupon presentment by some bankEffects of crossing a checka That the check may not be encashed but only bedeposited in the bankb That the check may be negotiated only once to onewho has an account with a bank andc That the act of crossing the check serves as awarning to the holder that the check has beenissued for a definite purpose so that he must inquireif he has received the check pursuant to thatpurpose5 Memorandum Check ndash it is like an ordinary check exceptthat the word ldquomemorandumrdquo ldquomemrdquo or ldquomemordquo iswritten upon the face of the check signifying that thedrawer engages to pay the bona fide holder absolutelyand not upon a condition to pay upon presentment atmaturity and if due notice of the presentment and nonpaymentshould be given6 Travelerrsquos check ndash one upon which the holderrsquos signaturemust appear twice one to be affixed by him at the timeit is issued and the second o counter-signature to beaffixed by him in the presence of the payee before it ispaid otherwise it is incompleteIron Clad Rule Prohibits the countermanding ofpayment of certified checks (Republic of the Philippinesv PNB GR No 16106 December 1 1961)

1 The principal who signs through an agent is liable2 The forger is liable3 One who indorses in a separate instrument (allonge) isliable4 One who signs his assumed or trade name is liable and5 A person negotiating by delivery (as in the case of abearer instrument) is liable to his immediate indorseeRequisites for an Agent to escape liability1 must be duly authorized2 add words to his signature indicating that he signs as anagent that is for or on behalf of a principal or in arepresentative capacity and3 disclose his principal1048766 A signature by ldquoprocurationrdquo operates as notice that theagent has but a limited authority to sign and theprincipal is bound only in case the agent in so signingacted within the actual limits of his authority (sec 21)1048766 Indorsement or assignment of the NI by a corporation orby an infant passes the property thereinnotwithstanding that from want of capacity thecorporation or infant may incur no liability thereon(sec 22)Accomodation PartyOne who has signed the instrument as maker draweracceptor or indorser without receiving value therefor andfor the purpose of lending his name to some other person1048766 Liability such a person is liable on the instrument to aholder for value notwithstanding such holder at thetime of taking the instrument knew him to be only anaccommodation party1048766 Effects1 accommodation party is generally regarded as asurety for the party accommodated2 When accommodation party makes payment toholder of the note he has the right to sue theaccommodated party for reimbursement1048766 Rights of accommodation parties as against each otherthe other may demand contribution from his coaccommodationparty without first directing his actionagainst the principal debtor provided1 he made the payment by virtue of judicial demandor2 the principal debtor is insolventNote A corporation cannot act as an accommodationparty The issuance or indorsement of negotiableinstrument by a corporation without consideration andfor the accommodation of another is ultra vires(Crisologo v CA 117 SCRA 594)Order of liability of indorsers1 among themselves ndash indorsers are liable prima facie inthe order in which they indorse but evidence isadmissible to show that as between or amongthemselves they have agreed otherwise (sec 68)2 to the holder ndash indorsers are liable in any orderVI DEFENSESKinds1 RealAbsolute Defenses - those that attach to theinstrument itself and are available against all holderswhether in due course or notExamplesa Alterationb Non-delivery of incomplete instrumentc Duress amounting to forgeryd Fraud in factum or fraud in esse contractuse Minority

f Marriage in the case of a wifeg Insanity where the insane person has a guardianappointed by the courth Ultra vires acts of a corporation where thecorporation is absolutely prohibited by its charter orstatute from issuing any commercial paper underany circumstancesi Want of authority of agentj Execution of instrument between public enemiesk Illegality of contract where it is the contract orinstrument itself which is expressly made illegal bystatute andl Forgery2 PersonalEquitable Defenses ndash those which are availableonly against a person not a holder in due course or asubsequent holder who stands in privity with himExamplesa Absence or failure of consideration partial or totalb Want of delivery of complete instrumentc Insertion of wrong date in an instrument where it ispayable at a fixed period after date and it is issuedundated or where it is payable at a fixed periodafter sight and the acceptance is undatedd Filling up of blank contrary to authority given or notwithin reasonable time where the instrument isdeliverede Fraud in inducementf Acquisition of instrument by force duress or fearg Acquisition of the instrument by unlawful meansh Acquisition of the instrument for an illegalconsiderationi Negotiation in breach of faithj Negotiation under circumstances that amount tofraudk Mistakel Intoxication (according to better authority)m Ultra vires acts of corporations where thecorporation has the power to issue negotiable paperbut the issuance was not authorized for theparticular purpose for which it was issuedn Want of authority of agent where he haso apparent authorityp Insanity where there is no notice of insanity on thepart of the one contracting with the insane personandq Illegality of contract where the form orconsideration is illegalFRAUD IN FACTUM FRAUD IN INDUCEMENT1 It exists in those cases inwhich a person withoutnegligence has signed aninstrument which was infact a negotiableinstrument but wasdeceived as to thecharacter of the instrumentand without knowledge ofits as where a not wassigned by one under thebelief that he was signingas a witness to a deed1 It is that which relatedto the quality quantityvalue or character of theconsideration of the

instrument In this casethe signer is led bydeception to execute whathe knows is a negotiableinstrument It implies thatthe signer knew what hewas signing but that he wasinduced by fraud to sign2 This kind of fraud is areal defense because thereis no contract It impliesthat the person did notknow what he was signingBut where the signer by theexercise of reasonablediligence could havediscovered the nature ofthe instrument the fraudcannot be considered a realdefense as where a personwho can read signed a notebut failed to read it2 Such type of fraud is onlya personal defense becauseit does not prevent acontract1048766 Effects of Defenses1 Complete and undelivered instrumentbull as between immediate parties and as regards aremote party other than a holder in due course thedelivery must be authorized in order to be effectualbull where the instrument is in the hands of a holder indue course a valid delivery thereof by all partiesprior to him so as to make them liable to him isconclusively presumedbull where the instrument is no longer in the possessionof a party whose signature appears thereon a validand intentional delivery by him is presumed untilthe contrary is proved2 Incomplete but delivered instrumentbull where the instrument is wanting in any materialparticular the person in possession thereof has aprima facie authority to complete it by filling up theblanks thereinbull it must be filled up strictly in accordance with theauthority given and within a reasonable timebull if any such instrument after completion isnegotiated to a holder in due course it is valid andeffectual for all purposes in his hands and he mayenforce it as if it had been filled up strictly inaccordance with the authority given and within areasonable time3 Incomplete and undelivered instrumentbull it will not if completed and negotiated withoutauthority be a valid contract in the hands of anyholder as against any person whose signature wasplaced thereon before deliverybull However subsequent indorsers are liable4 Forgerybull counterfeit making or fraudulent alteration of anywriting which may consist of1 signing of anotherrsquos name with intent todefraud or2 alteration of an instrument in the nameamount name of payee etc with intent to

defraudbull Effect signature is wholly inoperative and no rightto retain the instrument or to give a dischargetherefore or to enforce payment thereof againstany party thereto can be acquired through or undersuch signaturebull Exception unless the party against whom it issought to enforce such right is precluded fromsetting up the forgery or want of authoritybull Cut-Off RuleGeneral Rule Parties prior to the forged signatureare cut-off from the parties after the forgery in thesense that prior parties cannot be held liable andcan raise the defense of forgery The holder canonly enforce the instrument against parties whobecame such after the forgeryException When the prior parties are precludedfrom setting up the defense of forgeryPersons precluded from setting up the defense offorgery are1 Those who by their acts silence or negligenceare estopped from setting up the defense offorgery2 Those who warrant or admit the genuineness ofthe signature in question These include acts oromissions that amount to ratification expressor impliedNote Persons precluded from setting up thedefense of forgery may still recover damages underthe NCC provisions on quasi-delictsbull Rules on ForgeryA Promissory Notes1 Makerrsquos signature forgedOrder Instrumenta Maker is not liable because he neverbecame a party to the instrumentb Indorsers subsequent to forgery are liablebecause of their warrantiesc Party who made the forgery is liableBearer Instrumenta Maker is not liableb Indorsers may be made liable to thosepersons who obtain title through theirindorsementsc Party who made the forgery is liable2 Payeersquos signature forgedOrder Instrumenta Maker and payee not liableb Indorsers subsequent to the forgery isliablec Party who made the forgery is liableBearer Instrumenta Maker is liable Indorsement is notnecessary to title and the maker engagesto pay holderb Party who made the forgery is liable3 Indorserrsquos signature forgedOrder Instrumenta Maker payee and indorser who signaturewas forged is not liableb Indorsers subsequent to forgery are liablebecause of their warrantiesc Party who made the forgery is liableBearer Instrumenta Maker is liable Indorsement is not

necessary to title and the maker engagesto pay holderb Indorser whose signature was forged is notliablec Party who made the forgery is liableB Bill of Exchange1 Drawerrsquos signature forgedIn an Order Instrumenta Drawer is not liableb Drawee is liable if it paid (nor recourse todrawer) because he admitted thegenuineness of the drawerrsquos signatureDrawee cannot recover from the collectingbank because there is no privity betweenthe collecting bank and the drawer Thereis no warranty as to the signature of thedrawer (Associated Bank v CA)c Indorsers subsequent to forgery are liabled Party who made the forgery is liableIn a Bearer Instrumenta Drawer is not liableb Drawee is liable if it paid Drawee cannotrecover from the collecting bank becauseit is bound to known the drawerrsquossignature since the latter is its depositorc Party who made the forgery is liable2 Payeersquos signature forgedOrder Instrumenta Drawer drawee and payee not liable Cutoffrule appliesb Indorsers subsequent to forgery are liablec Party who made the forgery is liableBearer Instrumenta Drawer is liable His indorsement is notnecessary to pass titleb Drawee is liable No privity betweendrawer and payee because indorsement ofpayee is not necessary (Ang Tek Lian case87 SCRA 383)c Payee is not liabled Collecting bank is liable because ofwarrantye Party who made the forgery is liable3 Indorserrsquos signature forgedOrder Instrumenta Drawer payee and indorser whosesignature was forged are not liableb Drawee is liable if it paidc Indorsers subsequent to forgery are liabled Party who made the forgery is liableBearer Instrumenta Drawer is liable Indorsement is notnecessary to pass titleb Drawee is liablec Indorser whose signature was forged isliable because indorsement is notnecessary to pass titled Party who made the forgery is liable5 Alterationbull Effect the instrument is avoidedbull Exceptions1 against a party who has himself madeauthorized or assented to the alteration2 subsequent indorsers3 holder in due course not a party to the

alteration - he may enforce payment accordingto its original tenorbull Changes constituting material alteration1 date2 sum payable either for principal or interest3 time or place of payment4 number or relations of the parties5 medium or currency in which payment is to bemade6 that which adds a place of payment where noplace of payment is specified and7 any other change or addition which alters theeffect of the instrument in any respectNote a material alteration is one that alters theeffect of the instrument one which changes theitems required to be stated under Sec 1 NILbull Spoliation ndash alteration made by a strangerbull The general rule denies the drawee bankrsquos right tocharge against the drawerrsquos account the amount ofan altered check However the latterrsquos negligencebefore or after the alteration may estop him fromsetting such alteration as against an innocentdrawee bank who has paid the checkbull In cases of altered checks and checks with forgedindorsements the drawee bank must notify andreturn them to the collecting bank before 400 pmof the next day of clearing but the drawee bankmay still return them even after such time providedhe does so within 24 hours from its discovery of thealteration or forged instruments so that recovery ofthe amount may be had BUT in no event beyondthe period fixed or provided by law for filing of alegal action by the returning bank against the banksending the sameNote Alteration is only a partial real defensebecause a holder in due course can still enforce itaccording to its original tenorVII ENFORCEMENT OF LIABILITYPresentment for payment ndash the presentation of aninstrument to the person primarily liable for the purpose ofdemanding and receiving paymentGeneral Rulesbull presentment for payment to charge personsprimarily liable is not necessarybull presentment for payment to charge personssecondarily liable is necessaryExceptionsa drawer - where he has no right to expect or requirethat the drawee or acceptor will pay the instrument(sec 79)b indorser - where the instrument was made oraccepted for his accommodation and he has noreason to expect that the instrument will be paid ifpresentedc when dispensedi where after the exercise of reasonablediligence presentment as required cannotbe madeii where the drawee is a fictitious personiii by waiver of presentment express orimplied (sec 82)d when the instrument has been dishonored by nonacceptance(sec 151)Sufficiency of presentmentIt must be

1 made by the holder or any person authorized toreceive payment on his behalf2 at a reasonable hour on a business day3 at a proper place4 to the person primarily liable or if he is absent orinaccessible to any person found at the placewhere the presentment is madeHow made1 personal demand for payment at the proper place and2 readiness to exhibit the instrument if required and toreceive payment and to surrender the instrument if thedebtor is willing to paybull Purpose of exhibitionTo enable the debtor toa determine the genuineness of the instrument andthe right of the holder to receive payment andb to enable him to reclaim possession upon paymentbull When exhibition excuseda when debtor does not demand to see the instrumentbut refuses payment on some other grounds andb when the instrument is lost or destroyedWhen madebull where the instrument is payable at a fixed ordeterminable future time presentment must be madeon the day it falls duebull where it is payable on demanda promissory note presentment must be made withina reasonable time after its issueb bill of exchange presentment for payment will besufficient if made within a reasonable time afterthe last negotiation thereofbull the check must be presented for payment within areasonable time after its issue or the drawer will bedischarged from liability thereon to the extent of theloss caused by the delayTime of maturitybull every negotiable instrument is payable at the time fixedtherein without gracebull when the day of maturity falls upon a Sunday or aholiday the instruments are to be presented forpayment on the next succeeding business daybull when the day of maturity falls upon a Saturday1048766 Instrument is payable at a fixed or determinablefuture time (time instrument) - presented forpayment is on the next succeeding business day1048766 instruments is payable on demand - at the option ofthe holder be presented for paymenta before 1200 noon on Saturday whenthat entire day is not a holiday orb the next succeeding business dayHow computed1048766 excluding the day from which the time is to begin torun and by including the date of payment1048766 applies to instruments which are payable at a fixedperiod after date after sight or after thathappening of a specified eventProper place for presentmenta Where a place of payment is specified in the instrumentand it is there presentedb Where no place of payment is specified but the addressof the person to make payment is given in theinstrument and it is there presentedc Where no place of payment is specified and no address isgiven and the instrument is presented at the usual placeof business or residence of the person to make payment

d In any other case if presented to the person to makepayment wherever he can be found or if presented athis last known place of business or residenceWhen delay in presentment excused ndash delay is caused bycircumstances beyond the control of the holder and notimputable to his default misconduct or negligence Whenthe cause of delay ceases to operate presentment must bemade with reasonable diligencePresentment for acceptance ndash the production or exhibitionof a bill of exchange to the drawee for his acceptance orpaymentGeneral Rule presentment for acceptance is not necessary torender any party to the bill liableException presentment for acceptance must be madea Where the bill is payable after sight or wherepresentment for acceptance is necessary in order tofix the maturity of the instrument orb Where the bill expressly stipulates that it shall bepresented for acceptance orc Where the bill is drawn payable elsewhere then atthe residence or place of business of the drawee(sec 143)Note in all the above cases the holder must either presentthe bill for acceptance or negotiate it within a reasonabletime otherwise the drawer and all indorsers are dischargedHow made1 made by or on behalf of the holder2 at a reasonable hour3 on a business day4 before the bill is overdue and within reasonabletime5 to the drawee or some person authorized to acceptor refuse acceptance on his behalfDays presentment may be made If date of presentment isa Sunday or a holiday ndash must be made on the nextsucceeding business dayb Saturday ndash before 1200 noon on Saturday providedthat it is not a holidayWhen delay for presentment excuseda bill is drawn payable elsewhere than at the place ofbusiness or the residence of the draweeb holder has no time with the exercise of reasonablediligence to present the bill for acceptance beforepresenting it for payment on the day that it fallsdueEffect does not discharge the drawers and indorsersWhere presentment is excuseda Where the drawee is dead or has absconded or is afictitious person or a person not having capacity tocontract by billb Where presentment can not be made after theexercise of reasonable diligencec Where although presentment has been irregularacceptance has been refused on some other groundNote bill may be treated as dishonored by nonacceptanceDuty of holder where bill not accepted - where a bill isduly presented for acceptance and is not accepted within theprescribed time (24 hours ndash sec 136) the person presentingit must treat the bill as dishonored by non-acceptance or heloses the right of recourse against the drawer and indorsersAcceptance the signification by the drawee of his assent tothe order of the drawer It is the act by which the draweemanifests his consent to comply with the request containedin the bill of exchange directed to himHow made

1) must be in writing2) signed by the drawee3) must not express that the drawee will perform hispromise by any other means than the payment ofmoneybull the holder of the bill presenting the same for acceptancemay require that the acceptance be written on the billand if such request is refused may treat the bill asdishonoredbull where an acceptance is written on a paper other thanthe bill itself it does not bind the acceptor except infavor of a person to whom it is shown and who on thefaith thereof receives the bill for valuePeriod for drawee to accept - allowed 24 hours afterpresentment in which to decide whether or not he will acceptthe bill if acceptance is given it dates as of the day ofpresentationConstructiveImplied acceptance where a drawee refuseswithin 24 hours after delivery or within such other period asthe holder may allow to return the bill accepted or nonacceptedto the holder he will be deemed to have acceptedthe sameNote same effect if the drawee destroys the instrumentKinds1 General - assents without qualification to the order ofthe drawer2 Qualified - which in express terms varies the effect ofthe bill as drawna Conditional - makes payment by the acceptordependent on the fulfillment of a conditiontherein statedb Partial - an acceptance to pay part only of theamount for which the bill is drawni Local - an acceptance to pay only at aparticular placeii Qualified as to timeiii The acceptance of some one or more ofthe drawees but not of all3 ConstructiveRights of parties as to qualified acceptancebull Holder he may refuse to take a qualified acceptanceand if he does not obtain an unqualified acceptance hemay treat the bill as dishonored by non-acceptancebull Drawer or indorser when he receives notice of aqualified acceptance he must within a reasonable timeexpress his dissent to the holder or he will be deemed tohave assented thereto (implied assent)Effect of taking a qualified acceptance the drawer andindorsers are discharged from liability on the bill unless theyhave expressly or impliedly authorized the holder to take aqualified acceptance or subsequently assent theretoOther rules of acceptancebull a bill may be accepted before it has been signed by thedrawer or while otherwise incomplete or when it isoverdue or after it has been dishonored by a previousrefusal to accept or by non paymentbull when a bill payable after sight is dishonored by nonacceptanceand the drawee subsequently accepts it theholder in the absence of any different agreement isentitled to have the bill accepted as of the date of thefirst presentmentbull an unconditional promise in writing to accept a billbefore it is drawn is deemed an actual acceptancein favor of every person who upon the faiththereof receives the bill for value

bull where a check is certified by the bank on which it isdrawn the certification is equivalent to anacceptanceEffect the drawer and all indorsers are dischargedfrom liability thereonAcceptance for Honor - an undertaking by a stranger to a billafter protest for the benefit of any party liable thereon or forthe honor of the person for whose account the bill is drawnwhich acceptance inures also to the benefit of all partiessubsequent to the person for whose honor it is accepted andconditioned to pay the bill when it becomes due if theoriginal drawee does not pay it1048766 Requisites1 the bill must have been protested for dishonorby non-acceptance or for better security2 the acceptor for honor must be a stranger andnot a party already liable on the instrument3 bill must not be overdue4 acceptance for honor must be with the consentof the holder of the instrument1048766 Formalities1 must be in writing2 must indicate that it is an acceptance forhonor3 signed by the acceptor for honor4 must contain an express or implied promise topay money5 the accepted bill for honor must be deliveredto the holderNotice of Dishonor - notice given by the holder or his agentto a party or parties secondarily liable that the instrumentwas dishonored by non-acceptance by the drawee of a bill orby non-payment by the acceptor of a bill or by non-paymentby a maker of a note- If such notice is given by a notary public it is calledPROTEST1048766 Effect of failure to give notice parties secondarily liableare discharged1048766 Requisites1 Given by holder or his agent or by any party whomay be compelled by the holder to pay2 Given to secondary party or his agent3 Given within the periods provided by law4 Given at the proper place1048766 When notice of dishonor dispensed with1 when party to be notified knows about the dishonoractually or constructively2 if waived and3 when after due diligence it cannot be given1048766 How given1 by bringing verbally or2 by writing to the knowledge of the person liable thefact that a specified instrument upon properproceedings taken has not been accepted or hasnot been paid and that the party notified isexpected to pay it1048766 To whom given1 Non-acceptance (bill) ndash to persons secondarilyliable namely the drawer and indorsers as the casemay be2 Non-payment (both bill and note) ndash indorsersNote Notice must be given to persons secondarilyliable Otherwise such parties are dischargedNotice may be given to the party himself or to hisagent

1048766 By whom given1 the holder2 another on behalf of the holder3 any party to the instrument who may be compelledto pay it to the holder and who would have a rightof reimbursement from the party to whom notice isgiven1048766 Notice of dishonor given by or on behalf of a holderinures to the benefit ofa all parties prior to the holder who have a rightof recourse against the party to whom thenotice is given andb all holders subsequent to the holder givingnotice1048766 Notice of dishonor given by or on behalf of a partyentitled to give notice inures to the benefit ofa the holder andb all parties subsequent to the party to whomnotice is given1048766 Where an instrument is dishonored in the hands of anagent he can do either of the ffa directly give notice to persons secondarilyliable thereon orb give notice to his principal In such case hemust give notice within the time allowed bylaw as if he were a holder1048766 A party giving notice is deemed to have given due noticewherea the notice of dishonor is duly addressed andb deposited in the post-office even when thereis miscarriage of mail1048766 Where a party receives notice of dishonor he has afterthe receipt of such notice the same time for givingnotice to antecedent parties that the holder has afterthe dishonor1048766 Notice may be waived either before the time of givingnotice or after the omission to give due notice Waivermay be expressed or implied1048766 As to who are affected by an express waiver depends onwhere the waiver is written1 if it appears in the body or on the face of theinstrument it binds all parties but2 if it is written above the signature of anindorser it binds him only1048766 Notice of dishonor is not required to be given to thedrawer in any of the ff cases1 drawer and drawee are the same2 drawee is a fictitious person or not having thecapacity to contract3 drawer is the person to whom the instrument ispresented for payment4 the drawer has no right to expect or requirethat the drawee or acceptor will honor theinstrument5 where the drawer has countermandedpayment1048766 Notice of dishonor is not required to be given to anindorser in the ff cases1 drawee is a fictitious person or does not havethe capacity to contract and indorser wasaware of that fact at the time he indorsed theinstrument2 indorser is the person to whom the instrumentis presented for payment3 instrument was made or accepted for his

accommodation1048766 If an instrument is not accepted by the drawee there isno sense presenting it again for payment and notice ofdishonor must at once be given If there wasacceptance presentment for payment is still requiredand if payment is refused there is a need for notice ofdishonor1048766 An omission to give notice of dishonor by non-acceptancedoes not prejudice the rights of a holder in due coursesubsequent to the omissionDishonor by Non-PaymentWhen instrument dishonored by non-paymenta it is duly presented for payment and payment isrefused or cannot be obtained orb presentment is excused and the instrument isoverdue and unpaidEffect of dishonor an immediate right of recourse to allparties secondarily liable thereon accrues to the holderDishonor by Non-AcceptanceInstancesa When it is duly presented for acceptance and suchan acceptance is refused or can not be obtained orb When presentment for acceptance is excused andthe bill is not accepted (sec 149)Effect an immediate right of recourse against thedrawer and indorsers accrues to the holder and nopresentment for payment is necessaryNote where a bill is duly presented for acceptance andis not accepted within the prescribed time (24 hours)the person presenting it must treat the bill as dishonoredby non-acceptanceWhen Instrument Considered to be Dishonoreda If it is not accepted when presented for acceptanceorb If it is not paid when presented for payment atmaturity orc If presentment is excused or waived and theinstrument is past due and unpaidProtest - the formal instrument executed usually by a notarypublic certifying that the legal steps necessary to fix theliability of the drawee and the indorsers have been taken1048766 Effect of waiver where protest is waived presentmentand notice of dishonor are also deemed waived Butwhere the notice of dishonor is waived presentment isnot waived1048766 Applicability protest is necessary only in case of foreignbills of exchange which have been dishonored by nonacceptanceor non-payment as the case may be If it isnot so protested the drawer and indorsers aredischarged1048766 Foreign Bill of Exchange1 Drawn in the Philippines but payable outside thePhilippines2 Payable in the Philippines but drawn outside thePhilippines1048766 Protest may be made by1 a notary public or2 any respectable resident of the place where the billis dishonored in the presence of 2 or more crediblewitnessesProtest for better security is one made by the holder of a billafter it has been accepted but before it matures against thedrawer and indorsers where the acceptor has been adjudgeda bankrupt or an insolvent or has made an assignment forthe benefit of the creditors

VIII DISCHARGEDischarge of instrument - a release of all parties whetherprimary or secondary from the obligations arisingthereunder It renders the instrument without force andeffect and consequently it can no longer be negotiatedInstances1 By payment in due course by or on behalf of theprincipal debtor2 Payment by accommodated party3 Intentional cancellation by the holder4 By any act which will discharge a simple contractfor the payment of money5 When the principal debtor becomes the holder ofthe instrument at or after maturity in his own rightBy any act which would discharge a simple contract1 Payment or performance2 Loss of the thing due3 Condonation or remission4 Confusion or Merger5 Compensation6 Novation7 Annulment or Rescission8 Fulfillment of a resolutory condition9 PrescriptionWhen persons secondarily liable on the instrument aredischarged1 By any act which discharges the instrument2 By the intentional cancellation of his signature bythe holder3 By the discharge of a prior party4 By a valid tender of payment made by a prior party5 By the release of the principal debtor unless theholderrsquos right of recourse against the partysecondarily liable is expressly reserved6 By any agreement binding upon the holder to extendthe time of payment or to postpone the holderrsquosright to enforce the instrument1048766 In the following cases the agreement to extend the timeof payment does not discharge a party secondarily liable1 where the extension of time is consented to by suchparty2 where the holder expressly reserves his right ofrecourse against such party1048766 Payment at or after maturity by a party secondarilyliable does not discharge the instrument It only cancelshis own liability and that of the parties subsequent tohimEffects of Renunciation1 A renunciation in favor of a secondary party may bemade by the holder before at or after maturity ofthe instrument Effect only such secondary party isdischarged and all parties subsequent to him but theinstrument itself remains in force2 A renunciation in favor of the principal debtor maybe effected at or after maturity Effect theinstrument is discharged and all parties theretoprovided the renunciation is made unconditionallyand absolutelyNote In either case renunciation does not affect therights of a holder in due course without notice1048766 Cancellation of an instrument includes tearing erasureobliteration or burning It is not limited to writing ofthe word lsquocancelledrdquo or ldquopaidrdquo or drawing of crisscrosslines across the instrumentPayment for Honor - payment made by a person whether a

party to the bill or not after it has been protested for nonpaymentfor the benefit of any party liable thereon or forthe benefit of the person for whose account it was drawn1048766 Requisites1 the bill has been dishonored by non-payment2 it has been protested for non-payment3 payment supra protest (another term for paymentfor honor because prior protest for non-payment isrequired) is made by any person even by a partythereto4 the payment is attested by a notarial act of honorwhich must be appended to the protest or form anextension of it5 the notarial act must be based on the declarationmade by the payor for honor or his agent of hisintention to pay the bill for honor and for whosehonor he paysNote If the above formalities are not complied withpayment will operate as a mere voluntary payment andthe payor will acquire no right to full reimbursementagainst the party for whose honor he pays1048766 In payment for honor the payee cannot refuse paymentIf he refuses he cannot recover from the parties whowould have been discharged had he accepted the sameIn acceptance for honor the holderrsquos consent isnecessary1048766 The payor for honor is given the right to receive both thebill and the protest obviously to enable him to enforcehis rights against the parties who are liable to himIX CHECKSCheck- a bill of exchange drawn on a bank payable ondemandCheck distinguished from and ordinary bill of exchangeBILLOF EXCHANGE CHECKNot necessarily drawnon a deposit The draweeneed not be a bankIt is necessary that a checkis drawn on a bank depositThe drawee is always abankDeath of a drawer of aBOE with the knowledgeof the bank does notrevoke the authority of thedrawee to payDeath of the drawer of acheck with the knowledgeof the bank revokes theauthority of the banker topayMay be presented forpayment within areasonable time after itslast negotiation because itmay be further negotiatedMust be presented forpayment within areasonable time after itsissueMay be payable on demandor at a fixed ordeterminable future timeAlways payable on demandKinds of checks

1 Managerrsquos Cashierrsquos Check ndash drawn by a bank on itselfand therefore it is a primary obligation of the banko It is accepted in advance by the act of itsissuance and is not subject tocountermand by the payor afterindorsemento The bankrsquos manager signs managerrsquos checkwhile cashierrsquos check is signed by the bankcashier2 Certified Check ndash one drawn by a depositor upon funds tohis credit in a bank which a proper officer of the bankcertifies will be paid when duly presented for payment3 Stale check ndash one which has not been presented forpayment within a reasonable time after its issue4 Crossed check ndash when 2 parallel lines are drawn acrossits face or across a corner thereof If the name of a bankappears between the parallel lines the check is said tobe specially crossed and payment should be made onlyif presented by the named bank If no name appearsbetween the parallel lines the check is said to begenerally crossed and payment should be made onlyupon presentment by some bankEffects of crossing a checka That the check may not be encashed but only bedeposited in the bankb That the check may be negotiated only once to onewho has an account with a bank andc That the act of crossing the check serves as awarning to the holder that the check has beenissued for a definite purpose so that he must inquireif he has received the check pursuant to thatpurpose5 Memorandum Check ndash it is like an ordinary check exceptthat the word ldquomemorandumrdquo ldquomemrdquo or ldquomemordquo iswritten upon the face of the check signifying that thedrawer engages to pay the bona fide holder absolutelyand not upon a condition to pay upon presentment atmaturity and if due notice of the presentment and nonpaymentshould be given6 Travelerrsquos check ndash one upon which the holderrsquos signaturemust appear twice one to be affixed by him at the timeit is issued and the second o counter-signature to beaffixed by him in the presence of the payee before it ispaid otherwise it is incompleteIron Clad Rule Prohibits the countermanding ofpayment of certified checks (Republic of the Philippinesv PNB GR No 16106 December 1 1961)

f Marriage in the case of a wifeg Insanity where the insane person has a guardianappointed by the courth Ultra vires acts of a corporation where thecorporation is absolutely prohibited by its charter orstatute from issuing any commercial paper underany circumstancesi Want of authority of agentj Execution of instrument between public enemiesk Illegality of contract where it is the contract orinstrument itself which is expressly made illegal bystatute andl Forgery2 PersonalEquitable Defenses ndash those which are availableonly against a person not a holder in due course or asubsequent holder who stands in privity with himExamplesa Absence or failure of consideration partial or totalb Want of delivery of complete instrumentc Insertion of wrong date in an instrument where it ispayable at a fixed period after date and it is issuedundated or where it is payable at a fixed periodafter sight and the acceptance is undatedd Filling up of blank contrary to authority given or notwithin reasonable time where the instrument isdeliverede Fraud in inducementf Acquisition of instrument by force duress or fearg Acquisition of the instrument by unlawful meansh Acquisition of the instrument for an illegalconsiderationi Negotiation in breach of faithj Negotiation under circumstances that amount tofraudk Mistakel Intoxication (according to better authority)m Ultra vires acts of corporations where thecorporation has the power to issue negotiable paperbut the issuance was not authorized for theparticular purpose for which it was issuedn Want of authority of agent where he haso apparent authorityp Insanity where there is no notice of insanity on thepart of the one contracting with the insane personandq Illegality of contract where the form orconsideration is illegalFRAUD IN FACTUM FRAUD IN INDUCEMENT1 It exists in those cases inwhich a person withoutnegligence has signed aninstrument which was infact a negotiableinstrument but wasdeceived as to thecharacter of the instrumentand without knowledge ofits as where a not wassigned by one under thebelief that he was signingas a witness to a deed1 It is that which relatedto the quality quantityvalue or character of theconsideration of the

instrument In this casethe signer is led bydeception to execute whathe knows is a negotiableinstrument It implies thatthe signer knew what hewas signing but that he wasinduced by fraud to sign2 This kind of fraud is areal defense because thereis no contract It impliesthat the person did notknow what he was signingBut where the signer by theexercise of reasonablediligence could havediscovered the nature ofthe instrument the fraudcannot be considered a realdefense as where a personwho can read signed a notebut failed to read it2 Such type of fraud is onlya personal defense becauseit does not prevent acontract1048766 Effects of Defenses1 Complete and undelivered instrumentbull as between immediate parties and as regards aremote party other than a holder in due course thedelivery must be authorized in order to be effectualbull where the instrument is in the hands of a holder indue course a valid delivery thereof by all partiesprior to him so as to make them liable to him isconclusively presumedbull where the instrument is no longer in the possessionof a party whose signature appears thereon a validand intentional delivery by him is presumed untilthe contrary is proved2 Incomplete but delivered instrumentbull where the instrument is wanting in any materialparticular the person in possession thereof has aprima facie authority to complete it by filling up theblanks thereinbull it must be filled up strictly in accordance with theauthority given and within a reasonable timebull if any such instrument after completion isnegotiated to a holder in due course it is valid andeffectual for all purposes in his hands and he mayenforce it as if it had been filled up strictly inaccordance with the authority given and within areasonable time3 Incomplete and undelivered instrumentbull it will not if completed and negotiated withoutauthority be a valid contract in the hands of anyholder as against any person whose signature wasplaced thereon before deliverybull However subsequent indorsers are liable4 Forgerybull counterfeit making or fraudulent alteration of anywriting which may consist of1 signing of anotherrsquos name with intent todefraud or2 alteration of an instrument in the nameamount name of payee etc with intent to

defraudbull Effect signature is wholly inoperative and no rightto retain the instrument or to give a dischargetherefore or to enforce payment thereof againstany party thereto can be acquired through or undersuch signaturebull Exception unless the party against whom it issought to enforce such right is precluded fromsetting up the forgery or want of authoritybull Cut-Off RuleGeneral Rule Parties prior to the forged signatureare cut-off from the parties after the forgery in thesense that prior parties cannot be held liable andcan raise the defense of forgery The holder canonly enforce the instrument against parties whobecame such after the forgeryException When the prior parties are precludedfrom setting up the defense of forgeryPersons precluded from setting up the defense offorgery are1 Those who by their acts silence or negligenceare estopped from setting up the defense offorgery2 Those who warrant or admit the genuineness ofthe signature in question These include acts oromissions that amount to ratification expressor impliedNote Persons precluded from setting up thedefense of forgery may still recover damages underthe NCC provisions on quasi-delictsbull Rules on ForgeryA Promissory Notes1 Makerrsquos signature forgedOrder Instrumenta Maker is not liable because he neverbecame a party to the instrumentb Indorsers subsequent to forgery are liablebecause of their warrantiesc Party who made the forgery is liableBearer Instrumenta Maker is not liableb Indorsers may be made liable to thosepersons who obtain title through theirindorsementsc Party who made the forgery is liable2 Payeersquos signature forgedOrder Instrumenta Maker and payee not liableb Indorsers subsequent to the forgery isliablec Party who made the forgery is liableBearer Instrumenta Maker is liable Indorsement is notnecessary to title and the maker engagesto pay holderb Party who made the forgery is liable3 Indorserrsquos signature forgedOrder Instrumenta Maker payee and indorser who signaturewas forged is not liableb Indorsers subsequent to forgery are liablebecause of their warrantiesc Party who made the forgery is liableBearer Instrumenta Maker is liable Indorsement is not

necessary to title and the maker engagesto pay holderb Indorser whose signature was forged is notliablec Party who made the forgery is liableB Bill of Exchange1 Drawerrsquos signature forgedIn an Order Instrumenta Drawer is not liableb Drawee is liable if it paid (nor recourse todrawer) because he admitted thegenuineness of the drawerrsquos signatureDrawee cannot recover from the collectingbank because there is no privity betweenthe collecting bank and the drawer Thereis no warranty as to the signature of thedrawer (Associated Bank v CA)c Indorsers subsequent to forgery are liabled Party who made the forgery is liableIn a Bearer Instrumenta Drawer is not liableb Drawee is liable if it paid Drawee cannotrecover from the collecting bank becauseit is bound to known the drawerrsquossignature since the latter is its depositorc Party who made the forgery is liable2 Payeersquos signature forgedOrder Instrumenta Drawer drawee and payee not liable Cutoffrule appliesb Indorsers subsequent to forgery are liablec Party who made the forgery is liableBearer Instrumenta Drawer is liable His indorsement is notnecessary to pass titleb Drawee is liable No privity betweendrawer and payee because indorsement ofpayee is not necessary (Ang Tek Lian case87 SCRA 383)c Payee is not liabled Collecting bank is liable because ofwarrantye Party who made the forgery is liable3 Indorserrsquos signature forgedOrder Instrumenta Drawer payee and indorser whosesignature was forged are not liableb Drawee is liable if it paidc Indorsers subsequent to forgery are liabled Party who made the forgery is liableBearer Instrumenta Drawer is liable Indorsement is notnecessary to pass titleb Drawee is liablec Indorser whose signature was forged isliable because indorsement is notnecessary to pass titled Party who made the forgery is liable5 Alterationbull Effect the instrument is avoidedbull Exceptions1 against a party who has himself madeauthorized or assented to the alteration2 subsequent indorsers3 holder in due course not a party to the

alteration - he may enforce payment accordingto its original tenorbull Changes constituting material alteration1 date2 sum payable either for principal or interest3 time or place of payment4 number or relations of the parties5 medium or currency in which payment is to bemade6 that which adds a place of payment where noplace of payment is specified and7 any other change or addition which alters theeffect of the instrument in any respectNote a material alteration is one that alters theeffect of the instrument one which changes theitems required to be stated under Sec 1 NILbull Spoliation ndash alteration made by a strangerbull The general rule denies the drawee bankrsquos right tocharge against the drawerrsquos account the amount ofan altered check However the latterrsquos negligencebefore or after the alteration may estop him fromsetting such alteration as against an innocentdrawee bank who has paid the checkbull In cases of altered checks and checks with forgedindorsements the drawee bank must notify andreturn them to the collecting bank before 400 pmof the next day of clearing but the drawee bankmay still return them even after such time providedhe does so within 24 hours from its discovery of thealteration or forged instruments so that recovery ofthe amount may be had BUT in no event beyondthe period fixed or provided by law for filing of alegal action by the returning bank against the banksending the sameNote Alteration is only a partial real defensebecause a holder in due course can still enforce itaccording to its original tenorVII ENFORCEMENT OF LIABILITYPresentment for payment ndash the presentation of aninstrument to the person primarily liable for the purpose ofdemanding and receiving paymentGeneral Rulesbull presentment for payment to charge personsprimarily liable is not necessarybull presentment for payment to charge personssecondarily liable is necessaryExceptionsa drawer - where he has no right to expect or requirethat the drawee or acceptor will pay the instrument(sec 79)b indorser - where the instrument was made oraccepted for his accommodation and he has noreason to expect that the instrument will be paid ifpresentedc when dispensedi where after the exercise of reasonablediligence presentment as required cannotbe madeii where the drawee is a fictitious personiii by waiver of presentment express orimplied (sec 82)d when the instrument has been dishonored by nonacceptance(sec 151)Sufficiency of presentmentIt must be

1 made by the holder or any person authorized toreceive payment on his behalf2 at a reasonable hour on a business day3 at a proper place4 to the person primarily liable or if he is absent orinaccessible to any person found at the placewhere the presentment is madeHow made1 personal demand for payment at the proper place and2 readiness to exhibit the instrument if required and toreceive payment and to surrender the instrument if thedebtor is willing to paybull Purpose of exhibitionTo enable the debtor toa determine the genuineness of the instrument andthe right of the holder to receive payment andb to enable him to reclaim possession upon paymentbull When exhibition excuseda when debtor does not demand to see the instrumentbut refuses payment on some other grounds andb when the instrument is lost or destroyedWhen madebull where the instrument is payable at a fixed ordeterminable future time presentment must be madeon the day it falls duebull where it is payable on demanda promissory note presentment must be made withina reasonable time after its issueb bill of exchange presentment for payment will besufficient if made within a reasonable time afterthe last negotiation thereofbull the check must be presented for payment within areasonable time after its issue or the drawer will bedischarged from liability thereon to the extent of theloss caused by the delayTime of maturitybull every negotiable instrument is payable at the time fixedtherein without gracebull when the day of maturity falls upon a Sunday or aholiday the instruments are to be presented forpayment on the next succeeding business daybull when the day of maturity falls upon a Saturday1048766 Instrument is payable at a fixed or determinablefuture time (time instrument) - presented forpayment is on the next succeeding business day1048766 instruments is payable on demand - at the option ofthe holder be presented for paymenta before 1200 noon on Saturday whenthat entire day is not a holiday orb the next succeeding business dayHow computed1048766 excluding the day from which the time is to begin torun and by including the date of payment1048766 applies to instruments which are payable at a fixedperiod after date after sight or after thathappening of a specified eventProper place for presentmenta Where a place of payment is specified in the instrumentand it is there presentedb Where no place of payment is specified but the addressof the person to make payment is given in theinstrument and it is there presentedc Where no place of payment is specified and no address isgiven and the instrument is presented at the usual placeof business or residence of the person to make payment

d In any other case if presented to the person to makepayment wherever he can be found or if presented athis last known place of business or residenceWhen delay in presentment excused ndash delay is caused bycircumstances beyond the control of the holder and notimputable to his default misconduct or negligence Whenthe cause of delay ceases to operate presentment must bemade with reasonable diligencePresentment for acceptance ndash the production or exhibitionof a bill of exchange to the drawee for his acceptance orpaymentGeneral Rule presentment for acceptance is not necessary torender any party to the bill liableException presentment for acceptance must be madea Where the bill is payable after sight or wherepresentment for acceptance is necessary in order tofix the maturity of the instrument orb Where the bill expressly stipulates that it shall bepresented for acceptance orc Where the bill is drawn payable elsewhere then atthe residence or place of business of the drawee(sec 143)Note in all the above cases the holder must either presentthe bill for acceptance or negotiate it within a reasonabletime otherwise the drawer and all indorsers are dischargedHow made1 made by or on behalf of the holder2 at a reasonable hour3 on a business day4 before the bill is overdue and within reasonabletime5 to the drawee or some person authorized to acceptor refuse acceptance on his behalfDays presentment may be made If date of presentment isa Sunday or a holiday ndash must be made on the nextsucceeding business dayb Saturday ndash before 1200 noon on Saturday providedthat it is not a holidayWhen delay for presentment excuseda bill is drawn payable elsewhere than at the place ofbusiness or the residence of the draweeb holder has no time with the exercise of reasonablediligence to present the bill for acceptance beforepresenting it for payment on the day that it fallsdueEffect does not discharge the drawers and indorsersWhere presentment is excuseda Where the drawee is dead or has absconded or is afictitious person or a person not having capacity tocontract by billb Where presentment can not be made after theexercise of reasonable diligencec Where although presentment has been irregularacceptance has been refused on some other groundNote bill may be treated as dishonored by nonacceptanceDuty of holder where bill not accepted - where a bill isduly presented for acceptance and is not accepted within theprescribed time (24 hours ndash sec 136) the person presentingit must treat the bill as dishonored by non-acceptance or heloses the right of recourse against the drawer and indorsersAcceptance the signification by the drawee of his assent tothe order of the drawer It is the act by which the draweemanifests his consent to comply with the request containedin the bill of exchange directed to himHow made

1) must be in writing2) signed by the drawee3) must not express that the drawee will perform hispromise by any other means than the payment ofmoneybull the holder of the bill presenting the same for acceptancemay require that the acceptance be written on the billand if such request is refused may treat the bill asdishonoredbull where an acceptance is written on a paper other thanthe bill itself it does not bind the acceptor except infavor of a person to whom it is shown and who on thefaith thereof receives the bill for valuePeriod for drawee to accept - allowed 24 hours afterpresentment in which to decide whether or not he will acceptthe bill if acceptance is given it dates as of the day ofpresentationConstructiveImplied acceptance where a drawee refuseswithin 24 hours after delivery or within such other period asthe holder may allow to return the bill accepted or nonacceptedto the holder he will be deemed to have acceptedthe sameNote same effect if the drawee destroys the instrumentKinds1 General - assents without qualification to the order ofthe drawer2 Qualified - which in express terms varies the effect ofthe bill as drawna Conditional - makes payment by the acceptordependent on the fulfillment of a conditiontherein statedb Partial - an acceptance to pay part only of theamount for which the bill is drawni Local - an acceptance to pay only at aparticular placeii Qualified as to timeiii The acceptance of some one or more ofthe drawees but not of all3 ConstructiveRights of parties as to qualified acceptancebull Holder he may refuse to take a qualified acceptanceand if he does not obtain an unqualified acceptance hemay treat the bill as dishonored by non-acceptancebull Drawer or indorser when he receives notice of aqualified acceptance he must within a reasonable timeexpress his dissent to the holder or he will be deemed tohave assented thereto (implied assent)Effect of taking a qualified acceptance the drawer andindorsers are discharged from liability on the bill unless theyhave expressly or impliedly authorized the holder to take aqualified acceptance or subsequently assent theretoOther rules of acceptancebull a bill may be accepted before it has been signed by thedrawer or while otherwise incomplete or when it isoverdue or after it has been dishonored by a previousrefusal to accept or by non paymentbull when a bill payable after sight is dishonored by nonacceptanceand the drawee subsequently accepts it theholder in the absence of any different agreement isentitled to have the bill accepted as of the date of thefirst presentmentbull an unconditional promise in writing to accept a billbefore it is drawn is deemed an actual acceptancein favor of every person who upon the faiththereof receives the bill for value

bull where a check is certified by the bank on which it isdrawn the certification is equivalent to anacceptanceEffect the drawer and all indorsers are dischargedfrom liability thereonAcceptance for Honor - an undertaking by a stranger to a billafter protest for the benefit of any party liable thereon or forthe honor of the person for whose account the bill is drawnwhich acceptance inures also to the benefit of all partiessubsequent to the person for whose honor it is accepted andconditioned to pay the bill when it becomes due if theoriginal drawee does not pay it1048766 Requisites1 the bill must have been protested for dishonorby non-acceptance or for better security2 the acceptor for honor must be a stranger andnot a party already liable on the instrument3 bill must not be overdue4 acceptance for honor must be with the consentof the holder of the instrument1048766 Formalities1 must be in writing2 must indicate that it is an acceptance forhonor3 signed by the acceptor for honor4 must contain an express or implied promise topay money5 the accepted bill for honor must be deliveredto the holderNotice of Dishonor - notice given by the holder or his agentto a party or parties secondarily liable that the instrumentwas dishonored by non-acceptance by the drawee of a bill orby non-payment by the acceptor of a bill or by non-paymentby a maker of a note- If such notice is given by a notary public it is calledPROTEST1048766 Effect of failure to give notice parties secondarily liableare discharged1048766 Requisites1 Given by holder or his agent or by any party whomay be compelled by the holder to pay2 Given to secondary party or his agent3 Given within the periods provided by law4 Given at the proper place1048766 When notice of dishonor dispensed with1 when party to be notified knows about the dishonoractually or constructively2 if waived and3 when after due diligence it cannot be given1048766 How given1 by bringing verbally or2 by writing to the knowledge of the person liable thefact that a specified instrument upon properproceedings taken has not been accepted or hasnot been paid and that the party notified isexpected to pay it1048766 To whom given1 Non-acceptance (bill) ndash to persons secondarilyliable namely the drawer and indorsers as the casemay be2 Non-payment (both bill and note) ndash indorsersNote Notice must be given to persons secondarilyliable Otherwise such parties are dischargedNotice may be given to the party himself or to hisagent

1048766 By whom given1 the holder2 another on behalf of the holder3 any party to the instrument who may be compelledto pay it to the holder and who would have a rightof reimbursement from the party to whom notice isgiven1048766 Notice of dishonor given by or on behalf of a holderinures to the benefit ofa all parties prior to the holder who have a rightof recourse against the party to whom thenotice is given andb all holders subsequent to the holder givingnotice1048766 Notice of dishonor given by or on behalf of a partyentitled to give notice inures to the benefit ofa the holder andb all parties subsequent to the party to whomnotice is given1048766 Where an instrument is dishonored in the hands of anagent he can do either of the ffa directly give notice to persons secondarilyliable thereon orb give notice to his principal In such case hemust give notice within the time allowed bylaw as if he were a holder1048766 A party giving notice is deemed to have given due noticewherea the notice of dishonor is duly addressed andb deposited in the post-office even when thereis miscarriage of mail1048766 Where a party receives notice of dishonor he has afterthe receipt of such notice the same time for givingnotice to antecedent parties that the holder has afterthe dishonor1048766 Notice may be waived either before the time of givingnotice or after the omission to give due notice Waivermay be expressed or implied1048766 As to who are affected by an express waiver depends onwhere the waiver is written1 if it appears in the body or on the face of theinstrument it binds all parties but2 if it is written above the signature of anindorser it binds him only1048766 Notice of dishonor is not required to be given to thedrawer in any of the ff cases1 drawer and drawee are the same2 drawee is a fictitious person or not having thecapacity to contract3 drawer is the person to whom the instrument ispresented for payment4 the drawer has no right to expect or requirethat the drawee or acceptor will honor theinstrument5 where the drawer has countermandedpayment1048766 Notice of dishonor is not required to be given to anindorser in the ff cases1 drawee is a fictitious person or does not havethe capacity to contract and indorser wasaware of that fact at the time he indorsed theinstrument2 indorser is the person to whom the instrumentis presented for payment3 instrument was made or accepted for his

accommodation1048766 If an instrument is not accepted by the drawee there isno sense presenting it again for payment and notice ofdishonor must at once be given If there wasacceptance presentment for payment is still requiredand if payment is refused there is a need for notice ofdishonor1048766 An omission to give notice of dishonor by non-acceptancedoes not prejudice the rights of a holder in due coursesubsequent to the omissionDishonor by Non-PaymentWhen instrument dishonored by non-paymenta it is duly presented for payment and payment isrefused or cannot be obtained orb presentment is excused and the instrument isoverdue and unpaidEffect of dishonor an immediate right of recourse to allparties secondarily liable thereon accrues to the holderDishonor by Non-AcceptanceInstancesa When it is duly presented for acceptance and suchan acceptance is refused or can not be obtained orb When presentment for acceptance is excused andthe bill is not accepted (sec 149)Effect an immediate right of recourse against thedrawer and indorsers accrues to the holder and nopresentment for payment is necessaryNote where a bill is duly presented for acceptance andis not accepted within the prescribed time (24 hours)the person presenting it must treat the bill as dishonoredby non-acceptanceWhen Instrument Considered to be Dishonoreda If it is not accepted when presented for acceptanceorb If it is not paid when presented for payment atmaturity orc If presentment is excused or waived and theinstrument is past due and unpaidProtest - the formal instrument executed usually by a notarypublic certifying that the legal steps necessary to fix theliability of the drawee and the indorsers have been taken1048766 Effect of waiver where protest is waived presentmentand notice of dishonor are also deemed waived Butwhere the notice of dishonor is waived presentment isnot waived1048766 Applicability protest is necessary only in case of foreignbills of exchange which have been dishonored by nonacceptanceor non-payment as the case may be If it isnot so protested the drawer and indorsers aredischarged1048766 Foreign Bill of Exchange1 Drawn in the Philippines but payable outside thePhilippines2 Payable in the Philippines but drawn outside thePhilippines1048766 Protest may be made by1 a notary public or2 any respectable resident of the place where the billis dishonored in the presence of 2 or more crediblewitnessesProtest for better security is one made by the holder of a billafter it has been accepted but before it matures against thedrawer and indorsers where the acceptor has been adjudgeda bankrupt or an insolvent or has made an assignment forthe benefit of the creditors

VIII DISCHARGEDischarge of instrument - a release of all parties whetherprimary or secondary from the obligations arisingthereunder It renders the instrument without force andeffect and consequently it can no longer be negotiatedInstances1 By payment in due course by or on behalf of theprincipal debtor2 Payment by accommodated party3 Intentional cancellation by the holder4 By any act which will discharge a simple contractfor the payment of money5 When the principal debtor becomes the holder ofthe instrument at or after maturity in his own rightBy any act which would discharge a simple contract1 Payment or performance2 Loss of the thing due3 Condonation or remission4 Confusion or Merger5 Compensation6 Novation7 Annulment or Rescission8 Fulfillment of a resolutory condition9 PrescriptionWhen persons secondarily liable on the instrument aredischarged1 By any act which discharges the instrument2 By the intentional cancellation of his signature bythe holder3 By the discharge of a prior party4 By a valid tender of payment made by a prior party5 By the release of the principal debtor unless theholderrsquos right of recourse against the partysecondarily liable is expressly reserved6 By any agreement binding upon the holder to extendthe time of payment or to postpone the holderrsquosright to enforce the instrument1048766 In the following cases the agreement to extend the timeof payment does not discharge a party secondarily liable1 where the extension of time is consented to by suchparty2 where the holder expressly reserves his right ofrecourse against such party1048766 Payment at or after maturity by a party secondarilyliable does not discharge the instrument It only cancelshis own liability and that of the parties subsequent tohimEffects of Renunciation1 A renunciation in favor of a secondary party may bemade by the holder before at or after maturity ofthe instrument Effect only such secondary party isdischarged and all parties subsequent to him but theinstrument itself remains in force2 A renunciation in favor of the principal debtor maybe effected at or after maturity Effect theinstrument is discharged and all parties theretoprovided the renunciation is made unconditionallyand absolutelyNote In either case renunciation does not affect therights of a holder in due course without notice1048766 Cancellation of an instrument includes tearing erasureobliteration or burning It is not limited to writing ofthe word lsquocancelledrdquo or ldquopaidrdquo or drawing of crisscrosslines across the instrumentPayment for Honor - payment made by a person whether a

party to the bill or not after it has been protested for nonpaymentfor the benefit of any party liable thereon or forthe benefit of the person for whose account it was drawn1048766 Requisites1 the bill has been dishonored by non-payment2 it has been protested for non-payment3 payment supra protest (another term for paymentfor honor because prior protest for non-payment isrequired) is made by any person even by a partythereto4 the payment is attested by a notarial act of honorwhich must be appended to the protest or form anextension of it5 the notarial act must be based on the declarationmade by the payor for honor or his agent of hisintention to pay the bill for honor and for whosehonor he paysNote If the above formalities are not complied withpayment will operate as a mere voluntary payment andthe payor will acquire no right to full reimbursementagainst the party for whose honor he pays1048766 In payment for honor the payee cannot refuse paymentIf he refuses he cannot recover from the parties whowould have been discharged had he accepted the sameIn acceptance for honor the holderrsquos consent isnecessary1048766 The payor for honor is given the right to receive both thebill and the protest obviously to enable him to enforcehis rights against the parties who are liable to himIX CHECKSCheck- a bill of exchange drawn on a bank payable ondemandCheck distinguished from and ordinary bill of exchangeBILLOF EXCHANGE CHECKNot necessarily drawnon a deposit The draweeneed not be a bankIt is necessary that a checkis drawn on a bank depositThe drawee is always abankDeath of a drawer of aBOE with the knowledgeof the bank does notrevoke the authority of thedrawee to payDeath of the drawer of acheck with the knowledgeof the bank revokes theauthority of the banker topayMay be presented forpayment within areasonable time after itslast negotiation because itmay be further negotiatedMust be presented forpayment within areasonable time after itsissueMay be payable on demandor at a fixed ordeterminable future timeAlways payable on demandKinds of checks

1 Managerrsquos Cashierrsquos Check ndash drawn by a bank on itselfand therefore it is a primary obligation of the banko It is accepted in advance by the act of itsissuance and is not subject tocountermand by the payor afterindorsemento The bankrsquos manager signs managerrsquos checkwhile cashierrsquos check is signed by the bankcashier2 Certified Check ndash one drawn by a depositor upon funds tohis credit in a bank which a proper officer of the bankcertifies will be paid when duly presented for payment3 Stale check ndash one which has not been presented forpayment within a reasonable time after its issue4 Crossed check ndash when 2 parallel lines are drawn acrossits face or across a corner thereof If the name of a bankappears between the parallel lines the check is said tobe specially crossed and payment should be made onlyif presented by the named bank If no name appearsbetween the parallel lines the check is said to begenerally crossed and payment should be made onlyupon presentment by some bankEffects of crossing a checka That the check may not be encashed but only bedeposited in the bankb That the check may be negotiated only once to onewho has an account with a bank andc That the act of crossing the check serves as awarning to the holder that the check has beenissued for a definite purpose so that he must inquireif he has received the check pursuant to thatpurpose5 Memorandum Check ndash it is like an ordinary check exceptthat the word ldquomemorandumrdquo ldquomemrdquo or ldquomemordquo iswritten upon the face of the check signifying that thedrawer engages to pay the bona fide holder absolutelyand not upon a condition to pay upon presentment atmaturity and if due notice of the presentment and nonpaymentshould be given6 Travelerrsquos check ndash one upon which the holderrsquos signaturemust appear twice one to be affixed by him at the timeit is issued and the second o counter-signature to beaffixed by him in the presence of the payee before it ispaid otherwise it is incompleteIron Clad Rule Prohibits the countermanding ofpayment of certified checks (Republic of the Philippinesv PNB GR No 16106 December 1 1961)

instrument In this casethe signer is led bydeception to execute whathe knows is a negotiableinstrument It implies thatthe signer knew what hewas signing but that he wasinduced by fraud to sign2 This kind of fraud is areal defense because thereis no contract It impliesthat the person did notknow what he was signingBut where the signer by theexercise of reasonablediligence could havediscovered the nature ofthe instrument the fraudcannot be considered a realdefense as where a personwho can read signed a notebut failed to read it2 Such type of fraud is onlya personal defense becauseit does not prevent acontract1048766 Effects of Defenses1 Complete and undelivered instrumentbull as between immediate parties and as regards aremote party other than a holder in due course thedelivery must be authorized in order to be effectualbull where the instrument is in the hands of a holder indue course a valid delivery thereof by all partiesprior to him so as to make them liable to him isconclusively presumedbull where the instrument is no longer in the possessionof a party whose signature appears thereon a validand intentional delivery by him is presumed untilthe contrary is proved2 Incomplete but delivered instrumentbull where the instrument is wanting in any materialparticular the person in possession thereof has aprima facie authority to complete it by filling up theblanks thereinbull it must be filled up strictly in accordance with theauthority given and within a reasonable timebull if any such instrument after completion isnegotiated to a holder in due course it is valid andeffectual for all purposes in his hands and he mayenforce it as if it had been filled up strictly inaccordance with the authority given and within areasonable time3 Incomplete and undelivered instrumentbull it will not if completed and negotiated withoutauthority be a valid contract in the hands of anyholder as against any person whose signature wasplaced thereon before deliverybull However subsequent indorsers are liable4 Forgerybull counterfeit making or fraudulent alteration of anywriting which may consist of1 signing of anotherrsquos name with intent todefraud or2 alteration of an instrument in the nameamount name of payee etc with intent to

defraudbull Effect signature is wholly inoperative and no rightto retain the instrument or to give a dischargetherefore or to enforce payment thereof againstany party thereto can be acquired through or undersuch signaturebull Exception unless the party against whom it issought to enforce such right is precluded fromsetting up the forgery or want of authoritybull Cut-Off RuleGeneral Rule Parties prior to the forged signatureare cut-off from the parties after the forgery in thesense that prior parties cannot be held liable andcan raise the defense of forgery The holder canonly enforce the instrument against parties whobecame such after the forgeryException When the prior parties are precludedfrom setting up the defense of forgeryPersons precluded from setting up the defense offorgery are1 Those who by their acts silence or negligenceare estopped from setting up the defense offorgery2 Those who warrant or admit the genuineness ofthe signature in question These include acts oromissions that amount to ratification expressor impliedNote Persons precluded from setting up thedefense of forgery may still recover damages underthe NCC provisions on quasi-delictsbull Rules on ForgeryA Promissory Notes1 Makerrsquos signature forgedOrder Instrumenta Maker is not liable because he neverbecame a party to the instrumentb Indorsers subsequent to forgery are liablebecause of their warrantiesc Party who made the forgery is liableBearer Instrumenta Maker is not liableb Indorsers may be made liable to thosepersons who obtain title through theirindorsementsc Party who made the forgery is liable2 Payeersquos signature forgedOrder Instrumenta Maker and payee not liableb Indorsers subsequent to the forgery isliablec Party who made the forgery is liableBearer Instrumenta Maker is liable Indorsement is notnecessary to title and the maker engagesto pay holderb Party who made the forgery is liable3 Indorserrsquos signature forgedOrder Instrumenta Maker payee and indorser who signaturewas forged is not liableb Indorsers subsequent to forgery are liablebecause of their warrantiesc Party who made the forgery is liableBearer Instrumenta Maker is liable Indorsement is not

necessary to title and the maker engagesto pay holderb Indorser whose signature was forged is notliablec Party who made the forgery is liableB Bill of Exchange1 Drawerrsquos signature forgedIn an Order Instrumenta Drawer is not liableb Drawee is liable if it paid (nor recourse todrawer) because he admitted thegenuineness of the drawerrsquos signatureDrawee cannot recover from the collectingbank because there is no privity betweenthe collecting bank and the drawer Thereis no warranty as to the signature of thedrawer (Associated Bank v CA)c Indorsers subsequent to forgery are liabled Party who made the forgery is liableIn a Bearer Instrumenta Drawer is not liableb Drawee is liable if it paid Drawee cannotrecover from the collecting bank becauseit is bound to known the drawerrsquossignature since the latter is its depositorc Party who made the forgery is liable2 Payeersquos signature forgedOrder Instrumenta Drawer drawee and payee not liable Cutoffrule appliesb Indorsers subsequent to forgery are liablec Party who made the forgery is liableBearer Instrumenta Drawer is liable His indorsement is notnecessary to pass titleb Drawee is liable No privity betweendrawer and payee because indorsement ofpayee is not necessary (Ang Tek Lian case87 SCRA 383)c Payee is not liabled Collecting bank is liable because ofwarrantye Party who made the forgery is liable3 Indorserrsquos signature forgedOrder Instrumenta Drawer payee and indorser whosesignature was forged are not liableb Drawee is liable if it paidc Indorsers subsequent to forgery are liabled Party who made the forgery is liableBearer Instrumenta Drawer is liable Indorsement is notnecessary to pass titleb Drawee is liablec Indorser whose signature was forged isliable because indorsement is notnecessary to pass titled Party who made the forgery is liable5 Alterationbull Effect the instrument is avoidedbull Exceptions1 against a party who has himself madeauthorized or assented to the alteration2 subsequent indorsers3 holder in due course not a party to the

alteration - he may enforce payment accordingto its original tenorbull Changes constituting material alteration1 date2 sum payable either for principal or interest3 time or place of payment4 number or relations of the parties5 medium or currency in which payment is to bemade6 that which adds a place of payment where noplace of payment is specified and7 any other change or addition which alters theeffect of the instrument in any respectNote a material alteration is one that alters theeffect of the instrument one which changes theitems required to be stated under Sec 1 NILbull Spoliation ndash alteration made by a strangerbull The general rule denies the drawee bankrsquos right tocharge against the drawerrsquos account the amount ofan altered check However the latterrsquos negligencebefore or after the alteration may estop him fromsetting such alteration as against an innocentdrawee bank who has paid the checkbull In cases of altered checks and checks with forgedindorsements the drawee bank must notify andreturn them to the collecting bank before 400 pmof the next day of clearing but the drawee bankmay still return them even after such time providedhe does so within 24 hours from its discovery of thealteration or forged instruments so that recovery ofthe amount may be had BUT in no event beyondthe period fixed or provided by law for filing of alegal action by the returning bank against the banksending the sameNote Alteration is only a partial real defensebecause a holder in due course can still enforce itaccording to its original tenorVII ENFORCEMENT OF LIABILITYPresentment for payment ndash the presentation of aninstrument to the person primarily liable for the purpose ofdemanding and receiving paymentGeneral Rulesbull presentment for payment to charge personsprimarily liable is not necessarybull presentment for payment to charge personssecondarily liable is necessaryExceptionsa drawer - where he has no right to expect or requirethat the drawee or acceptor will pay the instrument(sec 79)b indorser - where the instrument was made oraccepted for his accommodation and he has noreason to expect that the instrument will be paid ifpresentedc when dispensedi where after the exercise of reasonablediligence presentment as required cannotbe madeii where the drawee is a fictitious personiii by waiver of presentment express orimplied (sec 82)d when the instrument has been dishonored by nonacceptance(sec 151)Sufficiency of presentmentIt must be

1 made by the holder or any person authorized toreceive payment on his behalf2 at a reasonable hour on a business day3 at a proper place4 to the person primarily liable or if he is absent orinaccessible to any person found at the placewhere the presentment is madeHow made1 personal demand for payment at the proper place and2 readiness to exhibit the instrument if required and toreceive payment and to surrender the instrument if thedebtor is willing to paybull Purpose of exhibitionTo enable the debtor toa determine the genuineness of the instrument andthe right of the holder to receive payment andb to enable him to reclaim possession upon paymentbull When exhibition excuseda when debtor does not demand to see the instrumentbut refuses payment on some other grounds andb when the instrument is lost or destroyedWhen madebull where the instrument is payable at a fixed ordeterminable future time presentment must be madeon the day it falls duebull where it is payable on demanda promissory note presentment must be made withina reasonable time after its issueb bill of exchange presentment for payment will besufficient if made within a reasonable time afterthe last negotiation thereofbull the check must be presented for payment within areasonable time after its issue or the drawer will bedischarged from liability thereon to the extent of theloss caused by the delayTime of maturitybull every negotiable instrument is payable at the time fixedtherein without gracebull when the day of maturity falls upon a Sunday or aholiday the instruments are to be presented forpayment on the next succeeding business daybull when the day of maturity falls upon a Saturday1048766 Instrument is payable at a fixed or determinablefuture time (time instrument) - presented forpayment is on the next succeeding business day1048766 instruments is payable on demand - at the option ofthe holder be presented for paymenta before 1200 noon on Saturday whenthat entire day is not a holiday orb the next succeeding business dayHow computed1048766 excluding the day from which the time is to begin torun and by including the date of payment1048766 applies to instruments which are payable at a fixedperiod after date after sight or after thathappening of a specified eventProper place for presentmenta Where a place of payment is specified in the instrumentand it is there presentedb Where no place of payment is specified but the addressof the person to make payment is given in theinstrument and it is there presentedc Where no place of payment is specified and no address isgiven and the instrument is presented at the usual placeof business or residence of the person to make payment

d In any other case if presented to the person to makepayment wherever he can be found or if presented athis last known place of business or residenceWhen delay in presentment excused ndash delay is caused bycircumstances beyond the control of the holder and notimputable to his default misconduct or negligence Whenthe cause of delay ceases to operate presentment must bemade with reasonable diligencePresentment for acceptance ndash the production or exhibitionof a bill of exchange to the drawee for his acceptance orpaymentGeneral Rule presentment for acceptance is not necessary torender any party to the bill liableException presentment for acceptance must be madea Where the bill is payable after sight or wherepresentment for acceptance is necessary in order tofix the maturity of the instrument orb Where the bill expressly stipulates that it shall bepresented for acceptance orc Where the bill is drawn payable elsewhere then atthe residence or place of business of the drawee(sec 143)Note in all the above cases the holder must either presentthe bill for acceptance or negotiate it within a reasonabletime otherwise the drawer and all indorsers are dischargedHow made1 made by or on behalf of the holder2 at a reasonable hour3 on a business day4 before the bill is overdue and within reasonabletime5 to the drawee or some person authorized to acceptor refuse acceptance on his behalfDays presentment may be made If date of presentment isa Sunday or a holiday ndash must be made on the nextsucceeding business dayb Saturday ndash before 1200 noon on Saturday providedthat it is not a holidayWhen delay for presentment excuseda bill is drawn payable elsewhere than at the place ofbusiness or the residence of the draweeb holder has no time with the exercise of reasonablediligence to present the bill for acceptance beforepresenting it for payment on the day that it fallsdueEffect does not discharge the drawers and indorsersWhere presentment is excuseda Where the drawee is dead or has absconded or is afictitious person or a person not having capacity tocontract by billb Where presentment can not be made after theexercise of reasonable diligencec Where although presentment has been irregularacceptance has been refused on some other groundNote bill may be treated as dishonored by nonacceptanceDuty of holder where bill not accepted - where a bill isduly presented for acceptance and is not accepted within theprescribed time (24 hours ndash sec 136) the person presentingit must treat the bill as dishonored by non-acceptance or heloses the right of recourse against the drawer and indorsersAcceptance the signification by the drawee of his assent tothe order of the drawer It is the act by which the draweemanifests his consent to comply with the request containedin the bill of exchange directed to himHow made

1) must be in writing2) signed by the drawee3) must not express that the drawee will perform hispromise by any other means than the payment ofmoneybull the holder of the bill presenting the same for acceptancemay require that the acceptance be written on the billand if such request is refused may treat the bill asdishonoredbull where an acceptance is written on a paper other thanthe bill itself it does not bind the acceptor except infavor of a person to whom it is shown and who on thefaith thereof receives the bill for valuePeriod for drawee to accept - allowed 24 hours afterpresentment in which to decide whether or not he will acceptthe bill if acceptance is given it dates as of the day ofpresentationConstructiveImplied acceptance where a drawee refuseswithin 24 hours after delivery or within such other period asthe holder may allow to return the bill accepted or nonacceptedto the holder he will be deemed to have acceptedthe sameNote same effect if the drawee destroys the instrumentKinds1 General - assents without qualification to the order ofthe drawer2 Qualified - which in express terms varies the effect ofthe bill as drawna Conditional - makes payment by the acceptordependent on the fulfillment of a conditiontherein statedb Partial - an acceptance to pay part only of theamount for which the bill is drawni Local - an acceptance to pay only at aparticular placeii Qualified as to timeiii The acceptance of some one or more ofthe drawees but not of all3 ConstructiveRights of parties as to qualified acceptancebull Holder he may refuse to take a qualified acceptanceand if he does not obtain an unqualified acceptance hemay treat the bill as dishonored by non-acceptancebull Drawer or indorser when he receives notice of aqualified acceptance he must within a reasonable timeexpress his dissent to the holder or he will be deemed tohave assented thereto (implied assent)Effect of taking a qualified acceptance the drawer andindorsers are discharged from liability on the bill unless theyhave expressly or impliedly authorized the holder to take aqualified acceptance or subsequently assent theretoOther rules of acceptancebull a bill may be accepted before it has been signed by thedrawer or while otherwise incomplete or when it isoverdue or after it has been dishonored by a previousrefusal to accept or by non paymentbull when a bill payable after sight is dishonored by nonacceptanceand the drawee subsequently accepts it theholder in the absence of any different agreement isentitled to have the bill accepted as of the date of thefirst presentmentbull an unconditional promise in writing to accept a billbefore it is drawn is deemed an actual acceptancein favor of every person who upon the faiththereof receives the bill for value

bull where a check is certified by the bank on which it isdrawn the certification is equivalent to anacceptanceEffect the drawer and all indorsers are dischargedfrom liability thereonAcceptance for Honor - an undertaking by a stranger to a billafter protest for the benefit of any party liable thereon or forthe honor of the person for whose account the bill is drawnwhich acceptance inures also to the benefit of all partiessubsequent to the person for whose honor it is accepted andconditioned to pay the bill when it becomes due if theoriginal drawee does not pay it1048766 Requisites1 the bill must have been protested for dishonorby non-acceptance or for better security2 the acceptor for honor must be a stranger andnot a party already liable on the instrument3 bill must not be overdue4 acceptance for honor must be with the consentof the holder of the instrument1048766 Formalities1 must be in writing2 must indicate that it is an acceptance forhonor3 signed by the acceptor for honor4 must contain an express or implied promise topay money5 the accepted bill for honor must be deliveredto the holderNotice of Dishonor - notice given by the holder or his agentto a party or parties secondarily liable that the instrumentwas dishonored by non-acceptance by the drawee of a bill orby non-payment by the acceptor of a bill or by non-paymentby a maker of a note- If such notice is given by a notary public it is calledPROTEST1048766 Effect of failure to give notice parties secondarily liableare discharged1048766 Requisites1 Given by holder or his agent or by any party whomay be compelled by the holder to pay2 Given to secondary party or his agent3 Given within the periods provided by law4 Given at the proper place1048766 When notice of dishonor dispensed with1 when party to be notified knows about the dishonoractually or constructively2 if waived and3 when after due diligence it cannot be given1048766 How given1 by bringing verbally or2 by writing to the knowledge of the person liable thefact that a specified instrument upon properproceedings taken has not been accepted or hasnot been paid and that the party notified isexpected to pay it1048766 To whom given1 Non-acceptance (bill) ndash to persons secondarilyliable namely the drawer and indorsers as the casemay be2 Non-payment (both bill and note) ndash indorsersNote Notice must be given to persons secondarilyliable Otherwise such parties are dischargedNotice may be given to the party himself or to hisagent

1048766 By whom given1 the holder2 another on behalf of the holder3 any party to the instrument who may be compelledto pay it to the holder and who would have a rightof reimbursement from the party to whom notice isgiven1048766 Notice of dishonor given by or on behalf of a holderinures to the benefit ofa all parties prior to the holder who have a rightof recourse against the party to whom thenotice is given andb all holders subsequent to the holder givingnotice1048766 Notice of dishonor given by or on behalf of a partyentitled to give notice inures to the benefit ofa the holder andb all parties subsequent to the party to whomnotice is given1048766 Where an instrument is dishonored in the hands of anagent he can do either of the ffa directly give notice to persons secondarilyliable thereon orb give notice to his principal In such case hemust give notice within the time allowed bylaw as if he were a holder1048766 A party giving notice is deemed to have given due noticewherea the notice of dishonor is duly addressed andb deposited in the post-office even when thereis miscarriage of mail1048766 Where a party receives notice of dishonor he has afterthe receipt of such notice the same time for givingnotice to antecedent parties that the holder has afterthe dishonor1048766 Notice may be waived either before the time of givingnotice or after the omission to give due notice Waivermay be expressed or implied1048766 As to who are affected by an express waiver depends onwhere the waiver is written1 if it appears in the body or on the face of theinstrument it binds all parties but2 if it is written above the signature of anindorser it binds him only1048766 Notice of dishonor is not required to be given to thedrawer in any of the ff cases1 drawer and drawee are the same2 drawee is a fictitious person or not having thecapacity to contract3 drawer is the person to whom the instrument ispresented for payment4 the drawer has no right to expect or requirethat the drawee or acceptor will honor theinstrument5 where the drawer has countermandedpayment1048766 Notice of dishonor is not required to be given to anindorser in the ff cases1 drawee is a fictitious person or does not havethe capacity to contract and indorser wasaware of that fact at the time he indorsed theinstrument2 indorser is the person to whom the instrumentis presented for payment3 instrument was made or accepted for his

accommodation1048766 If an instrument is not accepted by the drawee there isno sense presenting it again for payment and notice ofdishonor must at once be given If there wasacceptance presentment for payment is still requiredand if payment is refused there is a need for notice ofdishonor1048766 An omission to give notice of dishonor by non-acceptancedoes not prejudice the rights of a holder in due coursesubsequent to the omissionDishonor by Non-PaymentWhen instrument dishonored by non-paymenta it is duly presented for payment and payment isrefused or cannot be obtained orb presentment is excused and the instrument isoverdue and unpaidEffect of dishonor an immediate right of recourse to allparties secondarily liable thereon accrues to the holderDishonor by Non-AcceptanceInstancesa When it is duly presented for acceptance and suchan acceptance is refused or can not be obtained orb When presentment for acceptance is excused andthe bill is not accepted (sec 149)Effect an immediate right of recourse against thedrawer and indorsers accrues to the holder and nopresentment for payment is necessaryNote where a bill is duly presented for acceptance andis not accepted within the prescribed time (24 hours)the person presenting it must treat the bill as dishonoredby non-acceptanceWhen Instrument Considered to be Dishonoreda If it is not accepted when presented for acceptanceorb If it is not paid when presented for payment atmaturity orc If presentment is excused or waived and theinstrument is past due and unpaidProtest - the formal instrument executed usually by a notarypublic certifying that the legal steps necessary to fix theliability of the drawee and the indorsers have been taken1048766 Effect of waiver where protest is waived presentmentand notice of dishonor are also deemed waived Butwhere the notice of dishonor is waived presentment isnot waived1048766 Applicability protest is necessary only in case of foreignbills of exchange which have been dishonored by nonacceptanceor non-payment as the case may be If it isnot so protested the drawer and indorsers aredischarged1048766 Foreign Bill of Exchange1 Drawn in the Philippines but payable outside thePhilippines2 Payable in the Philippines but drawn outside thePhilippines1048766 Protest may be made by1 a notary public or2 any respectable resident of the place where the billis dishonored in the presence of 2 or more crediblewitnessesProtest for better security is one made by the holder of a billafter it has been accepted but before it matures against thedrawer and indorsers where the acceptor has been adjudgeda bankrupt or an insolvent or has made an assignment forthe benefit of the creditors

VIII DISCHARGEDischarge of instrument - a release of all parties whetherprimary or secondary from the obligations arisingthereunder It renders the instrument without force andeffect and consequently it can no longer be negotiatedInstances1 By payment in due course by or on behalf of theprincipal debtor2 Payment by accommodated party3 Intentional cancellation by the holder4 By any act which will discharge a simple contractfor the payment of money5 When the principal debtor becomes the holder ofthe instrument at or after maturity in his own rightBy any act which would discharge a simple contract1 Payment or performance2 Loss of the thing due3 Condonation or remission4 Confusion or Merger5 Compensation6 Novation7 Annulment or Rescission8 Fulfillment of a resolutory condition9 PrescriptionWhen persons secondarily liable on the instrument aredischarged1 By any act which discharges the instrument2 By the intentional cancellation of his signature bythe holder3 By the discharge of a prior party4 By a valid tender of payment made by a prior party5 By the release of the principal debtor unless theholderrsquos right of recourse against the partysecondarily liable is expressly reserved6 By any agreement binding upon the holder to extendthe time of payment or to postpone the holderrsquosright to enforce the instrument1048766 In the following cases the agreement to extend the timeof payment does not discharge a party secondarily liable1 where the extension of time is consented to by suchparty2 where the holder expressly reserves his right ofrecourse against such party1048766 Payment at or after maturity by a party secondarilyliable does not discharge the instrument It only cancelshis own liability and that of the parties subsequent tohimEffects of Renunciation1 A renunciation in favor of a secondary party may bemade by the holder before at or after maturity ofthe instrument Effect only such secondary party isdischarged and all parties subsequent to him but theinstrument itself remains in force2 A renunciation in favor of the principal debtor maybe effected at or after maturity Effect theinstrument is discharged and all parties theretoprovided the renunciation is made unconditionallyand absolutelyNote In either case renunciation does not affect therights of a holder in due course without notice1048766 Cancellation of an instrument includes tearing erasureobliteration or burning It is not limited to writing ofthe word lsquocancelledrdquo or ldquopaidrdquo or drawing of crisscrosslines across the instrumentPayment for Honor - payment made by a person whether a

party to the bill or not after it has been protested for nonpaymentfor the benefit of any party liable thereon or forthe benefit of the person for whose account it was drawn1048766 Requisites1 the bill has been dishonored by non-payment2 it has been protested for non-payment3 payment supra protest (another term for paymentfor honor because prior protest for non-payment isrequired) is made by any person even by a partythereto4 the payment is attested by a notarial act of honorwhich must be appended to the protest or form anextension of it5 the notarial act must be based on the declarationmade by the payor for honor or his agent of hisintention to pay the bill for honor and for whosehonor he paysNote If the above formalities are not complied withpayment will operate as a mere voluntary payment andthe payor will acquire no right to full reimbursementagainst the party for whose honor he pays1048766 In payment for honor the payee cannot refuse paymentIf he refuses he cannot recover from the parties whowould have been discharged had he accepted the sameIn acceptance for honor the holderrsquos consent isnecessary1048766 The payor for honor is given the right to receive both thebill and the protest obviously to enable him to enforcehis rights against the parties who are liable to himIX CHECKSCheck- a bill of exchange drawn on a bank payable ondemandCheck distinguished from and ordinary bill of exchangeBILLOF EXCHANGE CHECKNot necessarily drawnon a deposit The draweeneed not be a bankIt is necessary that a checkis drawn on a bank depositThe drawee is always abankDeath of a drawer of aBOE with the knowledgeof the bank does notrevoke the authority of thedrawee to payDeath of the drawer of acheck with the knowledgeof the bank revokes theauthority of the banker topayMay be presented forpayment within areasonable time after itslast negotiation because itmay be further negotiatedMust be presented forpayment within areasonable time after itsissueMay be payable on demandor at a fixed ordeterminable future timeAlways payable on demandKinds of checks

1 Managerrsquos Cashierrsquos Check ndash drawn by a bank on itselfand therefore it is a primary obligation of the banko It is accepted in advance by the act of itsissuance and is not subject tocountermand by the payor afterindorsemento The bankrsquos manager signs managerrsquos checkwhile cashierrsquos check is signed by the bankcashier2 Certified Check ndash one drawn by a depositor upon funds tohis credit in a bank which a proper officer of the bankcertifies will be paid when duly presented for payment3 Stale check ndash one which has not been presented forpayment within a reasonable time after its issue4 Crossed check ndash when 2 parallel lines are drawn acrossits face or across a corner thereof If the name of a bankappears between the parallel lines the check is said tobe specially crossed and payment should be made onlyif presented by the named bank If no name appearsbetween the parallel lines the check is said to begenerally crossed and payment should be made onlyupon presentment by some bankEffects of crossing a checka That the check may not be encashed but only bedeposited in the bankb That the check may be negotiated only once to onewho has an account with a bank andc That the act of crossing the check serves as awarning to the holder that the check has beenissued for a definite purpose so that he must inquireif he has received the check pursuant to thatpurpose5 Memorandum Check ndash it is like an ordinary check exceptthat the word ldquomemorandumrdquo ldquomemrdquo or ldquomemordquo iswritten upon the face of the check signifying that thedrawer engages to pay the bona fide holder absolutelyand not upon a condition to pay upon presentment atmaturity and if due notice of the presentment and nonpaymentshould be given6 Travelerrsquos check ndash one upon which the holderrsquos signaturemust appear twice one to be affixed by him at the timeit is issued and the second o counter-signature to beaffixed by him in the presence of the payee before it ispaid otherwise it is incompleteIron Clad Rule Prohibits the countermanding ofpayment of certified checks (Republic of the Philippinesv PNB GR No 16106 December 1 1961)

defraudbull Effect signature is wholly inoperative and no rightto retain the instrument or to give a dischargetherefore or to enforce payment thereof againstany party thereto can be acquired through or undersuch signaturebull Exception unless the party against whom it issought to enforce such right is precluded fromsetting up the forgery or want of authoritybull Cut-Off RuleGeneral Rule Parties prior to the forged signatureare cut-off from the parties after the forgery in thesense that prior parties cannot be held liable andcan raise the defense of forgery The holder canonly enforce the instrument against parties whobecame such after the forgeryException When the prior parties are precludedfrom setting up the defense of forgeryPersons precluded from setting up the defense offorgery are1 Those who by their acts silence or negligenceare estopped from setting up the defense offorgery2 Those who warrant or admit the genuineness ofthe signature in question These include acts oromissions that amount to ratification expressor impliedNote Persons precluded from setting up thedefense of forgery may still recover damages underthe NCC provisions on quasi-delictsbull Rules on ForgeryA Promissory Notes1 Makerrsquos signature forgedOrder Instrumenta Maker is not liable because he neverbecame a party to the instrumentb Indorsers subsequent to forgery are liablebecause of their warrantiesc Party who made the forgery is liableBearer Instrumenta Maker is not liableb Indorsers may be made liable to thosepersons who obtain title through theirindorsementsc Party who made the forgery is liable2 Payeersquos signature forgedOrder Instrumenta Maker and payee not liableb Indorsers subsequent to the forgery isliablec Party who made the forgery is liableBearer Instrumenta Maker is liable Indorsement is notnecessary to title and the maker engagesto pay holderb Party who made the forgery is liable3 Indorserrsquos signature forgedOrder Instrumenta Maker payee and indorser who signaturewas forged is not liableb Indorsers subsequent to forgery are liablebecause of their warrantiesc Party who made the forgery is liableBearer Instrumenta Maker is liable Indorsement is not

necessary to title and the maker engagesto pay holderb Indorser whose signature was forged is notliablec Party who made the forgery is liableB Bill of Exchange1 Drawerrsquos signature forgedIn an Order Instrumenta Drawer is not liableb Drawee is liable if it paid (nor recourse todrawer) because he admitted thegenuineness of the drawerrsquos signatureDrawee cannot recover from the collectingbank because there is no privity betweenthe collecting bank and the drawer Thereis no warranty as to the signature of thedrawer (Associated Bank v CA)c Indorsers subsequent to forgery are liabled Party who made the forgery is liableIn a Bearer Instrumenta Drawer is not liableb Drawee is liable if it paid Drawee cannotrecover from the collecting bank becauseit is bound to known the drawerrsquossignature since the latter is its depositorc Party who made the forgery is liable2 Payeersquos signature forgedOrder Instrumenta Drawer drawee and payee not liable Cutoffrule appliesb Indorsers subsequent to forgery are liablec Party who made the forgery is liableBearer Instrumenta Drawer is liable His indorsement is notnecessary to pass titleb Drawee is liable No privity betweendrawer and payee because indorsement ofpayee is not necessary (Ang Tek Lian case87 SCRA 383)c Payee is not liabled Collecting bank is liable because ofwarrantye Party who made the forgery is liable3 Indorserrsquos signature forgedOrder Instrumenta Drawer payee and indorser whosesignature was forged are not liableb Drawee is liable if it paidc Indorsers subsequent to forgery are liabled Party who made the forgery is liableBearer Instrumenta Drawer is liable Indorsement is notnecessary to pass titleb Drawee is liablec Indorser whose signature was forged isliable because indorsement is notnecessary to pass titled Party who made the forgery is liable5 Alterationbull Effect the instrument is avoidedbull Exceptions1 against a party who has himself madeauthorized or assented to the alteration2 subsequent indorsers3 holder in due course not a party to the

alteration - he may enforce payment accordingto its original tenorbull Changes constituting material alteration1 date2 sum payable either for principal or interest3 time or place of payment4 number or relations of the parties5 medium or currency in which payment is to bemade6 that which adds a place of payment where noplace of payment is specified and7 any other change or addition which alters theeffect of the instrument in any respectNote a material alteration is one that alters theeffect of the instrument one which changes theitems required to be stated under Sec 1 NILbull Spoliation ndash alteration made by a strangerbull The general rule denies the drawee bankrsquos right tocharge against the drawerrsquos account the amount ofan altered check However the latterrsquos negligencebefore or after the alteration may estop him fromsetting such alteration as against an innocentdrawee bank who has paid the checkbull In cases of altered checks and checks with forgedindorsements the drawee bank must notify andreturn them to the collecting bank before 400 pmof the next day of clearing but the drawee bankmay still return them even after such time providedhe does so within 24 hours from its discovery of thealteration or forged instruments so that recovery ofthe amount may be had BUT in no event beyondthe period fixed or provided by law for filing of alegal action by the returning bank against the banksending the sameNote Alteration is only a partial real defensebecause a holder in due course can still enforce itaccording to its original tenorVII ENFORCEMENT OF LIABILITYPresentment for payment ndash the presentation of aninstrument to the person primarily liable for the purpose ofdemanding and receiving paymentGeneral Rulesbull presentment for payment to charge personsprimarily liable is not necessarybull presentment for payment to charge personssecondarily liable is necessaryExceptionsa drawer - where he has no right to expect or requirethat the drawee or acceptor will pay the instrument(sec 79)b indorser - where the instrument was made oraccepted for his accommodation and he has noreason to expect that the instrument will be paid ifpresentedc when dispensedi where after the exercise of reasonablediligence presentment as required cannotbe madeii where the drawee is a fictitious personiii by waiver of presentment express orimplied (sec 82)d when the instrument has been dishonored by nonacceptance(sec 151)Sufficiency of presentmentIt must be

1 made by the holder or any person authorized toreceive payment on his behalf2 at a reasonable hour on a business day3 at a proper place4 to the person primarily liable or if he is absent orinaccessible to any person found at the placewhere the presentment is madeHow made1 personal demand for payment at the proper place and2 readiness to exhibit the instrument if required and toreceive payment and to surrender the instrument if thedebtor is willing to paybull Purpose of exhibitionTo enable the debtor toa determine the genuineness of the instrument andthe right of the holder to receive payment andb to enable him to reclaim possession upon paymentbull When exhibition excuseda when debtor does not demand to see the instrumentbut refuses payment on some other grounds andb when the instrument is lost or destroyedWhen madebull where the instrument is payable at a fixed ordeterminable future time presentment must be madeon the day it falls duebull where it is payable on demanda promissory note presentment must be made withina reasonable time after its issueb bill of exchange presentment for payment will besufficient if made within a reasonable time afterthe last negotiation thereofbull the check must be presented for payment within areasonable time after its issue or the drawer will bedischarged from liability thereon to the extent of theloss caused by the delayTime of maturitybull every negotiable instrument is payable at the time fixedtherein without gracebull when the day of maturity falls upon a Sunday or aholiday the instruments are to be presented forpayment on the next succeeding business daybull when the day of maturity falls upon a Saturday1048766 Instrument is payable at a fixed or determinablefuture time (time instrument) - presented forpayment is on the next succeeding business day1048766 instruments is payable on demand - at the option ofthe holder be presented for paymenta before 1200 noon on Saturday whenthat entire day is not a holiday orb the next succeeding business dayHow computed1048766 excluding the day from which the time is to begin torun and by including the date of payment1048766 applies to instruments which are payable at a fixedperiod after date after sight or after thathappening of a specified eventProper place for presentmenta Where a place of payment is specified in the instrumentand it is there presentedb Where no place of payment is specified but the addressof the person to make payment is given in theinstrument and it is there presentedc Where no place of payment is specified and no address isgiven and the instrument is presented at the usual placeof business or residence of the person to make payment

d In any other case if presented to the person to makepayment wherever he can be found or if presented athis last known place of business or residenceWhen delay in presentment excused ndash delay is caused bycircumstances beyond the control of the holder and notimputable to his default misconduct or negligence Whenthe cause of delay ceases to operate presentment must bemade with reasonable diligencePresentment for acceptance ndash the production or exhibitionof a bill of exchange to the drawee for his acceptance orpaymentGeneral Rule presentment for acceptance is not necessary torender any party to the bill liableException presentment for acceptance must be madea Where the bill is payable after sight or wherepresentment for acceptance is necessary in order tofix the maturity of the instrument orb Where the bill expressly stipulates that it shall bepresented for acceptance orc Where the bill is drawn payable elsewhere then atthe residence or place of business of the drawee(sec 143)Note in all the above cases the holder must either presentthe bill for acceptance or negotiate it within a reasonabletime otherwise the drawer and all indorsers are dischargedHow made1 made by or on behalf of the holder2 at a reasonable hour3 on a business day4 before the bill is overdue and within reasonabletime5 to the drawee or some person authorized to acceptor refuse acceptance on his behalfDays presentment may be made If date of presentment isa Sunday or a holiday ndash must be made on the nextsucceeding business dayb Saturday ndash before 1200 noon on Saturday providedthat it is not a holidayWhen delay for presentment excuseda bill is drawn payable elsewhere than at the place ofbusiness or the residence of the draweeb holder has no time with the exercise of reasonablediligence to present the bill for acceptance beforepresenting it for payment on the day that it fallsdueEffect does not discharge the drawers and indorsersWhere presentment is excuseda Where the drawee is dead or has absconded or is afictitious person or a person not having capacity tocontract by billb Where presentment can not be made after theexercise of reasonable diligencec Where although presentment has been irregularacceptance has been refused on some other groundNote bill may be treated as dishonored by nonacceptanceDuty of holder where bill not accepted - where a bill isduly presented for acceptance and is not accepted within theprescribed time (24 hours ndash sec 136) the person presentingit must treat the bill as dishonored by non-acceptance or heloses the right of recourse against the drawer and indorsersAcceptance the signification by the drawee of his assent tothe order of the drawer It is the act by which the draweemanifests his consent to comply with the request containedin the bill of exchange directed to himHow made

1) must be in writing2) signed by the drawee3) must not express that the drawee will perform hispromise by any other means than the payment ofmoneybull the holder of the bill presenting the same for acceptancemay require that the acceptance be written on the billand if such request is refused may treat the bill asdishonoredbull where an acceptance is written on a paper other thanthe bill itself it does not bind the acceptor except infavor of a person to whom it is shown and who on thefaith thereof receives the bill for valuePeriod for drawee to accept - allowed 24 hours afterpresentment in which to decide whether or not he will acceptthe bill if acceptance is given it dates as of the day ofpresentationConstructiveImplied acceptance where a drawee refuseswithin 24 hours after delivery or within such other period asthe holder may allow to return the bill accepted or nonacceptedto the holder he will be deemed to have acceptedthe sameNote same effect if the drawee destroys the instrumentKinds1 General - assents without qualification to the order ofthe drawer2 Qualified - which in express terms varies the effect ofthe bill as drawna Conditional - makes payment by the acceptordependent on the fulfillment of a conditiontherein statedb Partial - an acceptance to pay part only of theamount for which the bill is drawni Local - an acceptance to pay only at aparticular placeii Qualified as to timeiii The acceptance of some one or more ofthe drawees but not of all3 ConstructiveRights of parties as to qualified acceptancebull Holder he may refuse to take a qualified acceptanceand if he does not obtain an unqualified acceptance hemay treat the bill as dishonored by non-acceptancebull Drawer or indorser when he receives notice of aqualified acceptance he must within a reasonable timeexpress his dissent to the holder or he will be deemed tohave assented thereto (implied assent)Effect of taking a qualified acceptance the drawer andindorsers are discharged from liability on the bill unless theyhave expressly or impliedly authorized the holder to take aqualified acceptance or subsequently assent theretoOther rules of acceptancebull a bill may be accepted before it has been signed by thedrawer or while otherwise incomplete or when it isoverdue or after it has been dishonored by a previousrefusal to accept or by non paymentbull when a bill payable after sight is dishonored by nonacceptanceand the drawee subsequently accepts it theholder in the absence of any different agreement isentitled to have the bill accepted as of the date of thefirst presentmentbull an unconditional promise in writing to accept a billbefore it is drawn is deemed an actual acceptancein favor of every person who upon the faiththereof receives the bill for value

bull where a check is certified by the bank on which it isdrawn the certification is equivalent to anacceptanceEffect the drawer and all indorsers are dischargedfrom liability thereonAcceptance for Honor - an undertaking by a stranger to a billafter protest for the benefit of any party liable thereon or forthe honor of the person for whose account the bill is drawnwhich acceptance inures also to the benefit of all partiessubsequent to the person for whose honor it is accepted andconditioned to pay the bill when it becomes due if theoriginal drawee does not pay it1048766 Requisites1 the bill must have been protested for dishonorby non-acceptance or for better security2 the acceptor for honor must be a stranger andnot a party already liable on the instrument3 bill must not be overdue4 acceptance for honor must be with the consentof the holder of the instrument1048766 Formalities1 must be in writing2 must indicate that it is an acceptance forhonor3 signed by the acceptor for honor4 must contain an express or implied promise topay money5 the accepted bill for honor must be deliveredto the holderNotice of Dishonor - notice given by the holder or his agentto a party or parties secondarily liable that the instrumentwas dishonored by non-acceptance by the drawee of a bill orby non-payment by the acceptor of a bill or by non-paymentby a maker of a note- If such notice is given by a notary public it is calledPROTEST1048766 Effect of failure to give notice parties secondarily liableare discharged1048766 Requisites1 Given by holder or his agent or by any party whomay be compelled by the holder to pay2 Given to secondary party or his agent3 Given within the periods provided by law4 Given at the proper place1048766 When notice of dishonor dispensed with1 when party to be notified knows about the dishonoractually or constructively2 if waived and3 when after due diligence it cannot be given1048766 How given1 by bringing verbally or2 by writing to the knowledge of the person liable thefact that a specified instrument upon properproceedings taken has not been accepted or hasnot been paid and that the party notified isexpected to pay it1048766 To whom given1 Non-acceptance (bill) ndash to persons secondarilyliable namely the drawer and indorsers as the casemay be2 Non-payment (both bill and note) ndash indorsersNote Notice must be given to persons secondarilyliable Otherwise such parties are dischargedNotice may be given to the party himself or to hisagent

1048766 By whom given1 the holder2 another on behalf of the holder3 any party to the instrument who may be compelledto pay it to the holder and who would have a rightof reimbursement from the party to whom notice isgiven1048766 Notice of dishonor given by or on behalf of a holderinures to the benefit ofa all parties prior to the holder who have a rightof recourse against the party to whom thenotice is given andb all holders subsequent to the holder givingnotice1048766 Notice of dishonor given by or on behalf of a partyentitled to give notice inures to the benefit ofa the holder andb all parties subsequent to the party to whomnotice is given1048766 Where an instrument is dishonored in the hands of anagent he can do either of the ffa directly give notice to persons secondarilyliable thereon orb give notice to his principal In such case hemust give notice within the time allowed bylaw as if he were a holder1048766 A party giving notice is deemed to have given due noticewherea the notice of dishonor is duly addressed andb deposited in the post-office even when thereis miscarriage of mail1048766 Where a party receives notice of dishonor he has afterthe receipt of such notice the same time for givingnotice to antecedent parties that the holder has afterthe dishonor1048766 Notice may be waived either before the time of givingnotice or after the omission to give due notice Waivermay be expressed or implied1048766 As to who are affected by an express waiver depends onwhere the waiver is written1 if it appears in the body or on the face of theinstrument it binds all parties but2 if it is written above the signature of anindorser it binds him only1048766 Notice of dishonor is not required to be given to thedrawer in any of the ff cases1 drawer and drawee are the same2 drawee is a fictitious person or not having thecapacity to contract3 drawer is the person to whom the instrument ispresented for payment4 the drawer has no right to expect or requirethat the drawee or acceptor will honor theinstrument5 where the drawer has countermandedpayment1048766 Notice of dishonor is not required to be given to anindorser in the ff cases1 drawee is a fictitious person or does not havethe capacity to contract and indorser wasaware of that fact at the time he indorsed theinstrument2 indorser is the person to whom the instrumentis presented for payment3 instrument was made or accepted for his

accommodation1048766 If an instrument is not accepted by the drawee there isno sense presenting it again for payment and notice ofdishonor must at once be given If there wasacceptance presentment for payment is still requiredand if payment is refused there is a need for notice ofdishonor1048766 An omission to give notice of dishonor by non-acceptancedoes not prejudice the rights of a holder in due coursesubsequent to the omissionDishonor by Non-PaymentWhen instrument dishonored by non-paymenta it is duly presented for payment and payment isrefused or cannot be obtained orb presentment is excused and the instrument isoverdue and unpaidEffect of dishonor an immediate right of recourse to allparties secondarily liable thereon accrues to the holderDishonor by Non-AcceptanceInstancesa When it is duly presented for acceptance and suchan acceptance is refused or can not be obtained orb When presentment for acceptance is excused andthe bill is not accepted (sec 149)Effect an immediate right of recourse against thedrawer and indorsers accrues to the holder and nopresentment for payment is necessaryNote where a bill is duly presented for acceptance andis not accepted within the prescribed time (24 hours)the person presenting it must treat the bill as dishonoredby non-acceptanceWhen Instrument Considered to be Dishonoreda If it is not accepted when presented for acceptanceorb If it is not paid when presented for payment atmaturity orc If presentment is excused or waived and theinstrument is past due and unpaidProtest - the formal instrument executed usually by a notarypublic certifying that the legal steps necessary to fix theliability of the drawee and the indorsers have been taken1048766 Effect of waiver where protest is waived presentmentand notice of dishonor are also deemed waived Butwhere the notice of dishonor is waived presentment isnot waived1048766 Applicability protest is necessary only in case of foreignbills of exchange which have been dishonored by nonacceptanceor non-payment as the case may be If it isnot so protested the drawer and indorsers aredischarged1048766 Foreign Bill of Exchange1 Drawn in the Philippines but payable outside thePhilippines2 Payable in the Philippines but drawn outside thePhilippines1048766 Protest may be made by1 a notary public or2 any respectable resident of the place where the billis dishonored in the presence of 2 or more crediblewitnessesProtest for better security is one made by the holder of a billafter it has been accepted but before it matures against thedrawer and indorsers where the acceptor has been adjudgeda bankrupt or an insolvent or has made an assignment forthe benefit of the creditors

VIII DISCHARGEDischarge of instrument - a release of all parties whetherprimary or secondary from the obligations arisingthereunder It renders the instrument without force andeffect and consequently it can no longer be negotiatedInstances1 By payment in due course by or on behalf of theprincipal debtor2 Payment by accommodated party3 Intentional cancellation by the holder4 By any act which will discharge a simple contractfor the payment of money5 When the principal debtor becomes the holder ofthe instrument at or after maturity in his own rightBy any act which would discharge a simple contract1 Payment or performance2 Loss of the thing due3 Condonation or remission4 Confusion or Merger5 Compensation6 Novation7 Annulment or Rescission8 Fulfillment of a resolutory condition9 PrescriptionWhen persons secondarily liable on the instrument aredischarged1 By any act which discharges the instrument2 By the intentional cancellation of his signature bythe holder3 By the discharge of a prior party4 By a valid tender of payment made by a prior party5 By the release of the principal debtor unless theholderrsquos right of recourse against the partysecondarily liable is expressly reserved6 By any agreement binding upon the holder to extendthe time of payment or to postpone the holderrsquosright to enforce the instrument1048766 In the following cases the agreement to extend the timeof payment does not discharge a party secondarily liable1 where the extension of time is consented to by suchparty2 where the holder expressly reserves his right ofrecourse against such party1048766 Payment at or after maturity by a party secondarilyliable does not discharge the instrument It only cancelshis own liability and that of the parties subsequent tohimEffects of Renunciation1 A renunciation in favor of a secondary party may bemade by the holder before at or after maturity ofthe instrument Effect only such secondary party isdischarged and all parties subsequent to him but theinstrument itself remains in force2 A renunciation in favor of the principal debtor maybe effected at or after maturity Effect theinstrument is discharged and all parties theretoprovided the renunciation is made unconditionallyand absolutelyNote In either case renunciation does not affect therights of a holder in due course without notice1048766 Cancellation of an instrument includes tearing erasureobliteration or burning It is not limited to writing ofthe word lsquocancelledrdquo or ldquopaidrdquo or drawing of crisscrosslines across the instrumentPayment for Honor - payment made by a person whether a

party to the bill or not after it has been protested for nonpaymentfor the benefit of any party liable thereon or forthe benefit of the person for whose account it was drawn1048766 Requisites1 the bill has been dishonored by non-payment2 it has been protested for non-payment3 payment supra protest (another term for paymentfor honor because prior protest for non-payment isrequired) is made by any person even by a partythereto4 the payment is attested by a notarial act of honorwhich must be appended to the protest or form anextension of it5 the notarial act must be based on the declarationmade by the payor for honor or his agent of hisintention to pay the bill for honor and for whosehonor he paysNote If the above formalities are not complied withpayment will operate as a mere voluntary payment andthe payor will acquire no right to full reimbursementagainst the party for whose honor he pays1048766 In payment for honor the payee cannot refuse paymentIf he refuses he cannot recover from the parties whowould have been discharged had he accepted the sameIn acceptance for honor the holderrsquos consent isnecessary1048766 The payor for honor is given the right to receive both thebill and the protest obviously to enable him to enforcehis rights against the parties who are liable to himIX CHECKSCheck- a bill of exchange drawn on a bank payable ondemandCheck distinguished from and ordinary bill of exchangeBILLOF EXCHANGE CHECKNot necessarily drawnon a deposit The draweeneed not be a bankIt is necessary that a checkis drawn on a bank depositThe drawee is always abankDeath of a drawer of aBOE with the knowledgeof the bank does notrevoke the authority of thedrawee to payDeath of the drawer of acheck with the knowledgeof the bank revokes theauthority of the banker topayMay be presented forpayment within areasonable time after itslast negotiation because itmay be further negotiatedMust be presented forpayment within areasonable time after itsissueMay be payable on demandor at a fixed ordeterminable future timeAlways payable on demandKinds of checks

1 Managerrsquos Cashierrsquos Check ndash drawn by a bank on itselfand therefore it is a primary obligation of the banko It is accepted in advance by the act of itsissuance and is not subject tocountermand by the payor afterindorsemento The bankrsquos manager signs managerrsquos checkwhile cashierrsquos check is signed by the bankcashier2 Certified Check ndash one drawn by a depositor upon funds tohis credit in a bank which a proper officer of the bankcertifies will be paid when duly presented for payment3 Stale check ndash one which has not been presented forpayment within a reasonable time after its issue4 Crossed check ndash when 2 parallel lines are drawn acrossits face or across a corner thereof If the name of a bankappears between the parallel lines the check is said tobe specially crossed and payment should be made onlyif presented by the named bank If no name appearsbetween the parallel lines the check is said to begenerally crossed and payment should be made onlyupon presentment by some bankEffects of crossing a checka That the check may not be encashed but only bedeposited in the bankb That the check may be negotiated only once to onewho has an account with a bank andc That the act of crossing the check serves as awarning to the holder that the check has beenissued for a definite purpose so that he must inquireif he has received the check pursuant to thatpurpose5 Memorandum Check ndash it is like an ordinary check exceptthat the word ldquomemorandumrdquo ldquomemrdquo or ldquomemordquo iswritten upon the face of the check signifying that thedrawer engages to pay the bona fide holder absolutelyand not upon a condition to pay upon presentment atmaturity and if due notice of the presentment and nonpaymentshould be given6 Travelerrsquos check ndash one upon which the holderrsquos signaturemust appear twice one to be affixed by him at the timeit is issued and the second o counter-signature to beaffixed by him in the presence of the payee before it ispaid otherwise it is incompleteIron Clad Rule Prohibits the countermanding ofpayment of certified checks (Republic of the Philippinesv PNB GR No 16106 December 1 1961)

necessary to title and the maker engagesto pay holderb Indorser whose signature was forged is notliablec Party who made the forgery is liableB Bill of Exchange1 Drawerrsquos signature forgedIn an Order Instrumenta Drawer is not liableb Drawee is liable if it paid (nor recourse todrawer) because he admitted thegenuineness of the drawerrsquos signatureDrawee cannot recover from the collectingbank because there is no privity betweenthe collecting bank and the drawer Thereis no warranty as to the signature of thedrawer (Associated Bank v CA)c Indorsers subsequent to forgery are liabled Party who made the forgery is liableIn a Bearer Instrumenta Drawer is not liableb Drawee is liable if it paid Drawee cannotrecover from the collecting bank becauseit is bound to known the drawerrsquossignature since the latter is its depositorc Party who made the forgery is liable2 Payeersquos signature forgedOrder Instrumenta Drawer drawee and payee not liable Cutoffrule appliesb Indorsers subsequent to forgery are liablec Party who made the forgery is liableBearer Instrumenta Drawer is liable His indorsement is notnecessary to pass titleb Drawee is liable No privity betweendrawer and payee because indorsement ofpayee is not necessary (Ang Tek Lian case87 SCRA 383)c Payee is not liabled Collecting bank is liable because ofwarrantye Party who made the forgery is liable3 Indorserrsquos signature forgedOrder Instrumenta Drawer payee and indorser whosesignature was forged are not liableb Drawee is liable if it paidc Indorsers subsequent to forgery are liabled Party who made the forgery is liableBearer Instrumenta Drawer is liable Indorsement is notnecessary to pass titleb Drawee is liablec Indorser whose signature was forged isliable because indorsement is notnecessary to pass titled Party who made the forgery is liable5 Alterationbull Effect the instrument is avoidedbull Exceptions1 against a party who has himself madeauthorized or assented to the alteration2 subsequent indorsers3 holder in due course not a party to the

alteration - he may enforce payment accordingto its original tenorbull Changes constituting material alteration1 date2 sum payable either for principal or interest3 time or place of payment4 number or relations of the parties5 medium or currency in which payment is to bemade6 that which adds a place of payment where noplace of payment is specified and7 any other change or addition which alters theeffect of the instrument in any respectNote a material alteration is one that alters theeffect of the instrument one which changes theitems required to be stated under Sec 1 NILbull Spoliation ndash alteration made by a strangerbull The general rule denies the drawee bankrsquos right tocharge against the drawerrsquos account the amount ofan altered check However the latterrsquos negligencebefore or after the alteration may estop him fromsetting such alteration as against an innocentdrawee bank who has paid the checkbull In cases of altered checks and checks with forgedindorsements the drawee bank must notify andreturn them to the collecting bank before 400 pmof the next day of clearing but the drawee bankmay still return them even after such time providedhe does so within 24 hours from its discovery of thealteration or forged instruments so that recovery ofthe amount may be had BUT in no event beyondthe period fixed or provided by law for filing of alegal action by the returning bank against the banksending the sameNote Alteration is only a partial real defensebecause a holder in due course can still enforce itaccording to its original tenorVII ENFORCEMENT OF LIABILITYPresentment for payment ndash the presentation of aninstrument to the person primarily liable for the purpose ofdemanding and receiving paymentGeneral Rulesbull presentment for payment to charge personsprimarily liable is not necessarybull presentment for payment to charge personssecondarily liable is necessaryExceptionsa drawer - where he has no right to expect or requirethat the drawee or acceptor will pay the instrument(sec 79)b indorser - where the instrument was made oraccepted for his accommodation and he has noreason to expect that the instrument will be paid ifpresentedc when dispensedi where after the exercise of reasonablediligence presentment as required cannotbe madeii where the drawee is a fictitious personiii by waiver of presentment express orimplied (sec 82)d when the instrument has been dishonored by nonacceptance(sec 151)Sufficiency of presentmentIt must be

1 made by the holder or any person authorized toreceive payment on his behalf2 at a reasonable hour on a business day3 at a proper place4 to the person primarily liable or if he is absent orinaccessible to any person found at the placewhere the presentment is madeHow made1 personal demand for payment at the proper place and2 readiness to exhibit the instrument if required and toreceive payment and to surrender the instrument if thedebtor is willing to paybull Purpose of exhibitionTo enable the debtor toa determine the genuineness of the instrument andthe right of the holder to receive payment andb to enable him to reclaim possession upon paymentbull When exhibition excuseda when debtor does not demand to see the instrumentbut refuses payment on some other grounds andb when the instrument is lost or destroyedWhen madebull where the instrument is payable at a fixed ordeterminable future time presentment must be madeon the day it falls duebull where it is payable on demanda promissory note presentment must be made withina reasonable time after its issueb bill of exchange presentment for payment will besufficient if made within a reasonable time afterthe last negotiation thereofbull the check must be presented for payment within areasonable time after its issue or the drawer will bedischarged from liability thereon to the extent of theloss caused by the delayTime of maturitybull every negotiable instrument is payable at the time fixedtherein without gracebull when the day of maturity falls upon a Sunday or aholiday the instruments are to be presented forpayment on the next succeeding business daybull when the day of maturity falls upon a Saturday1048766 Instrument is payable at a fixed or determinablefuture time (time instrument) - presented forpayment is on the next succeeding business day1048766 instruments is payable on demand - at the option ofthe holder be presented for paymenta before 1200 noon on Saturday whenthat entire day is not a holiday orb the next succeeding business dayHow computed1048766 excluding the day from which the time is to begin torun and by including the date of payment1048766 applies to instruments which are payable at a fixedperiod after date after sight or after thathappening of a specified eventProper place for presentmenta Where a place of payment is specified in the instrumentand it is there presentedb Where no place of payment is specified but the addressof the person to make payment is given in theinstrument and it is there presentedc Where no place of payment is specified and no address isgiven and the instrument is presented at the usual placeof business or residence of the person to make payment

d In any other case if presented to the person to makepayment wherever he can be found or if presented athis last known place of business or residenceWhen delay in presentment excused ndash delay is caused bycircumstances beyond the control of the holder and notimputable to his default misconduct or negligence Whenthe cause of delay ceases to operate presentment must bemade with reasonable diligencePresentment for acceptance ndash the production or exhibitionof a bill of exchange to the drawee for his acceptance orpaymentGeneral Rule presentment for acceptance is not necessary torender any party to the bill liableException presentment for acceptance must be madea Where the bill is payable after sight or wherepresentment for acceptance is necessary in order tofix the maturity of the instrument orb Where the bill expressly stipulates that it shall bepresented for acceptance orc Where the bill is drawn payable elsewhere then atthe residence or place of business of the drawee(sec 143)Note in all the above cases the holder must either presentthe bill for acceptance or negotiate it within a reasonabletime otherwise the drawer and all indorsers are dischargedHow made1 made by or on behalf of the holder2 at a reasonable hour3 on a business day4 before the bill is overdue and within reasonabletime5 to the drawee or some person authorized to acceptor refuse acceptance on his behalfDays presentment may be made If date of presentment isa Sunday or a holiday ndash must be made on the nextsucceeding business dayb Saturday ndash before 1200 noon on Saturday providedthat it is not a holidayWhen delay for presentment excuseda bill is drawn payable elsewhere than at the place ofbusiness or the residence of the draweeb holder has no time with the exercise of reasonablediligence to present the bill for acceptance beforepresenting it for payment on the day that it fallsdueEffect does not discharge the drawers and indorsersWhere presentment is excuseda Where the drawee is dead or has absconded or is afictitious person or a person not having capacity tocontract by billb Where presentment can not be made after theexercise of reasonable diligencec Where although presentment has been irregularacceptance has been refused on some other groundNote bill may be treated as dishonored by nonacceptanceDuty of holder where bill not accepted - where a bill isduly presented for acceptance and is not accepted within theprescribed time (24 hours ndash sec 136) the person presentingit must treat the bill as dishonored by non-acceptance or heloses the right of recourse against the drawer and indorsersAcceptance the signification by the drawee of his assent tothe order of the drawer It is the act by which the draweemanifests his consent to comply with the request containedin the bill of exchange directed to himHow made

1) must be in writing2) signed by the drawee3) must not express that the drawee will perform hispromise by any other means than the payment ofmoneybull the holder of the bill presenting the same for acceptancemay require that the acceptance be written on the billand if such request is refused may treat the bill asdishonoredbull where an acceptance is written on a paper other thanthe bill itself it does not bind the acceptor except infavor of a person to whom it is shown and who on thefaith thereof receives the bill for valuePeriod for drawee to accept - allowed 24 hours afterpresentment in which to decide whether or not he will acceptthe bill if acceptance is given it dates as of the day ofpresentationConstructiveImplied acceptance where a drawee refuseswithin 24 hours after delivery or within such other period asthe holder may allow to return the bill accepted or nonacceptedto the holder he will be deemed to have acceptedthe sameNote same effect if the drawee destroys the instrumentKinds1 General - assents without qualification to the order ofthe drawer2 Qualified - which in express terms varies the effect ofthe bill as drawna Conditional - makes payment by the acceptordependent on the fulfillment of a conditiontherein statedb Partial - an acceptance to pay part only of theamount for which the bill is drawni Local - an acceptance to pay only at aparticular placeii Qualified as to timeiii The acceptance of some one or more ofthe drawees but not of all3 ConstructiveRights of parties as to qualified acceptancebull Holder he may refuse to take a qualified acceptanceand if he does not obtain an unqualified acceptance hemay treat the bill as dishonored by non-acceptancebull Drawer or indorser when he receives notice of aqualified acceptance he must within a reasonable timeexpress his dissent to the holder or he will be deemed tohave assented thereto (implied assent)Effect of taking a qualified acceptance the drawer andindorsers are discharged from liability on the bill unless theyhave expressly or impliedly authorized the holder to take aqualified acceptance or subsequently assent theretoOther rules of acceptancebull a bill may be accepted before it has been signed by thedrawer or while otherwise incomplete or when it isoverdue or after it has been dishonored by a previousrefusal to accept or by non paymentbull when a bill payable after sight is dishonored by nonacceptanceand the drawee subsequently accepts it theholder in the absence of any different agreement isentitled to have the bill accepted as of the date of thefirst presentmentbull an unconditional promise in writing to accept a billbefore it is drawn is deemed an actual acceptancein favor of every person who upon the faiththereof receives the bill for value

bull where a check is certified by the bank on which it isdrawn the certification is equivalent to anacceptanceEffect the drawer and all indorsers are dischargedfrom liability thereonAcceptance for Honor - an undertaking by a stranger to a billafter protest for the benefit of any party liable thereon or forthe honor of the person for whose account the bill is drawnwhich acceptance inures also to the benefit of all partiessubsequent to the person for whose honor it is accepted andconditioned to pay the bill when it becomes due if theoriginal drawee does not pay it1048766 Requisites1 the bill must have been protested for dishonorby non-acceptance or for better security2 the acceptor for honor must be a stranger andnot a party already liable on the instrument3 bill must not be overdue4 acceptance for honor must be with the consentof the holder of the instrument1048766 Formalities1 must be in writing2 must indicate that it is an acceptance forhonor3 signed by the acceptor for honor4 must contain an express or implied promise topay money5 the accepted bill for honor must be deliveredto the holderNotice of Dishonor - notice given by the holder or his agentto a party or parties secondarily liable that the instrumentwas dishonored by non-acceptance by the drawee of a bill orby non-payment by the acceptor of a bill or by non-paymentby a maker of a note- If such notice is given by a notary public it is calledPROTEST1048766 Effect of failure to give notice parties secondarily liableare discharged1048766 Requisites1 Given by holder or his agent or by any party whomay be compelled by the holder to pay2 Given to secondary party or his agent3 Given within the periods provided by law4 Given at the proper place1048766 When notice of dishonor dispensed with1 when party to be notified knows about the dishonoractually or constructively2 if waived and3 when after due diligence it cannot be given1048766 How given1 by bringing verbally or2 by writing to the knowledge of the person liable thefact that a specified instrument upon properproceedings taken has not been accepted or hasnot been paid and that the party notified isexpected to pay it1048766 To whom given1 Non-acceptance (bill) ndash to persons secondarilyliable namely the drawer and indorsers as the casemay be2 Non-payment (both bill and note) ndash indorsersNote Notice must be given to persons secondarilyliable Otherwise such parties are dischargedNotice may be given to the party himself or to hisagent

1048766 By whom given1 the holder2 another on behalf of the holder3 any party to the instrument who may be compelledto pay it to the holder and who would have a rightof reimbursement from the party to whom notice isgiven1048766 Notice of dishonor given by or on behalf of a holderinures to the benefit ofa all parties prior to the holder who have a rightof recourse against the party to whom thenotice is given andb all holders subsequent to the holder givingnotice1048766 Notice of dishonor given by or on behalf of a partyentitled to give notice inures to the benefit ofa the holder andb all parties subsequent to the party to whomnotice is given1048766 Where an instrument is dishonored in the hands of anagent he can do either of the ffa directly give notice to persons secondarilyliable thereon orb give notice to his principal In such case hemust give notice within the time allowed bylaw as if he were a holder1048766 A party giving notice is deemed to have given due noticewherea the notice of dishonor is duly addressed andb deposited in the post-office even when thereis miscarriage of mail1048766 Where a party receives notice of dishonor he has afterthe receipt of such notice the same time for givingnotice to antecedent parties that the holder has afterthe dishonor1048766 Notice may be waived either before the time of givingnotice or after the omission to give due notice Waivermay be expressed or implied1048766 As to who are affected by an express waiver depends onwhere the waiver is written1 if it appears in the body or on the face of theinstrument it binds all parties but2 if it is written above the signature of anindorser it binds him only1048766 Notice of dishonor is not required to be given to thedrawer in any of the ff cases1 drawer and drawee are the same2 drawee is a fictitious person or not having thecapacity to contract3 drawer is the person to whom the instrument ispresented for payment4 the drawer has no right to expect or requirethat the drawee or acceptor will honor theinstrument5 where the drawer has countermandedpayment1048766 Notice of dishonor is not required to be given to anindorser in the ff cases1 drawee is a fictitious person or does not havethe capacity to contract and indorser wasaware of that fact at the time he indorsed theinstrument2 indorser is the person to whom the instrumentis presented for payment3 instrument was made or accepted for his

accommodation1048766 If an instrument is not accepted by the drawee there isno sense presenting it again for payment and notice ofdishonor must at once be given If there wasacceptance presentment for payment is still requiredand if payment is refused there is a need for notice ofdishonor1048766 An omission to give notice of dishonor by non-acceptancedoes not prejudice the rights of a holder in due coursesubsequent to the omissionDishonor by Non-PaymentWhen instrument dishonored by non-paymenta it is duly presented for payment and payment isrefused or cannot be obtained orb presentment is excused and the instrument isoverdue and unpaidEffect of dishonor an immediate right of recourse to allparties secondarily liable thereon accrues to the holderDishonor by Non-AcceptanceInstancesa When it is duly presented for acceptance and suchan acceptance is refused or can not be obtained orb When presentment for acceptance is excused andthe bill is not accepted (sec 149)Effect an immediate right of recourse against thedrawer and indorsers accrues to the holder and nopresentment for payment is necessaryNote where a bill is duly presented for acceptance andis not accepted within the prescribed time (24 hours)the person presenting it must treat the bill as dishonoredby non-acceptanceWhen Instrument Considered to be Dishonoreda If it is not accepted when presented for acceptanceorb If it is not paid when presented for payment atmaturity orc If presentment is excused or waived and theinstrument is past due and unpaidProtest - the formal instrument executed usually by a notarypublic certifying that the legal steps necessary to fix theliability of the drawee and the indorsers have been taken1048766 Effect of waiver where protest is waived presentmentand notice of dishonor are also deemed waived Butwhere the notice of dishonor is waived presentment isnot waived1048766 Applicability protest is necessary only in case of foreignbills of exchange which have been dishonored by nonacceptanceor non-payment as the case may be If it isnot so protested the drawer and indorsers aredischarged1048766 Foreign Bill of Exchange1 Drawn in the Philippines but payable outside thePhilippines2 Payable in the Philippines but drawn outside thePhilippines1048766 Protest may be made by1 a notary public or2 any respectable resident of the place where the billis dishonored in the presence of 2 or more crediblewitnessesProtest for better security is one made by the holder of a billafter it has been accepted but before it matures against thedrawer and indorsers where the acceptor has been adjudgeda bankrupt or an insolvent or has made an assignment forthe benefit of the creditors

VIII DISCHARGEDischarge of instrument - a release of all parties whetherprimary or secondary from the obligations arisingthereunder It renders the instrument without force andeffect and consequently it can no longer be negotiatedInstances1 By payment in due course by or on behalf of theprincipal debtor2 Payment by accommodated party3 Intentional cancellation by the holder4 By any act which will discharge a simple contractfor the payment of money5 When the principal debtor becomes the holder ofthe instrument at or after maturity in his own rightBy any act which would discharge a simple contract1 Payment or performance2 Loss of the thing due3 Condonation or remission4 Confusion or Merger5 Compensation6 Novation7 Annulment or Rescission8 Fulfillment of a resolutory condition9 PrescriptionWhen persons secondarily liable on the instrument aredischarged1 By any act which discharges the instrument2 By the intentional cancellation of his signature bythe holder3 By the discharge of a prior party4 By a valid tender of payment made by a prior party5 By the release of the principal debtor unless theholderrsquos right of recourse against the partysecondarily liable is expressly reserved6 By any agreement binding upon the holder to extendthe time of payment or to postpone the holderrsquosright to enforce the instrument1048766 In the following cases the agreement to extend the timeof payment does not discharge a party secondarily liable1 where the extension of time is consented to by suchparty2 where the holder expressly reserves his right ofrecourse against such party1048766 Payment at or after maturity by a party secondarilyliable does not discharge the instrument It only cancelshis own liability and that of the parties subsequent tohimEffects of Renunciation1 A renunciation in favor of a secondary party may bemade by the holder before at or after maturity ofthe instrument Effect only such secondary party isdischarged and all parties subsequent to him but theinstrument itself remains in force2 A renunciation in favor of the principal debtor maybe effected at or after maturity Effect theinstrument is discharged and all parties theretoprovided the renunciation is made unconditionallyand absolutelyNote In either case renunciation does not affect therights of a holder in due course without notice1048766 Cancellation of an instrument includes tearing erasureobliteration or burning It is not limited to writing ofthe word lsquocancelledrdquo or ldquopaidrdquo or drawing of crisscrosslines across the instrumentPayment for Honor - payment made by a person whether a

party to the bill or not after it has been protested for nonpaymentfor the benefit of any party liable thereon or forthe benefit of the person for whose account it was drawn1048766 Requisites1 the bill has been dishonored by non-payment2 it has been protested for non-payment3 payment supra protest (another term for paymentfor honor because prior protest for non-payment isrequired) is made by any person even by a partythereto4 the payment is attested by a notarial act of honorwhich must be appended to the protest or form anextension of it5 the notarial act must be based on the declarationmade by the payor for honor or his agent of hisintention to pay the bill for honor and for whosehonor he paysNote If the above formalities are not complied withpayment will operate as a mere voluntary payment andthe payor will acquire no right to full reimbursementagainst the party for whose honor he pays1048766 In payment for honor the payee cannot refuse paymentIf he refuses he cannot recover from the parties whowould have been discharged had he accepted the sameIn acceptance for honor the holderrsquos consent isnecessary1048766 The payor for honor is given the right to receive both thebill and the protest obviously to enable him to enforcehis rights against the parties who are liable to himIX CHECKSCheck- a bill of exchange drawn on a bank payable ondemandCheck distinguished from and ordinary bill of exchangeBILLOF EXCHANGE CHECKNot necessarily drawnon a deposit The draweeneed not be a bankIt is necessary that a checkis drawn on a bank depositThe drawee is always abankDeath of a drawer of aBOE with the knowledgeof the bank does notrevoke the authority of thedrawee to payDeath of the drawer of acheck with the knowledgeof the bank revokes theauthority of the banker topayMay be presented forpayment within areasonable time after itslast negotiation because itmay be further negotiatedMust be presented forpayment within areasonable time after itsissueMay be payable on demandor at a fixed ordeterminable future timeAlways payable on demandKinds of checks

1 Managerrsquos Cashierrsquos Check ndash drawn by a bank on itselfand therefore it is a primary obligation of the banko It is accepted in advance by the act of itsissuance and is not subject tocountermand by the payor afterindorsemento The bankrsquos manager signs managerrsquos checkwhile cashierrsquos check is signed by the bankcashier2 Certified Check ndash one drawn by a depositor upon funds tohis credit in a bank which a proper officer of the bankcertifies will be paid when duly presented for payment3 Stale check ndash one which has not been presented forpayment within a reasonable time after its issue4 Crossed check ndash when 2 parallel lines are drawn acrossits face or across a corner thereof If the name of a bankappears between the parallel lines the check is said tobe specially crossed and payment should be made onlyif presented by the named bank If no name appearsbetween the parallel lines the check is said to begenerally crossed and payment should be made onlyupon presentment by some bankEffects of crossing a checka That the check may not be encashed but only bedeposited in the bankb That the check may be negotiated only once to onewho has an account with a bank andc That the act of crossing the check serves as awarning to the holder that the check has beenissued for a definite purpose so that he must inquireif he has received the check pursuant to thatpurpose5 Memorandum Check ndash it is like an ordinary check exceptthat the word ldquomemorandumrdquo ldquomemrdquo or ldquomemordquo iswritten upon the face of the check signifying that thedrawer engages to pay the bona fide holder absolutelyand not upon a condition to pay upon presentment atmaturity and if due notice of the presentment and nonpaymentshould be given6 Travelerrsquos check ndash one upon which the holderrsquos signaturemust appear twice one to be affixed by him at the timeit is issued and the second o counter-signature to beaffixed by him in the presence of the payee before it ispaid otherwise it is incompleteIron Clad Rule Prohibits the countermanding ofpayment of certified checks (Republic of the Philippinesv PNB GR No 16106 December 1 1961)

alteration - he may enforce payment accordingto its original tenorbull Changes constituting material alteration1 date2 sum payable either for principal or interest3 time or place of payment4 number or relations of the parties5 medium or currency in which payment is to bemade6 that which adds a place of payment where noplace of payment is specified and7 any other change or addition which alters theeffect of the instrument in any respectNote a material alteration is one that alters theeffect of the instrument one which changes theitems required to be stated under Sec 1 NILbull Spoliation ndash alteration made by a strangerbull The general rule denies the drawee bankrsquos right tocharge against the drawerrsquos account the amount ofan altered check However the latterrsquos negligencebefore or after the alteration may estop him fromsetting such alteration as against an innocentdrawee bank who has paid the checkbull In cases of altered checks and checks with forgedindorsements the drawee bank must notify andreturn them to the collecting bank before 400 pmof the next day of clearing but the drawee bankmay still return them even after such time providedhe does so within 24 hours from its discovery of thealteration or forged instruments so that recovery ofthe amount may be had BUT in no event beyondthe period fixed or provided by law for filing of alegal action by the returning bank against the banksending the sameNote Alteration is only a partial real defensebecause a holder in due course can still enforce itaccording to its original tenorVII ENFORCEMENT OF LIABILITYPresentment for payment ndash the presentation of aninstrument to the person primarily liable for the purpose ofdemanding and receiving paymentGeneral Rulesbull presentment for payment to charge personsprimarily liable is not necessarybull presentment for payment to charge personssecondarily liable is necessaryExceptionsa drawer - where he has no right to expect or requirethat the drawee or acceptor will pay the instrument(sec 79)b indorser - where the instrument was made oraccepted for his accommodation and he has noreason to expect that the instrument will be paid ifpresentedc when dispensedi where after the exercise of reasonablediligence presentment as required cannotbe madeii where the drawee is a fictitious personiii by waiver of presentment express orimplied (sec 82)d when the instrument has been dishonored by nonacceptance(sec 151)Sufficiency of presentmentIt must be

1 made by the holder or any person authorized toreceive payment on his behalf2 at a reasonable hour on a business day3 at a proper place4 to the person primarily liable or if he is absent orinaccessible to any person found at the placewhere the presentment is madeHow made1 personal demand for payment at the proper place and2 readiness to exhibit the instrument if required and toreceive payment and to surrender the instrument if thedebtor is willing to paybull Purpose of exhibitionTo enable the debtor toa determine the genuineness of the instrument andthe right of the holder to receive payment andb to enable him to reclaim possession upon paymentbull When exhibition excuseda when debtor does not demand to see the instrumentbut refuses payment on some other grounds andb when the instrument is lost or destroyedWhen madebull where the instrument is payable at a fixed ordeterminable future time presentment must be madeon the day it falls duebull where it is payable on demanda promissory note presentment must be made withina reasonable time after its issueb bill of exchange presentment for payment will besufficient if made within a reasonable time afterthe last negotiation thereofbull the check must be presented for payment within areasonable time after its issue or the drawer will bedischarged from liability thereon to the extent of theloss caused by the delayTime of maturitybull every negotiable instrument is payable at the time fixedtherein without gracebull when the day of maturity falls upon a Sunday or aholiday the instruments are to be presented forpayment on the next succeeding business daybull when the day of maturity falls upon a Saturday1048766 Instrument is payable at a fixed or determinablefuture time (time instrument) - presented forpayment is on the next succeeding business day1048766 instruments is payable on demand - at the option ofthe holder be presented for paymenta before 1200 noon on Saturday whenthat entire day is not a holiday orb the next succeeding business dayHow computed1048766 excluding the day from which the time is to begin torun and by including the date of payment1048766 applies to instruments which are payable at a fixedperiod after date after sight or after thathappening of a specified eventProper place for presentmenta Where a place of payment is specified in the instrumentand it is there presentedb Where no place of payment is specified but the addressof the person to make payment is given in theinstrument and it is there presentedc Where no place of payment is specified and no address isgiven and the instrument is presented at the usual placeof business or residence of the person to make payment

d In any other case if presented to the person to makepayment wherever he can be found or if presented athis last known place of business or residenceWhen delay in presentment excused ndash delay is caused bycircumstances beyond the control of the holder and notimputable to his default misconduct or negligence Whenthe cause of delay ceases to operate presentment must bemade with reasonable diligencePresentment for acceptance ndash the production or exhibitionof a bill of exchange to the drawee for his acceptance orpaymentGeneral Rule presentment for acceptance is not necessary torender any party to the bill liableException presentment for acceptance must be madea Where the bill is payable after sight or wherepresentment for acceptance is necessary in order tofix the maturity of the instrument orb Where the bill expressly stipulates that it shall bepresented for acceptance orc Where the bill is drawn payable elsewhere then atthe residence or place of business of the drawee(sec 143)Note in all the above cases the holder must either presentthe bill for acceptance or negotiate it within a reasonabletime otherwise the drawer and all indorsers are dischargedHow made1 made by or on behalf of the holder2 at a reasonable hour3 on a business day4 before the bill is overdue and within reasonabletime5 to the drawee or some person authorized to acceptor refuse acceptance on his behalfDays presentment may be made If date of presentment isa Sunday or a holiday ndash must be made on the nextsucceeding business dayb Saturday ndash before 1200 noon on Saturday providedthat it is not a holidayWhen delay for presentment excuseda bill is drawn payable elsewhere than at the place ofbusiness or the residence of the draweeb holder has no time with the exercise of reasonablediligence to present the bill for acceptance beforepresenting it for payment on the day that it fallsdueEffect does not discharge the drawers and indorsersWhere presentment is excuseda Where the drawee is dead or has absconded or is afictitious person or a person not having capacity tocontract by billb Where presentment can not be made after theexercise of reasonable diligencec Where although presentment has been irregularacceptance has been refused on some other groundNote bill may be treated as dishonored by nonacceptanceDuty of holder where bill not accepted - where a bill isduly presented for acceptance and is not accepted within theprescribed time (24 hours ndash sec 136) the person presentingit must treat the bill as dishonored by non-acceptance or heloses the right of recourse against the drawer and indorsersAcceptance the signification by the drawee of his assent tothe order of the drawer It is the act by which the draweemanifests his consent to comply with the request containedin the bill of exchange directed to himHow made

1) must be in writing2) signed by the drawee3) must not express that the drawee will perform hispromise by any other means than the payment ofmoneybull the holder of the bill presenting the same for acceptancemay require that the acceptance be written on the billand if such request is refused may treat the bill asdishonoredbull where an acceptance is written on a paper other thanthe bill itself it does not bind the acceptor except infavor of a person to whom it is shown and who on thefaith thereof receives the bill for valuePeriod for drawee to accept - allowed 24 hours afterpresentment in which to decide whether or not he will acceptthe bill if acceptance is given it dates as of the day ofpresentationConstructiveImplied acceptance where a drawee refuseswithin 24 hours after delivery or within such other period asthe holder may allow to return the bill accepted or nonacceptedto the holder he will be deemed to have acceptedthe sameNote same effect if the drawee destroys the instrumentKinds1 General - assents without qualification to the order ofthe drawer2 Qualified - which in express terms varies the effect ofthe bill as drawna Conditional - makes payment by the acceptordependent on the fulfillment of a conditiontherein statedb Partial - an acceptance to pay part only of theamount for which the bill is drawni Local - an acceptance to pay only at aparticular placeii Qualified as to timeiii The acceptance of some one or more ofthe drawees but not of all3 ConstructiveRights of parties as to qualified acceptancebull Holder he may refuse to take a qualified acceptanceand if he does not obtain an unqualified acceptance hemay treat the bill as dishonored by non-acceptancebull Drawer or indorser when he receives notice of aqualified acceptance he must within a reasonable timeexpress his dissent to the holder or he will be deemed tohave assented thereto (implied assent)Effect of taking a qualified acceptance the drawer andindorsers are discharged from liability on the bill unless theyhave expressly or impliedly authorized the holder to take aqualified acceptance or subsequently assent theretoOther rules of acceptancebull a bill may be accepted before it has been signed by thedrawer or while otherwise incomplete or when it isoverdue or after it has been dishonored by a previousrefusal to accept or by non paymentbull when a bill payable after sight is dishonored by nonacceptanceand the drawee subsequently accepts it theholder in the absence of any different agreement isentitled to have the bill accepted as of the date of thefirst presentmentbull an unconditional promise in writing to accept a billbefore it is drawn is deemed an actual acceptancein favor of every person who upon the faiththereof receives the bill for value

bull where a check is certified by the bank on which it isdrawn the certification is equivalent to anacceptanceEffect the drawer and all indorsers are dischargedfrom liability thereonAcceptance for Honor - an undertaking by a stranger to a billafter protest for the benefit of any party liable thereon or forthe honor of the person for whose account the bill is drawnwhich acceptance inures also to the benefit of all partiessubsequent to the person for whose honor it is accepted andconditioned to pay the bill when it becomes due if theoriginal drawee does not pay it1048766 Requisites1 the bill must have been protested for dishonorby non-acceptance or for better security2 the acceptor for honor must be a stranger andnot a party already liable on the instrument3 bill must not be overdue4 acceptance for honor must be with the consentof the holder of the instrument1048766 Formalities1 must be in writing2 must indicate that it is an acceptance forhonor3 signed by the acceptor for honor4 must contain an express or implied promise topay money5 the accepted bill for honor must be deliveredto the holderNotice of Dishonor - notice given by the holder or his agentto a party or parties secondarily liable that the instrumentwas dishonored by non-acceptance by the drawee of a bill orby non-payment by the acceptor of a bill or by non-paymentby a maker of a note- If such notice is given by a notary public it is calledPROTEST1048766 Effect of failure to give notice parties secondarily liableare discharged1048766 Requisites1 Given by holder or his agent or by any party whomay be compelled by the holder to pay2 Given to secondary party or his agent3 Given within the periods provided by law4 Given at the proper place1048766 When notice of dishonor dispensed with1 when party to be notified knows about the dishonoractually or constructively2 if waived and3 when after due diligence it cannot be given1048766 How given1 by bringing verbally or2 by writing to the knowledge of the person liable thefact that a specified instrument upon properproceedings taken has not been accepted or hasnot been paid and that the party notified isexpected to pay it1048766 To whom given1 Non-acceptance (bill) ndash to persons secondarilyliable namely the drawer and indorsers as the casemay be2 Non-payment (both bill and note) ndash indorsersNote Notice must be given to persons secondarilyliable Otherwise such parties are dischargedNotice may be given to the party himself or to hisagent

1048766 By whom given1 the holder2 another on behalf of the holder3 any party to the instrument who may be compelledto pay it to the holder and who would have a rightof reimbursement from the party to whom notice isgiven1048766 Notice of dishonor given by or on behalf of a holderinures to the benefit ofa all parties prior to the holder who have a rightof recourse against the party to whom thenotice is given andb all holders subsequent to the holder givingnotice1048766 Notice of dishonor given by or on behalf of a partyentitled to give notice inures to the benefit ofa the holder andb all parties subsequent to the party to whomnotice is given1048766 Where an instrument is dishonored in the hands of anagent he can do either of the ffa directly give notice to persons secondarilyliable thereon orb give notice to his principal In such case hemust give notice within the time allowed bylaw as if he were a holder1048766 A party giving notice is deemed to have given due noticewherea the notice of dishonor is duly addressed andb deposited in the post-office even when thereis miscarriage of mail1048766 Where a party receives notice of dishonor he has afterthe receipt of such notice the same time for givingnotice to antecedent parties that the holder has afterthe dishonor1048766 Notice may be waived either before the time of givingnotice or after the omission to give due notice Waivermay be expressed or implied1048766 As to who are affected by an express waiver depends onwhere the waiver is written1 if it appears in the body or on the face of theinstrument it binds all parties but2 if it is written above the signature of anindorser it binds him only1048766 Notice of dishonor is not required to be given to thedrawer in any of the ff cases1 drawer and drawee are the same2 drawee is a fictitious person or not having thecapacity to contract3 drawer is the person to whom the instrument ispresented for payment4 the drawer has no right to expect or requirethat the drawee or acceptor will honor theinstrument5 where the drawer has countermandedpayment1048766 Notice of dishonor is not required to be given to anindorser in the ff cases1 drawee is a fictitious person or does not havethe capacity to contract and indorser wasaware of that fact at the time he indorsed theinstrument2 indorser is the person to whom the instrumentis presented for payment3 instrument was made or accepted for his

accommodation1048766 If an instrument is not accepted by the drawee there isno sense presenting it again for payment and notice ofdishonor must at once be given If there wasacceptance presentment for payment is still requiredand if payment is refused there is a need for notice ofdishonor1048766 An omission to give notice of dishonor by non-acceptancedoes not prejudice the rights of a holder in due coursesubsequent to the omissionDishonor by Non-PaymentWhen instrument dishonored by non-paymenta it is duly presented for payment and payment isrefused or cannot be obtained orb presentment is excused and the instrument isoverdue and unpaidEffect of dishonor an immediate right of recourse to allparties secondarily liable thereon accrues to the holderDishonor by Non-AcceptanceInstancesa When it is duly presented for acceptance and suchan acceptance is refused or can not be obtained orb When presentment for acceptance is excused andthe bill is not accepted (sec 149)Effect an immediate right of recourse against thedrawer and indorsers accrues to the holder and nopresentment for payment is necessaryNote where a bill is duly presented for acceptance andis not accepted within the prescribed time (24 hours)the person presenting it must treat the bill as dishonoredby non-acceptanceWhen Instrument Considered to be Dishonoreda If it is not accepted when presented for acceptanceorb If it is not paid when presented for payment atmaturity orc If presentment is excused or waived and theinstrument is past due and unpaidProtest - the formal instrument executed usually by a notarypublic certifying that the legal steps necessary to fix theliability of the drawee and the indorsers have been taken1048766 Effect of waiver where protest is waived presentmentand notice of dishonor are also deemed waived Butwhere the notice of dishonor is waived presentment isnot waived1048766 Applicability protest is necessary only in case of foreignbills of exchange which have been dishonored by nonacceptanceor non-payment as the case may be If it isnot so protested the drawer and indorsers aredischarged1048766 Foreign Bill of Exchange1 Drawn in the Philippines but payable outside thePhilippines2 Payable in the Philippines but drawn outside thePhilippines1048766 Protest may be made by1 a notary public or2 any respectable resident of the place where the billis dishonored in the presence of 2 or more crediblewitnessesProtest for better security is one made by the holder of a billafter it has been accepted but before it matures against thedrawer and indorsers where the acceptor has been adjudgeda bankrupt or an insolvent or has made an assignment forthe benefit of the creditors

VIII DISCHARGEDischarge of instrument - a release of all parties whetherprimary or secondary from the obligations arisingthereunder It renders the instrument without force andeffect and consequently it can no longer be negotiatedInstances1 By payment in due course by or on behalf of theprincipal debtor2 Payment by accommodated party3 Intentional cancellation by the holder4 By any act which will discharge a simple contractfor the payment of money5 When the principal debtor becomes the holder ofthe instrument at or after maturity in his own rightBy any act which would discharge a simple contract1 Payment or performance2 Loss of the thing due3 Condonation or remission4 Confusion or Merger5 Compensation6 Novation7 Annulment or Rescission8 Fulfillment of a resolutory condition9 PrescriptionWhen persons secondarily liable on the instrument aredischarged1 By any act which discharges the instrument2 By the intentional cancellation of his signature bythe holder3 By the discharge of a prior party4 By a valid tender of payment made by a prior party5 By the release of the principal debtor unless theholderrsquos right of recourse against the partysecondarily liable is expressly reserved6 By any agreement binding upon the holder to extendthe time of payment or to postpone the holderrsquosright to enforce the instrument1048766 In the following cases the agreement to extend the timeof payment does not discharge a party secondarily liable1 where the extension of time is consented to by suchparty2 where the holder expressly reserves his right ofrecourse against such party1048766 Payment at or after maturity by a party secondarilyliable does not discharge the instrument It only cancelshis own liability and that of the parties subsequent tohimEffects of Renunciation1 A renunciation in favor of a secondary party may bemade by the holder before at or after maturity ofthe instrument Effect only such secondary party isdischarged and all parties subsequent to him but theinstrument itself remains in force2 A renunciation in favor of the principal debtor maybe effected at or after maturity Effect theinstrument is discharged and all parties theretoprovided the renunciation is made unconditionallyand absolutelyNote In either case renunciation does not affect therights of a holder in due course without notice1048766 Cancellation of an instrument includes tearing erasureobliteration or burning It is not limited to writing ofthe word lsquocancelledrdquo or ldquopaidrdquo or drawing of crisscrosslines across the instrumentPayment for Honor - payment made by a person whether a

party to the bill or not after it has been protested for nonpaymentfor the benefit of any party liable thereon or forthe benefit of the person for whose account it was drawn1048766 Requisites1 the bill has been dishonored by non-payment2 it has been protested for non-payment3 payment supra protest (another term for paymentfor honor because prior protest for non-payment isrequired) is made by any person even by a partythereto4 the payment is attested by a notarial act of honorwhich must be appended to the protest or form anextension of it5 the notarial act must be based on the declarationmade by the payor for honor or his agent of hisintention to pay the bill for honor and for whosehonor he paysNote If the above formalities are not complied withpayment will operate as a mere voluntary payment andthe payor will acquire no right to full reimbursementagainst the party for whose honor he pays1048766 In payment for honor the payee cannot refuse paymentIf he refuses he cannot recover from the parties whowould have been discharged had he accepted the sameIn acceptance for honor the holderrsquos consent isnecessary1048766 The payor for honor is given the right to receive both thebill and the protest obviously to enable him to enforcehis rights against the parties who are liable to himIX CHECKSCheck- a bill of exchange drawn on a bank payable ondemandCheck distinguished from and ordinary bill of exchangeBILLOF EXCHANGE CHECKNot necessarily drawnon a deposit The draweeneed not be a bankIt is necessary that a checkis drawn on a bank depositThe drawee is always abankDeath of a drawer of aBOE with the knowledgeof the bank does notrevoke the authority of thedrawee to payDeath of the drawer of acheck with the knowledgeof the bank revokes theauthority of the banker topayMay be presented forpayment within areasonable time after itslast negotiation because itmay be further negotiatedMust be presented forpayment within areasonable time after itsissueMay be payable on demandor at a fixed ordeterminable future timeAlways payable on demandKinds of checks

1 Managerrsquos Cashierrsquos Check ndash drawn by a bank on itselfand therefore it is a primary obligation of the banko It is accepted in advance by the act of itsissuance and is not subject tocountermand by the payor afterindorsemento The bankrsquos manager signs managerrsquos checkwhile cashierrsquos check is signed by the bankcashier2 Certified Check ndash one drawn by a depositor upon funds tohis credit in a bank which a proper officer of the bankcertifies will be paid when duly presented for payment3 Stale check ndash one which has not been presented forpayment within a reasonable time after its issue4 Crossed check ndash when 2 parallel lines are drawn acrossits face or across a corner thereof If the name of a bankappears between the parallel lines the check is said tobe specially crossed and payment should be made onlyif presented by the named bank If no name appearsbetween the parallel lines the check is said to begenerally crossed and payment should be made onlyupon presentment by some bankEffects of crossing a checka That the check may not be encashed but only bedeposited in the bankb That the check may be negotiated only once to onewho has an account with a bank andc That the act of crossing the check serves as awarning to the holder that the check has beenissued for a definite purpose so that he must inquireif he has received the check pursuant to thatpurpose5 Memorandum Check ndash it is like an ordinary check exceptthat the word ldquomemorandumrdquo ldquomemrdquo or ldquomemordquo iswritten upon the face of the check signifying that thedrawer engages to pay the bona fide holder absolutelyand not upon a condition to pay upon presentment atmaturity and if due notice of the presentment and nonpaymentshould be given6 Travelerrsquos check ndash one upon which the holderrsquos signaturemust appear twice one to be affixed by him at the timeit is issued and the second o counter-signature to beaffixed by him in the presence of the payee before it ispaid otherwise it is incompleteIron Clad Rule Prohibits the countermanding ofpayment of certified checks (Republic of the Philippinesv PNB GR No 16106 December 1 1961)

1 made by the holder or any person authorized toreceive payment on his behalf2 at a reasonable hour on a business day3 at a proper place4 to the person primarily liable or if he is absent orinaccessible to any person found at the placewhere the presentment is madeHow made1 personal demand for payment at the proper place and2 readiness to exhibit the instrument if required and toreceive payment and to surrender the instrument if thedebtor is willing to paybull Purpose of exhibitionTo enable the debtor toa determine the genuineness of the instrument andthe right of the holder to receive payment andb to enable him to reclaim possession upon paymentbull When exhibition excuseda when debtor does not demand to see the instrumentbut refuses payment on some other grounds andb when the instrument is lost or destroyedWhen madebull where the instrument is payable at a fixed ordeterminable future time presentment must be madeon the day it falls duebull where it is payable on demanda promissory note presentment must be made withina reasonable time after its issueb bill of exchange presentment for payment will besufficient if made within a reasonable time afterthe last negotiation thereofbull the check must be presented for payment within areasonable time after its issue or the drawer will bedischarged from liability thereon to the extent of theloss caused by the delayTime of maturitybull every negotiable instrument is payable at the time fixedtherein without gracebull when the day of maturity falls upon a Sunday or aholiday the instruments are to be presented forpayment on the next succeeding business daybull when the day of maturity falls upon a Saturday1048766 Instrument is payable at a fixed or determinablefuture time (time instrument) - presented forpayment is on the next succeeding business day1048766 instruments is payable on demand - at the option ofthe holder be presented for paymenta before 1200 noon on Saturday whenthat entire day is not a holiday orb the next succeeding business dayHow computed1048766 excluding the day from which the time is to begin torun and by including the date of payment1048766 applies to instruments which are payable at a fixedperiod after date after sight or after thathappening of a specified eventProper place for presentmenta Where a place of payment is specified in the instrumentand it is there presentedb Where no place of payment is specified but the addressof the person to make payment is given in theinstrument and it is there presentedc Where no place of payment is specified and no address isgiven and the instrument is presented at the usual placeof business or residence of the person to make payment

d In any other case if presented to the person to makepayment wherever he can be found or if presented athis last known place of business or residenceWhen delay in presentment excused ndash delay is caused bycircumstances beyond the control of the holder and notimputable to his default misconduct or negligence Whenthe cause of delay ceases to operate presentment must bemade with reasonable diligencePresentment for acceptance ndash the production or exhibitionof a bill of exchange to the drawee for his acceptance orpaymentGeneral Rule presentment for acceptance is not necessary torender any party to the bill liableException presentment for acceptance must be madea Where the bill is payable after sight or wherepresentment for acceptance is necessary in order tofix the maturity of the instrument orb Where the bill expressly stipulates that it shall bepresented for acceptance orc Where the bill is drawn payable elsewhere then atthe residence or place of business of the drawee(sec 143)Note in all the above cases the holder must either presentthe bill for acceptance or negotiate it within a reasonabletime otherwise the drawer and all indorsers are dischargedHow made1 made by or on behalf of the holder2 at a reasonable hour3 on a business day4 before the bill is overdue and within reasonabletime5 to the drawee or some person authorized to acceptor refuse acceptance on his behalfDays presentment may be made If date of presentment isa Sunday or a holiday ndash must be made on the nextsucceeding business dayb Saturday ndash before 1200 noon on Saturday providedthat it is not a holidayWhen delay for presentment excuseda bill is drawn payable elsewhere than at the place ofbusiness or the residence of the draweeb holder has no time with the exercise of reasonablediligence to present the bill for acceptance beforepresenting it for payment on the day that it fallsdueEffect does not discharge the drawers and indorsersWhere presentment is excuseda Where the drawee is dead or has absconded or is afictitious person or a person not having capacity tocontract by billb Where presentment can not be made after theexercise of reasonable diligencec Where although presentment has been irregularacceptance has been refused on some other groundNote bill may be treated as dishonored by nonacceptanceDuty of holder where bill not accepted - where a bill isduly presented for acceptance and is not accepted within theprescribed time (24 hours ndash sec 136) the person presentingit must treat the bill as dishonored by non-acceptance or heloses the right of recourse against the drawer and indorsersAcceptance the signification by the drawee of his assent tothe order of the drawer It is the act by which the draweemanifests his consent to comply with the request containedin the bill of exchange directed to himHow made

1) must be in writing2) signed by the drawee3) must not express that the drawee will perform hispromise by any other means than the payment ofmoneybull the holder of the bill presenting the same for acceptancemay require that the acceptance be written on the billand if such request is refused may treat the bill asdishonoredbull where an acceptance is written on a paper other thanthe bill itself it does not bind the acceptor except infavor of a person to whom it is shown and who on thefaith thereof receives the bill for valuePeriod for drawee to accept - allowed 24 hours afterpresentment in which to decide whether or not he will acceptthe bill if acceptance is given it dates as of the day ofpresentationConstructiveImplied acceptance where a drawee refuseswithin 24 hours after delivery or within such other period asthe holder may allow to return the bill accepted or nonacceptedto the holder he will be deemed to have acceptedthe sameNote same effect if the drawee destroys the instrumentKinds1 General - assents without qualification to the order ofthe drawer2 Qualified - which in express terms varies the effect ofthe bill as drawna Conditional - makes payment by the acceptordependent on the fulfillment of a conditiontherein statedb Partial - an acceptance to pay part only of theamount for which the bill is drawni Local - an acceptance to pay only at aparticular placeii Qualified as to timeiii The acceptance of some one or more ofthe drawees but not of all3 ConstructiveRights of parties as to qualified acceptancebull Holder he may refuse to take a qualified acceptanceand if he does not obtain an unqualified acceptance hemay treat the bill as dishonored by non-acceptancebull Drawer or indorser when he receives notice of aqualified acceptance he must within a reasonable timeexpress his dissent to the holder or he will be deemed tohave assented thereto (implied assent)Effect of taking a qualified acceptance the drawer andindorsers are discharged from liability on the bill unless theyhave expressly or impliedly authorized the holder to take aqualified acceptance or subsequently assent theretoOther rules of acceptancebull a bill may be accepted before it has been signed by thedrawer or while otherwise incomplete or when it isoverdue or after it has been dishonored by a previousrefusal to accept or by non paymentbull when a bill payable after sight is dishonored by nonacceptanceand the drawee subsequently accepts it theholder in the absence of any different agreement isentitled to have the bill accepted as of the date of thefirst presentmentbull an unconditional promise in writing to accept a billbefore it is drawn is deemed an actual acceptancein favor of every person who upon the faiththereof receives the bill for value

bull where a check is certified by the bank on which it isdrawn the certification is equivalent to anacceptanceEffect the drawer and all indorsers are dischargedfrom liability thereonAcceptance for Honor - an undertaking by a stranger to a billafter protest for the benefit of any party liable thereon or forthe honor of the person for whose account the bill is drawnwhich acceptance inures also to the benefit of all partiessubsequent to the person for whose honor it is accepted andconditioned to pay the bill when it becomes due if theoriginal drawee does not pay it1048766 Requisites1 the bill must have been protested for dishonorby non-acceptance or for better security2 the acceptor for honor must be a stranger andnot a party already liable on the instrument3 bill must not be overdue4 acceptance for honor must be with the consentof the holder of the instrument1048766 Formalities1 must be in writing2 must indicate that it is an acceptance forhonor3 signed by the acceptor for honor4 must contain an express or implied promise topay money5 the accepted bill for honor must be deliveredto the holderNotice of Dishonor - notice given by the holder or his agentto a party or parties secondarily liable that the instrumentwas dishonored by non-acceptance by the drawee of a bill orby non-payment by the acceptor of a bill or by non-paymentby a maker of a note- If such notice is given by a notary public it is calledPROTEST1048766 Effect of failure to give notice parties secondarily liableare discharged1048766 Requisites1 Given by holder or his agent or by any party whomay be compelled by the holder to pay2 Given to secondary party or his agent3 Given within the periods provided by law4 Given at the proper place1048766 When notice of dishonor dispensed with1 when party to be notified knows about the dishonoractually or constructively2 if waived and3 when after due diligence it cannot be given1048766 How given1 by bringing verbally or2 by writing to the knowledge of the person liable thefact that a specified instrument upon properproceedings taken has not been accepted or hasnot been paid and that the party notified isexpected to pay it1048766 To whom given1 Non-acceptance (bill) ndash to persons secondarilyliable namely the drawer and indorsers as the casemay be2 Non-payment (both bill and note) ndash indorsersNote Notice must be given to persons secondarilyliable Otherwise such parties are dischargedNotice may be given to the party himself or to hisagent

1048766 By whom given1 the holder2 another on behalf of the holder3 any party to the instrument who may be compelledto pay it to the holder and who would have a rightof reimbursement from the party to whom notice isgiven1048766 Notice of dishonor given by or on behalf of a holderinures to the benefit ofa all parties prior to the holder who have a rightof recourse against the party to whom thenotice is given andb all holders subsequent to the holder givingnotice1048766 Notice of dishonor given by or on behalf of a partyentitled to give notice inures to the benefit ofa the holder andb all parties subsequent to the party to whomnotice is given1048766 Where an instrument is dishonored in the hands of anagent he can do either of the ffa directly give notice to persons secondarilyliable thereon orb give notice to his principal In such case hemust give notice within the time allowed bylaw as if he were a holder1048766 A party giving notice is deemed to have given due noticewherea the notice of dishonor is duly addressed andb deposited in the post-office even when thereis miscarriage of mail1048766 Where a party receives notice of dishonor he has afterthe receipt of such notice the same time for givingnotice to antecedent parties that the holder has afterthe dishonor1048766 Notice may be waived either before the time of givingnotice or after the omission to give due notice Waivermay be expressed or implied1048766 As to who are affected by an express waiver depends onwhere the waiver is written1 if it appears in the body or on the face of theinstrument it binds all parties but2 if it is written above the signature of anindorser it binds him only1048766 Notice of dishonor is not required to be given to thedrawer in any of the ff cases1 drawer and drawee are the same2 drawee is a fictitious person or not having thecapacity to contract3 drawer is the person to whom the instrument ispresented for payment4 the drawer has no right to expect or requirethat the drawee or acceptor will honor theinstrument5 where the drawer has countermandedpayment1048766 Notice of dishonor is not required to be given to anindorser in the ff cases1 drawee is a fictitious person or does not havethe capacity to contract and indorser wasaware of that fact at the time he indorsed theinstrument2 indorser is the person to whom the instrumentis presented for payment3 instrument was made or accepted for his

accommodation1048766 If an instrument is not accepted by the drawee there isno sense presenting it again for payment and notice ofdishonor must at once be given If there wasacceptance presentment for payment is still requiredand if payment is refused there is a need for notice ofdishonor1048766 An omission to give notice of dishonor by non-acceptancedoes not prejudice the rights of a holder in due coursesubsequent to the omissionDishonor by Non-PaymentWhen instrument dishonored by non-paymenta it is duly presented for payment and payment isrefused or cannot be obtained orb presentment is excused and the instrument isoverdue and unpaidEffect of dishonor an immediate right of recourse to allparties secondarily liable thereon accrues to the holderDishonor by Non-AcceptanceInstancesa When it is duly presented for acceptance and suchan acceptance is refused or can not be obtained orb When presentment for acceptance is excused andthe bill is not accepted (sec 149)Effect an immediate right of recourse against thedrawer and indorsers accrues to the holder and nopresentment for payment is necessaryNote where a bill is duly presented for acceptance andis not accepted within the prescribed time (24 hours)the person presenting it must treat the bill as dishonoredby non-acceptanceWhen Instrument Considered to be Dishonoreda If it is not accepted when presented for acceptanceorb If it is not paid when presented for payment atmaturity orc If presentment is excused or waived and theinstrument is past due and unpaidProtest - the formal instrument executed usually by a notarypublic certifying that the legal steps necessary to fix theliability of the drawee and the indorsers have been taken1048766 Effect of waiver where protest is waived presentmentand notice of dishonor are also deemed waived Butwhere the notice of dishonor is waived presentment isnot waived1048766 Applicability protest is necessary only in case of foreignbills of exchange which have been dishonored by nonacceptanceor non-payment as the case may be If it isnot so protested the drawer and indorsers aredischarged1048766 Foreign Bill of Exchange1 Drawn in the Philippines but payable outside thePhilippines2 Payable in the Philippines but drawn outside thePhilippines1048766 Protest may be made by1 a notary public or2 any respectable resident of the place where the billis dishonored in the presence of 2 or more crediblewitnessesProtest for better security is one made by the holder of a billafter it has been accepted but before it matures against thedrawer and indorsers where the acceptor has been adjudgeda bankrupt or an insolvent or has made an assignment forthe benefit of the creditors

VIII DISCHARGEDischarge of instrument - a release of all parties whetherprimary or secondary from the obligations arisingthereunder It renders the instrument without force andeffect and consequently it can no longer be negotiatedInstances1 By payment in due course by or on behalf of theprincipal debtor2 Payment by accommodated party3 Intentional cancellation by the holder4 By any act which will discharge a simple contractfor the payment of money5 When the principal debtor becomes the holder ofthe instrument at or after maturity in his own rightBy any act which would discharge a simple contract1 Payment or performance2 Loss of the thing due3 Condonation or remission4 Confusion or Merger5 Compensation6 Novation7 Annulment or Rescission8 Fulfillment of a resolutory condition9 PrescriptionWhen persons secondarily liable on the instrument aredischarged1 By any act which discharges the instrument2 By the intentional cancellation of his signature bythe holder3 By the discharge of a prior party4 By a valid tender of payment made by a prior party5 By the release of the principal debtor unless theholderrsquos right of recourse against the partysecondarily liable is expressly reserved6 By any agreement binding upon the holder to extendthe time of payment or to postpone the holderrsquosright to enforce the instrument1048766 In the following cases the agreement to extend the timeof payment does not discharge a party secondarily liable1 where the extension of time is consented to by suchparty2 where the holder expressly reserves his right ofrecourse against such party1048766 Payment at or after maturity by a party secondarilyliable does not discharge the instrument It only cancelshis own liability and that of the parties subsequent tohimEffects of Renunciation1 A renunciation in favor of a secondary party may bemade by the holder before at or after maturity ofthe instrument Effect only such secondary party isdischarged and all parties subsequent to him but theinstrument itself remains in force2 A renunciation in favor of the principal debtor maybe effected at or after maturity Effect theinstrument is discharged and all parties theretoprovided the renunciation is made unconditionallyand absolutelyNote In either case renunciation does not affect therights of a holder in due course without notice1048766 Cancellation of an instrument includes tearing erasureobliteration or burning It is not limited to writing ofthe word lsquocancelledrdquo or ldquopaidrdquo or drawing of crisscrosslines across the instrumentPayment for Honor - payment made by a person whether a

party to the bill or not after it has been protested for nonpaymentfor the benefit of any party liable thereon or forthe benefit of the person for whose account it was drawn1048766 Requisites1 the bill has been dishonored by non-payment2 it has been protested for non-payment3 payment supra protest (another term for paymentfor honor because prior protest for non-payment isrequired) is made by any person even by a partythereto4 the payment is attested by a notarial act of honorwhich must be appended to the protest or form anextension of it5 the notarial act must be based on the declarationmade by the payor for honor or his agent of hisintention to pay the bill for honor and for whosehonor he paysNote If the above formalities are not complied withpayment will operate as a mere voluntary payment andthe payor will acquire no right to full reimbursementagainst the party for whose honor he pays1048766 In payment for honor the payee cannot refuse paymentIf he refuses he cannot recover from the parties whowould have been discharged had he accepted the sameIn acceptance for honor the holderrsquos consent isnecessary1048766 The payor for honor is given the right to receive both thebill and the protest obviously to enable him to enforcehis rights against the parties who are liable to himIX CHECKSCheck- a bill of exchange drawn on a bank payable ondemandCheck distinguished from and ordinary bill of exchangeBILLOF EXCHANGE CHECKNot necessarily drawnon a deposit The draweeneed not be a bankIt is necessary that a checkis drawn on a bank depositThe drawee is always abankDeath of a drawer of aBOE with the knowledgeof the bank does notrevoke the authority of thedrawee to payDeath of the drawer of acheck with the knowledgeof the bank revokes theauthority of the banker topayMay be presented forpayment within areasonable time after itslast negotiation because itmay be further negotiatedMust be presented forpayment within areasonable time after itsissueMay be payable on demandor at a fixed ordeterminable future timeAlways payable on demandKinds of checks

1 Managerrsquos Cashierrsquos Check ndash drawn by a bank on itselfand therefore it is a primary obligation of the banko It is accepted in advance by the act of itsissuance and is not subject tocountermand by the payor afterindorsemento The bankrsquos manager signs managerrsquos checkwhile cashierrsquos check is signed by the bankcashier2 Certified Check ndash one drawn by a depositor upon funds tohis credit in a bank which a proper officer of the bankcertifies will be paid when duly presented for payment3 Stale check ndash one which has not been presented forpayment within a reasonable time after its issue4 Crossed check ndash when 2 parallel lines are drawn acrossits face or across a corner thereof If the name of a bankappears between the parallel lines the check is said tobe specially crossed and payment should be made onlyif presented by the named bank If no name appearsbetween the parallel lines the check is said to begenerally crossed and payment should be made onlyupon presentment by some bankEffects of crossing a checka That the check may not be encashed but only bedeposited in the bankb That the check may be negotiated only once to onewho has an account with a bank andc That the act of crossing the check serves as awarning to the holder that the check has beenissued for a definite purpose so that he must inquireif he has received the check pursuant to thatpurpose5 Memorandum Check ndash it is like an ordinary check exceptthat the word ldquomemorandumrdquo ldquomemrdquo or ldquomemordquo iswritten upon the face of the check signifying that thedrawer engages to pay the bona fide holder absolutelyand not upon a condition to pay upon presentment atmaturity and if due notice of the presentment and nonpaymentshould be given6 Travelerrsquos check ndash one upon which the holderrsquos signaturemust appear twice one to be affixed by him at the timeit is issued and the second o counter-signature to beaffixed by him in the presence of the payee before it ispaid otherwise it is incompleteIron Clad Rule Prohibits the countermanding ofpayment of certified checks (Republic of the Philippinesv PNB GR No 16106 December 1 1961)

d In any other case if presented to the person to makepayment wherever he can be found or if presented athis last known place of business or residenceWhen delay in presentment excused ndash delay is caused bycircumstances beyond the control of the holder and notimputable to his default misconduct or negligence Whenthe cause of delay ceases to operate presentment must bemade with reasonable diligencePresentment for acceptance ndash the production or exhibitionof a bill of exchange to the drawee for his acceptance orpaymentGeneral Rule presentment for acceptance is not necessary torender any party to the bill liableException presentment for acceptance must be madea Where the bill is payable after sight or wherepresentment for acceptance is necessary in order tofix the maturity of the instrument orb Where the bill expressly stipulates that it shall bepresented for acceptance orc Where the bill is drawn payable elsewhere then atthe residence or place of business of the drawee(sec 143)Note in all the above cases the holder must either presentthe bill for acceptance or negotiate it within a reasonabletime otherwise the drawer and all indorsers are dischargedHow made1 made by or on behalf of the holder2 at a reasonable hour3 on a business day4 before the bill is overdue and within reasonabletime5 to the drawee or some person authorized to acceptor refuse acceptance on his behalfDays presentment may be made If date of presentment isa Sunday or a holiday ndash must be made on the nextsucceeding business dayb Saturday ndash before 1200 noon on Saturday providedthat it is not a holidayWhen delay for presentment excuseda bill is drawn payable elsewhere than at the place ofbusiness or the residence of the draweeb holder has no time with the exercise of reasonablediligence to present the bill for acceptance beforepresenting it for payment on the day that it fallsdueEffect does not discharge the drawers and indorsersWhere presentment is excuseda Where the drawee is dead or has absconded or is afictitious person or a person not having capacity tocontract by billb Where presentment can not be made after theexercise of reasonable diligencec Where although presentment has been irregularacceptance has been refused on some other groundNote bill may be treated as dishonored by nonacceptanceDuty of holder where bill not accepted - where a bill isduly presented for acceptance and is not accepted within theprescribed time (24 hours ndash sec 136) the person presentingit must treat the bill as dishonored by non-acceptance or heloses the right of recourse against the drawer and indorsersAcceptance the signification by the drawee of his assent tothe order of the drawer It is the act by which the draweemanifests his consent to comply with the request containedin the bill of exchange directed to himHow made

1) must be in writing2) signed by the drawee3) must not express that the drawee will perform hispromise by any other means than the payment ofmoneybull the holder of the bill presenting the same for acceptancemay require that the acceptance be written on the billand if such request is refused may treat the bill asdishonoredbull where an acceptance is written on a paper other thanthe bill itself it does not bind the acceptor except infavor of a person to whom it is shown and who on thefaith thereof receives the bill for valuePeriod for drawee to accept - allowed 24 hours afterpresentment in which to decide whether or not he will acceptthe bill if acceptance is given it dates as of the day ofpresentationConstructiveImplied acceptance where a drawee refuseswithin 24 hours after delivery or within such other period asthe holder may allow to return the bill accepted or nonacceptedto the holder he will be deemed to have acceptedthe sameNote same effect if the drawee destroys the instrumentKinds1 General - assents without qualification to the order ofthe drawer2 Qualified - which in express terms varies the effect ofthe bill as drawna Conditional - makes payment by the acceptordependent on the fulfillment of a conditiontherein statedb Partial - an acceptance to pay part only of theamount for which the bill is drawni Local - an acceptance to pay only at aparticular placeii Qualified as to timeiii The acceptance of some one or more ofthe drawees but not of all3 ConstructiveRights of parties as to qualified acceptancebull Holder he may refuse to take a qualified acceptanceand if he does not obtain an unqualified acceptance hemay treat the bill as dishonored by non-acceptancebull Drawer or indorser when he receives notice of aqualified acceptance he must within a reasonable timeexpress his dissent to the holder or he will be deemed tohave assented thereto (implied assent)Effect of taking a qualified acceptance the drawer andindorsers are discharged from liability on the bill unless theyhave expressly or impliedly authorized the holder to take aqualified acceptance or subsequently assent theretoOther rules of acceptancebull a bill may be accepted before it has been signed by thedrawer or while otherwise incomplete or when it isoverdue or after it has been dishonored by a previousrefusal to accept or by non paymentbull when a bill payable after sight is dishonored by nonacceptanceand the drawee subsequently accepts it theholder in the absence of any different agreement isentitled to have the bill accepted as of the date of thefirst presentmentbull an unconditional promise in writing to accept a billbefore it is drawn is deemed an actual acceptancein favor of every person who upon the faiththereof receives the bill for value

bull where a check is certified by the bank on which it isdrawn the certification is equivalent to anacceptanceEffect the drawer and all indorsers are dischargedfrom liability thereonAcceptance for Honor - an undertaking by a stranger to a billafter protest for the benefit of any party liable thereon or forthe honor of the person for whose account the bill is drawnwhich acceptance inures also to the benefit of all partiessubsequent to the person for whose honor it is accepted andconditioned to pay the bill when it becomes due if theoriginal drawee does not pay it1048766 Requisites1 the bill must have been protested for dishonorby non-acceptance or for better security2 the acceptor for honor must be a stranger andnot a party already liable on the instrument3 bill must not be overdue4 acceptance for honor must be with the consentof the holder of the instrument1048766 Formalities1 must be in writing2 must indicate that it is an acceptance forhonor3 signed by the acceptor for honor4 must contain an express or implied promise topay money5 the accepted bill for honor must be deliveredto the holderNotice of Dishonor - notice given by the holder or his agentto a party or parties secondarily liable that the instrumentwas dishonored by non-acceptance by the drawee of a bill orby non-payment by the acceptor of a bill or by non-paymentby a maker of a note- If such notice is given by a notary public it is calledPROTEST1048766 Effect of failure to give notice parties secondarily liableare discharged1048766 Requisites1 Given by holder or his agent or by any party whomay be compelled by the holder to pay2 Given to secondary party or his agent3 Given within the periods provided by law4 Given at the proper place1048766 When notice of dishonor dispensed with1 when party to be notified knows about the dishonoractually or constructively2 if waived and3 when after due diligence it cannot be given1048766 How given1 by bringing verbally or2 by writing to the knowledge of the person liable thefact that a specified instrument upon properproceedings taken has not been accepted or hasnot been paid and that the party notified isexpected to pay it1048766 To whom given1 Non-acceptance (bill) ndash to persons secondarilyliable namely the drawer and indorsers as the casemay be2 Non-payment (both bill and note) ndash indorsersNote Notice must be given to persons secondarilyliable Otherwise such parties are dischargedNotice may be given to the party himself or to hisagent

1048766 By whom given1 the holder2 another on behalf of the holder3 any party to the instrument who may be compelledto pay it to the holder and who would have a rightof reimbursement from the party to whom notice isgiven1048766 Notice of dishonor given by or on behalf of a holderinures to the benefit ofa all parties prior to the holder who have a rightof recourse against the party to whom thenotice is given andb all holders subsequent to the holder givingnotice1048766 Notice of dishonor given by or on behalf of a partyentitled to give notice inures to the benefit ofa the holder andb all parties subsequent to the party to whomnotice is given1048766 Where an instrument is dishonored in the hands of anagent he can do either of the ffa directly give notice to persons secondarilyliable thereon orb give notice to his principal In such case hemust give notice within the time allowed bylaw as if he were a holder1048766 A party giving notice is deemed to have given due noticewherea the notice of dishonor is duly addressed andb deposited in the post-office even when thereis miscarriage of mail1048766 Where a party receives notice of dishonor he has afterthe receipt of such notice the same time for givingnotice to antecedent parties that the holder has afterthe dishonor1048766 Notice may be waived either before the time of givingnotice or after the omission to give due notice Waivermay be expressed or implied1048766 As to who are affected by an express waiver depends onwhere the waiver is written1 if it appears in the body or on the face of theinstrument it binds all parties but2 if it is written above the signature of anindorser it binds him only1048766 Notice of dishonor is not required to be given to thedrawer in any of the ff cases1 drawer and drawee are the same2 drawee is a fictitious person or not having thecapacity to contract3 drawer is the person to whom the instrument ispresented for payment4 the drawer has no right to expect or requirethat the drawee or acceptor will honor theinstrument5 where the drawer has countermandedpayment1048766 Notice of dishonor is not required to be given to anindorser in the ff cases1 drawee is a fictitious person or does not havethe capacity to contract and indorser wasaware of that fact at the time he indorsed theinstrument2 indorser is the person to whom the instrumentis presented for payment3 instrument was made or accepted for his

accommodation1048766 If an instrument is not accepted by the drawee there isno sense presenting it again for payment and notice ofdishonor must at once be given If there wasacceptance presentment for payment is still requiredand if payment is refused there is a need for notice ofdishonor1048766 An omission to give notice of dishonor by non-acceptancedoes not prejudice the rights of a holder in due coursesubsequent to the omissionDishonor by Non-PaymentWhen instrument dishonored by non-paymenta it is duly presented for payment and payment isrefused or cannot be obtained orb presentment is excused and the instrument isoverdue and unpaidEffect of dishonor an immediate right of recourse to allparties secondarily liable thereon accrues to the holderDishonor by Non-AcceptanceInstancesa When it is duly presented for acceptance and suchan acceptance is refused or can not be obtained orb When presentment for acceptance is excused andthe bill is not accepted (sec 149)Effect an immediate right of recourse against thedrawer and indorsers accrues to the holder and nopresentment for payment is necessaryNote where a bill is duly presented for acceptance andis not accepted within the prescribed time (24 hours)the person presenting it must treat the bill as dishonoredby non-acceptanceWhen Instrument Considered to be Dishonoreda If it is not accepted when presented for acceptanceorb If it is not paid when presented for payment atmaturity orc If presentment is excused or waived and theinstrument is past due and unpaidProtest - the formal instrument executed usually by a notarypublic certifying that the legal steps necessary to fix theliability of the drawee and the indorsers have been taken1048766 Effect of waiver where protest is waived presentmentand notice of dishonor are also deemed waived Butwhere the notice of dishonor is waived presentment isnot waived1048766 Applicability protest is necessary only in case of foreignbills of exchange which have been dishonored by nonacceptanceor non-payment as the case may be If it isnot so protested the drawer and indorsers aredischarged1048766 Foreign Bill of Exchange1 Drawn in the Philippines but payable outside thePhilippines2 Payable in the Philippines but drawn outside thePhilippines1048766 Protest may be made by1 a notary public or2 any respectable resident of the place where the billis dishonored in the presence of 2 or more crediblewitnessesProtest for better security is one made by the holder of a billafter it has been accepted but before it matures against thedrawer and indorsers where the acceptor has been adjudgeda bankrupt or an insolvent or has made an assignment forthe benefit of the creditors

VIII DISCHARGEDischarge of instrument - a release of all parties whetherprimary or secondary from the obligations arisingthereunder It renders the instrument without force andeffect and consequently it can no longer be negotiatedInstances1 By payment in due course by or on behalf of theprincipal debtor2 Payment by accommodated party3 Intentional cancellation by the holder4 By any act which will discharge a simple contractfor the payment of money5 When the principal debtor becomes the holder ofthe instrument at or after maturity in his own rightBy any act which would discharge a simple contract1 Payment or performance2 Loss of the thing due3 Condonation or remission4 Confusion or Merger5 Compensation6 Novation7 Annulment or Rescission8 Fulfillment of a resolutory condition9 PrescriptionWhen persons secondarily liable on the instrument aredischarged1 By any act which discharges the instrument2 By the intentional cancellation of his signature bythe holder3 By the discharge of a prior party4 By a valid tender of payment made by a prior party5 By the release of the principal debtor unless theholderrsquos right of recourse against the partysecondarily liable is expressly reserved6 By any agreement binding upon the holder to extendthe time of payment or to postpone the holderrsquosright to enforce the instrument1048766 In the following cases the agreement to extend the timeof payment does not discharge a party secondarily liable1 where the extension of time is consented to by suchparty2 where the holder expressly reserves his right ofrecourse against such party1048766 Payment at or after maturity by a party secondarilyliable does not discharge the instrument It only cancelshis own liability and that of the parties subsequent tohimEffects of Renunciation1 A renunciation in favor of a secondary party may bemade by the holder before at or after maturity ofthe instrument Effect only such secondary party isdischarged and all parties subsequent to him but theinstrument itself remains in force2 A renunciation in favor of the principal debtor maybe effected at or after maturity Effect theinstrument is discharged and all parties theretoprovided the renunciation is made unconditionallyand absolutelyNote In either case renunciation does not affect therights of a holder in due course without notice1048766 Cancellation of an instrument includes tearing erasureobliteration or burning It is not limited to writing ofthe word lsquocancelledrdquo or ldquopaidrdquo or drawing of crisscrosslines across the instrumentPayment for Honor - payment made by a person whether a

party to the bill or not after it has been protested for nonpaymentfor the benefit of any party liable thereon or forthe benefit of the person for whose account it was drawn1048766 Requisites1 the bill has been dishonored by non-payment2 it has been protested for non-payment3 payment supra protest (another term for paymentfor honor because prior protest for non-payment isrequired) is made by any person even by a partythereto4 the payment is attested by a notarial act of honorwhich must be appended to the protest or form anextension of it5 the notarial act must be based on the declarationmade by the payor for honor or his agent of hisintention to pay the bill for honor and for whosehonor he paysNote If the above formalities are not complied withpayment will operate as a mere voluntary payment andthe payor will acquire no right to full reimbursementagainst the party for whose honor he pays1048766 In payment for honor the payee cannot refuse paymentIf he refuses he cannot recover from the parties whowould have been discharged had he accepted the sameIn acceptance for honor the holderrsquos consent isnecessary1048766 The payor for honor is given the right to receive both thebill and the protest obviously to enable him to enforcehis rights against the parties who are liable to himIX CHECKSCheck- a bill of exchange drawn on a bank payable ondemandCheck distinguished from and ordinary bill of exchangeBILLOF EXCHANGE CHECKNot necessarily drawnon a deposit The draweeneed not be a bankIt is necessary that a checkis drawn on a bank depositThe drawee is always abankDeath of a drawer of aBOE with the knowledgeof the bank does notrevoke the authority of thedrawee to payDeath of the drawer of acheck with the knowledgeof the bank revokes theauthority of the banker topayMay be presented forpayment within areasonable time after itslast negotiation because itmay be further negotiatedMust be presented forpayment within areasonable time after itsissueMay be payable on demandor at a fixed ordeterminable future timeAlways payable on demandKinds of checks

1 Managerrsquos Cashierrsquos Check ndash drawn by a bank on itselfand therefore it is a primary obligation of the banko It is accepted in advance by the act of itsissuance and is not subject tocountermand by the payor afterindorsemento The bankrsquos manager signs managerrsquos checkwhile cashierrsquos check is signed by the bankcashier2 Certified Check ndash one drawn by a depositor upon funds tohis credit in a bank which a proper officer of the bankcertifies will be paid when duly presented for payment3 Stale check ndash one which has not been presented forpayment within a reasonable time after its issue4 Crossed check ndash when 2 parallel lines are drawn acrossits face or across a corner thereof If the name of a bankappears between the parallel lines the check is said tobe specially crossed and payment should be made onlyif presented by the named bank If no name appearsbetween the parallel lines the check is said to begenerally crossed and payment should be made onlyupon presentment by some bankEffects of crossing a checka That the check may not be encashed but only bedeposited in the bankb That the check may be negotiated only once to onewho has an account with a bank andc That the act of crossing the check serves as awarning to the holder that the check has beenissued for a definite purpose so that he must inquireif he has received the check pursuant to thatpurpose5 Memorandum Check ndash it is like an ordinary check exceptthat the word ldquomemorandumrdquo ldquomemrdquo or ldquomemordquo iswritten upon the face of the check signifying that thedrawer engages to pay the bona fide holder absolutelyand not upon a condition to pay upon presentment atmaturity and if due notice of the presentment and nonpaymentshould be given6 Travelerrsquos check ndash one upon which the holderrsquos signaturemust appear twice one to be affixed by him at the timeit is issued and the second o counter-signature to beaffixed by him in the presence of the payee before it ispaid otherwise it is incompleteIron Clad Rule Prohibits the countermanding ofpayment of certified checks (Republic of the Philippinesv PNB GR No 16106 December 1 1961)

1) must be in writing2) signed by the drawee3) must not express that the drawee will perform hispromise by any other means than the payment ofmoneybull the holder of the bill presenting the same for acceptancemay require that the acceptance be written on the billand if such request is refused may treat the bill asdishonoredbull where an acceptance is written on a paper other thanthe bill itself it does not bind the acceptor except infavor of a person to whom it is shown and who on thefaith thereof receives the bill for valuePeriod for drawee to accept - allowed 24 hours afterpresentment in which to decide whether or not he will acceptthe bill if acceptance is given it dates as of the day ofpresentationConstructiveImplied acceptance where a drawee refuseswithin 24 hours after delivery or within such other period asthe holder may allow to return the bill accepted or nonacceptedto the holder he will be deemed to have acceptedthe sameNote same effect if the drawee destroys the instrumentKinds1 General - assents without qualification to the order ofthe drawer2 Qualified - which in express terms varies the effect ofthe bill as drawna Conditional - makes payment by the acceptordependent on the fulfillment of a conditiontherein statedb Partial - an acceptance to pay part only of theamount for which the bill is drawni Local - an acceptance to pay only at aparticular placeii Qualified as to timeiii The acceptance of some one or more ofthe drawees but not of all3 ConstructiveRights of parties as to qualified acceptancebull Holder he may refuse to take a qualified acceptanceand if he does not obtain an unqualified acceptance hemay treat the bill as dishonored by non-acceptancebull Drawer or indorser when he receives notice of aqualified acceptance he must within a reasonable timeexpress his dissent to the holder or he will be deemed tohave assented thereto (implied assent)Effect of taking a qualified acceptance the drawer andindorsers are discharged from liability on the bill unless theyhave expressly or impliedly authorized the holder to take aqualified acceptance or subsequently assent theretoOther rules of acceptancebull a bill may be accepted before it has been signed by thedrawer or while otherwise incomplete or when it isoverdue or after it has been dishonored by a previousrefusal to accept or by non paymentbull when a bill payable after sight is dishonored by nonacceptanceand the drawee subsequently accepts it theholder in the absence of any different agreement isentitled to have the bill accepted as of the date of thefirst presentmentbull an unconditional promise in writing to accept a billbefore it is drawn is deemed an actual acceptancein favor of every person who upon the faiththereof receives the bill for value

bull where a check is certified by the bank on which it isdrawn the certification is equivalent to anacceptanceEffect the drawer and all indorsers are dischargedfrom liability thereonAcceptance for Honor - an undertaking by a stranger to a billafter protest for the benefit of any party liable thereon or forthe honor of the person for whose account the bill is drawnwhich acceptance inures also to the benefit of all partiessubsequent to the person for whose honor it is accepted andconditioned to pay the bill when it becomes due if theoriginal drawee does not pay it1048766 Requisites1 the bill must have been protested for dishonorby non-acceptance or for better security2 the acceptor for honor must be a stranger andnot a party already liable on the instrument3 bill must not be overdue4 acceptance for honor must be with the consentof the holder of the instrument1048766 Formalities1 must be in writing2 must indicate that it is an acceptance forhonor3 signed by the acceptor for honor4 must contain an express or implied promise topay money5 the accepted bill for honor must be deliveredto the holderNotice of Dishonor - notice given by the holder or his agentto a party or parties secondarily liable that the instrumentwas dishonored by non-acceptance by the drawee of a bill orby non-payment by the acceptor of a bill or by non-paymentby a maker of a note- If such notice is given by a notary public it is calledPROTEST1048766 Effect of failure to give notice parties secondarily liableare discharged1048766 Requisites1 Given by holder or his agent or by any party whomay be compelled by the holder to pay2 Given to secondary party or his agent3 Given within the periods provided by law4 Given at the proper place1048766 When notice of dishonor dispensed with1 when party to be notified knows about the dishonoractually or constructively2 if waived and3 when after due diligence it cannot be given1048766 How given1 by bringing verbally or2 by writing to the knowledge of the person liable thefact that a specified instrument upon properproceedings taken has not been accepted or hasnot been paid and that the party notified isexpected to pay it1048766 To whom given1 Non-acceptance (bill) ndash to persons secondarilyliable namely the drawer and indorsers as the casemay be2 Non-payment (both bill and note) ndash indorsersNote Notice must be given to persons secondarilyliable Otherwise such parties are dischargedNotice may be given to the party himself or to hisagent

1048766 By whom given1 the holder2 another on behalf of the holder3 any party to the instrument who may be compelledto pay it to the holder and who would have a rightof reimbursement from the party to whom notice isgiven1048766 Notice of dishonor given by or on behalf of a holderinures to the benefit ofa all parties prior to the holder who have a rightof recourse against the party to whom thenotice is given andb all holders subsequent to the holder givingnotice1048766 Notice of dishonor given by or on behalf of a partyentitled to give notice inures to the benefit ofa the holder andb all parties subsequent to the party to whomnotice is given1048766 Where an instrument is dishonored in the hands of anagent he can do either of the ffa directly give notice to persons secondarilyliable thereon orb give notice to his principal In such case hemust give notice within the time allowed bylaw as if he were a holder1048766 A party giving notice is deemed to have given due noticewherea the notice of dishonor is duly addressed andb deposited in the post-office even when thereis miscarriage of mail1048766 Where a party receives notice of dishonor he has afterthe receipt of such notice the same time for givingnotice to antecedent parties that the holder has afterthe dishonor1048766 Notice may be waived either before the time of givingnotice or after the omission to give due notice Waivermay be expressed or implied1048766 As to who are affected by an express waiver depends onwhere the waiver is written1 if it appears in the body or on the face of theinstrument it binds all parties but2 if it is written above the signature of anindorser it binds him only1048766 Notice of dishonor is not required to be given to thedrawer in any of the ff cases1 drawer and drawee are the same2 drawee is a fictitious person or not having thecapacity to contract3 drawer is the person to whom the instrument ispresented for payment4 the drawer has no right to expect or requirethat the drawee or acceptor will honor theinstrument5 where the drawer has countermandedpayment1048766 Notice of dishonor is not required to be given to anindorser in the ff cases1 drawee is a fictitious person or does not havethe capacity to contract and indorser wasaware of that fact at the time he indorsed theinstrument2 indorser is the person to whom the instrumentis presented for payment3 instrument was made or accepted for his

accommodation1048766 If an instrument is not accepted by the drawee there isno sense presenting it again for payment and notice ofdishonor must at once be given If there wasacceptance presentment for payment is still requiredand if payment is refused there is a need for notice ofdishonor1048766 An omission to give notice of dishonor by non-acceptancedoes not prejudice the rights of a holder in due coursesubsequent to the omissionDishonor by Non-PaymentWhen instrument dishonored by non-paymenta it is duly presented for payment and payment isrefused or cannot be obtained orb presentment is excused and the instrument isoverdue and unpaidEffect of dishonor an immediate right of recourse to allparties secondarily liable thereon accrues to the holderDishonor by Non-AcceptanceInstancesa When it is duly presented for acceptance and suchan acceptance is refused or can not be obtained orb When presentment for acceptance is excused andthe bill is not accepted (sec 149)Effect an immediate right of recourse against thedrawer and indorsers accrues to the holder and nopresentment for payment is necessaryNote where a bill is duly presented for acceptance andis not accepted within the prescribed time (24 hours)the person presenting it must treat the bill as dishonoredby non-acceptanceWhen Instrument Considered to be Dishonoreda If it is not accepted when presented for acceptanceorb If it is not paid when presented for payment atmaturity orc If presentment is excused or waived and theinstrument is past due and unpaidProtest - the formal instrument executed usually by a notarypublic certifying that the legal steps necessary to fix theliability of the drawee and the indorsers have been taken1048766 Effect of waiver where protest is waived presentmentand notice of dishonor are also deemed waived Butwhere the notice of dishonor is waived presentment isnot waived1048766 Applicability protest is necessary only in case of foreignbills of exchange which have been dishonored by nonacceptanceor non-payment as the case may be If it isnot so protested the drawer and indorsers aredischarged1048766 Foreign Bill of Exchange1 Drawn in the Philippines but payable outside thePhilippines2 Payable in the Philippines but drawn outside thePhilippines1048766 Protest may be made by1 a notary public or2 any respectable resident of the place where the billis dishonored in the presence of 2 or more crediblewitnessesProtest for better security is one made by the holder of a billafter it has been accepted but before it matures against thedrawer and indorsers where the acceptor has been adjudgeda bankrupt or an insolvent or has made an assignment forthe benefit of the creditors

VIII DISCHARGEDischarge of instrument - a release of all parties whetherprimary or secondary from the obligations arisingthereunder It renders the instrument without force andeffect and consequently it can no longer be negotiatedInstances1 By payment in due course by or on behalf of theprincipal debtor2 Payment by accommodated party3 Intentional cancellation by the holder4 By any act which will discharge a simple contractfor the payment of money5 When the principal debtor becomes the holder ofthe instrument at or after maturity in his own rightBy any act which would discharge a simple contract1 Payment or performance2 Loss of the thing due3 Condonation or remission4 Confusion or Merger5 Compensation6 Novation7 Annulment or Rescission8 Fulfillment of a resolutory condition9 PrescriptionWhen persons secondarily liable on the instrument aredischarged1 By any act which discharges the instrument2 By the intentional cancellation of his signature bythe holder3 By the discharge of a prior party4 By a valid tender of payment made by a prior party5 By the release of the principal debtor unless theholderrsquos right of recourse against the partysecondarily liable is expressly reserved6 By any agreement binding upon the holder to extendthe time of payment or to postpone the holderrsquosright to enforce the instrument1048766 In the following cases the agreement to extend the timeof payment does not discharge a party secondarily liable1 where the extension of time is consented to by suchparty2 where the holder expressly reserves his right ofrecourse against such party1048766 Payment at or after maturity by a party secondarilyliable does not discharge the instrument It only cancelshis own liability and that of the parties subsequent tohimEffects of Renunciation1 A renunciation in favor of a secondary party may bemade by the holder before at or after maturity ofthe instrument Effect only such secondary party isdischarged and all parties subsequent to him but theinstrument itself remains in force2 A renunciation in favor of the principal debtor maybe effected at or after maturity Effect theinstrument is discharged and all parties theretoprovided the renunciation is made unconditionallyand absolutelyNote In either case renunciation does not affect therights of a holder in due course without notice1048766 Cancellation of an instrument includes tearing erasureobliteration or burning It is not limited to writing ofthe word lsquocancelledrdquo or ldquopaidrdquo or drawing of crisscrosslines across the instrumentPayment for Honor - payment made by a person whether a

party to the bill or not after it has been protested for nonpaymentfor the benefit of any party liable thereon or forthe benefit of the person for whose account it was drawn1048766 Requisites1 the bill has been dishonored by non-payment2 it has been protested for non-payment3 payment supra protest (another term for paymentfor honor because prior protest for non-payment isrequired) is made by any person even by a partythereto4 the payment is attested by a notarial act of honorwhich must be appended to the protest or form anextension of it5 the notarial act must be based on the declarationmade by the payor for honor or his agent of hisintention to pay the bill for honor and for whosehonor he paysNote If the above formalities are not complied withpayment will operate as a mere voluntary payment andthe payor will acquire no right to full reimbursementagainst the party for whose honor he pays1048766 In payment for honor the payee cannot refuse paymentIf he refuses he cannot recover from the parties whowould have been discharged had he accepted the sameIn acceptance for honor the holderrsquos consent isnecessary1048766 The payor for honor is given the right to receive both thebill and the protest obviously to enable him to enforcehis rights against the parties who are liable to himIX CHECKSCheck- a bill of exchange drawn on a bank payable ondemandCheck distinguished from and ordinary bill of exchangeBILLOF EXCHANGE CHECKNot necessarily drawnon a deposit The draweeneed not be a bankIt is necessary that a checkis drawn on a bank depositThe drawee is always abankDeath of a drawer of aBOE with the knowledgeof the bank does notrevoke the authority of thedrawee to payDeath of the drawer of acheck with the knowledgeof the bank revokes theauthority of the banker topayMay be presented forpayment within areasonable time after itslast negotiation because itmay be further negotiatedMust be presented forpayment within areasonable time after itsissueMay be payable on demandor at a fixed ordeterminable future timeAlways payable on demandKinds of checks

1 Managerrsquos Cashierrsquos Check ndash drawn by a bank on itselfand therefore it is a primary obligation of the banko It is accepted in advance by the act of itsissuance and is not subject tocountermand by the payor afterindorsemento The bankrsquos manager signs managerrsquos checkwhile cashierrsquos check is signed by the bankcashier2 Certified Check ndash one drawn by a depositor upon funds tohis credit in a bank which a proper officer of the bankcertifies will be paid when duly presented for payment3 Stale check ndash one which has not been presented forpayment within a reasonable time after its issue4 Crossed check ndash when 2 parallel lines are drawn acrossits face or across a corner thereof If the name of a bankappears between the parallel lines the check is said tobe specially crossed and payment should be made onlyif presented by the named bank If no name appearsbetween the parallel lines the check is said to begenerally crossed and payment should be made onlyupon presentment by some bankEffects of crossing a checka That the check may not be encashed but only bedeposited in the bankb That the check may be negotiated only once to onewho has an account with a bank andc That the act of crossing the check serves as awarning to the holder that the check has beenissued for a definite purpose so that he must inquireif he has received the check pursuant to thatpurpose5 Memorandum Check ndash it is like an ordinary check exceptthat the word ldquomemorandumrdquo ldquomemrdquo or ldquomemordquo iswritten upon the face of the check signifying that thedrawer engages to pay the bona fide holder absolutelyand not upon a condition to pay upon presentment atmaturity and if due notice of the presentment and nonpaymentshould be given6 Travelerrsquos check ndash one upon which the holderrsquos signaturemust appear twice one to be affixed by him at the timeit is issued and the second o counter-signature to beaffixed by him in the presence of the payee before it ispaid otherwise it is incompleteIron Clad Rule Prohibits the countermanding ofpayment of certified checks (Republic of the Philippinesv PNB GR No 16106 December 1 1961)

bull where a check is certified by the bank on which it isdrawn the certification is equivalent to anacceptanceEffect the drawer and all indorsers are dischargedfrom liability thereonAcceptance for Honor - an undertaking by a stranger to a billafter protest for the benefit of any party liable thereon or forthe honor of the person for whose account the bill is drawnwhich acceptance inures also to the benefit of all partiessubsequent to the person for whose honor it is accepted andconditioned to pay the bill when it becomes due if theoriginal drawee does not pay it1048766 Requisites1 the bill must have been protested for dishonorby non-acceptance or for better security2 the acceptor for honor must be a stranger andnot a party already liable on the instrument3 bill must not be overdue4 acceptance for honor must be with the consentof the holder of the instrument1048766 Formalities1 must be in writing2 must indicate that it is an acceptance forhonor3 signed by the acceptor for honor4 must contain an express or implied promise topay money5 the accepted bill for honor must be deliveredto the holderNotice of Dishonor - notice given by the holder or his agentto a party or parties secondarily liable that the instrumentwas dishonored by non-acceptance by the drawee of a bill orby non-payment by the acceptor of a bill or by non-paymentby a maker of a note- If such notice is given by a notary public it is calledPROTEST1048766 Effect of failure to give notice parties secondarily liableare discharged1048766 Requisites1 Given by holder or his agent or by any party whomay be compelled by the holder to pay2 Given to secondary party or his agent3 Given within the periods provided by law4 Given at the proper place1048766 When notice of dishonor dispensed with1 when party to be notified knows about the dishonoractually or constructively2 if waived and3 when after due diligence it cannot be given1048766 How given1 by bringing verbally or2 by writing to the knowledge of the person liable thefact that a specified instrument upon properproceedings taken has not been accepted or hasnot been paid and that the party notified isexpected to pay it1048766 To whom given1 Non-acceptance (bill) ndash to persons secondarilyliable namely the drawer and indorsers as the casemay be2 Non-payment (both bill and note) ndash indorsersNote Notice must be given to persons secondarilyliable Otherwise such parties are dischargedNotice may be given to the party himself or to hisagent

1048766 By whom given1 the holder2 another on behalf of the holder3 any party to the instrument who may be compelledto pay it to the holder and who would have a rightof reimbursement from the party to whom notice isgiven1048766 Notice of dishonor given by or on behalf of a holderinures to the benefit ofa all parties prior to the holder who have a rightof recourse against the party to whom thenotice is given andb all holders subsequent to the holder givingnotice1048766 Notice of dishonor given by or on behalf of a partyentitled to give notice inures to the benefit ofa the holder andb all parties subsequent to the party to whomnotice is given1048766 Where an instrument is dishonored in the hands of anagent he can do either of the ffa directly give notice to persons secondarilyliable thereon orb give notice to his principal In such case hemust give notice within the time allowed bylaw as if he were a holder1048766 A party giving notice is deemed to have given due noticewherea the notice of dishonor is duly addressed andb deposited in the post-office even when thereis miscarriage of mail1048766 Where a party receives notice of dishonor he has afterthe receipt of such notice the same time for givingnotice to antecedent parties that the holder has afterthe dishonor1048766 Notice may be waived either before the time of givingnotice or after the omission to give due notice Waivermay be expressed or implied1048766 As to who are affected by an express waiver depends onwhere the waiver is written1 if it appears in the body or on the face of theinstrument it binds all parties but2 if it is written above the signature of anindorser it binds him only1048766 Notice of dishonor is not required to be given to thedrawer in any of the ff cases1 drawer and drawee are the same2 drawee is a fictitious person or not having thecapacity to contract3 drawer is the person to whom the instrument ispresented for payment4 the drawer has no right to expect or requirethat the drawee or acceptor will honor theinstrument5 where the drawer has countermandedpayment1048766 Notice of dishonor is not required to be given to anindorser in the ff cases1 drawee is a fictitious person or does not havethe capacity to contract and indorser wasaware of that fact at the time he indorsed theinstrument2 indorser is the person to whom the instrumentis presented for payment3 instrument was made or accepted for his

accommodation1048766 If an instrument is not accepted by the drawee there isno sense presenting it again for payment and notice ofdishonor must at once be given If there wasacceptance presentment for payment is still requiredand if payment is refused there is a need for notice ofdishonor1048766 An omission to give notice of dishonor by non-acceptancedoes not prejudice the rights of a holder in due coursesubsequent to the omissionDishonor by Non-PaymentWhen instrument dishonored by non-paymenta it is duly presented for payment and payment isrefused or cannot be obtained orb presentment is excused and the instrument isoverdue and unpaidEffect of dishonor an immediate right of recourse to allparties secondarily liable thereon accrues to the holderDishonor by Non-AcceptanceInstancesa When it is duly presented for acceptance and suchan acceptance is refused or can not be obtained orb When presentment for acceptance is excused andthe bill is not accepted (sec 149)Effect an immediate right of recourse against thedrawer and indorsers accrues to the holder and nopresentment for payment is necessaryNote where a bill is duly presented for acceptance andis not accepted within the prescribed time (24 hours)the person presenting it must treat the bill as dishonoredby non-acceptanceWhen Instrument Considered to be Dishonoreda If it is not accepted when presented for acceptanceorb If it is not paid when presented for payment atmaturity orc If presentment is excused or waived and theinstrument is past due and unpaidProtest - the formal instrument executed usually by a notarypublic certifying that the legal steps necessary to fix theliability of the drawee and the indorsers have been taken1048766 Effect of waiver where protest is waived presentmentand notice of dishonor are also deemed waived Butwhere the notice of dishonor is waived presentment isnot waived1048766 Applicability protest is necessary only in case of foreignbills of exchange which have been dishonored by nonacceptanceor non-payment as the case may be If it isnot so protested the drawer and indorsers aredischarged1048766 Foreign Bill of Exchange1 Drawn in the Philippines but payable outside thePhilippines2 Payable in the Philippines but drawn outside thePhilippines1048766 Protest may be made by1 a notary public or2 any respectable resident of the place where the billis dishonored in the presence of 2 or more crediblewitnessesProtest for better security is one made by the holder of a billafter it has been accepted but before it matures against thedrawer and indorsers where the acceptor has been adjudgeda bankrupt or an insolvent or has made an assignment forthe benefit of the creditors

VIII DISCHARGEDischarge of instrument - a release of all parties whetherprimary or secondary from the obligations arisingthereunder It renders the instrument without force andeffect and consequently it can no longer be negotiatedInstances1 By payment in due course by or on behalf of theprincipal debtor2 Payment by accommodated party3 Intentional cancellation by the holder4 By any act which will discharge a simple contractfor the payment of money5 When the principal debtor becomes the holder ofthe instrument at or after maturity in his own rightBy any act which would discharge a simple contract1 Payment or performance2 Loss of the thing due3 Condonation or remission4 Confusion or Merger5 Compensation6 Novation7 Annulment or Rescission8 Fulfillment of a resolutory condition9 PrescriptionWhen persons secondarily liable on the instrument aredischarged1 By any act which discharges the instrument2 By the intentional cancellation of his signature bythe holder3 By the discharge of a prior party4 By a valid tender of payment made by a prior party5 By the release of the principal debtor unless theholderrsquos right of recourse against the partysecondarily liable is expressly reserved6 By any agreement binding upon the holder to extendthe time of payment or to postpone the holderrsquosright to enforce the instrument1048766 In the following cases the agreement to extend the timeof payment does not discharge a party secondarily liable1 where the extension of time is consented to by suchparty2 where the holder expressly reserves his right ofrecourse against such party1048766 Payment at or after maturity by a party secondarilyliable does not discharge the instrument It only cancelshis own liability and that of the parties subsequent tohimEffects of Renunciation1 A renunciation in favor of a secondary party may bemade by the holder before at or after maturity ofthe instrument Effect only such secondary party isdischarged and all parties subsequent to him but theinstrument itself remains in force2 A renunciation in favor of the principal debtor maybe effected at or after maturity Effect theinstrument is discharged and all parties theretoprovided the renunciation is made unconditionallyand absolutelyNote In either case renunciation does not affect therights of a holder in due course without notice1048766 Cancellation of an instrument includes tearing erasureobliteration or burning It is not limited to writing ofthe word lsquocancelledrdquo or ldquopaidrdquo or drawing of crisscrosslines across the instrumentPayment for Honor - payment made by a person whether a

party to the bill or not after it has been protested for nonpaymentfor the benefit of any party liable thereon or forthe benefit of the person for whose account it was drawn1048766 Requisites1 the bill has been dishonored by non-payment2 it has been protested for non-payment3 payment supra protest (another term for paymentfor honor because prior protest for non-payment isrequired) is made by any person even by a partythereto4 the payment is attested by a notarial act of honorwhich must be appended to the protest or form anextension of it5 the notarial act must be based on the declarationmade by the payor for honor or his agent of hisintention to pay the bill for honor and for whosehonor he paysNote If the above formalities are not complied withpayment will operate as a mere voluntary payment andthe payor will acquire no right to full reimbursementagainst the party for whose honor he pays1048766 In payment for honor the payee cannot refuse paymentIf he refuses he cannot recover from the parties whowould have been discharged had he accepted the sameIn acceptance for honor the holderrsquos consent isnecessary1048766 The payor for honor is given the right to receive both thebill and the protest obviously to enable him to enforcehis rights against the parties who are liable to himIX CHECKSCheck- a bill of exchange drawn on a bank payable ondemandCheck distinguished from and ordinary bill of exchangeBILLOF EXCHANGE CHECKNot necessarily drawnon a deposit The draweeneed not be a bankIt is necessary that a checkis drawn on a bank depositThe drawee is always abankDeath of a drawer of aBOE with the knowledgeof the bank does notrevoke the authority of thedrawee to payDeath of the drawer of acheck with the knowledgeof the bank revokes theauthority of the banker topayMay be presented forpayment within areasonable time after itslast negotiation because itmay be further negotiatedMust be presented forpayment within areasonable time after itsissueMay be payable on demandor at a fixed ordeterminable future timeAlways payable on demandKinds of checks

1 Managerrsquos Cashierrsquos Check ndash drawn by a bank on itselfand therefore it is a primary obligation of the banko It is accepted in advance by the act of itsissuance and is not subject tocountermand by the payor afterindorsemento The bankrsquos manager signs managerrsquos checkwhile cashierrsquos check is signed by the bankcashier2 Certified Check ndash one drawn by a depositor upon funds tohis credit in a bank which a proper officer of the bankcertifies will be paid when duly presented for payment3 Stale check ndash one which has not been presented forpayment within a reasonable time after its issue4 Crossed check ndash when 2 parallel lines are drawn acrossits face or across a corner thereof If the name of a bankappears between the parallel lines the check is said tobe specially crossed and payment should be made onlyif presented by the named bank If no name appearsbetween the parallel lines the check is said to begenerally crossed and payment should be made onlyupon presentment by some bankEffects of crossing a checka That the check may not be encashed but only bedeposited in the bankb That the check may be negotiated only once to onewho has an account with a bank andc That the act of crossing the check serves as awarning to the holder that the check has beenissued for a definite purpose so that he must inquireif he has received the check pursuant to thatpurpose5 Memorandum Check ndash it is like an ordinary check exceptthat the word ldquomemorandumrdquo ldquomemrdquo or ldquomemordquo iswritten upon the face of the check signifying that thedrawer engages to pay the bona fide holder absolutelyand not upon a condition to pay upon presentment atmaturity and if due notice of the presentment and nonpaymentshould be given6 Travelerrsquos check ndash one upon which the holderrsquos signaturemust appear twice one to be affixed by him at the timeit is issued and the second o counter-signature to beaffixed by him in the presence of the payee before it ispaid otherwise it is incompleteIron Clad Rule Prohibits the countermanding ofpayment of certified checks (Republic of the Philippinesv PNB GR No 16106 December 1 1961)

1048766 By whom given1 the holder2 another on behalf of the holder3 any party to the instrument who may be compelledto pay it to the holder and who would have a rightof reimbursement from the party to whom notice isgiven1048766 Notice of dishonor given by or on behalf of a holderinures to the benefit ofa all parties prior to the holder who have a rightof recourse against the party to whom thenotice is given andb all holders subsequent to the holder givingnotice1048766 Notice of dishonor given by or on behalf of a partyentitled to give notice inures to the benefit ofa the holder andb all parties subsequent to the party to whomnotice is given1048766 Where an instrument is dishonored in the hands of anagent he can do either of the ffa directly give notice to persons secondarilyliable thereon orb give notice to his principal In such case hemust give notice within the time allowed bylaw as if he were a holder1048766 A party giving notice is deemed to have given due noticewherea the notice of dishonor is duly addressed andb deposited in the post-office even when thereis miscarriage of mail1048766 Where a party receives notice of dishonor he has afterthe receipt of such notice the same time for givingnotice to antecedent parties that the holder has afterthe dishonor1048766 Notice may be waived either before the time of givingnotice or after the omission to give due notice Waivermay be expressed or implied1048766 As to who are affected by an express waiver depends onwhere the waiver is written1 if it appears in the body or on the face of theinstrument it binds all parties but2 if it is written above the signature of anindorser it binds him only1048766 Notice of dishonor is not required to be given to thedrawer in any of the ff cases1 drawer and drawee are the same2 drawee is a fictitious person or not having thecapacity to contract3 drawer is the person to whom the instrument ispresented for payment4 the drawer has no right to expect or requirethat the drawee or acceptor will honor theinstrument5 where the drawer has countermandedpayment1048766 Notice of dishonor is not required to be given to anindorser in the ff cases1 drawee is a fictitious person or does not havethe capacity to contract and indorser wasaware of that fact at the time he indorsed theinstrument2 indorser is the person to whom the instrumentis presented for payment3 instrument was made or accepted for his

accommodation1048766 If an instrument is not accepted by the drawee there isno sense presenting it again for payment and notice ofdishonor must at once be given If there wasacceptance presentment for payment is still requiredand if payment is refused there is a need for notice ofdishonor1048766 An omission to give notice of dishonor by non-acceptancedoes not prejudice the rights of a holder in due coursesubsequent to the omissionDishonor by Non-PaymentWhen instrument dishonored by non-paymenta it is duly presented for payment and payment isrefused or cannot be obtained orb presentment is excused and the instrument isoverdue and unpaidEffect of dishonor an immediate right of recourse to allparties secondarily liable thereon accrues to the holderDishonor by Non-AcceptanceInstancesa When it is duly presented for acceptance and suchan acceptance is refused or can not be obtained orb When presentment for acceptance is excused andthe bill is not accepted (sec 149)Effect an immediate right of recourse against thedrawer and indorsers accrues to the holder and nopresentment for payment is necessaryNote where a bill is duly presented for acceptance andis not accepted within the prescribed time (24 hours)the person presenting it must treat the bill as dishonoredby non-acceptanceWhen Instrument Considered to be Dishonoreda If it is not accepted when presented for acceptanceorb If it is not paid when presented for payment atmaturity orc If presentment is excused or waived and theinstrument is past due and unpaidProtest - the formal instrument executed usually by a notarypublic certifying that the legal steps necessary to fix theliability of the drawee and the indorsers have been taken1048766 Effect of waiver where protest is waived presentmentand notice of dishonor are also deemed waived Butwhere the notice of dishonor is waived presentment isnot waived1048766 Applicability protest is necessary only in case of foreignbills of exchange which have been dishonored by nonacceptanceor non-payment as the case may be If it isnot so protested the drawer and indorsers aredischarged1048766 Foreign Bill of Exchange1 Drawn in the Philippines but payable outside thePhilippines2 Payable in the Philippines but drawn outside thePhilippines1048766 Protest may be made by1 a notary public or2 any respectable resident of the place where the billis dishonored in the presence of 2 or more crediblewitnessesProtest for better security is one made by the holder of a billafter it has been accepted but before it matures against thedrawer and indorsers where the acceptor has been adjudgeda bankrupt or an insolvent or has made an assignment forthe benefit of the creditors

VIII DISCHARGEDischarge of instrument - a release of all parties whetherprimary or secondary from the obligations arisingthereunder It renders the instrument without force andeffect and consequently it can no longer be negotiatedInstances1 By payment in due course by or on behalf of theprincipal debtor2 Payment by accommodated party3 Intentional cancellation by the holder4 By any act which will discharge a simple contractfor the payment of money5 When the principal debtor becomes the holder ofthe instrument at or after maturity in his own rightBy any act which would discharge a simple contract1 Payment or performance2 Loss of the thing due3 Condonation or remission4 Confusion or Merger5 Compensation6 Novation7 Annulment or Rescission8 Fulfillment of a resolutory condition9 PrescriptionWhen persons secondarily liable on the instrument aredischarged1 By any act which discharges the instrument2 By the intentional cancellation of his signature bythe holder3 By the discharge of a prior party4 By a valid tender of payment made by a prior party5 By the release of the principal debtor unless theholderrsquos right of recourse against the partysecondarily liable is expressly reserved6 By any agreement binding upon the holder to extendthe time of payment or to postpone the holderrsquosright to enforce the instrument1048766 In the following cases the agreement to extend the timeof payment does not discharge a party secondarily liable1 where the extension of time is consented to by suchparty2 where the holder expressly reserves his right ofrecourse against such party1048766 Payment at or after maturity by a party secondarilyliable does not discharge the instrument It only cancelshis own liability and that of the parties subsequent tohimEffects of Renunciation1 A renunciation in favor of a secondary party may bemade by the holder before at or after maturity ofthe instrument Effect only such secondary party isdischarged and all parties subsequent to him but theinstrument itself remains in force2 A renunciation in favor of the principal debtor maybe effected at or after maturity Effect theinstrument is discharged and all parties theretoprovided the renunciation is made unconditionallyand absolutelyNote In either case renunciation does not affect therights of a holder in due course without notice1048766 Cancellation of an instrument includes tearing erasureobliteration or burning It is not limited to writing ofthe word lsquocancelledrdquo or ldquopaidrdquo or drawing of crisscrosslines across the instrumentPayment for Honor - payment made by a person whether a

party to the bill or not after it has been protested for nonpaymentfor the benefit of any party liable thereon or forthe benefit of the person for whose account it was drawn1048766 Requisites1 the bill has been dishonored by non-payment2 it has been protested for non-payment3 payment supra protest (another term for paymentfor honor because prior protest for non-payment isrequired) is made by any person even by a partythereto4 the payment is attested by a notarial act of honorwhich must be appended to the protest or form anextension of it5 the notarial act must be based on the declarationmade by the payor for honor or his agent of hisintention to pay the bill for honor and for whosehonor he paysNote If the above formalities are not complied withpayment will operate as a mere voluntary payment andthe payor will acquire no right to full reimbursementagainst the party for whose honor he pays1048766 In payment for honor the payee cannot refuse paymentIf he refuses he cannot recover from the parties whowould have been discharged had he accepted the sameIn acceptance for honor the holderrsquos consent isnecessary1048766 The payor for honor is given the right to receive both thebill and the protest obviously to enable him to enforcehis rights against the parties who are liable to himIX CHECKSCheck- a bill of exchange drawn on a bank payable ondemandCheck distinguished from and ordinary bill of exchangeBILLOF EXCHANGE CHECKNot necessarily drawnon a deposit The draweeneed not be a bankIt is necessary that a checkis drawn on a bank depositThe drawee is always abankDeath of a drawer of aBOE with the knowledgeof the bank does notrevoke the authority of thedrawee to payDeath of the drawer of acheck with the knowledgeof the bank revokes theauthority of the banker topayMay be presented forpayment within areasonable time after itslast negotiation because itmay be further negotiatedMust be presented forpayment within areasonable time after itsissueMay be payable on demandor at a fixed ordeterminable future timeAlways payable on demandKinds of checks

1 Managerrsquos Cashierrsquos Check ndash drawn by a bank on itselfand therefore it is a primary obligation of the banko It is accepted in advance by the act of itsissuance and is not subject tocountermand by the payor afterindorsemento The bankrsquos manager signs managerrsquos checkwhile cashierrsquos check is signed by the bankcashier2 Certified Check ndash one drawn by a depositor upon funds tohis credit in a bank which a proper officer of the bankcertifies will be paid when duly presented for payment3 Stale check ndash one which has not been presented forpayment within a reasonable time after its issue4 Crossed check ndash when 2 parallel lines are drawn acrossits face or across a corner thereof If the name of a bankappears between the parallel lines the check is said tobe specially crossed and payment should be made onlyif presented by the named bank If no name appearsbetween the parallel lines the check is said to begenerally crossed and payment should be made onlyupon presentment by some bankEffects of crossing a checka That the check may not be encashed but only bedeposited in the bankb That the check may be negotiated only once to onewho has an account with a bank andc That the act of crossing the check serves as awarning to the holder that the check has beenissued for a definite purpose so that he must inquireif he has received the check pursuant to thatpurpose5 Memorandum Check ndash it is like an ordinary check exceptthat the word ldquomemorandumrdquo ldquomemrdquo or ldquomemordquo iswritten upon the face of the check signifying that thedrawer engages to pay the bona fide holder absolutelyand not upon a condition to pay upon presentment atmaturity and if due notice of the presentment and nonpaymentshould be given6 Travelerrsquos check ndash one upon which the holderrsquos signaturemust appear twice one to be affixed by him at the timeit is issued and the second o counter-signature to beaffixed by him in the presence of the payee before it ispaid otherwise it is incompleteIron Clad Rule Prohibits the countermanding ofpayment of certified checks (Republic of the Philippinesv PNB GR No 16106 December 1 1961)

accommodation1048766 If an instrument is not accepted by the drawee there isno sense presenting it again for payment and notice ofdishonor must at once be given If there wasacceptance presentment for payment is still requiredand if payment is refused there is a need for notice ofdishonor1048766 An omission to give notice of dishonor by non-acceptancedoes not prejudice the rights of a holder in due coursesubsequent to the omissionDishonor by Non-PaymentWhen instrument dishonored by non-paymenta it is duly presented for payment and payment isrefused or cannot be obtained orb presentment is excused and the instrument isoverdue and unpaidEffect of dishonor an immediate right of recourse to allparties secondarily liable thereon accrues to the holderDishonor by Non-AcceptanceInstancesa When it is duly presented for acceptance and suchan acceptance is refused or can not be obtained orb When presentment for acceptance is excused andthe bill is not accepted (sec 149)Effect an immediate right of recourse against thedrawer and indorsers accrues to the holder and nopresentment for payment is necessaryNote where a bill is duly presented for acceptance andis not accepted within the prescribed time (24 hours)the person presenting it must treat the bill as dishonoredby non-acceptanceWhen Instrument Considered to be Dishonoreda If it is not accepted when presented for acceptanceorb If it is not paid when presented for payment atmaturity orc If presentment is excused or waived and theinstrument is past due and unpaidProtest - the formal instrument executed usually by a notarypublic certifying that the legal steps necessary to fix theliability of the drawee and the indorsers have been taken1048766 Effect of waiver where protest is waived presentmentand notice of dishonor are also deemed waived Butwhere the notice of dishonor is waived presentment isnot waived1048766 Applicability protest is necessary only in case of foreignbills of exchange which have been dishonored by nonacceptanceor non-payment as the case may be If it isnot so protested the drawer and indorsers aredischarged1048766 Foreign Bill of Exchange1 Drawn in the Philippines but payable outside thePhilippines2 Payable in the Philippines but drawn outside thePhilippines1048766 Protest may be made by1 a notary public or2 any respectable resident of the place where the billis dishonored in the presence of 2 or more crediblewitnessesProtest for better security is one made by the holder of a billafter it has been accepted but before it matures against thedrawer and indorsers where the acceptor has been adjudgeda bankrupt or an insolvent or has made an assignment forthe benefit of the creditors

VIII DISCHARGEDischarge of instrument - a release of all parties whetherprimary or secondary from the obligations arisingthereunder It renders the instrument without force andeffect and consequently it can no longer be negotiatedInstances1 By payment in due course by or on behalf of theprincipal debtor2 Payment by accommodated party3 Intentional cancellation by the holder4 By any act which will discharge a simple contractfor the payment of money5 When the principal debtor becomes the holder ofthe instrument at or after maturity in his own rightBy any act which would discharge a simple contract1 Payment or performance2 Loss of the thing due3 Condonation or remission4 Confusion or Merger5 Compensation6 Novation7 Annulment or Rescission8 Fulfillment of a resolutory condition9 PrescriptionWhen persons secondarily liable on the instrument aredischarged1 By any act which discharges the instrument2 By the intentional cancellation of his signature bythe holder3 By the discharge of a prior party4 By a valid tender of payment made by a prior party5 By the release of the principal debtor unless theholderrsquos right of recourse against the partysecondarily liable is expressly reserved6 By any agreement binding upon the holder to extendthe time of payment or to postpone the holderrsquosright to enforce the instrument1048766 In the following cases the agreement to extend the timeof payment does not discharge a party secondarily liable1 where the extension of time is consented to by suchparty2 where the holder expressly reserves his right ofrecourse against such party1048766 Payment at or after maturity by a party secondarilyliable does not discharge the instrument It only cancelshis own liability and that of the parties subsequent tohimEffects of Renunciation1 A renunciation in favor of a secondary party may bemade by the holder before at or after maturity ofthe instrument Effect only such secondary party isdischarged and all parties subsequent to him but theinstrument itself remains in force2 A renunciation in favor of the principal debtor maybe effected at or after maturity Effect theinstrument is discharged and all parties theretoprovided the renunciation is made unconditionallyand absolutelyNote In either case renunciation does not affect therights of a holder in due course without notice1048766 Cancellation of an instrument includes tearing erasureobliteration or burning It is not limited to writing ofthe word lsquocancelledrdquo or ldquopaidrdquo or drawing of crisscrosslines across the instrumentPayment for Honor - payment made by a person whether a

party to the bill or not after it has been protested for nonpaymentfor the benefit of any party liable thereon or forthe benefit of the person for whose account it was drawn1048766 Requisites1 the bill has been dishonored by non-payment2 it has been protested for non-payment3 payment supra protest (another term for paymentfor honor because prior protest for non-payment isrequired) is made by any person even by a partythereto4 the payment is attested by a notarial act of honorwhich must be appended to the protest or form anextension of it5 the notarial act must be based on the declarationmade by the payor for honor or his agent of hisintention to pay the bill for honor and for whosehonor he paysNote If the above formalities are not complied withpayment will operate as a mere voluntary payment andthe payor will acquire no right to full reimbursementagainst the party for whose honor he pays1048766 In payment for honor the payee cannot refuse paymentIf he refuses he cannot recover from the parties whowould have been discharged had he accepted the sameIn acceptance for honor the holderrsquos consent isnecessary1048766 The payor for honor is given the right to receive both thebill and the protest obviously to enable him to enforcehis rights against the parties who are liable to himIX CHECKSCheck- a bill of exchange drawn on a bank payable ondemandCheck distinguished from and ordinary bill of exchangeBILLOF EXCHANGE CHECKNot necessarily drawnon a deposit The draweeneed not be a bankIt is necessary that a checkis drawn on a bank depositThe drawee is always abankDeath of a drawer of aBOE with the knowledgeof the bank does notrevoke the authority of thedrawee to payDeath of the drawer of acheck with the knowledgeof the bank revokes theauthority of the banker topayMay be presented forpayment within areasonable time after itslast negotiation because itmay be further negotiatedMust be presented forpayment within areasonable time after itsissueMay be payable on demandor at a fixed ordeterminable future timeAlways payable on demandKinds of checks

1 Managerrsquos Cashierrsquos Check ndash drawn by a bank on itselfand therefore it is a primary obligation of the banko It is accepted in advance by the act of itsissuance and is not subject tocountermand by the payor afterindorsemento The bankrsquos manager signs managerrsquos checkwhile cashierrsquos check is signed by the bankcashier2 Certified Check ndash one drawn by a depositor upon funds tohis credit in a bank which a proper officer of the bankcertifies will be paid when duly presented for payment3 Stale check ndash one which has not been presented forpayment within a reasonable time after its issue4 Crossed check ndash when 2 parallel lines are drawn acrossits face or across a corner thereof If the name of a bankappears between the parallel lines the check is said tobe specially crossed and payment should be made onlyif presented by the named bank If no name appearsbetween the parallel lines the check is said to begenerally crossed and payment should be made onlyupon presentment by some bankEffects of crossing a checka That the check may not be encashed but only bedeposited in the bankb That the check may be negotiated only once to onewho has an account with a bank andc That the act of crossing the check serves as awarning to the holder that the check has beenissued for a definite purpose so that he must inquireif he has received the check pursuant to thatpurpose5 Memorandum Check ndash it is like an ordinary check exceptthat the word ldquomemorandumrdquo ldquomemrdquo or ldquomemordquo iswritten upon the face of the check signifying that thedrawer engages to pay the bona fide holder absolutelyand not upon a condition to pay upon presentment atmaturity and if due notice of the presentment and nonpaymentshould be given6 Travelerrsquos check ndash one upon which the holderrsquos signaturemust appear twice one to be affixed by him at the timeit is issued and the second o counter-signature to beaffixed by him in the presence of the payee before it ispaid otherwise it is incompleteIron Clad Rule Prohibits the countermanding ofpayment of certified checks (Republic of the Philippinesv PNB GR No 16106 December 1 1961)

VIII DISCHARGEDischarge of instrument - a release of all parties whetherprimary or secondary from the obligations arisingthereunder It renders the instrument without force andeffect and consequently it can no longer be negotiatedInstances1 By payment in due course by or on behalf of theprincipal debtor2 Payment by accommodated party3 Intentional cancellation by the holder4 By any act which will discharge a simple contractfor the payment of money5 When the principal debtor becomes the holder ofthe instrument at or after maturity in his own rightBy any act which would discharge a simple contract1 Payment or performance2 Loss of the thing due3 Condonation or remission4 Confusion or Merger5 Compensation6 Novation7 Annulment or Rescission8 Fulfillment of a resolutory condition9 PrescriptionWhen persons secondarily liable on the instrument aredischarged1 By any act which discharges the instrument2 By the intentional cancellation of his signature bythe holder3 By the discharge of a prior party4 By a valid tender of payment made by a prior party5 By the release of the principal debtor unless theholderrsquos right of recourse against the partysecondarily liable is expressly reserved6 By any agreement binding upon the holder to extendthe time of payment or to postpone the holderrsquosright to enforce the instrument1048766 In the following cases the agreement to extend the timeof payment does not discharge a party secondarily liable1 where the extension of time is consented to by suchparty2 where the holder expressly reserves his right ofrecourse against such party1048766 Payment at or after maturity by a party secondarilyliable does not discharge the instrument It only cancelshis own liability and that of the parties subsequent tohimEffects of Renunciation1 A renunciation in favor of a secondary party may bemade by the holder before at or after maturity ofthe instrument Effect only such secondary party isdischarged and all parties subsequent to him but theinstrument itself remains in force2 A renunciation in favor of the principal debtor maybe effected at or after maturity Effect theinstrument is discharged and all parties theretoprovided the renunciation is made unconditionallyand absolutelyNote In either case renunciation does not affect therights of a holder in due course without notice1048766 Cancellation of an instrument includes tearing erasureobliteration or burning It is not limited to writing ofthe word lsquocancelledrdquo or ldquopaidrdquo or drawing of crisscrosslines across the instrumentPayment for Honor - payment made by a person whether a

party to the bill or not after it has been protested for nonpaymentfor the benefit of any party liable thereon or forthe benefit of the person for whose account it was drawn1048766 Requisites1 the bill has been dishonored by non-payment2 it has been protested for non-payment3 payment supra protest (another term for paymentfor honor because prior protest for non-payment isrequired) is made by any person even by a partythereto4 the payment is attested by a notarial act of honorwhich must be appended to the protest or form anextension of it5 the notarial act must be based on the declarationmade by the payor for honor or his agent of hisintention to pay the bill for honor and for whosehonor he paysNote If the above formalities are not complied withpayment will operate as a mere voluntary payment andthe payor will acquire no right to full reimbursementagainst the party for whose honor he pays1048766 In payment for honor the payee cannot refuse paymentIf he refuses he cannot recover from the parties whowould have been discharged had he accepted the sameIn acceptance for honor the holderrsquos consent isnecessary1048766 The payor for honor is given the right to receive both thebill and the protest obviously to enable him to enforcehis rights against the parties who are liable to himIX CHECKSCheck- a bill of exchange drawn on a bank payable ondemandCheck distinguished from and ordinary bill of exchangeBILLOF EXCHANGE CHECKNot necessarily drawnon a deposit The draweeneed not be a bankIt is necessary that a checkis drawn on a bank depositThe drawee is always abankDeath of a drawer of aBOE with the knowledgeof the bank does notrevoke the authority of thedrawee to payDeath of the drawer of acheck with the knowledgeof the bank revokes theauthority of the banker topayMay be presented forpayment within areasonable time after itslast negotiation because itmay be further negotiatedMust be presented forpayment within areasonable time after itsissueMay be payable on demandor at a fixed ordeterminable future timeAlways payable on demandKinds of checks

1 Managerrsquos Cashierrsquos Check ndash drawn by a bank on itselfand therefore it is a primary obligation of the banko It is accepted in advance by the act of itsissuance and is not subject tocountermand by the payor afterindorsemento The bankrsquos manager signs managerrsquos checkwhile cashierrsquos check is signed by the bankcashier2 Certified Check ndash one drawn by a depositor upon funds tohis credit in a bank which a proper officer of the bankcertifies will be paid when duly presented for payment3 Stale check ndash one which has not been presented forpayment within a reasonable time after its issue4 Crossed check ndash when 2 parallel lines are drawn acrossits face or across a corner thereof If the name of a bankappears between the parallel lines the check is said tobe specially crossed and payment should be made onlyif presented by the named bank If no name appearsbetween the parallel lines the check is said to begenerally crossed and payment should be made onlyupon presentment by some bankEffects of crossing a checka That the check may not be encashed but only bedeposited in the bankb That the check may be negotiated only once to onewho has an account with a bank andc That the act of crossing the check serves as awarning to the holder that the check has beenissued for a definite purpose so that he must inquireif he has received the check pursuant to thatpurpose5 Memorandum Check ndash it is like an ordinary check exceptthat the word ldquomemorandumrdquo ldquomemrdquo or ldquomemordquo iswritten upon the face of the check signifying that thedrawer engages to pay the bona fide holder absolutelyand not upon a condition to pay upon presentment atmaturity and if due notice of the presentment and nonpaymentshould be given6 Travelerrsquos check ndash one upon which the holderrsquos signaturemust appear twice one to be affixed by him at the timeit is issued and the second o counter-signature to beaffixed by him in the presence of the payee before it ispaid otherwise it is incompleteIron Clad Rule Prohibits the countermanding ofpayment of certified checks (Republic of the Philippinesv PNB GR No 16106 December 1 1961)

party to the bill or not after it has been protested for nonpaymentfor the benefit of any party liable thereon or forthe benefit of the person for whose account it was drawn1048766 Requisites1 the bill has been dishonored by non-payment2 it has been protested for non-payment3 payment supra protest (another term for paymentfor honor because prior protest for non-payment isrequired) is made by any person even by a partythereto4 the payment is attested by a notarial act of honorwhich must be appended to the protest or form anextension of it5 the notarial act must be based on the declarationmade by the payor for honor or his agent of hisintention to pay the bill for honor and for whosehonor he paysNote If the above formalities are not complied withpayment will operate as a mere voluntary payment andthe payor will acquire no right to full reimbursementagainst the party for whose honor he pays1048766 In payment for honor the payee cannot refuse paymentIf he refuses he cannot recover from the parties whowould have been discharged had he accepted the sameIn acceptance for honor the holderrsquos consent isnecessary1048766 The payor for honor is given the right to receive both thebill and the protest obviously to enable him to enforcehis rights against the parties who are liable to himIX CHECKSCheck- a bill of exchange drawn on a bank payable ondemandCheck distinguished from and ordinary bill of exchangeBILLOF EXCHANGE CHECKNot necessarily drawnon a deposit The draweeneed not be a bankIt is necessary that a checkis drawn on a bank depositThe drawee is always abankDeath of a drawer of aBOE with the knowledgeof the bank does notrevoke the authority of thedrawee to payDeath of the drawer of acheck with the knowledgeof the bank revokes theauthority of the banker topayMay be presented forpayment within areasonable time after itslast negotiation because itmay be further negotiatedMust be presented forpayment within areasonable time after itsissueMay be payable on demandor at a fixed ordeterminable future timeAlways payable on demandKinds of checks

1 Managerrsquos Cashierrsquos Check ndash drawn by a bank on itselfand therefore it is a primary obligation of the banko It is accepted in advance by the act of itsissuance and is not subject tocountermand by the payor afterindorsemento The bankrsquos manager signs managerrsquos checkwhile cashierrsquos check is signed by the bankcashier2 Certified Check ndash one drawn by a depositor upon funds tohis credit in a bank which a proper officer of the bankcertifies will be paid when duly presented for payment3 Stale check ndash one which has not been presented forpayment within a reasonable time after its issue4 Crossed check ndash when 2 parallel lines are drawn acrossits face or across a corner thereof If the name of a bankappears between the parallel lines the check is said tobe specially crossed and payment should be made onlyif presented by the named bank If no name appearsbetween the parallel lines the check is said to begenerally crossed and payment should be made onlyupon presentment by some bankEffects of crossing a checka That the check may not be encashed but only bedeposited in the bankb That the check may be negotiated only once to onewho has an account with a bank andc That the act of crossing the check serves as awarning to the holder that the check has beenissued for a definite purpose so that he must inquireif he has received the check pursuant to thatpurpose5 Memorandum Check ndash it is like an ordinary check exceptthat the word ldquomemorandumrdquo ldquomemrdquo or ldquomemordquo iswritten upon the face of the check signifying that thedrawer engages to pay the bona fide holder absolutelyand not upon a condition to pay upon presentment atmaturity and if due notice of the presentment and nonpaymentshould be given6 Travelerrsquos check ndash one upon which the holderrsquos signaturemust appear twice one to be affixed by him at the timeit is issued and the second o counter-signature to beaffixed by him in the presence of the payee before it ispaid otherwise it is incompleteIron Clad Rule Prohibits the countermanding ofpayment of certified checks (Republic of the Philippinesv PNB GR No 16106 December 1 1961)

1 Managerrsquos Cashierrsquos Check ndash drawn by a bank on itselfand therefore it is a primary obligation of the banko It is accepted in advance by the act of itsissuance and is not subject tocountermand by the payor afterindorsemento The bankrsquos manager signs managerrsquos checkwhile cashierrsquos check is signed by the bankcashier2 Certified Check ndash one drawn by a depositor upon funds tohis credit in a bank which a proper officer of the bankcertifies will be paid when duly presented for payment3 Stale check ndash one which has not been presented forpayment within a reasonable time after its issue4 Crossed check ndash when 2 parallel lines are drawn acrossits face or across a corner thereof If the name of a bankappears between the parallel lines the check is said tobe specially crossed and payment should be made onlyif presented by the named bank If no name appearsbetween the parallel lines the check is said to begenerally crossed and payment should be made onlyupon presentment by some bankEffects of crossing a checka That the check may not be encashed but only bedeposited in the bankb That the check may be negotiated only once to onewho has an account with a bank andc That the act of crossing the check serves as awarning to the holder that the check has beenissued for a definite purpose so that he must inquireif he has received the check pursuant to thatpurpose5 Memorandum Check ndash it is like an ordinary check exceptthat the word ldquomemorandumrdquo ldquomemrdquo or ldquomemordquo iswritten upon the face of the check signifying that thedrawer engages to pay the bona fide holder absolutelyand not upon a condition to pay upon presentment atmaturity and if due notice of the presentment and nonpaymentshould be given6 Travelerrsquos check ndash one upon which the holderrsquos signaturemust appear twice one to be affixed by him at the timeit is issued and the second o counter-signature to beaffixed by him in the presence of the payee before it ispaid otherwise it is incompleteIron Clad Rule Prohibits the countermanding ofpayment of certified checks (Republic of the Philippinesv PNB GR No 16106 December 1 1961)