Commercial Law Negotiable Instruments Law only 1 presentment for payment generally 2 presentments for acceptance

1.Negotiable Instruments and for payment

written contracts for the payment of money; by its form, intended as a
substitute for money and intended to pass from hand to hand, to give the
holder in due course the right to hold the same and collect the sum due. 9. Distinctions between a Check and Bill of Exchange
CHECK BOE
2. Characteristics of Negotiable Instruments: - always drawn upon a bank or banker - may or may not be drawn against a
a. negotiability right of transferee to hold the instrument and collect the bank
sum due - always payable on demand - may be payable on demand or at a
b. accumulation of secondary contracts instrument is negotiated from fixed or determinable future time
person to person - not necessary that it be presented for - necessary that it be presented for
acceptance acceptance
3. Difference between Negotiable Instruments from Non-Negotiable - drawn on a deposit - not drawn on a deposit
Instruments: - the death of a drawer of a check, with - the death of the drawer of the
Negotiable Instruments Non-negotiable Instruments knowledge by the banks, revokes the ordinary bill of exchange does not
Contains all the requisites of Sec. 1 does not contain all the requisites of Sec. 1 authority of the banker pay
of the NIL of the NIL - must be presented for payment within a - may be presented for payment within
Transferred by negotiation transferred by assignment reasonable time after its issue (6 a reasonable time after its last
Holder in due course may have transferee acquires rights only of his months) negotiation
better rights than transferor transferor
Prior parties warrant payment prior parties merely warrant legality of title 10. Distinctions between a Promissory Note and Check
Transferee has right of recourse transferee has no right of recourse PN CHECK
against intermediate parties - there are two (2) parties, the maker and the payee - there are three (3) par
the payee
4. Difference between Negotiable Instruments and Negotiable Documents - may be drawn against any person, not necessarily a bank - always drawn against a
of Title - may be payable on demand or at a fixed or determinable future -always payable on dem
Negotiable Instruments Negotiable Documents of Title time
Have requisites of Sec. 1 of the NIL does not contain requisites of Sec. 1 of NIL - a promise to pay - an order to pay
Have right of recourse against no secondary liability of intermediate
intermediate parties who are parties 11. Other Forms of Negotiable Instruments:
secondarily liable a. certificates of deposits
Holder in due course may have transferee merely steps into the shoes of b. trade acceptances
rights better than transferor the transferor c. bonds in the nature of promissory notes
Subject is money subject is goods d. drafts which are bills of exchange drawn by 1 bank to another
Instrument itself is property of value instrument is merely evidence of title; thing e. letters of credit
of value are the goods mentioned in the
document 12. Trust Receipt a security transaction intended to aid in the financing of
importers and retailers who do not have sufficient funds to finance their transaction
5. Promissory Note unconditional promise to pay in writing made by one person and acquire credit except to use as collateral the merchandise imported
to anther, signed by the maker, engaging to pay on demand or a fixed determinable
future time a sum certain in money to order or bearer. When the note is drawn to 13. Requisites of a Negotiable Note (PN): (SUDO)
makers own order, it is not complete until indorse by him. (Sec. 184 NIL) It must:
Parties: maker, payee a. be in writing signed by the drawer
b. contains an unconditional promise or order to pay a sum certain in
6. Bill of Exchange unconditional order in writing addressed by one person to money
another, signed by the person giving it, requiring the person to whom it is addressed c. be payable on demand or at a fixed determinable future time
to pay on demand or at a fixed or determinable future time a sum certain in money d. be payable to order or to bearer (Sec. 1 NIL)
to order or to bearer. (Sec. 126 NIL)
Parties: drawer, payee, drawee/ acceptor 14. Requisites of a Negotiable Bill (BOE): (SUDOC)
It must:
7. Check bill of exchange drawn on a bank and payable on demand. (Sec. 185 NIL) be in writing signed by the drawer
contains an unconditional promise or order to pay a sum certain in money
8. Difference between Promissory Note and Bill of Exchange be payable on demand or at a fixed determinable future time
Promissory Note Bill of Exchange
be payable to order or to bearer
Unconditional promise unconditional order
the drawee must be named or otherwise indicated with
Involves 2 parties involves 3 parties
reasonable certainty (Sec. 1 NIL)
Maker primarily liable drawer only secondarily liable
Notes on Section 1: - If the instrument is payable upon a contingency, the happening of the
- In order to be negotiable, there must be a writing of some kind, else there event does not cure the defect (still non-negotiable)
would be nothing to be negotiated or passed from hand to hand. The writing may be
in ink, print or pencil. It may be upon parchment, cloth, leather or any other 19. General Rule: If some other act is required other than the payment of
substitute of paper. money, it is non-negotiable.
- It must be signed by the maker or drawer. It may consist of mere initials or Exceptions:
even numbers, but the holder must prove that what is written is intended as a a. sale of collateral securities
signature of the person sought to be charged. b. confession of judgment
- The Bill must contain an order, something more than the mere asking of c. waives benefit of law
a favor. d. gives option to the holder to require something to be done in lieu of
- Sum payable must be in money only. It cannot be made payable in goods, money (Sec. 5 NIL)
wares, or merchandise or in property. Notes of Section 5
- A drawees name may be filled in under Section 14 of the NIL - Limitation on the provision, it cannot require something illegal.
-There are two kinds of judgements by confession:
15. Determination of negotiability a) cognovit actionem
by the provisions of the Negotiable Instrument Law, particularly Section 1 b) relicta verificatione
thereof -Confessions of judgement in the Philippines are void as against public
by considering the whole instrument policy.
by what appears on the face of the instrument and not elsewhere - If the choice lies with the debtor, the instrument is rendered non-
negotiable.
*In determining is the instrument is negotiable, only the instrument itself and no
other, must be examined and compared with the requirements stated in Sec. 1. If it 20. The validity and negotiability of an instrument is not affected by the
appears on the instrument that it lacks one of the requirements, it is not negotiable fact that:
and the provisions of the NIL do not govern the instrument. The requirement lacking it is not dated
cannot be supplied by using a separate instrument in which that requirement which does not specify the value given or that any had been given
is lacking appears. does not specify the place where it is drawn or payable
bears a seal designates the kind of current money in which payment is to
16. Sum is certain even if it is to be paid with: be made (Sec. 6 NIL)
a. interest
b. in installments 21. Instrument is payable upon demand if:
c. in installments with acceleration clause a. it is expressed to be so payable on sight or upon presentation
d. with exchange b. no period of payment is stipulated
e. costs of collection or attorneys fees (Sec. 2 NIL) c. issued, accepted, or endorsed after maturity (Sec. 7 NIL)
Where an instrument is issued, accepted or indorsed when overdue, it is, as
17. General Rule: The promise or order should not depend on a contingent event. If regards to the person so issuing, accepting, or indorsing it, payable on demand.
it is conditional, it is non-negotiable. Notes on Section 7
Exceptions: - if the time for payment is left blank (as opposed to being omitted), it may
a. indication of particular fund from which the acceptor disburses himself properly be considered as an incomplete instrument and fall under the provisions of
after payment Sec. 14, 15, or 16 depending on how the instrument is delivered.
b. statement of the transaction which gives rise to the instrument. (Sec. 3
NIL) 22. Instrument is payable to order:
But an order or promise to pay out of a particular fund is not unconditional - where it is drawn payable to the order of a specified person or
Notes on Section 3 - to a specified person or his order
- The particular fund indicated should not be the direct source of payment, It may be drawn payable to the order of:
else it becomes unconditional and therefore non-negotiable. The fund should only a. a payee who is not a maker, drawer, or drawee
be the source of reimbursement. b. the drawer or maker
- A statement of the transaction does not destroy the negotiability of the c. the drawee
instrument. d. two or more payees jointly
Exception: Where the promise to pay or order is made subject to the terms e. one or some of several payees
and conditions of the transaction stated. f. the holder of an office for the time being (Sec. 8 NIL)
Notes on Section 8
18. Instrument is payable upon a determinable future time if: -The payee must be named or otherwise indicated therein with reasonable
a. there is a fixed period after sight/date certainty.
b. on or before a specified date/fixed determinable future time -If there is no payee, there would be no one to indorse the instrument
c. on or at a fixed date after the occurrence of an event certain to happen payable to order. Therefore useless to be considered negotiable.
though the exact date is not certain (Sec. 4 NIL) - Joint payees in indicated by the conjunction and. To negotiate, all must
Notes on Section 4 indorse.
 - Being several payees is indicated by the conjunction or. -if the instrument is wanting in material particular, mere possession of the
instrument is enough to presume prima facie authority to fill it up.
23. Instrument is payable to bearer : -material particular may be an omission which will render the instrument
a. when it is expressed to be so payable non-negotiable (e.g. name of payee), an omission which will not render the
b. when payable to the person named or bearer instrument non-negotiable (e.g. date)
c. payable to order of fictitious or non-existent person and this fact was -in the case of the signature in blank, delivery with intent to convert it into
known to drawer a negotiable instrument is required. Mere possession is not enough.
d. name of payee not name of any person
e. only and last indorsement is an indorsement in blank (Sec. 9 NIL) 28. Incomplete and Undelivered Instrument:
Notes on Section 9 General Rule: Where an incomplete instrument has not been delivered, it
-fictitious person is not limited to persons having no legal existence. An will not, if completed and negotiated without authority, be a valid contract in the
existing person may be considered fictitious depending on the intention of the hands of any holder against any person who signed before delivery. (Sec. 15 NIL)
maker or the drawer. Notes on Section 15
-fictitious person means a person who has no right to the instrument -it is a real defense. It can be interposed against a holder in due course.
because the maker or drawer of it so intended. He was not intended to be the -delivery is not conclusively presumed where the instrument is incomplete
payee. -defense of the maker is to prove non-delivery of the incomplete
- where the instrument is drawn, made or prepared by an agent, the instrument.
knowledge or intent of the signer of the instrument is controlling.
-Where the agent has no authority to execute the instrument, the intent of 29. Complete but Undelivered:
the principal is controlling General Rule: Every contract on a negotiable instrument is incomplete and
revocable until delivery for the purpose of giving effect thereto.
24. The date may be inserted in an instrument when: a. If between immediate parties and remote parties not holder in due
an instrument expressed to be payable at a fixed period after date is issued course, to be effectual there must be authorized delivery by the party
undated making, drawing, accepting or indorsing. Delivery may be shown to be
where acceptance of an instrument payable at a fixed period after sight is undated conditional or for a special purpose only
(Sec. 13 NIL) b. If the holder is a holder in due course, all prior deliveries conclusively
Effects: presumed valid
- any holder may insert the true date of issuance or acceptance c. If instrument not in hands of drawer/maker, valid and intentional delivery
- the insertion of a wrong date does not avoid the instrument in the hands is presumed until the contrary is proven (Sec. 16 NIL)
of a subsequent holder in due course
- as to the holder in due course, the date inserted (even if it be the wrong Rules on delivery of negotiable instruments:
date) is regarded as the true date. 1) delivery is essential to the validity of any negotiable instrument
2) as between immediate parties or those is like cases, delivery must be
25. Subsequent Holder in Due Course not affected by the following with intention of passing title
deficiencies: 3) an instrument signed but not completed by the drawer or maker and
a. incomplete but delivered instrument (Sec. 14 NIL) retained by him is invalid as to him for want of delivery even in the hands
b. complete but undelivered (Sec. 16 NIL) of a holder in due course
c. complete and delivered issued without consideration or a consideration 4) but there is prima facie presumption of delivery of an instrument signed
consisting of a promise which was not fulfilled (Sec 28 NIL) but not completed by the drawer or maker and retained by him if it is in the
hands of a holder in due course. This may be rebutted by proof of non-
26. Holder in Due Course Affected by Abnormality/Deficiency: delivery.
a. incomplete and undelivered instrument (Sec. 15 NIL) 5) an instrument entrusted to another who wrongfully completes it and
b.maker/drawers signature forged (Sec. 23 NIL) negotiates it to a holder in due course, delivery to the agent or custodian is
sufficient delivery to bind the maker or drawer.
27. Incomplete but Delivered Instrument: 6) If an instrument is completed and is found in the possession of another,
1. Where an instrument is wanting in any material particular: there is prima facie evidence of delivery and if it be a holder in due course,
a. Holder has prima facie authority to fill up the blanks therein. there is conclusive presumption of delivery.
b. It must be filled up strictly in accordance with the authority 7) delivery may be conditional or for a special purpose but such do not
given and within a reasonable time. affect the rights of a holder in due course.
c. If negotiated to a holder in due course, it is valid and effectual
for all purpose as though it was filled up strictly in accordance with 30. General rule: a person whose signature does not appear on the
the authority given and within reasonable time. (Sec. 14 NIL) instrument in not liable.
2. Where only a signature on a blank paper was delivered: Exception:
It was delivered by the person making it in order that it may be one who signs in a trade or assumed name (Sec. 18)
converted into a negotiable instrument a duly authorized agent (Sec. 19)
The holder has prima facie authority to fill it up as such for any a forger (Sec. 23)
amount. (Sec. 14 NIL)
Notes on Section 14
31. General rule: an agent is not liable on the instrument if he were duly -Where the payees signature is forged, payments made by the drawee
authorized to sign for or on behalf of a principal. bank to collecting bank is ineffective. No debtor/creditor relationship is created. An
Requisites: agency to collect is created between the person depositing and the collecting bank.
a. he must be duly authorized Drawee bank may recover from collecting bank who may in turn recover from the
b. he must add words to his signature indicating that he signs as an agent person depositing.
c. he must disclose his principal (Sec. 20 NIL)
Notes on Section 20 Rules on liabilities of parties on a forged instrument
-if an agent does not disclose his principal, the agent is personally liable on In a PN
the instrument. -a party whose indorsement is forged on a note payable to order and all
parties prior to him including the maker cannot be held liable by any holder
32. Per Procuration operates as notice that the agent has a limited -a party whose indorsement is forged on a note originally payable to bearer
authority to sign. and all parties prior to him including the maker may be held liable by a
Effects: holder in due course provided that it was mechanically complete before the
-the principal in only bound if the agent acted within the limits of the forgery
authority given -a maker whose signature was forged cannot be held liable by any holder
-the person who takes the instrument is bound to inquire into the extent
and nature of the authority given. (Sec. 21 NIL) In a BOE
-the drawers account cannot be charged by the drawee where the drawee
33. General rule: Infants and corporations incur no liability by their paid
indorsement or assignment of an instrument. (Sec. 22 NIL) -the drawer has no right to recover from the collecting bank
Effects: -the drawee bank can recover from the collecting bank
-no liability attached to the infant or the corporation -the payee can recover from the drawer
-the instrument is still valid and the indorsee acquires title -the payee can recover from the recipient of the payment, such as the
collecting bank
34. General rule: a signature which is forged or made without authority is -the payee cannot collect from the drawee bank
wholly inoperative. -the collecting bank bears the loss but can recover from the person to
Effects: whom it paid
-no right to retain -if payable to bearer, the rules are the same as in PN.
-no right to give a discharge -if the drawee has accepted the bill, the drawee bears the loss and his
-no right to enforce payment can be acquired. (Sec. 23 NIL) remedy is to go after the forger
-if the drawee has not accepted the bill but has paid it, the drawee cannot
recover from the drawer or the recipient of the proceeds, absence any act
Exception: of negligence on their part.
-the party against whom it is sought to be enforced is precluded from
setting up the forgery or want of authority. 35. Every negotiable instrument is deemed prima facie to have been issued
Notes on Section 23 for a valuable consideration. (Sec. 24 NIL)
-Section 23 applies only to forged signatures or signatures made without Effects:
authority -every person whose signature appears thereon is a party for value
-Alterations such as to amounts or like fall under section 124 -presumption is disputable
-Forms of forgery are a) fraud in factum b) duress amounting to fraud c)
fraudulent impersonation 36. Where value has at any time been given for the instrument, the holder
-Only the signature forged or made without authority is inoperative, the is deemed a holder for value in respect to all parties who become such
instrument or other signatures which are genuine are affected prior to that time. (Sec. 26 NIL)
- The instrument can be enforced by holders to whose title the forged
signature is not necessary 37. Effect of want of consideration:
-Persons who are precluded from setting up the forgery are a) those who Absence or failure of consideration may be set up against a holder not a
warrant or admit the genuineness of the signature b) those who are estopped. holder in due course (personal defense)
-Persons who are precluded by warranting are Partial failure of consideration is a defense pro tanto (Sec 28 NIL)
a) indorsers Notes on Section 28
b) persons negotiating by delivery -absence of consideration is where no consideration was intended to pass.
c) acceptors. -failure of consideration implies that consideration was intended by that it
-drawee bank is conclusively presumed to know the signature of its drawer failed to pass
-if endorsers signature is forged, loss will be borne by the forger and -the defense of want of consideration is ineffective against a holder in due
parties subsequent thereto course
-drawee bank is not conclusively presumed to know the signature of the -a drawee who accepts the bill cannot allege want of consideration against
indorser. The responsibility falls on the bank which last guaranteed the indorsement the drawer
and not the drawee bank.
38. An accommodation party is one who signs the instrument as maker, -negotiation takes effect as of the time the indorsement is actually made
drawer, acceptor, or indorser without receiving value therefor and for the (Sec. 49 NIL)
purpose of lending his name to some other person.
Effects: 45.Rights of a holder:
-an accommodation party is liable to the holder for value notwithstanding -a holder may sue in his own name
that such holder knew that of the accommodation. (Sec. 28 NIL) -a holder may receive payment.
Notes on Section 28 Effects:
-the accommodated party cannot recover from the accommodation party -if in due course it discharges the instrument (Sec. 51 NIL)
-want of consideration cannot be interposed by the accommodation party
-an accommodation maker may seek reimbursement from a co-maker even 46. Requisites for a Holder in Due Course (HDC):
in the absence of any provision in the NIL; the deficiency is supplied by the New Civil a. receives the instrument complete and regular on its face
Code. b. became a holder before it was overdue and had no notice that it had
- he may do this even without first proceeding against the debtor provided: been previously dishonored if such was the fact
a. he paid by virtue of judicial demand c. takes the instrument for value and in good faith
b. principal debtor is insolvent d. at time he took the instrument, no notice of infirmity in instrument or
defect in the title of the person negotiating it (Sec. 52 NIL)
39. An instrument is negotiated when: Notes on Section 52
-it is transferred from one person to another, that the transfer must be in a -every holder is presumed to be a HDC (Sec. 59)
manner as to constitute the transferee a holder -the person who questions such has the burden of proof to prove otherwise
For a bearer instrument by delivery -if one of the requisites are lacking, the holder is not HDC
For payable to order by indorsement and delivery (Sec. 30 NIL) -an instrument is considered complete and regular on its face if
a) the omission is immaterial
40.Indorsement to be must be: b) the alteration on the instrument was not apparent on its face
-written on the instrument itself or upon a piece of paper attached (Sec. 31 -an instrument is overdue after the date of maturity.
NIL) -on the date of maturity, the instrument is not overdue and the holder is a
Notes on Section 31 HDC
-the paper attached with the indorsement is an allonge - acquisition of the transferee or indorsee must be in good faith
-an allonge must be attached so that it becomes a part of the instrument, it -good faith means lack of knowledge or notice of defect or infirmity
cannot be simply pinned or clipped to it.
47.A holder is not a HDC where an instrument payable on demand is
41. Kinds of Indorsements: negotiated at an unreasonable length of time after its issue (Sec. 53 NIL)
Special (Sec. 34)
Blank (Sec. 35) 48.Rights of a HDC:
Restrictive (Sec. 36) -holds the instrument free from any defect of title of prior parties
Qualified (Sec. 38) -free from defenses available to prior parties among themselves (personal/
equitable defenses)
Conditional (Sec. 39 NIL)
-may enforce payment of the instrument for the full amount against all
parties liable(Sec. 57 NIL)
42.Effects of indorsing an instrument originally payable to bearer: Notes on Section 57
-it may further be negotiated by delivery -Personal or equitable defenses are those which grow out of the agreement
-the person indorsing is liable as indorser to such persons as to make title or conduct of a particular person in regard to the instrument which renders it
through his indorsement (Sec. 40 NIL) inequitable for him through legal title to enforce it. Can be set up against holders
Notes on Section 40 not HDC
-Section 40 applies only to instruments originally payable to bearer -Legal or real defenses are those which attach to the instrument itself and
-It cannot apply where the instrument is payable to bearer because the can be set up against the whole world, including a HDC.
only or last indorsement is in blank.
Personal Defenses Real Defenses
43.A holder may strike out any indorsement which is not necessary to his
1. absence or failure of consideration Alteration
title.
2. want of delivery of complete Want of delivery of incomplete
Effects:
instrument instrument
-An indorser whose indorsement is struck out is discharged
- All indorsers subsequent to such indorser who has been discharged are 3. insertion of wrong date where payable Duress amounting to forgery
likewise relieved. (Sec. 48 NIL) at a fixed period after date and issued
undated; or at a fixed period after sight
44. Effects of a transfer without endorsement: and acceptance is undated
-the transferee acquires such title as the transferor had 4. filling up the blanks contrary to Fraud in factum or in esse contractus
-the transferee acquires the right to have the indorsement of the transferor authority given or not within reasonable
time
5. fraud in inducement Minority -the maker is precluded from setting up the defense of a) the payee is
6. acquisition of the instrument by force, Marriage in case of a wife fictional, b) that the payee was insane, a minor or a corporation acting ultra vires
duress or fear
7. acquisition of the instrument by Insanity where the insane person has a 52.A drawer is secondarily liable
unlawful means guardian appointed by the court Effects of drawing the instrument, the drawer:
8. acquisition of the instrument for an Ultra vires acts of a corporation where -admits the existence of the payee, the capacity of such payee to indorse
illegal consideration its charter or by statue, it is prohibited engages that on due presentment, the instrument will be accepted or paid or both
from issuing commercial paper according to its tenor.
9. negotiation in breach of faith Want of authority of agent -If the instrument is dishonored, and the necessary proceedings on
10. negotiation under circumstances Execution of instrument between public dishonor duly taken
amounting to fraud enemies the drawer will pay the amount thereof to the holderwill pay to any subsequent
11. Mistake Illegality of contract made by statue indorser who may be compelled to pay it. (Sec. 61 NIL)
Notes on Section 61
12. intoxication Forgery
-a drawer may insert an express stipulation to negative or limit his liability
13. ultra vires acts of corporations
14. want of authority of the agent where
53. An acceptor is primarily liable
he has apparent authority
By accepting the instrument, an acceptor:
15. illegality of contract where form or -engages that he will pay according to the tenor of his acceptance
consideration is illegal -admits the existence of the drawer, the genuineness of his signature and
16. insanity where there is no notice of his capacity and authority to draw the instrument
insanity -the existence of the payee and his then capacity indorse
49. A instrument not in the hands of a HDC is subject to the same defenses 54.Irregular Indorser a person not otherwise a party to an instrument places his
as if it were non-negotiable. signature in blank before delivery is liable as an indorser in the following manner:
Exception: -if payable to order of a third person liable to the payee and to all
-a holder who derives his title through a HDC and is not a party to any fraud subsequent parties
or illegality affecting the instrument, has all the rights of such HDC in respect to all -if payable to order of the maker or drawer liable to all parties subsequent
parties prior. (Sec. 58 NIL) to the maker or drawer
-if payable to bearer liable to all parties subsequent to the maker or
Rights of a holder not a HDC drawer
-may sue in his own name -if signs for an accommodation party liable to all parties subsequent to
-may receive payment and if it is in due course, the instrument is the payee (Sec. 64 NIL)
discharged
-holds the instrument subject to the same defenses as if it were non- 55. Warranties where negotiating by delivery or qualified endorsement:
negotiable -the instrument is genuine and in all respect what it purports to be the
-if he derives his title through a HDC and is not a party to any fraud or indorser has good title to it all prior parties had the capacity to contract indorser has
illegality thereto, has all the rights of such HDC no knowledge of any fact that would impair the validity or the value of the
instrument.
50. General rule: every holder is deemed prima facie to be a holder in due
course. Limitations of warranties:
Exception: -if by delivery extends only to immediate transferee
-where it is shown that the title of any person who has negotiated the -warranty of capacity to contract does not apply to persons negotiating
instrument is defective, the burden is on the holder to prove that he is a HDC or that public or corporate securities (Sec. 65 NIL)
a person under whom he claims is a HDC (Sec. 59 NIL) Notes on Section 65
-a qualified indorser is one who indorses without recourse or sans recourse
51. A maker is primarily liable: -recourse resort to a person secondarily liable after default of person
Effects of making the instrument, the maker: primarily liable
a. engages to pay according to tenor of instrument -a qualified indorser cannot raise the defense of a) forgery b) defect of his
b. admits existence of payee and his capacity to indorse (Sec. 60 NIL) title or that it is void c) the incapacity of the maker, drawer or previous
Notes on Section 60 indorsers.
-a makers liability is primarily and unconditional -a qualified Indorsement makes the indorser mere assignor of title of
-one who has signed as such is presumed to have acted with care and to instrument, relieves him of general obligation to pay if instrument is
have signed with full knowledge of its contents, unless fraud is proved dishonored, but he is still liable for the warranties arising from instrument
-the payees interest is only to see to it that the note is paid according to only up to warranties of general indorser
its terms -the warranty is to the capacity of prior parties at the time the instrument
-when two or more makers sign jointly, each is individually liable for the full was negotiated. Subsequent incapacity does not breach the warranty.
amount even if one did not receive the value given -lack of knowledge of the indorser as to any fact that would impair the
validity or the value of the instrument must be subsisting all throughout.
 -a person Negotiating by Delivery warrants same as those of qualified -if the instrument is payable on demand
indorser and extends to immediate transferees only a) if it is a note presentment must be made within reasonable
time after issue
56. Warranties of a general indorser: b) if it is a bill presentment must be made within reasonable
-the instrument is genuine and in all respect what it purports to be time after last negotiation.
-the he has good title to it
-all prior parties had the capacity to contract 59. Presentment not required to charge the drawer:
-that the instrument at the time of his indorsement was valid and subsisting -he has no right to expect
(Sec. 66 NIL) -he has no right to require
In addition: -that the drawee or acceptor will pay (Sec 79 NIL)
-engages that the instrument will be accepted or paid or both
according to its tenor on due presentment 60.Presentment not required to charge the indorser where:
-engages to pay the amount thereof if it be dishonored and the -the instrument was made or accepted for his accommodation
necessary proceedings on dishonor are taken -he has no reason to expect that the instrument will be paid if
Notes on Section 66 presented (Sec. 80 NIL)
-the indorser under Section 66 warrants the solvency of a prior party
-the indorser warrants that the instrument is valid and subsisting 61. General rule: Presentment for payment necessary to charge persons
regardless of whether he is ignorant of that fact or not. secondarily liable otherwise they are discharged:
-warranties extend in favor of a) a HDC b) persons who derive their title Exception:
from HDC c) immediate transferees even if not HDC -Section 79 and 80
- the indorser does not warrant the genuineness of the drawers signature Notes on Section 79 and 80
-general indorser is only secondarily liable -only the drawer or indorser are not discharged. All other parties
secondarily liable are discharged.
57. General rule: Presentment for payment is not necessary to charge persons
primarily liable on the instrument. Presentment for payment is necessary to charge 62.Presentment for payment excused if:
the drawer and indorsers. (Sec 70 NIL) a. after due diligence, presentment cannot be made
Notes on Section 70 b. presentment is waived
-presentation for payment production of a BOE to the drawee for his c. the drawee is a fictitious person (Sec 82 NIL)
acceptance, or to a drawee or acceptor for payment. Also presentment of a PN to Notes on Section 82
the party liable for payment of the same. -what is excused is the failure to make presentment. There is no need to
-consists of a) a personal demand for payment at a proper place b) the bill make any presentment versus under section 81 (delay in presentment) presentment
or note must be ready to be exhibited if required and surrendered upon payment. for payment is still required after the cause of delay has ceased.
-parties primarily liable persons by the terms of the instrument are
absolutely required to pay the same. E.g maker and acceptors. They can be sued 63.Summary of rules as to presentment for payment:
directly. -presentment not necessary to charge persons primarily liable
-if payable at the special place, and the person liable is willing to pay there -necessary to charge persons secondarily liable except:
at maturity, such willingness and ability is equivalent to tender of payment. -the drawer under Sec. 79
-presentment is necessary to charge persons secondarily liable otherwise -the indorser under Sec. 80
they are discharged -when excused under Sec. 82
-Acts needed to charge persons secondarily liable: a) presentment for -when the instrument has been dishonored by non-acceptance
payment/acceptance b) dishonor by non-payment/non-acceptance c) notice of under Sec. 83
dishonor to secondary parties
-Acts needed to charge persons secondarily liable in other cases: a) Protest 64. How dishonored by non-acceptance:
for non-payment by the drawee b) protest for non-payment by the acceptor for -the instrument was duly presented but payment is refused or cannot be
honor obtained
-presentment is excused and the instrument is overdue and unpaid (Sec. 83
58. Proper presentment: NIL)
-by the holder or an authorized person
-at a reasonable hour on a business day 65. Effects of dishonor by non-payment:
-at a proper place - an immediate right of recourse to all parties secondarily liable accrues to
-to the person primarily liable or if absent to any person found at the place the holder. (Sec. 84 NIL)
where presentment is made (sec. 72 NIL) Notes on Section 84
Notes on Section 72 -parties cease to be secondarily liable and become principal debtors.
-only the holder or one authorized by him has the right to make -Liability becomes the same as that of the original obligors.
presentment for payment
-presentment cannot be made on a Sunday or holiday 66. Requisites for payment in due course:
-presentment for payment is made to the maker, or acceptor. Not to the -made at or after the maturity of the instrument
person secondarily liable. -to the holder
 -in good faith 74. Omission to give notice of dishonor by non-acceptance doe not
-without notice of any defect in the holders title (sec. 88 NIL) prejudice a HDC (Sec. 117 NIL)
Notes on Section 88
-payment must be made to the possessor of the instrument 75. Protest only necessary for a foreign bill of exchange. Protest for other
-possession of the note by the maker is presumptive evidence that it has negotiable instruments is optional. (Sec. 118 NIL)
been paid
76. Causes of Discharge of the Instrument
67. Notice of Dishonor may be given: a. payment by the debtor
-by or on behalf or the holder b. payment by accommodated party
-by or on behalf of any party who: c. intentional cancellation by holder of instrument
-is a party to the instrument and might be compelled to pay the d. any other act discharging a simple monetary obligation
instrument e. debtor becomes holder of the instrument at/after maturity in his own
-to a holder who having taken it up would have a right of right ( Sec 119 NIL)
reimbursement from the party to whom notice is given. (Sec. 90 Notes on Section 119
NIL) -discharge of the instrument discharges all the parties thereto
68. Notice: -payment must be in due course, and by the principal debtor or on his
-may be written or oral (Sec. 96) behalf
-written notice need not be signed or may be supplemented by verbal
communication (Sec. 95) 81. Instances where a BOE may be treated as a PN:
-may be by personal delivery or by mail (Sec. 96) -where the drawer and the drawee are one and the same
-where the drawee is a fictitious person
69.Notice may be waived either expressly or implied: -where the drawee has no capacity to contract (Sec. 130 NIL)
-before the time of giving notice has arrived -The holder has the option to treat it as a BOE or a PN
-after the omission to give due notice (Sec. 109 NIL)
70. Protest may be waived: 82. Acceptance is the signification by the drawee of his assent to the order
Effects: of the drawer. It is an act by which a person on whom the BOE is drawn
-deemed a waiver of presentment and notice of dishonor as well (Sec. 111 assents to the request of the drawer to pay it. (Sec. 132 NIL)
NIL) Acceptance may be:
Notes on Section 111 -actual
-Where notice is waived, presentment is not waived -constructive
-Where presentment is waived, notice is also waived -general (Sec. 140)
-Where protest is waived, notice and presentment is waived -qualified (Sec. 141)
Requisites of actual acceptance:
71. Notice of Dishonor given by the holder to the parties secondarily liable, -in writing
drawer and each indorser, that the instrument was dishonored by non-acceptance or -signed by the drawee
non-payment by the drawee/maker -must not express the drawee will perform his promise by any other means
General rule: Any drawer or indorser to whom such notice is not given is than payment of money
discharged. -communicated or delivered to the holder
Exceptions: A holder has the right:
Waiver (Sec. 109) -require that acceptance be written on the bill and if refused, treat
Notice is dispensed (Sec. 112) it as if dishonored (Sec. 133)
Not necessary to Drawer (Sec. 114) -refuse to accept a qualified acceptance and may treat it as
Not necessary to Indorser (Sec. 115) dishonored (Sec. 142)
- if notice is delayed, delay may be excused (Sec. 113) Constructive Acceptance:
-where the drawee to whom the bill has been delivered destroys it
72. Instances when Notice of Dishonor Not Necessary to Drawer -the drawee refuses within 24 hrs after such delivery or within such time as
a drawer and drawee same person is given, to return the bill accepted or not. (Sec. 137 NIL)
b. drawee is a fictitious/incapacitated person Notes on Section 137
c. drawer is the person to whom presentment for payment is made -drawee becomes primarily liable as an acceptor.
d. drawer has no right to expect that the drawee will accept/pay the -mere retention is equivalent to acceptance
instrument (Sec. 114 NIL) When presentment for acceptance is necessary:
-if necessary to fix the maturity of the bill
73. Instances when Notice Not Required to Indorser -if it is expressly stipulated that it shall be presented for acceptance
a. drawee was a fictitious/incapacitated person and the indorser was aware -if the bill is drawn payable elsewhere than the residence or place of
of such at the time of indorsement business of the drawee (Sec. 143 NIL)
b. indorser is the person to whom instrument was presented for payment Notes on Section 143
c. instrument made/accepted for his accommodation (Sec. 115 NIL) -Presentment is the production of a BOE to the drawee for his acceptance
-in on order case is presentment necessary to make parties liable.
 -or where the bill has been protested for better security
90. Summary on presentment for acceptance of Bills of Exchange: Requisites for acceptance for honor:
a. to make the drawee primarily liable and for the accrual of secondary -the bill must have been previously protested a) for non-acceptance b) or
liability (Sec. 144) for better security
b. necessary to fix maturity date, where bill expressly stipulates -the bill is not overdue at the time of the acceptance for honor
presentment, bill payable other than place of drawee (Sec. 143) -the acceptor for honor must be a stranger to the bill
c. when presentment is excused: drawee is dead, hides, is fictitious, -the holder must give his consent
incapacitated person, after due diligence presentment cannot be made,
presentment is refused on another ground although presentment is Notes on Acceptance for Honor
irregular (Sec. 148) -Purpose: to save the credit of the parties to the instrument or some party
General rule: Protest is required only for foreign bills to it as the drawer, drawee, or indorser or somebody else.
Exception: -Acceptor for honor is liable to the holder and to all the parties to the bill
-inland bills and notes may also be protested if desired subsequent to the party for whose honor he has accepted (Sec. 164)

Protest is required: How acceptance for honor is made:

-where the foreign bill is dishonored by non acceptance -in writing and indicated that it is an acceptance for honor
-where the foreign bill is dishonored by non-payment -signed by the person making the acceptance (Sec. 162 NIL)
-where the bill has been accepted for honor, it must be protested for non-
payment before it is presented for payment to the acceptor for honor Payment for Honor payment made through a notarial act of honor of a
-where the bill contains a referee in case of need, it must be protested for party liable/stranger to the bill after bill has been dishonored by non-payment by the
non payment before presentment for payment to the referee in case of acceptor and protested for non-payment by the holder
need (Sec. 152) Requisites:
Notes on Section 152 a. protest for non-payment
Protest formal statement in writing made by a notary under his seal of b.any person may pay supra protest
office at the request of the holder, in which it is declare that the some was Form for payment of honor:
presented for payment or acceptance (as the case may be) and such was refused. -payment must be attested by notarial act appended to the protest, or form
-it means all steps or acts accompanying the dishonor of a bill or note an extension to it.
necessary to charge an indorser -notarial act of honor must be based on a declaration by the payer for
-required when the instrument is a foreign bill of exchange. honor
-it must be made on the same date of dishonor, by a notary/respectable
citizen of the place in the presence of 2 credible witnesses so recourse to Bills in Set bill of exchange drawn in several parts, each part of the set
secondary parties being numbered and containing a reference to the other parts, the whole of the
parts just constituting one bill (Sec 178 NIL)
Acceptance for Honor (Sec. 161 NIL) an acceptance of a bill made by
a stranger to it before maturirty, where the drawee of the bill has:
-refused to accept it
-and the bill has been protested for non-acceptance