Negotiable Instruments written contracts for the payment

of money; by its form, intended as a substitute for money

and intended to pass from hand to hand, to give the holder in
due course the right to hold the same and collect the sum
due.
Promissory Note unconditional promise to pay in writing
made by one person to another, 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 makers own order, it is not complete until
indorse by him. (Sec. 184 NIL)
o Parties:
maker
payee
Bill of exchange unconditional order in writing addressed
by one person to another, signed by the person giving it,
requiring the person to whom it is addressed to pay on
demand or at a fixed or determinable future time a sum
certain in money to order or to bearer. (Sec. 126 NIL)
o Parties:
drawer
payee
drawee/ acceptor
Check bill of exchange drawn on a bank and payable on
demand. (Sec. 185 NIL)
Difference between Promissory Note and Bill of
Exchange

Distinctions between a Check and Bill of Exchange

CHECK

BOE

always drawn upon a bank or banker

may or may not be drawn agains

always payable on demand

may be payable on demand or a

determinable future time

not necessary that it be presented for

acceptance

necessary that it be presented fo

acceptance

drawn on a deposit

not drawn on a deposit

the death of a drawer of a check, with

knowledge by the banks, revokes the
authority of the banker pay

the death of the drawer of the or

of exchange does not

must be presented for payment within a

reasonable time after its issue (6 months)

may be presented for payment w

reasonable time after its last nego

Maker primarily liable

KINDS OF DEFENSES
1. real defense attaches to instrument; on the principle
that the right sought to be enforced never existed/there
was no contract at all
2. personal defense growing out of agreement; renders it
inequitable to be enforced vs. defendant
DEFENSES
1. INCAPACITY: real; indorsement/assign by corp/infant:
passes property but corp/infant no liability
1. ILLEGALITY: personal, even if no K because void under
CC 1409
Bill of Exchange
1. FORGERY: real (lack of consent):
unconditional order
1.
forged
involves 3 parties
2.
made without authority of person whose signature
it
purports
to be.
drawer only secondarily liable

only 1 presentment for payment

generally 2 presentments forGeneral

acceptance
and
Rule:
for payment

Promissory Note
Unconditional promise
Involves 2 parties

1.

wholly inoperative

2.

no right to retain instrument, or give discharge, or enforce

payment vs. any party, can be acquired through or under
such signature (unless forged signature unnecessary to
holders title)
Exception:
unless the party against whom it is sought to enforce
such right is precluded from setting up forgery/want of authority
precluded:
1.

parties who make certain warranties, like a general

indorser or acceptor
2. estopped/negligent parties
* note rules on Acceptance/Payment Under Mistake as applied
to:
1. overdraft
2. stop payment order
3. forged indorsements
MATERIAL ALTERATION

Where NI materially altered w/o assent of all parties liable

thereon, avoided, except as vs. a
1. party who has himself made, authorized or assented to
alteration
2. and subsequent indorsers.

But when an instrument has been materially altered and

is in the hands of a HDC not a party to the alteration, HDC
may enforce payment thereof according to orig. tenor

Material Alteration
1. change date
2. sum payable, either for principal or interest
3. time of payment
4. number/relations of parties
5. medium/currency of payment, adds place of payment
where none specified, other change/addition altering effect
of instrument in any respect.

*material alteration a personal defense when used to deny

liability according to org. tenor of instrument, but real defense
when relied on to deny liability according to altered terms.
1. FRAUD
2. fraud in execution: real defense (didnt know it was NI)
3. fraud in inducement: personal defense (knows its NI but
deceived as to value/terms)
1. DURESS

Personal, unless so serious as to give rise to a real

defense for lack of contractual intent
1. COMPLETE, UNDELIVERED INSTRUMENT

Personal defense (sec. 16)

If instrument not in poss. Of party who signed, delivery

prima facie presumed

If holder is HDC, delivery conclusively presumed

1. INCOMPLETE, UNDELIVERED INSTRUMENT

Real defense (sec. 15)

Instrument will not, if completed and negotiated without

authority, be a valid contract in the hands of any holder, as
against any person whose signature was placed thereon
before delivery
10. INCOMPLETE, DELIVERED

Personal defense (sec. 14)

2 Kinds of Writings:
1. Where instrument is wanting in any material particular:
person in possession has prima facie authority to
complete it by filing up blanks therein
2. Signature on blank paper delivered by person making the
signature in order that the paper may be converted into a
NI: prima facie authority to fill up as such for any amount

In order that any such instrument, when completed, ma

be enforced vs. any person who became a party thereto
prior to its completion:
1. must be filled up strictly in accordance w/ authority given
2. within a reasonable time

but if any such instrument after completion is negotiated

to HDC, its valid for all purposes in his hands, he may
enforce it as if it had been filled up properly.

HOLDER IN DUE COURSE

HOLDER
Sec. 191
RIGHTS OF HOLDER
1. sue thereon in his own name
2. payment to him in due course discharges instrument

HOLDER IN DUE COURSE: REQUISITIES

1. complete and regular upon its face

sec. 124 (effect of alteration)

sec. 125 (what constitute material alterations)

1. holder became such before it was overdue, without
notice of any previous dishonor

sec. 53 (demand inst. nego after unreasonable length of

time: not HDC)

sec. 12 (effect antedating/postdating)

1. taken in good faith and for value

sec. 24 (presumption of consideration)

sec 25 (definition. of value)

sec. 26 (definition. holder for value)

sec. 27 (lien as value)

1. at time negotiated to him, he had no notice (sec. 56-def;
54-notice before full amt. paid) of
1.
infirmity in instrument
2.
defect in title of person negotiating
1.
instrument/signature obtained through
fraud, etc., illegal consideration/means, or

2.

instrument negotiated in breach of faith, or

fraudulent circumstances
RIGHTS OF HOLDER IN DUE COURSE:
1. holds instrument free of any defect of title of prior parties
2. free from defenses available to prior parties among
themselves
3. may enforce payment of instrument for full amount,
against all parties liable
* if in the hand of any holder (note definition of holder) other
than a HDC, vulnerable to same defenses as if non-negotiable

RIGHTS OF PURCHASER FROM HOLDER IN DUE COURSE:

General Rule: in the hands of any holder other than a HDC, NI
is subject to same defenses as if it were non-negotiable.
Exception: holder who derives title through HDC and who is not
himself a party to any fraud or illegality has all rights of such
former holder in respect to all parties prior to the latter.

WHO DEEMED HDC

prima facie presumption in favor of holder

but when shown that title of any person who has

negotiated instrument was defective (sec. 55when title
defective): burden reversed (now with holder)

but no reversal if party being made liable became bound

prior to acquisition of defective title (i.e., where defense is
not his own)

Notes on Section 1:

[Link] installments with acceleration clause

[Link] exchange
[Link] of collection or attorneys fees (Sec. 2 NIL)

In order to be negotiable, there must be a writing of some kind, else

there would be nothing to be negotiated or passed from hand to
hand. The writing may be in ink, print or pencil. It may be upon
parchment, cloth, leather or any other substitute of paper.
It must be signed by the maker or drawer. It may consist of mere
initials or even numbers, but the holder must prove that what is
written is intended as a signature of the person sought to be

General Rule: The promise or order should not depend on a contingent

event. If it is conditional, it is non-negotiable.
Exceptions:
a. indication of particular fund from which the acceptor disburses

charged.
The Bill must contain an order, something more than the mere

himself after payment

b. statement of the transaction which gives rise to the instrument.

asking of a favor.
Sum payable must be in money only. It cannot be made payable in
goods, wares, or merchandise or in property.
A drawees name may be filled in under Section 14 of the NIL

(Sec. 3 NIL)
But an order or promise to pay out of a particular fund is not
unconditional
Notes on Section 3

Determination of negotiability
1.

by the provisions of the Negotiable Instrument Law, particularly

Section 1 thereof
2.
by considering the whole instrument
3.
by what appears on the face of the instrument and not elsewhere

The particular fund indicated should not be the direct source of

payment, else it becomes unconditional and therefore non-negotiable.
The fund should only be the source of reimbursement.

*In determining is the instrument is negotiable, only the instrument itself

and no other, must be examined and compared with the requirements
stated in Sec. 1. If it appears on the instrument that it lacks one of the
requirements, it is not negotiable and the provisions of the NIL do not
govern the instrument. The requirement lacking cannot be supplied by
using a separate instrument in which that requirement which is lacking
appears.
Sum is certain even if it is to be paid with:
[Link]
[Link] installments

A statement of the transaction does not destroy the negotiability of

the instrument. Exception: Where the promise to pay or order is made

subject to the terms and conditions of the transaction stated.
18. Instrument is payable upon a determinable future time if:
a.

there is a fixed period after sight/date

b.

on or before a specified date/fixed determinable future time

c.

on or at a fixed date after the occurrence of an event certain to

happen though the exact date is not certain (Sec. 4 NIL)

Notes on Section 7

[Link] to order of fictitious or non-existent person and this

fact was known to drawer
[Link] of payee not name of any person

if the time for payment is left blank (as opposed to being omitted), it
may properly be considered as an incomplete instrument and fall under

[Link] and last indorsement is an indorsement in blank (Sec. 9

NIL)

the provisions of Sec. 14, 15, or 16 depending on how the instrument is

delivered.

Notes on Section 9
Instrument is payable to order:

where it is drawn payable to the order of a specified

person or
to a specified person or his order

fictitious person is not limited to persons having no legal

existence. An existing person may be considered fictitious
depending on the intention of the maker or the drawer.

fictitious person means a person who has no right to the

instrument because the maker or drawer of it so intended.

It may be drawn payable to the order of:

1.
2.
3.
4.
5.
6.

a payee who is not a maker, drawer, or drawee

the drawer or maker
the drawee
two or more payees jointly
one or some of several payees
the holder of an office for the time being
(Sec. 8 NIL)

Notes on Section 8

The payee must be named or otherwise indicated therein with

reasonable certainty.

If there is no payee, there would be no one to indorse the

instrument payable to order. Therefore useless to be

considered negotiable.
Joint payees in indicated by the conjunction and. To negotiate,

all must indorse.

Being several payees is indicated by the conjunction or.

Instrument is payable to bearer :

[Link] it is expressed to be so payable
[Link] payable to the person named or bearer

He was not intended to be the payee.

where the instrument is drawn, made or prepared by an
agent, the knowledge or intent of the signer of the
instrument is controlling.

Where the agent has no authority to execute the

instrument, the intent of the principal is controlling

The date may be inserted in an instrument when:

1.
an instrument expressed to be payable at a fixed period after date is
issued undated
2.
where acceptance of an instrument payable at a fixed period after
sight is undated (Sec. 13 NIL)
Effects:

any holder may insert the true date of issuance or acceptance

the insertion of a wrong date does not avoid the instrument in the

hands of a subsequent holder in due course

as to the holder in due course, the date inserted (even if it be the
wrong date) is regarded as the true date.

Subsequent Holder in Due Course not affected by the following

material particular may be an omission which will render the

deficiencies:

instrument non-negotiable (e.g. name of payee), an omission which will

not render the instrument non-negotiable (e.g. date)

a.

incomplete but delivered instrument (Sec. 14 NIL)

b.
c.

complete but undelivered (Sec. 16 NIL)

complete and delivered issued without consideration or a

in the case of the signature in blank, delivery with intent to convert

it into a negotiable instrument is required. Mere possession is not

consideration consisting of a promise which was not fulfilled (Sec

28 NIL)

enough.
28. Incomplete and Undelivered Instrument:

Holder in Due Course Affected by Abnormality/Deficiency:

a.

incomplete and undelivered instrument (Sec. 15 NIL)

b.

maker/drawers signature forged (Sec. 23 NIL)

General Rule: Where an incomplete instrument has not been delivered, it

will not, if completed and negotiated without authority, be a valid contract
in the hands of any holder against any person who signed before
delivery. (Sec. 15 NIL)

Incomplete but Delivered Instrument:

Notes on Section 15
1. Where an instrument is wanting in any material particular:

a.

Holder has prima facie authority to fill up the blanks therein.

it is a real defense. It can be interposed against a holder in due

course.

b.
It must be filled up strictly in accordance with the authority given
and within a reasonable time.

c.
If negotiated to a holder in due course, it is valid and effectual for
all purpose as though it was filled up strictly in accordance with the

delivery is not conclusively presumed where the instrument is

incomplete
defense of the maker is to prove non-delivery of the incomplete

instrument.

authority given and within reasonable time. (Sec. 14 NIL)

29. Complete but Undelivered:
2. Where only a signature on a blank paper was delivered:
1.

It was delivered by the person making it in order that it may be

converted into a negotiable instrument
2.
The holder has prima facie authority to fill it up as such for any
amount. (Sec. 14 NIL)

Notes on Section 14

if the instrument is wanting in material particular, mere possession

of the instrument is enough to presume prima facie authority to fill it up.

General Rule: Every contract on a negotiable instrument is incomplete

and revocable until delivery for the purpose of giving effect thereto.
a.
If between immediate parties and remote parties not holder in due
course, to be effectual there must be authorized delivery by the party
making, drawing, accepting or indorsing. Delivery may be shown to be
conditional or for a special purpose only

b.

If the holder is a holder in due course, all prior deliveries

Exception:

conclusively presumed valid

c.

1.
2.
3.

If instrument not in hands of drawer/maker, valid and intentional

delivery is presumed until the contrary is proven (Sec. 16 NIL)

one who signs in a trade or assumed name (Sec. 18)

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

Rules on delivery of negotiable instruments:

1)

delivery is essential to the validity of any negotiable instrument

2)

as between immediate parties or those is like cases, delivery must

be with intention of passing title

3)

31. General rule: an agent is not liable on the instrument if he were duly
authorized to sign for or on behalf of a principal.
Requisites:
1.
2.

he must be duly authorized

he must add words to his signature indicating that he signs as an
agent
3.
he must disclose his principal (Sec. 20 NIL)

an instrument signed but not completed by the drawer or maker and

retained by him is invalid as to him for want of delivery even in the hands
of a holder in due course
4) but there is prima facie presumption of delivery of an instrument
signed but not completed by the drawer or maker and retained by him if it
is in the hands of a holder in due course. This may be rebutted by proof
of non-delivery.
5) an instrument entrusted to another who wrongfully completes it and
negotiates it to a holder in due course, delivery to the agent or custodian

Notes on Section 20

if an agent does not disclose his principal, the agent is personally

liable on the instrument.
32. Per Procuration operates as notice that the agent has a
limited authority to sign.

is sufficient delivery to bind the maker or drawer.

Effects:

6)

If an instrument is completed and is found in the possession of

another, there is prima facie evidence of delivery and if it be a holder in

due course, there is conclusive presumption of delivery.
7) delivery may be conditional or for a special purpose but such do not
affect the rights of a holder in due course.
30. General rule: a person whose signature does not appear on the
instrument in not liable.

the principal in only bound if the agent acted within the limits of

the authority given

the person who takes the instrument is bound to inquire into the

extent and nature of the authority given. (Sec. 21 NIL)

33. General rule: Infants and corporations incur no liability by their

indorsement or assignment of an instrument. (Sec. 22 NIL)

Effects:

no liability attached to the infant or the corporation

the instrument is still valid and the indorsee acquires title

34. General rule: a signature which is forged or made without authority

is wholly inoperative.

no right to retain
no right to give a discharge
no right to enforce payment can be acquired.

(Sec. 23 NIL)

Exception:

Notes on Section 23
Section 23 applies only to forged signatures or signatures made

without authority

Persons who are precluded by warranting are a) indorsers b)

persons negotiating by delivery c) acceptors.

drawee bank is conclusively presumed to know the signature of

its drawer

drawee bank is not conclusively presumed to know the signature

of the indorser. The responsibility falls on the bank which last guaranteed
the indorsement and not the drawee bank.

the party against whom it is sought to be enforced is precluded

from setting up the forgery or want of authority.

those who warrant or admit the genuineness of the signature b) those

who are estopped.

if endorsers signature is forged, loss will be borne by the forger

and parties subsequent thereto

Effects:
1.
2.
3.

Persons who are precluded from setting up the forgery are a)

Alterations such as to amounts or like fall under section 124

Forms of forgery are a) fraud in factum b) duress amounting to

fraud c) fraudulent impersonation

Only the signature forged or made without authority is inoperative,

the instrument or other signatures which are genuine are affected

The instrument can be enforced by holders to whose title the

forged signature is not necessary

Where the payees signature is forged, payments made by the

drawee bank to collecting bank is ineffective. No debtor/creditor

relationship is created. An agency to collect is created between the
person depositing and the collecting bank. Drawee bank may recover
from collecting bank who may in turn recover from the person depositing.
Rules on liabilities of parties on a forged instrument
In a PN

a party whose indorsement is forged on a note payable to order

and all parties prior to him including the maker cannot be held liable by
any holder

a party whose indorsement is forged on a note originally payable

to bearer and all parties prior to him including the maker may be held
liable by a holder in due course provided that it was mechanically
complete before the forgery

a maker whose signature was forged cannot be held liable by any

Effects:

holder

every person whose signature appears thereon is a party for

value
In a BOE

presumption is disputable

the drawers account cannot be charged by the drawee where the

drawee paid

the drawer has no right to recover from the collecting bank

the drawee bank can recover from the collecting bank

the payee can recover from the drawer

36. Where value has at any time been given for the instrument, the
holder is deemed a holder for value in respect to all parties who become
such prior to that time. (Sec. 26 NIL)

37. Effect of want of consideration:

the payee can recover from the recipient of the payment, such as
the collecting bank

the payee cannot collect from the drawee bank

the collecting bank bears the loss but can recover from the person

1.

Absence or failure of consideration may be set up against a holder

not a holder in due course (personal defense)
2.
Partial failure of consideration is a defense pro tanto (Sec 28 NIL)

to whom it paid
Notes on Section 28

if payable to bearer, the rules are the same as in PN.

if the drawee has accepted the bill, the drawee bears the loss and
his remedy is to go after the forger

absence of consideration is where no consideration was intended

to pass.

if the drawee has not accepted the bill but has paid it, the drawee
cannot recover from the drawer or the recipient of the proceeds, absence

any act of negligence on their part.

that it failed to pass

failure of consideration implies that consideration was intended by

the defense of want of consideration is ineffective against a holder

in due course
35. Every negotiable instrument is deemed prima facie to have been
issued for a valuable consideration. (Sec. 24 NIL)

a drawee who accepts the bill cannot allege want of consideration

39. An instrument is negotiated when:

against the drawer

1.
2.

38. An accommodation party is one who signs the instrument as maker,

drawer, acceptor, or indorser without receiving value therefor and for the
purpose of lending his name to some other person.

it is transferred from one person to another

that the transfer must be in a manner as to constitute the transferee
a holder

For a bearer instrument by delivery

For payable to order by indorsement and delivery (Sec. 30 NIL)

Effects:

an accommodation party is liable to the holder for value

notwithstanding that such holder knew that of the accommodation. (Sec.

40. Indorsement to be must be:

28 NIL)

1.
2.

Notes on Section 31

Notes on Section 28

the accommodated party cannot recover from the accommodation

party

want of consideration cannot be interposed by the

accommodation party

an accommodation maker may seek reimbursement from a co-

maker even in the absence of any provision in the NIL; the deficiency is
supplied by the New Civil Code.

he may do this even without first proceeding against the debtor

provided:
a.

he paid by virtue of judicial demand

b.

principal debtor is insolvent

written
on the instrument itself or upon a piece of paper attached (Sec. 31
NIL)

the paper attached with the indorsement is an allonge

an allonge must be attached so that it becomes a part of the

instrument, it cannot be simply pinned or clipped to it.
41. Kinds of Indorsements:
1.
Special (Sec. 34)
2.
Blank (Sec. 35)
3.
Restrictive (Sec. 36)
4.
Qualified (Sec. 38)
5.
Conditional (Sec. 39 NIL)
42. Effects of indorsing an instrument originally payable to bearer:

it may further be negotiated by delivery

the person indorsing is liable as indorser to such persons as to

make title through his indorsement (Sec. 40 NIL)

Notes on Section 40

Section 40 applies only to instruments originally payable to bearer

It cannot apply where the instrument is payable to bearer because

a.

receives the instrument complete and regular on its face

b.
became a holder before it was overdue and had no notice that it
had been previously dishonored if such was the fact

the only or last indorsement is in blank.

c.

takes the instrument for value and in good faith

43. A holder may strike out any indorsement which is not necessary to

d.

at time he took the instrument, no notice of infirmity in instrument

his title.

or defect in the title of the person negotiating it (Sec. 52 NIL)

Effects:

Notes on Section 52

An indorser whose indorsement is struck out is discharged

every holder is presumed to be a HDC (Sec. 59)

All indorsers subsequent to such indorser who has been

the person who questions such has the burden of proof to prove

discharged are likewise relieved. (Sec. 48 NIL)

otherwise

44. Effects of a transfer without endorsement:

the transferee acquires such title as the transferor had

an instrument is considered complete and regular on its face if a)

the omission is immaterial b) the alteration on the instrument was not

the transferee acquires the right to have the indorsement of the

apparent on its face

if one of the requisites are lacking, the holder is not HDC

transferor

an instrument is overdue after the date of maturity.

negotiation takes effect as of the time the indorsement is actually

made (Sec. 49 NIL)

on the date of maturity, the instrument is not overdue and the

holder is a HDC

45. Rights of a holder:

a holder may sue in his own name

a holder may receive payment.

acquisition of the transferee or indorsee must be in good faith

good faith means lack of knowledge or notice of defect or infirmity

Effects:
47. A holder is not a HDC where an instrument payable on demand is

if in due course it discharges the instrument (Sec. 51 NIL)

46. Requisites for a Holder in Due Course (HDC):

negotiated at an unreasonable length of time after its issue (Sec. 53 NIL)

48. Rights of a HDC:

holds the instrument free from any defect of title of prior parties

free from defenses available to prior parties among themselves

(personal/ equitable defenses)

8. acquisition of the instrument for an illegal

consideration

Ultra vires acts of a corporation whe

charter or by statue, it is prohibited
issuing commercial paper

9. negotiation in breach of faith

Want of authority of agent

10. negotiation under circumstances

amounting to fraud

Execution of instrument between p

enemies

may enforce payment of the instrument for the full amount against

1.

all parties liable(Sec. 57 NIL)

Mistake

12. intoxication

Notes on Section 57

14. want of authority of the agent where he

has apparent authority

which renders it inequitable for him through legal title to enforce it. Can
be set up against holders not HDC

15. illegality of contract where form or

consideration is illegal
16. insanity where there is no notice of
insanity

Legal or real defenses are those which attach to the instrument

itself and can be set up against the whole world, including a HDC.
Personal Defenses

Real Defenses

1. absence or failure of consideration

Alteration

3. insertion of wrong date where payable at

a fixed period after date and issued
undated; or at a fixed period after sight and
acceptance is undated

Forgery

13. ultra vires acts of corporations

Personal or equitable defenses are those which grow out of the

agreement or conduct of a particular person in regard to the instrument

2. want of delivery of complete instrument

Illegality of contract made by statue

49. A instrument not in the hands of a HDC is subject to the same

defenses as if it were non-negotiable.

Want of delivery of incomplete instrument
Exception:

Duress amounting to forgery

a holder who derives his title through a HDC and is not a party to
any fraud or illegality affecting the instrument, has all the rights of such

4. filling up the blanks contrary to authority

given or not within reasonable time

HDC in respect to all parties prior. (Sec. 58 NIL)

Fraud in factum or in esse contractus

5. fraud in inducement

Minority

6. acquisition of the instrument by force,

duress or fear

Marriage in case of a wife

7. acquisition of the instrument by unlawful

means

Insanity where the insane person has a

guardian appointed by the court

Rights of a holder not a HDC

may sue in his own name

may receive payment and if it is in due course, the instrument is

discharged

one who has signed as such is presumed to have acted with care

and to have signed with full knowledge of its contents, unless fraud is
proved

holds the instrument subject to the same defenses as if it were

non-negotiable

the payees interest is only to see to it that the note is paid

according to its terms

if he derives his title through a HDC and is not a party to any fraud

or illegality thereto, has all the rights of such HDC

50. General rule: every holder is deemed prima facie to be a holder in

due course.

when two or more makers sign jointly, each is individually liable

for the full amount even if one did not receive the value given

the maker is precluded from setting up the defense of a) the

payee is fictional, b) that the payee was insane, a minor or a corporation
acting ultra vires

Exception:

where it is shown that the title of any person who has negotiated

the instrument is defective, the burden is on the holder to prove that he is

a HDC or that a person under whom he claims is a HDC (Sec. 59 NIL)

51. A maker is primarily liable:

52. A drawer is secondarily liable

Effects of drawing the instrument, the drawer:
1.
2.
3.

admits the existence of the payee,

the capacity of such payee to indorse
engages that on due presentment, the instrument will be accepted or
paid or both according to its tenor.

Effects of making the instrument, the maker:

a.

engages to pay according to tenor of instrument

b.
admits existence of payee and his capacity to indorse (Sec. 60
NIL)
Notes on Section 60

a makers liability is primarily and unconditional

If the instrument is dishonored, and the necessary proceedings on

dishonor duly taken
1.
2.

the drawer will pay the amount thereof to the holder

will pay to any subsequent indorser who may be compelled to pay it.
(Sec. 61 NIL)

Notes on Section 61

a drawer may insert an express stipulation to negative or limit his

liability
53. An acceptor is primarily liable

By accepting the instrument, an acceptor:

a qualified indorser is one who indorses without recourse or sans

recourse

engages that he will pay according to the tenor of his acceptance

admits the existence of the drawer, the genuineness of his

recourse resort to a person secondarily liable after default of

person primarily liable

signature and his capacity and authority to draw the instrument

the existence of the payee and his then capacity indorse

54. Irregular Indorser a person not otherwise a party to an

instrument places his signature in blank before delivery is liable as an
indorser in the following manner:
1.
if payable to order of a third person liable to the payee and to all
subsequent parties
2.
if payable to order of the maker or drawer liable to all parties
subsequent to the maker or drawer
3.
if payable to bearer liable to all parties subsequent to the maker or
drawer
4.
if signs for an accommodation party liable to all parties subsequent
to the payee (Sec. 64 NIL)
55. Warranties where negotiating by delivery or qualified
endorsement:
1.
the instrument is genuine and in all respect what it purports to be
2.
the indorser has good title to it
3.
all prior parties had the capacity to contract
4.
indorser has no knowledge of any fact that would impair the validity
or the value of the instrument.
Limitations of warranties:
-if by delivery extends only to immediate transferee
-warranty of capacity to contract does not apply to persons negotiating
public or corporate securities (Sec. 65 NIL)
Notes on Section 65

a qualified indorser cannot raise the defense of a) forgery b)

defect of his title or that it is void c) the incapacity of the maker, drawer or
previous indorsers.

a qualified Indorsement makes the indorser mere assignor of title

of instrument, relieves him of general obligation to pay if instrument is
dishonored, but he is still liable for the warranties arising from instrument
only up to warranties of general indorser

the warranty is to the capacity of prior parties at the time the

instrument was negotiated. Subsequent incapacity does not breach the
warranty.

lack of knowledge of the indorser as to any fact that would impair

the validity or the value of the instrument must be subsisting all

throughout.

a person Negotiating by Delivery warrants same as those of

qualified indorser and extends to immediate transferees only
56. Warranties of a general indorser:
1.
the instrument is genuine and in all respect what it purports to be
2.
the he has good title to it
3.
all prior parties had the capacity to contract
4.
that the instrument at the time of his indorsement was valid and
subsisting (Sec. 66 NIL)
In addition:

engages that the instrument will be accepted or paid or both

according to its tenor on due presentment

Notes on Section 66
the indorser under Section 66 warrants the solvency of a prior

warranties extend in favor of a) a HDC b) persons who derive

their title from HDC c) immediate transferees even if not HDC

the indorser does not warrant the genuineness of the drawers

signature
general indorser is only secondarily liable

57. General rule: Presentment for payment is not necessary to charge

persons primarily liable on the instrument. Presentment for payment is
necessary to charge the drawer and indorsers. (Sec 70 NIL)
Notes on Section 70

are absolutely required to pay the same. E.g maker and acceptors. They
can be sued directly.

if payable at the special place, and the person liable is willing to

pay there at maturity, such willingness and ability is equivalent to tender
of payment.

presentment is necessary to charge persons secondarily liable

otherwise they are discharged

the indorser warrants that the instrument is valid and subsisting

regardless of whether he is ignorant of that fact or not.

parties primarily liable persons by the terms of the instrument

engages to pay the amount thereof if it be dishonored and the

necessary proceedings on dishonor are taken

party

presentation for payment production of a BOE to the drawee for

his acceptance, or to a drawee or acceptor for payment. Also

presentment of a PN to the party liable for payment of the same.

consists of a) a personal demand for payment at a proper place b)

the bill or note must be ready to be exhibited if required and surrendered
upon payment.

Acts needed to charge persons secondarily liable: a) presentment

for payment/acceptance b) dishonor by non-payment/non-acceptance c)

notice of dishonor to secondary parties

Acts needed to charge persons secondarily liable in other cases:

a) Protest for non-payment by the drawee b) protest for non-payment by
the acceptor for honor
58. Proper presentment:
1.
by the holder or an authorized person
2.
at a reasonable hour on a business day
3.
at a proper place
4.
to the person primarily liable or if absent to any person found at the
place where presentment is made (sec. 72 NIL)
Notes on Section 72

only the holder or one authorized by him has the right to make
presentment for payment

presentment cannot be made on a Sunday or holiday

presentment for payment is made to the maker, or acceptor. Not

to the person secondarily liable.

if the instrument is payable on demand a) if it is a note

presentment must be made within reasonable time after issue b) if it is a

bill presentment must be made within reasonable time after last
negotiation.
59. Presentment not required to charge the drawer:
1.
he has no right to expect
2.
he has no right to require
that the drawee or acceptor will pay (Sec 79 NIL)
60. Presentment not required to charge the indorser where:
1.
the instrument was made or accepted for his accommodation
2.
he has no reason to expect that the instrument will be paid if
presented (Sec. 80 NIL)

Notes on Section 82

what is excused is the failure to make presentment. There is no

need to make any presentment versus under section 81 (delay in
presentment) presentment for payment is still required after the cause of
delay has ceased.

63. Summary of rules as to presentment for payment:

1.
2.

presentment not necessary to charge persons primarily liable

necessary to charge persons secondarily liable except:

the drawer under Sec. 79

the indorser under Sec. 80

61. General rule: Presentment for payment necessary to charge

persons secondarily liable otherwise they are discharged:

when excused under Sec. 82

when the instrument has been dishonored by non-acceptance

Exception:

under Sec. 83

Section 79 and 80
Notes on Section 79 and 80

only the drawer or indorser are not discharged. All other parties

64. How dishonored by non-acceptance:

the instrument was duly presented but payment is refused or

secondarily liable are discharged.

cannot be obtained

62. Presentment for payment excused if:

a.

after due diligence, presentment cannot be made

b.

presentment is waived

c.

the drawee is a fictitious person (Sec 82 NIL)

presentment is excused and the instrument is overdue and unpaid

(Sec. 83 NIL)

65. Effects of dishonor by non-payment:

an immediate right of recourse to all parties secondarily liable

accrues to the holder. (Sec. 84 NIL)

Notes on Section 84

parties cease to be secondarily liable and become principal

debtors.

Liability becomes the same as that of the original obligors.

66. Requisites for payment in due course:

1.
made at or after the maturity of the instrument
2.
to the holder
3.
in good faith
4.
without notice of any defect in the holders title (sec. 88 NIL)
Notes on Section 88

payment must be made to the possessor of the instrument

possession of the note by the maker is presumptive evidence that

it has been paid
67. Notice of Dishonor may be given:
1.
by or on behalf or the holder
2.
by or on behalf of any party who:

69. Notice may be waived either expressly or implied:

1.
before the time of giving notice has arrived
2.
after the omission to give due notice (Sec. 109 NIL)
70. Protest may be waived:
Effects:

deemed a waiver of presentment and notice of dishonor as well

(Sec. 111 NIL)
Notes on Section 111

Where notice is waived, presentment is not waived

Where presentment is waived, notice is also waived

Where protest is waived, notice and presentment is waived

71. Notice of Dishonor given by the holder to the parties secondarily

liable, drawer and each indorser, that the instrument was dishonored by
non-acceptance or non-payment by the drawee/maker
General rule: Any drawer or indorser to whom such notice is not given is
discharged.
Exceptions:

is a party to the instrument and might be compelled to pay the

1.
2.
3.
4.

instrument

to a holder who having taken it up would have a right of

reimbursement from the party to whom notice is given. (Sec. 90 NIL)

68. Notice:
1.
may be written or oral (Sec. 96)
2.
written notice need not be signed or may be supplemented by verbal
communication (Sec. 95)
3.
may be by personal delivery or by mail (Sec. 96)

Waiver (Sec. 109)

Notice is dispensed (Sec. 112)
Not necessary to Drawer (Sec. 114)
Not necessary to Indorser (Sec. 115)

if notice is delayed, delay may be excused (Sec. 113)

72. Instances when Notice of Dishonor Not Necessary to Drawer
a.

drawer and drawee same person

b.

drawee is a fictitious/incapacitated person

discharge of the instrument discharges all the parties thereto

c.

drawer is the person to whom presentment for payment is made

payment must be in due course, and by the principal debtor or on

his behalf

d.

drawer has no right to expect that the drawee will accept/pay the

instrument (Sec. 114 NIL)

if payment is not made by the principal debtor, payment only

cancels the liability of the payor and those obligated after him but does

73. Instances when Notice Not Required to Indorser

not discharge the instrument.

a.
drawee was a fictitious/incapacitated person and the indorser was
aware of such at the time of indorsement

b.
indorser is the person to whom instrument was presented for
payment

77. Discharge of Secondary Parties:

payment by an accommodation party does not discharge the

instrument.

a.

any act discharging the instrument

b.

cancellation of indorsers signature by indorsers

prejudice a HDC (Sec. 117 NIL)

c.

discharge of prior party

75. Protest only necessary for a foreign bill of exchange. Protest for

d.

tender of payment by prior party

e.

release of principal debtor

f.

extension of payment by the holder/postponement of right to

c.

instrument made/accepted for his accommodation (Sec. 115 NIL)

74. Omission to give notice of dishonor by non-acceptance doe not

other negotiable instruments is optional. (Sec. 118 NIL)

76. Causes of Discharge of the Instrument
a.

payment by the debtor

b.

payment by accommodated party

c.

intentional cancellation by holder of instrument

d.

any other act discharging a simple monetary obligation

enforce without assent of secondary parties and without reservation of

right of recourse against secondary parties (Sec 120 NIL)
78. Rights of a party secondarily liable who pays:

e.
debtor becomes holder of the instrument at/after maturity in his
own right ( Sec 119 NIL)
Notes on Section 119

the instrument is not discharge

the party is remitted to his former rights as to all prior parties

the party may strike out his own and all subsequent indorsements

the party may negotiate the instrument again

Exception:

80. Material Alteration an alternation is said to be material if it

alters the effect of the instrument.

an instrument cannot be renegotiated where it is payable to order

rd
of a 3 person and has been paid by the drawer

Under Section 125 the following changes are considered material

alterations:

and instrument cannot be renegotiated where is was made or

accepted for accommodation and it has been paid by the party

1.
2.
3.
4.
5.
6.
7.

accommodated.
78. Renunciation by a holder discharges an instrument when:
1.
it is absolute and unconditional
2.
made in favor of a person primarily liable
3.
made at or after maturity of the instrument
4.
in writing or the instrument is delivered up to the person primarily
liable (Sec. 122 NIL)
Notes on Section 122

if renounced in favor of a party secondarily liable, only he is

exonerated from liability and all parties subsequent to him

dates
the sum payable
time and place of payment
number or relations of the parties
medium or currency for payment
adding a place of payment where no place is specified
any other which alters the affect of the instrument

81. Instances where a BOE may be treated as a PN:

1.
where the drawer and the drawee are one and the same
2.
where the drawee is a fictitious person
3.
where the drawee has no capacity to contract (Sec. 130 NIL)
The holder has the option to treat it as a BOE or a PN

discharge by novation is allowed

79. General rule: When materially altered, without the consent of all
parties liable, the instrument is avoided except as against:

82. Acceptance is the signification by the drawee of his assent to the

order of the drawer. It is an act by which a person on whom the BOE is
drawn assents to the request of the drawer to pay it. (Sec. 132 NIL)

1.
2.
3.

the party who has made the alteration

the party who authorized or assented to the alteration.
subsequent indorsers

Exception:

if in the hands of a HDC, may be enforced according to its original

tenor
Notes on Section 124

there is no distinction between fraudulent and innocent alteration

Acceptance may be:

1.
actual
2.
constructive
3.
general (Sec. 140)
4.
qualified (Sec. 141)
Requisites of actual acceptance:

in writing

signed by the drawee

must not express the drawee will perform his promise by any

b.

necessary to fix maturity date, where bill expressly stipulates

other means than payment of money

presentment, bill payable other than place of drawee (Sec. 143)

c.

communicated or delivered to the holder

7.
1.
2.
8.
1.
2.

A holder has the right:

require that acceptance be written on the bill and if refused, treat it
as if dishonored (Sec. 133)
refuse to accept a qualified acceptance and may treat it as
dishonored (Sec. 142)
Constructive Acceptance:
where the drawee to whom the bill has been delivered destroys it
the drawee refuses within 24 hrs after such delivery or within such
time as is given, to return the bill accepted or not.
(Sec. 137 NIL)

Notes on Section 137

drawee becomes primarily liable as an acceptor.

mere retention is equivalent to acceptance

9.
1.
2.
3.

When presentment for acceptance is necessary:

if necessary to fix the maturity of the bill
if it is expressly stipulated that it shall be presented for acceptance
if the bill is drawn payable elsewhere than the residence or place of
business of the drawee (Sec. 143 NIL)

Notes on Section 143

Presentment is the production of a BOE to the drawee for his

acceptance

in on order case is presentment necessary to make parties liable.

90. Summary on presentment for acceptance of Bills of Exchange:

a.
to make the drawee primarily liable and for the accrual of
secondary liability (Sec. 144)

when presentment is excused: drawee is dead, hides, is fictitious,

incapacitated person, after due diligence presentment cannot be made,

presentment is refused on another ground although presentment is
irregular (Sec. 148)
1.

General rule: Protest is required only for foreign bills

Exception:

inland bills and notes may also be protested if desired

Protest is required:
1.
where the foreign bill is dishonored by non acceptance
2.
where the foreign bill is dishonored by non-payment
3.
where the bill has been accepted for honor, it must be protested for
non-payment before it is presented for payment to the acceptor for
honor
4.
where the bill contains a referee in case of need, it must be protested
for non payment before presentment for payment to the referee in
case of need (Sec. 152)
Notes on Section 152

Protest formal statement in writing made by a notary under his

seal of office at the request of the holder, in which it is declare that the
some was presented for payment or acceptance (as the case may be)
and such was refused.

it means all steps or acts accompanying the dishonor of a bill or

note necessary to charge an indorser

required when the instrument is a foreign bill of exchange.

2.
1.
2.

it must be made on the same date of dishonor, by a

notary/respectable citizen of the place in the presence of 2 credible

witnesses so recourse to secondary parties
Acceptance for Honor (Sec. 161 NIL) an acceptance of a bill
made by a stranger to it before maturirty, where the drawee of the bill
has:
1.
refused to accept it
2.
and the bill has been protested for non-acceptance
3.
or where the bill has been protested for better security

How acceptance for honor is made:

in writing and indicated that it is an acceptance for honor
signed by the person making the acceptance (Sec. 162 NIL)

1.

Requisites for acceptance for honor:

the bill must have been previously protested a) for non-

acceptance b) or for better security

the bill is not overdue at the time of the acceptance for honor

the acceptor for honor must be a stranger to the bill

the holder must give his consent

Notes on Acceptance for Honor

Payment for Honor payment made through a notarial act of honor

of a party liable/stranger to the bill after bill has been dishonored by
non-payment by the acceptor and protested for non-payment by the
holder

Requisites:
a.

protest for non-payment

b.

any person may pay supra protest

Form for payment of honor:

1.
payment must be attested by notarial act appended to the protest, or
form an extension to it.
2.
notarial act of honor must be based on a declaration by the payer for
honor

Purpose: to save the credit of the parties to the instrument or

some party to it as the drawer, drawee, or indorser or somebody else.

3.

Acceptor for honor is liable to the holder and to all the parties to

the bill subsequent to the party for whose honor he has accepted (Sec.
164)

4.

Bills in Set bill of exchange drawn in several parts, each part of

the set being numbered and containing a reference to the other parts,
the whole of the parts just constituting one bill (Sec 178 NIL)