Sec.

60 - LIABILITIES OF A MAKER
The maker of a negotiable instrument, by making it
1. Engages that he will pay it according to its tenor,
and
2. Admits the existence of the payee and his then
capacity to indorse.

Sec. 60 - NOTES
Notes:
1. A maker's liability is primarily and unconditional
2. 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
3. The payee's interest is only to see to it that the note
is paid according to its terms
4. When two or more makers sign jointly, each is
individually liable for the full amount even if one did
not receive the value given
5. The maker is precluded from setting up the defense
that a) the payee is fictional, b) that the payee was
insane, a minor or a corporation acting ultra vires.

LIABILITY OF A DRAWER
A drawer is secondarily liable. By drawing the
instrument, the drawer:
1. Admits the existence of the payee,
2. The capacity of such payee to indorse
3. Engages that on due presentment, the instrument
will be accepted or paid or both according to its tenor.
Notes:
1. If the instrument is dishonored, and the necessary
proceedings on dishonor duly taken
a. The drawer will pay the amount thereof to the
holder
b. Will pay to any subsequent indorser who may be
compelled to pay it. (Sec. 61)
2. A drawer may insert an express stipulation to
negative or limit his liability

ACCEPTANCE (def.)

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.

ACCEPTOR
By accepting the instrument, an acceptor:
1. Engages that he will pay according to the tenor of
his acceptance
2. Admits the existence of the drawer, the
genuineness of his signature and his capacity and
authority to draw the instrument
3. The existence of the payee and his then capacity
indorse

MODES OF ACCEPTANCE ACCEPTANCE

MAY BE:
1. actual
2. constructive
3. general
4. Qualified

REQUISITES OF AN ACTUAL
ACCEPTANCE
1. In writing
2. Signed by the drawee
3. Must not express that the drawee will perform his

promise by any other means than payment of money

4. Communicated or delivered to the holder

ACCEPTANCE: RIGHT OF HOLDER

Note:
A holder has a right to:
1. require that acceptance be written on the bill and if
refused, treat it as if dishonored (Sec. 133)
2. refuse to accept a qualified acceptance and may
treat it as dishonored (Sec. 142)

Sec. 137 - CONSTRUCTIVE ACCEPTANCE

Sec. 137. Where a drawee to whom a bill is delivered

for acceptance destroys the same, or refuses within
twenty-four hours after such delivery, or within such
other period as the holder may allow, to return the
bill accepted or non-accepted to the holder, he will be
deemed to have accepted the same.

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)

Sec. 65. - WARRANTIES AND ITS

LIMITATIONS
Sec. 65. Every person negotiating an instrument by
delivery or by a qualified indorsement warrants
(a) That the instrument is genuine and in all respects
what it purports to be;
(b) That he has a good title to it;
(c) That all prior parties had capacity to contract;
(d) That he has no knowledge of any fact which would
impair the validity of the instrument or render it
valueless.
But when the negotiation is by delivery only, the
warranty extends in favor of no holder other than the
immediate transferee.
The provisions of subdivision (c) of this section do
not apply to persons negotiating public or
corporation securities, other than bills and notes.

QUALIFIED INDORSER
1. A qualified indorser is one who indorses without
recourse
3. 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.
4. 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
5. The warranty is to the capacity of prior parties at
the time the instrument was negotiated. Subsequent
incapacity does not breach the warranty.
6. 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.

7. A person Negotiating by Delivery warrants the
same as those of qualified indorser and extends to
immediate transferees only

Sec 66 - WARRANTIES OF A GENERAL

INDORSER

Sec. 66. Every indorser who indorses without

qualification warrants, to all subsequent holders in
due course
(a) The matters and things mentioned in subdivisions
(a), (b), and (c) of the next preceding section; and
(b) That the instrument is at the time of his
indorsement valid and subsisting.
And, in addition, he engages that on due
presentment, it shall be accepted or paid, or both, as
the case may be, according to its tenor, and that if it
be dishonored, and the necessary proceedings on
dishonor be duly taken, he will pay the amount
thereof to the holder, or to any subsequent indorser
who may be compelled to pay it

other cases: a) protest for nonpayment

by the drawee; b) protest for nonpayment by the
acceptor for honor

Sec. 72 - REQUISITES FOR PROPER

PRESENTMENT
Presentment for payment, to be sufficient, must be
made
(a) By the holder, or by some person authorized to
receive payment on his behalf;
(b) At a reasonable hour on a business day;
(c) At a proper place as herein defined;
(d) To the person primarily liable on the instrument,
or if he is absent or inaccessible, to any person found
at the place where the presentment is made.

Payable on Demand: When Presented

If the instrument is payable on demand:
1. Presentment must be made within reasonable time
after issue (if a note)
2. Presentment must be made within reasonable time
after last negotiation (if a bill)

1. The indorser under Section 66 warrants the

solvency of a prior party
2. The indorser warrants that the instrument is valid
and subsisting regardless of whether he is ignorant of
that fact or not.
3. The indorser does not warrant the genuineness of
the drawer's signature
4. General indorser is only secondarily liable

Presentment not required to charge the

drawer

Warranties extend in favor of

a) a HDC
b) persons who derive their title from HDC
c) immediate transferees even if not HDC

a. The instrument was made or accepted for his

accommodation
b. He has no reason to expect that the instrument will
be paid if presented (Sec.80)

a. He has no right to expect

b. He has no right to require
c. That the drawee or acceptor will pay (Sec 79)

Presentment not required to charge the

indorser where...

Rules as to presentment for payment

Sec 70 - PRESENTMENT FOR PAYMENT
Sec. 70. Presentment for payment is not necessary in
order to charge the person primarily liable on the
instrument; but if the instrument is, by its terms,
payable at a special place, and he is able and willing
to pay it there at maturity, such ability and
willingness are equivalent to a tender of payment
upon his part. But, except as herein otherwise
provided, presentment for payment is necessary in
order to charge the drawer and indorsers.

PRESENMENT FOR PAYMENT - NOTES

1. It consists of: a) a personal demand for payment at
a proper place; and, b) the bill or note must be ready
to be exhibited if required and surrendered upon
payment.
2. Parties primarily liable - persons by the terms of
the instrument are absolutely required to pay the
same. E.g. maker and acceptors. They can be sued
directly.
3. 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.
4. Presentment is necessary to charge persons
secondarily liable otherwise they are discharged
5. Acts needed to charge persons secondarily liable:
a) presentment for payment/acceptance;
b) dishonor by nonpayment/ non-acceptance;
c) notice of dishonor to secondary parties
6. Acts needed to charge persons secondarily liable in

a. Presentment not necessary to charge persons

primarily liable
b. Necessary to charge persons secondarily liable
Except:
i. The drawer under Sec. 79
ii. The indorser under Sec. 80

PRESENTMENT: When excused under

Sec. 82
After due diligence, presentment cannot be made
b. Presentment is waived
c. The drawee is a fictitious person
d. When the instrument has been dishonored by nonacceptance under Sec. 83

PRESENTMENT: How dishonored by

non-acceptance
a. The instrument was duly presented but payment is
refused or cannot be obtained
b. Presentment is excused and the instrument is
overdue and unpaid (Sec. 83)

Effects of dishonor by non-payment:

An immediate right of recourse to all parties

secondarily liable accrues to the holder. (Sec. 84)

Sec. 88 - REQUISITES OF A PAYMENT IN

DUE COURSE
Payment is made in due course when it is made at or
after the maturity of the instrument to the holder

thereof in good faith and without notice that his title

is defective.

Sec. 90 - TO WHOM A NOTICE OF

DISHONOR MAY BE GIVEN

The notice may be given by or on behalf of the holder,

or by or on behalf of any party to the instrument who
might be compelled to pay it to the holder, and who,
upon taking it up, would have a right to
reimbursement from the party to whom the notice is
given.

FORM OF A NOTICE ( Sec 95 and 96)

Sec. 95. A written notice need not be signed, and an
insufficient written notice may be supplemented and
validated by verbal communication. A misdescription
of the instrument does not vitiate the notice unless
the party to whom the notice is given is in fact misled
thereby.
Sec. 96. The notice may be in writing or merely oral
and may be given in any terms which sufficiently
identify the instrument and indicate that it has been
dishonored by non-acceptance or non-payment. It
may in all cases be given by delivering it personally or
through the mails

Sec. 109 - WHEN NOTICE CAN BE

WAIVED

Sec. 109. Notice of dishonor may be waived, either

before the time of giving notice has arrived or after
the omission to give due notice, and the waiver may
be express or implied.
Notes:
1. Protest may be waived. It is also deemed a waiver of
presentment and notice of dishonor (Sec. 111)
2. Where notice is waived, presentment is not waived
3. Where presentment is waived, notice is also waived
4. Where protest is waived, notice and presentment is
waived

NOTICE OF DISHONOR (def.)

Given by the holder to the parties secondarily liable,
drawer and each indorser, that the instrument was
dishonored by nonacceptance or non-payment by the
drawee/maker

GENERAL RULE : Notice of Dishonor

General rule: Any drawer or indorser to whom
such notice is not given is discharged.
EXCEPTIONS: Notice of Dishonor
1. Waiver (Sec. 109)
2. Notice is dispensed (Sec. 112)
3. Not necessary to Drawer (Sec. 114)
4. Not necessary to Indorser (Sec. 115)

Sec. 114 - WHEN NOTICE OF DISHONOR

IS NOT NECESSARY TO A DRAWER
(a) Where the drawer and drawee are the same
person.
(b) When the drawee is a fictitious person or a person
not having capacity to contract.
(c) When the drawer is the person to whom the
instrument is presented for payment.
(d) Where the drawer has no right to expect or
require that the drawee or acceptor will honor the
instrument.
(e) Where the drawer has countermanded payment.

Sec. 115 - WHEN NOTICE TO AN

INDORSER IS NOT REQUIRED

Sec. 115. Notice of dishonor is not required to be

given to an indorser in either of the following cases:
(a) Where the drawee is a fictitious person or a
person not having capacity to contract, and the
indorser was aware of the fact at the time he indorsed
the instrument;
(b) Where the indorser is the person to whom the
instrument is presented for payment;
(c) Where the instrument was made or accepted for
his accommodation

NOTES: Sec 115

Note:
1. Omission to give notice of dishonor by
nonacceptance does not prejudice a HDC (Sec. 117)
2. Protest only necessary for a foreign bill of
exchange. Protest for other negotiable instruments is
optional. (Sec. 118)

Sec. 119 - CAUSES OF DISCHARGE OF

THE INSTRUMENT
(a) By payment in due course by or on behalf of the
principal debtor;
(b) By payment in due course by the party
accommodated, where the instrument is made or
accepted for accommodation;
(c) By the intentional cancellation thereof by the
holder;
(d) By any other act which will discharge a simple
contract for the payment of money;
(e) When the principal debtor becomes the holder of
the instrument at or after maturity in his own right.
Notes:
1. Discharge of the instrument discharges all the
parties thereto
2. Payment must be in due course, and by the
principal debtor or on his behalf
3. If payment is not made by the principal debtor,
payment only cancels the liability of the payor and
those obligated after him but does not discharge the
instrument.
4. Payment by an accommodation party does not
discharge the instrument

Sec. 120 - HOW A SECONDARY PARTY IS

DISCHARGED
(a) By any act which discharges the instrument;
(b) By the intentional cancellation of his signature by
the holder;
(c) By the discharge of a prior party;
(d) By a valid tender of payment made by a prior
party;
(e) By a release of the principal debtor, unless the
holder's right of recourse against the party
secondarily liable is expressly reserved;
(f) By any agreement binding upon the holder to
extend the time of payment, or to postpone the
holder's right to enforce the instrument, unless made
with the assent of the party secondarily liable, or
unless the right of recourse against such party is
expressly reserved.

RIGHTS OF A PARTY SECONDARILY

LIABLE WHO ALREADY PERFORMED
HIS OBLIGATION TO PAY

1. The instrument is not discharged

2. The party is remitted to his former rights as to all
prior parties
3. The party may strike out his own and all
subsequent indorsements
4. The party may negotiate the instrument again

EXCEPTIONS: RIGHTS OF A PARTY

SECONDARILY LIABLE WHO ALREADY
PERFORMED HIS OBLIGATION TO PAY

1. An instrument cannot be renegotiated where it is

payable to order of a 3rd person and has been paid by
the drawer
2. Instrument cannot be renegotiated where it was
made or accepted for accommodation and it has been
paid by the party accommodated.

WHEN RENUNCIATION BY A HOLDER

DISCHARGES AN INSTRUMENT
1. Made in favor of a person primarily liable
2. Made at or after maturity of the instrument
3. In writing or the instrument is delivered up to the
person primarily liable .
NOTES:
1. If renounced in favor of a party secondarily liable,
only he is exonerated from liability and all parties
subsequent to him.
2. Discharge by novation is allowed.

General Rule: When materially altered,

without the consent of all parties liable
General rule: The instrument is avoided

Except as against:
1. The party who has made the alteration
2. The party who authorized or assented to the
alteration.
Subsequent indorsers
Exception:
If in the hands of a HDC, may be enforced according
to its original tenor

Material Alteration

If it alters the effect of the instrument.

Sec. 125 - MATERIAL ALTERATION

REQUISITES

Sec. 125 Any alteration, which changes

(a) The date;
(b) The sum payable, either for principal or interest;
(c) The time or place of payment;
(d) The number or the relations of the parties;
(e) The medium or currency in which payment is to
be made;
Or which adds a place of payment where no place of
payment is specified, or any other change or addition
which alters the effect of the instrument in any
respect, is a material alteration.

INSTANCES WHEN A BOE MAY BE

TREATED AS A PN

1. The drawer and the drawee are one and the same
2. The drawee is a fictitious person
3. The drawee has no capacity to contract.

ACCEPTANCE (def.)

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.

PRESENTMENT FOR ACCEPTANCE

1. If necessary to fix the maturity of the bill

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

SUMMARY ON PRESENTMENT FOR

ACCEPTANCE OF BILLS OF EXCHANGE
1. To make the drawee primarily liable and for the
accrual of secondary liability (Sec. 144)
2. Necessary to fix maturity date, where bill expressly
stipulates presentment, bill payable other than place
of drawee (Sec. 143)

When presentment is excused

a. drawee is dead, hides, is fictitious, incapacitated

person,
b. after due diligence presentment cannot be made,
c. presentment is refused on another ground although
presentment is irregular (Sec. 148)

PROTEST (def. and )

A formal statement in writing made by a notary under his
seal of office at the request of the holder, in which it is
declared that the same 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.

PROTEST: when required and when

made
1. Required when the instrument is a foreign bill of
exchange.
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

Sec 152 - WHEN PROTEST REQUIRED

Sec. 152. Where a foreign bill appearing on its face to be

such is dishonored by non-acceptance, it mustbe duly
protested for non-acceptance, and where such bill which
has not previously been dishonored by non-acceptance is
dishonored by non-payment, it must be duly protested for
non-payment. If it is not so protested, the drawer and
indorsers are discharged. Where a bill does not appear on
its face to be a foreign bill, protest thereof in case of
dishonor is unnecessary