Legendary Notes on Negotiable Instruments Law
Negotiable Instruments Law
Section 1. Form of negotiable instruments –
an instrument to be negotiable must
conform to the following requirements:
i) it must be in writing and signed by
the maker or drawer;
ii) must contain an unconditional
promise or order to pay a sum certain
in money;
iii) must be payable on demand, or at a
fixed or determinable future time;
iv) must be payable to order or bearer;
AND
v) where the instrument is addressed to
a drawee, he must be named or
otherwise indicated therein with
reasonable certainty.
*Applies only to bills of
exchange.
i-iv are applicable only to a promissory
note. While i-v applies to a bill of
exchange.
What is a negotiable instrument?
It is an instrument which
possesses all the elements of negotiability
provided in Section 1 of the NIL.
*It is a device intended as a substitute
for money.
What is a non-negotiable instrument?
An instrument which does not
meet the requirements laid down to qualify
an instrument as a negotiable one, or an
instrument which is negotiable in its
inception but has lost its quality of
negotiability.
Nature of a non-negotiable instrument:
i) it is a mere simple contract in
writing;
*Governed by Civil Code.
ii) it can only be assigned or transferred,
but not negotiated.
Explain the requirement that he
instrument must be in writing.
The instrument itself must be
in writing or reduced in tangible form.
*The instrument must be
written in a durable paper.
The negotiability or non-negotiability of
an instrument is determined from the face
of the instrument. In case of doubt, the
court must ascertain what is the meaning of
the words used by the parties, and not what
the parties secretly intended.
Is there an oral negotiable instrument?
No. It is difficult to determine
liability and create the danger
of fraud.
Why is it that the instrument must be
signed by the maker or drawer?
The signature is a prima facie
evidence of the intention of the person
signing to be bound as either maker or
drawer, or to obligate himself for the
payment of the instrument.
*Without his signature, a
person cannot be held liable
either as a maker or drawer on
the instrument.
Where the genuineness of the signature
of the maker or drawer is denied, the
signature is nevertheless presumed valid.
What is a promissory note?
An unconditional promise in
writing made by one person to another,
signed by the maker, engaging to pay on
demand, or at a fixed or determinable future
time, a sum certain in money to order or to
bearer.
 Legendary Notes on Negotiable Instruments Law
*A promise is an undertaking.
Parties to a promissory note:
i) Maker - the one who makes an
unconditional promise to pay the
payee on demand, or at a fixed or
determinable future time, a sum
certain in money.
ii) Payee – the one to whom the promise
is made or the instrument is payable.
What is a bill of exchange?
An unconditional order in writing
addressed by one person to another, signed
by the person giving it, requiring the person
to whom it is addressed to pay on demand
or at a fixed or determinable future time a
sum certain in money to order or to bearer.
*Order is a command or
directive.
Who are the parties to a bill of
exchange?
i) drawer - the person who issues and
draws the order bill. He gives the
order to pay money to a 3rd person.
ii) drawee – the party upon whom the
bill is drawn. He is the person to
whom the bill is addressed and who
is ordered to pay.
*The drawee becomes an acceptor
when he indicates his willingness
to accept responsibility for the
payment of the bill.
The drawee is not liable to
the BoE unless he becomes an
acceptor.
iii) payee – the party in whose favor the
bill is originally drawn or is payable.
In case the drawee did not accept the
bill, the payee looks exclusively to the
drawer. Once the bill is accepted, the
acceptor is primarily liable and the
drawer is only secondarily liable to the
bill.
What is the liability of the drawee in case
of non-payment?
If the drawee refuses to accept the
bill when he has funds for the purpose, the
drawee becomes liable to the drawer.
*However, to be liable to the
drawer, there must be some
kind of agreement obligating the
drawee to honor the order of
the drawer.
In other words, there must
be an existing debtor-credi-
tor relationship between
them.
Section 2. Certainty as to sum – the sum
payable is a sum certain although it is to be
paid:
i) with interest;
ii) by stated installments;
iii) by stated installments with an
acceleration clause;
iv) with exchange; OR
v) costs of collection or an attorney’s
fees, in case payment shall not be
made at maturity.
Why is it that the sum payable must be
certain?
It is necessary to assure clarity and
certainty in the determining the value of the
instrument.
The “sum certain” requirement is met if
the holder can determine from the
instrument itself the amount he is entitled to
receive at maturity.
*The amount to be paid must be
stated plainly on the face of the
instrument or at least it may be
ascertained upon its face by
 Legendary Notes on Negotiable Instruments Law
computation, independent of
extrinsic evidence.
I. SUM TO BE PAID WITH INTEREST
The payment of interest does not
render the instrument non-negotiable
because by a simple mathematical
computation, the principal sum can be
ascertained.
II. SUM TO BE PAID BY STATED
INSTALLMENTS.
It does not affect the negotiability
of the instrument because as long as it can
be ascertained how much will be paid when
the due date of each installment comes
matured.
It must specify how many installments
and how much is to be paid for each
installments.
III. SUM TO BE PAID IN
INSTALLMENTS BUT WITH AN
ACCELERATION CLAUSE OR
EXTENTION CLAUSE.
The sum is still certain although
there is an acceleration clause, a clause
which requires full payment of an
instrument immediately upon default. It
does not affect the negotiability of an
instrument because the acceleration clause
merely triggers the payment of all
installments upon default. Hence it can still
be ascertained the value of the instrument.
Extension clauses are the opposite of
acceleration clause.
IV. SUM TO BE PAID WITH
EXCHANGE.
A provision for payment of a sum
of money in a foreign currency does not
impair negotiability because the current rate
of exchange may easily be ascertained by
inquiry from banks dealing on exchange or
foreign currencies.
*This is still true whether the
instrument is payable at a fixed or
current rate.
Exchange is only applicable to foreign
bills.
Under RA 8183, every monetary
obligation must be paid in Philippine
currency which is the legal tender in the
Philippines.
*Parties may, however, agree that
the obligation or transaction be
settled in any other currency.
V. SUM TO BE PAID WITH COSTS OF
COLLECTION AND/OR
ATTORNEY’S FEE.
A provision that in case of non-
payment at maturity, there shall be added to
the amount due on the note costs of
collection or an attorney’s fee does not
affect the certainty of the amount payable at
maturity.
*Anything which only renders
the sum payable uncertain after
the instrument has ceased to be
a substitute for money cannot
impair its negotiability.
Section 3. When promise is unconditional –
an unqualified order or promise to pay is
unconditional, though coupled with:
i) an indication of a particular fund out
of which reimbursement is to be
made, or a particular account to be
debited with the amount; or
ii) a statement of transaction which
gives rise to the instrument.
An order or promise to pay out of a
particular fund is not unconditional.
When promissory note contains a
promise to pay?
 Legendary Notes on Negotiable Instruments Law
i) When the words “ I promise to pay”,
“I agree to pay”, “I obliges myself to
pay”, “good for” or any other words
equivalent to a promise or
assumption of full responsibility for
the payment of the note on the face
of the instrument are sufficient to
constitute a “promise to pay.”;
ii) When words of negotiability are used
such as “due to bearer or to order”.
Although the instrument contains no
express promissory words, the
instrument is negotiable.
Is bare acknowledgement of
indebtedness equivalent to a promise to
pay?
No. A bare acknowledgement of
indebtedness alone does not import an
express promise to pay or show that the
parties intend the debt to be paid.
*An acknowledgement of debt
evidences an old obligation
only.
When bill of exchange contains an order
to pay?
When the words “order” or “pay
to” or any other words which are equivalent
to an order or which shows the drawer’s
will that the money be paid are sufficient
Is a mere request equivalent to order?
No. The drawer does not merely
ask or expects the drawee to pay. He
demands that the drawee make payment.
When promise or order to pay is
unconditional?
It must not be subject to any
condition or contingency. Hence, the note
or bill must be payable absolutely.
*It is not enough that there a
be promise or order.
Reason – No one would accept a paper for
debt if the right to recover were not
absolute or unconditional in nature.
I. INDICATION OF A PARTICULAR
FUND OUT OF WHICH
REIMBURSEMENT IS TO BE MADE.
An instrument which mentions a
particular fund out of which reimbursement
is to be made is not conditional. The drawee
is not limited to the money in his hands
belonging to the drawer.
*Here, the fund indicated is
not the direct source of payment
but only the source of
reimbursement which is an act
subsequent to payment.
Example:
Pay to the order of Bilbo P1, 000
and reimburse yourself from the rentals of
my house.
II. INDICATION OF A PARTICULAR
ACCOUNT TO BE DEBITED WITH
THE AMOUNT.
An instrument which contains a
direction to debit a particular account is
negotiable because the payment does not
depend upon the existence or adequacy of
the particular account to be debited.
*Here, the instrument is to be
paid first after which the
particular account indicated will be
debited.
Example:
I promise to pay Bilbo or order
the sum of P1, 000 to be debited to my
account.
III. STATEMENT OF TRANSACTION
WHICH GIVES RISE TO
INSTRUMENT.
 Legendary Notes on Negotiable Instruments Law
The mere recital of the
consideration for which the instrument was
issued or mere reference to a separate
agreement out of which the instrument has
arisen does not make it conditional.
Example:
I promise to pay Bilbo or order
P1, 000 for being the price of the house he
sold to me.
The statement merely identifies the
transaction which gives rise to the
instrument. The instrument is to be paid
whether or not the contract is performed.
Is the indication of a particular fund out
of which payment is to be made
negotiable?
No. The amount to be paid is
made to depend upon the adequacy or
existence of the fund designated.
*Here, the fund designated is
the direct source of payment.
The instrument remains non-negotiable
even if the fund designated is found to be
sufficient at maturity.
Section 4. Determinable future time – An
instrument is payable at a determinable
future time if expressed to be payable:
i) at a fixed period after date or sight;
ii) on or before a fixed or determinable
future time specified therein;
iii) on or at a fixed period after the
occurrence of a specified period,
which is certain to happen, though
the time of happening be uncertain;
An instrument payable upon a
contingency is not negotiable, and the
happening of the event does not cure the
defect.
What is the reason why the time of
payment must be certain?
The time must be certain so that
the holder of the instrument will know
when he may enforce the instrument, or
when the person liable may be required to
pay.
I. PAYABLE AT A FIXED PERIOD.
Here, the legal right of the payee
is clear and certain. He can demand
payment on at the time fixed and not
before.
II. PAYABLE ON OR BEFORE A
FIXED OR DETERMINABLE FUTURE
TIME.
The payee can demand payment
on or before fixed or determinable future
time.
What is determinable future time?
A time that can be determined
with certainty after the execution of the
instrument.
Example:
I promise to pay Frodo or order
the sum of P500 upon death of Bilbo
Baggins.
III. PAYABLE ON OR AT A FIXED
PERIOD AFTER THE OCCURRENCE
OF A SPECIFIED EVENT.
The specified event must
absolutely certain to happen although the
time of the happening is uncertain.
Example:
I promise to pay Frodo or order
the sum of P500 30 days after the death of
Bilbo Baggins.
Is an instrument payable upon a
contingency negotiable?
No. The happening of the event
does not cure the defect of the instrument.
 Legendary Notes on Negotiable Instruments Law
Example:
I promise to pay Frodo or order
the sum of P500 if he passed the Bar
Exams.
*Here, the specified event is
not certain because Frodo may not
pass the Bar Exams.
In the same example, what if Frodo
passed the Bar exam, will the instrument
be negotiable?
No. The happening of the
specified event which depends upon
contingency will not cure the defect. Hence,
the instrument is still non-negotiable.
Section 5. Provisions not affecting
negotiability:
General Rule:
The instrument is non-negotiable
if it contains a promise or order to do any
act in addition to the payment of money.
Example:
I order Gimli to pay Pippin or
order P1M and to deliver a horse.
Exceptions:
i) authorizes the sale of collateral
securities in case the instrument be
not paid at maturity;
ii) authorizes a confession of judgment
of the instrument be not paid at
maturity;
iii) waives the benefit of any law
intended for the advantage or
protection of the obligor;
iv) gives the holder an election to require
something to be done in lieu of
payment of money.
I. SALE OF COLLATERAL
SECURITIES
It merely aids the holder to secure
payment.
Example:
I promise to pay Merry or order
the sum of P1M on January 1, 2018 secured
by a car and which Merry could sell in case
of non-payment at maturity.
II. CONFESSION OF A JUDGMENT
A confession of judgment enables
the holder to obtain a judgment without
delay usually incident to a law suit, as it
eliminates the necessity of trial. It is a
written statement signed by the defendant,
setting forth the basis of liability and
authorizing the entry of judgment thereon.
Example:
I promise to pay Merry or order
the sum of P1M and I hereby authorized my
attorney-at-law to appear in any court after
the obligation becomes due and waive the
issuing and service of process and confess a
judgment against me and in favor of the
holder of the note for such amount as may
appear to be unpaid thereon, and thereupon
to waive all errors in any proceedings and
waive all rights of appeal.
Warrants of attorney to confess judgment
are not authorized nor contemplated by law.
*Nothing in Section 5 shall validate
any provision or stipulation
otherwise illegal.
But the validity of the
provision as to the confession
of judgment does not render the
instrument non-negotiable.
Hence, it remains valid as
to the amount.
III. WAIVER OF BENEFIT GRANTED
BY LAW.
 Legendary Notes on Negotiable Instruments Law
The waiver of the benefit granted
by law intended for the advantage or
protection of the obligor does not destroy
the negotiability of the instrument.
Example:
I promise to pay Merry or order
P1M and I waive all benefits granted by law
for the advantage or protection of the
obligor.
*Example of such laws are
protest, presentment for
payment, or demand.
IV. ELECTION OF HOLDER TO
REQUIRE SOME OTHER ACT.
Such provision merely aids the
holder to secure payment and protects him
from risks of insolvency.
Example:
I promise to pay Merry the sum of
P1M or a house and lot at the election of the
holder.
In the same example, what if the right of
election is given to the maker (or
drawer)?
The instrument is non-negotiable
because the maker cannot compel the
holder to accept payment other than money.
Section 6. Validity and negotiability of an
instrument are not affected by these
omissions:
i) the instrument is not dated;
ii) does not specify the value given, or
that any value has been given
therefor;
iii) does not specify the place where it is
drawn or the place where it is
payable;
iv) bears a seal;
v) designates a particular kind of current
money in which payment is to be
made.
What is the effect of omission of date?
General rule:
The date in a bill or note is not
necessary because the instrument will be
considered to be dated as of the time it was
issued.
*Hence, it will not make the
instrument non-negotiable.
Exception:
Date is necessary to determine the
date of maturity.
*Such as where interest is
stipulated for the purpose of
determining when the interest is
to run.
What is the effect of omission of value?
The instrument is negotiable
although it does not specify the value given
for the instrument.
*Consideration is presumed.
What is the effect of omission of place?
It does not affect the validity and
negotiability of the instrument.
*However Section 73 specifies
where presentment for
payment should be made when the
place of payment is not specified.
What is the effect of the omission of the
seal?
It does not affect the validity and
negotiability of the instrument.
What is the effect of designation of
particular kind of current money payable?
 Legendary Notes on Negotiable Instruments Law
The instrument is still negotiable
although it is payable in foreign money
which is not current in the Philippines if the
obligation may be discharged in pesos of
equivalent amount.
Section 7. When instrument is payable on
demand:
i) where it is expressed to be payable
on demand, at sight, or on
presentation;
Example:
I order to pay Boromir or to
bearer P1, 000.
ii) where no time for payment is
expressed.
Example:
I order to pay Boromir or bearer
P1, 000.
When an instrument is issued, accepted
or indorsed when overdue, it is payable on
demand as regards to the person issuing,
accepting, or indorsing the instrument.
*Refers only to immediate parties.
What is an instrument payable on
demand?
It is due and payable immediately
after delivery. It is a present debt due at
once.
Section 8. When instrument is payable to
order:
When it is drawn payable to the
order of a specified person or to him or his
order.
Where the instrument is payable to order
the payee must be named or otherwise
indicated therein with reasonable certainty.
*Otherwise, there is nobody who
could give the order or authority to collect.
The instrument is also non-
negotiable because the payee is
not named or otherwise indicated with
reasonable certainty.
Section 9. When the instrument is payable
to bearer:
i) when it is expressed to be payable to
bearer;
ii) when it is payable to a person named
in the instrument or bearer;
iii) when it is payable to the order of a
fictitious or non-existing person;
*Provided such fact was known to
the person making the instrument
payable to bearer.
iv) when the name of the payee does
not purport to be the name of any
person; OR
v) when the only or last indorsement
is an indorsement in blank.
Who is a bearer?
The person in possession of a bill or
note which is payable to bearer.
I. PAYABLE TO BEARER
Example:
I order to pay bearer the sum of
P100.
Pay to holder, or pay to P or holder is
payable to bearer.
Is payable to the order of bearer a bearer
or order instrument?
It was held to be payable to order.
II. PAYABLE TOA SPECIFIED
PERSON OR BEARER.
Example:
 Legendary Notes on Negotiable Instruments Law
I order to pay Saruman or bearer
the sum of P100.
III. PAYABLE TO THE ORDER OF A
FICTITIOUS PERSON.
Example:
I order to pay Juan Dela Cruz or
order the sum of P100.
*However, it is essential that
the payee is known to the
maker or drawer to be
fictitious or non-existing
person.
Otherwise, the instrument
would be an order
instrument.
In case of fictitious-payee situation and
the check is a bearer instrument, the
drawee-bank, in the absence of bad faith or
gross negligence, is absolved from liability
and the drawer bears the loss because the
drawer was in a better position to prevent
the loss in the first place.
IV. PAYABLE TO THE ORDER OF A
NON-EXISTING PERON.
Example:
I order to pay the King of the
Pacific Ocean the sum of P100.
Since indorsement impossible, the
manifest intention of the drawer is to make
the instrument a bearer paper negotiable by
delivery.
VI. NAME OF PAYEE NOT NAME OF
PERSON.
Example:
Pay to cash.
Pay to cash or order
Pay to money.
Pay to sundries.
Pay to payroll.
VII. INDORSEMENT IN BLANK
The blank indorsement makes the
instrument payable to bearer.
A blank indorsement cannot make a non-
negotiable instrument, it is negotiable as a
bearer instrument payable to a specified
person.
Section 10. Terms when sufficient – the
instrument need not follow the language of
the Act, but any terms are sufficient which
clearly indicate an intention to conform to
the requirements thereof.
Section 11. Presumption as to date - where
the instrument, or an acceptance or any
indorsement is dated, it is presumed that the
said date is the date of making, drawing, or
indorsement, as the case may be.
He who claims that some other date is the
true date has the burden to establish such
claim.
Section 12. Effect of ante-dating and post-
dating.
Ante-dating or post-dating an
instrument does not render it invalid or non-
negotiable by that fact alone.
*Provided this is not done for
an illegal or fraudulent purpose.
What is the date when the instrument
takes effect?
The person to whom the ante or
post-dated instrument is delivered acquires
title or ownership over it as of the date it is
delivered, and not as of the date it bears.
Section 13. When date may be inserted.
 Legendary Notes on Negotiable Instruments Law
Any holder may insert the true authority to complete the instrument
date of issue or acceptance and the by filling up the blanks;
instrument shall be payable accordingly:
*Material particular is
i) where the instrument is payable at a something important or
fixed period after date but the necessary to make the
instrument is issued undated; AND instrument negotiable.
ii) where an instrument is payable at a
fixed period after sight but the The authority to complete is not an
acceptance is undated. authority to alter.

What is the effect of the insertion of the
wrong date?
It does not avoid the instrument in
the hands of a holder in due course. Even if
the inserted date is wrong, it is to be
regarded as the true date.
ii) authority to put any amount – a
signature on a blank paper delivered
by the person making the signature in
order that the paper may be
converted into a negotiable
instrument operates as a prima facie
authority to fill it up for any amount.

Example: Example:

I promise to pay Smeagol or order Sam delivered a blank paper with

P1, 000 10 days after date.
Since, the date of issue is
necessary to determine the maturity of the
instrument. The true date of the instrument
is January 5, 2018. However, Smeagol
instead, the holder of the instrument,
inserted January 1, 2018 hasten the maturity
date which January 15, 2018.
his signature to Smeagol so that it be
converted into a negotiable instrument.
Here, Smeagol has the prima facie
authority to fill up the amount to make the
paper a negotiable instrument.
How the instrument may be enforced
after completion?

As to Smeagol, the note is It can only be enforced against

avoided because the instrument is ante- any person who became a party on the
dated for a fraudulent purpose. instrument prior to its completion provided
it is:
Deagol, a holder in due course,
may enforce the instrument on January 10, a) filled up strictly in
2018 or 10 days after January 1, 2018 accordance with the
because as to Deagol the insertion of authority given; AND
January 1, 2018 or the wrong date is to be b) within a reasonable time.
regarded as the true date.
Example:
Section 14. Rules where the instrument is
Sam delivered a blank paper with
incomplete but delivered:
his signature authorizing Smeagol to put
i) authority to fill up blanks – the P5, 000 as the amount and then indorsed it
holder or any person in possession of to Deagol.
an instrument lacking in any material
Here, the instrument may be
particular has the prima facie
enforced by Deagol against Sam after its
 Legendary Notes on Negotiable Instruments Law
completion because it was strictly filled up
by Smeagol in accordance with the
authority given by Sam.
In the same example, what if Smeagol
put P50, 000 as the amount and then
indorsed the instrument to Deagol who is
not a holder in due course?
Deagol can only recover up to P5,
000 or the amount authorized by Sam
because the instrument had not been filled
up strictly in accordance with the authority
given by Sam to Smeagol.
In the same example, what if Deagol is
holder in due course?
The defense that the instrument
had not been filled up strictly in accordance
with the authority given and within a
reasonable time is not available as against a
holder in due course.
*Hence, Deagol, a holder in
due course, may enforce the
instrument and collect the
whole P50, 000 against Sam.
Section 14 is a personal defense.
Section 15. Rules where the instrument is
incompelete and undelivered:
i) Defense against a holder in course
– an incomplete and undelivered
instrument will not be a valid
contract in the hands of any holder,
even a holder in due course.
*This is still true even if the
incomplete instrument is
completed and negotiated as
long as there is no authority
from the maker or drawer.
Example:
Saruman makes a note for P1, 000
with the name of a payee in blank and kept
the said note in his room in Isengard.
However, Grima stole the said note and put
his name as the payee and indorsed the note
to Treebeard, a holder in due course.
Even if the incomplete and
undelivered instrument is completed and
negotiated as long as there is no authority
from maker, the said instrument will not be
a valid contract in the hands of any holder,
even a holder in due course.
Hence, Saruman cannot be held
liable by Treebeard, a holder in due course.
ii) defense available only to prior
parties - the defense under this rule
is available only parties whose
signature was placed before delivery.
Section 15 is a real and absolute defense.
Section 16. Rule where instrument is
mechanically complete:
i) instrument complete but unde-
livered – every contract on a
negotiable instrument even if it is
completely written is incomplete and
revocable before its delivery for the
purpose of giving it effect.
This is a personal defense.
Example:
Merry makes a note payable to
Smeagol or order. However, Merry kept the
note inside his vault and decided not to
deliver it yet to Smeagol.
In the absence of delivery, the
note is still incomplete and revocable before
delivery. Hence, Merry cannot be held
liable for the note.
ii) instrument in possession of a
party other than a holder in due course –
if a complete instrument is found in the
possession of an immediate party or a
remote party other than a holder in due
 Legendary Notes on Negotiable Instruments Law
course, there is a prima facie presumption
of delivery.
*However, this presumption is
subject to rebuttal.
Where the instrument is no longer in the
possession of a party who signed it, a valid
and intentional delivery by him is proved.
*The presumption continues
until the contrary is proved.
Example:
Merry makes a note payable to
Smeagol or order and hid it inside his
cabinet. Smeagol, Merry’s butler, saw the
note so he stole it. Smeagol then indorsed
the note to Deagol who knew that Smeagol
stole the note from Merry.
Here, it is presumed that Merry
delivered the note because the note is in the
possession of a party other than a holder in
due course. Deagol is not a holder in due
course because he knew that Smeagol stole
the note from Merry.
However, Merry may rebut this
presumption of delivery.
Who are immediate parties?
They are the parties who are in
direct contractual relation with each other.
Who are remote parties?
They are the parties who are not
in direct contractual relation to each other.
iii) conditional delivery or for a special
purpose.
General rule:
When delivery is made, it is
presumed to be made with the intention to
transfer ownership of the instrument to the
payee.
Exception:
It may be shown between the
immediate parties that the delivery was
conditional or for a special purpose only,
and not for the purpose of transferring
owenership.
iv) instrument in the hands of a holder
in due course – if a complete
instrument is in the hands of a holder
in due course, a valid delivery of the
instrument by all parties prior to him
(HIDC) is conclusively presumed.
*The personal defense of com-
plete but undelivered
instrument cannot be availed
against a holder in due course.
A presumption is said to be conclusive
when it admits of no evidence to the
contrary.
Section 17. Construction where instrument
is ambiguous – where the language of the
instrument is ambiguous or there are
omissions therein, the following rules of
construction shall apply:
i) sums expressed in words and in
figures are different, the words shall
prevail.
*If the words are ambiguous,
reference may be had to
figures.
ii) if payment for interest is provided
but the date from which the interest is
to run is not specified, the interest
runs from the date of the instrument.
*If the instrument is undated,
from the issue thereof.
iii) if the instrument is undated, it will be
considered to be dated from the time
it was issued.
 Legendary Notes on Negotiable Instruments Law
iv) in case of conflict between the Section 20. Liability of person signing as
written and printed provisions, the agent.
written prevails.
v) in case of doubt whether the When agent may escape personal
instrument is a bill or note, the holder liability?
may choose either. The following requisites must be
vi) in case the person signing the present:
instrument is not clear in what
capacity he is signing, he is to be an i) he is duly authorized;
indorser. ii) he adds words to his signature
vii) where an instrument containing the indicating that he signs as an agent;
words “I promise to pay” is signed by AND
2 or more persons, they are deemed
to be jointly and severally liable *That is for or on behalf of the
thereon. principal, or in a representative
capacity.
Section 18. Liability of person signing in
trade or assumed name. iii) he discloses his principal.

General rule: What is the effect if the signer merely

adds words describing him as an agent
Only persons whose signatures but he does not disclosed his principal?
appear on an instrument are liable thereon.
The signer will be personally liable
Exception: to the instrument for non-disclosure of his
principal.
Where a person signs in a trade or
assumed. Section 21. Effect of signature by
procuration.
Example:
It operates as notice that the agent
A promissory note signed in the has but limited authority to sign.
business name by the proprietor of the
business. The person so signing is liable to *It is the duty of the person
the same extent as if he had signed his dealing with the agent to
name. inquire into the extent of
agent’s authority.
Section 19. Signature by an authorized
agent. What is procuration?

The maker or drawer may sign the The act by which a principal gives
instrument personally or by his agent duly power to another to act in his place as he
authorized by him. could himself.

How authority of the agent may be When the principal may be held liable by
shown? the acts of an agent?

It may be established as in other When the agent acted within the

cases of agency. actual limits of his authority.
 Legendary Notes on Negotiable Instruments Law
*Hence, the principal is not
liable in case the agent acted
with grave abuse of his autho-
rity.
The power to make or indorse negotiable
paper must be expressly granted.
Section 22. Indorsement by infant or
corporation.
The indorsement or assignment of
the instrument by a corporation or by a
minor passes the property therein.
*Hence the indorsement is not
void.
The minor also has a right to disaffirm
his indorsement and recover the instrument.
*Minority is a real and absolute
defense. Hence, it can be interposed
even against a holder in due course.
Example:
Aragorn issues a note payable to
Gollum or order, a minor. On the other
hand, Gollum indorses the note to Sauron.
Aragorn becomes liable to Sauron
because the indorsement of Gollum passes
title to Sauron.
In the same example, what if Aragorn
cannot pay and Sauron sues Gollum,
may Gollum, a minor, be held liable?
No. Gollum may interposed as
defense his minority to escape liability.
Furthermore, Gollum may even disaffirm
his indorsement and recover the instrument
from Sauron.
What is the effect of the indorsement by
a corporation?
General rule:
The indorsement is not void.
Exception:
The corporation cannot be held
liable if the officer of the corporation has
committed ultra vires acts or acts beyond its
powers.
One who deals with the officers or agents
of a corporation is bound to know their
powers and extent of their authority.
Section 23. Effect of a forged signature.
General Rule:
When a signature is forged or
made without the authority of the person
whose signature is forged, the signature is
wholly inoperative and no right can be
acquired through the forged signature.
It does not purport to declare the
instrument totally void. It is only the forged
signature that is declared to be inoperative.
Example:
Smeagol makes a promissory note
payable to his own order by forging
Saruman’s signature.
Here, the signature is wholly
inoperative and it cannot make Saruman
liable to the instrument.
What is the cut-off rule?
A forged instrument prevents any
subsequent party from acquiring any right
against any party prior to the forgery.
*This rule does not apply
where the party is precluded
from setting forgery as a
defense.
Example:
Frodo makes a note payable to P.
P indorsed the note to A. Smeagol stole the
note from A, forged A’s signature then
 Legendary Notes on Negotiable Instruments Law
indorsed the same to B. B indorsed the note
to C.
C, the holder, cannot enforce the
instrument against P and Frodo because
parties prior to the forged signature cannot
be held liable. They are cut-off.
C cannot enforce the instrument
against A because A’s signature is forged.
Hence, it is wholly inoperative.
C may go against B whose
signature is genuine and because B, as an
indorser, warranted that the instrument is
genuine.
B and C has a right of recourse
against Smeagol , the forger.
What is the effect if payment is made
through or under such forged signature?
Payment is ineffectual and does
not discharge the instrument.
Exception to the general rule:
i) if the party against whom the
instrument is sought to be enforce is
precluded from setting up forgery or
want of authority;
ii) where the forged signature is not
necessary to the holder’s title.
*Here, the forgery may be dis-
regarded.
I. PRECLUDED FROM SETTING UP
THE DEFENSE OF FORGERY.
i) those who by their acts, silence, or
negligence are stopped from setting
up the defense of forgery; AND
Example of estoppels by silence:
Arwen forged the signature of
Aragorn and made a note payable to
Arwen’s order. Arwen indorsed the note to
Elrond. Aragorn discovered the forgery but
he did not inform Elrond of the forgery,
thus preventing Elrond from taking steps to
protect himself against loss.
Aragorn was stopped by his
silence from setting up forgery.
“He who is silent when conscience
requires him to speak shall be debarred
from speaking when conscience requires
him to be silent.”
Example of estoppels by negligence:
Gandalf made a bill of exchange.
Smeagol stole the bill and put P5, 000 as
amount and forged the signature of
Gandalf. Smeagol presented the bill to the
Bank of Moria. However, the Bank of
Moria did not ascertain the genuiness of the
Gandalf’s (drawer) signature and paid the
amount to Smeagol right away.
Here, the bank is estopped for its
negligence for not ascertaining the
genuiness of the drawer’s signature.
ii) those who warrant the genuiness of
the signatures in question, namely:
a) indorsers;
Indorsers who are subsequent to the
forgery warrant that the instrument is
genuine and in all aspects what it purports
to be.
b) acceptors;
By accepting the bill, the acceptor admits
the genuiness of the drawer’s signature.
c) persons negotiating by deli-
very.
Does the drawee have the right to
recover payment made where drawer’s
signature is forged?
General rule:
No. The drawee who pays money
on a check where the signature of which
was forged cannot recover the money from
 Legendary Notes on Negotiable Instruments Law
the one who received it. The bank bears the
loss because a forged signature is wholly
inoperative and payment made through or
under such signature is ineffectual or does
not discharge the instrument.
*If payment was already made,
the drawee cannot charge it to the
drawer’s account.
Reason – the drawee has the obligation to
know the signature of the drawer.
When a person deposits money in a bank,
the relationship of the bank and the
depositor is that of debtor and creditor. The
bank is under obligation to pay only upon
depisitor’s order. When a bank pays a
check, on which the depositor’s signature is
forged, the bank is not paying with its own
but with drawer’s money. Hence, the bank
bears the loss.
 What if the forgery is a clever one as
to defy detection?
The fact that forgery is a clever
one is immaterial. The drawee is still liable.
What if the drawee-bank exercised due
diligence in ascertaining whether the
signature is forged or not?
The degree of diligence exercised by
the bank would be irrelevant if the drawer is
not precluded from setting up the defense of
forgery by his own negligence.
What if the bank is in good faith in
paying a forged check? (Samsung
Construction v. Far East Bank, 436 SCRA
402)
The good or bad faith of the bank is
irrelevant.
Exception:
The bank is not liable even if the
drawer’s signature is forged when
negligence can be traced on the part of the
drawer whose signature was forged.
Does the drawee have the right to
recover payment where payee’s or
indorser’s signature was forged?
Yes.
From whom?
i) from the encasher or last indorser
– recovery is permissible although
the drawee was negligent in failing to
detect the forgery. The drawee has no
duty to ascertain whether or not
signatures of the payee or indorsers
are genuine.
Reason – the indorser is supposed to
warrant to the drawee that the signatures of
the payee and previous indorsers are
genuine.
*If the encasher or last indorser of
the check had performed their duty,
the forgery would have been detected
and fraud defeated.
No businessman would accept a check
unless he is satisfied that the check is
genuine.
ii) from the drawer or depositor –
recovery from the drawer is
permissible only when the drawer is
guilty of such negligence which
causes the bank to honor such a
check or checks.
Reason – the depositor failed to act what a
prudent business would do under the
circumstances.
What if the drawee bank is also
negligent?
The loss from the forgery can be
apportioned between the drawer and the
drawee.
 Legendary Notes on Negotiable Instruments Law
II. WHERE THE FORGED
SIGNATURE IS NOT NECESSARY TO
THE HOLDER’S TITLE IN WICH
CASE THE FORGERY MAY BE
DISREGARDED.
Rules:
i) where the instrument is payable to
order – the party whose indorsement
is forged is not liable to any holder
even a holder in due course.
ii) where the instrument is originally
payable to bearer – the party whose
indorsement is forged is liable only
to a holder in due course but not to
one who is not a holder in due
course.
*Parties prior to forgery can be
held liable by a holder not in
due course.
Reason – an instrument originally payable
to bearer can be negotiated by mere
delivery. Hence, indorsement is not
necessary to the title of the holder.
Section 24. Presumption of consideration –
every negotiable instrument is deemed
prima facie to have been issued for a
valuable consideration, and every person
whose signature appears thereon has
become a party thereto for value.
*Hence, it need not be expressly
stated.
Section 25. What constitutes value – any
consideration sufficient to support a simple
contract.
Is an antecedent or pre-existing debt
constitutes value?
Yes it is a valuable consideration.
It is not necessary that the maker or
drawer personally benefited. It is sufficient
that benefit was conferred upon a 3rd person
or the maker or drawer suffers some
detriment. (Ty v. People, 439 SCRA 220)
Is it necessary that the consideration be
adequate?
No.
Exception:
Unless there is fraud, mistake, or
undue influence. (Art. 1355 Civil Code)
Section 26. Holder for value – one who has
given a valuable consideration for the
instrument issued or negotiated to him.
*The holder is deemed to be such
even to all who became parties prior
to the time when value was given.
If the holder is a holder in due course, he
may enforce the instrument against parties
prior to the time when value was given.
*If not a holder in due course,
absence of consideration may be set
up by the party to whom the
instrument is enforced, if there is
no consideration.
Section 27. Where a holder has lien on
instrument – the holder is deemed a holder
for value to the extent of his lien.
When a holder has a lien on the
instrument?
When the holder has taken a
negotiable instrument as security for a debt.
Rules:
a) if the amount of the instrument is
more than the debt secured, the
pledgee is a holder for value to the
extent of his lien. He can recover the
whole amount and apply the same to
the payment of the debt.
*But he must deliver any
surplus to the pledgor.
 Legendary Notes on Negotiable Instruments Law
b) if the amount of the instrument is less
than the debt secured, the pledgee is
a holder for value for the whole
amount of the instrument.
c) if defenses are existing between the
pledgor and the person liable on the
instrument, the pledge can only
collect to the extent of the amount of
debt.
*However, if the party liable
has real defenses, the pledge
can recover nothing.
Section 28. Effect of want of consideration
– absence or failure of consideration is a
personal defense as against any person not a
holder in due course.
What if there is only a partial failure of
consideration?
It is only a defense pro tanto.
Example:
Gandalf makes a note to Bilbo for a
parcel of land. If only ½ portion of the land
was delivered, Bilbo can only recover ½
portion of the note.
Section 29. Accommodation party – a
person who has signed the instrument:
a) as maker, drawer, acceptor, or
indorser;
b) without receiving value for the
signature, AND
c) for the purpose of lending his name
to some other person (accommodated
party).
The accommodation party usually
expects that the accommodated party will
pay the bill or note when it falls due.
Who is an accommodated party?
The person to whom the
accommodation party lends his credit. He
impliedly agrees to take up the instrument
at maturity and to indemnify the
accommodation party.
The accommodation party may show by
parol evidence that he is merely lending his
credit to the accommodated party.
What is the liability of an
accommodation party?
The accommodation party is liable on
the instrument to a holder for value.
What if the holder for value knew, at the
time of the taking of instrument, that the
signatory is merely an accommodation
party?
The accommodation party is still
liable to a holder for value.
*Hence, absence of
consideration between the
accommodation party and the
party accommodated is not a
valid defense against a holder
for value (Ang v. Associated
Bank, 532 SCRA 244).
What if the rule is that the
accommodation party is a corporation?
Section 29 does not apply to
corporations which are accommodation
parties.
Reason – the issue or indorsement of a
negotiable paper by a corporation without
consideration for the accommodation of
another is ultra vires.
What are the rights of an accommodation
party?
a) right to revoke accommodation
before the instrument is negotiated to
a holder for value.
b) right to reimbursement from
accommodated party.
 Legendary Notes on Negotiable Instruments Law
*The accommodation party is
considered a surety. Hence,
after payment he is entitled to
be reimbursed.
Section 30. Negotiation.
What is assignment?
Transfer of the title to the instrument.
The assignee merely steps into the shoes of
the assignor.
*When negotiation takes place,
the transferee becomes a
holder.
What is transfer?
A process by which property is
delivered by one person to another.
What is delivery?
Transfer of actual or constructive
possession from one person to another.
What is negotiation?
Transfer of a negotiable instrument
from one person to another made in such a
manner as to constitute the transferee the
holder of the instrument.
*There must be intent to
transfer ownership.
What are the methods of negotiation?
1. instrument payable to order.
Requisites for its negotiation:
1) indorsement by the payee or
indorsee; AND
2) delivery of the instrument to
another.
The transferee will become a holder of
the instrument if these 2 requisites are
present. Hence, there must be a negotiation
before a transferee becomes a holder.
What is the effect if an order instrument
is delivered without indorsement?
The transfer operates as an ordinary
assignment. The assignee acquires the
instrument subject to all defenses available
against the assignor.
*However, the assigner has the
right to have the indorsement
of the assignor.
When indorsement is
obtained, the transfer
operates as a negotiation
as of the time the
indorsement is made.
(Sec. 49)
2. instrument payable to bearer.
Requisites for its negotiation:
Mere delivery of the instrument to
another as long as there is intent to transfer
ownership constitutes negotiation.
Section 32. Indorsement of the entire
instrument.
General rule:
The indorsement must be an
indorsement of the entire instrument.
*Hence, indorsement of a part
only of instrument does not
operate as a negotiation of the
instrument.
Exception:
Where the instrument has already
been paid in part, the unpaid balance may
be indorsed.
Section 33. Kinds of indorsements:
i) special
ii) blank
iii) restrictive
iv) qualified
 Legendary Notes on Negotiable Instruments Law
v) unqualified or general
vi) conditional
vii) unconditional
Section 34. Special and blank indorsement.
What is a special indorsement?
It specifies the person to whom the
instrument is payable or to whose order the
instrument is to be payable.
*The indorsement of the
indorsee is necessary to the
further negotiation of the
instrument.
What is an indorsement in blank?
It specifies no indorsee. An
instrument indorsed in blank is payable to
bearer.
*Hence, it may be negotiated
by mere delivery.
This true whether the
instrument is originally
payable to bearer or
payable or order.
Negotiation:
i) order instrument – delivery +
special indorsement of the indorsee.
*But if the order instrument is
indorsed in blank, the
instrument is converted into a
bearer instrument which may
be negotiated by mere
delivery.
If the converted bearer
instrument is specially
indorsed and delivered
to another, the
instrument becomes
again an order
instrument which can
only be negotiated by
indorsement + delivery.
ii) bearer instrument – delivery only.
*If the originally bearer
instrument is specially
indorsed the person indorsing
is liable as indorser only to
such holders as make title
through his indorsement. (Sec.
40)
A bearer instrument remains a bearer
instrument regardless of whether it is
indorsed specially to another. Hence, it does
not become an order instrument.
*But an order instrument may
be converted into a bearer
instrument if the last or only
indorsement is in blank.
Furtheremore, it may become
again an order instrument if it
is indorsed specially.
Section 36. Restrictive indorsement – an
indorsement is restrictive when:
i) it prohibits further negotiation of the
instrument;
ii) it constitutes the indorsee the agent
of the indorser; OR
Example:
“Pay to Gollum for collection.”
“Pay to Gollum for deposit.”
Here, Gollum does not acquire title
over the instrument.
iii) it vests the title of the indorsee in
trust for or to the use of some other
person.
Example:
“Pay to Gollum in trust for Frodo.”
“Pay to Gollum as agent of Frodo.”
 Legendary Notes on Negotiable Instruments Law
Restrictive indorsements give notice that
the instrument cannot be negotiated.
Mere absence of words implying power
to negotiate does not make an indorsement
restrictive.
Section 37. Effect of restrictive
indorsement upon the rights of the indorsee
– a restrictive indorsement confers upon the
indorsee the right:
i) to receive payment of the instrument;
ii) to bring any action that the indorser
could bring;
iii) to transfer his rights as such indorsee,
*Except when it is prohibited
in the indorsement.
What is the right of the subsequent
indorsee if the first indorsee in restrictive
indorsement negotiates the instrument to
another?
All subsequent indorsees acquire
only the title of the first indorsee.
*Hence, if the first indorsee is
a mere trustee, the subsequent
indorsee also becomes a
trustee of the first indorsee’s
principal.
Section 38. Qualified indorsement – it
constitutes the indorser a mere assignor of
the title to the instrument. Indorsement is
qualified the words “without recourse” or
other words of similar import are added.
Does the qualified indorsement impair
the negotiability of the instrument?
No.
What is the effect of a qualified
indorsement?
To transfer title without guaranteeing
payment by the primary party. Hence, the
indorser is not liable to the indorsee if the
instrument is dishonored by non-payment
or non-acceptance like in case of
insolvency.
*Except those cases where the
instrument is dishonored under
Section 65. Here, the qualified
indorser is secondarily liable
for breach of his warranties as
an indorser.
Section 39. Conditional indorsement - is
one which the indorser imposes some other
conditions to his liability or on the
indorsee’s right to collect the proceeds of
the instrument.
Rules:
i) the party required to pay the
instrument may disregard the
condition and make payment to the
indorsee or his transferee regardless
of whether the condition is fulfilled
or not.
Example:
Fili makes a note for P100, 000
payable to Kili or order. Pippin indorses the
note to Thorin with this condition “Pay to
Thorin after he (Thorin) builds a house for
me.”
Here, Fili, the maker, may refuse to
pay the note because the condition is not
fulfilled or Fili may simply disregard the
condition and pay Thorin at maturity.
*Thorin has the right to
terminate his obligation upon
its maturity and cannot be
burdened with conditions
which were not part of his
contract.
ii) any person to whom the instrument is
negotiated with a conditional
indorsement will hold the same or the
proceeds thereof in trust for the
 Legendary Notes on Negotiable Instruments Law
person indorsing conditionally until
the condition is complied with.
*If the condition is not
complied with, he must turn
over the instrument or the
proceeds thereof to the person
indorsing conditionally.
Section 40. Effect of indorsement payable
to bearer – where an instrument or
originally payable to bearer is indorsed
specially, it may nevertheless be further
negotiated by delivery.
*However, the person indorsing
specially is liable as indorser to only
such holders as make title through his
indorsement.
Example:
M makes a note payable to P or
bearer and delivered it to P. P, however,
indorsed specially the note to A. A
negotiated the note by mere delivery to B.
Here, B has no right against P
because B did not obtain his title through
the indorsement of P. Only A (indorser) and
M (maker) will be liable to B.
In the same example, what if A also
indorses specially the note to B who
negotiated the same to C by mere
delivery?
P is liable to A and B since they
obtained their title through the indorsement
of P.
However, P will not be liable …….
Section 41. Indorsement where instrument
is payable to two or more persons.
General rule:
Where the instrument is payable to
two or more indorsees or payees who are
not partners, all must indorse the
instrument.
*Otherewise, there is no negotiation.
Exception:
i) where the payees or indorsees are
partners; OR
ii) unless the one indorsing has authority
to indorse for the others.
Section 45. Presumption as to time of
indorsement.
General rule:
Every negotiation is deemed prima
facie to have been effected before the
instrument was overdue
Exception:
Where an indorsement bears date
after maturity.
Section 47. Continuation of negotiable
character of an instrument.
General rule:
An instrument negotiable in its origin
continues to be negotiable.
Exception:
i) when the instrument has been
restrictively indorsed;
ii) when it has been discharged by
payment; OR
iii) other ways of discharging an
instrument provided under Section
119.
Section 48. Striking out of indorsement –
the holder may strike out any indorsement
which is not necessary to his title.
What is the effect if the indorsement is
struck out?
The indorser whose indorsement is
cancelled and all indorsers subsequent to
 Legendary Notes on Negotiable Instruments Law
him are thereby discharged from their
liability on the instrument.
Can the indorser strike out the
indorsement of the payee?
No if the instrument is payable to
order because it cannot be validly
negotiated without his indorsement.
Section 49. Effect of transfer without
indorsement – where the holder of an
instrument payable to order transfers it for
value without indorsing it, the following are
the effects of the transfer:
i) transferee acquires what title the
transferor had over the bill; AND
ii) transferee acquires the right to have
the indorsement of the transferor.
*In case the indorsement of the
transferor is later on obtained,
the negotiation takes effect as
to the time when the
indorsement is actually made
for the purpose of determining
whether the transferee is a
holder in due course.
This rule applies only in instruments
payable to order.
Section 50. When prior party may negotiate
instrument – where an instrument is
negotiated back to a prior party, such party
may reissue and further negotiate the same.
*However, he is not entitled allowed
to enforce payment thereof against
any intervening party to whom he
was personally liable.
Example:
M makes a note payable to P or
order. P negotiates to A. A to B. B to C. C
to D. D to B. B to E.
Here, B, the reacquirer may further
negotiate the instrument but he cannot
enforce the instrument against C and D
because they are intervening parties.
What are the limitations on
renogatiation:
A prior party cannot further negotiate
the instrument:
i) where it is payable to the order of a
3rd person, and has been paid by the
drawer; Sec. 121
ii) where it was made or accepted for
accommodation and has been paid by
the accommodated party; Sec. 121
iii) where the instrument is discharged
when acquired by a prior party. 119
Section 51. Right of holder to sue – the
holder of a negotiable instrument may sue
thereon in his own. Payment to the holder
in due course discharges the instrument.
Who is a holder?
The payee or indorsee of the
instrument who is in possession of it, or the
bearer thereof entitled to receive the sum
for which it calls.
*Hence, a holder is:
i) payee or indorsee +
possession = holder of an
order instrument.
ii) mere possessor = holder of
a bearer instrument.
Section 52. Who is a holder in due course
(HIDC) – a holder in due course is a holder
who has taken the instrument under the
following conditions:
i) that it is complete and regular upon
its face;
ii) that he became the holder of it before
it was overdue, and without notice
that it had been previously
dishonored;
iii) that he took it in good faith and for
value;
 Legendary Notes on Negotiable Instruments Law
iv) that at the time it was negotiated to
him he had no notice of any infirmity
in the instrument or defect in the title
of the person negotiating it.
A holder who is not a holder in due
course holds the instrument subject to
defenses as if it were non-negotiable. While
a holder in due course takes the instrument
free of many defenses that exist between
the original parties.
I. COMPLETE AND REGULAR UPON
ITS FACE.
What is a complete instrument?
It does not lack any material
particular.
What is a regular instrument upon its
face?
There is no alteration, tampering or
erasure visible or apparent on the face of
the instrument.
II. HOLDER BEFORE INSTRUMENT
IS OVERDUE.
When an instrument is overdue?
An instrument is overdue after the
date of maturity.
An overdue instrument puts all persons
on notice that it may not have been paid
because of a valid defense to such payment.
Can an overdue instrument still be
negotiated?
Yes.
*However, it is subject to
defenses existing at the time of
transfer.
The holder cannot be a
holder in due course.
III. HOLDER WITHOUT NOTICE OF
DISHONOR.
How instrument may be dishonored?
An instrument may be dishonored
either:
i) by non-acceptance; OR
ii) by non-payment.
Can a dishonored instrument still be
negotiated?
Yes.
*The holder can be a HIDC if
he had no notice of the
dishonor.
IV. HOLDER IN GOOD FAITH AND
FOR VALUE.
What is good faith of the holder?
It means honesty in fact of the holder
in the transaction concerned.
Who is a holder for value?
Where value has been given for the
instrument.
*See Section 26.
V. HOLDER WITHOUT NOTICE OF
INFIRMITY IN INSTRUMENT OR
DEFECT OF TITLE.
What constitutes notice?
The holder must have had actual or
chargeable knowledge of the infirmity or
defect.
Knowledge of an agent acting within the
scope of his authority is a constructive
knowledge of the principal and will render
the principal not a HIDC.
Section 53. When person is not deemed a
holder in due course – when an instrument
 Legendary Notes on Negotiable Instruments Law
is payable on demand is negotiated on an
unreasonable length of time after its issue.
Reason – the fact that the instrument has
been in circulation for such a length of time
gives rise to a strong indication that it has
already been dishonored.
*What constitutes a reasonable time
depends upon the facts of the
particular case.
Section 54. Notice of infirmity or defect
before full amount is paid – where the
transferee receives notice of any infirmity
in the instrument or defect in the title of the
person negotiating the instrument before
full payment, the transferee will be deemed
a holder in due course only to the extent of
the amount paid by him before notice.
The transferee has no legal obligation to
pay the balance of the amount he agreed to
pay if he was notified of the infirmity or
defect.
*If he pays the balance, he can
only be considered a HIDC to the
extent of the amount paid by him
before he was notified of the
infirmity or defect.
Example:
Frodo makes a note payable to
Smegaol or order for P10, 000 in payment
of goods sold. The goods are not delivered
to Frodo. Thus, there is a failure of
consideration. Smeagol, however, indorsed
the note to Saruman who took it without
notice of any infirmity or defect in the
instrument. Upon the terms of payment,
Saruman is to pay Smeagol P5, 000 and the
other P5, 000 in a month. Before Saruman
could pay the balance of P5, 000, he
received notice of the defect in Smeagol’s
title.
Saruman is deemed to be a HIDC to
the extent of the amount paid by him before
notice of defect in Smeagol’s title.
Hence, Saruman is a HIDC up to P5,
000, the amount paid by him before notice
of defect. He may enforce the instrument
against Frodo for P5, 000 and Frodo cannot
set the defense of lack of consideration
because Saruman is a HIDC up to P5, 000.
Section 55. When title is defective – when
the person negotiating an instrument
obtained the instrument or any signature
thereto by:
i) fraud;
ii) duress, force and fear;
iii) other unlawful means;
iv) illegal consideration;
v) negotiation in breach of faith;
vi) such circumstances amounting to
fraud.
(i) to (iv) are defects in the acquisition of
the instrument.
(v) and (vi) are defects in the negotiation
of the instrument.
Defect of title is a personal defense.
What is the purpose of Section 55?
To prevent one from becoming a
HIDC who takes an instrument with notice
that the transferor is not acting honestly.
Section 56. What constitutes notice of
infirmity or defect – the person to whom the
instrument is negotiated must:
i) have had actual knowledge of the
infirmity or defect; OR
The defect must not be apparent on the
face of the instrument.
ii) knowledge of such facts that his
action in taking the instrument
amounted to bad faith.
 Legendary Notes on Negotiable Instruments Law
Mere negligence to make inquiries is not
sufficient to amount to actual knowledge or
bad faith.
When knowledge amounts to bad faith?
If the holder had actual knowledge of
suspicious circumstances, coupled with the
means of readily informing himself of the
facts and he willfully abstained from
making inquiries, his intentional ignorance
may amount to bad faith. (De Ocampo v.
Gatchalian, 3 SCRA 596)
Example:
The purchaser who takes the
instrument after being told that the maker
intends to resist payment or that the
transferor had no legal right to transfer
believing that the law would sustain the
transfer cannot be held a HIDC.
What is the effect of the notice of defect
or infirmity?
Knowledge at the time of taking of
the instrument destroys the status of a
holder as a HIDC and the instrument is
subject to defenses as if it were non-
negotiable.
Is the doctrine of constructive notice
applicable? (verify some other sources)
No. The doctrine has never been
applied to commercial paper.
Section 57. Rights of a holder in due
course:
i) a HIDC holds the instrument free
from any defect of title of prior
parties;
ii) free from defenses available to prior
parties among themselves; AND
iii) he may enforce payment of the
instrument for the full amount thereof
against all parties liable thereon.
Section 58. Defenses.
What are real defenses?
Those that are available against all
parties, both immediate and remote, even
against a HIDC and holders will all the
rights of a HIDC.
*The instrument is only
unenforceable against the party
entitled to set up the defense.
Example of real defenses:
i) want of delivery of an incomplete
instrument; (Sec. 15)
ii) forgery; (Sec. 23)
iii) want of authority; (Sec. 23)
iv) fraudulent alteration by holder; (Secs.
124 and 125)
v) prescription.
What are personal defenses?
Those which are available only
against that person or subsequent holder
who stands in privity with person entitled to
set the personal defense.
*Hence, it can only be used
between:
i) original parties;
ii) immediate parties;
OR
iii) against one who is
not a holder in due
course.
Example of personal defenses:
i) insertion of wrong date; (Sec. 13)
ii) not filling the blanks in an
incomplete instrument strictly in
accordance with the authority given;
(Sec. 14)
iii) want of delivery of a complete
instrument; (Sec. 16)
iv) absence or failure of consideration;
(Sec. 28)
v) defects in title; (Sec. 55)
 Legendary Notes on Negotiable Instruments Law
What defenses are available against a
holder who is not a HIDC?
The negotiable instrument is subject
to the same defenses as if it were non-
negotiable.
What is the right of a person who derives
his title from a HIDC?
General Rule:
He has all the rights of a HIDC.
Exception:
He is himself a party to any fraud or
illegality affecting the instrument.
*Hence, to have the rights of a
holder in due course, these 2
requisites must be present:
i) he derives his title
from a HIDC; AND
ii) he is not a party to
any fraud or illegality
affecting the instru-
ment.
A person who derives his title from a
HIDC still has the rights of a HIDC even if
he received notice of any infirmity or defect
in the title of the person negotiating the
instrument, or he does not satisfy the
requirements of a HIDC.
A person who derives his title from a
HIDC is called holder through a holder in
due course,
Can a prior party with a defective title
who sold the instrument to a HIDC then
reacquire it have the rights if a HIDC?
No.
“A holder not in due course should not be
permitted to wash an instrument by passing
it in to the hands of a HIDC and then
repurchase it.”
Section 59. Presumption that a holder is a
holder in due course – every holder is
presumed to be a HIDC.
*However, the burden is shifted to
he holder when it is shown that the
title of any person who has
negotiated the instrument was
defective.
Section 60. Liability of maker.
Who is a primary party?
Person who by the terms of the
instrument is absolutely required to pay the
same.
Who are primary parties?
i) maker of a promissory note;
ii) acceptor of a bill of exchange.
*The drawee is not liable
unless he accepts the
instrument.
Who is a secondary party?
Person who undertakes to pay the
instrument only after certain conditions are
fulfilled or when the primary party cannot
pay.
Who are secondary parties?
i) the drawer of a bill;
ii) the indorser of a bill or note.
What is the liability of a maker?
The maker of an instrument by
making it engages that he will pay it
according to its tenor.
*The liability of the maker is
unconditional.
The maker also admits the existence of
the payee and his then capacity to indorse.
*The maker is precluded from
setting up the defenses such as the
 Legendary Notes on Negotiable Instruments Law
payee is fictitious or non-existing
person, minor, insane or ultra vires
act of a corporation.
What are the warranties of a maker:
i) to pay the note unconditionally; AND
ii) existence of a payee and his then
capacity to indorse.
Section 61. Liability of a drawer – the
drawer’s liability is conditional that is he is
liable only after certain conditions are
complied with.
What are the conditions before the
drawer may be held liable?
i) the bill is presented for acceptance or
for payment, as the case may be, to
the drawee;
ii) the bill is dishonored by non-
acceptance or non-payment, as the
case may be; AND
iii) the necessary proceedings of
dishonor are duly taken.
When these conditions are present, the
drawee becomes primarily liable to the bill.
*But the drawee may limit his
liability to the holder by expressly
stipulating “without recourse” or
other words of similar import.
What are the warranties of a drawee?
i) by drawing the bill, he admits the
existence of the payee and his then
capacity to indorse;
ii) he engages that on due presentment
the instrument will be accepted or
paid, or both, according to its tenor.
Section 62. Liability of acceptor – by
accepting it, the acceptor engages that he
will pay it according to the tenor of his
acceptance.
*The acceptance of the acceptor may
be qualified or absolute.
Example:
Frodo (drawer) draws a bill on
Thorin (drawee) for P1, 000 payable to
Bilbo (payee)
The options of Thorin are:
i) refuse to accept the bill;
ii) accept the bill absolutely, that is pay
Bilbo the whole amount of the bill.
iii) accept the bill qualified, that is the
acceptance may either be:
1. conditional; or
2. partial.
What are the warranties of an acceptor?
He admits:
i) the existence of the drawer, the
genuineness of the drawer’s
signature, and drawer’s capacity and
authority to draw the instrument;
AND
*The acceptor is precluded
from setting up as a defense
that the drawer is a fictitious or
non-existing person, or that
the drawer’s signature is
forged, or that the drawer has
no funds, or that the drawer
has no authority to draw.
However, the drawee
does not admit the
genuineness of the
indorser’s signature.
Only drawer’s signature.
ii) the existence of the payee and his
then capacity to indorse.
*The acceptor precluded from
setting up the defenses such as
the payee is fictitious or non-
existing person, minor, insane
 Legendary Notes on Negotiable Instruments Law
or ultra vires act of a
corporation.
Section 63. When person is deemed an
indorser –
General rule:
When a person placed on the
instrument his signature other than as
maker, drawer, or acceptor, he is deemed as
an indorser.
Exception:
He clearly indicates by appropriate
words his intention to be bound in some
other capacity.
Section 64. Liability of an irregular
indorser (anomalous indorser).
Who is an irregular indorser?
A person who is not a party to an
instrument, places thereon his signature in
blank before delivery.
What is his liability?
He is liable in accordance with these
following rules:
i) if the instrument is payable to the
order of a 3rd person, he is liable to
the payee and to all subsequent
parties.
ii) if the instrument is payable to the
order of the maker or drawer, or is
payable to bearer, he is liable to all
parties subsequent to the maker or
drawer.
iii) if he signs for accommodation of the
payee, he is liable to all parties
subsequent to the payee.
Section 65. Warranty of one negotiating by
delivery and of qualified indorsement –
every person negotiating by delivery or by a
qualified indorsement warrants:
i) that the instrument is genuine;
ii) that he has good title to it;
iii) that all prior parties had capacity to
contract;
iv) that he had no knowledge of any fact
which would impair the validity of
the instrument or render it valueless.
*Here, there must be
knowledge to be liable.
Unlike in case of a
general indorse, he is
liable whether or not he
has knowledge of any
fact which would impair
the validity of the
instrument.
General rule:
They do not assume to pay the
instrument in case of dishonor.
Exception:
The dishonor is based on any of the
four implied warranties under Section 65 (i)
to (iv).
The rule applies only to a bearer
instrument negotiated by delivery.
*Hence, it does not apply in case the
instrument is negotiated with a blank
indorsement.
To whom these warranties extend?
i) negotiation by delivery – warranties
extend to only to the immediate
transferee.
ii) qualified indorser – warranties
extend to all subsequent holders who
make title through his indorsement.
Example:
Aragorn of Gondor made a note
payable to bearer and delivers the same to
Legolas of the Woodland Real. Legolas
 Legendary Notes on Negotiable Instruments Law
negotiated the note to Thorin of Erebor by
delivery or by a qualified indorsement.
If the note is dishonored due to
Aragorn’s insolvency, Thorin cannot be
held liable for breach of warranty because
Legolas does not warrant Aragorn’s
solvency.
However, Legolas is liable:
i) if the instrument is forged
for he warrants that the
instrument is genuine;
ii) if Legolas stole the note
from Aragon for he
warrants that he has good
title to it;
iii) if Aragorn is a minor,
insane, or otherwise an
incapacitated person for he
warrants that all prior
parties had capacity to
contract;
iv) if he knew that Aragorn is
insolvent but concealed that
fact for he warrants that he
has no knowledge of any
fact which would impair
the validity of the
instrument or render it
useless.
In the same example, what if Thorin
negotiated the note by delivery to Bilbo
of Shire, and the note was dishonored
because the instrument is forged, is
Legolas liable to Bilbo for breach of
implied warranty under Section 65?
No. The warranty of a person
negotiating by delivery extends only to his
immediate transferee. Thus, the warranties
of Legolas extends only to Thorin and not
to Bilbo. Hence, Legolas is not liable to
Bilbo.
Section 66. Liability of a general or
unqualified indorser – every indorser who
indorses without qualification warrants to
all subsequent holders in due course:
i) that the instrument is genuine;
ii) that he has good title to it;
iii) that all prior parties had capacity to
contract;
iv) that the instrument is at the time of
his indorsement is valid and
subsisting;
*The general indorser
guarantees that the instrument
is valid and subsisting,
whether or not he has
knowledge of any fact which
would impair the validity of
the instrument.
Unlike in case of
negotiation by delivery
and by a qualified
indorsement, there must
be knowledge.
v) that the instrument will be accepted,
paid or both.
*Here, the general indorser is
liable in case of non-payment
because of the insolvency of
any prior party.
Unlike in case of nego-
tiation by delivery and
by a qualified indorse-
ment, he must have
knowledge of such
insolvency to be liable.
To whom the warranties under Section
66 are available?
They are available only to holders in
due course.
What is the difference of indorser’s liability
as warrantor from his liability to pay?
In case of liability to pay, it is only
conditional.
 Legendary Notes on Negotiable Instruments Law
In case of warrantor’s liability, it is
unconditional. Hence, no steps are
necessary to fix an indorser’s liability for
breach of warranty.
Example of warrantor’s liability:
Boromir makes a note payable to
Faramir or order in the amount of P8, 000.
Faramir changed the amount to P10, 000
and indorsed the note to Denethor.
Denothor also indorsed the note to Aragorn
who is a HIDC.
Here, Aragorn may enforce the note
against Boromir (maker) for P8, 000.
Aragorn may also recover the P2, 000 from
Denethor for breach of warranty because
Denothor warrants that the instrument is
genuine when in truth it is not because the
amount was altered.
Denethor is liable for breach of
warranty regardless of whether he has
knowledge of the forgery or not.
*Assuming Denethor delivered
the note by mere delivery or by
a qualified indorsement to
Aragorn, Denethor can only be
held liable for breach of
warranty if he has knowledge
of any fact which would
impair the validity of the
instrument or render it
valueless.
Section 68. Order in which indorsers are
liable –
Section 70. Presentment for payment.
Is presentment for payment necessary to
charge persons primarily liable?
No. The liability of persons primarily
liable (maker and acceptor) is absolute on
date for payment.
*Neither is presentment for
payment is necessary, even if it
is required according to the
terms of the instruments.
When presentment for payment to
persons primarily liable is required?
Generally presentment for payment is
not needed since their liability is absolute.
However, a demand for payment (effected
by presentment for payment) is necessary to
charge persons secondarily liable on the
instrument.
What is the effect if presentment for
payment is not made to persons
primarily liable?
General rule:
The drawer and the indorsers are
discharged from their liability on the
instrument.
Exception:
i) presentment is excused; OR
ii) presentment is dispensed with.
In case of dishonor, notice of dishonor
must be given to the drawer and indorsers.
*Otherwise, the party to whom notice
is not given will be released from
liability.
This rule under Section 70 applies only
to notes payable on demand.
Section 71. Date of presentment of
instrument – the date of presentment
depends on whether the instrument is
payable at a fixed or determinable future
time, or on demand.
i) if the instrument is payable at a
fixed or determinable future time –
presentment must be made on the
date it falls due;
*Otherwise, the drawer and
indorsers will be discharged
from liability.
 Legendary Notes on Negotiable Instruments Law
ii) if the instrument is payable on
demand, the following are the rules:
1. if the instrument is a
promissory note – Section 73. Place of presentment – it must
presentment to the maker
must be made within a
reasonable time after its
issue.
2. if the instrument is a bill
of exchange – present to
the drawee or acceptor must
be made within a
reasonable time after its last
negotiation.
Section 72. Requisites for a sufficient
presentment for payment – presentment for
payment must be made:
i) by the holder, or by any person
authorized to receive payment on
behalf of the holder;
ii) at a reasonable hour on a business
day;
iii) at a proper place;
iv) to the person primarily liable on the
instrument (maker or acceptor).
*If he is absent or inaccessible,
to any person with sufficient
discretion found at the place
where the presentment is
made.
If the holder after exer-
cised of reasonable dili-
gence cannot find the
person to make payment
on the day and at the
place of payment, he has
done all that is required
of him.
What is the effect if the requisites are not
complied with?
The effect is the same as if no
presentment is made and consequently, the
persons secondarily liable are discharged
from their liability.
be made:
i) in the place specified in the
instrument;
ii) at the address of the person who is to
make the payment, if no place was
specified;
iii) at the usual place of business or
residence of the person who is to
make the payment, if no address is
given;
iv) at the place where the person who is
to make payment can be found, or at
his last known place of business or
residence.
Section 74. Exhibition of the instrument –
the instrument must be exhibited to the
person from whom payment is demanded,
and when it is paid it must be delivered to
the party paying it.
What is the purpose of exhibition?
To enable the debtor:
i) to determine the genuiness of the
instrument and the indorsements and
the right of the holder to receive
payment;
ii) to enable the person from whom
payment is demanded to take
possession of the instrument upon
payment.
What if the instrument is not exhibited?
Presentment would be ineffectual.
Section 75. Presentment where instrument
payable at bank.
General rule:
Presentment for payment must be
made during banking hours.
 Legendary Notes on Negotiable Instruments Law
Exception:
The person who is to make payment
has no funds in the bank to meet the
payment at any time during the day,
presentment at any time before the bank is
closed on that day is sufficient.
Section 76. Presentment where the
principal debtor is dead - if no place of
payment is specified, presentment for
payment must be made to principal debtor’s
representative if there be one and can be
found with reasonable diligence.
Section 77. Presentment to persons
primarily liable as partners – if no place of
payment is specified, presentment for
payment may be made to any one of them.
*Even though there has been a
dissolution of the firm.
A dishonor by one is dishonor by all.
Section 78. Presentment to joint debtors –
where there are several persons who are not
partners are primarily liable on the
instrument, presentment must be made to
all of them if no place of payment is
specified.
Section 79. When presentment is not
required to charge the drawer – when the
drawer has no right to expect or require the
drawee or acceptor to pay the instrument.
Example:
i) where the drawer has no funds with
the drawee;
ii) where the drawer of a check has
stopped payment thereof;
iii) where the drawer of a check has
withdrawn funds from the drawee-
bank leaving nothing with which to
pay the check.
Section 80. When presentment not required
to charge an indorser – when the instrument
was made or accepted for his
accommodation and he has no reason to
expect that the instrument will be paid if
presented.
This rule refers only to an indorser for
whose accommodation an instrument is
made or accepted.
*As far as all other parties
secondarily liable are concerned,
presentment is still necessary to charge
them.
Section 81. When delay in making of
presentment is excused – when the delay is
caused by circumstances beyond the control
of the holder, and not imputable to his
default, misconduct, or negligence.
*However, when cause of the delay
ceases, presentment must be made
with reasonable diligence.
Only the delay in making of presentment
is excused and not the making of the
presentment itself.
Section 82. When presentment is excused –
presentment may be dispensed with:
i) where after the exercise of
reasonable, presentment cannot be
made;
ii) where drawee is a fictitious person;
iii) where there is a waiver of
presentment.
*Present is also excused under
Section 79 and 80.
Section 83. When instrument is dishonored
by non-payment:
i) when it is duly presented for payment
and payment is refused or cannot be
obtained; OR
ii) when presentment is excused and the
instrument is overdue and unpaid.
*Here, there is no presentment.
 Legendary Notes on Negotiable Instruments Law
Section 84. Effect of dishonor by non-
payment – an immediate right of recourse
to all parties secondarily liable accrues to
the holder.
*The right of recourse accrues only
after giving due notice of dishonor
to the parties secondarily liable.
Requisites before a secondary party
becomes liable:
i) presentment was properly made;
ii) the primary party dishonored the
instrument; AND
iii) notice of dishonor was properly
given to the secondary party.
Section 85. Time of maturity of instrument
– every negotiable instrument is payable at
the time fixed therein without grace.
What if the maturity falls on Sunday or
holiday?
The instrument will have to be
presented on the next succeeding business
day.
What if the maturity falls on Saturday?
The instrument will have to be
presented on the next succeeding business
day.
*However, if the instrument is
payable on demand, it may be
presented for payment before
12:00 o’clock noon on
Saturday at the option of the
holder provided the Saturday is
not a holiday.
Section 88. Payment in due course.
What is payment in due course?
It is the payment in the usual course
of business.
Requisites:
i) payment must be made at or after
date of maturity;
ii) payment must be made to the holder;
AND
iii) payment must be made in good faith
and without notice that the holder’s
title is defective.
Section 89. Notice of dishonor.
What is notice of dishonor?
It brings to the knowledge of the
drawer or indorser of an instrument that it
has not been accepted or paid and that the
party notified is expected to pay it.
When an instrument is dishonored?
i) if not accepted when presented for
acceptance;
ii) if not paid when presented for
payment at maturity; OR
iii) if presentment is excused or waived
and the instrument is overdue and
unpaid.
To whom notice of dishonor must be
given?
It must given to the drawer and
indorsers or the persons secondarily liable
on the instrument.
What is the effect if no notice of dishonor
is given?
Any person to whom such notice is
not given is discharged from their liability
on the instrument.
*However, they can still be
held liable for breach of im-
plied warranties.
Section 90. Who gives the notice of
dishonor – it may be given:
i) by the holder;
ii) any person in behalf of the holder;
 Legendary Notes on Negotiable Instruments Law
iii) by a party to the instrument who may
be compelled to pay the instrument to
the holder and who, upon taking it
up, would have a right to
reimbursement from the party to
whom the notice is given; OR
Example:
M makes a note payable to P or
order. The note is indorsed by P to A, then
A to B, B to C, C to D. The note was
dishonored in the hands of D.
If D notifies only C, C is the party
who is compelled to pay the instrument to
the holder.
C may give notice to P, A and B.
Furthermore, C has a right to be reimbursed
by P, A and B.
B may notify P and A but not C
because only P and A whom he can hold
liable. B has no right to be reimbursed by
C.
iv) any person in behalf of (iii).
Section 91. Notice given by agent – notice
of dishonor may be given by an agent of
any party entitled to give notice, whether
that is the principal of the agent or not.
Section 92. Effect of notice given by holder
or any person on his behalf – it inures to the
benefit of:
i) all holders subsequent to the holder
who has given notice; AND
ii) all prior parties to the holder but
subsequent to the party to whom
notice has been given and against
whom they have a right of recourse.
Example:
M makes a note payable to P or
order. The following are the indorsers of the
note:
P
A
B
C
D – holder
E – subsequent holder
The note was dishonored in the hands
of D. D notifies P. The said notice inures to
the benefit of A, B, C and E.
However, if notice is given to A, it
cannot inure to the benefit of P because P
has no right of recourse against A.
Section 94. When and to whom agent may
give notice – in case of dishonor, the agent
may give notice either to his principal or
directly to the parties secondarily liable
without notifying his principal.
What is the obligation of the agent when
he gives notice to the secondary parties?
He must do so within the time
required by law.
*Otherwise they are
discharged for lack of notice.
Unless the principal
himself notifies them
within the same time.
Section 95. When notice is sufficient – a
written notice need not be signed, and an
insufficient written notice may be
supplemented and validated by verbal
communication.
What is the effect of misdescription of
the instrument?
General rule:
It does not vitiate the notice.
Exception:
 Legendary Notes on Negotiable Instruments Law
The party to whom notice is given is
in fact misled thereby.
Section 96. Form of notice – the notice may
be in writing or merely oral.
Contents of the notice:
i) the identity of the instrument;
ii) the fact that it has been dishonored
by non-acceptance or non-payment;
AND
iii) a statement that the party giving
notice intends to look to the party
addressed for payment.
How notice is given?
i) by personal delivery; OR
ii) by mail.
Section 97. To whom notice may be given
– either to the party himself or to his agent.
Section 98. Notice where party is dead –
when the party sought to be charged is
dead, the notice must be given to his
personal representative provided that:
i) his death is known to the party giving
notice;
ii) there is a personal representative;
AND
iii) if with reasonable diligence the said
representative could be found.
What if there is no personal
representative?
The notice may be sent to the last
residence or last place of business of the
deceased.
Section 99. Notice to partners – where the
parties to be notified are partners, notice to
any one of them is notice to the firm.
*Even though there has been a
dissolution.
Section 100. Notice to persons jointly
liable.
General rule:
Notice to joint parties who are not
partners must be given to each of them.
Exception:
One of them has authority to receive
such notice for the others.
Section 103. Notice where the parties
reside in the same place – notice must be
given in the following times:
i) if given at the place of business of
the person to receive - it must be
given before the close of business
hours on the following day;
ii) if given at his residence - it must be
given before the usual hours of rest
on the following day;
iii) if sent by mail - it must be deposited
in the post in time to reach him in
usual course on the following day.
Example: (find one)
Section 104. Where parties reside in
different places – the notice must be given
in the following times:
i) if sent by mail - it must be deposited
in the post office in time to go by
mail the day following the day of
dishonor, if there be no mail at a
convenient hour on that day, by the
next mail thereafter.
Example:
Bilbo (holder) resides in Hobbiton
and Frodo (drawer) resides in Baggend. The
instrument is dishonored on January 1,
2018.
The notice must be deposited in the
mails not later than January 2, 2018, so as
to go by mail on January 2, 2018, the day
following the day of dishonor.
 Legendary Notes on Negotiable Instruments Law
If there is no mail on January 2, 2018
or if there is but leaves at an inconvenient
hour, the notice must be deposited on the
next mail time.
ii) if given otherwise than mail - the
notice may be given by some other
way as by personal messenger as
long as the party who is to receive
the notice must received it not later
than the time he would have received
it had it been mailed.
Section 105. When sender deemed to have
given due notice – when notice of dishonor
is duly addressed and deposited in the post
office. Notwithstanding any miscarriage in
the mails.
Section 109. Waiver of notice – notice of
dishonor may be waived either:
i) before the time of giving notice has
arrived; OR
ii) after the omission to give due notice.
Section 110. Persons affected by the
waiver.
i) all parties – if the waiver is embodied
in the instrument itself.
ii) the indorser only – if the waiver is
written above the signature of an
indorser.
Section 112. When notice may be
dispensed with – when after the exercise of
reasonable diligence, notice cannot be given
or does not reach the parties sought to be
charged.
Section 113. When delay in giving notice is
excused – when delay is caused by
circumstances beyond the control of the
holder, and not imputable to his default,
misconduct, or negligence.
*However, when the cause of delay
ceases, notice must be given with
reasonable diligence.
Section 114. When notice need not be
given to the drawer:
i) where the drawer and the drawee are
the same person;
ii) when the drawer is fictitious or
incapacitated to contract;
iii) when the drawer is the person to
whom the instrument is presented for
payment;
iv) where the drawer has no right to
expect or require that the drawee or
acceptor will honor the instrument;
v) where the drawer has countermanded
payment.
*The drawer knows that the
instrument will be dishonored
because he orders the drawee
not to pay. The order is called
“stop payment order.”
Section 115. When notice need not be
given to indorser:
i) when the drawee is a fictitious person
or a person incapacitated to contract,
and the indorser was aware of the
fact at the time he indorsed the
instrument;
ii) where the indorser is the person to
whom the instrument is presented for
payment;
iii) where the instrument was made or
accepted for his accommodation.]
Section 116. Effect where notice of non-
acceptance was already given.
General rule:
Where notice of dishonor by non-
acceptance has been given, notice of
subsequent dishonor by non-payment is not
necessary.
Exception:
Unless in the meantime the
instrument has been accepted.
 Legendary Notes on Negotiable Instruments Law
*The drawee did not accept the
bill but later he changed his
mind and accepted the bill.
Section 117.
Section 119. How instrument is
discharged.
What is discharge of instrument?
A release of all parties, whether
primary or secondary, from the obligations
arising from the instrument. It renders the
instrument without force and effect and,
consequently, it can no longer be
negotiated.
How a negotiable instrument is
discharged:
i) by payment in due course by the
principal debtor;
*Hence, payment by a stranger
will not operate to discharge
the instrument.
Unless the payment is
for the holder.
ii) payment in due course by the
accommodated part;
iii) by the intentional cancellation of
instrument by holder;
*The presumption is that the
cancellation is intentional.
iv) by any act which will discharge a
contract for the payment of money;
*See Article 1231 of the Civil
Code.
v) when the principal debtor becomes
the holder of the instrument at or
after maturity in his own right.
*In his own right means not in
a representative capacity.
Reason – merger in the person of the holder
the characters of creditor and debtor.
Section 120. When persons secondarily
liable on the instrument are discharged:
i) by any act which discharges the
instrument;
*This refers to acts mentioned
in Section 119.
Reason – since the instrument is
discharged, it ceases to have force and
effect. Hence, all parties will also be
discharged.
ii) by the intentional cancellation of the
signature of persons secondarily
liable by the holder;
*This refers to the striking out
of indorsements.
iii) by the discharge of a prior party;
*This applies only to discharge
by the act of the holder and not
by operation of law.
Reason – the discharge deprives a
subsequent party of a right of recourse
against the party discharged by the holder.
iv) by a valid tender of payment made
by a prior party;
Reason – if the tender is accepted, the prior
party who made the tender will be
discharge as so all parties subsequent to
him.
v) by a release of the principal debtor;
*Unless the holder’s right of
recourse against the party
secondarily liable is expressly
reserved.
The release of the debtor here must be by
the act of the holder and not by operation of
law.
 Legendary Notes on Negotiable Instruments Law
vi) by any agreement binding upon the
holder to extend the time of payment.
*Unless:
1. the extension of time
is consented to by the
secondary parties;
OR
2. the holder expressly
reserves his right of
recourse against such
party.
Reason – an extention granted to the debtor
by the creditor without the consent of the
guarantor extinguishes the guaranty.
Section 121. Right of a secondary party
who paid the instrument.
General rule:
The party so paying the instrument is
remitted to his former rights as regards all
prior parties. Furthermore, he may strike
out his own and all subsequent
indorsements, and negotiate the instrument.
Example:
Frodo (drawer) orders the Bank of
Erebor (drawee) to pay Sam or order
(payee). The bill is accepted and the bank
indorsed the bill to A. A to B. B to C.
Lastly, from C to D.
If A pays the bill, the bill is not
discharged. It only discharges A, the one
who paid, and B and C to whom A is
personally liable.
A is also remitted to his former rights
as regards all prior parties. A may also
strike out his indorsement to B or/and C
and renegotiate the instrument.
Exception:
i) where the instrument is payable to
the order of a third person and has
been paid by the drawer; AND
ii) where it was made or accepted for
accommodation, and has been paid
by the party accommodated.
The instrument paid by the party
secondarily liable is not dischared.
Section 122. Renunciation by holder – the
holder may expressly renounce his rights
against any party to the instrument before,
at, or after its maturity.
What is the effect of renunciation?
i) if made in favor of a secondary
party before, at or after maturity –
it discharges only such secondary
party and all parties subsequent to
him (secondary party).
*But the instrument itself
remains in force.
ii) if made in favor of the principal
debtor at or after maturity – it
discharges the instrument and all
parties thereto.
*Provided the renunciation is
made absolutely and uncon-
ditionally.
A renunciation does not affect the rights
of a holder in due course without notice.
Example:
M made an instrument payable to P
or order. P indorsed it to A. A to B. B to C.
Then C to D. D is the current holder.
If D renounces his rights against B, B
and C are discharged. If D renounces his
rights against M, the instrument is
discharged as well as all parties.
If after the renunciation D negotiates
the instrument to E, a HIDC without notice,
 Legendary Notes on Negotiable Instruments Law
E can still enforce the instrument because a
renunciation does not affect the rights of a
HIDC without notice.
Section 123. When cancellation is operative
– when it is made:
i) unintentionally;
ii) by mistake; OR
iii) without authority of the holder.
Example:
In the example above, the following
are liable to D for P15, 000.
A, a party who made the alteration, is
liable to D.
P, a party who authorized the
alteration, is liable to D.

Cancellation is presumed to be B and C are likewise liable to D

unintentional.
*The burden is on the party alleging
that the cancellation was made
unintentionally.
because they indorsed the instrument
subsequent to the alteration.
What is the effect of alteration of the
instrument to a HIDC?

Section 124. What is the effect of If an altered instrument is negotiated

alteration.
General rule:
The instrument and all prior parties
who did not give their consent to the
alteration are discharged.
Example:
Frodo makes a note for P10, 000
payable to Sam or order. Sam negotiates the
note to A, who with the consent of Sam
raised the amount to P15, 000. A indorsed
the note to B. B to C. C to D. D is not a
HIDC.
The note is discharged as against
Frodo because he did not give his consent
to the alteration.
to a HIDC, he may enforce payment
according to its original tenor.
Example:
In the same example, if D is a HIDC,
D can enforce the note against Frodo
(maker) for P10, 000 or the original tenor.
Section 125. What constitutes a material
alteration – any alteration which changes:
i) the date;
*This refers to the date of ins-
trument.
ii) the sum payable;
*Either for principal or
interest.

Exception: iii) the time or place of payment

iv) the number or the relations of the
The instrument is not discharged as parties
against: v) the medium or currency in payment
i) a party who has made the alteration; is to be made; OR
ii) a party who authorized or consented vi) which adds a place of payment where
to the alteration; AND no place of payment is specified, or
iii) indorsers who indorsed the any other change or addition which
instrument subsequent to the alters the effect of the instrument in
alteration. any respect.
 Legendary Notes on Negotiable Instruments Law
Section 126. Bill of exchange.
What is a bill of exchange?
It is an unconditional order in writing
addressed by one person to another, signed
by the person giving it, requiring the person
to whom it is addressed to pay on demand
or at a fixed or determinable future time a
sum certain in money to order or to bearer.
Section 127. Bill not an assignment of funs
in hands of drawee – a bill does not itself
operate as an assignment of the funds in the
hands of the drawee available for the
payment thereof, and the drawee is not
liable on the bill unless he accepts the same.
Section 128. Bill addressed to more than
one drawee – a bill may be addressed to
two or more drawees jointly, whether they
are partners or not.
Example:
A bill may be addressed “To A and
B”.
However, it cannot be addressed to two
or more drawees in the alternative or in
succession.
Example:
A bill addressed alternatively “To A
or B”
A bill addressed successively “To A
and in his absence to B.”
Section 130. When bill may be treated as
promissory note – the holder may treat the
instrument, at his option, either as a bill of
exchange or a promissory note:
i) when in a bill the drawer and drawee
are the same person;
ii) when the drawee is a fictitious
person; OR
iii) when the drawee is an incapacitated
person to contract.
Section 132. Acceptance of a bill.
What is acceptance?
It is the signification by the drawee
of his assent to the order of the drawer.
What are the requisites of a valid
acceptance?
i) it must be in writing;
ii) it must be signed by the drawee;
iii) it must express a promise to pay
money only; AND
iv) it must be delivered or made known
to the holder.
*Before delivery or notifica-
tion, the acceptor may revoke
or cancel his acceptance.
Section 133. Right of holder to require
acceptance on face of bill – the holder
presenting the bill for acceptance may
require that the acceptance be written on the
bill.
What if the request of the holder is
refused?
The holder may treat the bill as
dishonored.
Section 134. Acceptance by separate
instrument.
General rule:
If the acceptance is written on a
paper other than the bill itself, it does not
bind the acceptor.
Exception:
Acceptance on a separate instrument
binds the acceptor when:
i) the acceptance is shown to the person
to whom the instrument is negotiated;
AND
ii) such person took the bill for value on
the faith of such acceptance.
 Legendary Notes on Negotiable Instruments Law
Section 135. When promise to accept is
equivalent to acceptance.
Requisites:
i) there is an unconditional promise in
writing to accept a bill; AND
ii) the promise to accept is made before
the bill drawn;
The promise to accept is deemed an
actual acceptance in favor of every person
who upon faith thereof receives the bill for
value.
Section 136. Time allowed for drawee to
accept – he is allowed 24 hours after
presentment to decide whether to accept the
bill or not.
*When the bill is accepted, the
acceptance is dated as of the day of
presentment.
Section 137. Constructive acceptance –
there is acceptance by operation of law:
i) when the drawee to whom the bill is
delivered for acceptance destroys the
bill;
*Accidental destruction is not
sufficient. It must be done
willfully.
ii) when the drawee refuses to return the
bill, accepted or not, within 24 hours
after delivery or within such period
given to him.
Section 138. When bill may be accepted.
i) where the bill is still incomplete;
ii) where the bill is already overdue; OR
iii) where the bill has been dishonored.
What is the rule in case a bill payable
after sight is dishonored by non-
acceptance and the drawee subsequently
accepts?
The holder is entitled to have the bill
accepted as of the date of presentment.
Section 140. General Acceptance – it
assents without qualification to the order of
the drawer.
An acceptance to pay at a particular place
is a general acceptance.
*Unless it is expressly stated that the
bill is to be paid there only and not
elsewhere.
Section 141. Qualified acceptance – in
express terms it varies the effect of the bill
drawn.
When acceptance is qualified?
i) when it is conditional – it makes the
payment by the acceptor dependent
on the fulfillment of a condition
stated.
ii) when it is partial – only part of the
amount of the bill is to be paid.
iii) when it is local – acceptance is to be
paid at a particular place only.
iv) when it is qualified as to time.
v) the acceptance of one or more of the
drawees, but not all.
Example:
A bill addressed to A, B and C is
accepted by A and B only.
Section 142. Right of holder to general
acceptance.
Can the holder be compelled to take a
qualified acceptance?
No. The holder may refuse to take a
qualified acceptance.
What if the holder does not obtain a
general acceptance?
He may treat the bill as dishonored
by non-acceptance.
 Legendary Notes on Negotiable Instruments Law
What is the rule when the holder took a
qualified acceptance?
General rule:
The drawer and indorsers are
discharged from liability on bill.
Exception:
The drawer and indorsers are not
discharged when:
i) they authorized the holder to take a
qualified acceptance; OR
ii) they subsequently assent thereto.
What is the duty of the drawer or an
indorser when he receives a notice of a
qualified acceptance?
He must express his dissent to the
holder within a reasonable time.
*Otherwise he will be deemed
to have assented thereto.
Section 143. When presentment for
acceptance must be made:
i) when presentment for acceptance is
necessary to fix the maturity of the
instrument;
ii) when the bill expressly stipulates that
it be presented for acceptance;
iii) when bill is payable elsewhere other
than the residence or place of
business of the drawee.
In no other case is presentment for
acceptance necessary in order to render any
party to the bill liable.
Section 144. Effect if presentment for
acceptance is required but instrument is not
presented for acceptance or it is not
negotiated within a reasonable time – the
drawer and all indorsers are discharged.
Section 145. How presentment is made – in
order that presentment for acceptance may
be proper it is necessary that it must be
made:
i) by or on behalf of the holder;
ii) at a reasonable hour;
iii) on a business day;
iv) before the bill is overdue; AND
v) to the drawee or some person
authorized to accept or refuse
acceptance on behalf of the drawee.
Rules regarding presentment to the
drawee:
i) bill is addressed to two or more
drawees who are not partners –
presentment must be made to them
all.
*Unless one has authority to
accept or refuse for all. Here,
presentment may be made to
the authorized person.
ii) drawee is dead – presentment may
be made to his personal
representative.
iii) drawee has been adjudged
bankrupt, or an insolvent or has
made an assignment for the benefit
of his creditors – presentment may
be made to him or to his trustee or
assignee.
Section 146. On what days presentment
may be made – see comments under
Section 72 and 85.
Section 147. Where time for presentment
for is insufficient – when the holder of a bill
payable elsewhere other than the place of
business or residence of the drawee has no
time with the exercise of reasonable
diligence to present the bill for acceptance
before presenting it for payment on the day
it falls due, the delay caused by presenting
the bill for acceptance before presenting it
for payment is excused.
 Legendary Notes on Negotiable Instruments Law
*It does not discharge the drawer and
indorers.
Section 148. When presentment is
excused:
i) when the drawee is dead, or has
absconded, or a fictitious person or a
person incapacitated to contract;
ii) when presentment cannot be made
after the exercise of reasonable
diligence;
iii) when presentment has been refused
on some other ground.
Here, presentment for acceptance is
excused and the bill may be treated as
dishonored.
Section 149. When a bill is dishonored by
non-acceptance:
i) when it duly presented for acceptance
but acceptance is refused or cannot
be obtained; OR
ii) when presentment for acceptance is
excused, and the bill is not accepted.
Section 150. Duty of holder when the bill
is not accepted – the holder must treat it as
dishonored by non-acceptance.
*Otherwise, he loses the right of
recourse against the drawer and
indorsers.
Section 151. Rights of holder when the bill
is not accepted – an immediate right of
recourse against the drawer and indorsers
accrues to the holder.
*No presentment for payment is
necessary.
Section 184. What is a promissory note – it
is an unconditional promise in writing made
by one person to another, signed by the
maker, engaging himself to pay on demand,
or at a fixed or determinable future time, a
sum certain in money to order or to bearer.
Where a note is drawn to the maker’s own
order, it is not complete until indorsed by
him.
Section 185. Check – it is a bill of
exchange drawn in a bank payable on
demand.
What is a stale check?
It is one which has not been
presented for payment within a reasonable
time after its issue. It is valueless and
should not be paid.
Section 186. Within what time a check
must be presented – it must be presented for
payment within a reasonable time after its
issue.
*Otherwise the drawer will be
discharged from liability on the bill
to the extent of the loss caused by the
delay.
Requisites in order that the drawer may
be discharged from liability:
i) the check is not presented within a
reasonable time;
Reason – a check is intended for immediate
use, its transfer to successive holders does
not extend the time for presentment.
ii) the drawer suffers loss; AND
iii) the loss suffered by the drawer is
attributable to the delay.
Risk of drawee’s insolvency
The drawer assumes the risk of the
drawee’s insolvency only during a
reasonable period for presentment.
*Hence, the holder should
exercise his rights to obtain
payment within a reasonable
time after its issue in order to
preserve his right of recourse
on the drawer in case of non-
payment by the drawee.
 Legendary Notes on Negotiable Instruments Law
Section 187. Certification of check – where
a check is certified by the bank on which it
is drawn, the certification is equivalent to
an acceptance.
A refusal to certify is not a dishonor of
the check.
What are the effects of certification of
checks?
i) it is equivalent to acceptance;
ii) it discharges persons secondarily
liable if procured by the holder;
iii) it operates as an assignment of the
funds of the drawer in the hands of
the drawee-bank;
iv) the drawer may not issue a stop
payment order on the certified check.
What is the liability of certifying bank?
Its liabilities are the same as an
acceptor under Section 62.
What is the effect if certification is
obtained by the holder?
The drawer and all indorsers are
discharged from liability thereon.
*Bank will certify only at the
request of the drawer.
Section 189. When check operates as an
assignment - when the bank accepts or
certifies the check.
Can the drawee be compelled to pay the
holder?
No. A bank has no contractual
obligation to pay the holder. There is no
privity of contract between the drawee and
the holder.
*Holder will go against the
drawer, and the drawer on the
hand will sue the drawee.

*However, the bank is stopped

as against a HIDC:

1. to dispute the
genuineness of the
drawer’s signature;
2. to set up the defense
that the drawer’s
fund is insufficient;
3. to allege that the
drawer is indebted to
the bank for more
than the amount of
the check.

When a check may be certified?

When it is already payable or due.

*Hence, a check cannot be

certified before it is payable.

Who certifies a check?

It must be made by the officer of the

bank having the authority to certify checks.