Agbayani Notes For Nego

NEGOTIABLE INSTRUMENTS NOTES
BASED ON AGBAYANI’S BOOK AND ATTY. MERCADO’S LECTURES

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Under the NIL, persons who write their names on the face of promissory  “Luis Martin Tan, Per Procuration: Ryan Teehankee” on which Luis Tan
notes are makers, promising that they will pay to the order of the payee or is the principal while Ryan Teehankee is the agent
any holder according to its tenor.
EFFECT OF SIGNATURE PER PROCURATION
At the study of the instrument, the allegations of Roxas are bereft of any  Constitutes a warning that an agent has a limited authority
merit—that is, the words “in his personal capacity” were added after he  A person who takes the instrument so signed is bound at his peril to
signed the instrument. inquire into the extent and nature of the agent’s authority, and this
applies to every person
43 SOLIDBANK CORPORATION V. MINDANAO FERROALLOY
CORPORATION Sec. 22. Effect of indorsement by infant or corporation. - The
GR 153535, JULY 28, 2005 indorsement or assignment of the instrument by a corporation or
by an infant passes the property therein, notwithstanding that from
FACTS: want of capacity, the corporation or infant may incur no liability
Mindanao Ferroalloy corporation is the fruit of a joint venture agreement thereon.//
between a Filipino corporation and Korean Corporation. In its operations,
its liabilities ballooned over its assets that it had to secure loans from INDORSEMENT OF MINOR OR CORPORATION
petitioner Solidbank. The loans were later consolidated and restructured,  If a minor or corporation indorses an instrument, the indorsee acquires
evinced by a promissory note. The promissory note was signed by Cu and title to it and can enforce it against the maker or acceptor or other
Hong, both officers of the corporation. The corporation, through the same parties prior to the minor
officers also executed a deed of assignment. Thereafter, the corporation  Such prior parties cannot escape liability by setting a defense the
stopped its operations and the loan was left unpaid. The bank was incapacity of the indorser
prompted to file a complaint against the corporation, and with it,  Also applies to other incapacitated persons
impleading the officers who signed the agreement and promissory notes.
The trial court held in favor of the bank but didn't adjudge liability of the
officers. Both the trial court and CA held that there was no solidary liability A (INCOMPLETE, UNDELIVERED)  B  C  D  E (MINOR)  F
on the part of the officers impleaded by the bank.
*F cannot enforce against A the instrument, following Section 15 of the NIL
HELD: *General rule in an indorsement by an infant or corporation: it shall be
Though Hong and Cu signed above the “maker/borrower” and the printed enforceable against the maker, acceptor, or other parties prior to the minor
name of the corporation, without the word “by” preceding their signatures,
the fact that they signed in their personal capacities is negated by the facts
that name and address of the corporation also appeared on the space
provided for in the “maker/borrower” and their signatures only appeared NOTES FOR WEEK #4:
once when it should be twice if indeed it was in their personal capacities. July 2, 2007 - July 7, 2007
Further, they didn't sign on the portion allocated for the co-maker, and
there was also indicia of it being signed as authorized representatives. Sec. 23. Forged signature; effect of. - When a signature is forged or
made without the authority of the person whose signature it
purports to be, it is wholly inoperative, and no right to retain the
Sec. 21. Signature by procuration; effect of. - A signature by instrument, or to give a discharge therefor, or to enforce payment
"procuration" operates as notice that the agent has but a limited thereof against any party thereto, can be acquired through or
authority to sign, and the principal is bound only in case the agent under such signature, unless the party against whom it is sought to
in so signing acted within the actual limits of his authority. enforce such right is precluded from setting up the forgery or want
of authority.
HOW SIGNATURE PER PROCURATION IS MADE
BY: MA. ANGELA LEONOR C. AGUINALDO

ATENEO LAW 2D BATCH 2010
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FORGERY, DEFINED AND EXPLAINED Sgd. A

 Counterfeit making or fraudulent alteration of any writing, and may To X Bank Alabang (drawee)
consist in the signing of another’s name, or the alteration of an
instrument, in the name, amount, description of the person and the Additional fact: B has account with RCBC Makati.
like, with the intent to defraud
 Section 23 only applies to forged signatures or signatures made *Process is that RCBC will send the check to X Bank for clearing and X
without the authority of the person whose signature purports it to be Bank would consequently debit the account of A.
*What if the signature of A is forged? What is the recourse of A? The
FRAUD AMOUNTING TO FORGERY recourse is for A to approach X Bank and demand to credit the his
 Fraud in factum or fraud in esse contractus account. X Bank was the proximate cause of the loss of A and it should
 There is no intention to issue an instrument know the drawer’s signature. Generally, X Bank is liable when the drawer’s
signature is forged and his account was debited.
FRAUD IN FACTUM FRAUD IN INDUCEMENT
FRAUDULENT IMPERSONATION
Does amount to forgery Doesn’t amount to forgery
• Suppose X represents himself as Juan Cruz when he is not to Y. Due
Real defense Personal defense
to such misrepresentation, he obtained from Y a note payable to the
A sells to B what he represents as a
order of Juan Cruz. If Y intends that the proceeds of the note will go
diamond ring, when it is actually
to the real Juan Cruz and not X, but to whom Y issued the note on the
made of glass. B issues a check.
belief that X was Juan Cruz, would be a forgery.
The fraud is in inducing B to issue
DOUBLE INTENT IN FRAUDULENT IMPERSONATION
the check.
1. He intends to make the instrument payable to the person before him
or to the person writing at the other end of the line, in case the
negotiation is by correspondence
Promissory notemaker 2. He intends to make the instrument payable to the person whom he
indorser believes the stranger to be
Bill of Exchangedrawer GENERAL RULE IN FRAUDULENT IMPERSONATION

indorser • The first one is the controlling intent except where the name of the
payee was already known to the maker or drawer or was particularly
identified in some manner
I promise to pay B or order P100,000
REASON FOR RULE: THEORY OF ACTUAL INTENT
Sgd. A • Throws the loss on the drawer
• In the absence of anything to show that the drawer had any doubt as
*Suppose that B forged A’s signature. Is the instrument valid? It is totally to the identity of the person to whom he delivered the paper as
inoperative. payee—the drawee, in paying the paper, or the holder, in taking it
*If ABCDE, and B’s signature was forged, it is totally inoperative upon the indorsement of the impostor in the name of which the payee
and ineffectual against A and B. C and D are precluded to set up the was described, carries out the intention that the drawer entertained at
defense of forgery since as indorsers, they warrant the validity of the the time of delivery of the paper to the impostor, although that
instrument. intention was conceived in consequence of the fraud of the impostor as
to his identity and ownership of the property which represented the
Pay to the order of B P100,000 consideration

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ANOTHER REASON FOR THE RULE: THEORY OF ESTOPPEL 2. That it was unauthorized, as in the case of an agent signing for his
• As between two innocent persons, the one whose act was the cause of principal, or one signing on behalf of a partnership or corporation or
the loss should bear the consequences that in case of the latter, that the corporation was not authorized
• It was the drawer’s duty to use diligence to ascertain the identity of under its charter to sign the instrument
the party with whom he has dealt. Failing to make this discovery, he 3. That the party charged signed the instrument in some other capacity
became the victim of the fraud. The impostor having succeeded in this than that alleged in the pleading setting it out
first and essential step in the practice of the fraud, the next was
comparatively an easy one. FAILURE TO IDENTIFY PROMISSORY NOTE WILL NOT NECESSARILY
DEFEAT CLAIM
RULE IS QUALIFIED WHERE IMPOSTOR REPRESENTS HIMSELF AS AGENT
OF PAYEE EFFECT OF FORGERY IN GENERAL
• There is a distinction between cases where the paper is delivered to 1. That the signature forged or made without authority is wholly
the impostor as payee, in the belief that he is the person to whom the inoperative
instrument it would be paid, and cases where the paper is delivered to 2. That no right to retain the instrument, or to give discharge thereof, or
the impostor upon his representation, in the belief that he is agent of to enforce payment thereof against any party thereto, can be acquired
the person named as payee through or under such a signature forged or made without authority
• The loss falls on the drawee or purchaser, as the case may be, rather 3. That nevertheless, as against a party precluded from setting up the
than on the drawer where the impostor upon whose indorsement the forgery or want of authority, the signature forged or made without
paper was purchased or paid, represented himself to be the agent of authority is operative, and rights to retain the instrument, to give
the payee and not the payee himself discharge therefore, or to enforce payment thereof, can be acquired
through or under the signature forged or made without authority
ADMISSION OF GENUINENESS AND DUE EXECUTION
• When an action or defense is founded upon a written instrument such EXTENT OF THE EFFECT OF THE FORGERY
as a negotiable instrument, copied in or attached to the corresponding 1. Only the signature forged or made without authority is stated by the
pleading, the genuineness and due execution of the instrument shall law to be inoperative but neither the instrument itself is, nor the
be deemed admitted unless specifically denied under oath by the genuine signatures are, rendered inoperative
adverse party 2. The instrument can be enforced by holders to whose title over the
• Consequently, the genuineness and due execution of the written instrument the forged signature is not necessary, such as, the
instrument or document copied in or attached to the opponent’s indorsement of an instrument which on its face is payable to bearer
pleading as the basis of his claim or defense, should be denied 3. The instrument can be enforced against those who are precluded from
specifically under oath, otherwise they are deemed admitted. setting up the defense of forgery, even against those whose signatures
have been forged
MEANING OF ADMISSION OF GENUINENESS AND DUE EXECUTION
1. That he signed it or that it was signed by another for him and with his PERSONS PRECLUDED FROM SETTING UP DEFENSE OF FORGERY
authority 1. Those who warrant or admit to the genuineness of the signature in
2. That at the time it was signed, it was in words and figures exactly as question—indorsers, persons negotiating by delivery, and acceptors
set out in the pleading of the party relying upon it, 2. Those who, by their acts, silence or negligence, are estopped from
3. That any formal requisites required by law, such as swearing and setting up the defense of forgery
acknowledgment, or revenue stamp which it requires, are waived by
him INDORSERS AS WARRANTORS
• Whether general or qualified
DEFENSES CUT OFF BY ADMISSION OF GENUINENESS, ETC. • Warrant that the instrument indorsed by them is genuine in all
1. The defense that the signature is a forgery respects what it purports it to be

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PERSONS NEGOTIATING BY DELIVERY AS WARRANTORS • It is not prejudiced by the delay where at no time after the discovery
• Persons negotiating by mere delivery also warrant that the instrument of the forgery did the cashier have any property with which to
negotiated by them is genuine and in all respects what it purports to indemnify the bank
be
• They are consequently precluded from setting up the defense of ESTOPPEL BY NEGLIGENCE IN DELIVERY
forgery • A drawer may be precluded from defense of forgery of the payee’s
indorsement if delivery by him to the payee is negligent
ACCEPTORS AS WARRANTORS
• A drawee, by accepting the bill, admits the genuineness off the CASES OF FORGERY IN GENERAL
signature of the drawer 1. Forgery of promissory notes which may be further subdivided into—
forgery of indorsement in the note; forgery of the maker’s signature
PRECLUDED 2. Forgery of bills of exchange which may be further classified into—
• Includes those cases where they are estoppels against the party forgery of an indorsement on the bill; forgery of the drawer’s
desiring to set up the forgery signature, either with acceptance by the drawee, or without such
acceptance but the bill is paid by the drawee
ESTOPPEL AS TO FORGERY OF INSTRUMENTS
• Whenever a party has, by his own declaration, act, or omission, RIGHTS OF PARTIES IN FORGERY OF INDORSEMENT IN NOT PAYABLE TO
intentionally and deliberately led another to believe that his or ORDER
another’s signature in an instrument is genuine, and to act upon such Where the indorsement is forged and the note is payable to order, the
belief, he cannot, in any litigation arising out of such declaration, act, party whose indorsement is forged and parties prior to him including the
or omission, be permitted to set up the forgery of such signature/s maker cannot be held liable by the holder, whether that holder is a holder
• Estoppel may arise from a declaration, act or omission/negligence in due course or not:
1. The reason is that, inasmuch as the indorsement is forged, it is
UNREASONABLE DELAY inoperative. But since the note is payable to order, it can be
• Unreasonable delay, after his discovery of the forgery, on the part of negotiated only by indorsement completed by delivery, and therefore,
one having the opportunity and duty to speak, in disclosing the forgery the forged instrument is the only means one could acquire any rights
upon commercial paper to the one who ought to be apprised thereof, to it or its proceeds
estops the former from thereafter asserting the forgery as against the 2. The law further provides that no right to retain the note, give
latter where the latter is prejudiced by such delay or failure discharge thereof, or enforce payment thereof, could be acquired
• Requisites: through and under the forged signature. Hence the holder didn’t
o That the delay be unreasonable acquire at least those rights as against the party whose signature is
o That the one who ought to be apprised of the forgery has forged and parties prior to him, including the maker
been prejudiced 3. The forger usually obtains possession of the note by fraudulent or
other unlawful means and therefore, he has no right whatsoever in the
REASONABLY PROMPT NOTICE note
• Depends upon the circumstances of the case, and the situation of the
parties with reference to the remedies against any party is a proper RIGHTS OF PARTIES IN FORGERY OF INDORSEMENT IN A NOTE PAYABLE
element to enter into the estimate of the reasonableness of the notice TO BEARER
• May be held liable by a holder in due course but not by the one who is
WHEN PREJUDICED AND WHEN NOT PREJUDICED not a holder in due course
• A bank is prejudiced—at the time one discovered that his attorney • Provided that the note was mechanically complete before the forgery
forged his indorsement to a draft in his favor, it had assets of the • Forged instrument is not necessary to the title of a holder since
attorney in its possession to protect itself but at the time it was instruments payable by bearer can be negotiated by mere delivery
notified of the forgery, it has parted with such assets

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RIGHTS OF PARTIES IN FORGERY OF MAKER’S SIGNATURE COLLECTING BANK BOUND TO SCRUTINIZE CHECKS DEPOSITED WITH IT
• Where the maker’s signature is forged, he cannot be held liable by any TO DETERMINE GENUINENESS AND REGULARITY
holder, whether the holder is in due course or not
• Purported maker is not a party to the instrument as his forged CONVERSION
signature is inoperative and no right to retain, enforce, or discharge • An unauthorized assumption and exercise of the right of ownership
the note, may be acquired against him over goods or personal chattels belonging to another, to the alteration
of their condition or exclusion of the owner’s right
DRAWEE CANNOT CHARGE ACCOUNT OF DRAWER
• In an action by the drawee against the drawer for the amount charged AS AFFECTED BY QUESTION OF DELIVERY TO PAYEE
by the drawee against the account of the drawer where the drawee • The checks didn’t reach the hands of the payee. The bearing of such
paid a check on a forged indorsement, the drawee has no defense absence of delivery is considered in some cases and held not to be
against the drawer and the drawer may recover from the drawee for material
an instrument paid on a forged indorsement • Where there is no delivery to the payee and no title vests upon him,
• Depository owes to the depositor an absolute and contractual duty to he ought not to be allowed to recover on the ground that he lost
pay the check only to the person to whom it is made payable or upon nothing because he never became owner of the check and still retained
his genuine indorsement his claim against the drawer
DRAWER CANNOT RECOVER FROM THE COLLECTING BANK PAYEE CANNOT RECOVER FROM THE DRAWEE
• Drawer has no right to recover the amount paid from the collecting • An action cannot be maintained by a payee of a check against the
bank as the duty of the collecting to exercise care in collection is due bank on which it is drawn unless the check has been certified or
only to the payee, and as the drawer suffers no loss since it can accepted by the bank on which it is drawn, without acceptance or
recover the amount paid from the drawee bank which has no right to certification, as provided by the statute, there is no privity of contract
charge the drawer’s account between the drawee bank and the payee, or holder of the check
DRAWEE CAN RECOVER FROM COLLECTING BANK RIGHTS OF PARTIES IN FORGERY OF INDORSEMENT IN BILL PAYABLE TO
• The drawee may recover from the recipient of payment, such as the BEARER
collecting bank, under a forged indorsement • Holder may recover if he is a holder in due course
• Rule allowing the payee to recover from the recipient of the payment
under a forged indorsement RIGHTS OF PARTIES IN FORGERY OF DRAWER’S SIGNATURE WHERE
DRAWEE HASN’T ACCEPTED BILL BUT PAID IT
PAYEE CAN RECOVER FROM RECEIPT OF PAYMENT • In the case of the payment of a forged check even without former
• According to the general rule, a bank or other corporation or an acceptance, the drawee cannot recover from a holder in due course
individual, who has obtained possession of a check, upon an not chargeable with any act or negligence or disregard of duty
unauthorized or forged indorsement of the payee’s signature and who • As between equally innocent parties, the drawee who pays money on a
collects the amount of the check from the drawee, is liable for the check the signature to which is forged, cannot recover the money from
proceeds thereof to the payee or other owner, notwithstanding that the one who received it
they have been paid to the person whom the check was obtained
• The possession of the check on the forged indorsement is wrongful and BUT PAYMENT NOT EQUIVALENT TO ACCEPTANCE OR CERTIFICATION
when the money had been collected on the check, the bank or other • The payment of a forged check doesn’t include or imply its acceptance
person or corporation, can be held as far as moneys had and received in the sense that this word is used in Section 62 of NIL
and the proceeds are held for the rightful owners of the payment and • Basis of the general rule is not that the drawee is precluded from
may be recovered by them setting up forgery because, by paying the check, it has accepted the
check and therefore admitted the genuineness of the drawer’s
signature

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• By paying the check the drawer is presumed negligent or deemed

constructively negligent PAPER FORWARDED FOR COLLECTION
• The fact that the paper wasn’t cashed and indorsed with unrestricted
NEGLIGENCE IN FORGERY OF INDORSEMENTS IN BILL indorsement but was taken for collection and forwarded for that
• It presupposes that the drawer himself wasn’t negligent or guilty of purpose under an indrosement giving notice of that fact, may place a
such conduct as would estop him from asserting the forged character greater burden upon the drawee than it would otherwise bear
of the indorsement as against the depository and that if he was
negligent or guilty of such conduct, the loss must fall on him FORGERY OF SIGNATURE IN INSTRUMENT IS FALSIFACTION OF PRIVATE
DOCUMENT
WHERE A DEPOSITOR IS USING ITS OWN PERSONALIZED CHECKS, ITS
FAILURE TO PROVIDE ADEQUATE SECURITY MEASURES TO PREVENT FORGER NEED NOT IMITATE GENUINE SIGNATURE
FORGERIES OF ITS CHECKS CONSTITUTES GROSS NEGLIGENCE AND • One who signs in the name of another without the latter’s authority, as
BARS IT FROM SETTING UP THE DEFENSE OF FORGERY drawer in a check, and thereby makes it appear falsely that the
alleged drawer of the check was a real party thereto, when as a matter
BUT FAILURE OF DEPOSITOR TO MAKE PROMPT RECONCILIATION OF THE of fact he didn’t participate in the transaction, is guilty of falsification
MONTHLY BANK STATEMENTS FURNISHED BY THE BANK CONSTITUTES
NEGLIGENCE FOR WHICH THE BANK CANNOT BE BLAMED IN CASE COMMERCIAL DOCUMENTS
DEPOSITOR’S CASE ARE FORGED • Documents or instruments which are used by businessmen or
merchants to promote or facilitate trade or credit transactions
BUT DRAWER NOT GENERALLY NEGLIGENT WHERE HIS CHECK IS STOLEN
CASE DIGESTS: SECTION 23
PAYEE’S NEGLIGENCE IN FORGERY OF DRAWER’S SIGNATURE (FORGED SIGNATURE OF DRAWER)
• The payee in a check may be supposed to have knowledge of the
circumstances under which it is drawn and generally, of the person 44 SAN CARLOS MINING V. BPI
drawing it, and is in a better position to judge the genuineness of the 59 PHIL 59
paper than are indorsees.
• And there is a tendency to place greater responsibility upon him and FACTS:
he is much more likely to be required to return the proceeds of the Wilson, a principal employee of petitioner, together with Wilson, a
paper than are the indorsees messenger-clerk, conspired to withdraw cash from the petitioner’s account
through forgery of a check, in the name of the agent authorized to sign the
INDORSER’S NEGLIGENCE check.
• After a draft or check has once been negotiated so that it is in
circulation, there is little opportunity for negligence on the part of While the authorized agent of petitioner was on vacation, Wilson and
those through whose hands it passes; but as to them, in most cases, Dolores sent a cablegram to China Banking for the transfer of $100,000.
the rule will apply that, as between innocent parties, the loss must fall On the contract, the name of Baldwin was forged and it was indicated
on the drawee therein that a certified check be issued. Thereafter, this was received and
deposited with the BPI. Upon deposit, an indorsement in the name of
DUTY OF PURCHASER OF CHECK OR BILL Baldwin was placed. The bank account was credited. Later, a letter was
• One who purchases a bill or check is bound to satisfy himself that the sent to the bank, purporting to be signed by Baldwin asking that it be
paper is genuine; and that by indorsing or presenting it for payment or withdrawn. This was done in supervision of Dolores. Dolores and Wilson
putting it in circulation before presentation, he impliedly asserts that then was able to get the money. This eventually came to the knowledge of
he has performed his duty and the drawee who has without actual plaintiff who filed an action against China Banking and BPI. The trial court
negligence on his part, paid the forged demand, may recover the dismissed the case.
money paid from such negligent purchaser

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373 SCRA 212 FACTS:

RPN, IBC and BBC were all assessed for tax by the BIR. To pay the
FACTS: assessed taxes, they bought manager’s checks from petitioner bank. None
Ong was supposed to be the payee of the checks issued by Island of these checks were paid to the BIR. They were found to have been
Securities. Ong has a current account with petitioner bank. He opted to deposited in the account of a third person in Security Bank. As the taxes
sell his shares of stock through Island Securities. The company in turn remained unpaid, the BIR issued a levy, distraint and garnishment against
issued checks in favor of Ong but unfortunately, the latter wasn't able to the three networks. An action was filed wherein it was decided that the
receive any. His signatures were forged by Tamlinco and the checks were networks should be reimbursed for the amounts of the checks by petitioner
deposited in his own account with petitioner. Ong then sought to collect bank and the latter in turn, must be reimbursed by Security Bank. In the
the money from the family of Tamlinco first before filing a complaint with appellate court, it was held that Traders Bank should be the only bank
the Central Bank. As his efforts were futile to recover his money, he filed liable.
an action against the petitioner. The trial and appellate court decided in
favor of Ong. HELD:
Petitioner ought to have known that where a check is drawn payable to the
HELD: order of one person and is presented for payment by another and purports
Since the signature of the payee was forged, such signature should be upon its face to have been duly indorsed by the payee of the check, it is
deemed inoperative and ineffectual. Petitioner, as the collecting bank, the primary duty of the petitioner to know that the check was duly
grossly erred in making payment by virtue of said forged signature. The indorsed by the original payee, and it pays the amount of the check to the
payee, herein respondent, should therefore be allowed to collect from the third person, who has forged the signature of the payee, the loss falls upon
collecting bank. the petitioner who cashed the check. Its only remedy is against the person
to whom it paid the money.
It should be liable for the loss because it is its legal duty to ascertain that
the payee’s endorsement was genuine before cashing the check. As a It should be further noted that one of the checks was a crossed check. The
general rule, a bank or corporation who has obtained possession of a check crossing of the check should have put petitioner on guard; it was duty-
with an unauthorized or forged indorsement of the payee’s signature and bound to ascertain the indorser’s title to the check or the nature of his
who collects the amount of the check other from the drawee, is liable for possession.
the proceeds thereof to the payee or the other owner, notwithstanding that
the amount has been paid to the person from whom the check was Sec. 124. Alteration of instrument; effect of. - Where a negotiable
obtained. instrument is materially altered without the assent of all parties
liable thereon, it is avoided, except as against a party who has
DOCTRINE OF DESIRABLE SHORT CUT—plaintiff uses one action to reach, himself made, authorized, or assented to the alteration and
by desirable short cut, the person who ought to be ultimately liable as subsequent indorsers.
among the innocent persons involved in the transaction. In other words, But when an instrument has been materially altered and is in the
the payee ought to be allowed to recover directly from the collecting bank, hands of a holder in due course not a party to the alteration, he
regardless of whether the check was delivered to the payee or not. may enforce payment thereof according to its original tenor.
On the issue of laches, Ong didn't sit on his rights. He immediately sought RIGHTS OF ONE NOT HOLDER IN DUE COURSE
the intervention of Tamlinco’s family to collect the sum of money, and later • Where an instrument has been materially altered, it is avoided in the
the Central Bank. Only after exhausting all the measures to settle the hands of one who is not a holder in due course as against a prior party
issue amicably did he file the action. who has not assented to the alteration
65 TRADERS ROYAL BANK V. RPN WHERE INSTRUMENT NOT AVOIDED AS TO HOLDER NOT IN DUE COURSE
390 SCRA 608 1. A party who has made the material alteration
2. A party who has authorized the material alteration

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3. A party who has assented to the material alteration

4. Any subsequent indorsers (f) Or which adds a place of payment where no place of
payment is specified, or any other change or addition which alters
RIGHTS OF HOLDER IN DUE COURSE the effect of the instrument in any respect, is a material alteration.
• He may enforce the instrument in its original tenor
• He could recover the altered tenor to any party who has made, CASE DIGESTS: SECTIONS 124 AND 125
authorized or assented the alteration, or any subsequent indorser of
the instrument 66 HSBC V. PEOPLE’S BANK
35 SCRA 140
NO DISTINCTION BETWEEN FRAUDULENT AND INNOCENT ALTERATION
FACTS:
RIGHT TO COLLECT ORIGINAL CONSIDERATION People’s Bank is sought to be liable for the amount involved in checks
• When the alteration wasn't fraudulently done, the holder may recover subject of this case. This arose from the following facts:
the original consideration
PLDT drew a check on HSBC with the latter being the payee. The check
WHERE DRAWEE BANK PAYS ALTERED AMOUNT, DRAWER HAS THE RIGHT landed in the hands of a third person who successfully substituted his
TO HAVE HIS ACCOUNT DEBITED WITH CORRECT AMOUNT ONLY name as payee and deposited the check with the People’s Bank. Upon
knowledge of this, reimbursement was being sought from the People’s
BANKS ARE BOUND BY THE 24-HOUR CLEARING HOUSE RULE AND MUST Bank and it refused to do so. This prompted to an action against it.
NOTIFY THE COLLECTING BANKS WITHIN 24 HOURS OF ALTERATION OF
CHECKS HELD:
The entire case of HSBC relied on the indorsement that has been
SECTION 23 SECTION 124 AND 125 heretofore copied—namely, a guarantee of all prior indorsements made by
Forgery with regard the signature of Forgery on any other material in the People’s Bank and since such an indorsement carries with it a concomitant
the drawer or indorser instrument guarantee of genuineness, the People’s Bank is liable to HSBC for alteration
Real defense Personal defense—the instrument is of the name of the payee. On the other hand, the People’s Bank relied on
not avoided when it comes to a the 24-hour regulation of the Central Bank that required after a clearing,
holder in due course; the holder that all cleared items must be returned not later than 24 hours. It should
may enforce the original tenor still be noted that the checks were returned by HSBC 27 days later. Dismissal
of the instrument of its complaint was therefore called for.
67 REPUBLIC BANK V. CA
Sec. 125. What constitutes a material alteration. - Any alteration 196 SCRA 100
which changes:
FACTS:
(a) The date; SMC issued a dividend check in favor of Delgado and the check was drawn
against FBTC. Delgado was able to alter the check, increased the amount
(b) The sum payable, either for principal or interest; of the same and deposited it with his account in Republic Bank. RB
indorsed it with FBTC. The SMC notified FBTC of the alterations made and
(c) The time or place of payment: demanded for reimbursement. Republic Bank then didn't want to
reimburse. The trial court held it liable.
(d) The number or the relations of the parties;
HELD:
(e) The medium or currency in which payment is to be made;

Page 95 of 190
Furthermore, the provision in the deposit slip on the right of reservation by

HELD: the bank applies only when there is actual receipt of current funds or
The warranties for which Alviar and Gonzales are liable as general solvent credits. But as earlier on indicated, the transfer on account of the
indorsers in favor of subsequent indorsers extend only to the state of the checks were ineffectual because it was made under the mistaken and valid
instrument at the time of their indorsements, specifically that the assumption that the indorsements of the payee thereon were genuine.
instrument is genuine and in all respects what it purports to be; that they
have good title thereto; that all prior parties had capacity to contract; and Sec. 68. Order in which indorsers are liable. - As respect one
that the instrument, at the time of their endorsements, is valid and another, indorsers are liable prima facie in the order in which they
subsisting. This however cannot be used by someone which introduced the indorse; but evidence is admissible to show that, as between or
defect in the instrument, such as the bank in this case, which qualifiedly among themselves, they have agreed otherwise. Joint payees or
indorsed the same, to hold prior parties liable on the instrument because it joint indorsees who indorse are deemed to indorse jointly and
results to an absurd situation whereby a subsequent party may render an severally.
instrument useless and inutile and let innocent parties bear the loss while
he himself gets away scot-free. It cannot be overstressed that had it not APPLICATION OF SECTION
been for the qualified indorsement of Gomez, there would have been no • Applies only with respect to an indorser as against another but not as
reason for the dishonor of the check. against a holder in due course
• Every indorser is liable to all indorsers subsequent to him but not
Sec. 67. Liability of indorser where paper negotiable by delivery. — those prior to him whom he in turn makes liable
Where a person places his indorsement on an instrument
negotiable by delivery, he incurs all the liability of an indorser. JOINT AND SEVERAL LIABILITY OF JOINT PAYEES
• Joint payees or joint indorsees are deemed to indorse solidarily
EFFECT OF LACK OF NOTICE OF DISHONOR, ETC.
130 JAI ALAI V. BPI • One of the joint indorsers cannot escape liability because proper notice
66 SCRA 29 of dishonor wasn’t given to his joint indorser
FACTS: Sec. 69. Liability of an agent or broker. - Where a broker or other

Checks were deposited by petitioner in its current account with the bank. agent negotiates an instrument without indorsement, he incurs all
These checks were from a certain Ramirez, a consistent better in its the liabilities prescribed by Section Sixty-five of this Act, unless he
games, who was a sales agent from Inter-Island Gas. Inter-Island later discloses the name of his principal and the fact that he is acting
found out that of the forgeries committed in the checks and thus, it only as agent.
informed all the parties concerned. Upon the demands on the bank as the
collecting bank, it debited the account of petitioner. Thereafter, petitioner APPLICATION OF SECTION 69
tried to issue a check for payment of shares of stock but such was • Instruments payable to bearer
dishonored for insufficient funds. It filed a complaint against the bank. • To escape personal liability as a party negotiating by delivery, the
agent must disclose his principal and state that he is acting only as an
HELD: agent
Considering that the petitioner indorsed the said checks when it deposited
them with the respondent, the petitioner as an indorser guaranteed the VI. PRESENTATION FOR PAYMENT
genuineness of all prior indorsements thereon. The respondent which
relied upon the petitioner’s warranty should not be held liable for the Sec. 70. Effect of want of demand on principal debtor. -
resulting loss. Presentment for payment is not necessary in order to charge the
person primarily liable on the instrument; but if the instrument is,
by its terms, payable at a special place, and he is able and willing

Page 96 of 190
to pay it there at maturity, such ability and willingness are

equivalent to a tender of payment upon his part. But except as NECESSARY STEPS TO CHARGE PERSONS SECONDARILY LIABLE
herein otherwise provided, presentment for payment is necessary • Presentment for payment must be made within the period required to
in order to charge the drawer and indorsers. the person primarily liable unless excused
• If the note is dishonored by non-payment, notice of dishonor by non-
MEANING OF PRESENTMENT FOR PAYMENT payment must be given to the person secondarily liable unless excused
• Production of a bill of exchange to the drawee for his acceptance, or to
the drawee or acceptor for payment or the production of the CASE DIGESTS: SECTION 70
promissory note to the person liable for payment of the same
1. Personal demand for payment at the proper place 131 CLARK V. SELLNER
2. With the bill or note in readiness to exhibit it as required and 42 SCRA 384
to receive payment and surrender it if the debtor is willing to
pay FACTS:
Sellner with two other persons, signed a promissory note solidarily binding
PRESENTMENT FOR PAYMENT NOT NECESSARY TO CHARGE PERSONS themselves to pay to the order of R.N Clark. The note matured but the
PRIMARILY LIABLE amount wasn't paid. The defendant alleges that he didn't receive any
• It cannot be validly claimed that it is presentment of the bill which is amount of the debt; that the instrument wasn't presented to him for
the operative act that makes the acceptor liable under his acceptance payment and being an accommodation party, he is not liable unless the
note is negotiated, which wasn't done.
PAYABLE AT A SPECIAL PLACE
• If the bill is payable at the PNB, is it necessary to make presentment HELD:
for payment to X in order to charge him? No, the rule is the same. On the first issue, the liability of Sellner as one of the signers of the note,
The only effect is that if, X is able and willing to pay the bill at the PNB is not dependent on whether he has or has not, received any part of the
at maturity, it is equivalent to a tender of payment on the part of debt. The defendant is really and expressly one of the joint and several
drawee X. debtors of the note and as such he is liable under the provisions of Section
60 of the NIL.
PRESENTMENT NECESSARY TO CHARGE PERSONS SECONDARILY LIABLE
As to the presentment for payment, such action is not necessary in order
NECESSARY STEPS TO CHARGE PERSONS SECONDARILY LIABLE IN BILLS to charge the person primarily liable, as is the defendant Sellner.
OF EXCHANGE
1. In the three steps required by law, presentment for acceptance to As to whether or not Sellner is an accommodation party, it should be taken
the drawee or negotiation within reasonable time after acquisition into account that by putting his signature to the note, he lent his name, not
unless excused to the creditor, but to those who signed with him placing him in the same
2. If the bill is dishonored by non-acceptance, notice of dishonor by position and with the same liability as the said signers. It should be noted
non-acceptance must be given to persons secondarily liable that the phrase”without receiving value therefore” as used in section 29
unless excused and in case of foreign bills, protest for dishonor means “without receiving value by virtue of the instrument” and not, as it
by non-acceptance must be made unless excused apparently is supposed to mean, “without receiving payment for lending his
3. But if the bill is accepted, or if the bill isn’t required to be name.” It is immaterial as far as the creditor is concerned, whether one of
presented for acceptance, it must be presented for payment to the signers has or has not received anything in payment for the use of his
the persons primarily liable unless excused name. In this case, the legal situation of Sellner is that of a joint surety
4. If the bill is dishonored by non-payment, notice of dishonor by who upon the maturity of the note, pay the debt, demand the collateral
non-payment must be also be given to person secondarily liable security and dispose of it to his benefit. As to the plaintiff, he is a holder
unless excused, and in case of foreign bills, protest for dishonor for value.
by non-pay7ment must be made unless excused

Page 97 of 190
Sec. 71. Presentment where instrument is not payable on demand

and where payable on demand. - Where the instrument is not Notice may be given as soon as instrument has been dishonored and
payable on demand, presentment must be made on the day it falls unless delay is excused must be given within the time fixed by law.
due. Where it is payable on demand, presentment must be made
within a reasonable time after its issue, except that in the case of a In this case, presentment and notice of dishonor were not made within
bill of exchange, presentment for payment will be sufficient if made reasonable time.
within a reasonable time after the last negotiation thereof.
September 1960—date when the check was drawn
WHEN PAYABLE AT A FIXED OR DETERMINABLE FUTURE TIME March 1964—presented to drawee bank
• The presentment must be made at the date of maturity April 1968—notice of dishonor
WHEN PAYABLE ON DEMAND IN CASE OF NOTES 133 REPUBLIC V. PNB

• The time for presentment depends upon whether the instrument is a 3 SCRA 851
bill or a note
• If it is a note, it must be presented for payment within reasonable time FACTS:
for issue The government filed a complaint for escheat of certain unclaimed bank
• If it is a bill, it must be presented for payment within reasonable time deposits balances pursuant to a law, which provides that unclaimed
from last negotiation and not for issue, as in the case of notes balances—credits, money, bullion, security or other evidence of
indebtedness of any kind, and interest with banks—shall be deposited with
CASE DIGESTS: SECTION 71 the government if it remains to be unclaimed within a period of 10 years of
more.
132 FAR EAST REALTY INVESTMENT V. CA
166 SCRA 256 One of the banks against the complaint has been filed is First National City
Bank. Although it concedes that the government had the right to claim the
FACTS: unclaimed deposit balances, it seeks to exclude some which, according to
Private respondents approached petitioner and asked the latter to extend it, are not within the purview of credits and deposits as defined in law. the
to them an accommodation loan. They proposed to pay with interest. trial court held in favor of the bank, excluding from the claim the
They even gave a check, signed by Tat, drawn against Chinabank, and manager’s checks and other demand drafts.
signed at the back by the private respondents. They said that they will
change the check with cash after one month and if not, the check could be HELD:
presented for payment and it would be paid. The loan was actually Credit is a sum credited on the books of a company to a person who
extended but when the check was presented for payment, it was appears to be entitled to it. it presupposes a creditor-debtor relationship
dishonored—the account on which it is drawn has long been closed. The and may be said to imply ability, by reason of property or estates, to make
trial courts held in favor of petitioner but this was reversed by the appellate a promised payment. It is correlative to indebtedness, and that which is
court by ruling that the check has passed through other hands before due to any person, as distinguished to that which he owes.
reaching the petitioner and the said check wasn’t presented within
reasonable time and after its issuance. Do demand drafts and telegraphic orders come within the purview of
credits or deposits employed in the law?
HELD:
Where the instrument is not payable on demand, presentment must be Since the demand drafts herein involved have not been presented either
made on the day it falls due. Where it is payable on demand, presentment for acceptance or payment, the inevitable consequence is that the bank
must be made within a reasonable time after issue, except that in case of a never had the chance of accepting or receiving them. Verily, the bank
bill of exchange, presentment for payment is sufficient if made within never became a debtor of the payee concerned and as such the aforesaid
reasonable time after the last negotiation thereof.

Page 98 of 190
drafts cannot be considered as credits subject to escheat within the And on the ancillary issue of the case, which is the relevant issue for the
meaning of the law. subject, whether or not the spouses should replace the check they paid to
the bank after it became stale, the answer is yes. It appeared that the
Further, a demand draft is different from a cashier’s check for this is a check has not been encashed. The delivery of the manager’s check did not
primary obligation of the bank which issues it and constitutes a written constitute payment. The original obligation to pay still exists. Indeed, the
promise to pay upon demand. It is an order to a third party purporting to circumstances that caused the non-presentment of the check should be
be drawn upon a deposit of funds. considered to determine who should bear the loss. In this case, ICB held
on the check and refused to encash the same because of the controversy
If there is any consolation, the telegraphic orders can be escheated in favor surrounding the signing of the joint motion to dismiss. There is no bad faith
of the government. The agreement to remit creates a contractual or negligence on the part of ICB.
obligation and has been termed a purchase and sale transaction. The
purchaser of a telegraphic transfer upon making payment completes the A stale check is one which has not been presented for payment within a
transaction insofar as he is concerned, though insofar as the remitting reasonable time after its issue. It is valueless and, therefore, should not be
bank is concerned the contract is executory until the credit is established. paid. A check should be presented for payment within a reasonable time
after its issue. Here, what is involved is a manager’s check, which is
The drawer bank has already been paid the value of the telegraphic order. essentially a bank’s own check and may be treated as a PN with the bank
It appears in the books of the bank that the amounts represented by the as a maker. Even assuming that presentment is needed, failure to present
orders appear in the names of respective payees. If the latter choose to for payment within a reasonable time will result to the discharge of the
demand payment, the bank had the obligation to pay them. drawer only to the extent of the loss caused by the delay—but here there is
no loss sustained. Still, such failure to present on time does not wipe out
134 THE INTERNATIONAL CORPORATE BANK V. SPOUSES liability.
GUECO
351 SCRA 516 Sec. 72. What constitutes a sufficient presentment. - Presentment
for payment, to be sufficient, must be made:
FACTS:
Gueco spouses obtained a loan from ICB (now Union Bank) to purchase a (a) By the holder, or by some person authorized to receive
car. In consideration thereof, the debtors executed PNs, and a chattel payment on his behalf;
mortgage was made over the car. As the usual story goes, the spouses
defaulted in payment of their obligations and despite the lowering of the (b) At a reasonable hour on a business day;
amount to be paid, they still failed to pay. Thereafter, they tendered a
manager’s check in favor of the bank. Nonetheless, the car was still (c) At a proper place as herein defined;
detained for the spouses refused to sign the joint motion to dismiss. The
bank averred that the joint motion to dismiss is part of standard office (d) To the person primarily liable on the instrument, or if he is
procedure to preclude the filing of other claims. Because of this, the absent or inaccessible, to any person found at the place where the
spouses filed an action for damages against the bank. And by the time the presentment is made.
case was instituted, the check had become stale in the hands of the bank.
APPLICATION OF SECTION
HELD: • Establishes the requisites for a sufficient presentment for payment
The main issue though unrelated to NIL in this case was whether or not the
signing of the joint motion to dismiss a part of the compromise agreement WHO MAKES PRESENTMENT
between the spouses and the bank. The answer is no, it is not a part of • Presentment for payment must be made by the holder of the
the compromise agreement entered by the parties. And thus, the signing instrument or by some person authorized to receive payment on his
is dispensible in releasing the car to the spouses. behalf

Page 99 of 190
TIME FOR MAKING PRESENTMENT (b) Where no place of payment is specified but the address of
• At a reasonable hour on a business day the person to make payment is given in the instrument and it is
there presented;
(c) Where no place of payment is specified and no address is
135 STATE INVESTMENT HOUSE V. IAC given and the instrument is presented at the usual place of
175 SCRA 310 business or residence of the person to make payment;
FACTS: (d) In any other case if presented to the person to make

New Sikatuna requested for a loan from Spouses Chua. Latter issued post- payment wherever he can be found, or if presented at his last
dated crossed checks in favor of former. Thereafter, Sikatuna sold checks known place of business or residence. (ORDER OF PREFERENCE)
to SIHI which upon deposit, checks were dishonored. The trial court
decided the case in favor of SIHI. Sec. 74. Instrument must be exhibited. - The instrument must be
exhibited to the person from whom payment is demanded, and
HELD: when it is paid, must be delivered up to the party paying it.
Jurisprudence provides the following effects of crossing a check:
1. The check may not be encashed but only deposited in the bank NECESSITY OF EXHIBITION OF INSTRUMENT
2. The check may be negotiated only once—to one who has an • Presentment includes not only demand for payment but also the
account with a bank exhibition of the instrument
3. The act of crossing the check serves the warning to the holder • Purpose is to enable the debtor to determine the genuineness of the
that the check has been issued for a definite purpose so that he instrument and the right of the holder to receive payment and to
must inquire if he has received the check pursuant to that enable him to retain possession upon payment
purpose, otherwise, he is not a holder in due course.
A DEMAND BY TELEPHONE IS INSUFFICIENT
The checks in issue were crossed generally and issued payable to New
Sikatuna Wood which could only mean that the drawer has intended the WHEN EXHIBITION EXCUSED
same for deposit only by the rightful person. Apparently, it was not the 1. When the debtor doesn’t demand to see the instrument but
payee who presented the same for payment and therefore, there was no refuses payment on some other grounds
proper presentment and the liability didn't attach to the drawer. Thus, in 2. When the instrument is lost or destroyed
the absence of due presentment, the drawer didn't become liable.
Consequently, no right of recourse is available to petitioner against the CASE DIGESTS: SECTION 74
drawer of the subject checks considering that the petitioner is the proper
party authorized to make presentment of the checks in question. 136 ANSALDO V. CA
177 SCRA 8
Nonetheless, the holder could still collect from New Sikatuna if the latter
doesn't have a valid excuse from refusing payment. FACTS:
TFC issued promissory notes in favor of PCIB. At about the same time,
Sec. 73. Place of presentment. - Presentment for payment is made TFC extended loans to Ansaldo and Reyes. These loans were evidenced by
at the proper place: promissory notes, each waiving demand, presentment, protest, and notice
of protest and non-payment. TFC then paid part of its obligation with
(a) Where a place of payment is specified in the instrument and PCIB. To pay for its outstanding balance, it endorsed the notes issued by
it is there presented; Ansaldo and Reyes. Claiming that the notes have matured without
payment by Ansaldo and Reyes, the bank instituted actions against them.

Page 100 of 190
HELD: Sec. 78. Presentment to joint debtors. - Where there are several
The contention of Ansaldo that the instrument should have been first persons, not partners, primarily liable on the instrument and no
presented to him is bereft of merit. place of payment is specified, presentment must be made to them
all.
First, it couldn’t be first raised on appeal.
SECTIONS 76 TO 78 NOT APPLICABLE WHERE PLACE SPECIFIED
Second, it is a petty issue for if according to him, such an exhibition was • Applies only where there is no place specified
needed to give him opportunity to determine the genuineness of the
instrument, this was rendered unnecessary not only by his omission to WHERE PERSON PRIMARILY LIABLE DEAD
contest it, but also by his admission of the authenticity of the note implicit • Presentment must be made to the executor or administrator if there is
from his averment that he made substantial payments thereon and second, one and if he can be found
he made a waiver of demand, presentment, etc. • The holder must use diligence to find the personal representative if
there be one
Sec. 75. Presentment where instrument payable at bank. - Where • The person primarily liable is dead, there is a personal representative,
the instrument is payable at a bank, presentment for payment must and no place of payment indicated in the instrument—if there is a
be made during banking hours, unless the person to make payment place indicated, then presentment should be done there
has no funds there to meet it at any time during the day, in which
case presentment at any hour before the bank is closed on that day WHERE PERSONS PRIMARILY LIABLE ARE PARTNERS THE PRESENMENT
is sufficient. MUST BE MADE TO ANY ONE OF THEM
I PROMISE TO PAY B P1000 AT RCBC ROCKWELL. WHERE PERSONS PRIMARILY LIABLE ARE JOINT DEBTORS, PRESENTMENT
MUST BE MADE TO ALL OF THEM
SGD. A
Sec. 79. When presentment not required to charge the drawer. -
• This gives rise to the presumption that A has an account with RCBC Presentment for payment is not required in order to charge the
Rockwell and the bank would pay on account of A. drawer where he has no right to expect or require that the drawee
or acceptor will pay the instrument.
NOTES FOR WEEK #11
AUG UST 27 - SEPTEM BER 1, 2007 Sec. 80. When presentment not required to charge the indorser. -
Presentment is not required in order to charge an indorser where
the instrument was made or accepted for his accommodation and
Sec. 76. Presentment where principal debtor is dead. - Where the
he has no reason to expect that the instrument will be paid if
person primarily liable on the instrument is dead and no place of presented.
payment is specified, presentment for payment must be made to
his personal representative, if such there be, and if, with the APPLICATION OF SECTION 79 AND 80
exercise of reasonable diligence, he can be found.
• These provisions give exceptions to the general rule that if no
presentment for payment is made, the persons primarily liable are
Sec. 77. Presentment to persons liable as partners. - Where the
discharged
persons primarily liable on the instrument are liable as partners
and no place of payment is specified, presentment for payment
WHERE DRAWER NEED NOT BE GIVEN NOTICE
may be made to any one of them, even though there has been a • Where A withdraws his funds from X, drawee bank, so that they are
dissolution of the firm. not sufficient to pay the bill, he has no right to expect or require that
the drawee or acceptor would pay the instrument

Page 101 of 190
• Accordingly, where F holder doesn’t make a presentment to X, A • Overwhelming calamity, malignant diseases, interruption of trade
drawer would not be discharged by such failure negotiations by political circumstances, etc.
PRESENTMENT IS NOT REQUIRED TO CHARGE THE DRAWER IN THE Sec. 82. When presentment for payment is excused. - Presentment
FOLLOWING CASES for payment is excused:
1. In case the check upon which payment has been stopped
2. Where the drawer’s balance is less than the amount of the check. (a) Where, after the exercise of reasonable diligence,
The mere fact however that the drawer has no funds with drawee presentment, as required by this Act, cannot be made;
at the time he draws, doesn’t render presentment unnecessary if
he still has reasonable grounds to believe that the instrument will (b) Where the drawee is a fictitious person;
be paid, particularly when provision has been made for payment
of any bill drawn by the drawer on the drawee (c) By waiver of presentment, express or implied.
3. Where the drawer of a bill containing the words “Pay from
balance” had no money on deposit with the drawee but expected APPLICATION OF SECTION 82
to arrange with the broker to cover drafts • What is excused is failure to make presentment for payment and not
mere delay
WHEN INDORSER NEED NOT BE GIVEN NOTICE
• A makes a note for the accommodation of B, payee. WAIVER MAY BE EXPRESS OR IMPLIED
I promise to pay B P1000. IMPLIED WAIVER

• Implied waiver of presentment may be manifested by any language or
Sgd. A conduct or any agreement between the parties reasonably calculated
to lead the holder to believe that presentment is waived or to mislead
BC or prevent him from treating the bill as he otherwise would
CD
DE SUMMARY OF RULES AS TO PRESENTMENT FOR PAYMENT
EF 1. Presentment for payment is not necessary to charge persons primarily
liable
• F need not make presentment for payment to A in order to charge B 2. But it is necessary to charge a person secondarily liable except
indorser a. As to drawer, under Section 79
• B didn’t give any value to A b. As to indorser, under Section 80
• B has no reason to expect that the note will be paid upon presentment c. When dispensed with under Section 82
• B is considered to be the ultimately liable party since he is the
d. When the instrument has been dishonored by non-acceptance
accommodated party
• With regard C and D, presentment for payment is still required
Sec. 83. When instrument dishonored by non-payment. - The
Sec. 81. When delay in making presentment is excused. - Delay in instrument is dishonored by non-payment when:
making presentment for payment is excused when the delay is
caused by circumstances beyond the control of the holder and not (a) It is duly presented for payment and payment is refused or
imputable to his default, misconduct, or negligence. When the cannot be obtained; or
cause of delay ceases to operate, presentment must be made with
reasonable diligence. (b) Presentment is excused and the instrument is overdue and
unpaid.
EXCUSES FOR DELAY
WHEN PAYMENT REFUSED, ETC.

Page 102 of 190
• The instrument must be duly presented for payment and payment is The appellate court reversed the lower court in its decision. It ruled that
either refused or cannot be obtained the bank was guilty of unreasonably retaining and withholding the check,
and that the delay in the presentment was inexcusable, so that respondent
WHEN PRESENTMENT IS EXCUSED thereby was discharged from liability.
• Presentment for payment is excused
• Instrument is overdue HELD:
• It is unpaid Section 84 is applicable, nonetheless, it should be read in correlation with
Section 186, which says that presentment should be within reasonable
Sec. 84. Liability of person secondarily liable, when instrument time.
dishonored. - Subject to the provisions of this Act, when the
instrument is dishonored by non-payment, an immediate right of Sec. 85. Time of maturity. - Every negotiable instrument is payable
recourse to all parties secondarily liable thereon accrues to the at the time fixed therein without grace. When the day of maturity
holder. falls upon Sunday or a holiday, the instruments falling due or
becoming payable on Saturday are to be presented for payment on
AFTER DISHONOR, INDORSERS, ETC. ARE PRIMARILY LIABLE the next succeeding business day except that instruments payable
• As to holder, after an instrument is dishonored by non-payment , the on demand may, at the option of the holder, be presented for
persons secondarily liable thereon ceases to be secondarily liable payment before twelve o'clock noon on Saturday when that entire
• They become principal debtors and their liability becomes the same as day is not a holiday.
that of the principal obligors—provided a notice of dishonor has been
given to them Sec. 86. Time; how computed. - When the instrument is payable at
• If no notice is given, they are discharged a fixed period after date, after sight, or after that happening of a
• If they are charged by dishonor and notice, while it is true that they specified event, the time of payment is determined by excluding
become principal debtors as to the holder, yet as among themselves, the day from which the time is to begin to run, and by including the
persons secondarily liable are presumed liable in the order that they date of payment.
become parties to the instrument
Sec. 87. Rule where instrument payable at bank. - Where the
CASE DIGEST: SECTION 84 instrument is made payable at a bank, it is equivalent to an order
to the bank to pay the same for the account of the principal debtor
137 PNB V. SEETO thereon.
91 SCRA 757
EFFECT OF FAILURE TO MAKE PRESENTMENT FOR PAYMENT—BUT
FACTS: SUPPOSE THAT B OR ANY SUBSEQUENT HOLDER FAILS TO MAKE A
Seeto called at a branch of bank and presented a check payable to cash or PRESENTMENT FOR PAYMENT AT THE PNB, IS A DRAWER DISCHARGED?
bearer, and drawn by Kiao against PBC. After consultation with the • There is a conflict of authorities
employees, Seeto made a general and qualified indorsement of the check. • Agbayani’s view: A is not discharged because he is primarily liable
He was then paid the amount of the check by bank. The check was
consequently dishonored, a letter was sent to Seeto and was asked to Sec. 88. What constitutes payment in due course. - Payment is
refund the money given to him. A second letter was sent to him and he made in due course when it is made at or after the maturity of the
averred that case against him be deferred while he inquired about why the payment to the holder thereof in good faith and without notice that
check was dishonored. Thereafter, he refused to pay, alleging that the his title is defective.
account against the check was drawn had sufficient funds when the check
was drawn and if the bank didn’t delay in clearing the check, there would REQUISITES FOR PAYMENT IN DUE COURSE
have been sufficient funds. 1. Payment must be made at or after the date of maturity
2. Payment must be to the holder

Page 103 of 190
3. Payment must be made by the debtor in good faith and without • When an instrument is dishonored by NON-ACCEPTANCE or NON-
notice that his title is defective PAYMENT, notice of such dishonor must be given to persons
• If payment is made before maturity, it would constitute a negotiation secondarily liable, as the case may be. Otherwise, such parties are
back to the person primarily liable and he can renegotiate it. Payment discharged
doesn’t discharge the instrument.
• Payment to indorsee who is not in possession of the instrument is not I PROMISE TO PAY F OR ORDER.
payment to a person other than the holder is at the risk of the party so
paying if the person wasn’t authorized by the holder to receive SGD. A
payment. So also, the payment to the original payee after the note *BCDEF
had been transferred by him to a holder in due course doesn’t
discharge the note *F makes presentment for payment to A, maker, on the date of maturity.
• Payment to a person by the debtor who knows that such person stole A refuses to pay.
it, is not payment in due course, as such payment is not in good faith. *If F doesn’t give notice of dishonor to B, C, D and E and prove the same,
The maker of a note or the acceptor of a bill must satisfy himself, they are discharged and F cannot file an action against them.
when it is presented for payment, that the holder traces his title
through genuine indorsements, and if there is a forged indorsement, it BURDEN OF PROOF
is a nullity and no right passes by it • It is upon the plaintiff who seeks to enforce the defendant’s liability
upon a negotiable instrument as indorser to establish said liability by
PAYMENT MUST BE MADE TO POSSESSOR OF INSTRUMENT proving that notice was given to the defendant within the time and in
• The party making payment must insist on the presentment of the the manner required by the law that the instrument in question had
paper by the party demanding payment in order to make sure that it is been dishonored
at the time in his possession and not outstanding in another • Where these facts are not proven, the plaintiff doesn’t sufficiently
• A receipt taken is no protection establish the defendant’s liability
• If at the time he makes payment, it is outstanding and in the hands of • Where there is no proof in record tending to show that the plaintiff
a holder in due course, he must pay it again gave any notice whatsoever to the defendant that the instrument in
• Possession of notes by the maker is presumptive evidence question had been dishonored, said plaintiff hasn’t established its
cause of action
VII. NOTICE OF DISHONOR PERSONS PRIMARILY LIABLE NEED NOT BE NOTIFIED
Sec. 89. To whom notice of dishonor must be given. - Except as DOES FAILURE TO GIVE NOTICE OF DISHONOR OF A PREVIOUS
herein otherwise provided, when a negotiable instrument has been INSTALLMENT TO PERSONS SECONDARILY LIABLE ALSO DISCHARGE
dishonored by non-acceptance or non-payment, notice of dishonor THEM ON THE SUCCEEDING INSTALLMNETS?
must be given to the drawer and to each indorser, and any drawer • It depends on whether the instrument contains an acceleration clause
or indorser to whom such notice is not given is discharged.
RULE WHERE THERE IS NO ACCELERATION CLAUSE
MEANING OF NOTICE • Where the instrument contains no acceleration clause, failure to give
• By notice of dishonor is meant bringing either verbally or by writing, to notice of dishonor on previous installment doesn’t discharge drawers
the knowledge of the drawer or indorser of an instrument, the fact that and indorsers as to the succeeding installments, and therefore, the
a specified negotiable instrument, upon proper proceedings taken, has holder can file an action against them for such succeeding
not been accepted or hasn’t been paid, and that the party notified is installments, notice is given
expected to paid it • The reason is that each separate installment is equivalent to another
note
NECESSITY AND PURPOSE OF NOTICE

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RULE WHERE THERE IS AN ACCELERATION CLAUSE Fojas Arca and Firestone Tire entered into a franchising agreement wherein
• It depends whether the clause is optional or automatic the former had the privilege to purchase on credit the latter’s products. In
• If it is automatic, failure to give notice of dishonor as to a previous paying for these products, the former could pay through special withdrawal
installment will discharge the persons secondarily liable as to the slips. In turn, Firestone would deposit these slips with Citibank. Citibank
succeeding installments would then honor and pay the slips. Citibank automatically credits the
• If it is optional and it is not exercised, the rule would be the same as account of Firestone then merely waited for the same to be honored and
where there is no acceleration clause paid by Luzon Development Bank. As this was the circumstances,
Firestone believed in the sufficient funding of the slips until there was a
EXCEPTIONS TO REQUIREMENT OF NOTICE time that Citibank informed it that one of the slips was dishonored. It
• The law provides for exceptions on failure to give notice would wrote then a demand letter to Fojas Arca for the payment and damages
discharge drawer or indorsers but the latter refused to pay, prompting Firestone to file an action against
it.
HELD:
139 ASIA BANKING CORPORATION V. JAVIER The withdrawal slips, at the outset, are non-negotiable. Hence, the rule on
44 PHIL 777 immediate notice of dishonor is non-applicable to the case at hand. Thus,
the bank was under no obligation to give immediate notice that it wouldn't
FACTS: make payment on the subject withdrawal slips. Citibank should have
Chaves drew 2 checks on different occasions against PNB in favor La known that withdrawal slips are not negotiable instruments. It couldn't
Insular. These checks were indorsed by the limited partners of La Insular expect then the slips be treated like checks by other entities. Payment or
and subsequently deposited by Chaves in his account with Asia Bank. notice of dishonor from respondent bank couldn't be expected immediately
These were then presented for payment by Asia Bank but was dishonored in contrast to the situation involving checks.
by PNB on reason that there was insufficient funds. This prompted Asia
Bank to file a case against one of the partners of La Insular for payment. In the case at bar, Citibank relied on the fact that LDB honored and paid
the withdrawal slips which made it automatically credit the account of
HELD: Firestone with the amount of the subject withdrawal slips then merely
When a negotiable instrument is dishonored by non-payment or non- waited for LDB to honor and pay the same. It bears stressing though that
acceptance, notice thereof must be given to the drawer and each of the Citibank couldn't have missed the non-negotiable character of the slips.
inodrsers, and those who are not notified shall be discharged from liability, The essence of negotiability which characterizes a negotiable paper as a
except where this act provides otherwise. According to this, the indorsers credit instrument lies in its freedom to be a substitute for money. The
are not liable unless they are notified that the instrument is dishonored. withdrawal slips in question lacked this character.
Then, under the general principle of law on procedure, it will be incumbent
upon plaintiff, who seeks to enforce the defendant’s liability upon these The withdrawal slips deposited were not checks as Firestone admits and
checks as indorser, to establish said liability by proving that notice was Citibank generally was not bound to accept the withdrawal slips as a valid
given within the time and in the manner required by law. if these facts are mode of deposit. Nonetheless, Citibank erroneously accepted the same as
not proven, the plaintiff has not sufficiently established the defendant’s such and thus, must bear the risks attendant to the acceptance of the
liability. There is no proof in record to show that plaintiff has indeed gave instruments. Firestone and Citibank could not now shift the risk to LDB for
any notice to defendant that the checks had been dishonored. Therefore their committed mistake.
there is no cause of action established.
WHAT IF THE SLIPS WERE NEGOTIABLE?
140 FIRESTONE V. CA • Citibank would be the holder, LDB the drawee, Fojas Arca the drawer
353 SCRA 601 and Firestone would be indorser
• Applying the rules on notice of dishonor, Citibank as the “holder”
FACTS: should have sent the notices of dishonor to Fojas Arca and Firestone,

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being the drawer and indorser respectively. Another, Firestone may 3. Any party to the instrument who may be compelled to pay it to
have sent the notice to Fojas Arca. the holder—against any party whom he has a right of
reimbursement should such party giving notice pay the instrument
141 GULLAS V. PNB 4. Another person in behalf of such party
62 PHIL 519
Sec. 91. Notice given by agent. - Notice of dishonor may be given
FACTS: by any agent either in his own name or in the name of any party
The US government issued a warrant payable to the order of Bacos. Gullas entitled to given notice, whether that party be his principal or not.
and Lopez appeared as indorsers of the warrant. It was then encashed by
the PNB. Subsequently, the warrant was dishonored by the Insular NOTICE OF AGENT
Treasurer. Upon learning of the dishonor, notices were sent to Gullas by • Notice may be given by the agent and it is not necessary that the
the bank but it wasn’t receive by Gullas as he was currently not within the agent be authorized by the principal
vicinity. In the said notices served to Gullas and Lopez, it was indicated • He may give the notice in his name or in the name of his principal
therein that since there was dishonor of the warrant, their corresponding • A collecting bank may give notice, and where it has done so, no notice
accounts have been charged. It was only after the return of Gullas in Cebu from the owner is necessary
when he received the notices. This caused prior inconvenience to Gullas. • And where the cashier of the drawee bank which had refused to pay a
First, he wasn’t able to pay for his insurance due to the lack of credit in his check gave the check to a notary to protest, which was done, it was
bank account and second, the incident was given prominence in Cebu to held that the possession of the check by the cashier was evidence of
the great mortification of Gullas. his agency of the holder to present it for protest
HELD: Sec. 92. Effect of notice on behalf of holder. - Where notice is given
The general indorser of a negotiable instrument engages that if it be by or on behalf of the holder, it inures to the benefit of all
dishonored and the necessary proceedings of dishonor be duly taken, he subsequent holders and all prior parties who have a right of
will pay the amount thereof to the holder. In this connection, it has been recourse against the party to whom it is given.
held by a long line of authorities that notice of dishonor is necessary in
order to charge an indorser and that the right of action against him doesn’t MEANING OF BENEFIT
accrue until the notice is given. • Benefit refers to the right to charge the person secondarily liable who
received notice
As a general rule, a bank has a right of setoff of the deposits in its hands • The party to whom this benefit inures can charge the party receiving
for payment of any indebtedness on the part of a depositor but this should notice of dishonor, even if himself didn’t give the notice
be enforced properly. It is undeniable in this case that PNB didn’t enforce
its right properly. It made used of the money in the account of Gullas prior INURES TO THE BENEFIT OF THE FOLLOWING
to its sending of notice of dishonor. 1. All parties prior to the holder, who have a right of recourse
against the party to whom the notice is given
Sec. 90. By whom given. - The notice may be given by or on behalf 2. All holders subsequent to the holder giving notice
of the holder, or by or on behalf of any party to the instrument who
might be compelled to pay it to the holder, and who, upon taking it I PROMISE TO PAY B OR ORDER P1000.
up, would have a right to reimbursement from the party to whom
the notice is given. SGD.A
NOTICE MAY BE GIVEN BY *BCDEF

1. The holder *F notifies B, C, D, E
2. Another in behalf of the holder 1. The notice of F to B inures to the benefit of C, D and E, as they
are parties prior to F, who have a right of recourse against B

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2. The notice of F to C inures to the benefit of D and E but not for Sec. 96. Form of notice. - The notice may be in writing or merely
the benefit of B oral and may be given in any terms which sufficiently identify the
3. The notice of F to D inures to the benefit of E but not to B and C instrument, and indicate that it has been dishonored by non-
4. Suppose that after notice given by F, further negotiation was acceptance or non-payment. It may in all cases be given by
made to G; GHI. The notice given by F inures to the benefit of delivering it personally or through the mails.
all of them. And they don’t need to give another notice of
dishonor to B, C, D, and E to make them liable. FORM AND CONTENTS OF NOTICE
• It may be oral or in writing
Sec. 93. Effect where notice is given by party entitled thereto. - • Whether oral or in writing, it must contain
Where notice is given by or on behalf of a party entitled to give 1. SUFFICIENT DESCRIPTION OF THE INSTRUMENT TO IDENTIFY IT,
notice, it inures to the benefit of the holder and all parties and
subsequent to the party to whom notice is given. 2. A STATEMENT THAT IT HAS BEEN PRESENTED FOR PAYMENT AND
FOR ACCEPTANCE, AND THAT IT HAS BEEN DISHONORED, and
APPLICATION OF THIS SECTION 3. A STATEMENT THAT THE PARTY GIVING NOTICE INTENDS TO
• Follows the same principle as the preceding section but this time, the LOOK FOR THE PARTY ADDRESSED FOR PAYMENT
person giving notice is not the holder but a party to the instrument
who might be compelled to pay it to the holder, and who, upon taking EFFECTS OF DEFECTS IN NOTICE
it up, would have a right of reimbursement from the party to whom • If the notice is not signed, it will not invalidate it
notice is given • If the notice is written and doesn’t contain #2 and #3, it can be
supplemented by oral communication stating the things lacking
Sec. 94. When agent may give notice. - Where the instrument has • If there is misdescription, it would only vitiate the notice if the person
been dishonored in the hands of an agent, he may either himself is misled thereby
give notice to the parties liable thereon, or he may give notice to
his principal. If he gives notice to his principal, he must do so NOTICE BY PHONE
within the same time as if he were the holder, and the principal, • This could be done however it must be shown that the party to be
upon the receipt of such notice, has himself the same time for notified was really communicated with, that is, fully identified as to the
giving notice as if the agent had been an independent holder. party at the receiving end of the line
WHEN AGENT’S NOTICE MUST BE GIVEN MANNER OF GIVING NOTICE

• When an instrument is dishonored in the hands of an agent, he can do • May be given by personal delivery or by mail
either of the following
o Directly give notice to the persons secondarily liable thereon Sec. 97. To whom notice may be given. - Notice of dishonor may be
o Give notice to his principal given either to the party himself or to his agent in that behalf.
• If the agent decides to give notice to the principal, he must give notice
within the time allowed by law as if he were a holder NOTICE MAY BE GIVEN
• The principal has also the same time to give notice to the persons 1. To the party himself
secondarily liable 2. To his agent in his behalf
• An accommodation indorser is entitled to notice
Sec. 95. When notice sufficient. - A written notice need not be • An irregular indorser must also be given notice if he is to be charged
signed and an insufficient written notice may be supplemented and • And if notice is given to an agent, he must be duly authorized to
validated by verbal communication. A misdescription of the receive the notice of dishonor
instrument does not vitiate the notice unless the party to whom the
notice is given is in fact misled thereby. AGENT DISTINGUISHED FROM PERSON PRESENT IN ABSENCE OF PARTY

Page 107 of 190
• Notice to agent must be distinguished from notice attempted to be • In such cases, notice be given to the party himself or his trustee or
given to party himself where he is absent at his place of business or assignee
residence. In such a case, the notice may be left with anyone found in
charge therein Sec. 102. Time within which notice must be given. - Notice may be
given as soon as the instrument is dishonored and, unless delay is
Sec. 98. Notice where party is dead. - When any party is dead and excused as hereinafter provided, must be given within the time
his death is known to the party giving notice, the notice must be fixed by this Act.
given to a personal representative, if there be one, and if with
reasonable diligence, he can be found. If there be no personal MAY NOTICE OF DISHONOR BE GIVEN BEFORE THE DATE OF MATURITY
representative, notice may be sent to the last residence or last • No, such notice would be insufficient because an instrument cannot be
place of business of the deceased. said to be dishonored for non-payment unless presented and
presentment must be made on the date of maturity unless of course,
REQUISITES FOR NOTICE TO REPRESENTATIVE presentment is excused
1. Death is known to the party giving notice • But even in such cases, the instrument cannot be said to be
2. There is a personal representative dishonored by non-payment unless it is overdue and unpaid
3. If with reasonable diligence he could be found • Notice of dishonor can be given only after the instrument has been
actually dishonored, and notice given before the paper due is
WHEN NOTICE MAY BE SENT TO THE LAST RESIDENCE OR PLACE OF premature and insufficient, regardless of the indorser’s knowledge that
BUSINESS the maker was in default
1. If his death is not known to the party giving notice
2. Or although his death is known to the party giving notice but MAY NOTICE OF DISHONOR BE GIVEN ON THE DATE OF MATURITY?
there is no personal representative • Yes, provided that the instrument has been presented for payment and
3. If there be one but he cannot be found with reasonable diligence is has been dishonored
• But if the instrument is payable at a bank, it is not dishonored if the
Sec. 99. Notice to partners. - Where the parties to be notified are maker deposits the amount of the instrument before the close of
partners, notice to any one partner is notice to the firm, even banking hours. Hence, notice of dishonor must be given after the
though there has been a dissolution. close of banking hours on the date of maturity
Sec. 100. Notice to persons jointly liable. - Notice to joint persons PURPOSE OF PROMPT NOTICE
who are not partners must be given to each of them unless one of • To give the persons secondarily liable every opportunity to secure
them has authority to receive such notice for the others. themselves such as to enable the party to be charged to preserve and
protect his rights against prior parties
PROVISION WOULD APPLY ONLY TO JOINT DRAWERS
Sec. 101. Notice to bankrupt. - Where a party has been adjudged a
bankrupt or an insolvent, or has made an assignment for the 142 FAR EAST REALTY INVESTMENT V. CA
benefit of creditors, notice may be given either to the party himself 166 SCRA 256
or to his trustee or assignee.
FACTS:
APPLICATION OF SECTION Private respondents approached petitioner and asked the latter to extend
1. Where the party secondarily liable has been declared a bankrupt to them an accommodation loan. They proposed to pay with interest.
or an insolvent They even gave a check, signed by Tat, drawn against Chinabank, and
2. Where he has made an assignment of his properties for the signed at the back by the private respondents. They said that they will
benefits of creditors change the check with cash after one month and if not, the check could be

Page 109 of 190
FACTS: Sec. 104. Where parties reside in different places. - Where the
On several occasions, King discounted with Fernando several checks person giving and the person to receive notice reside in different
amounting to P1,070,000 for the amount of P1,000,000. Upon places, the notice must be given within the following times:
presentment for encashment however, these checks were dishonored for
being drawn on insufficient funds. Despite demands, King wasn’t able to (a) If sent by mail, it must be deposited in the post office in
make good the checks. This prompted Fernando to file a case against King time to go by mail the day following the day of dishonor, or if there
for violation of BP22. be no mail at a convenient hour on last day, by the next mail
thereafter.
HELD:
The elements of the crime are as follows: (b) If given otherwise than through the post office, then within
1. The accused makes, draws, issues any check to apply for account the time that notice would have been received in due course of
or for value mail, if it had been deposited in the post office within the time
2. The check is subsequently dishonored by the drawee bank for specified in the last subdivision. (TO REACH HIM IN USUAL COURSE
insufficiency of funds or credit, or it would have been dishonored THE DAY FOLLOWING)
for the same reason had not the drawer, without any valid reason,
ordered the bank to stop payment TIME FOR GIVING NOTICE IN GENERAL
3. The accused knows at the time of the issuance that he doesn’t • The law provides for a different period for giving notice of dishonor
have sufficient funds or credit with the drawee bank for the depending on whether—the party giving notice and the party to
payment of the check in full upon presentment receive notice reside in the same place; or the party giving notice and
the party to receive reside in different places
Among the elements, to show that there is prima facie presumption of
knowledge of insufficiency of funds, it should be shown that he received a MEANING OF “THE SAME PLACE”
notice of dishonor and within 5 banking days thereafter, failed to satisfy • Refers to the corporate limits of a town or city where the presentment
the amount of the check or make arrangement for its payment. is made or where the holder resides
To prove the knowledge of King, it was shown that a letter was sent by EFFECT OF NOTICE GIVEN OUT OF TIME
Fernando. Nonetheless, it wasn’t proven that indeed King received the • Unless excused, notice given out of time would be considered not to
demand letter. The letter was even shown to have been returned to have been given
sender. • Hence, the party to receive notice would be discharged
Sec. 103. Where parties reside in same place. - Where the person Sec. 105. When sender deemed to have given due notice. - Where
giving and the person to receive notice reside in the same place, notice of dishonor is duly addressed and deposited in the post
notice must be given within the following times: office, the sender is deemed to have given due notice,
notwithstanding any miscarriage in the mails.
(a) If given at the place of business of the person to receive
notice, it must be given before the close of business hours on the APPLICATION OF SECTION 105
day following. • A party giving notice is deemed to have given due notice where the
notice of dishonor is duly addressed and deposited in the post office,
(b) If given at his residence, it must be given before the usual even when there is miscarriage of mail
hours of rest on the day following.
CONCLUSIVE PRESUMPTION
(c) If sent by mail, it must be deposited in the post office in
time to reach him in usual course on the day following.

Page 110 of 190
Sec. 106. Deposit in post office; what constitutes. - Notice is 2. After omission to give due notice
deemed to have been deposited in the post-office when deposited
in any branch post office or in any letter box under the control of IMPLIED WAIVER
the post-office department. • Waiver may be implied from acts, declarations, or silence
DEPOSIT IN LETTER BOX Sec. 110. Whom affected by waiver. - Where the waiver is
• The letter box must be under the control of the post office department embodied in the instrument itself, it is binding upon all parties; but,
• Otherwise, notice wouldn’t deemed to have been deposited in the post where it is written above the signature of an indorser, it binds him
office only.
• Thus, a notice of protest properly addressed and left in a place in a
notary’s office where mail was usually collected by his postman was WHOM AFFECTED BY WAIVER IN GENERAL
held not a mailing of the notice as required by the statute • The persons affected by waiver depends upon whether the waiver is in
the instrument itself or is written above the signature of the indorser
Sec. 107. Notice to subsequent party; time of. - Where a party • If the waiver is embodied in the instrument itself, it is binding upon all
receives notice of dishonor, he has, after the receipt of such notice, parties
the same time for giving notice to antecedent parties that the • If the waiver is written above the signature of an indorser, it binds him
holder has after the dishonor. only
Sec. 108. Where notice must be sent. - Where a party has added an Sec. 111. Waiver of protest. - A waiver of protest, whether in the
address to his signature, notice of dishonor must be sent to that case of a foreign bill of exchange or other negotiable instrument, is
address; but if he has not given such address, then the notice must deemed to be a waiver not only of a formal protest but also of
be sent as follows: presentment and notice of dishonor.
(a) Either to the post-office nearest to his place of residence or WHERE PROTEST IS WAIVED, THE FOLLOWING ARE INCLUDED AND ARE
to the post-office where he is accustomed to receive his letters; or DEEMED WAIVED ALSO
1. Presentment
(b) If he lives in one place and has his place of business in 2. Notice of dishonor
another, notice may be sent to either place; or • Where presentment for payment is waived, notice of dishonor is also
waived
(c) If he is sojourning in another place, notice may be sent to • But where notice of dishonor is waived, presentment for payment is
the place where he is so sojourning. not waived
But where the notice is actually received by the party within the Sec. 112. When notice is dispensed with. - Notice of dishonor is
time specified in this Act, it will be sufficient, though not sent in dispensed with when, after the exercise of reasonable diligence, it
accordance with the requirement of this section. cannot be given to or does not reach the parties sought to be
charged.
Sec. 109. Waiver of notice. - Notice of dishonor may be waived
either before the time of giving notice has arrived or after the WHEN NOTICE EXCUSED
omission to give due notice, and the waiver may be expressed or • When political disturbances interrupt and obstruct the ordinary
implied. negotiations of trade, they constitute a sufficient excuse for want of
presentment or notice, upon the same principle that controls in cases
WHEN WAIVER MAY BE MADE of military operations or interdictions of commerce
1. Before the time of giving notice, such as express waiver in the • Prevalence of a malignant, contagious, infectious disease…
body of the instrument or added to the signature of the party

Page 111 of 190
Sec. 113. Delay in giving notice; how excused. - Delay in giving The evidence shows that the dated checks were complete and regular;
notice of dishonor is excused when the delay is caused by petitioner bought the checks from Victoriano before their due dates; it took
circumstances beyond the control of the holder and not imputable the checks in good faith and for value; and it was never informed nor made
to his default, misconduct, or negligence. When the cause of delay aware that these checks were merely issued to payee as security.
ceases to operate, notice must be given with reasonable diligence.
Consequently, State is a holder in due course. Moulic cannot set up the
Sec. 114. When notice need not be given to drawer. - Notice of defense that there was failure or want of consideration. It can only invoke
dishonor is not required to be given to the drawer in either of the the defense if State was a privy to the purpose for which they were issued
following cases: and therefore is not a holder in due course.
(a) Where the drawer and drawee are the same person; Furthermore, the mere fact that the checks were issued as security is not
sufficient ground to discharge the instrument as against a holder in due
(b) When the drawee is fictitious person or a person not having course.
capacity to contract;
And also, Moulic was responsible for the dishonor of her checks. She
(c) When the drawer is the person to whom the instrument is withdrew her funds from her account and could not have expected her
presented for payment; checks to be honored by then.
(d) Where the drawer has no right to expect or require that the 146 GREAT ASIAN SALES V. CA
drawee or acceptor will honor the instrument; 381 SCRA 488
(e) Where the drawer has countermanded payment. FACTS:

Great Asian Sales was a business engaged in the selling and buying of
CASE DIGESTS: SECTION 114 merchandise. In 2 of its board resolutions, it first authorized Arsenio, its
treasurer, to secure a loan from Bancasia as well as to sign any pertinent
145 STATE INVESTMENT HOUSE V. CA documents related to such. Second, it authorized Arsenio to obtain from
217 SCRA 32 Bancasia a discounting line. Pursuant to these, deeds of assignments were
issued by Great Asian in favor of Bancasia for receivables—specifically
FACTS: checks. Almost all the checks assigned by Great Asian were dishonored.
Moulic issued checks as security to Victoriano, for pieces of jewelry to be Notice of dishonor was sent by the bank and its lawyer to Tan Chong Lin.
sold on commission. Moulic failed to sell the pieces of jewelry, so she Later, Great Asian filed for insolvency and in its petition, Bancasia was one
returned them to Victoriano. The checks however could not be recovered of those listed as its creditors. In the meanwhile, a complaint was filed
by Moulic as these have been discounted already in favor of petitioner. against Great Asian and Tan Chong Lin because of the surety agreement it
Consequently, before the maturity dates, Moulic withdrew her funds from signed in favor of Bancasia.
her account. Thereafter, petitioner presented the checks for payment but
these were dishonored. This prompted the petitioner to initiate an action HELD:
against Moulic. First, under the 2 board resolutions, indeed Arsenio was authorized to
obtain a loan and sign any document related to the securing of the loan.
HELD: The question is whether the deeds of assignment signed by Arsenio was
A prima facie presumption exists that a holder of a negotiable instrument is within the ambits of his authority.
a holder in due course. The burden of proving that State is not a holder in
due course is upon Moulic. In this regard, she failed to do so. The deeds of assignment enabled Great Asian to generate instant cash,
with checks which were not due and demandable then.

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In the financing industry, a discounting line means a credit facility with a

financing bank or company, which allows a business entity to sell, on a (b) Where the indorser is the person to whom the instrument is
continuing basis, its accounts receivable at a discount. The term discount presented for payment;
means the sale of a receivable at less than its face value. The purpose of
discounting line is to enable a business entity to generate instate cash out (c) Where the instrument was made or accepted for his
of its receivables which are still to mature at future debts. The financing accommodation.
company or bank which buys the receivables makes its profits out of the
difference between the face value of the receivable and the discounted WHEN NOTICE RELATIVELY EXCUSED
price. 1. Where he has knowledge of the dishonor by means other than
through a formal notice, as when he is both the drawee and
Clearly, the discounting arrangements entered into by Arsenio were the drawer or when presentment is made to him
same arrangements authorized under the board resolutions. 2. Where he has no reason to expect that the instrument will be
honored, as when he has countermanded payment or where the
Second, on the issue of breach of contract, Bancasia alleged that Great drawee is fictitious or without capacity to contract
Asian committed a breach. In the deeds of assignment, it was stipulated
that there is a vital suspensive condition—in case the drawers fail to pay NO RIGHT TO EXPECT OR REQUIRE PAYMENT AS TO DRAWER
the checks on maturity, Great Asian obligated itself to pay Bancasia the full 1. Where the drawer of the check has no account with the drawee
face value of the dishonored checks, including penalties and other costs. bank
Failure to pay would give rise to the obligation to pay Bancasia. 2. When the drawer of a check payable abroad has no funds with the
drawee bank to meet it
Great Asian and Bancasia agreed on this specific with recourse stipulation, 3. When the knowledge that previous drafts on the same consignee
despite that the receivables were negotiable instruments. The contracting had been dishonored.
parties are allowed such stipulation in addition to the warranties of an • In the foregoing, the drawer has no right to receive notice of dishonor
indorser under the NIL. The explicit with recourse stipulation against Great
Asian enlarges the liability of Great Asian beyond that of a mere indorser of DRAWER HAS COUNTERMANDED PAYMENT
a negotiable instrument. Thus, whether or not Bancasia gives notice of • A drawer tells drawee B not to pay the bill. F holder need not give
dishonor to Great Asian, the latter remains liable because of the with notice to A drawer. An allegation that payment of a check had been
recourse stipulation. countermanded is sufficiently set out where the check was set forth
with the indorsement across the face “Payment stopped”
The recourse of Bancasia to file an action for breach of contract doesn’t
leave Great Asian with an empty bag. It is then subrogated back as DRAWEE FICTITIOUS, ETC. MUST BE MADE KNOWN AS TO INDORSERS
creditor of the receivables. Great Asian can now proceed against the • The indorser must be aware of the fact that the drawee is fictitious or
drawers who issued the checks. Even if there was no timely notice of not having capacity to contract. Otherwise, notice of dishonor must be
dishonor, Great Asian is not prejudiced. A notice of dishonor is not given to such indorser to charge him. But the fact that that the
required if the drawer has no right to expect or require the bank to honor indorser knew the maker to be insolvent or that the instrument was
the check, or if the drawer has countermanded payment. dishonored doesn’t dispense with the necessity of notice
Sec. 115. When notice need not be given to indorser. — Notice of Sec. 116. Notice of non-payment where acceptance refused. -
dishonor is not required to be given to an indorser in either of the Where due notice of dishonor by non-acceptance has been given,
following cases: notice of a subsequent dishonor by non-payment is not necessary
unless in the meantime the instrument has been accepted.
(a) When the drawee is a fictitious person or person not having
capacity to contract, and the indorser was aware of that fact at the ILLUSTRATION
time he indorsed the instrument; • Note is payable on December 31, 1950

Page 113 of 190
• F the holder presents it for acceptance to X drawee on December 1, f. As to a holder in due course without notice
1950
• X refuses to accept the bill Sec. 118. When protest need not be made; when must be made. -
• F then gives notice of dishonor to drawer A and to the indorsers B, C, Where any negotiable instrument has been dishonored, it may be
D and E protested for non-acceptance or non-payment, as the case may be;
• Under section 151, there is no necessity for presentment for payment but protest is not required except in the case of foreign bills of
and under this section, need not give a notice of dishonor by non- exchange.
payment
• But suppose X drawee accepts the bill on December 15. F must then WHEN PROTEST NECESSARY
present the bill for payment to X on December 31. If X refuses to pay, • Protest is necessary with regard foreign bills of exchange
F must give notice of dishonor to A, B, C, D, and E in order to charge • Mere fact of protest is not conclusive upon the dishonor of the
them, as in the meantime the instrument has been accepted. instrument and due notice to the indorser; other evidence is
competent on these questions
Sec. 117. Effect of omission to give notice of non-acceptance. - An • While protest is not required in cases of promissory notes and inland
omission to give notice of dishonor by non-acceptance does not bills, it is usual to protest these instruments also when dishonored
prejudice the rights of a holder in due course subsequent to the since the notary’s certificate of protest is the most convenient and
omission. certain mode of proving the facts
ILLUSTRATION
NOTES FOR WEEK #11
PAY TO B OR ORDER P1000.
SEPTEMBER 3 - 7, 2007
SGD. A
TO: X VIII. DISCHARGE OF NEGOTIABLE INSTRUMENTS
*BCDEFG (holder in due course)
*F, when the instrument was still in his hands, presented the bill for Sec. 119. Instrument; how discharged. - A negotiable instrument is
acceptance to X and the latter refuses to accept the bill. F fails to give discharged:
notice to B, C, D, and E.
*B, C, D, E are not discharged with regard to G because omission to give (a) By payment in due course by or on behalf of the principal
notice of dishonor by non-acceptance doesn’t prejudice the rights of a debtor;
holder in due due course subsequent to the omission.
(b) By payment in due course by the party accommodated,
SUMMARY AS TO NOTICE OF DISHONOR where the instrument is made or accepted for his accommodation;
1. Like presentment for payment, notice of dishonor need not be
given to persons primarily liable in order to charge them (c) By the intentional cancellation thereof by the holder;
2. But aside from presentment for payment to persons primarily
liable, notice of dishonor to persons secondarily liable is necessary (d) By any other act which will discharge a simple contract for
to charge the latter except— the payment of money;
a. When notice is waived
b. When dispensed with under Section 112 (e) When the principal debtor becomes the holder of the
c. As to drawer, under Section 114 instrument at or after maturity in his own right.
d. As to indorser, under Section 115
e. Where due notice of dishonor by non-acceptance has PAYMENT BY PRINCIPAL DEBTOR
been given

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• In order to discharge the instrument, the payment must be a payment must be specified; and that an objection to tender on one ground is a
in due course, and second, a payment made by the principal debtor waiver of all other objections which could have been made at that time
• If payment is made before the date of maturity, the instrument is not • It is ordinarily required of one to whom payment is offered in the form
discharged as the payment is not in due course of a check, that he makes his objection at the time of the offer of by
• Where payment is made by a party who is not a primary obligor or an check instead of an offer of payment in money
accommodation party, his payment only conceals his own liability and • Reason for the rule—to afford the debtor the opportunity to secure the
those who are obligated after him. All prior parties primarily or specific money which the law prescribes shall be accepted in payment
secondarily liable on the bill, are liable to such a payer, and the payer of debts
may cancel indorsements subsequent to his own and reissue the
paper, and it will be valid as against the prior parties PAYMENT BY ACCOMMODATED PARTY
• The one ultimately liable on the accommodation instrument is the
PAYMENT BY THIRD PERSONS latter
• If payment is made by a third person, the instrument is not discharged • Hence, his payment in due course discharges the instrument as if
because payment is not made by the person principally liable payment was made by the principal debtor under paragraph (a)
• Not any one who desires may pay the instrument and then recover of
the maker. He must be a person who has in some way made himself INTENTIONAL CANCELLATION
liable for the payment of the instrument. • The cancellation must be intentional and made by the holder
• Exception: where an instrument has been protested and someone • There must be an intention to cancel a negotiable instrument by the
voluntarily makes payment supra protest or for honor. And if the holder thereof as such intention is an essential element of discharge
instrument was to give money in payment, the instrument is on a negotiable instrument and a negotiable note in a torn condition is
discharged. presumed cancelled by the holder thereof
SUMMARY OF DISCHARGE BY PAYMENT WILL AN EXTENSION OF TIME GRANTED BY THE HOLDER TO THE DEBTOR
1. Payment by a person ultimately liable, whatever his position in the DISCHARGE THE INSTRUMENT?
paper, is a discharge of the instrument • No, according to the majority view
2. Payment by an accommodation party isn’t a discharge of the • Because while it isn’t omitted in Section 120, it is omitted in Section
instrument, whatever his position thereon and whether the 119
indorsement be regular or anomalous • Shows the legislative intent to that an extension of time by the holder
3. Payment by the drawer or indorser is not a discharge of the instrument will not discharge the instrument
PRINCIPAL DEBTOR PRINCIPAL DEBTOR ACQUIRES INSTRUMENT

• Person ultimately bound to pay the debt • Reacquisition must be by the principal debtor and in his own right at or
after the date of maturity
PAYMENT BY CHECK OR OTHER NEGOTIABLE PAPER • In his own right—not in a representative capacity
1. When they actually have been cashed or
2. When, through the fault of the creditor, they have been impaired WHEN INSTRUMENT REACQUIRED BEFORE MATURITY
• A creditor isn’t bound to accept a check in satisfaction of his demand • A reacquisition by the principal debtor in his own right but before
because a check, even if good when offered, doesn’t meet the maturity will not discharge the instrument
requirements of legal tender • It will merely be a negotiation back to the principal debtor
WAIVER OF OBJECTION TO TENDER OF PAYMENT BY CHECK DISCHARGE BY OPERATION OF LAW

• It is the general rule that an object to a tender must, to be available to
the creditor, be made in good time and that the grounds for objection CASE DIGESTS: SECTION 119

Page 115 of 190
147 STATE INVESTMENT HOUSE V. CA The note covered for Alegre’s placement plus interest. On the maturity of
217 SCRA 32 the note, petitioner issued a check payable to Alegre, covering the whole
amount due. It was drawn from petitioner’s current account in BPI. When
FACTS: the wife of Alegre tried to deposit the check, the bank dishonored the
Moulic issued checks as security to Victoriano, for pieces of jewelry to be check. Petitioner was notified of this matter and Alegre demanded the
sold on commission. Moulic failed to sell the pieces of jewelry, so she immediate payment in cash. In turn, petitioner promised to replace the
returned them to Victoriano. The checks however could not be recovered check on the impossible premise that the first issued be returned to them.
by Moulic as these have been discounted already in favor of petitioner. This prompted Alegre to file a complaint against petitioner and petitioner in
Consequently, before the maturity dates, Moulic withdrew her funds from turn, filed a case against BPI for allegedly unlawfully deducting from its
her account. Thereafter, petitioner presented the checks for payment but account counterfeit checks. The trial court decided in favor of Alegre.
these were dishonored. This prompted the petitioner to initiate an action
against Moulic. ISSUE: W/N NIL is applicable to the money market transaction held
between petitioner and Alegre?
HELD:
A prima facie presumption exists that a holder of a negotiable instrument is HELD:
a holder in due course. The burden of proving that State is not a holder in Considering the nature of the money market transaction, Article 1249 of
due course is upon Moulic. In this regard, she failed to do so. the CC is the applicable provision should be applied. A money market has
been defined to be a market dealing in standardized short-term credit
The evidence shows that the dated checks were complete and regular; instruments where lenders and borrowers don’t deal directly with each
petitioner bought the checks from Victoriano before their due dates; it took other but through a middleman or dealer in the open market. In a money
the checks in good faith and for value; and it was never informed nor made market transaction, the investor is the lender who loans his money to a
aware that these checks were merely issued to payee as security. borrower through a middleman or dealer.
Consequently, State is a holder in due course. Moulic cannot set up the In the case at bar, the transaction is in the nature of a loan. Petitioner
defense that there was failure or want of consideration. It can only invoke accepted the check but when he tried to encash it, it was dishonored. The
the defense if State was a privy to the purpose for which they were issued holder has an immediate recourse against the drawer, and consequently
and therefore is not a holder in due course. could immediately file an action for the recovery of the value of the check.
Further, in a loan transaction, the obligation to pay a sum certain in money
Furthermore, the mere fact that the checks were issued as security is not may be paid in money, which is the legal tender or, by the use of a check.
sufficient ground to discharge the instrument as against a holder in due A check is not legal tender, and therefore cannot constitute valid tender of
course. payment.
And also, Moulic was responsible for the dishonor of her checks. She Sec. 120. When persons secondarily liable on the instrument are
withdrew her funds from her account and could not have expected her discharged. - A person secondarily liable on the instrument is
checks to be honored by then. discharged:
(a) By any act which discharges the instrument;

148 CEBU INTERNATIONAL V. CA
316 SCRA 488 (b) By the intentional cancellation of his signature by the
holder;
FACTS:
Petitioner is a quasi-banking institution involved in money market (c) By the discharge of a prior party;
transactions. Alegre invested with petitioner P500,000. Petitioner issued
then a promissory note, which would mature approximately after a month. (d) By a valid tender or payment made by a prior party;

Page 116 of 190
money which he considers and admits to be due, in satisfaction of

(e) By a release of the principal debtor unless the holder's right such claim or demand without any stipulation or condition
of recourse against the party secondarily liable is expressly
reserved; RELEASE OF PRINCIPAL DEBTOR
• If the holder F discharges A maker, the parties secondarily liable, B, C,
(f) By any agreement binding upon the holder to extend the D, E are also discharged, as this discharges the instrument and two, it
time of payment or to postpone the holder's right to enforce the deprives them of their right of recourse against A maker.
instrument unless made with the assent of the party secondarily • But if on releasing A, F reserves his right of recourse against the
liable or unless the right of recourse against such party is expressly indorsers, then they are not discharged. The effect of such reservation
reserved. is the implied reservation of their right of recourse against A. In other
words, while the holder cannot hold A liable, he can hold B, C, D, and
EFFECT OF SECTION 120 IS A SURETYSHIP E liable, but they in turn can hold A liable should any of them be made
• Generally the courts regard this provision as exclusive, as a complete to pay F. This reservation of the right of recourse cannot be implied
codification of the law of discharge of secondary parties by the six from acts and conduct but must be express.
methods therein set forth
RELEASE MUST BE ACT OF HOLDER
ACTS DISCHARGE INSTRUMENT
• Any of the acts that will discharge an instrument under Section 119 RELEASE MUST BE FOR VALUE
will discharge a party secondarily liable thereon, such as payment in
due course by the maker. This will discharge the indorsers in the note. EFFECT OF RELEASE ON ACCOMMODATION MAKER OR ACCEPTOR
• General rule is that he is not discharged by the holder’s release of the
INTENTIONAL CANCELLATION principal debtor even if the release be made with knowledge or true
• A, maker B, payee relation of the parties and, conversely, the release of the
• BCDEF accommodation maker or acceptor doesn’t discharge the principal
• F then successively cancels the signature of D. D is discharged. debtor through the latter occupies the position of a party secondarily
• No consideration is necessary to support a discharge by intentional liable on the instrument
cancellation of an indorser’s signature by the holder.
EXTENSION OF TIME
DISCHARGE OF PRIOR PARTY • If the holder agrees to extend the time of payment, the indorsers are
• The intentional cancellation of D’s signature also discharges E, as D is discharged
a prior party to E • However, where the extension of time is consented to by the party
• And according to this paragraph, the discharge of a prior party secondarily liable, he is not discharged. Also, where the holder
discharges parties subsequent thereto. expressly reserves his right of recourse against the party secondarily
liable, the latter is not discharged.
DISCHARGE BY OPERATION OF LAW IS NOT INCLUDED
1. Discharge by reason of bankruptcy REQUISITES OF AGREEMENT FOR EXTENSION OF TIME
2. Discharge of a party not given due notice of dishonor 1. It must be a binding contract, supported by valuable consideration
3. Discharge by the statute of limitations and for a definite period
2. It must be made with the principal debtor and not with a third
VALID TENDER OF PAYMENT party
• If D an indorser validly tenders payment and F unjustifiably
refuses to do accept, D is discharged Sec. 121. Right of party who discharges instrument. - Where the
• Tender of payment: act by which one produces and offers to a instrument is paid by a party secondarily liable thereon, it is not
person holding a claim or demand against him the amount of discharged; but the party so paying it is remitted to his former

Page 117 of 190
rights as regard all prior parties, and he may strike out his own and or after its maturity. An absolute and unconditional renunciation of
all subsequent indorsements and against negotiate the instrument, his rights against the principal debtor made at or after the maturity
except: of the instrument discharges the instrument. But a renunciation
does not affect the rights of a holder in due course without notice.
(a) Where it is payable to the order of a third person and has A renunciation must be in writing unless the instrument is
been paid by the drawer; and delivered up to the person primarily liable thereon.
(b) Where it was made or accepted for accommodation and has APPLICATION OF SECTION 122
been paid by the party accommodated. 1. Applies only to renunciation by the unilateral act of the holder without
consideration and in cases where the instrument is not delivered up to
ILLUSTRATION OF SECTION 121 the person intended to be released
• A is the drawer of the bill addressed to X, drawee, payable to the order 2. Renunciation—act of surrendering a right or claim without recompense
of B. but it can be applied with equal propriety to the relinquishing of a
• BCDEF demand upon an agreement supported by a consideration
• Suppose D pays the bill. What are the effects?
o The first effect: instrument is not discharged but it discharges FORM OF RENUNCIATION
D.  It must be in writing and must be express
o Second effect: D is remitted to his former rights against
parties prior to him, such as A, B and C. If D was formerly a TIME FOR MAKING RENUNCIATION
holder in due course, even if at the time of payment he had 1. Before maturity
already notice of defects of title, he can enforce his rights 2. At maturity
against any of them free from defenses, as he is remitted to 3. After maturity
his former rights. But it is a well-known rule of law that if the
original payee of a note unenforceable for lack of WHEN RENUNCIATION DISCHARGES INSTRUMENT
consideration repurchases the instrument after transferring it 1. Renunciation discharges the instrument when it is absolute and
to a holder in due course, the paper again becomes subject in unconditional
the payee’s hands to the same defenses to which it would 2. It is made in favor of the person primarily liable
have been subject if the paper had never passed through the 3. It is made at or after maturity
hands of a holder in due course.
o Third effect: D can strike out his indorsement and the Sec. 123. Cancellation; unintentional; burden of proof. - A
subsequent indorsements of E and F cancellation made unintentionally or under a mistake or without
o Fourth effect: D can renegotiate the instrument the authority of the holder, is inoperative but where an instrument
or any signature thereon appears to have been cancelled, the
EXCEPTIONS TO RIGHT TO RENEGOTIATE burden of proof lies on the party who alleges that the cancellation
1. If instead of D, it is A drawer who pays and as the bill is payable was made unintentionally or under a mistake or without authority.
to the order of a third person, B, A can no longer negotiate the
instrument MEANING OF CANCELLATION
2. Or if B payee is an accommodated party, and B pays, he cannot  Signifies not only the drawing of criss-cross lines but also tearing,
negotiate the bill, as B is the ultimate party to pay it, and he obliterations, erasures or burning
doesn’t have a right of recourse against either X drawee or A  It may be made by any other means by which the intention to cancel
drawer the instrument may be evident
Sec. 122. Renunciation by holder. - The holder may expressly WHEN CANCELLATION IS INOPERATIVE
renounce his rights against any party to the instrument before, at, 1. When made unintentionally

Page 118 of 190
2. When made under mistake  A draft drawn by the seller on the purchaser of goods sold and
3. When made without the authority of the holder accepted by such purchaser
 States upon its face that the obligation of the acceptor arises out of
BURDEN OF PROOF IS UPON THE PERSON WHO CLAIMS THAT THE purchase of goods from the drawer
CANCELLATION IS INOPERATIVE  Arises from credit obligations arising from the sale of goods and must
have a definite maturity
Sec. 126. Bill of exchange, defined.
A bill of exchange is an unconditional order in writing addressed by HOW TRADE ACCEPTANCE HANDLED
one person to another, signed by the person giving it, requiring the  The seller sends with the goods or the invoice a filled-in trade
person to whom it is addressed to pay on demand or at a fixed or acceptance form, often in duplicate to enable the buyer to retain a
determinable future time a sum certain in money to order or to copy for his files
bearer.  The buyer accepts the bill by signing his name across its face, with
date, designating the bank where it is payable
TYPES OF BILLS OF EXCHANGE  It is returned to the seller who may hold it at maturity or may discount
1. Draft it at the bank
2. Trade acceptance  At maturity, it is collected exactly as if it were a check
3. Banker’s acceptance  Usually, the buyer of goods is given a cash discount and other options
4. Treasury warrants beside the acceptance privilege
5. Money orders
6. Clean bills of exchange BANKER’S ACCEPTANCE
7. Documentary bill of exchange  Draft of which the acceptor is a bank or banker engaged generally in
8. D/A bills of exchange the business of granting banker’s acceptance credit
9. D/P bills of exchange  Similar to a trade acceptance
10. Time or usance bills  Drawn against the bank instead of the buyer
11. Bills in set
12. Inland bills ILLUSTRATIONS OF THE USE OF BANKER’S ACCEPTANCE
13. Foreign bills 1. B importer makes an application with PNB for the issuance to A
exporter of a letter of credit, if the PNB is satisfactory to A
DRAFT exporter. B the originator of the letter of credit is variously called
 Common term for all bills of exchange and they are used the accredited buyer, consignee, or the account of the importer.
synonymously The PNB is called the opening bank while A is termed the
beneficiary.
IN BANK DRAFTS, DRAWER AND DRAWEE BANK ARE LIABLE TO 2. If PNB is willing, it issues the letter either by mail or by cable. If
PURCHASER OF DRAFT FOR NOT COMPLYING WITH HIS INSTRUCTIONS by cable, PNB instructs its correspondent bank in NYC to notify A.
 The drawee bank acting as “payor” bank is solely liable for acts not Such respondent bank is called the notifying bank. If by mail,
done in accordance with the instructions of the drawer bank or of the PNB can send directly to A or B.
purchaser of the draft 3. A then draws a draft or bill of exchange against the PNB pursuant
 The drawee bank has the burden of proving that it didn’t violate to the letter of credit. When A ships the goods to B, A receives
the bill of lading from the shipping company. He attaches this
TRADE ACCEPTANCE document to the draft or bill of exchange. The draft with the
 A bill of exchange payable to order and at a certain maturity, drawn by document attached is called the documentary bill and so long as
a seller against the purchaser of goods as drawee, for a fixed sum of the document is attached to the bill, the holder of the bill has title
money, showing on its face the acceptance of the purchaser of goods to the goods and is protected to the value thereof.
and that it has arisen out of a purchase of goods by the acceptor

Page 119 of 190
TRUST RECEIPT  Documents against acceptance bill: is a time bill to which are attached
 The written or printed document signed by the entrustee in favor of documents to be delivered and surrendered to the drawee when he
the entruster containing terms and conditions substantially complying accepts the bill
with the provisions of this decree
 The legal title to the matter entrusted remains in the entruster but the TIME OR USUANCE BILLS
entruster gives to the trustee a form of title which is good and legal  Sight bills are bills which are payable upon presentation or at sight or
against everybody except the entruster demand
 Entrustee—the person having or taking possession of goods,  Time or usuance bills are bills which are payable at a fixed furture time
documents or instruments under a trust receipt transaction, and any or at a determinable future time
successor in interest of such person for the purpose or purposes
specified in the trust receipt agreement CASE DIGESTS: SECTION 126
 Entruster—person holding title over the goods, documents, or
instruments subject of a TRA and any successor-in-interest of such 149 CITYTRUST BANKING CORPORATION V. CA
person 196 SCRA 553
TREASURY WARRANTS FACTS:

 Bearing on its face the words payable from the appropriation for food Samara purchased from Cititrust a bank draft, the payee being Thai
administration is actually an order for payment out of a particular fund Airways and the corresponding bank in the US is Marine Midland. Later on,
and is not unconditional and doesn’t fulfill one of the essential Samara executed a stop payment order of the bank draft, instructing
requirements of a negotiable instrument Citytrust to inform Marine Midland about the order through telex. Cititrust
informed Marine Midland the next day and followed it up by cable, which
MONEY ORDER the latter bank acknowledged to have received the order and stopped
 Species of draft drawn by the post office upon another for the amount payment of the bank draft. Thereafter, the account of Samara was
of money deposited at the first office by the person purchasing the credited but was debited again after knowing that Midland had debited its
money order and payable at the second office to a payee named in the account. This is despite that it admitted to not have paid the bank draft.
order
 Being under the restrictions and limitation which postal laws and On the first appeal on a different issue, it was held that petitioner and
regulations place on them and which are inconsistent with the Midland were solidarily liable to Samara but it was Midland which was
character of negotiable instruments, postal money orders are not ultimately liable to pay for damages—it had to reimburse petitioner for
negotiable whatever amount it would pay Samara.
CLEAN AND DOCUMENTARY BILLS OF EXCHANGE HELD:

 Clean bill of exchange is one to which are not attached documents of The defenses of petitioner and Marine Midland are distinct with each other.
title to be delivered to the person against whom the bill is drawn when They were not in privity with each other in a transaction involving payment
he either accepts or pays the bill of a bank draft. A bank draft is a bill of exchange drawn by a bank upon
 Documentary bill of exchange is one to which are attached documents its corresponding bank issued at the solicitation of a stranger who
of title to be delivered and surrendered to the drawee when he accepts purchases and pays therefor. It is also defined as an order for payment of
or pays the bill money.
D/A AND D/P BILLS OF EXCHANGE In the case at bar, petitioner from which Samara purchased the bank draft,
 Documents against payment bill: is a sight or time bill to which are was the drawer of the draft through which it ordered Marine Midland, the
attached documents to be delivered and surrendered to the drawee drawee bank to pay the amount of $40,000 in favor of Thai Airways. The
when he has paid the corresponding bill drawee bank acting as a payor bank is solely liable for acts not done in
accordance with the instructions of the drawer bank or of the purchaser of

Page 154 of 190
accordance with the terms and conditions specified in the trusts receipt, or  The recourse would be to go after the parties secondarily liable,
for other purposes substantially equivalent to any one of the following" namely, the drawer
It is alleged in the complaint that private respondents "not only have CAN DRAWER THEN SUE THE DRAWEE BASED ON THE ABOVEMENTIONED
presumably put said machinery to good use and have profited by its CHECK WHEN THE LATTER DISHONORS THE CHECK?
operation and/or disposition but very recent information that (sic) reached  No, there is no right of recourse against drawee
plaintiff bank that defendants already sold the machinery covered by the  But is there any other right of recourse using another law than the
trust receipt to Yupangco Cotton Mills," and that "as trustees of the NIL? Yes. There could be an action for breach of contract. When
property covered by the trust receipt, . . . and therefore acting in fiduciary there are sufficient funds, the bank is bound to pay. But if the bank
(sic) capacity, defendants have willfully violated their duty to account for refuses to pay, then there will be a breach of contract.
the whereabouts of the machinery covered by the trust receipt or for the
proceeds of any lease, sale or other disposition of the same that they may CASE DIGESTS: SECTION 127
have made, notwithstanding demands therefor; defendants have
fraudulently misapplied or converted to their own use any money realized 165 REPUBLIC V. NATIONAL CITY BANK
from the lease, sale, and other disposition of said machinery." While there 3 SCRA 851
is no specific prayer for the delivery to the petitioner by Philippine Rayon of
the proceeds of the sale of the machinery covered by the trust receipt, FACTS:
such relief is covered by the general prayer for "such further and other The government filed a complaint for escheat of certain unclaimed bank
relief as may be just and equitable on the premises." And although it is deposits balances pursuant to a law, which provides that unclaimed
true that the petitioner commenced a criminal action for the violation of the balances—credits, money, bullion, security or other evidence of
Trust Receipts Law, no legal obstacle prevented it from enforcing the civil indebtedness of any kind, and interest with banks—shall be deposited with
liability arising out of the trust, receipt in a separate civil action. Under the government if it remains to be unclaimed within a period of 10 years of
Section 13 of the Trust Receipts Law, the failure of an entrustee to turn more.
over the proceeds of the sale of goods, documents or instruments covered
by a trust receipt to the extent of the amount owing to the entruster or as One of the banks against the complaint has been filed is First National City
appear in the trust receipt or to return said goods, documents or Bank. Although it concedes that the government had the right to claim the
instruments if they were not sold or disposed of in accordance with the unclaimed deposit balances, it seeks to exclude some which, according to
terms of the trust receipt shall constitute the crime of estafa, punishable it, are not within the purview of credits and deposits as defined in law. the
under the provisions of Article 315, paragraph 1(b) of the Revised Penal trial court held in favor of the bank, excluding from the claim the
Code. Under Article 33 of the Civil Code, a civil action for damages, entirely manager’s checks and other demand drafts.
separate and distinct from the criminal action, may be brought by the
injured party in cases of defamation, fraud and physical injuries. Estafa HELD:
falls under fraud. Credit is a sum credited on the books of a company to a person who
appears to be entitled to it. it presupposes a creditor-debtor relationship
Sec. 127. Bill not an assignment of funds in hands of drawee. - A and may be said to imply ability, by reason of property or estates, to make
bill of itself does not operate as an assignment of the funds in the a promised payment. It is correlative to indebtedness, and that which is
hands of the drawee available for the payment thereof, and the due to any person, as distinguished to that which he owes.
drawee is not liable on the bill unless and until he accepts the
same. Do demand drafts and telegraphic orders come within the purview of
credits or deposits employed in the law?
CAN A PAYEE SUE A BANK FOR DISHONORING A CHECK FOR NON-
PAYMENT? Since the demand drafts herein involved have not been presented either
 No, since until the drawee bank pays or accepts the check, it will not for acceptance or payment, the inevitable consequence is that the bank
be liable for the instrument never had the chance of accepting or receiving them. Verily, the bank

Page 155 of 190
never became a debtor of the payee concerned and as such the aforesaid Sgd. A
drafts cannot be considered as credits subject to escheat within the
meaning of the law. To: Y or in default of Y, Z
Further, a demand draft is different from a cashier’s check for this is a

primary obligation of the bank which issues it and constitutes a written Sec. 129. Inland and foreign bills of exchange. - An inland bill of
promise to pay upon demand. It is an order to a third party purporting to exchange is a bill which is, or on its face purports to be, both
be drawn upon a deposit of funds. drawn and payable within the Philippines. Any other bill is a foreign
bill. Unless the contrary appears on the face of the bill, the holder
If there is any consolation, the telegraphic orders can be escheated in favor may treat it as an inland bill.
of the government. The agreement to remit creates a contractual
obligation and has been termed a purchase and sale transaction. The INLAND BILL
purchaser of a telegraphic transfer upon making payment completes the  Where the instrument is drawn and made payable in the Philippines
transaction insofar as he is concerned, though insofar as the remitting
bank is concerned the contract is executory until the credit is established. Pay to X or order P1000.
The drawer bank has already been paid the value of the telegraphic order. Sgd. A
It appears in the books of the bank that the amounts represented by the
orders appear in the names of respective payees. If the latter choose to To: Y, Manila, Philippines
demand payment, the bank had the obligation to pay them.
FOREIGN BILL
Sec. 128. Bill addressed to more than one drawee. - A bill may be 1. Where the bill is not drawn and not payable in the Philippines
addressed to two or more drawees jointly, whether they are 2. Where the bill is drawn in but not made payable in the Philippines
partners or not; but not to two or more drawees in the alternative 3. Where the bill is not drawn but made payable in the Philippines
or in succession.
Sec. 130. When bill may be treated as promissory note. - Where in
BILL ADDRESSED TO MORE THAN ONE DRAWEE: VALID a bill the drawer and drawee are the same person or where the
Pay to X or order P1000. drawee is a fictitious person or a person not having capacity to
contract, the holder may treat the instrument at his option either
Sgd. A as a bill of exchange or as a promissory note.
To: Y and Z WHEN BILL MAY BE TREATED AS PROMISSORY NOTE

1. Where the drawer and drawee are the same person
BILL ADDRESSED TO MORE THAN ONE DRAWEE: INVALID 2. Where the drawee is a fictitious person
3. Where the drawee is a person not having capacity to contract
Pay to X or order P1000.  The holder may treat the instrument at his option either as a bill of
exchange or a promissory note
Sgd. A
Sec. 131. Referee in case of need. - The drawer of a bill and any
To: Y or Z indorser may insert thereon the name of a person to whom the
holder may resort in case of need; that is to say, in case the bill is
Pay to X or order P1000. dishonored by non-acceptance or non-payment. Such person is
called a referee in case of need. It is in the option of the holder to
resort to the referee in case of need or not as he may see fit.

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 In general, acceptance in the sense in which the term is used in NIL

NOTES: WEEK #13 isn’t required for checks, for the same are payable on demand
SEPTEMBER 17 TO 21, 2007
THE DRAWEE MUST SIGN
 Without the signature of the drawee, he would not be bound pursuant
X. ACCEPTANCE to the principle enumerated in Section 18
Sec. 132. Acceptance; how made, by and so forth. - The acceptance PAYMENT IN MONEY
of a bill is the signification by the drawee of his assent to the order  Acceptance must be expressed to be payable in money only
of the drawer. The acceptance must be in writing and signed by the
drawee. It must not express that the drawee will perform his NECESSITY OF DELIVERY
promise by any other means than the payment of money.  The acceptance is incomplete until delivery or notification
 And the acceptor or drawee who hasn’t communicated his acceptance
ACCEPTANCE, DEFINED. or transmitted the accepted bill to the holder, may revoke an
 The signification of the drawee of his assent to the order of the drawer acceptance before delivery and cancel the written acceptance
 Act by which a person on whome the bill of exchange is drawn assents
to the request of the drawer to pay it EFFECT OF ACCEPTANCE
 It may be actual, constructive, general or qualified  Upon acceptance, the drawee becomes liable on the bill
 The bill becomes in effect a note, the acceptor standing in the place of
REQUISITES OF ACCEPTANCE the maker, and the drawer, in the place of the first indorser
1. Must be in writing  But should the drawee refuse to accept, the payee or other holder has
2. Signed by the drawee no recourse against him but only against the drawer or indorsers, if
3. It must not express that the drawee will perform his promise by any
any other means than payment of money
4. It must be communicated or delivered to the holder PAYMENT NOT ACCEPTANCE
 Payment of a check doesn’t include or imply its acceptance in the
ACCEPTANCE MUST BE IN WRITING sense that this word is used in Section 62 of the NIL
 The acceptance cannot be made orally  Payment is the actual performance while acceptance is the promise to
 Sound public policy requires substantial and tangible evidence of perform an act
contract, and more reliable in its nature than the statement or
recollection of witnesses CASE DIGESTS: SECTION 132
 An oral acceptance is not binding on the drawee
 Acceptance by phone is not acceptance 166 SUMACAD V. PROVINCE OF SAMAR
100 PHIL 72
ACCEPTANCE, HOW MADE
 Usually done by writing across the face of the bill the word “accepted” FACTS:
followed by the signature of the drawee While the Province of Samar was still occupied by Japanese military forces,
 But any words written by the drawee not negativing directly the order it issued a check in favor of Santos. This check was then negotiated to
of the drawer, would constitute sufficient acceptance, such as “holder”, McGuire, an American citizen and resident of Borongan. After the
“presented” or “seen”, or “honored” or “I will pay the bill” or the liberation, McGuire presented the check to the municipal treasurer of
signature of the drawee, without more Borongan for payment but the latter wasn’t able or didn’t choose to pay the
 Acceptance by telegram has been held to be sufficient same. This prompted McGuire to write letters seeking payment of the
check. This matter was referred to PNB. The bank received photostatic
WHEN ACCEPTANCE NOT REQUIRED copies of the check to verify its authencity. The bank then instructed

Page 157 of 190
McGuire to present the check to the provincial treasurer as the province

still had funds with the bank. Again, McGuire requested to expedite the 167 PNB V. CA
actions taken on his check. Before the check was certified by the 25 SCRA 693
authorities however, the province withdrew a substantial amount from its
account, leaving a balance insufficient to fund the check. This happened FACTS:
when McGuire has transferred his rights to McGuire Sumacad. This led to a Lim deposited in his PCIB account a GSIS check drawn against PNB.
complaint filed against the province and PNB. Following standard banking procedures, the check was sent to petitioner
for clearing. He didn’t return said check but paid the amount to PCIB as
The position of PNB is that it didn’t issue the check and was merely called well as debited it against the account of GSIS. Thereafter, a demand was
upon to pay the same upon being presented for encashment if and when received from GSIS asking for the credit of the amount since the
funds for the purpose were available. That it couldn’t have paid said check signatures found in the check were forged. This was done by PNB and it
because it was never presented to it with the required certification under now comes after PCIB but the latter wouldn’t want to return the money.
the circular of the Secretary of Finance. That the relationship between the
bank and the province is of debtor and creditor. That there is nothing in HELD:
the records to show that the holder of the check ever requested the bank Acceptance is not required for checks, for the same are payable on
to withhold the amount of the check or ever filed with the proper demand. Acceptance and payment are distinguished with each other. The
authorities any order to withhold the amount covered by the check. That former pertains to a promise to perform an act while the latter is the actual
in any event, the bank cannot be held solidarily liable because the province performance of the act.
is the drawee of the check and therefore primarily liable to pay the same.
PNB had also been negligent with the particularity that it had been guilty of
HELD: a greater degree of negligence because it had a previous and formal notice
Bank’s contentions are in the main correct. from GSIS that the check had been lost, with the request that payment be
stopped. Just as important is that it is its acts, which are the proximate
But in view of the fact that upon its own request, it was furnished with cause of the loss.
photostatic copies of the check in question and went to the trouble of
requiring to present the check to the provincial treasurer for necessary Sec. 133. Holder entitled to acceptance on face of bill. - The holder
certification, it voluntarily assumed the obligation of holding so much of the of a bill presenting the same for acceptance may require that the
deposit of the province as would be sufficient to cover the amount of the acceptance be written on the bill, and, if such request is refused,
check, or before allowing the withdrawal that exhausted said deposit, of may treat the bill as dishonored.
making the necessary inquiry on the matter.
Sec. 134. Acceptance by separate instrument. - Where an
There was implied acceptance of the check by the bank was thereby acceptance is written on a paper other than the bill itself, it does
created. The request by the bank from Bureau of Posts for photostatic not bind the acceptor except in favor of a person to whom it is
copies of the check and the subsequent requirement by it for its shown and who, on the faith thereof, receives the bill for value.
presentation by McGuire to the provincial treasurer and the auditor for
certification, would be an empty gesture if the appellant didn’t thereby Sec. 135. Promise to accept; when equivalent to acceptance. - An
mean to assume the obligation of paying the check and holding sufficient unconditional promise in writing to accept a bill before it is drawn
deposit of the drawer for the purpose. Even so, appellant’s resulting is deemed an actual acceptance in favor of every person who, upon
obligation is merely subsidiary, the province being primarily liable to pay the faith thereof, receives the bill for value.
the check.
WHERE ACCEPTANCE IS WRITTEN
DISSENTING OPINION: there was no proper presentment for acceptance Acceptance may be made
and payment and thus, there couldn’t have been acceptance made by the 1. On the bill itself
bank of the bill. 2. On a separate paper

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3. If on a separate paper,  C indorses the bill to D who saw the letter, and on faith thereof,
a. It may be acceptance as to the existing bill received the bill.
b. It may be acceptance as to a non-existing bill (virtual  Can C enforce the bill against A? No, because the acceptance binds X
acceptance). If the bill is non-existent, the acceptance only in favor of those whom it is shown and who, on faith thereof,
on a separate paper must comply with the following receive the bill for value, and C neither saw nor knew of the
requirements acceptance
i. That the contemplated drawee shall describe the  But B and D can enforce the bill against X because they received the
bill to be drawn, and promise to accept it bill for value on faith of the separate acceptance
ii. That the bill shall be drawn within a reasonable
time after such promise is written Sec. 136. Time allowed drawee to accept. - The drawee is allowed
iii. That the holder shall take the bill upon the credit twenty-four hours after presentment in which to decide whether or
of the promise not he will accept the bill; the acceptance, if given, dates as of the
day of presentation.
RIGHT TO REQUIRE ACCEPTANCE ON BILL
 The holder has the right to require that the acceptance must be ILLUSTRATION
written on the bill itself  A bill is payable 30 days after sight
 If the drawee refuses, the holder may treat the bill as dishonored, and  B the payee presents it for acceptance on January 2, 1950 to X drawee
he must therefore, give a notice of dishonor  X has 24 hours to accept the bill
 Otherwise, persons secondarily liable are discharged  But even if he accepts the bill on the next day, the acceptance will
 This section isn’t applicable to sight bills but to bills of exchange date back to January 2
 Hence the date of maturity of the bill would be February 1 and not
ILLUSTRATION OF SECTION 134 February 2
 B the payee of the bill writes to X drawee, asking him whether he  The time allowed begins from the time of delivery and not after
would accept the bill demand for a return of the bill and the time for returning the bill to the
 X write back stating that he accepts the bill holder doesn’t begin to run from the demand for its return but from
 But a telegram that a draft is good in answer to a telegram asking a the date of its delivery
bank if it would pay the draft isn’t acceptance nor an agreement to
accept SECTION 136 NOT APPLICABLE TO CHECKS
 Court says that “good” constitutes an acceptance if written on the bill  But a drawee bank isn’t entitled to 24 hours to decide whether to pay
or check but not when written in a collateral document such as a a check or not since a check is presented for payment, not acceptance
telegram
NEGLIGENCE OF DRAWEE
ILLUSTRATION OF SECTION 135  The drawee bank contends that the collecting bank is guilty of
 Before the bill is drawn, B prospective payee, writes to X, prospective negligence in not discovering that the signatures of the drawer are
drawee, if he would accept A’s bill for P1000 to cover cost of goods forged
purchased.  Assuming this to be true, the drawee bank is guilty of a greater degree
 X writes through telegram “yes” of negligence because it has a previous and formal notice from the
 The promise to accept must be in writing drawer that the check had been lost, with the request that payment
 But although the acceptance of a bill may be conditional, a collateral thereof be stopped.
written promise to accept a bill upon a condition isn’t an acceptance  The collecting bank didn’t cash the check upon its presentation by the
last indorser and on the same day sent it for clearing through the
EFFECT OF ACCEPTANCE ON SEPARATE PAPER Central Bank
 Suppose that B payee, indorses the bill to C who neither saw nor knew
of the letter of acceptance.

Page 159 of 190
 The drawee bank didn’t return the check and said failure to return the  Rule forces uniform treatment of instruments whether presented for
check implied that it did considered the check good and would honor payment or acceptance and establishes certain and predictable results
it, as it in fact did honor and pay where it is not clear for which purpose the instrument was presented
 The drawee bank may not recover from the collecting bank
Sec. 137. Liability of drawee returning or destroying bill. - Where a
drawee to whom a bill is delivered for acceptance destroys the 168 CEBU INTERNATIONAL V. CA
same, or refuses within twenty-four hours after such delivery or 316 SCRA 488
within such other period as the holder may allow, to return the bill
accepted or non-accepted to the holder, he will be deemed to have FACTS:
accepted the same. Petitioner is a quasi-banking institution involved in money market
transactions. Alegre invested with petitioner P500,000. Petitioner issued
CONSTRUCTIVE ACCEPTANCE then a promissory note, which would mature approximately after a month.
1. Where the drawee to whom the bill is delivered for acceptance The note covered for Alegre’s placement plus interest. On the maturity of
destroys it the note, petitioner issued a check payable to Alegre, covering the whole
2. Where the drawee refuses, within 24 hours after such delivery, or amount due. It was drawn from petitioner’s current account in BPI. When
within such time as is given him, to return the bill acceptected or the wife of Alegre tried to deposit the check, the bank dishonored the
not accepted check. Petitioner was notified of this matter and Alegre demanded the
 In any of these cases, the drawee will be deemed to have accepted the immediate payment in cash. In turn, petitioner promised to replace the
bill even if there is no actual written acceptance by him check on the impossible premise that the first issued be returned to them.
 Accordingly, the drawee will be primarily liable as an acceptor This prompted Alegre to file a complaint against petitioner and petitioner in
turn, filed a case against BPI for allegedly unlawfully deducting from its
DRAWEE NOT ENTITLED TO KEEP BILL account counterfeit checks. The trial court decided in favor of Alegre.
 The drawee isn’t entitled to keep the bill while he makes up his mind
 The bill is at all times the property of the holder and he is entitled to ISSUE: W/N NIL is applicable to the money market transaction held
have it when he wants it between petitioner and Alegre?
 If the holder should demand its return before 24 hours, the drawee
would be required to comply on pain of being held as an acceptor; but HELD:
return within 24 hours unaccepted wouldn’t be a dishonor Considering the nature of the money market transaction, Article 1249 of
 The drawee could still accept by notification within 24 hours the CC is the applicable provision should be applied. A money market has
been defined to be a market dealing in standardized short-term credit
MERE RETENTION IS EQUIVALENT TO ACCEPTANCE instruments where lenders and borrowers don’t deal directly with each
 Mere failure to return the bill within 24 hours is an acceptance other but through a middleman or dealer in the open market. In a money
 The presentation for acceptance is a demand for acceptance which, if market transaction, the investor is the lender who loans his money to a
the bill is retained by the drawee, implies a demand for its return if borrower through a middleman or dealer.
acceptance is declined
In the case at bar, the transaction is in the nature of a loan. Petitioner
SECTION 136 AND 137 COVER PRESENTMENT FOR ACCEPTANCE AND accepted the check but when he tried to encash it, it was dishonored. The
PAYMENT holder has an immediate recourse against the drawer, and consequently
 It expressly mentions presentment for acceptance but not could immediately file an action for the recovery of the value of the check.
presentment for payment Further, in a loan transaction, the obligation to pay a sum certain in money
 The considerations for both are the same may be paid in money, which is the legal tender or, by the use of a check.
 He must return the instrument or be liable for its face value as A check is not legal tender, and therefore cannot constitute valid tender of
acceptor payment.

Page 160 of 190
OTHER KINDS OF ACCEPTANCE

Sec. 138. Acceptance of incomplete bill. - A bill may be accepted 1. General acceptance—assents without qualification to the order of
before it has been signed by the drawer, or while otherwise the drawer
incomplete, or when it is overdue, or after it has been dishonored 2. Qualified acceptance—which in express terms varies the effect of
by a previous refusal to accept, or by non payment. But when a bill the bills as drawn
payable after sight is dishonored by non-acceptance and the a. Conditional
drawee subsequently accepts it, the holder, in the absence of any PAY TO B OR ORDER P1000 10 DAYS AFTER SIGHT.
different agreement, is entitled to have the bill accepted as of the
date of the first presentment. SGD. A
TO X BANK
WHEN ACCEPTANCE MAY BE MADE
1. Before the bill has been signed by the drawer X could accept the bill with the qualification he will pay upon
2. Even when the bill is otherwise incomplete the happening of a condition, let’s say when D would sell out
3. Even when the bill is overdue his shares in a company.
4. Even after it has been dishonored by non-acceptance or non-
payment b. Partial
PAY TO B OR ORDER P1000 10 DAYS AFTER SIGHT.
Sec. 139. Kinds of acceptance. - An acceptance is either general or
qualified. A general acceptance assents without qualification to the SGD.A
order of the drawer. A qualified acceptance in express terms varies
the effect of the bill as drawn. TO: X
X would accept but only accept to pay P500.
Sec. 140. What constitutes a general acceptance. - An acceptance
to pay at a particular place is a general acceptance unless it c. Local
expressly states that the bill is to be paid there only and not
elsewhere. PAY TO B OR ORDER P1000 10 DAYS AFTER SIGHT.
Sec. 141. Qualified acceptance. - An acceptance is qualified which SGD. A

is:
TO: X
(a) Conditional; that is to say, which makes payment by the X would accept but make a qualification that he would pay
acceptor dependent on the fulfillment of a condition therein stated; only in RCBC Rockwell.
(b) Partial; that is to say, an acceptance to pay part only of the d. Qualified as to time
amount for which the bill is drawn; PAY TO B OR ORDER P1000 10 DAYS AFTER SIGHT.
(c) Local; that is to say, an acceptance to pay only at a SGD. A

particular place;
TO: X
(d) Qualified as to time;
X accepts but will pay 20 days after sight.
(e) The acceptance of some, one or more of the drawees but
not of all. e. The acceptance of some, one or more of the drawees but
not all

Page 161 of 190
(b) Where the bill expressly stipulates that it shall be presented

PAYMENT AT A PARTICULAR PLACE for acceptance; or
 But the mere fact that the acceptance is to pay at a particular place
doesn’t make the acceptance qualified (c) Where the bill is drawn payable elsewhere than at the
residence or place of business of the drawee.
Sec. 142. Rights of parties as to qualified acceptance. - The holder
may refuse to take a qualified acceptance and if he does not obtain In no other case is presentment for acceptance necessary in order
an unqualified acceptance, he may treat the bill as dishonored by to render any party to the bill liable.
non-acceptance. Where a qualified acceptance is taken, the drawer
and indorsers are discharged from liability on the bill unless they CASE DIGESTS: SECTION 143
have expressly or impliedly authorized the holder to take a
qualified acceptance, or subsequently assent thereto. When the 169 PRUDENTIAL BANK V. IAC
drawer or an indorser receives notice of a qualified acceptance, he 216 SCRA 257
must, within a reasonable time, express his dissent to the holder or
he will be deemed to have assented thereto. FACTS:
PHIL RAYON IMPORTATION OF TEXTILE MACHINES NISSHO JAPAN
RIGHTS OF HOLDER TO REQUIRE GENERAL ACCEPTANCE
 The holder has the right to require the drawee to accept the bill LETTER OF CREDIT
without qualification
 If the drawee refuses, the holder can treat the bill as dishonored by TRUST RECEIPT (SURETY SOLIDARILY LIABLE TO PB UPON FAILURE OF
non-acceptance PHIL RAYON TO PAY) (X)
 Accordingly, the holder must give notice of dishonor
PRUDENTIAL BANK
EFFECT OF TAKING QUALIFIED ACCEPTANCE
 Where the holder takes a qualified acceptance, the drawer and
indorsers are discharged The trial court held Phil Rayon liable but not for the reimbursement of what
 Reason? The drawer and indorsers warrant that the bill would be paid the bank paid for the machineries. This was appealed to the appellate
as drawn, or as indorsed by them, and a qualified acceptance would court.
vary their contract without their consent
 If the drawer or indorsers give their consent to the qualified HELD:
acceptance, then they are not discharged. They will be considered to A letter of credit is defined as an engagement by a bank or other person
have given consent when after receiving notice of the qualified made at the request of a customer that the issuer will honor drafts or other
acceptance, he doesn’t express his dissent thereto within a reasonable demands for payment upon compliance with the conditions specified in the
time credit. Through a letter of credit, the bank merely substitutes its own
promise to pay for one of its customers who in return promises to pay the
XI. PRESENTMENT FOR ACCEPTANCE bank the amount of funds mentioned in the letter of credit plus credit or
commitment fees mutually agreed upon. In the instant case then, the
Sec. 143. When presentment for acceptance must be made. - drawee was necessarily the herein petitioner. It was to the latter that the
Presentment for acceptance must be made: drafts were presented for payment. In fact, there was no need for
acceptance as the issued drafts are sight drafts. Presentment for
(a) Where the bill is payable after sight, or in any other case, acceptance is necessary only in the cases expressly provided for in Section
where presentment for acceptance is necessary in order to fix the 143 of the Negotiable Instruments Law (NIL).
maturity of the instrument; or

Page 162 of 190
Paragraph 8 of the Trust Receipt which reads: "My/our liability for payment required by the next preceding section to be presented for
at maturity of any accepted draft, bill of exchange or indebtedness shall acceptance must either present it for acceptance or negotiate it
not be extinguished or modified" does not, contrary to the holding of the within a reasonable time. If he fails to do so, the drawer and all
public respondent, contemplate prior acceptance by Philippine Rayon, but indorsers are discharged.
by the petitioner. Acceptance, however, was not even necessary in the first
place because the drafts which were eventually issued were sight drafts PRESENTMENT FOR PAYMENT, DEFINED
And even if these were not sight drafts, thereby necessitating acceptance,  Production of a bill of exchange to the drawee for his acceptance
it would be the petitioner and not Philippine Rayon which had to accept the
same for the latter was not the drawee. Presentment for acceptance is GENERAL RULE AS TO PRESENTMENT FOR ACCEPTANCE
defined an the production of a bill of exchange to a drawee for acceptance.  Presentment for acceptance is not necessary for cases aside from the
THE TRIAL COURT AND THE PUBLIC RESPONDENT, THEREFORE, ERRED IN three enumerated above
RULING THAT PRESENTMENT FOR ACCEPTANCE WAS AN INDISPENSABLE  In those three cases, to charge persons secondarily liable it is
REQUISITE FOR PHILIPPINE RAYON'S LIABILITY ON THE DRAFTS TO necessary
ATTACH. Contrary to both courts' pronouncements, Philippine Rayon o To make presentment for acceptance
immediately became liable thereon upon petitioner's payment thereof. o To negotiate the bill within a reasonable time
Such is the essence of the letter of credit issued by the petitioner. A
different conclusion would violate the principle upon which commercial ILLUSTRATION
letters of credit are founded because in such a case, both the beneficiary 1. Where the bill is payable after sight. A bill is payable 30 days
and the issuer, Nissho Company Ltd. and the petitioner, respectively, after sight. The law requires the bill to be presented for
would be placed at the mercy of Philippine Rayon even if the latter had acceptance. The date of maturity will not be fixed if the bill isn’t
already received the imported machinery and the petitioner had fully paid presented.
for it. 2. Where there is express stipulation. The bill contains a stipulation
that it must be presented for acceptance. Such a bill must be
170 PHIL. BANK OF COMMERCE V. ARUEGO presented for acceptance.
102 SCRA 530 3. Where bill is drawn elsewhere than at the residence of drawee.
The bill reads as follows
FACTS: a. The bill must be presented for acceptance in order to
Aruego, on behalf of World Current Events, entered into a Credit inform the drawee X of the existence of the bill so that he
Agreement with PBCom, for the publication of the company’s periodicals. can make arrangements for its payment at the PNB
At every printing endeavor by the printing press, a bill of exchange is Manila
drawn against PBCom. The instruments are signed by Aruego, without any
indication that he is an agent of World Current Events. When he was being Pay to B or order P1000 at the PNB, Manila.
held liable by PBCom, he averred that he only signed the instrument in the
capacity of agent of the company. Sgd. A
HELD: To X, Davao City

An inspection of the drafts accepted by the defendant would show nowhere
that he has disclosed that he was signing in representation of the Philippine
Education Foundation Company. He merely signed his name. For failure to Sec. 145. Presentment; how made. - Presentment for acceptance
disclose his principal, Aruego was personally liable for the drafts he must be made by or on behalf of the holder at a reasonable hour,
accepted. on a business day and before the bill is overdue, to the drawee or
some person authorized to accept or refuse acceptance on his
Sec. 144. When failure to present releases drawer and indorser. - behalf; and
Except as herein otherwise provided, the holder of a bill which is

Page 163 of 190
(a) Where a bill is addressed to two or more drawees who are  Where presentment is for acceptance, it may be made for all kinds of
not partners, presentment must be made to them all unless one has bills before 12 o’clock noon on Saturday provided that day isn’t a
authority to accept or refuse acceptance for all, in which case holiday
presentment may be made to him only;
Sec. 147. Presentment where time is insufficient. - Where the
(b) Where the drawee is dead, presentment may be made to his holder of a bill drawn payable elsewhere than at the place of
personal representative; business or the residence of the drawee has no time, with the
exercise of reasonable diligence, to present the bill for acceptance
(c) Where the drawee has been adjudged a bankrupt or an before presenting it for payment on the day that it falls due, the
insolvent or has made an assignment for the benefit of creditors, delay caused by presenting the bill for acceptance before
presentment may be made to him or to his trustee or assignee. presenting it for payment is excused and does not discharge the
drawers and indorsers.
TIME FOR MAKING PRESENTMENT FOR ACCEPTANCE
1. Before the bill is overdue MANILA, PHILS.
2. And within reasonable time after acquisition thereof September 17, 2007
TO WHOM PRESENTMENT MADE PAY TO B OR ORDER AT THE PNB MANILA P1000 ON SEPTEMBER 20, 2007.
1. Generally, presentment must be made to the drawee or some
person authorized to accept or refuse acceptance on his behalf SGD. A
2. Where there are two or more drawees, presentment must be
made to both of them unless— TO X, WASHINGTON, DC.
a. One is duly authorized to accept or refuse acceptance
b. They are partners, subject to the limitation set forth in
the partnership law  Presentment where time is insufficient
3. With regard to a drawee who is dead, paragraph b is merely  The delay for presentment for acceptance is excused
permissive since presentment is excused where the drawee is  Nonetheless, still, the payee must do everything in the process in
dead presenting to the drawee for acceptance the instrument
4. With regard to an insolvent or bankrupt drawee, it indicates
merely a permission to adopt either one of two alternative Sec. 148. Where presentment is excused. - Presentment for
methods of presentment stated—not permission to omit acceptance is excused and a bill may be treated as dishonored by
presentment altogether non-acceptance in either of the following cases:
Sec. 146. On what days presentment may be made. - A bill may be (a) Where the drawee is dead, or has absconded, or is a
presented for acceptance on any day on which negotiable fictitious person or a person not having capacity to contract by bill.
instruments may be presented for payment under the provisions of
Sections seventy-two and eighty-five of this Act. When Saturday is (b) Where, after the exercise of reasonable diligence,
not otherwise a holiday, presentment for acceptance may be made presentment cannot be made.
before twelve o'clock noon on that day.
(c) Where, although presentment has been irregular,
SECTION 146 COMPARED WITH SECTIONS 72 AND 85 acceptance has been refused on some other ground.
 The only difference between Sections 72 and 85 is that under Section
146, there is no distinction between instruments payable at a fixed or APPLICATION OF SECTION 148
determinable future time and instruments payable on demand 1. Where the drawee is dead, presentment for acceptance is not
necessary. Hence, it seems that under paragraph b of Section

Page 164 of 190
145, the presentment to the representative is merely optional.  The holder, after giving notice of dishonor, and protesting when
Presentment is excused in this case and in case the drawee has required, can IMMEDIATELY file an action against the parties
absconded, or is fictitious or a person not having capacity to secondarily liable on the bill. This is true even when the bill is payable
contract because it would then be futile at a fixed or determinable future time and the date of maturity hasn’t
2. Where presentment cannot be made notwithstanding the exercise yet arrived. The holder need not wait for that day to arrive.
of due diligence, presentment is excused
3. An irregular indorsement in which acceptance is refused on some XII. PROTEST
other ground is where presentment is made on a Sunday, it is
irregular but the acceptance is refused on the ground that the Sec. 152. In what cases protest necessary. - Where a foreign bill
drawer has no funds in the hands of the drawee appearing on its face to be such is dishonored by nonacceptance, it
must be duly protested for nonacceptance, by nonacceptance is
Sec. 149. When dishonored by nonacceptance. - A bill is dishonored dishonored and where such a bill which has not previously been
by non-acceptance: dishonored by nonpayment, it must be duly protested for
nonpayment. If it is not so protested, the drawer and indorsers are
(a) When it is duly presented for acceptance and such an discharged. Where a bill does not appear on its face to be a foreign
acceptance as is prescribed by this Act is refused or can not be bill, protest thereof in case of dishonor is unnecessary.
obtained; or
NECESSITY OF PROTEST
(b) When presentment for acceptance is excused and the bill is  Protest is required only for foreign bills but not for inland bills or notes.
not accepted. However, they may also be protested if desired.
 Omission of protest, where protest is required, will discharge the
Sec. 150. Duty of holder where bill not accepted. - Where a bill is drawer and the indorsers
duly presented for acceptance and is not accepted within the  Protest is required—
prescribed time, the person presenting it must treat the bill as 1. Where the foreign bill is dishonored by non-acceptance
dishonored by nonacceptance or he loses the right of recourse 2. Where the foreign bill is dishonored by non-payment, it not having
against the drawer and indorsers. been previously dishonored by non-acceptance
3. Where the bill has been accepted for honor, it must be protested
DUTY OF HOLDER WHERE BILL IS DISHONORED BY NON-ACCEPTANCE for non-payment before it is presented for payment to the
 Where the bill is dishonored by non-acceptance, the holder must give acceptor for honor
notice of dishonor and protest, when required 4. Where the bill contains a referee in case of need, it must be
 Otherwise, the drawer and indorsers will be discharged protested for non-payment before it is presented for payment to
the referee in case of need
Sec. 151. Rights of holder where bill not accepted. - When a bill is
dishonored by nonacceptance, an immediate right of recourse MEANING OF PROTEST
against the drawer and indorsers accrues to the holder and no  A formal statement in writing made by a notary under his seal of office
presentment for payment is necessary. at the request of the holder of a bill or note, in which it is declared that
the same was on a certain day presented for payment was refused,
RIGHTS OF HOLDER WHERE BILL DISHONORED BY NON-ACCEPTANCE whereupon the notary protests against all parties to such instrument
 When a bill is dishonored by non-acceptance, there is no necessity of and declares that they will be held responsible for all loss or damage
making a presentment of the bill for payment arising from its dishonor
 But of course, if after previous non-acceptance, the bill is subsequently  All the steps or acts accompanying the dishonor of a bill or note
accepted, presentment for payment is necessary necessary to charge an indorser
 And when the bill has been accepted for honor, to charge the acceptor
for honor, presentment for payment is also necessary CASE DIGESTS: SECTION 152

Page 165 of 190
Here, the provisions on guaranty is pertinent. The respondents undertook

171 ALLIED BANKING CORPORATION V. CA and bound themselves as guarantors and sureties to pay the full amount of
494 SCRA 467 the export bill.
FACTS: Respondents claim that the petitioner failed to give a notice of protest and
ALLIEDDISCOUNTING AGREEMENT: EXPORT BILLGG SPORTSWEAR given such, they are exonerated of their liabilities. Nonetheless, their
contention should fail. The provisions on indorsers is not applicable to this
case. The contract of indorsement is primarily of transfer and a guaranty
is a personal security. The liability of a guarantor is broader than that of
GUARANTYGIDWANI; ALCRON an indorser. Unless the bill is promptly presented for payment at maturity
SURETYDE VILLA; GIDWANI and due notice of dishonor given to the indorser, he will be discharged
from liability thereon. On the other hand, except where required by the
provisions of the contract of suretyship, a demand or notice of default is
not required to fix the liability of the surety. Therefore, no notice of
Allied purchased from GG Sportswear an export bill to which the latter is protest is necessary to charge the respondents solidarily on the export bill.
the beneficiary. It was drawn under a letter of credit for the transit of
training suits to West Germany. It was issued by Chekiang First Bank of Sec. 153. Protest; how made. - The protest must be annexed to the
Hong Kong. With the purchase, it credited the account of GG Sportswear. bill or must contain a copy thereof, and must be under the hand
On this same date, Gidwani and Alcron executed their respective letters of and seal of the notary making it and must specify:
guaranty for the export bill, holding themselves liable in case the bill is not
paid. Consequently, de Villa and Gidwani issued a letter of surety, (a) The time and place of presentment;
guaranteeing payment of the bill. Part of the stipulations of these two
guarantee arrangements is that any notice of protest is waived. The date (b) The fact that presentment was made and the manner
came when Allied presented the check for payment to Chekiang Bank but thereof;
such was dishonored for lacking material documents with regard the letter
of credit. This prompted Allied Bank to demand payment from the (c) The cause or reason for protesting the bill;
respondents but the latter refused to do so. One of their averments is that
they couldn’t be made liable on the export bill absent any notice of protest (d) The demand made and the answer given, if any, or the fact
coming from petitioner. The trial court dismissed the case filed by that the drawee or acceptor could not be found.
petitioner and this was modified by the appellate court by holding GGS
liable but exonerating the guarantors from any liability. PROCEDURE FOR PROTEST
 Where the instrument is presented for payment and payment is
HELD: refused, the instrument may be taken by the notary public to the party
What transpired in this case was a discounting arrangment. The and the party may state that he refuses to pay it; the notary makes a
beneficiary, GGS, instead of proceeding to the issuing bank, negotiated the statement to that effect and attaches his seal that it has been
draft with petitioner. Before petitioner agreed to purchase the export bill, dishonored, and he has protested it for non-payment.
it required letters of guaranty and surety to cover the payment of the bill in  The notary keeps this or he may send his sworn statement, one copy
case it wouldn’t be paid. to one person and one to the other
 The above is the protest. It is not the notice of protest.
In this case, it must be stressed that obligations from contracts have the  The protest is a solemn declaration made by the notary public that the
force of law between the parties and should be complied with in good faith. paper has been dishonored
Nothing can stop the parties from establishing stipulations and clauses as
they may deem convenient. CERTIFICATE OF PROTEST AS EVIDENCE

Page 166 of 190
 When suit is brought on the paper, it is absolutely necessary that proof

be shown Sec. 155. Protest; when to be made. - When a bill is protested, such
 So when one comes to prove his case as the holder of an instrument protest must be made on the day of its dishonor unless delay is
he must prove that there has been a protest of the instrument, that it excused as herein provided. When a bill has been duly noted, the
has been presented for payment or acceptance to the person liable protest may be subsequently extended as of the date of the noting.
and that it has been refused.
 At the trial, the statement of the protest by the notary is a part of his MEANING OF “DULY NOTED”
case  The notary public jots down a note on the bill, or a paper attached
thereto, or in his registry book, consisting of his initials or signature
NOTICE OF PROTEST and those matters required to be stated in Section 153
 After the notary protests the instrument, he sends notice to all the  The noting must be made on the day of dishonor but it may be
parties on the instrument extended into a formal protest afterwards
 He can do this in several ways. He might send it to the person who  The protest may even be made in the trial
sent the paper for collection. Then the notary public would send the
notice of protest for the other parties on the instrument, to the last Sec. 156. Protest; where made. - A bill must be protested at the
person on the instrument, and he would say “Notices enclosed place where it is dishonored, except that when a bill drawn payable
herewith to be sent to the other parties” at the place of business or residence of some person other than the
 If the holder has sent notice to all parties he is entield to come in and drawee has been dishonored by nonacceptance, it must be
recover because he has performed the contract. He has sent notices protested for non-payment at the place where it is expressed to be
to all the parties on the instrument that he intends to recover against payable, and no further presentment for payment to, or demand on,
them. the drawee is necessary.
REASONS FOR REQUIRING PROTEST PLACE FOR MAKING PROTEST

1. For uniformity in international transactions because most  Generally, the protest must be made at the place where the
countries require it instrument is dishonored
2. In order to furnish authentic and satisfactory evidence of the  The exception is where the bill is payable at a place other than the
dishonor to the drawer who, from his residence abroad, may residence of the payee
experience difficulty in verifying the matter and may be forced to
rely on the representations of the holder Sec. 157. Protest both for non-acceptance and non-payment. - A
bill which has been protested for non-acceptance may be
MEASURE OF DAMAGES subsequently protested for non-payment.
1. Face value of the bill
2. Interest thereon PROTEST FOR NON-PAYMENT OPTIONAL AFTER PROTEST FOR NON-
3. Protest fees ACCEPTANCE
4. Re-exchange, being the additional expense of procuring a new bill  Where a bill has already been protested for non-acceptance, protest
for the same amolunt payable in the same place as day of for non-payment is merely optional
dishonor  Under Section 151, after a bill has been dishonored by non-
acceptance, presentment for payment is not necessary
Sec. 154. Protest, by whom made. - Protest may be made by:
Sec. 158. Protest before maturity where acceptor insolvent. -
(a) A notary public; or Where the acceptor has been adjudged a bankrupt or an insolvent
or has made an assignment for the benefit of creditors before the
(b) By any respectable resident of the place where the bill is bill matures, the holder may cause the bill to be protested for
dishonored, in the presence of two or more credible witnesses. better security against the drawer and indorsers.

Page 167 of 190
 It was held that the bank must stand the loss and cannot charge the
PROTEST FOR BETTER SECURITY amount of the checks to the depositor’s account
 One made by the holder against the drawer and indorsers where the
acceptor has been adjudged bankrupt or an insolvent or has made an XIII. ACCEPTANCE FOR HONOR
assignment for the benefit of creditors before the bill matures
 Such a protest isn’t necessary to charge the drawer or indorsers Sec. 161. When bill may be accepted for honor. - When a bill of
 It is optional on the part of the holder exchange has been protested for dishonor by non-acceptance or
protested for better security and is not overdue, any person not
WHEN PROTEST FOR BETTER SECURITY MADE being a party already liable thereon may, with the consent of the
1. After acceptance holder, intervene and accept the bill supra protest for the honor of
2. But before the date of maturity any party liable thereon or for the honor of the person for whose
3. When the acceptor has been adjudged bankrupt or insolvent or account the bill is drawn. The acceptance for honor may be for part
has made an assignment for the benefit of creditors only of the sum for which the bill is drawn; and where there has
been an acceptance for honor for one party, there may be a further
PURPOSE OF PROTEST FOR BETTER SECURITY acceptance by a different person for the honor of another party.
 When the acceptor is declared bankrupt, he probably wouldn’t be able
to pay for the bill ACCEPTANCE FOR HONOR
 The protest for better security is to give notice to the drawer or  An acceptance of bill made by a stranger to it before maturity, where
indorsers of this fact in order to enable them to make the necessary the drawee of the bill has refused to accept it, and the bill has been
arrangements so that they will not be held liable thereon and prevent protested for non-acceptance, or where the bill has been protested for
loss of re-exchange better security
 Such an acceptance is also called an acceptance supra protest
Sec. 159. When protest dispensed with. - Protest is dispensed with  This is a peculiar kind of acceptance. It most frequently happens when
by any circumstances which would dispense with notice of the original drawee refuses to accept the bill in which case a stranger
dishonor. Delay in noting or protesting is excused when delay is may accept the bill for the honor of some one of the parties thereto,
caused by circumstances beyond the control of the holder and not which acceptance will inure to the benefit of all parties subsequent to
imputable to his default, misconduct, or negligence. When the him for whose honor it was accepted
cause of delay ceases to operate, the bill must be noted or
protested with reasonable diligence. PURPOSE FOR ACCEPTANCE FOR HONOR
 To save the credit of the parties to the instrument or some party to it,
Sec. 160. Protest where bill is lost and so forth. - When a bill is lost as the drawer, drawee, or indorser or somebody else
or destroyed or is wrongly detained from the person entitled to  Someone desires to save the credit of another on the bill and he does
hold it, protest may be made on a copy or written particulars so by writing accepted on the bill
thereof.  The court holds that the consideration is presumed and the
presumption is that he does have funds or money for the party for
EFFECT OF LOSS OR DESTRUCTION OF BILL whose honor he accepts
 Loss or destruction of the bill doesn’t excuse the making of the protest
 In a case, checks indorsed without restriction and deposited in the REQUISITES FOR ACCEPTANCE FOR HONOR
defendant bank which credited the amount to the depositor’s account 1. The bill must have been previously protested for non-acceptance
and mailed them to its correspondent for collection, were lost and not or for better security
found until after the drawer became bankrupt 2. The bill isn’t overdue at the time of the acceptance for honor
 They were not dishonored due to the failure of defendant to attempt to 3. The acceptor for honor must be a stranger to the bill. If he is a
collect them as lost paper party, his acceptance for honor wouldn’t give any additional
security to the holder, as such a party is already liable thereon

Page 168 of 190
4. The holder must give his consent  He agrees to pay if—presentment for payment has been made; the
drawee doesn’t pay; the bill is protested for non-payment; and notice
Sec. 162. Acceptance for honor; how made. - An acceptance for of dishonor is given to him
honor supra protest must be in writing and indicate that it is an
acceptance for honor and must be signed by the acceptor for honor. Sec. 166. Maturity of bill payable after sight; accepted for honor. -
Where a bill payable after sight is accepted for honor, its maturity
HOW ACCEPTANCE IS MADE is calculated from the date of the noting for non-acceptance and
 Acceptance for honor must be in writing and indicate that it is an not from the date of the acceptance for honor.
acceptance for honor and signed by the person making the acceptance
Sec. 167. Protest of bill accepted for honor, and so forth. - Where a
ACCEPTOR FOR HONOR MUST APPEAR BEFORE NOTARY dishonored bill has been accepted for honor supra protest or
 It is essential that the acceptor for honor appear before the notary and contains a referee in case of need, it must be protested for non-
declare that he accepts the protested bill in honor of the drawer or payment before it is presented for payment to the acceptor for
indorser, as the case may be, and that he will pay it at the appointed honor or referee in case of need.
time
Sec. 168. Presentment for payment to acceptor for honor, how
Sec. 163. When deemed to be an acceptance for honor of the made. - Presentment for payment to the acceptor for honor must
drawer. - Where an acceptance for honor does not expressly state be made as follows:
for whose honor it is made, it is deemed to be an acceptance for
the honor of the drawer. (a) If it is to be presented in the place where the protest for
non-payment was made, it must be presented not later than the
Sec. 164. Liability of the acceptor for honor. - The acceptor for day following its maturity.
honor is liable to the holder and to all parties to the bill subsequent
to the party for whose honor he has accepted. (b) If it is to be presented in some other place than the place
where it was protested, then it must be forwarded within the time
Sec. 165. Agreement of acceptor for honor. - The acceptor for specified in Section one hundred and four.
honor, by such acceptance, engages that he will, on due
presentment, pay the bill according to the terms of his acceptance Sec. 169. When delay in making presentment is excused. - The
provided it shall not have been paid by the drawee and provided provisions of Section eighty-one apply where there is delay in
also that is shall have been duly presented for payment and making presentment to the acceptor for honor or referee in case of
protested for non-payment and notice of dishonor given to him. need.
TO WHOM ACCEPTOR IS LIABLE Sec. 170. Dishonor of bill by acceptor for honor. - When the bill is
 Suppose A is the drawer of a bill with B as payee and X as drawee dishonored by the acceptor for honor, it must be protested for non-
 It is successively indorsed to C, D, E and F. X drawee at maturity payment by him.
refuses to accept the bill and F protests it.
 Before the date of maturity, Y as a stranger accepts the bill for the NECESSITY OF PROTEST
honor of C.  The holder must protest for non-payment by the acceptor for honor in
 Subject to 165, Y is liable to F holder, and to D and E, parties order to fix the liabilities of the indorsers
subsequent to C, the party for whose honor Y accepted the bill
NOTES: WEEK #14
CONTRACT OF ACCEPTOR FOR HONOR
SEPTEMBER 24 - 28, 2007
 The liability of an acceptor for honor is secondary and not primary or
absolute

Page 169 of 190
XIV. PAYMENT FOR HONOR parties, the person whose payment will discharge most parties to
the bill is to be given the preference.
Sec. 171. Who may make payment for honor. - Where a bill has
been protested for non-payment, any person may intervene and Sec. 175. Effect on subsequent parties where bill is paid for honor.
pay it supra protest for the honor of any person liable thereon or - Where a bill has been paid for honor, all parties subsequent to the
for the honor of the person for whose account it was drawn. party for whose honor it is paid are discharged but the payer for
honor is subrogated for, and succeeds to, both the rights and duties
Sec. 172. Payment for honor; how made. - The payment for honor of the holder as regards the party for whose honor he pays and all
supra protest, in order to operate as such and not as a mere parties liable to the latter.
voluntary payment, must be attested by a notarial act of honor
which may be appended to the protest or form an extension to it. ILLUSTRATION OF EFFECT OF PAYMENT FOR HONOR
PAY TO B OR ORDER P1000.
Sec. 173. Declaration before payment for honor. - The notarial act
of honor must be founded on a declaration made by the payer for SGD.A
honor or by his agent in that behalf declaring his intention to pay TO: X DRAWEE
the bill for honor and for whose honor he pays.
BCDEF
REQUISITES FOR PAYMENT FOR HONOR X REFUSES TO PAY.
1. The bill has been protested for non-payment F HAS DULY PROTESTED FOR NON-PAYMENT
2. And any person even a party thereto, may pay supra protest Y PAYS FOR THE HONOR OF C
 D and E, being subsequent to C, for whose honor the payment is
FORM FOR PAYMENT FOR HONOR made, are discharged
1. The payment must be attested by notarial act appended to the  Y acquires the rights of F, as against C, A, B and X parties who are
protest or form an extension of it liable to C but the payor for honor shall notify within reasonable time,
2. The notarial act must be based on a declaration by the payer for the party for whose honor he pays.
honor  Otherwise, the party is not bound to refund.
PROCEDURE FOR PAYMENT FOR HONOR PREFERENCE OF PARTIES OFFERING TO PAY

1. The payer or his agent goes to a notary public and declares his  If Z offers to pay for the honor of B, he is to be preferred as Z’s
intention to pay the bill and for whose honor he pays payment for the honor of B will discharge C, D, and E while Y’s
2. The notary then records the declaration in the protest or in a payment for C would only discharge D and E
separate paper attached to it
3. The payer then notifies the person for whose honor he pays within Sec. 176. Where holder refuses to receive payment supra protest. -
reasonable time Where the holder of a bill refuses to receive payment supra protest,
he loses his right of recourse against any party who would have
PURPOSE FOR PAYMENT FOR HONOR been discharged by such payment.
 Instead of simple negotiation to the person desiring to pay, payment
for honor may be availed of when the holder doesn’t want to indorse Sec. 177. Rights of payer for honor. - The payer for honor, on
the bill and thereby incur the liabilities of an indorser or of one paying to the holder the amount of the bill and the notarial
negotiating by mere delivery expenses incidental to its dishonor, is entitled to receive both the
bill itself and the protest.
Sec. 174. Preference of parties offering to pay for honor. - Where
two or more persons offer to pay a bill for the honor of different RIGHTS OF PAYER FOR HONOR

Page 170 of 190
1. He acquires the rights of a holder under Section 175 and in To X

addition 48 Exchange Place
2. The payor for honor has also the right to receive both the bill and New York City
the protest. This is to enable him to enforce his rights against
those who are liable to him.
PURPOSE OF BILL IN SET
Wednesday: 185 and 186 plus cases  Bills in set are for the purpose of increasing the probability of the bill
reaching its destination
XV. BILLS IN SET  For this reason, each part is sent by different conveyances
 B, the payee, is supposed to negotiate only one part, or if he is paid on
Sec. 178. Bills in set constitute one bill. - Where a bill is drawn in a one, he cannot be paid on the second part
set, each part of the set being numbered and containing a
reference to the other parts, the whole of the parts constitutes one Sec. 179. Right of holders where different parts are negotiated. -
bill. Where two or more parts of a set are negotiated to different
holders in due course, the holder whose title first accrues is, as
BILL IN SET between such holders, the true owner of the bill. But nothing in
 One composed of various parts, each part being numbered, and this section affects the right of a person who, in due course,
containing a reference to the other parts, all of which parts constitute accepts or pays the parts first presented to him.
one bill
ILLUSTRATION OF SECTION 179
ILLUSTRATION OF A BILL IN SET CONSISTING OF TWO PARTS  B, payee, wants to raise P4000. In violation of his rights, he
negotiates the first part of the bill to C and the second part to D, both
First part of whom are holders in due course. Who is the true owner of the bill?
Exchange for P2000  If B negotiates to C on September 25 and to D on September 27, C is
First the true owner, as C’s title accrues first.
Manila, Philippines  But if D succeeds in presenting his part of the bill for acceptance for
September 24, 2007 payment and X the drawee, accepts or pays the second part in due
course, X is protected and X can refuse to accept C’s part of the bill.
30 days after sight of this First of Exchange (Second part unpaid), pay to
the order of B P2000. Sec. 180. Liability of holder who indorses two or more parts of a set
Sgd. A to different persons. - Where the holder of a set indorses two or
To X more parts to different persons he is liable on every such part, and
48 Exchange Place every indorser subsequent to him is liable on the part he has
New York City himself indorsed, as if such parts were separate bills.
Second part LIABILITY OF HOLDER WHO INDORSES TWO OR MORE PARTS

Exchange for P2000  B is liable on both parts as if there are two bills, on the first to C and
Second on the second to D
Manila, Philippines  In other words, as a result of his negotiation of the 2 parts, B is liable
September 24, 2007 for a total of P4000
 But A, the drawer, or X, the drawee, is liable only on one part or for
30 days after sight of this Second of Exchange (First part unpaid), pay to P2000 unless the drawee accepts both parts
the order of B, P2000.
Sgd. A

Page 171 of 190
 Suppose that C and D respectively negotiate the parts they have to E,

the first part, and F, the second part. C is liable to E for the part he Sec. 184. Promissory note, defined.
endorsed to E and D is liable to F for the part he indorsed to F. A negotiable promissory note within the meaning of this Act is an
unconditional promise in writing made by one person to another,
Sec. 181. Acceptance of bill drawn in sets. - The acceptance may be signed by the maker, engaging to pay on demand, or at a fixed or
written on any part and it must be written on one part only. If the determinable future time, a sum certain in money to order or to
drawee accepts more than one part and such accepted parts bearer. Where a note is drawn to the maker's own order, it is not
negotiated to different holders in due course, he is liable on every complete until indorsed by him.
such part as if it were a separate bill.
IS MAKER LIABLE AS INDORSER?
DRAWEE MUST ACCEPT ONLY ONE PART  The maker of a note payabloe to himself who indorses it is not liable
 The drawee X must accept only one part as indorser but only as maker.
 But if he accepts both parts and they are negotiated to holders in due  Since the indorsement by the maker-payee isn’t part of a sale of the
course, he is liable on every such part as if it were a separate bill, that note, it should not give rise to any warranty.
is, for a total of P4000  In the absence of such warranties, it is immaterial whether the
 But he can ask for reimbursement from A, drawer, on only one part, defendant is sued as an indorser or as maker since, in either event, he
that is P2000, because the order of the drawer to him is to pay only may set up the defense of fraud against the plaintiff unless the plaintiff
one part, not both parts is a holder in due course.
Sec. 182. Payment by acceptor of bills drawn in sets. - When the SPECIAL TYPES OF PROMISSORY NOTES
acceptor of a bill drawn in a set pays it without requiring the part 1. Certificate of deposit
bearing his acceptance to be delivered up to him, and the part at 2. Bonds
maturity is outstanding in the hands of a holder in due course, he is 3. Bank notes
liable to the holder thereon. 4. Due bills
ILLUSTRATION CERTIFICATE OF DEPOSIT

 Suppose that X accepts only the first part. Then he pays the second  Written acknowledgement by a bank of the receipt of money on
part without requiring the return of the first part. deposit which the bank promises to pay to the depositor, bearer, or to
 On the date of maturity, X would still be liable to the holder of the first some other person or order
part on which it appears his acceptance
BONDS
Sec. 183. Effect of discharging one of a set. - Except as herein  A promise, under seal to pay money
otherwise provided, where any one part of a bill drawn in a set is  More formal in character
discharged by payment or otherwise, the whole bill is discharged.  Runs for a longer period of time
 Issued under different legal circumstances
EFFECT OF DISCHARGE ON ONE PART
 Subject to the exceptions in Section 180, 181, and 182, if one part is CLASSES OF BONDS
discharged, the whole bill is discharged 1. Mortgage bonds
 The reason is that the bill constitutes only one bill 2. Equipment bonds
 Thus, suppose that in the illustration, X the acceptor pays the first part 3. Collateral trust bonds
which he accepted. 4. Guaranteed bonds
 The second and third parts are also discharged 5. Debentures
6. Income bonds
XVI. PROMISSORY NOTES AND CHECKS 7. Convertible


Agbayani Notes For Nego

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NEGOTIABLE INSTRUMENTS NOTES

BASED ON AGBAYANI’S BOOK AND ATTY. MERCADO’S LECTURES

BY: MA. ANGELA LEONOR C. AGUINALDO

FORGERY, DEFINED AND EXPLAINED Sgd. A

Bill of Exchangedrawer GENERAL RULE IN FRAUDULENT IMPERSONATION

BY: MA. ANGELA LEONOR C. AGUINALDO

BY: MA. ANGELA LEONOR C. AGUINALDO

BY: MA. ANGELA LEONOR C. AGUINALDO

BY: MA. ANGELA LEONOR C. AGUINALDO

• By paying the check the drawer is presumed negligent or deemed

BY: MA. ANGELA LEONOR C. AGUINALDO

373 SCRA 212 FACTS:

BY: MA. ANGELA LEONOR C. AGUINALDO

3. A party who has assented to the material alteration

BY: MA. ANGELA LEONOR C. AGUINALDO

Furthermore, the provision in the deposit slip on the right of reservation by

FACTS: Sec. 69. Liability of an agent or broker. - Where a broker or other

BY: MA. ANGELA LEONOR C. AGUINALDO

to pay it there at maturity, such ability and willingness are

BY: MA. ANGELA LEONOR C. AGUINALDO

Sec. 71. Presentment where instrument is not payable on demand

WHEN PAYABLE ON DEMAND IN CASE OF NOTES 133 REPUBLIC V. PNB

BY: MA. ANGELA LEONOR C. AGUINALDO

BY: MA. ANGELA LEONOR C. AGUINALDO

FACTS: (d) In any other case if presented to the person to make

BY: MA. ANGELA LEONOR C. AGUINALDO

BY: MA. ANGELA LEONOR C. AGUINALDO

I promise to pay B P1000. IMPLIED WAIVER

BY: MA. ANGELA LEONOR C. AGUINALDO

BY: MA. ANGELA LEONOR C. AGUINALDO

BY: MA. ANGELA LEONOR C. AGUINALDO

BY: MA. ANGELA LEONOR C. AGUINALDO

NOTICE MAY BE GIVEN BY *BCDEF

BY: MA. ANGELA LEONOR C. AGUINALDO

WHEN AGENT’S NOTICE MUST BE GIVEN MANNER OF GIVING NOTICE

BY: MA. ANGELA LEONOR C. AGUINALDO

BY: MA. ANGELA LEONOR C. AGUINALDO

BY: MA. ANGELA LEONOR C. AGUINALDO

BY: MA. ANGELA LEONOR C. AGUINALDO

(e) Where the drawer has countermanded payment. FACTS:

BY: MA. ANGELA LEONOR C. AGUINALDO

In the financing industry, a discounting line means a credit facility with a

BY: MA. ANGELA LEONOR C. AGUINALDO

BY: MA. ANGELA LEONOR C. AGUINALDO

PRINCIPAL DEBTOR PRINCIPAL DEBTOR ACQUIRES INSTRUMENT

WAIVER OF OBJECTION TO TENDER OF PAYMENT BY CHECK DISCHARGE BY OPERATION OF LAW

BY: MA. ANGELA LEONOR C. AGUINALDO

(a) By any act which discharges the instrument;

BY: MA. ANGELA LEONOR C. AGUINALDO

money which he considers and admits to be due, in satisfaction of

BY: MA. ANGELA LEONOR C. AGUINALDO

BY: MA. ANGELA LEONOR C. AGUINALDO

BY: MA. ANGELA LEONOR C. AGUINALDO

TREASURY WARRANTS FACTS:

CLEAN AND DOCUMENTARY BILLS OF EXCHANGE HELD:

BY: MA. ANGELA LEONOR C. AGUINALDO

BY: MA. ANGELA LEONOR C. AGUINALDO

Further, a demand draft is different from a cashier’s check for this is a