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Act No. 2031 THE NEGOTIABLE INSTRUMENTS LAW

Limited application: This Act applies only to negotiable instruments or to those instruments which meet the requirements laid down in Section 1 of the law.

Supplementary application of other laws: Any case not provided by the Act shall be governed by the provisions of existing legislation, or in default thereof, by the rules of the law merchant.

Function and Importance of Negotiable Instruments:

1. used as a substitute for money; 2. constitutes as media of exchange; 3. serves as a medium of credit

transaction; 4. increases the purchasing power of

the maker/drawer; and 5. proof of transaction

Characteristics or Features of Negotiable Instruments:

1. Negotiability the attribute of a bill or a note that allows it to be passed from one person to another.

2. Accumulation of Secondary Contracts as they are transferred from one person to another, additional parties can become involved.

Common Forms of Negotiable Instruments:

1. Promissory Note the issuer promises to pay

2. Bill of Exchange the issuer orders a third person to pay

3. Bank Check a special kind of bill of exchange.

Instruments with Limited Negotiability:

1. Letter of Credit a letter from a merchant or bank or banker in one place, addressed to another, in another place or country, requesting the addressee to pay money or deliver goods to a third party therein named

2. Treasury Warrant a government warrant for the payment of money

3. Postal Money Order an order for the payment of money to the payee

named therein drawn by one post office upon another

4. Bill of Lading it is without an unconditional promise or order to pay a sum certain in money

5. Certificate of Stock a written instrument signed by a proper officer of a corporation stating that the person named therein is the owner of a designated number of shares of its stock.

6. Warehouse Receipt a document of title likewise without an unconditional promise or order to pay a sum certain in money

CHAPTER 1: FORM AND INTERPRETATION Requisites for an instrument to be negotiable:

a. It must be in writing and signed by the maker or drawer;

b. Must contain an unconditional promise or order to pay a sum certain in money;

c. Must be payable on demand or at a fixed or determinable future time;

d. Must be payable to order or bearer; e. Where the instrument is addressed

to a drawee, he must be named or otherwise named therein with reasonable certainty.

*Commercial Paper refers to written promises or obligations that arise out of commercial transactions *Non-negotiable Instruments instruments which do not meet the requirements laid down in Section 1 Promissory Note an unconditional promise in writing, made by one person to another, signed by the person making it, engaging to pay on demand, or at a fixed or determinable future time, a sum certain in money, to order or to bearer. Parties to a Promissory Note:

a. Maker the one who makes the promise and signs the instrument

b. Payee the party to whom the promise is made or the instrument is payable

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Bill of Exchange an unconditional order in writing addressed by one person to another, signed by the person giving it, and requiring the person to whom it is addressed to pay upon demand or at a fixed or determinable future time. Parties to a Bill of Exchange:

a. Drawer the person who issues and draws the order bill

b. Drawee the party upon whom the bill is drawn *He becomes an acceptor when he indicates his willingness to pay.

c. Payee - the party in whose favor the bill is originally issued or payable

Section 2 The sum payable is a sum certain within the meaning of this Act, although it is to be paid:

a. With interest; or b. By stated installments; or c. By stated installments with a

provision that, upon default in payment of any installment or of interest, the whole shall become due; or

d. With exchange, whether at a fixed rate or at the current rate; or

e. With costs of collection or an attorneys fee, in case payment shall not be made at maturity.

Section 3 An unqualified order or promise to pay is unconditional though coupled with:

a. An indication of a particular fund out of which reimbursement is to be made or a particular account to be debited with the amount; or

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

In order that a promissory note may be negotiable, it must contain an unconditional promise to pay. It is not essential, however, that the word promise should be used. Any words equivalent to a promise are sufficient to constitute a promise to pay.

Also with bills of exchange, there must be an unconditional order to pay by one party to another. It is also not necessary to use the words order in a bill of exchange to satisfy the requirement.

Section 4 An instrument is payable at a determinable future time when it is expressed to be payable - -

a. At a fixed period after date or sight; or

b. On or before a fixed or determinable future time specified therein; or

c. On or at a fixed period after the occurrence of a specified event which is certain to happen; though the time of happening be uncertain.

*An instrument payable upon a contingency is not negotiable, and the happening of the event does not cure the effect. Section 5 General Rule: An instrument which contains an order or promise to do any act in addition to the payment of money is not negotiable. Exception: the negotiability of the instrument is not affected by a provision which:

a. Authorizes the sale of collateral securities in case the instrument be not paid at maturity; or

b. Authorizes a confession of judgment if the instrument be not paid at maturity; or

c. Waives the benefit of any law intended for the advantage or protection of the obligor; or

d. Gives the holder an election to require something to be done in lieu of payment of money.

Section 6 The validity and negotiability of an instrument is not affected by the fact that:

a. It is not dated; or b. Does not specify the value given, or

that any value has been given therefor; or

c. Does not specify the place where it is drawn or the place where it is payable; or

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d. Bears a seal; or e. Designates a particular kind of

current money in which payment is to be made.

Effect of Omission of Value: It is usual to state in the instrument that it is given for value received without specifying what that value is. But it is not even necessary to state that value has been received for the instrument because consideration is presumed. Effect of Omission of Place: An instrument that does not specify the place of payment is presumed to be payable at the place of residence or business of the maker or drawer. Effect of Designation of Particular Kind of Current Money Payable: The promise or order must call for the payment of money but the law does not require that payment should be made in legal tender. Section 7 An instrument is payable on demand:

a. Where it is expressed to be payable on demand, or at sight, or on presentation; or

b. In which no time for payment is expressed

Section 8 The instrument is payable to order where it is drawn payable to the order of a specified person or to him or to his order. It may be drawn payable to the order of:

a. A payee who is not a maker, drawer, or drawee; or

b. The drawer or maker; or c. Two or more payees jointly; or d. One or more of several payees; or e. The holder of an office for the time

being. When instrument is payable to order: The words to the order of, or order, or bearer, and to bearer are standardized words of negotiability and their use generally obviates any question as to negotiability of an instrument. Effect where payee not named or described:

If there is no payee, there is nobody who could give their order or authority to collect. In other words, there would be nobody who could indorse the instrument. Section 9 The instrument is payable to bearer:

a. When it is expressed to be so payable; or

b. When it is payable to a person named therein or bearer; or

c. When it is payable to the order of a fictitious or non-existing person, and such fact was known to the person making it payable; or

d. When the name of the payee does not purport to be the name of any person; or

e. When the only or last indorsement is an indorsement in blank.

Section 10 It is advisable in most cases to conform to the forms prescribed by law in order to avoid uncertainty. However, it is not required to use the exact words of the law. *The substance of the transaction rather than its form is the criterion of negotiability. As long as the clear intention of the parties to make the instrument negotiable can be determined, the law will give it force and effect. Section 11 If the instrument bears a date, it is presumed that said date is the date when it was made by the maker, drawn by the drawer, accepted by the drawee, or indorsed by the payee or holder. General Rule: A date is not essential to make an instrument negotiable. Exceptions:

a. Where instrument is payable at a fixed period after date; or

b. Where instrument is payable at a fixed period after sight.

Section 12 An instrument is ante-dated when it

contains a date earlier than the true date of its issuance.

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An instrument is post-dated when it contains a date later than the true date of its issuance.

Effect of Ante-Dating and Post-Dating:

Generally, ante-dating and post-dating an instrument does not render it invalid or non-negotiable by that fact alone.

If done for an illegal or fraudulent purpose, the instrument is rendered invalid.

Section 13 A holder may insert a date in an instrument in the following cases:

a. Where an instrument is payable at a fixed period after date but is issued undated; and

b. Where an instrument is payable at a fixed period after sight but acceptance is undated.

Effect of Insertion of Wrong Date: The insertion of a wrong date in an undated instrument by one having knowledge of the true date of issue or acceptance will avoid the instrument as to him but not as to a subsequent holder in due course who may enforce the same notwithstanding the proper date. Nevertheless, in the hands of a holder in due course, the date inserted, even if wrong, is to be regarded as the true date. Section 14 Two Steps Involved in the Issuance of Negotiable Instrument:

a. The mechanical act of writing the instrument completely and in accordance with the requirements of Section 1

b. The delivery of the complete instrument by the maker or the drawer to the payee or holder with the intention of giving effect to it.

Rules where instrument incomplete but delivered:

1. The holder or the person in possession has prima facie authority to complete an incomplete instrument by filling up the blanks therein.

*The authority to complete, however, is not an authority to alter. So the holder has no authority to change the amount after it has been filled in.

2. A signature on a blank paper delivered in order that may be converted into a negotiable instrument operates as a prima facie authority to fill it up as such for any amount.

3. The instrument may be enforced only against a party prior to completion if filled up strictly in accordance with the authority given and within a reasonable time.

4. The defense that instrument had not been filled up in accordance with the authority given and within a reasonable time is not available as against a holder in due course.

Section 15 Rules where instrument complete and undelivered:

1. The fact that an incomplete instrument, completed without authority, had not been delivered is a defense against a holder in due course.

2. The invalidity of the above instrument is only with reference to the parties whose signatures appear on the instrument before and not after delivery.

Section16 Rules where instrument mechanically complete:

1. Every contract on negotiable instrument even if it is completely written is incomplete and revocable until its delivery for the purpose of giving it effect.

Delivery means transfer of possession, actual or constructive, from one person to another

Issue the first delivery of the instrument, complete in form, to a person who takes it as a holder.

Holder the payee or indorsee of a bill or note who

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is in possession of it, or the bearer thereof.

2. If a complete instrument is found in the possession of an immediate party or a remote party other than the holder in due course, there is a prima facie presumption of delivery but subject to rebuttal.

Immediate parties refer to those who are immediate in the sense of having or being held to know of the conditions or limitations placed upon the delivery of the instrument.

Remote parties are parties who are not in direct contractual relation to each other.

3. If delivery was made or authorized, it may be shown to have been conditional, or for a special purpose only and not for the purpose of transferring the property to the instrument.

4. If a complete instrument is in the hands of holder in due course, a valid delivery thereof by all parties prior to him is conclusively presumed.

Section 17 Where the language of the instrument is ambiguous or there are omissions therein, the following rules of construction apply:

a. When there is discrepancy between the sum expressed in words and the sum expressed in figures, the former controls.

b. When the words are ambiguous or uncertain, reference maybe had to the figures to determine the true amount.

c. If the date when the stipulated interest is to run is not specified, the interest runs from the date of the instrument or if undated from the date of issue.

d. An undated instrument is considered dated as of the date of its issue.

e. In case of conflict between the written and printed provisions, the former prevail.

f. In case of doubt as to whether the an instrument is a bill or note, the holder may treat either at his election.

g. In case of doubt in what capacity the person making the instrument intended to sign, he is deemed to be an indorser.

h. When an instrument is signed by two or more persons, their liability may be either solidary or joint.

An instrument with the words I promise to pay signed by two or more persons gives rise to a solidary liability.

An instrument with the words we promise to pay signed by two or more persons gives rise to joint liability.

Section 18 General Rule: Only persons whose signatures appear on an instrument are liable thereon. Exceptions:

a. Where a person signs in a trade or assumed name.

b. The principal is liable if a duly authorized agent signs on his own behalf.

c. In case of forgery, the forger is liable even if his signature does not appear on the instrument.

d. Where the acceptor makes his acceptance of a bill on a separate paper.

e. Where a person makes a written promise to accept a bill before it is drawn.

Section 19

The maker or drawer may sign the instrument personally or by another duly authorized by him.

The authority of the agent may be shown, as in other cases of agency, to have been given orally or in writing subject to the provisions of the Statute of Frauds.

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Section 20 In order that an agent who signs a negotiable instrument may escape personal liability, the following are the requisites:

1. He is duly authorized; 2. He adds words to his signature

indicating that he signs as an agent, that is, for or on behalf of a principal, or in a representative capacity; and

3. He discloses his principal. *The mere addition of descriptive words without disclosing the principal will not relieve the signer from personal liability. Section 21 Procuration the act by which a principal gives power to another to act in his place as he could himself Effect of signature by procuration: A signature by procuration operates as notice that the agent but has limited authority to sign, and the principal is bound only in case the agent in so signing acted within the actual limits of his authority. Section 22 Effect of indorsement by incapacitated persons:

1. Minors. As a general rule, contracts entered

into by a minor are voidable. While a minor is not bound by his

indorsement for lack of capacity, he is, however, not incapacitated to transfer certain rights.

A minor may be held bound by his signature in an instrument where he is guilty of actual fraud committed by specifically stating that he is of age when, in fact he is not.

2. Other incapacitated persons. Insane or demented persons, deaf-

mutes who do not know how to write

As far as such persons themselves are concerned, their capacity is a real defense, that is, it is available even against a holder in due course.

Effect of indorsement by a corporation: A corporation is not liable on notes in a suit thereon by an indorsee, where the corporation is without capacity to make the contract in fulfillment of which they were executed. Section 23 Forgery the counterfeit-making or fraudulent alteration of any writing and may consist in the signing of anothers name or the alteration of an instrument in the name, amount, description of the person and the like, with intent thereby to defraud. This provision applies only to two cases:

a. Where the signature on the instrument is affixed by one who does not claim to act as an agent and who has no authority to bind the person whose signature he has forged.

b. Where the signature is affixed by one who purports to be an agent but has no authority to bind the alleged principal

Effect of forged signature: The signature is wholly inoperative and so no right can be acquired through the forged signature. Proof of forgery: Forgery must be proven with clear and convincing evidence. A person who questions the genuineness and authenticity of the signature appearing on an instrument has the burden of proving that the signature is a forgery. Cases of Forgery in general:

1. Promissory Notes a. Forgery of an indorsement

on the note; and b. Forgery of the makers

signature. 2. Bills of Exchange

a. Forgery of an indorsement on the bill; and

b. Forgery of the drawers signature, either:

With acceptance by the drawee; or

Without such acceptance but the

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bill is paid by the drawee

Extent of the effect of forgery: Section 23 does not purport to declare the instrument totally void nor the genuine signatures thereon inoperative. It is only the forged or unauthorized signature that is declared to be inoperative. Exceptions to the general rule:

1. If the party against whom it is sought to enforce such right is precluded from setting up forgery or want of authority; and

2. Where the forged signature is not necessary to the holders title, in which case the forgery may be disregarded.

Persons precluded from setting up the defense of forgery:

1. Those who by their acts, silence, or negligence, are estopped from setting up the defense of forgery; and

2. Those who warrant or admit the genuineness of the signatures in question, namely:

a. Indorsers; b. Acceptors; and c. Persons negotiating by

delivery. Rights of parties in cases of forged indorsements:

a. Where the note is payable to order, the party whose indorsement is forged is not liable to any holder, even a holder in due course.

b. Where the note, mechanically complete, is originally payable to bearer, the party whose indorsement is forged is liable to a holder in due course, but not to one who is not a holder in due course.

c. Where the bill is payable to order, the party whose indorsement is forged is not liable to any holder, even a holder in due course.

1. If the drawee pays under a forged indorsement, the drawer is not liable on the

bill and the drawee may not debit the drawers account.

2. Where, however, the checks are received merely for collection and deposit, the bank, as agent, cannot be expected to know or ascertain the genuineness of all prior indorsements.

d. In case the bill is originally payable to bearer, the drawee may debit the drawers account in spite of the forged indorsement.

CHAPTER II

CONSIDERATION Section 24 Every negotiable instrument is deemed prima facie to have been issued for a valuable consideration, and every person whose signature appears thereon to have become a party thereto for value. *Consideration is the immediate, direct, or essential reason which induces a party to enter into a contract The presumption is only prima facie. It may, therefore, be rebutted or disproved by evidence to the contrary. Section 25

A valuable consideration need not be adequate. It is sufficient if it is a valuable one.

An antecedent or a pre-existing debt is a valuable consideration.

Section 26 Holder for Value is one who has given a valuable consideration for the instrument issued or negotiated to him

The holder is deemed as such not only as regards the party to whom value has been given by him but also in respect to all those who became parties prior to the time when value was given.

A holder of a negotiable instrument is presumed to be a holder for value until the contrary be shown by any party who claims otherwise.

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Section 27 Where the holder has a lien on the instrument arising either from contract or by implication of law, he is deemed holder for value to the extent of his lien.

a. If the amount of the instrument is more than the debt secured by such instrument, the pledgee is a holder for value to the extent of his lien.

b. If the amount of the instrument is less than or the same as the debt secured by such instrument, the pledgee is a holder for value for the full amount and may, therefore, recover all.

c. If, between the pledger and the party liable on the instrument, there are existing defenses, then the pledgee can collect on the instrument only to the extent of the amount of the debt.

Section 28 Absence of Consideration means a total lack of any valid consideration for the contract, in consequence of which the alleged contract must fail. Failure of Consideration means the failure or refusal of one of the parties to do, perform or comply with the consideration agreed upon Effect of want of consideration: Absence or failure of consideration is a matter of defense as against any person not a holder in due course. Section 29 Definition of Terms:

Accommodation note or bill is one to which the accommodation party has put his name, without consideration, for the purpose of accommodating some other party who is to use it, and is expected to pay it.

Accommodation party is one who has signed the instrument as maker, drawer, acceptor, or indorser, without receiving value therefor and for the purpose of lending his name to another party

He usually expects that not he, but the accommodated party, will pay the bill or note when it falls due.

He is classified according to the accommodated partys status.

Accommodated party is one in whose favor a person, without receiving value therefor, signs an instrument for the purpose of lending his credit and enabling said party to raise money upon it.

Liability of Accommodation Party to a Holder

The accommodation party is liable on the instrument to a holder for value notwithstanding such holder at the time of taking the instrument knew him to be only an accommodation party.

After making payment to the holder, the accommodation party may recover from the accommodated party for reimbursement.

Kinds of Accommodation Party:

1. Accommodation maker primarily liable

2. Accommodation drawer secondarily liable

3. Accommodation acceptor primarily liable

4. Accommodation indorser secondarily liable

Accommodation Party vs. Regular Party

ACCOMMODATION PARTY

REGULAR PARTY

1. Signs an instrument without receiving value therefor;

1. Signs the instrument for value;

2. Signs an instrument for the purpose of lending his name to some other

2. Does not sign for that purpose;

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persons;

3. May always show by parole evidence that he is only such;

3. Cannot disclaim or limit his personal liability as appearing on the instrument by parole evidence;

4. Cannot avail the defense of absence or failure of consideration against a holder not in due course;

4. May avail the said defense against a holder not in due course;

5. After paying the holder, may sue for reimbursement the accommodated party, although a subsequent party.

5. May not sue any subsequent party for reimbursement.

CHAPTER III

NEGOTIATION Section 30 Negotiation the transfer of a negotiable instrument from one person to another made in such a manner as to constitute the transferee a holder thereof. Methods of Transfer of Negotiable Instrument:

1. Issue the first delivery of the instrument, complete in form, to a person who takes it as a holder

2. Negotiation 3. Assignment the transfer of the title

to an instrument, with the assignee generally taking only such title or right as his assignors has, subject to all defenses available against his assignor.

Methods of Negotiation 1. Instruments payable to order

a. An indorsement by the payee or present holder; and

b. Delivery to the next holder 2. Instruments payable to bearer

- It is negotiated by mere delivery alone without indorsement

Delivery - transfer of possession, actual or constructive, from one person to another The payment of a check by the drawee bank is not a negotiation and does not make the bank a holder.

The bank is neither the payee nor indorsee.

The writing of the name of the holder on the back of the check before surrendering it for payment to the drawee-bank is not an indorsement.

Effect of delivery of order instrument without indorsement:

1. Transfer operates as an ordinary assignment.

2. Transferee does not become holder of instrument.

3. Where indorsement subsequently obtained.

Negotiation vs. Assignment

NEGOTIATION ASSIGNMENT

1. Refers only to negotiable instruments;

1. Refers generally to an ordinary contract;

2. The transferee is a holder;

2. The transferee is an assignee;

3. A holder in due course is subject only to real defenses;

3. The assignee is subject to all defenses;

4. A holder in due course may acquire a better title or greater

4. An assignee merely steps into the shoes of the assignor;

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rights under the instrument than those possessed by the transferor or a prior party;

5. A general indorser warrants the solvency of prior parties;

5. An assignor does not warrant the solvency of prior parties unless expressly stipulated;

6. An indorser is not liable unless there be presentment and notice ofdishonor;

6. Presentment and notice of dishonor is not necessary to charge an assignor liable;

7. Governed by the Negotiable Instruments Law.

7. Governed by Articles 1624 to 1635 of the Civil Code.

Can there be a negotiation to a payee?

1. First delivery of instrument to a payee.

2. First delivery of instrument to other than payee.

3. Delivery of instrument by the payee by last holder.

Section 31 Indorsement is the writing of the name of the payee on the instrument with the intent either to transfer the title to the same, or to strengthen the security of the holder by assuming a contingent liability for its future payment, or both.

The payee by signing (indorsing) the instrument and delivering it to another person becomes an indorser.

Indorsement alone without delivery conveys no title and creates no holder.

Necessity of Indorsement: 1. Indorsement is essential to the

execution of an instrument payable on to the order of the maker or drawer.

2. It is also essential to the negotiation of the an order instrument, not of a bearer instrument.

3. It is not necessary to a mere assignment of a negotiable or non-negotiable instrument.

Form of Indorsement: The law does not require an exclusive form by which an indorsement may be accomplished. But it must be written or be in writing. The indorsement may be written:

a. On the instrument itself. b. Upon a paper attached thereto.

Section 32 General rule: The indorsement must be of the entire instrument Exception: If part of the amount has already been paid, the unpaid balance may be indorsed as this is expressly authorized by law. Section 33 Classification of Indorsement:

1. As to the methods of negotiation: a. Special; or b. Blank.

2. As to the kind of title transferred: a. Restrictive; or b. Non-restrictive.

3. As to scope of liability of indorser: a. Qualified; or b. Unqualified or general.

4. As to presence or absence of limitations:

a. Conditional; or b. Unconditional.

5. The other kinds of indorsements: a. Joint; b. Successive; c. Irregular or anomalous; and d. Facultative.

Section 34 Special Indorsement is one where the name of the payee is specified.

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If the instrument is originally payable to order, and it is negotiated by the payee by special indorsement, the indorsement of the indorsee is necessary to the further negotiation of the instrument.

If the instrument is originally payable to bearer, it may nevertheless be further negotiated by mere delivery even if the original bearer indorsed it specially.

Forms:

a. One that specifies the person to whom the instrument is to be paid; and

b. One that specifies the person to whose order of the instrument is to be payable.

Blank Indorsement is one which specifies no particular indorsee

Such indorsement ordinarily consists only of the signature of the payee or indorser.

An instrument so indorsed is payable to bearer or whoever possesses it, and may be negotiated by mere delivery without any need for further indorsements.

A check payable to the order of a named person and indorsed by him in blank on the back makes it a bearer instrument.

Section 35 Conversion of blank indorsement to special indorsement:

- By writing over the signature of the indorser in blank any contract not inconsistent with the character of the indorsement.

Section 36 An indorsement is restrictive which either:

a. Prohibits the further negotiation of the instrument; or

b. Constitutes the indorsee the agent of the indorser; or

c. Vests the title in the indorsee in trust for or to the use some other person.

Restrictive indorsement is one so worded that it either restricts or prohibits entirely the further negotiation of an instrument, or modifies the rights of the holder or the liabilities of the indorser. Effect of absence of words of negotiability: The mere absence of words implying power to negotiate does not make an indorsement restrictive. Section 37 A restrictive indorsement confers upon the indorsee the right:

a. To receive payment of the instrument;

b. To bring any action thereon that the indorser could bring;

c. To transfer his rights as such indorsee, where the form of the instrument authorizes him to do so.

Section 38 Qualified indorsement is one which constitutes the indorser a mere assignor of the title to the instrument

An indorsement may be qualified by adding to the indorsers signature the words without recourse or words of similar meaning like sans recourse.

The word recourse means a resort to a person who is secondarily liable after the default of the person who is primarily liable.

Effect of qualified indorsement: - The liability of the indorser is

limited. Sec 39. CONDITIONAL INDORSEMENT Conditional and Absolute Indorsement Absolute indorsement one by which the indorser binds himself to pay, upon no other condition than the failure of prior parties to do so, and of due notice to him of such failure. Conditional indorsement one by which the indorser imposes some other conditions to his liability, or on the indorsees right to collect the proceeds of the instrument.

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It does not prohibit further negotiation regardless of whether the condition has been fulfilled or not.

Different combinations of indorsements All indorsement are either special or in

blank; restrictive or non-restrictive. Thus different combinations are

possible Sec 40. Indorsement of instrument payable to bearer Effect of special indorsement where instrument is originally payable to bearer:

Where an instrument, payable to bearer, is indorsed specially it may nevertheless be further negotiated by delivery;

But the person indorsing specially is liable as indorser to only such holders as make title through his indorsement.

Furthermore, the holder may at any time strike out any indorsement which is not necessary to his title. The indorser whose indorsement is struck out, and all indorsers subsequent to him, is thereby relieved from liability on the instrument.

Sec. 41. Indorsement where payable to two or more persons.

This section refers to a joint indorsement

1. Order instrument payable to two or more payees or indorsees All must indorse in order for the

transaction to operate as negotiation

Exception: o Payees or indorsees are

partners o Payees or indorsees has the

authority to indorse for the others

In the light of the Phil Law on Partnership

Partnership has a distinct personality different from partners composing it

Hence, indorsing to partners must be an indorsement to partnership

Sec. 42. INSTRUMENT DRAWN OR INDORSED TO A PERSON AS CASHIER It is deemed prima facie to be payable

to the bank or corporation of which he is an officer

Maybe negotiated by the indorsement of the corporation or the indorsement of the officer of the same corporation

Presumption may be disproved by sufficient evidence to the contrary

It may be shown that the instrument really belongs personally to the cashier or officer

Sec. 43. INDORSEMENT WHERE THE NAME IS MISPELLED He may indorse it by adding his proper

signature or proper designation He may add but not alter any part of the

instrument Sec. 44. INDORSEMENT TO REPRESENTATIVE CAPACITY He may indorse it as to negate personal

liability: o Disclose his principal o Add words expressing that he is

signing as representative or an agent

Sec. 45. TIME OF INDORSEMENT PRESUMPTION. If an indorsement bears a date, the

presumption is that is the true date If the instrument has no date, the

presumption is that it was negotiated before maturity

This presumption s essential to be a holder in due course

Sec. 46. PLACE OF INDORSEMENT PRESUMPTION An indorsement is presumed to have

been made at the place where the instrument is dated

Sec. 47. CONTINUATION OF NEGOTIABLE CHARACTER 1. GENERAL RULE: An instrument

negotiable in origin is always negotiable

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Even an overdue instrument remains to be negotiable unless restricted

The holder is no longer a holder in due course

2. EXEPTIONS: Restrictively indorsed (prohibits

negotiation) When discharged

Sec. 48. STRIKING OUT AN INDORSEMENT

1. An instrument payable to bearer on its face:

Holder may strike out all or any of the intervening indorsement because none of them is necessary to his title

2. An instrument originally payable to order:

When specially indorsed indorsement of indorsee is needed to further indorse the instrument

When indorsed in blank negotiable by mere delivery

An instrument payable originally to order becomes bearer instrument when the last indorsement is in blank

The holder may not strike out the payees indorsement an order instrument requires payees indorsement to be a valid negotiation

Sec. 49. EFFECT OF TRANSFER WITHOUT INDORSEMENT 1. The transaction operates as an

equitable assignment and the transferees acquires the instrument subject to defenses and equities available among prior parties

2. He cannot negotiate the instrument 3. If the transferor had the legal title, the

transferee acquires such title, in addition, the right to have the indorsement of the transferor.

Negotiation takes effect only when the instrument is actually indorsed

EFFECT OF INDORSEMENT AFTER TRANSFER The indorsee has the right to an

unqualified indorsement The time for determining whether

the transferee is a holder in due course is as of the time of the actual indorsement

It is because negotiation is completed at the time of indorsement, not at the time of the delivery.

Sec. 50. WHEN PRIOR PARTY MAY NEGOTIATE INSTRUMENT

If a prior party reacquires an instrument before maturity, he may negotiate the same further.

But, after paying the holder, he may not claim payment from any of intervening parties to avoid multiplicity of suits

CHAPTER IV

RIGHTS OF THE HOLDER SEC. 51. RIGHT OF HOLDER TO SUE; PAYMENT Classes of holders:

1. Holders simply 2. Holders for value 3. Holders in due course

Ordinary holder or mere holder

A person who qualifies as a holder but does not meet all the conditions to qualify as holder in due course

The negotiable instrument in his hand is subject to any and every defense or defect in instrument

A holder in not in due course but derives his title from a holder in due course is given the rights of such prior holder

The holder is not necessary the owner of the instrument

Rights of Holder in general

1. He may sue on the instrument in his name

2. He may receive payment and if the payment is in due course, the instrument is discharged

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Right of transferee of unendorsed instrument to sue

If the transferor had legal title, this must pass by the transfer although subject to defenses

SEC. 52. WHAT CONSTITUTES A HOLDER IN DUE COURSE

A holder in due course takes the instrument free of most defenses

All conditions must be present to qualify as holder in due course

Every holder is generally deemed prima facie a holder in due course

A holder of a non-negotiable instrument cannot attain the status of a holder in due course

He is just a mere assignee subject to defenses

A holder who is not a holder in due course has all the rights of the latter except that the instrument is subject to every available defenses as if it were non-negotiable

(a) That it is complete and regular upon its face;

An instrument is incomplete when it is wanting in any material particular or particular proper to be inserted in a negotiable instrument without which the same will not be complete.

(b) That he became the holder of it before it was overdue,

An instrument is overdue after the date of maturity

The date of maturity is the time fixed therein

If the instrument is payable on demand, the date of maturity is determined by the date of presentment

If the instrument is payable on the occurrence of a specified event which is certain to happen, the date of maturity is fixed in the happening of the event.

...and without notice that it has been previously dishonored, if such was the fact;

An instrument may be dishonored by non-acceptance or non-payment or both

An overdue or dishonored instrument may still be negotiated either by indorsement or mere delivery to the same extent as before the date of maturity, but the holder cannot be a holder in due course.

(c) That he took it in good faith and for value;

Good faith means honesty in fact in the transaction concerned

Meaning of bad faith it means that he must have the knowledge of facts which render it dishonest for him to take particular instrument

Any consideration sufficient to support a simple contract is value

It is not necessary that the consideration should be adequate

(d) That at the time it was negotiated to him, he had no notice of any infirmity in the instrument or defect in the title of the person negotiating it.

In order to constitute notice, the holder must have had the actual or chargeable knowledge of the infirmity or defect or must have acted in bad faith

SEC. 53. WHEH PERSON NOT DEEMED A HOLDER IN DUE COURSE

Where the instrument is payable on demand is negotiated an unreasonable length of time after its issue

SEC. 54. NOTICE BEFORE FULL AMOUNT PAID Effect of notice before full payment:

1. When no amount has yet been paid the purchaser is relieved from the obligation to make the payment

2. When an amount has been paid he is under no legal obligation to pay the balance of the amount has been agreed to pay on discovering the infirmity or defect

SEC. 55. WHEN TITLE IS DEFECTIVE

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The title of the person who negotiates an instrument is defective in two ways:

1. In the acquisition; or means he has obtained the instrument or any signature by fraud, duress, or force and fear or unlawful means

2. In the negotiation it means he negotiated the instrument in breach of faith or under such circumstances as amount to fraud.

SEC. 56. WHAT CONSTITUTES NOTICE OF DEFECT

In order to constitute notice, the transferee must have actual knowledge of the infirmity or defect or knowledge of the infirmity or defect, or knowledge of such facts that his action in taking the instrument amounted to bad faith.

Mere negligence to make inquiries is not sufficient

There must be a knowledge amounting to bad faith

Effect of Notice of Defect:

It destroys the status of the holder as a holder in due course

SEC. 57. RIGHTS OF HOLDER IN DUE COURSE

1. He may sue on the instrument in his own name

2. He may receive payment and if the payment is in due course, the instrument is discharged

3. He holds the instrument free from any defect to title of prior parties

4. He holds the instrument free from defenses available to prior parties among themselves

5. He may enforce payment of the instrument for the full amount thereof against all parties liable.

SEC. 58. WHEN SUBJECT TO ORIGINAL DEFENSES The two kinds of defenses are: Real Defenses and Personal Defenses 1. Real defenses (absolute; universal) are those that are assertable against all parties, both immediate and remote, including

holders in due course or holders though HIDC.

These defects are attached to the instrument itself regardless of the merits or demerits of the holder.

They challenge the validity of the instrument itself

It does not imply that the instrument is valueless itself. It is only unenforceable against the party entitled to set up the defense but not against those to whom such defense is not available such as persons precluded from setting up.

Examples: o Incapacity o Illegality of contract by operation

of law o Want of delivery of incomplete

instrument o Forgery o Want of authority o Duress amounting to forgery o Fraud in factum o Fraudulent/material alteration by

the holder o Prescription o Discharge at or after maturity o Other infirmities appearing on

the face of the instrument 2. Personal Defenses (limited; equitable) those defenses available to prior parties among themselves but which are not good against a HIDC.

These are defenses available in actions under ordinary contract law

They are available only against the person or subsequent holder who stands in privity with the party seeking to enforce it.

They challenge the validity of the agreement o Filling the wrong date o Filling up blanks not in

accordance with the authority given and within reasonable time

o Want of delivery of complete instrument

o Absence or failure of consideration

o Fraud in inducement

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o Acquisition of instrument by duress, or force and fear

o Acquisition by instrument by unlawful means

o Acquisition of instrument for an illegal consideration

o Negotiation in breach of faith o Negotiation under circumstances

that amount to fraud o Innocent alteration or spoliation o Set-off between immediate

parties o Discharge by payment or

renunciation or release before maturity

o Discharge of person secondarily liable by discharge of the prior party

o Want of authority of the agent who has apparent authority

The two kinds of fraud relating to negotiable instruments are (1) Fraud in Factum and (2) Fraud in inducement 1. Fraud in Factum (fraud in esse contractus) it exist in those cases in which person, without negligence, has signed an instrument which was in fact a negotiable instrument, but was deceived as to the character of the instrument and without knowledge of it. Example: a. When a note is signed by one under the belief that he was signing as a witness to a deed b. Where the signature was procured by fraudulent use of carbon paper 2. Fraud in inducement (simple fraud) a fraud that relates to the quality, quantity, value or character of the consideration of the instrument. The signer knew what he was signing but he was induced by fraud to sign. Example: a. When a person is induced to sign a note for a price of a worthless diamond ring which was fraudulently represented by the payee as to its value. SEC. 59. WHO IS DEEMED HOLDER IN DUE COURSE

Every holder is deemed prima facie to be a holder in due course;

but when it is shown that the title of any person who has negotiated the instrument was defective, the burden is on the holder to prove that he or some person under whom he claims acquired the title as holder in due course.

EXCEPTION: The rule does not apply in favor of a party who became bound on the instrument prior to the acquisition of such defective title.

CHAPTER V

LIABILITIES OF PARTIES Classification of Parties according to liability:

1. Primary Liable: a. Maker of the promissory

note b. Acceptor of a bill of exchange c. Certifier of a check

2. Secondarily liable a. Drawer of the bill of

exchange b. Indorser of a note or a bill

3. Not liable a. Drawee until he accepts the

instrument in which case he becomes an acceptor

A person becomes a party to an

instrument by signing his name thereon.

No person is liable on an instrument unless his signature appears thereon

Primary Party vs Secondary Party o Primary unconditionally

bound o Secondary conditionally

bound SEC. 60. LIABILITY OF MAKER MAKER

He unconditionally engages to pay the note according to its terms. He promises to pay not only to the payee but o any subsequent holder who is legally entitled to the

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instrument at its maturity date even if the holder does not demand payment at that time.

Due presentment for payment and due notice of dishonor is not necessary to charge the maker for its liability

The maker admits the (1) existence of the payee and (2) his then capacity to indorse or to contract.

SEC. 61. LIABILITY OF DRAWER The Drawer of a bill

The drawer by merely signing his name on a bill as drawer, he admits the existence of the payee and his then capacity to indorse the instrument the time it was executed

The drawer does not promise to pay the bill absolutely

He makes no warranty but he engages to pay after certain conditions are complied with: o The bill is presented for

acceptance or for payment o The bill is dishonored by non-

acceptance and non-payment o The necessary proceedings for

dishonor are duly taken SEC. 62. LIABILITY OF ACCEPTOR ACCEPTOR

by accepting the instrument, engages that he will pay it according to the terms of his acceptance

he admits the (1) existence of the drawer, the genuineness of his signature and his capacity and authority to draw the instrument; and (2) the existence of the payee and his capacity to contract or indorse

he cannot retract his acceptance as against a holder for value, since he has suspended the holders remedies against the drawer

he virtually in the same position as the maker of a note.

Like the maker of the PN, neither presentment for payment nor notice of dishonor is necessary to charge him with liability (except where he is an acceptor for honor)

SEC. 63. WHEN PERSON DEEMED INDORSER

A person signing his name on the back of an instrument, is nothing else appearing (otherwise than maker, drawer or acceptor), is a general indorser

Liability of a Guarantor:

He waives the need for presentment, protest or notice of dishonor

He is liable only subsidiarily after the assets of the principal debtor have been exhausted

Liability of a Surety:

A person who writes his name at the back of the instrument followed by the words as surety

He is primarily and absolutely liable with the principal debtor without the privilege of exhaustion of the properties of the principal debtor and also without the necessity of presentment or notice of dishonor.

SEC. 64. LIABILITY OF IRREGULAR INDORSER The Indorsers of a note or bill

(irregular indorser) Where a person, not otherwise a party to an instrument, places his signature in blank before delivery, he is liable as indorser in accordance with the following rules:

o If the instrument is payable to the order of a third person, he is liable to the payee and to all subsequent parties.

o If the instrument is payable to the order of the drawer or maker, or is payable to bearer, he is liable to all parties subsequent to the maker or drawer

o If he signs for the accommodation of the payee, he is liable to all parties subsequent to the payee

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Warranty of indorsers: o That the instrument is

genuine and in all what it purports to be

o That he has a good title o That all prior parties have the

capacity to contract o That he has no knowledge of

any fact which would impair the validity of the instrument or render it valueless.

SEC. 65. WARRANTY; WHERE NEGOTIATION BY DELIVERY

Every person negotiating an instrument by delivery or by a qualified indorsement warrants:

(a) That the instrument is genuine and in all respects what it purports to be; (b) That he has a good title to it; (c) That all prior parties had capacity to contract; (d) That he has no knowledge of any fact which would impair the validity of the instrument or render it valueless.

But when the negotiation is by delivery only, the warranty extends in favor of no holder other than the immediate transferee.

SEC. 66. LIABILITY OF GENERAL INDORSER

Every indorser who indorses without qualification warrants to all subsequent holders in due course:

(a) That the instrument is genuine and in all respects what it purports to be; (b) That he has a good title to it; (c) That all prior parties had capacity to contract; (d) That the instrument is (at the time of his indorsement) is valid and subsisting. (e) That, on due presentment, it shall be accepted or paid, or both, as the case may be, according to its tenor, and

(f) That if it be dishonored and the necessary proceedings on dishonor be duly taken, he will pay the amount to the holder, or to any subsequent indorser who may be compelled to pay it. Indorser VS Drawer

INDORSER DRAWER

A party either to a note or a bill

Only a party to a bill

Does not make the admission of the existence of the payee and his then capacity to indorse

Admit the existence of the payee and his then capacity to contract

Has warranties Makes no warranties

The liabilities are both of conditional

SEC. 67. LIABILITY OF INDORSER WHERE PAPER NEGOTIABLE BY DELIVERY Negotiation by Delivery:

The indorser is liable to immediate transferee

It is therefore not necessary for the holder to indorse the instrument if his purpose is just to negotiate the same

Negotiation by Indorsement

If he indorses specially, he is liable only to holders who make their title through his indorsement

If he indorses without qualification, he incurs the liability of a general indorser

SEC. 68. ORDER WHICH INDORSERS ARE LIABLE

A. Among themselves a. Every indorser is liable to all

indorsers subsequent to him B. To the holder

a. The holder of the instrument which has been dishonored is not bound by the above rulings

b. As to him, indorsers are liable in the order of their indorsements

SEC. 69. LIABILITY OF AGENT OR BROKER

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Personal Liability: a) When the agent negotiates an

instrument by mere delivery b) When the agent negotiates an

instrument through a qualified indorsement

c) When he negotiates it by general indorsement

Exemptions from Liabilities:

To escape from liability, he must disclose:

o His principal o The fact that he is just

signing or acting only as an agent

CHAPTER VI

PRESENTMENT FOR PAYMENT Presentment for Payment is meant the presentation of an instrument to the person primarily liable for the purpose of demanding and receiving payment SEC. 70. EFFECT OF WANT OF DEMAND ON PRINCIPAL DEBTOR

Presentment is necessary for payment in order to CHARGE the drawer and indorsers (persons secondarily liable) of their liability.

Presentment is not necessary to charge the person primarily liable (maker and acceptor) since their liability is ABSOLUTE

Therefore the maker or the acceptor may be sued even without presentment as long as the date for payment has passed without the instrument being paid.

SEC. 71. PRESENTMENT WHERE INSTRUMENT IS PAYABLE ON DEMAND; AND WHERE PAYABLE ON DEMAND

1. If the instrument is payable at a fixed or determinable future time, presentment must be made on the

date if it falls due without period of grace.

2. If the instrument is payable on demand:

a. Presentment must be made to the maker within a reasonable time after its issue.

b. Presentment must be made within a reasonable period of time after last negotiation of bill

SEC. 72. WHAT CONSTITUTES SUFFICIENT PRESENTMENT Requisites for a sufficient presentment for payment:

a. Presentment for payment must be made to the primary party (maker in case of promissory note or to acceptor in case of an accepted bill)

b. If payable on demand, presentment must be made to the drawee although he is not liable to a bill

c. If the person primarily liable is not present or inaccessible, it must be presented to any person of sufficient discretion at the proper place of presentment

d. No personal demand on the maker is necessary

SEC. 73. PLACE OF PRESENTMENT

1. In the place specified in the instrument

2. Where no place is specified in the instrument, but the address of the person to make the payment is present and it is there presented

3. Where no place of payment is specified and the address is absent, the instrument is presented at the USUAL PLACE OF BUSINESS or RESIDENCE of the person to make the payment In any other cases, presentment

may be done wherever he can be found or at his last known place of business or residence

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SEC. 74. INSTRUMENT MUST BE EXHIBITED The instrument must be

EXHIBITED to the person from whom payment is demanded

And when it is paid it must be delivered up to the party paying it

i. Valid presentment consists of something more than a mere demand. It requires personal face to face demand at the proper place

SEC. 75. PRESENTMENT WHERE INSTRUMENT PAYABLE AT BANK

Where the presentment is payable at a bank. It must be presented DURING BANKING HOURS

When the person to make payment has no fund on the said bank, he may pay it anytime during the day

SEC. 76. PRESENTMENT WHERE PRINCIPAL DEBTOR IS DEAD

Where the principal debtor is dead and no place of payment is specified, presentment must be made to his PERSONAL REPRESENTATIVE if such there be, and if, with the exercise of reasonable diligence, he can be found.

SEC. 77. PRESENTMENT TO PERSONS LIABLE AS PARTNERS

Where the persons primarily liable on the instrument are liable as partners and no place of payment is specified, presentment for payment me be done TO ANY ONE OF THEM

SEC. 78. PRESENTMENT TO JOINT DEBTORS

Where there are several persons, not partners, primarily liable on the instrument and no place of payment

is specified, presentment must be made to them all.

SEC. 79. WHEN PRESENTMENT NOT REQUIRED IN ORDER TO CHARGE THE DRAWER

Presentment for payment is not required in order to charge the drawer where he has no right to expect or require that the drawee or acceptor will pay the instrument.

Sec. 80 When presentment not required to charge indorser.

Indorser Where the instrument was made or accepted for his accommodation and he has no reason to expect that the instrument will be paid if presented.

Reason: the accommodated payee-indorser is the real debtor and not the maker or acceptor. Hence, he is not discharge even if no presentment is made to the maker or acceptor who in is a surety for the debt. Sec. 81 When delay in making presentment excused.

Delay in making of presentment is excused when the delay is caused by circumstances beyond the control of the holder and not imputable to his default, misconduct or negligence.

Circumstances beyond the control of the holder are events which could not be foreseen, or which, though foreseen are inevitable.

Sec. 82 When presentment may be dispensed with. (1) Where after exercise of reasonable diligence presentment cannot be made; (2) Where drawee is a fictitious person. (3) Where there is waiver, express or implied. Sec. 83 When instrument dishonored by non-payment. (1) Non-payment upon due presentation. Two requisites:

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(a) that the instrument is duly presented for payment to the party primarily liable thereon; and (b) that payment is either refused or cannot be obtained. (2) Non-payment without presentation. It is necessary that:

1) presentment is excused; 2) the instrument is overdue; and 3) it is unpaid.

Sec. 84 Effect of dishonor by non-payment.

As to the holder, after an instrument is dishonored by non-payment, the persons secondarily liable become the principal debtors and he need not proceed against the person primarily liable before suing them.

The immediate right of recourse against secondary parties will accrue only after giving of due notice of dishonor to them.

The right of recourse to all parties secondarily liable means the right of the holder to enforce the liabilities of said parties as defined.

Sec. 85. Time of maturity of instrument. (1) On a Sunday or a holiday. Presentment for payment cannot be made on Sunday or a holiday. If the date of maturity falls on Sunday or a holiday, it will have to be presented on the next succeeding business day. (2) On a Saturday. If the instrument falls due on a Saturday, and it is a time instrument, it should be presented for payment on the next succeeding business day, i.e., Monday, or the next succeeding business day if Monday is a holiday. This is for the benefit of the debtor. (3) On demand. If the instrument is payable on demand, it may be presented for payment before 12:00 oclock noon on Sunday or on Monday, at the option of the holder.

Instruments falling due or becoming payable on Saturday.

An instrument falls due on Saturday, if it is payable on Saturday; it becomes payable on Saturday when it falls due on another day like Friday which happens to be a holiday and, therefore, the instrument shall instead be payable on Saturday which is the next day.

In either case, presentment should also be made, not on Saturday, but on the next succeeding day.

Sec. 86 Computation of time maturity.

In determining the proper date for presentment, we count from the day following the date from which the time is to run (even if the said date is a holiday), and include the last day of the period.

(1) Hence, in an instrument dated April 5, 2009 and payable three months after the date, due date July 5, 2009. (2) Also, in an instrument dated November 8, 2008 and payable after twelve months, the due date is November 8, 2009 and not November 9, 2009. (3) But one dated January 31, and payable one month after date will mature on February 28, or February 29, if it is a leap year. (4) If an instrument is payable ten days after October 11, 2009, the date of maturity is October 21, 2009. By counting or adding ten days from October 12, 2009, the last of the ten days is October 21, 2009. Sec. 87 Rule where instrument payable at a bank. Where the instrument payable at a bank, it is equivalent to an order to the bank to pay the same for the account of the principal debtor. Sec. 88 Requisites of payment in due course To constitute payment in due course, the following requirements must be present:

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(1) Payment must be made at or after the date of maturity. (2) Payment must be made to the holder. Sec. 89 When an instrument considered to be dishonored A negotiable instrument is considered to be dishonored (1) if it is not accepted when presented for acceptance; or (2) if it is not paid when presented for payment at maturity; or (3) if presentment is excused or waived and the instrument is past due and unpaid. Meaning of notice of dishonor

Notice of dishonor is bringing, either verbally or by writing, to the knowledge of the drawer or indorser of an instrument, the fact that a specified negotiable instrument, upon proper proceedings taken, has not been accepted or has not been paid and that the party notified is expected to pay it.

Object of notice of dishonor (1) To inform the parties secondarily liable that the maker or acceptor, as the case may be, has failed to meet his engagement; and (2) To advise such parties that they will be required to make payment. Effect of failure to give notice of dishonor

When an instrument is dishonored by non-acceptance on presentment for acceptance (bill) or by non-payment at it maturity (both bill and note), notice of such dishonor must be given to the persons secondarily liable, namely: the drawer, if it be a bill, and each indorser, whether it be a bill or note. Any such person to whom such notice is not given is discharge.

Sec. 90 By whom notice of dishonor given The notice may be given: (1) by the holder; or (2) by another in behalf of the holder; or (3) by a party to the instrument who may be compelled to pay it to the holder and who,

upon taking it up, would have a right to reimbursement from the party to whom the notice is given; or (4) by another person in behalf of such party. Sec. 91 Authority to give notice not necessary

The agent need not be authorized by the principal to give the notice. Under this section, any person can be an agent of any party entitled to give notice.

Sec. 92 Effect to notice given by holder Notice of dishonor given by or on behalf of the holder inures to the benefit of: (1) all holders subsequent to the holder who has given notice, and (2) all parties prior to the holder but subsequent to the party to whom notice has been given and against whom they have a right of resource. Sec. 93 Effect of notice given by party entitled thereto. Notice of dishonor given by or on behalf of the party entitled to give notice (Sec. 90.) insures to the benefit of (1) the holder, and (2) all parties subsequent to the party to whom notice is given, including parties subsequent to the holder who gave notice. Sec. 94 When and to whom agent may give notice Under this section, the agent, in case the instrument is dishonored in his hands, may be given notice either to his principal or directly to the parties secondarily liable thereon without notifying his principal.

Notice to parties secondarily liable. Notice to principal.

Sec. 95 When notice sufficient o A written notice need not be signed and

an insufficient written notice may be supplemented and validated by verbal communication.

Sec. 96 Forms of notice o Notice of dishonor may be in writing or

merely oral. Notice may thus be given by telephone provided it clearly shown that the party notified was really communicated with, that is, fully

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identified as the party at the receiving end of the line.

Effect of defect in notice (1) Lack of signature or insufficiency. The fact that a written notice is not signed or insufficient would not invalidate it. (2) Misdescription of instrument. It does not vitiates the notice unless it misleads the party to whom it is sent. Sec. 97 Person to given notice The notice of dishonor may be given (1) to the party himself or (2) to his agent in that behalf. Sec. 98 Notice where party is dead When the party sought to be charged is dead, the notice must be given to his personal representative provided that: (1) His death is known to the party giving notice; (2) There is a personal representative; and (3) If with reasonable diligence the said personal representative could be found. Sec. 99 Notice to partners Each partner is an agent of the partnership. Hence, notice to the partners is notice to the partnership. Sec. 100 Notice to joint parties o Joint payees or joint indorsees who

indorse an instrument are deemed to indorse jointly and severally. Their liability is solidary, not joint; so that if one of them is notified, that one is not discharged by reason of failure to give notice to the other joint indorsees.

Sec. 101 Notice to bankrupt This section contemplates two situations: (1) the party secondarily liable has been

declared a bankrupt or insolvent; and (2) the party secondarily liable has made an

assignment of his properties for the benefit of creators.

In either case, notice may be given to the party himself or to his trustee or assignee.

Sec. 102. Time within which notice must be given Notice may be given as soon as the instrument is dishonored and, unless delay is excused as hereinafter provided, must be given within the time fixed by this Act. (Sec 103, 104, and 107 Time within which notice must be given.) Sec. 103 Where parties reside in same place

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 day following;

b) If given at his residence, it must be given before the usual hours of rest on the day following;

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.

Sec. 104 Where parties reside in different places

a) If sent by mail, it must be deposited in the post office in time to go by mail the day following the day of dishonor, or if there be no mail at a convenient hour on that day, by the next mail thereafter.

b) If given otherwise than through the post office, then within that notice would have been received in due course of mail, if it has been deposited in the post office within the time specified in the last subdivision.

Sec. 105 When sender deemed to have given due notice. Notice by mail is deemed to have been properly made where:

(1) the notice of dishonor is duly addressed; and

(2) deposited in the post office. Sec. 106 When notice deemed to have been deposited. o This section defines the act of

depositing in the post office. The notice may be deposited in:

(1) the post-office, (2) any branch post-office, or

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(3) any letter box under the control of the post-office.

Sec. 107 Time of notice to subsequent party Where a party receives notice of dishonor, he has, after the receipt of such notice, the same time for giving notice to subsequent parties that the holder has after the dishonor. Sec. 108 Where notice must be sent Where a party has added an address to his name, the notice must be sent to that address and it will be sufficient even though the address is an incorrect one; but if he has not given such address, then the notice must be sent as follows:

a) Either to the post-office nearest to his place of residence or to the post-office where he has accustomed to received his letters; or

b) If he lives in one place and has his place of business in another, notice may be sent to either place; or

c) If he is sojourning in another place, notice may be sent to the place where he is so sojourning.

Sec. 109 Waiver of notice o Notice of dishonor may be waived,

either before the giving of notice has arrived or after the omission to give notice and the waiver may be expressed or implied

Sec. 110 Persons affected by waiver As to who are affected by an express waiver depends on where the waiver is written.

1) If the waiver is embodied in the instrument itself, that is, it appears in the body or on the face of the instrument, it binds all parties.

2) If it is written above the signature of an indorser, it binds him only.

Sec. 111 Waiver of protes o Where protest is waived, presentment

and notice of dishonor are also deemed waived. This is so because protest means all the steps accompanying dishonor necessary to charge a party secondarily liable.

Sec. 112 When notice is dispensed with o Notice of dishonor is dispensed with

when, after the exercise of reasonable diligence (implies active search), it cannot be given or does not reach the parties sought to be charged.

Sec. 113 Delay in giving notice; how excused o Same as the rule on excusing delay in

making presentment but this section excuses merely the delay in giving it unlike the latter which dispenses the duty to give notice.

Sec 114-115 When notice need not be given to drawer and indorser. a. As regards the drawer in the following

cases: a) When the drawer and drawee

are the same person. b) When the drawee is a fictitious

person not having capacity to contract.

c) When the drawer is the person to whom the instrument is presented for payment.

d) Where the drawer has no right to expect or require that the drawee or acceptor will honor the instrument.

Thus, the drawer of a check need not be given notice of dishonor when he has no account or funds with the drawee bank.

e) Where the drawer has countermanded payment.

b. As regards the indorser in the following

cases:

a) When the drawee is a fictitious person or a person not having capacity to contract, and the indorser was aware of that fact at the time he indorsed the instrument.

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

c) Where the instrument was made or accepted for his accommodation.

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Sec. 116 Notice of non-payment where acceptance refused- Where due notice of dishonor by non-acceptance has been given, notice of a subsequent dishonor by non-payment is not necessary unless in the meantime the instrument has been accepted. Sec. 117. Effect of omission to give notice of non-acceptance The failure of the previous holder to give notice of dishonor by non-acceptance cannot prejudice the rights of a holder in due course who may still present the instrument to the drawee for acceptance and notify the drawer and indorsers if acceptance is refused. Sec. 118. When protest need not be made; when must be made o Protest is necessary only in the case of

foreign bills of exchange which have been dishonored by non-acceptance or non-payment.

o Protest for any other negotiable instruments is optional.

CHAPTER VIII

DISCHARGE OF NEGOTIABLE INSTRUMENTS

Discharge of an instrument means a release of all parties, whether primary or secondary, from the obligations arising under the instrument rendering it without force and effect and consequently, no longer negotiable. Sec. 119 Instrument; how discharged A negotiable instrument is discharged:

(a) By payment in due course by or on behalf of the principal debtor;

(b) By payment in due course by the

party accommodated, where the instrument is made or accepted for his accommodation;

(c) By the intentional cancellation

thereof by the holder;

(d) By any other act which will discharge a simple contract for the payment of money;

(e) When the principal debtor becomes

the holder of the instrument at or after maturity in his own right.

Sec. 120. When persons secondarily liable on the instrument are discharged A person secondarily liable on the instrument is discharged:

(a) By any act which discharges the instrument;

(b) By the intentional cancellation of his signature by the holder;

(c) By the discharge of a prior party; (d) By a valid tender or payment made

by a prior party; (e) By a release of the principal debtor

unless the holder's right of recourse against the party secondarily liable is expressly reserved;

(f) By any agreement binding upon the holder to extend the time of payment or to postpone the holder's right to enforce the instrument unless made with the assent of the party secondarily liable or unless the right of recourse against such party is expressly reserved.