NEGO MAY 23, 2020

CONSIDERATION

Sec. 24. Presumption of consideration. - Every negotiable instrument is deemed prima facie to
have been issued for a valuable consideration; and every person whose signature appears thereon to
have become a party thereto for value.

PRESUMPTION OF CONSIDERATION IS DISPUTABLE

• One of the disputable presumptions laid down by our Rules of Court is that a negotiable
instrument was given or indorsed for a sufficient consideration
CONSIDERATION NEED NOT ALLEGED OR PROVED
• In an action based on a negotiable instrument, it is unnecessary to aver or prove
consideration for it is imported and presumed from the fact that it is a negotiable instrument

MERE INTRODUCTION OF INSTRUMENT SUFFICIENT

• The mere introduction of the instrument sued on in evidence, prima facie entitles the
plaintiff of a recovery and unless such prima facie case is overcome by evidence produced by the
defendant the plaintiff is entitled to recover

EFFECT OF LACK OF CONSIDERATION

• The same is without legal effect and the payment for the note is not demandable

Who has the burden of proving that a negotiable instrument was issued for a consideration?

The drawer of a check, not the payee, has the burden of proof to show that the instrument was issued
without sufficient consideration. Since a negotiable instrument is presumed to have been issued for a
valuable consideration, the mere presentation of a dishonored instrument in evidence entitles the
holder to recover from the drawer even if the payee did not establish the accountability of the drawer.
(Travel‐On v. CA, G.R. No. L‐ 56169, June 26, 1992)

Sec. 29. Liability of accomodation party. - An accomodation 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 some other person. Such a person 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
accomodation party.

ACCOMODATION PARTY: REQUISITES

• One who has signed the instrument as maker, drawer, indorser, acceptor, without receiving
any value therefore and for the purpose of lending his name to some other person
• Requisites:
1. He must be a party to the instrument, signing as maker, acceptor, indorser, or drawer
2. He must not receive any value therefore
3. He must sign for the purpose of lending his name or credit
RIGHTS AND LEGAL POSITION OF AN ACCOMODATION PARTY
• The accomodation party is generally regarded as a surety for the party accomodated
• When the accomodation parties make payment to the holder of the notes, they have the right to
sue the accomodated party for reimbursement since the relation between them is in effect that
of a principal and sureties, the accomodation parties being the sureties

ACCOMMODATED PARTY CANNOT RECOVER FROM ACCOMMODATING PARTY

• Absence of consideration is a defense
• In fact as between them, the understanding is that the accomodated party either is to
1. To reimburse the amount which the accomodation party may be obliged to pay
2. To pay the instrument directly to the holder

LIABILITY OF THE ACCOMODATION PARTY

• The accomodation party is liable on the instrument to a holder in value, notwithstanding
such holder at any time of the taking of the instrument knew him to be only an accomodation party
• The accomodation party doesn't receive any valuable consideration for the instrument he signs
but he is liable to a holder for value as if the contract wasn't for accomodation

Corporations are not liable as accomodation parties even to holders for value

Officers signing for corporation as accomodation party without authority to do so for their
individual debts or transactions are personally liable thereon

Holder must otherwise be a holder in due course.

Accomodation party may accomodate one who is not a party to the instrument.
Accomodation party can interpose defense of want of consideration against one not holder in
due course.

Up to what extent is an accommodation party liable?

1. Right to revoke accommodation – before the instrument has been negotiated for value.

2. Right to reimbursement from accommodated party – the accommodated party is the real debtor.
Hence, the cause of action is not on the instrument but on an implied contract of reimbursement.

3. Right to contribution from other solidary accommodation maker. (Sadaya v. Sevilla, G.R. No. L‐17845,
Apr. 27, 1967)

May a holder for value recover from an accommodation party notwithstanding his knowledge of such
fact?

Yes, a holder for value may recover. This is so because an accommodation party is liable on the
instrument to a holder for value, notwithstanding that such holder at the time of taking the instrument
knew him to be only an accommodation party. The accommodation party is liable to a holder for value
as if the contract was not for accommodation. It is not a valid defense that the accommodation party did
not receive any valuable consideration when he executed the instrument. Nor is it correct to say that
the holder for value is not a holder in due course merely because at the time he acquired the
instrument, he knew that the indorser was only an accommodation party. (Ang Tiong v. Ting, G.R. No. L‐
26767, Feb. 22, 1968)

Can a corporation be an accommodation party, if so, does the liability of an accommodation party
attach to a corporation?

No. The issue or indorsement of negotiable paper by a corporation without consideration and for the
accommodation of another is ultra vires. Hence, one who has taken the instrument with knowledge of
the accommodation nature thereof cannot recover against a corporation where it is only an
accommodation party. (Crisologo‐Jose v. CA,G.R. No. 80599, Sept. 15, 1989)

Can a party who signed on the note as an accommodation party raise the defense of absence or want
of consideration?

No. An accommodation party who lends his name to enable the accommodated party to obtain credit or
raise money is liable on the instrument to a holder for value even if he receives no part of the
consideration. He assumes the obligation to the other party and binds himself to pay the note on its due
date. By signing the note, the accommodation party thus became liable for the debt even if he had no
direct personal interest in the obligation or did not receive any benefit therefrom. (Dela Rama v. Admiral
United Savings Bank, G.R. No. 154740, Apr. 16, 2008)

LIABILITIES OF PARTIES IN NEGOTIABLE INSTRUMENTS

Sec. 60. Liability of maker. - The maker of a negotiable instrument, by making it, engages that he will pay
it according to its tenor, and admits the existence of the payee and his then capacity to indorse.

MAKER PRIMARILY LIABLE

• Engagement of the maker is to pay absolutely for the note according to its tenor
• His liability is primarily and unconditional
• One who has signed an instrument as a maker is presumed to have acted with care and to
have signed the instrument with full knowledge of its contents, unless of course, if fraud is proved

MAKER MUST PAY ACCORDING TO THE TERMS OF THE NOTE

• The maker bound himself to pay personally. He cannot shift the obligation without the
consent of the payee. He cannot allege that he spend the money on expenses which should be
charged to a trust administered by a creditor because it is not the payee’s concern to know how
the proceeds should be spent. That is the sole concern of the maker. The payee’s interest is merely to
see that the note is paid according to its term.

LIABILITY OF 2 OR MORE MAKERS

• When 2 or more makers sign jointly or severally, each of them is individually liable for the
payment of the full amount of their obligation even if one of them didn’t receive part of the value given
therefor, as he would be considered as an accommodation party

PAYEE’S EXISTENCE, ETC.

• The maker also admits of the existence of the payee and his then capacity to indrose
• He is precluded from setting up the following defenses:
o That the payee is a fictitious person because by making the note, he admits that the payee
exists

o That the payee was insane, a minor, or a corporation acting ultra vires because by making the
note, he admits the then capacity of the payee to indorse

Sec. 61. Liability of drawer. - The drawer by drawing the instrument admits the existence of
the payee and his then capacity to indorse; and engages that, on due presentment, the instrument will
be accepted or paid, or both, according to its tenor, and that if it be dishonored and the necessary
proceedings on dishonor be duly taken, he will pay the amount thereof to the holder or to any
subsequent indorser who may be compelled to pay it. But the drawer may insert in the
instrument an express stipulation negativing or limiting his own liability to the holder.

DRAWER SECONDARILY LIABLE

• He engages merely that the bill will be accepted or paid or both, according to its tenor, and
that he will pay only when
1. It is dishonored
2. And the necessary proceedings of dishonor are duly taken
• The liability of the drawer is subject to the two conditions and attaches only upon their fulfillment
• The drawer, by merely drawing the bill and signing his name in the bill as such drawer, without
more, impliedly engages to be so secondarily liable, as if he has incorporated the provisions of Section
61 in the bill
• If the bill is not paid, accordingly, if a bill is not paid, the drawer becomes liable for the
payment of its value to the holder provided that notice of dishonor is given

TO WHOM DRAWER IS SECONDARILY LIABLE

1. The holder
2. Or if any of the indorsers intervening between the holder and the drawer is compelled to pay by the
holder, the drawer, will be liable to that indorser so compelled to pay

IS DRAWER OF UNACCEPTED BILL PRIMARILY LIABLE?

• Yes
• It was held that until the bill has been accepted, the drawer is the principal debtor and
after acceptance, the drawee or acceptor is the principal debtor and the drawer becomes
secondarily liable
PAYEE’S EXISTENCE
• Like the maker, the drawer admits to the existence of the payee and his capacity to indorse

NEGATIVES HIS LIABILITY

• The law allows the drawer to negative or limit his liability by express stipulation
• By adding words such as “without recourse” or “I shall not be liable in case of non-payment or non-
acceptance”

Sec. 62. Liability of acceptor. - The acceptor, by accepting the instrument, engages that he will pay
it according to the tenor of his acceptance and admits:

(a) The existence of the drawer, the genuineness of his signature, and his capacity and
authority to draw the instrument; and

(b) The existence of the payee and his then capacity to indorse.

ACCEPTOR PRIMARILY LIABLE

• Acceptor engages to pay absolutely according to the tenor of its acceptance
• His liability is not subject to any condition
• The acceptor is the drawee who accepts the bill
• His acceptance immediately places a legal liability on him for the payment of the bill in favor
of one who became a holder thereof after acceptance, and if he wants to escape liability, it is up to him
to show that he is a mere agent of the drawer, or allege and prove any other defense which he has to
the liability

EFFECT OF MORTGAGE EXECUTED BY ACCEPTOR

• Where being unable to pay certain bills of exchange which the drawee has accepted, the latter
makes a mortgage in favor of the holder of said bills upon certain merchandise the value of which is
sought to be collected through said bills, in order to secure the payment of said amount if the
merchandise is sold and the integrity thereof while the sale is not effected, the execution of said
mortgage doesn’t constitute a Novation of the obligation represented by said accepted bills unless it is
expressly stated in the mortgage

ACCEPTOR TO PAY ACCORDING TO TENOR OF HIS ACCEPTANCE

• While the maker of a note engages to pay according to the tenor of the note, an acceptor engages
to pay according to the tenor of his acceptance, not of the bill he accepts
• Tenor of his acceptance may be different from the tenor of the bill, as the acceptor may accept the
bill with qualifications
• If his acceptance is general, the tenor of then bill is the same tenor as the tenor of his acceptance

WHERE ORIGINAL TENOR IS ALTERED BEFORE ACCEPTANCE

• Suppose the bill is originally for P1000. Before the drawee X accepts it, it is altered by the payee B
to P4000. Then X accepts it. How much is X liable to a holder in due course?
• According to one view, X is liable for P4000 and not P1000. The reason is that the tenor of
X’s acceptance is for P4000.

EFFECT OF SECTION 124

• Under the first view, what is the effect of Section 124 which provides that a holder in due course
can recover only the original tenor of the instrument?
• It seems that this refers to the original tenor of instrument taken from the standpoint of the
person primarily liable, in X’s standpoint. In other words, the original tenor of the instrument is
P4000, which is the tenor of X’s acceptance.
• If after his acceptance, a subsequent indorsee alters the bill to read P9000, then X could be
liable for P4000 only, the original tenor of his acceptance, even as to a holder of due course.

ADMISSION OF DRAWER’S EXISTENCE, ETC.

• Drawer’s existence
• The genuineness of the drawer’s signature
• The capacity and authority of the drawer to draw the instrument
• He doesn’t admit the genuineness of the indorser’s signatures

EFFECT OF ACCEPTOR’S ADMISSIONS

1. Acceptor consequently precluded from setting up the defense that the drawer is non-existent or
fictitious because of his admission of the drawer’s existence
2. Neither can he claim the drawer’s signature is a forgery because he admits the genuineness of the
drawer’s signature
3. Neither can the drawee escape liability by alleging want of consideration between him and
the drawer as by accepting the bill, he admits the capacity and authority of the drawer to draw
the bill

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

Acceptance may be:

actual
constructive
general (Sec. 140)
qualified (Sec. 141)

Requisites of actual acceptance:

– in writing

– signed by the drawee

– must not express the drawee will perform his promise by any other means than payment of
money
- communicated or delivered to the holder

A holder has the right:

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

Constructive Acceptance:
1. where the drawee to whom the bill has been delivered destroys it
2. the drawee refuses within 24 hrs after such delivery or within such time as is given, to return the
bill accepted or not. (Sec. 137 NIL)

Sec. 137.
– drawee becomes primarily liable as an acceptor.

– mere retention is equivalent to acceptance

When presentment for acceptance is necessary:

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

LIABILITIES OF PARTIES

PRIMARY PARTIES
Person primarily liable: person who by the terms of the instrument is absolutely required to pay the
same.
Sec. 70 (effect of want of demand on principal debtor)

Liability of Maker
1. Promises to pay it according to its tenor
2. admits existence of payee and his then capacity to indorse

Status of drawee prior to acceptance or payment

sec. 127 (bill not an assignment of funds in hands of drawee)
sec. 189 (when check operates as assignment)

Liability of Acceptor
1. Promises to pay instrument according to its tenor
Admits the following:
1. existence of drawer
2. genuineness of his signature
3. his capacity and authority to draw the instrument
 4. existence of payee and his then capacity to endorse

sec. 191, 132, 133, 138 — formal requisites of acceptance

sec. 136, 137, 150 — constructive acceptance
sec. 134, 135 — acceptance on a separate instrument

Kinds of Acceptance:
1. general
2. qualified
1. conditional
2. partial
3. local
4. qualified as to time
5. not all drawees

sec. 142 (rights of parties as to qualified acceptance)

Certification: Principles
1. when check certified by bank on which it’s drawn, equivalent to acceptance
2. where holder of check procures it to be accepted/certified, drawer and all indorsers discharged
from al liability
3. check not operate as assignment of any part of funds to credit of drawer with bank, and bank is
not liable to holder, unless and until it accepts or certifies check
4. certification obtained at request of drawer: secondary parties not released
5. bank which certifies liable as an acceptor
6. checks cannot be certified before payable

SECONDARY PARTIES
Liability of Drawer
Admits existence of payee and his then capacity to endorse
Engages that on due presentment instrument will be accepted, or paid, or both, according to its tenor
and that
If it be dishonored, and the necessary proceedings on dishonor be duly taken, he will pay the amount
thereof to the holder or to an subsequent indorser who may be compelled to pay it

drawer may insert in the instrument an express stipulation negativing / limiting his own liability to
holder

Liability of Indorsers:
Qualified Indorser and one Negotiating by Delivery
1. Instrument genuine, in all respects what it purports to be
2. good title
3. all prior parties had capacity to contract
4. he had no knowledge of any fact w/c would impair validity of instrument or render it valueless
 in case of negotiation by delivery only, warranty only extends in favor of immediate transferee

Liability of a General or Unqualified Indorser

1. instrument genuine, good title, capacity of prior parties

2. instrument is at time of indorsement valid and subsisting
3. on due presentment, it shall be accepted or paid, or both, according to tenor
4. if it be dishonored, and necessary proceedings on dishonor be duly taken, he will pay the amt.
To holder, or to any subsequent indorser who may be compelled to pay it

Order of Liability among Indorsers

1. among themselves: liable prima facie in the order they indorse, but proof of another agreement
admissible
2. but holder may sue any of the indorsers, regardless of order of indorsement
3. joint payees/indorsees deemed to indorse jointly and severally

Liability of Accomodation Party

Definition: one who signed instrument as maker/drawer/acceptor/ indorser w/o receiving value
thereof, for the purpose of lending his name to some other person

AP liable on the instrument to holder for value even if holder, at time of taking instrument, knew he
was only an AP

Liability of Irregular Indorser

Where a person not otherwise a party to an instrument, places thereon his signature in blank before
delivery, he’s liable as an indorser, in accordance w/ these rules:

1. Instrument payable to order of 3rd person: liable to payee and to all subsequent parties
2. Instrument payable to the order of maker/drawer, or payable to bearer: liable to all parties
subsequent to maker/drawer
3. Signs for accommodation of payee, liable to all parties subsequent to payee

Sadaya v Sevilla Rules:

1. a joint and several accommodation maker of a negotiable promissory note may demand from
the principal debtor reimbursement for the amt. That he paid to the payee
2. a joint and several accommodation maker who pays on the said promissory note may directly
demand reimbursement from his co-accommodation maker without first directing his action vs.
the principal debtor provided:
1. he made the payment by virtue of a judicial demand
2. or the principal debtor is insolvent

Liability of an Agent
 - Signature of any party may be made by duly authorized agent, establish as in ordinary agency
- Where instrument contains or a person adds to his signature words indicating that he signs for
or on behalf of a principal, he is not liable on the instrument if he was duly authorized, but the
mere addition of words describing him as an agent without disclosing his principal, does not
exempt from personal liability.
- Signature per procuration operates as notice that the agent has but a limited authority to sign,
and the principal is bound on ly in case the agent in so signing acted within the actual limits of
his authority
- Where a broker or agent negotiates an instrument without indorsement, he incurs all liabilities
in Sec. 65, unless he discloses name of principal and fact that he’s only acting as agent
-
Presentment For Acceptance

When presentment for acceptance must be made

1. bill payable after sight, or in other cases where presentment for acceptance necessary to fix
maturity
2. where bill expressly stipulates that it shall be presented for acceptance
3. where bill is drawn payable elsewhere than at residence / place of business of drawee

When failure to present releases drawer/indorser

Failure to present for acceptance of negotiate bill of exchange within reasonable time

Reasonable Time

Must consider

1. nature of instrument
2. usage of trade or business with respect to instrument
3. facts of each case

How and When Made Sec. 145, 146, 147

When Excused Sec. 148

Dishonor and Effects

sec. 149 (when dishonored by non-acceptance)

sec. 150 (duty of holder where bill not accepted)
sec. 151 (rights of holder where bill not accepted)
sec. 89 (to whom notice of dishonor must be given)
sec. 117 (effect of omission to give notice of non-acceptance)
II. For Payment

Where necessary Sec. 70

Where not necessary Sec. 79, 80, 82, 151, 111

Date and time of presentment of instrument bearing fixed maturity Sec. 71, 85, 86, 194

Date of presentment

1. Where instrument not payable on demand: presentment must be made on date it falls due
2. Where payable on demand: presentment must be made within reasonable time after issue,
except that in case of a bill of exchange, presentment for payment will be sufficient if made
within a reasonable time after last negotiation (but note: though reasonable time from last
negotiation, it may be unreasonable time from issuance thus holder may not be HDC under sec.
71)
3. Check must be presented for payment within reasonable time after its issue or drawer will be
discharged from liability thereon to extent of loss caused by delay

Delay excused Sec. 81

Manner Sec. 74, 72, 75

Place Sec. 73

To Whom Sec. 72, 76, 77, 78

Dishonor by nonpayment Sec. 83, 84

Notice of Dishonor

General rule: to drawer and to each indorser, and any drawer or indorser to whom such notice is not
given is discharged

Form, Contents, Time Sec. 95, 96, 102, 103, 104, 105, 106, 108, 113

By Whom Given
 - By or on behalf of the holder or any 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
- Notice of dishonor may be given by an agent either in his own name or in the name of any party
entitled to give notice, whether that party be his principal or not
Where instrument has been dishonored in hands of agent, he may either himself give
notice to the parties liable thereon, or he may give notice to his principal (as if agent an
independent holder)

In whose favor notice operates

1. when given by/on behalf of holder: insures to benefit of

1. all subsequent holders and
2. all prior parties who have a right of recourse vs. the party to whom it’s given
2. where notice given by/on behalf of a party entitled to give notice: insures for benefit of a. holder ,
and
b. all parties subsequent to party to whom notice given

Waiver Sec. 109, 110

Where not necessary to charge drawer

1. drawer/drawee same person

2. drawee fictitious, incapacitated
3. drawer is person to whom instrument is presented for payment
4. drawer has no right to expect/require that drawee/acceptor will honor instrument
5. 5.drawer countermanded payment

Where not necessary to charge indorser

1. drawee fictitious, incapacitated, and indorser aware of the fact at time of indorsement
2. indorser is person to whom instrument presented for paymt
3. instrument made/accepted for his accommodation

NOTICE OF DISHONOR in Negotiable Instruments

Sec. 89. To whom notice of dishonor must be given. - Except as herein otherwise provided, when
a negotiable instrument has been dishonored by non-acceptance or non-payment, notice of dishonor
must be given to the drawer and to each indorser, and any drawer or indorser to whom such notice is
not given is discharged.

MEANING OF NOTICE
• By notice of dishonor is meant 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 hasn’t been paid, and that the party notified is expected to
paid it

NECESSITY AND PURPOSE OF NOTICE

• When an instrument is dishonored by NON-ACCEPTANCE or NON-PAYMENT, notice of such
dishonor must be given to persons secondarily liable, as the case may be. Otherwise, such
parties are discharged

BURDEN OF PROOF
• It is upon the plaintiff who seeks to enforce the defendant’s liability upon a negotiable
instrument as indorser to establish said liability by proving that notice was given to the defendant
within the time and in the manner required by the law that the instrument in question had been
dishonored
• Where these facts are not proven, the plaintiff doesn’t sufficiently establish the defendant’s
liability
• Where there is no proof in record tending to show that the plaintiff gave any notice
whatsoever to the defendant that the instrument in question had been dishonored, said plaintiff
hasn’t established its cause of action

PERSONS PRIMARILY LIABLE NEED NOT BE NOTIFIED

DOES FAILURE TO GIVE NOTICE OF DISHONOR OF A PREVIOUS INSTALLMENT TO PERSONS

SECONDARILY LIABLE ALSO DISCHARGE THEM ON THE SUCCEEDING INSTALLMNETS?
• It depends on whether the instrument contains an acceleration clause

RULE WHERE THERE IS NO ACCELERATION CLAUSE

• Where the instrument contains no acceleration clause, failure to give notice of dishonor on
previous installment doesn’t discharge drawers and indorsers as to the succeeding installments,
and therefore, the holder can file an action against them for such succeeding installments,
notice is given
• The reason is that each separate installment is equivalent to another note

RULE WHERE THERE IS AN ACCELERATION CLAUSE

• It depends whether the clause is optional or automatic
• If it is automatic, failure to give notice of dishonor as to a previous installment will
discharge the persons secondarily liable as to the succeeding installments
• If it is optional and it is not exercised, the rule would be the same as where there is no acceleration
clause

EXCEPTIONS TO REQUIREMENT OF NOTICE

• The law provides for exceptions on failure to give notice would discharge drawer or indorsers
Sec. 90. By whom given. - The notice may be given by or on behalf of the holder, or by or on behalf of
any party to the instrument who might be compelled to pay it to the holder, and who, upon taking it up,
would have a right to reimbursement from the party to whom the notice is given.

NOTICE MAY BE GIVEN BY

1. The holder
2. Another in behalf of the holder
3. Any party to the instrument who may be compelled to pay it to the holder—against any
party whom he has a right of reimbursement should such party giving notice pay the instrument
4. Another person in behalf of such party

Sec. 91. Notice given by agent. - Notice of dishonor may be given by any agent either in his own name
or in the name of any party entitled to given notice, whether that party be his principal or not.

NOTICE OF AGENT
• Notice may be given by the agent and it is not necessary that the agent be authorized by the
principal
• He may give the notice in his name or in the name of his principal
• A collecting bank may give notice, and where it has done so, no notice from the owner is necessary
• And where the cashier of the drawee bank which had refused to pay a check gave the check to a
notary to protest, which was done, it was held that the possession of the check by the cashier was
evidence of his agency of the holder to present it for protest

Sec. 92. Effect of notice on behalf of holder. - Where notice is given by or on behalf of the holder, it
inures to the benefit of all subsequent holders and all prior parties who have a right of recourse
against the party to whom it is given.

MEANING OF BENEFIT
• Benefit refers to the right to charge the person secondarily liable who received notice
• The party to whom this benefit inures can charge the party receiving notice of dishonor, even if
himself didn’t give the notice

INURES TO THE BENEFIT OF THE FOLLOWING

1. All parties prior to the holder, who have a right of recourse against the party to whom the
notice is given
2. All holders subsequent to the holder giving notice

Sec. 93. Effect where notice is given by party entitled thereto. - Where notice is given by or on
behalf of a party entitled to give notice, it inures to the benefit of the holder and all parties
subsequent to the party to whom notice is given.

APPLICATION OF THIS SECTION

• Follows the same principle as the preceding section but this time, the 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 t up, would have a right of reimbursement from the party to whom notice is given

Sec. 94. When agent may give notice. - Where the instrument has been dishonored in the hands of
an agent, he may either himself 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 within the same time as if he were
the holder, and the principal, upon the receipt of such notice, has himself the same time for
giving notice as if the agent had been an independent holder.

WHEN AGENT’S NOTICE MUST BE GIVEN

• When an instrument is dishonored in the hands of an agent, he can do either of the following
o Directly give notice to the persons secondarily liable thereon
o Give notice to his principal
• 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
• The principal has also the same time to give notice to the persons secondarily liable

Sec. 95. When notice sufficient. - A written notice need not be signed and an insufficient written
notice may be supplemented and validated by verbal communication. A misdescription of the
instrument does not vitiate the notice unless the party to whom the notice is given is in fact misled
thereby.

Sec. 96. Form of notice. - The notice may be in writing or merely oral and may be given in any terms
which sufficiently identify the instrument, and indicate that it has been dishonored by non-
acceptance or non-payment. It may in all cases be given by delivering it personally or through the
mails.

FORM AND CONTENTS OF NOTICE

• It may be oral or in writing
• Whether oral or in writing, it must contain

1. SUFFICIENT DESCRIPTION OF THE INSTRUMENT TO IDENTIFY IT,

and
2. A STATEMENT THAT IT HAS BEEN PRESENTED FOR PAYMENT AND FOR ACCEPTANCE, AND THAT IT
HAS BEEN DISHONORED, and
3. A STATEMENT THAT THE PARTY GIVING NOTICE INTENDS TO LOOK FOR THE PARTY ADDRESSED
FOR PAYMENT

EFFECTS OF DEFECTS IN NOTICE

• If the notice is not signed, it will not invalidate it
• If the notice is written and doesn’t contain #2 and #3, it can be supplemented by oral
communication stating the things lacking
• If there is misdescription, it would only vitiate the notice if the person is misled thereby
NOTICE BY PHONE
• This could be done however it must be shown that the party to be notified was really
communicated with, that is, fully identified as to the party at the receiving end of the line

MANNER OF GIVING NOTICE

• May be given by personal delivery or by mail

Sec. 97. To whom notice may be given. - Notice of dishonor may be given either to the party himself or
to his agent in that behalf.

NOTICE MAY BE GIVEN

1. To the party himself
2. To his agent in his behalf
• An accommodation indorser is entitled to notice
• An irregular indorser must also be given notice if he is to be charged
• And if notice is given to an agent, he must be duly authorized to receive the notice of
dishonor

AGENT DISTINGUISHED FROM PERSON PRESENT IN ABSENCE OF PARTY

• Notice to agent must be distinguished from notice attempted to be given to party himself
where he is absent at his place of business or residence. In such a case, the notice may be left with
anyone found in charge therein

Sec. 98. Notice where party is dead. - When any party is dead and his death is known to the party giving
notice, the notice must be given to a personal representative, if there be one, and if with
reasonable diligence, he can be found. If there be no personal representative, notice may be
sent to the last residence or last place of business of the deceased.

REQUISITES FOR NOTICE TO REPRESENTATIVE

1. Death is known to the party giving notice
2. There is a personal representative
3. If with reasonable diligence he could be found

WHEN NOTICE MAY BE SENT TO THE LAST RESIDENCE OR PLACE OF BUSINESS

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 there is no personal
representative
3. If there be one but he cannot be found with reasonable diligence

Sec. 99. Notice to partners. - Where the parties to be notified are partners, notice to any one partner
is notice to the firm, even though there has been a dissolution.
Sec. 100. Notice to persons jointly liable. - Notice to joint persons who are not partners must be given
to each of them unless one of them has authority to receive such notice for the others.

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 benefit of creditors, notice may be given either to the party himself or to
his trustee or assignee.

APPLICATION OF SECTION
1. Where the party secondarily liable has been declared a bankrupt or an insolvent
2. Where he has made an assignment of his properties for the benefits of creditors
• In such cases, notice be given to the party himself or 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.

MAY NOTICE OF DISHONOR BE GIVEN BEFORE THE DATE OF MATURITY

• No, such notice would be insufficient because an instrument cannot be said to be dishonored
for non-payment unless presented and presentment must be made on the date of maturity unless
of course, presentment is excused
• But even in such cases, the instrument cannot be said to be dishonored by non-payment
unless it is overdue and unpaid
• Notice of dishonor can be given only after the instrument has been actually dishonored, and
notice given before the paper due is premature and insufficient, regardless of the indorser’s
knowledge that the maker was in default

MAY NOTICE OF DISHONOR BE GIVEN ON THE DATE OF MATURITY?

• Yes, provided that the instrument has been presented for payment and is has been dishonored
• But if the instrument is payable at a bank, it is not dishonored if the maker deposits the amount
of the instrument before the close of banking hours. Hence, notice of dishonor must be given
after the close of banking hours on the date of maturity

PURPOSE OF PROMPT NOTICE

• To give the persons secondarily liable every opportunity to secure themselves such as to
enable the party to be charged to preserve and protect his rights against prior parties

Sec. 103. Where parties reside in same place. - Where the person giving and the person to receive
notice reside in the same place, notice must be given within the following times:

(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. - Where the person giving and the person to
receive notice reside in different places, the notice must be given within the following times:

(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 last day, by the next
mail thereafter.

(b) If given otherwise than through the post office, then within the time that notice would have
been received in due course of mail, if it had been deposited in the post office within the time
specified in the last subdivision. (TO REACH HIM IN USUAL COURSE THE DAY FOLLOWING)

TIME FOR GIVING NOTICE IN GENERAL

• The law provides for a different period for giving notice of dishonor depending on whether—
the party giving notice and the party to receive notice reside in the same place; or the party giving
notice and the party to receive reside in different places

MEANING OF “THE SAME PLACE”

• Refers to the corporate limits of a town or city where the presentment is made or where the holder
resides

EFFECT OF NOTICE GIVEN OUT OF TIME

• Unless excused, notice given out of time would be considered not to have been given
• Hence, the party to receive notice would be discharged

Sec. 105. When sender deemed to have given due notice. - Where notice of dishonor is duly
addressed and deposited in the post office, the sender is deemed to have given due notice,
notwithstanding any miscarriage in the mails.

APPLICATION OF SECTION 105

• 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, even when there is miscarriage of mail

CONCLUSIVE PRESUMPTION

Sec. 106. Deposit in post office; what constitutes. - Notice is 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 the
post-office department.
DEPOSIT IN LETTER BOX
• The letter box must be under the control of the post office department
• Otherwise, notice wouldn’t deemed to have been deposited in the post office
• 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 held not a mailing of the notice as required by the
statute

Sec. 107. Notice to subsequent party; time of. - Where a party receives notice of dishonor, he
has, after the receipt of such notice, the same time for giving notice to antecedent parties that the
holder has after the dishonor.

Sec. 108. Where notice must be sent. - Where a party has added an address to his signature, notice
of dishonor must be sent to that address; 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 is
accustomed to receive 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.

But where the notice is actually received by the party within the time specified in this Act, it
will be sufficient, though not sent in accordance with the requirement of this section.

Sec. 109. Waiver of notice. - Notice of dishonor may be waived either before the time of giving
notice has arrived or after the omission to give due notice, and the waiver may be expressed or
implied.

WHEN WAIVER MAY BE MADE

1. Before the time of giving notice, such as express waiver in the body of the instrument or
added to the signature of the party
2. After omission to give due notice

IMPLIED WAIVER
• Waiver may be implied from acts, declarations, or silence

Sec. 110. Whom affected by waiver. - Where the waiver is embodied in the instrument itself, it is
binding upon all parties; but, where it is written above the signature of an indorser, it binds him only.

WHOM AFFECTED BY WAIVER IN GENERAL

• The persons affected by waiver depends upon whether the waiver is in the instrument itself or is
written above the signature of the indorser
• If the waiver is embodied in the instrument itself, it is binding upon all parties
• If the waiver is written above the signature of an indorser, it binds him
only
Sec. 111. Waiver of protest. - A waiver of protest, whether in the case of a foreign bill of exchange or
other negotiable instrument, is deemed to be a waiver not only of a formal protest but also of
presentment and notice of dishonor.

WHERE PROTEST IS WAIVED, THE FOLLOWING ARE INCLUDED AND ARE DEEMED WAIVED ALSO
1. Presentment
2. Notice of dishonor
• Where presentment for payment is waived, notice of dishonor is also waived
• But where notice of dishonor is waived, presentment for payment is not waived

Sec. 112. When notice is dispensed with. - Notice of dishonor is dispensed with when, after the
exercise of reasonable diligence, it cannot be given to or does not reach the parties sought to be
charged.

WHEN NOTICE EXCUSED

• When political disturbances interrupt and obstruct the ordinary negotiations of trade,
they constitute a sufficient excuse for want of presentment or notice, upon the same principle that
controls in cases of military operations or interdictions of commerce
• Prevalence of a malignant, contagious, infectious disease…

Sec. 113. Delay in giving notice; how excused. - Delay in giving notice of dishonor is excused
when the delay is caused by circumstances beyond the control of the holder and not imputable to his
default, misconduct, or negligence. When the cause of delay ceases to operate, notice must be given
with reasonable diligence.

Sec. 114. When notice need not be given to drawer. - Notice of dishonor is not required to be
given to the drawer in either of the following cases:

(a) Where the drawer and drawee are the same person;

(b) When the drawee is fictitious person or a person not having capacity to contract;

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

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

(e) Where the drawer has countermanded payment.

Sec. 115. When notice need not be given to indorser. — Notice of dishonor is not required to be given
to an indorser in either of the following cases:
 (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 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.

WHEN NOTICE RELATIVELY EXCUSED

1. Where he has knowledge of the dishonor by means other than through a formal notice, as
when he is both the drawee and drawer or when presentment is made to him
2. Where he has no reason to expect that the instrument will be honored, as when he has
countermanded payment or where the drawee is fictitious or without capacity to contract

NO RIGHT TO EXPECT OR REQUIRE PAYMENT AS TO DRAWER

1. Where the drawer of the check has no account with the drawee bank
2. When the drawer of a check payable abroad has no funds with the drawee bank to meet it
3. When the knowledge that previous drafts on the same consignee had been dishonored.
• In the foregoing, the drawer has no right to receive notice of dishonor

DRAWER HAS COUNTERMANDED PAYMENT

• A drawer tells drawee B not to pay the bill. F holder need not give notice to A drawer. An
allegation that payment of a check had been countermanded is sufficiently set out where the check
was set forth with the indorsement across the face “Payment stopped”

DRAWEE FICTITIOUS, ETC. MUST BE MADE KNOWN AS TO INDORSERS

• The indorser must be aware of the fact that the drawee is fictitious or not having capacity to
contract. Otherwise, notice of dishonor must be given to such indorser to charge him. But the fact
that that the indorser knew the maker to be insolvent or that the instrument was dishonored
doesn’t dispense with the necessity of notice

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. - An omission to give notice of dishonor
by non-acceptance does not prejudice the rights of a holder in due course subsequent to the
omission.

SUMMARY AS TO NOTICE OF DISHONOR

1. Like presentment for payment, notice of dishonor need not be given to persons primarily liable
in order to charge them
2. But aside from presentment for payment to persons primarily liable, notice of dishonor to
persons secondarily liable is necessary to charge the latter except—
a. When notice is waived
b. When dispensed with under Section 112
c. As to drawer, under Section 114
d. As to indorser, under Section 115
e. Where due notice of dishonor by non-acceptance has been given
f. As to a holder in due course without notice

Sec. 118. When protest need not be made; when must be made. - Where any negotiable instrument
has been dishonored, it may be protested for non-acceptance or non-payment, as the case may be;
but protest is not required except in the case of foreign bills of exchange.

WHEN PROTEST NECESSARY

• Protest is necessary with regard foreign bills of exchange
• Mere fact of protest is not conclusive upon the dishonor of the instrument and due notice
to the indorser; other evidence is competent on these questions
• While protest is not required in cases of promissory notes and inland bills, it is usual to protest
these instruments also when dishonored since the notary’s certificate of protest is the most
convenient and certain mode of proving the facts