b. all parties subsequent to party to whom notice given
5.8. When rule requiring notice not applied
1. In general
a. Sec 112: 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 b. Reasonable diligence depends upon the circumstance of the case
2. When notice of non-acceptance is already given
a. Sec 116: Where due notice of dishonor by non-acceptance has been given, notice of a subsequent debtor by non-payment is not necessary, unless in the meantime the instrument has been accepted
b. Ratio for the rule: dishonor by non-acceptance confers upon the holder an immediate right against all secondary parties 3. Waiver
a. Waiver of notice may be made either:
i before the time of giving notice has arrived or
ii after the omission to give due notice; may be expressed or implied. (Sec. 109, NIL)
b. Parties affected by waiver
i. Dependent upon where the waiver is written
ii. Where the waiver is embodied in the instrument itself - binding upon all parties;
iii. where written above the signature of an indorser - binds him only. (Sec.
110, NIL)
5.9. When Notice Not Necessary
1.When not necessary to charge drawer (Sec. 114, NIL)
a. drawer/drawee same person b. drawee fictitious, incapacitated
c. drawer is person to whom instrument is presented for payment
d. drawer has no right to expect/require that drawee/acceptor will honor instrument e. drawer countermanded payment STATE INVESTMENT HOUSE v CA (1993)
Moulic issued 2 checks to Victoriano as security for pieces of jewelry to be sold on commission.
Victoriano negotiated these checks to State Investment. As Moulic failed to sell the jewelry, she returned them to Victoriano. However, she failed to retrieve her checks. Moulic withdrew her funds from the drawee bank. Upon presentment, the checks were dishonored.
HELD: State Investment is a holder in due course &
is not subject to the personal defense of lack of consideration.
There is no need to serve the drawer a notice of dishonor because she was responsible for the dishonor of her checks. After withdrawing her funds, she could not have expected her checks to be honored.
2. Where not necessary to charge indorser (Sec. 115, NIL)
a. drawee fictitious, incapacitated, and indorser aware of the fact at time of indorsement
b. indorser is person to whom instrument presented for payment
c. instrument made/accepted for his accommodation
7. Protest
A. Definition: testimony of some proper person that the regular legal steps to fix the liability of drawer and indorsers have been taken
B. When necessary:
1. In case of a FOREIGN BILL appearing on its face to be such;
2. protest for non-acceptance if dishonored by nonacceptance &
3. protest for nonpayment if not previously dishonored by nonpayment.
4. Effect of failure to protest: the drawer and indorsers are discharged. (Sec. 152, NIL) C. Form
1. annexed to the bill or must contain a copy thereof, and
2. must be under the hand and seal of the notary making it;
D. Contents
1. The time and place of presentment;
2. The fact that presentment was made and the manner thereof;
3. The cause or reason for protesting the bill;
4. The demand made and the answer given, if any, or the fact that the drawee or acceptor could not be found. (Sec. 153, NIL).
E. By whom
1. A notary public; or
2. any respectable resident of the place where the bill is dishonored, in the presence of two or more credible witnesses. (Sec. 154, NIL) F. Time
1. on the day of its dishonor unless delay is excused;
2. when duly noted, the protest may be subsequently extended as of the date of the noting. (Sec. 155, NIL);
G. Place
1. at the place where it is dishonored,
2. EXCEPT bill drawn payable at the place of business or residence of person other than the drawee has been dishonored by nonacceptance,
a. it must be protested for non-payment at the place where it is expressed to be payable, and
b. no further presentment for payment to, or demand on, the drawee is necessary.
(Sec. 156, NIL)
H. Protest for better security against the drawer and indorsers — where the acceptor has been adjudged a bankrupt or an insolvent or has made an assignment for the benefit of creditors before the bill matures (Sec. 158, NIL)
I. Delay excused 1. Requisites:
a. when caused by circumstances beyond the control of the holder, and
b. not imputable to his default, misconduct, or negligence.
2. When the cause of delay ceases to operate, the bill must be noted or protested with reasonable diligence.;
J. When protest dispensed with - by any circumstances which would dispense with notice of dishonor. (Sec. 159, NIL)
K. Waiver of protest: deemed to be a waiver not only of a formal protest but also of presentment and notice of dishonor. (Sec. 111, NIL)
TAN LEONCO v GO INQUI(1907)
In exchange for the abaca from Tan Leonco's plantations, Go Inqui drew a bill of exchange against Lim Uyco. Upon presentment of the draft, it was refused payment due to a stop order from the drawer. The bill was not protested.
HELD: The action is not brought upon the bill of exchange which was used only as evidence of the indebtedness. Under these conditions, protest & notice of nonpayment are
unnecessary in order to render the drawer liable.
NOTE: The ruling of the Court on protest is merely obiter dictum.
8. Acceptance or Payment for Honor
A. Acceptance
1. Practice of accepting for honor is obsolete 2. When bill may be accepted for honor. —
When a BE has been (1) protested for dishonor by non-acceptance or protested for better security and (2) is not overdue à any person not being a party already liable may, with the CONSENT of the holder, intervene and accept the bill supra protest for the honor of any party liable thereon or for the honor of the person for whose account the bill is drawn.
3. The acceptance for honor may be for part only of the sum for which the bill is drawn;
4. where there has been an acceptance for honor for one party, there may be a further acceptance by a different person for the honor of another party. (Sec. 161, NIL) 5. Referee in case of need — person whose
name is inserted by the drawer of a bill and any indorser to whom the holder may resort in case bill is dishonored by non-acceptance or non-payment; option of the holder to resort to the referee (Sec. 131, NIL)
B. PAYMENT FOR HONOR - any person may intervene and pay bill protested for non-payment supra protest (Sec. 171, NIL) 6.3 INSTRUMENTS PAYABLE AT BANK
Sec 87: Where the instrument is made payable at a bank, it is equivalent to an order to the bank ton pay the same for the account of the principal debtor therein
BINGHAMPTON PHARMACY v FIRST NATIONAL BANK (1915)
There is a distinction between the drawer of a check
& the maker of a note payable at a bank:
Note payable at bank
Check
maker of a note is primarily liable on the instrument
drawer of a check is only liable after dishonor
Law excuses presentment of the instrument
requires presentment within a reasonable time at the peril of discharging the drawer
obligation of the maker of a note is not a conditional
Breach of the duty of the holder of a check to present for
promise to pay only at a special place, but is a promise to pay generally, even though a place of payment
payment at the place where it is payable at a reasonable time discharges the drawer from liability to the extent he is damaged by the breach.
9. Bills in Set
A. composed of various parts being numbered, and containing a reference to the other parts, all of which parts constitute one bill of lading
B. Bills in set constitute one bill. (Sec. 178, NIL)
C. Right of HDCs where different parts are negotiated. — the holder whose title first accrues is the true owner of the bill. But nothing in this section affects the right of a person who, in due course, accepts or pays the parts first presented to him. (Sec. 179., NIL)
D. Liability of holder who indorses two or more parts of a set to different persons. — liable on every such part, and every indorser subsequent to him is liable on the part he has himself indorsed, as if such parts were separate bills. (Sec. 180, NIL)
E. Acceptance - may be written on any part and it must be written on one part only. If the drawee accepts more than one part and such accepted parts negotiated to different holders in due course, he is liable on every such part as if it were a separate bill. (Sec.
181, NIL)
F. Payment - When the acceptor of a bill drawn in a set pays it without requiring the part bearing his acceptance to be delivered up to him, and the part at maturity is outstanding in the hands of a holder in due course, he is liable to the holder thereon.
(Sec. 182, NIL)
G. Effect of discharging one of a set. — Except as herein otherwise provided, the whole bill is discharged. (Sec. 183, NIL)
Chapter VII.
DISCHARGE
1. Definition: Discharge
The release of all parties, whether primary or secondary, from the obligation on the instrument;
renders the instrument non-negotiable
2. Discharge of the INSTRUMENT
2.1. How discharged: (Sec 119)
71. By Payment in due course
a. Sec. 88: Payment is made in due course when it is made:
i at or after the maturity of the payment
o if payment is made before maturity and the note is negotiated to a HDC, the latter may recover on the instrument.
ii to the holder thereof
o payment to one of several payees or indorsees in the alternative discharges the instrument,
o but payment to one of several joint payees or joint indorsers is not a discharge. The party receiving payment must have been authorized by others to receive payment.
iii in good faith and without notice that his title is defective
b. By whom made:
i payment in due course by or on behalf of principal debtor
ii payment in due course by party accommodated where party is
made/ accepted for
accommodation
c. When check deemed paid by drawee bank
i Once the holder receives the cash ii If the bank credits the amt of the
check to the depositor’s account iii Where the drawee bank charges
the check to the account, indicating intention to honor the check
2. intentional cancellation by holder
a. if unintentional or under mistake or without authority of holder, inoperative;
b. where instrument or signature appears to have been cancelled, burden of proof on party which alleges it was unintentional, etc. (Sec. 123, NIL) 3. any other act which discharges a simple
contract for payment of money
a. ex. issuance of a renewal note—
novation
b. Refer to Art 1231 of the Civil Code
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Suggested Mnemonics: PICk ROAD: Payment in due course, Intentional Cancellation, Renunciation, any Other Act, Debtor becomes holder.
4. principal debtor becomes holder of instrument at or after maturity in his own right
5. renunciation of holder: (Sec. 122, NIL) a. holder may expressly renounce his
rights vs. any party to the instrument, before or after its maturity
b. absolute and unconditional renunciation of his rights against PRINCIPAL DEBTOR made at or after maturity discharges the instrument
c. renunciation does not affect rights of HDC w/o notice.
d. Renunciation must be in writing unless instrument delivered up to person primarily liable thereon
material alteration – review Sec.
125, NIL: what constitutes material alteration (Sec. 124, NIL: material alteration w/o assent of all parties liable avoids instrument except as against party to alteration and subsequent indorsers)
3. OF SECONDARY PARTIES (Sec. 120, NIL)
8A. by discharge of instrument
B. intentional cancellation of signature by holder C. discharge of prior party
D. valid tender of payment by prior party
E. release of principal debtor, unless holder’s right of recourse vs. 2ndary party reserved
F. any agreement binding upon holder to extend time of payment, or to postpone holder’s right to enforce instrument, UNLESS
1. made with assent of party secondarily liable, or
2. right of recourse reserved.
G. Failure to make due presentment (Secs. 70, 144, NIL)
H. failure to give notice of dishonor
I. certification of check at instance of holder J. reacquisition by prior party
1. where instrument negotiated back to a prior party, such party may reissue and further negotiate, but not entitled to enforce payment vs. any intervening party to whom he was personally liable
2. where instrument is paid by party secondarily liable, it’s not discharged, but a. the party so paying it is remitted to his
former rights as regard to all prior parties
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