Sections 89-119 of the Negotiable

Instruments Law
 To bring either verbally or by writing, to the
knowledge of the drawer or indorser of an
instrument, the fact that a specified NI, upon
proper proceedings taken, has not been accepted
or has not been paid, and that the party notified
is expected to pay it
 notice given by the holder or his agent to a party
or parties secondarily liable that the instrument
was dishonored by non-acceptance by the
drawee of a bill, or by non-payment by the
acceptor of a bill or by non-payment by a maker
of a note.
 NOTE: A notice given by a notary public is
called PROTEST
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
each indorser, and any drawer or indorser to
whom such notice is not given is discharged.
 (GENERAL RULE: MUST be given to drawer and
to each indorser, and any drawer or indorser
to whom such notice is not given is
discharged
 EXCEPTIONS: Sections 109, 111, 112, 114,
115, 116 and 117)
 When there has been waiver of notice (Sec. 109);
 When there has been waiver of protest (Sec. 111);
 When notice is dispensed with (Sec. 112);
 When notice need not be given to drawer (Sec. 114);
 When notice need not be given to indorser (Sec. 115);
 When notice of non-payment where accepted refused
(Sec. 116);
 When prior holder omitted to give notice and the NI is
in the hands of a subsequent holder in due course (Sec.
117).
 A borrowed money from C, but C does not trust
A. C then suggests for A to ask B to execute a
promissory note with C. B agrees. C then
transferred the instrument to D. D then goes to A
for payment but A is already bankrupt. D then
notifies C but he is also bankrupt. D then goes
after B who argues that he is discharged for he
was not given a notice of dishonor.
 Is B correct?
 No. When he signed as an accommodation
maker, he became primarily liable on the
instrument and thus, he is not entitled to notice
of dishonor.
NOTE:
 Although the indorser to whom notice is not
given is discharged, he is still liable for
breach of warranties pertaining to the
instrument.
 The holder is not required to notify ALL the
indorsers.
 The loss of a note does not excuse
compliance with Sec. 89.
An instrument is 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.
1. Given by holder or his agent, or by any
party who may be compelled by the holder
to pay (sec. 90)
2. Given to secondary party or his agent (sec.
97)
3. Given within the periods provided by law
(sec 102)
4. Given at the proper place (secs. 103 &
104)
 Only the drawer and indorsers or their agents are
entitled to notice of dishonor.
◦ In case of non-acceptance of a bill- to persons
secondarily liable, namely, the drawer and indorsers as
the case may be.
◦ In case of non-payment (both bill and note) – indorsers.

 Accommodation indorsers are included

◦ A joint maker, though a surety, is not an indorser and is
primarily liable and, therefore, not entitled to notice of
dishonor.
◦ Even an accommodation maker is not entitled to notice.
 At the request of F, R corporation (assignor) granted X
discounting privileges which R had with E corporation
(assignee). X issued a post-dated check payable to R
which, following the discounting process, indorsed the
check in favor of E. Thereafter, E issued a check payable to
R which indorsed it in favor of X. X then made use of and
negotiated the check.

 Accompanying the exchange of checks was a deed of

assignment executed by R in favor of E with the conformity
of X. Under the said deed, subject of the discounting was
the aforecited check. At the back thereof, was a suretyship
agreement whereby F unconditionally guaranteed to E the
full, faithful and prompt payment and discharge of any and
all indebtedness of R.
 The check, however was dishonored by the
drawee-bank upon presentment for payment.
E immediately reported the matter to F who
thereupon issued a substitute check in favor
of E which was again dishonored.
 Despite repeated demands, R and F failed to
settle the obligations with E, thus prompting
the latter to institute an action in court.
 For its defense, R argues among others, that
it was actually discharged of its liability over
the substitute check when E failed to give its
notice of dishonor.
 Issue: Is the assignor liable to its assignee
for its dishonored checks?
 Held: Yes. An assignment of credit done
onerously has an effect similar to that of a
sale. If there be any breach of the
warranties provided in Art. 1628, the
assignor-vendor should be held answerable
therefor. E is actually enforcing the deed of
assignment and the check covered thereby
is merely an incidental or collateral matter.
This particular check merely evidenced the
credit which was actually assigned to E. R is
being held liable for both checks.
 It is only what is represented by the said
checks that R is being asked to pay. As long
as credit remains outstanding, it shall
continue to be liable to E as its assignor.
 The dishonor of an assigned check simply
stresses its liability and the failure to give
notice of dishonor will not discharge R from
such liability. This is because the cause of
action stems from the breach of warranties
embodied in the deed of assignment and
not from the dishonoring of the check
alone.
 Treasury warrants were indorsed by Gullas and
Lopez. These were presented for encashment by
PNB. Subsequently, these were dishonored by the
Insular Treasurer. Because of the dishonor, PNB
applied Gullas’ deposit in the PNB for payment of
the warrant.

 Is the application of the deposit of Gullas

properly enforced?

 No.
 A notice of dishonor is necessary to charge an
indorser & that the right of action against him
does not accrue until the notice is given.
As a general rule, a bank has a right of set-off
of the deposits in its hands for the payment of
any indebtedness to it on the part of a
depositor. However, prior to the mailing of
notice of dishonor & without awaiting any
action by Gullas, the bank made use of the
money standing in his account to make good
for the treasury warrant. Gullas was merely an
indorser & notice should actually have been
given to him in order that he might protect his
interests.
 If clause is optional to the holder:
◦ The bringing of an action against the
maker and indorsers constitutes a valid
exercise of option and a valid notice of
dishonor

 If clause is automatic:
◦ Notice of dishonor must be given at once
◦ Not sufficient to give it upon
commencement of action
Section 95 and 96 NIL
 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.
 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 nonpayment. It may in all cases
be given by delivering it personally or
through the mails.

 (NOTE: The word “may” in this section has

been construed to mean “must.”)
 Notice of dishonor may be in writing or merely
oral.
◦ Notice may thus be given by telephone, provided
it be clearly shown that the party notified was
really communicated with, that is fully identified
as the party at the receiving end of the line.
◦ Notice may also be sent by telegraph.
◦ Notice must be in a language that will inform the
addressed party that the instrument has been
duly presented (Campos)
 Whether written or oral, the notice must set
forth:
1. The identity of the instrument;
2. The fact that it has been dishonored by
non-acceptance or non-payment; and
3. A statement that the party giving notice
intends to look to the party addressed for
payment.
 Personal service
◦ There must be actual personal service, or
◦ An ordinary intelligent and diligent effort to make
personal service

 Through the mails

 Through the telephone

◦ Party to be notified must be fully identified as the
party at the receiving end of the line (Campos)
 GENERAL RULE: Defect in notice shall not
invalidate it.

 Section 95 contemplates the following cases:

◦ Lack of signature or insufficiency
 Failure to state in the notice of dishonor the date of
making and maturity of a note, and the name of the
payee does not invalidate the notice.
◦ Misdescription of instrument
 Neither does misdescription of the instrument,
such as, as to the amount, or the date, or the
names of the parties, or the date of maturity, or
other defect vitiates the notice unless it misleads
the party to whom it is sent.

◦ Lack of statement of recourse to indorser

 A notice of dishonor need not state that the
sender looks to the indorser for payment, where
it may be inferred that the indorsee looks to the
indorser, and no other inference could
reasonably be drawn from the notice.