| SUBJECT: The Rule on ‘Presentment for Payment’ and Dishonor |
I. Introduction
This memorandum exhaustively examines the rules governing presentment for payment and dishonor under Philippine mercantile law, primarily codified in the Negotiable Instruments Law (Act No. 2031, hereafter “NIL”). The doctrines of presentment and dishonor are fundamental to the enforcement of liability on negotiable instruments such as checks, promissory notes, and bills of exchange. These procedures serve as conditions precedent to holding secondary parties (e.g., indorsers) liable. Failure to comply with these rules may result in the discharge of these parties from their contingent liability. This memo outlines the purposes, methods, time requirements, excuses for delay or non-presentment, and the consequences of dishonor.
II. Definition and Purpose of Presentment for Payment
Presentment for payment is the exhibition of a negotiable instrument to the person primarily liable for payment (the drawee of a bill or check, or the maker of a note), demanding payment thereof. Its primary purposes are: (1) to charge secondary parties (indorsers) and thereby preserve recourse against them; (2) to notify the person primarily liable that the instrument is due and demand payment; and (3) to determine whether the instrument will be paid or dishonored, which then triggers the right to recourse. Under Section 70 of the NIL, presentment for payment is not necessary to charge the person primarily liable (e.g., the maker of a note or the acceptor of a bill), as their obligation is unconditional. However, it is generally required to charge secondary obligors.
III. When Presentment for Payment is Required
Section 70 of the NIL enumerates the instances when presentment for payment is necessary to charge secondary parties:
(a) Where the instrument is payable on demand, presentment must be made within a reasonable time after the secondary party becomes liable (i.e., after his indorsement). For a check, it must be presented for payment within a reasonable time after its issue (Section 71, NIL).
(b) Where the instrument is payable at a fixed or determinable future date, presentment must be made on the date it falls due.
Furthermore, presentment is required under Section 80 to charge the drawer of a bill of exchange, and under Section 89 to charge an accommodation party.
IV. Manner and Place of Presentment
The NIL provides specific rules for the proper manner of presentment:
V. Time for Presentment for Payment
VI. Dishonor by Non-Payment
Dishonor by non-payment occurs when a negotiable instrument is duly presented for payment and payment is refused or cannot be obtained, or when presentment is excused and the instrument is overdue and unpaid (Section 83, NIL). The fact of dishonor must be evidenced, either by a formal protest (for foreign bills) or by any other means sufficient to establish the fact, such as a bank’s stamped notation of “dishonor” or a written notice. Dishonor triggers the holder’s right of recourse against secondary parties, provided notice of dishonor is given.
VII. Excuses for Delay or Non-Presentment
Sections 81 and 82 of the NIL outline circumstances that excuse delay in presentment or dispense with it entirely. These are crucial defenses that may prevent the discharge of secondary parties. The following table compares the excuses for delay and the excuses which dispense with presentment entirely.
| Excuse for Delay in Presentment (Sec. 81) | Excuse Which Dispenses With Presentment Entirely (Sec. 82) |
|---|---|
| Delay is caused by circumstances beyond the control of the holder (e.g., force majeure), and not imputable to his default, misconduct, or negligence. | Where the drawee is a fictitious person or lacks capacity to contract. |
| The holder has no notice that the instrument is due, having presented it with all reasonable diligence. | Where after the exercise of reasonable diligence, presentment cannot be made. |
| The delay is with the drawee’s assent, express or implied. | Where the instrument is not payable on demand, and the acceptor or maker is insolvent. |
| Where presentment is waived, expressly or impliedly, by the party entitled to presentment. Waiver may be written on the instrument or separate. | |
| Where the drawee or maker has countermanded payment (e.g., a stop-payment order on a check). | |
| Where the primary obligor has no right to expect or require that the holder will present the instrument (e.g., in certain accommodation scenarios). |
VIII. Notice of Dishonor
Following a dishonor, the holder or any party who may be compelled to pay the instrument must give notice of dishonor to secondary parties (e.g., indorsers, drawers) to charge them. The rules on timeliness, manner, and form are strict (Sections 96-108, NIL). Notice must be given not later than the day after the dishonor (or after the day of notice of dishonor is received, for an indorser). Failure to give proper notice of dishonor discharges the secondary party from liability, unless excused under Sections 112-116 of the NIL (e.g., waiver, circumstances beyond control, inability with reasonable diligence to give notice).
IX. Protest
A protest is a formal, notarial act attesting to the fact of dishonor. Under the NIL, protest is required only for foreign bills of exchange (Section 152, NIL). For inland bills or other instruments, a protest or any other evidence of dishonor is sufficient. The protest must be made by a notary public and must specify the circumstances of presentment, dishonor, and the fact that notice of dishonor was given.
X. Consequences of Failure to Present and Dishonor
The ultimate consequence of failing to make a proper presentment for payment (when required and not excused) is the discharge of secondary parties from their liability on the instrument. Specifically:
However, the person primarily liable (the maker or acceptor) is not discharged by the mere failure to present, as their obligation is absolute. Their liability may only be extinguished by payment, renunciation, or other modes of discharge under Section 119 of the NIL. A valid dishonor, followed by proper notice, preserves the right of recourse against all parties secondarily liable, allowing the holder to enforce payment from them.
