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Dishonored  Negotiable Instruments

Sec.  83.  When  instrument  dishonored  by  non-payment.  -  The instrument is dishonored by non-payment when:

(a) It is duly presented for payment and payment is refused or cannot be obtained; or

(b) Presentment is excused and the instrument is overdue and unpaid. 

WHEN PAYMENT REFUSED, ETC.

•      The  instrument  must  be  duly  presented  for  payment  and payment  is either refused or cannot be obtained

WHEN PRESENTMENT IS EXCUSED

•      Presentment for payment is excused
•      Instrument is overdue
•      It is unpaid

Sec.  84.  Liability  of  person  secondarily  liable,  when  instrument dishonored.  -  Subject  to  the  provisions  of  this  Act,  when  the instrument  is  dishonored  by  non-payment,  an  immediate  right  of recourse  to  all  parties  secondarily  liable  thereon  accrues  to  the holder.

AFTER DISHONOR, INDORSERS, ETC. ARE PRIMARILY LIABLE


•      As to holder, after an instrument is dishonored by non-payment , the persons secondarily liable thereon ceases to be secondarily liable
•      They become principal debtors and their liability becomes the same as that of the principal obligors—provided a notice of dishonor has been given to them
•      If no notice is given, they are discharged
•      If they are charged by dishonor and notice, while it is true that they become principal debtors as to the holder, yet as among themselves, persons  secondarily  liable  are  presumed  liable  in  the  order  that  they
become parties to the instrument

CASE DIGEST:

PNB V. SEETO, 91 SCRA 757

FACTS:

Seeto called at a branch of bank and presented a check payable to cash or bearer,  and  drawn  by  Kiao  against  PBC.    After  consultation  with  the employees, Seeto made a general and qualified indorsement of the check.  He  was  then  paid  the  amount  of  the  check  by  bank.    The  check  was consequently  dishonored,  a  letter  was  sent  to  Seeto  and  was  asked  to refund the money given to him.  A second letter was sent to him and he averred that case against him be deferred while he inquired about why the
check  was  dishonored.    Thereafter,  he  refused  to  pay,  alleging  that  the account against the check was drawn had sufficient funds when the check was drawn and if the bank didn’t delay in clearing the check, there would have been sufficient funds.  

The appellate court reversed the lower court in its decision.  It ruled that the bank was guilty of unreasonably retaining and withholding the check, and that the delay in the presentment was inexcusable, so that respondent thereby was discharged from liability.

HELD:

Section 84 is applicable, nonetheless, it should be read in correlation with Section  186,  which  says  that  presentment  should  be  within  reasonable time.