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Example
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.
Requisites
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)
Gullas vs PNB
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.
Acceleration Clause
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
Form of Notice
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)
Modes of delivery
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)
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.