Notice of Dishonor: Quick Refresher
Under the Negotiable Instruments Law (NIL, Act No. 2031), an instrument (e.g., cheque, bill of exchange, promissory note) is “dishonored” when the drawee or maker refuses acceptance or payment at maturity (NIL §§83–87). To keep secondary parties (drawers and indorsers) liable, the holder must give them “notice of dishonor” within the times and in the manner the NIL prescribes (primarily §§89-116).
When the party secondarily liable is a corporation, the question becomes: to whom, inside that juridical person, must the notice be delivered so that it binds the corporation?
1. Statutory Framework
| NIL Provision | Relevance |
|---|---|
| §89 | Requires prompt notice to drawer/indorser “or an agent in charge of the business” of the party notified. |
| §102 | Permits notice to be given to “the party himself or his agent.” |
| §103 | Allows notice left at the place of business or residence “with a person of suitable age and discretion.” |
Although the NIL does not enumerate corporate officers by title, §89 and §102 expressly recognize agency principles; the corporation acts only through natural persons. Hence Philippine courts, applying both the NIL and corporate law, have fleshed out who counts as the corporation’s “agent in charge.”
2. Core Rule in Philippine Jurisprudence
Notice sent to— and actually or constructively received by—any corporate officer or employee whose functions naturally include receiving official communications regarding the corporation’s financial affairs is effective and binds the corporation.
This rule rests on two pillars:
- The doctrine of imputed knowledge in agency: Knowledge of an agent acting within the scope of authority is knowledge of the principal.
- The liberal spirit of the NIL’s notice provisions, designed to prevent evasion of liability on technicalities.
3. Who Qualifies as a Proper Recipient?
Philippine Supreme Court decisions (e.g., Phil. National Bank v. CA, G.R. No. 49577, 28 Oct 1986; Associated Bank v. CA, G.R. No. 122702, 4 Feb 1999) and banking-practice cases consistently uphold notice served on:
| Proper Recipients | Rationale / Illustrative Holding |
|---|---|
| President / Vice-President | Inherent authority over corporate affairs; expected to relay material information. |
| Treasurer / Chief Finance Officer / Cashier | “Cashier rule”: custody of funds and transaction documents implies duty to act on dishonored instruments. |
| Corporate Secretary | Officer charged with records and formal communications; service here satisfies the “business office” requirement. |
| General or Branch Manager | Supreme Court treats managers as alter egos for operational matters; notice to any branch where the account is handled is valid. |
| Accounting or Finance Department Head | If designated to receive banking documents, their receipt is the corporation’s receipt. |
| Duly Authorized Representative (board resolution, SPA, or de facto authority) | NIL §§89, 102 allow service on “agent.” Courts look for evidence of actual or apparent authority. |
Conversely, service on rank-and-file employees with no financial duties (e.g., security guard, janitor) is not effective unless the facts show they were specifically empowered to receive corporate mail.
4. Modes of Service Recognized
Personal delivery to any proper recipient at the registered or principal office (or branch if the instrument was drawn there).
Registered mail addressed to the corporation ℅ a proper officer at its recorded business address. Under the NIL, mailing within the statutory period raises the presumption of timely notice even if delivery occurs later.
Electronic service (e-mail, fax) - valid if:
- a prior course of dealing shows acceptance of that mode; and
- the message is addressed to a proper officer or functional mailbox (e.g., treasury@corp.ph). Courts treat e-service as “written notice” so long as authenticity and receipt are proven.
5. Timing Rules Applied to Corporations
| Instrument Type | Where payable/drawn | Deadline to dispatch notice* |
|---|---|---|
| Cheque / Bill domiciled & indorsed in same place | Same city/municipality | Next business day after dishonor (§94). |
| Different places | Holder & corporate indorser in different localities | Day after next (2nd business day). |
| Foreign bills | Foreign country | See §§104-106 (time counted by due course of mail). |
*Dispatch = handing to courier/post; not necessarily actual receipt.
6. Effect of Defective or Late Notice
- Discharges the corporation (drawer/indorser) from secondary liability.
- But solidary obligations, accommodation endorsements, or express waivers (e.g., “notice waived” on the instrument) can preserve liability despite imperfect notice.
7. Burden of Proof
The holder must show:
Fact of dishonor by the drawee/maker; and
Proper, timely notice:
- Registry receipt or courier manifest;
- Affidavit of service;
- Business records establishing corporate recipient’s role.
Once prima facie proof is offered, burden shifts to the corporation to rebut receipt or timeliness.
8. Practical Compliance Tips for Corporations
| For Corporate Holders (creditors) | For Corporate Drawers/Indorsers |
|---|---|
| ✔ Identify the right addressee: president, treasurer, etc. | ✔ Issue a board resolution designating a specific officer/mailbox for negotiable-instrument notices. |
| ✔ Use registered mail plus e-mail for belt-and-suspenders proof. | ✔ Train reception staff to route “dishonor” letters immediately; inaction ≈ acceptance. |
| ✔ Keep registry receipts; log dispatch dates. | ✔ Maintain a log of notices received; act within 24 hours to mitigate liability (e.g., fund the cheque, notify client). |
9. Key Take-Aways
- Agency is the touchstone. If the recipient’s job reasonably covers financial documents, notice to that person binds the corporation.
- Form trumps substance only rarely. Courts favor commercial good faith; they will not allow a corporation to dodge liability on hyper-technical grounds when notice was delivered to someone clearly in charge of its funds.
- Document everything. In disputes, the side with contemporaneous proof of dispatch or receipt (registry slips, e-mail logs) wins the notice issue.
Bottom line: Serve the president, treasurer, cashier, secretary, or any manager who handles the account, and do so promptly by reliable means—then your notice of dishonor is safe against corporate challenges.