1.

      Negotiable Instruments – written contracts for the payment of money; by its Holder in due course may have rights transferee merely steps into the
better than transferor shoes of the transferor
form, intended as a substitute for money and intended to pass from hand to hand, to
Subject is money subject is goods
give the holder in due course the right to hold the same and collect the sum due.
2.       Characteristics of Negotiable Instruments: instrument is merely evidence of title;
thing of value are the goods
Instrument itself is property of value mentioned in the document
a.       negotiability – right of transferee to hold the instrument and collect the sum due

5.       Promissory Note – unconditional promise to pay in writing made by one person
b.       accumulation of secondary contracts – instrument is negotiated from person to
to anther, signed by the maker, engaging to pay on demand or a fixed determinable
person
future time a sum certain in money to order or bearer. When the note is drawn to

3.       Difference between Negotiable Instruments from Non-Negotiable maker’s own order, it is not complete until indorse by him. (Sec. 184 NIL)

Instruments:
Parties:
Negotiable Instruments Non-negotiable Instruments 
1. maker
Contains all the requisites of Sec. 1 does not contain all the requisites of
of the NIL Sec. 1 of the NIL 2. payee

Transferred by negotiation transferred by assignment 6.       Bill of Exchange – unconditional order in writing addressed by one person to
another, signed by the person giving it, requiring the person to whom it is addressed
Holder in due course may have transferee acquires rights only of his
better rights than transferor transferor  to pay on demand or at a fixed or determinable future time a sum certain in money to

prior parties merely warrant legality of order or to bearer. (Sec. 126 NIL)
Prior parties warrant payment title

Transferee has right of recourse Parties:

against intermediate parties transferee has no right of recourse 
1. drawer
4.       Difference between Negotiable Instruments and Negotiable Documents of
2. payee
Title
3. drawee/ acceptor
Negotiable Instruments Negotiable Documents of Title  7.       Check – bill of exchange drawn on a bank and payable on demand. (Sec. 185

does not contain requisites of Sec. 1 NIL)

Have requisites of Sec. 1 of the NIL of NIL
8.       Difference between Promissory Note and Bill of Exchange
Have right of recourse against
intermediate parties who are no secondary liability of intermediate Promissory Note Bill of Exchange 
secondarily liable parties
Unconditional promise unconditional order
 Involves 2 parties involves 3 parties a.       certificates of deposits

Maker primarily liable drawer only secondarily liable

b.       trade acceptances
generally 2 presentments – for
only 1 presentment – for payment acceptance and for payment
c.       bonds in the nature of promissory notes
9.       Distinctions between a Check and Bill of Exchange

d.       drafts which are bills of exchange drawn by 1 bank to another

CHECK BOE

– always drawn upon a bank or – may or may not be drawn against a

e.       letters of credit
banker bank

– may be payable on demand or at a

12.   Trust Receipt – a security transaction intended to aid in the financing of
– always payable on demand fixed or determinable future time
importers and retailers who do not have sufficient funds to finance their transaction
– not necessary that it be presented – necessary that it be presented for
for acceptance acceptance and acquire credit except to use as collateral the merchandise imported
13.   Requisites of a Negotiable Note (PN): (SUDO)
– drawn on a deposit – not drawn on a deposit

– the death of a drawer of a check,

It must:
with knowledge by the banks,
revokes the authority of the banker – the death of the drawer of the
pay ordinary bill of exchange does not
a.       be in writing signed by the drawer
– must be presented for payment – may be presented for payment b.       contains an unconditional promise or order to pay a sum certain in money
within a reasonable time after its within a reasonable time after its last
issue   (6 months) negotiation. c.       be payable on demand or at a fixed determinable future time
d.       be payable to order or to bearer (Sec. 1 NIL)
10.   Distinctions between a Promissory Note and Check
14.   Requisites of a Negotiable Bill (BOE): (SUDOC)
PN CHECK

– there are three (3) parties, the It must:

– there are two (2) parties, the maker drawer, the drawee bank and the
and the payee payee
1. be in writing signed by the drawer
– may be drawn against any person, 2. contains an unconditional promise or order to pay a sum certain in money
not necessarily a bank – always drawn against a bank
3. be payable on demand or at a fixed determinable future time
– may be payable on demand or at a 4. be payable to order or to bearer
fixed or determinable future time -always payable on demand
5. the drawee must be named or otherwise indicated with reasonable certainty
– a promise to pay – an order to pay (Sec. 1 NIL)

11.   Other Forms of Negotiable Instruments: Notes on Section 1:

–          In order to be negotiable, there must be a writing of some kind, else there a.       interest
would be nothing to be negotiated or passed from hand to hand. The writing may be in
ink, print or pencil. It may be upon parchment, cloth, leather or any other substitute of b.       in installments

paper.
c.       in installments with acceleration clause

–          It must be signed by the maker or drawer. It may consist of mere initials or
d.       with exchange
even numbers, but the holder must prove that what is written is intended as a
signature of the person sought to be charged.
e.       costs of collection or attorney’s fees (Sec. 2 NIL)

–          The Bill must contain an order, something more than the mere asking of a
17.   General Rule: The promise or order should not depend on a contingent event. If
favor.
it is conditional, it is non-negotiable.

–          Sum payable must be in money only. It cannot be made payable in goods,
Exceptions:
wares, or merchandise or in property.

a.       indication of particular fund from which the acceptor disburses himself after
–          A drawee’s name may be filled in under Section 14 of the NIL
payment

15.   Determination of negotiability

b.       statement of the transaction which gives rise to the instrument. (Sec. 3 NIL)
1. by the provisions of the Negotiable Instrument Law, particularly Section 1
thereof But an order or promise to pay out of a particular fund is not unconditional
2. by considering the whole instrument
3. by what appears on the face of the instrument and not elsewhere Notes on Section 3

*In determining is the instrument is negotiable, only the instrument itself and no other, –          The particular fund indicated should not be the direct source of payment, else
must be examined and compared with the requirements stated in Sec. 1. If it appears it becomes unconditional and therefore non-negotiable. The fund should only be the
on the instrument that it lacks one of the requirements, it is not negotiable and the source of reimbursement.
provisions of the NIL do not govern the instrument. The requirement lacking cannot be
supplied by using a separate instrument in which that requirement which is lacking –          A statement of the transaction does not destroy the negotiability of the

appears. instrument. Exception: Where the promise to pay or order is made subject to the terms
and conditions of the transaction stated.
16.   Sum is certain even if it is to be paid with:
18.   Instrument is payable upon a determinable future time if: –          There are two kinds of judgements by confession: a) cognovit actionem b)
relicta verificatione
a.       there is a fixed period after sight/date
–          Confessions of judgement in the Philippines are void as against public policy.
b.       on or before a specified date/fixed determinable future time
–          If the choice lies with the debtor, the instrument is rendered non-negotiable.
c.       on or at a fixed date after the occurrence of an event certain to happen though
the exact date is not certain (Sec. 4 NIL) 20.   The validity and negotiability of an instrument is not affected by the fact
that:
Notes on Section 4 1. it is not dated
2. does not specify the value given or that any had been given
–          If the instrument is payable upon a contingency, the happening of the event
3. does not specify the place where it is drawn or payable
does not cure the defect (still non-negotiable) 4. bears a seal
5. designates the kind of current money in which payment is to be made (Sec.
19.   General Rule: If some other act is required other than the payment of
6 NIL)
money, it is non-negotiable.
21.   Instrument is payable upon demand if:

Exceptions:
a.       it is expressed to be so payable on sight or upon presentation

a.       sale of collateral securities

b.       no period of payment is stipulated

b.       confession of judgment

c.       issued, accepted, or endorsed after maturity (Sec. 7 NIL)

c.       waives benefit of law

Where an instrument is issued, accepted or indorsed when overdue, it is, as regards
to the person so issuing, accepting, or indorsing it, payable on demand.
d.       gives option to the holder to require something to be done in lieu of money
(Sec. 5 NIL)
Notes on Section 7

Notes of Section 5
– if the time for payment is left blank (as opposed to being omitted), it may properly be
considered as an incomplete instrument and fall under the provisions of Sec. 14, 15,
–          Limitation on the provision, it cannot require something illegal.
or 16 depending on how the instrument is delivered.
22.   Instrument is payable to order: c.       payable to order of fictitious or non-existent person and this fact was known to
drawer
–          where it is drawn payable to the order of a specified person or
d.       name of payee not name of any person
–          to a specified person or his order
e.       only and last indorsement is an indorsement in blank (Sec. 9 NIL)
It may be drawn payable to the order of:
Notes on Section 9
1. a payee who is not a maker, drawer, or drawee
2. the drawer or maker –          “fictitious person” is not limited to persons having no legal existence. An
3. the drawee existing person may be considered fictitious depending on the intention of the maker
4. two or more payees jointly
or the drawer.
5. one or some of several payees
6. the holder of an office for the time being       (Sec. 8 NIL) –          “fictitious person” means a person who has no right to the instrument because
Notes on Section 8 the maker or drawer of it so intended. He was not intended to be the payee.

–          The payee must be named or otherwise indicated therein with reasonable –          where the instrument is drawn, made or prepared by an agent, the knowledge
certainty. or intent of the signer of the instrument is controlling.

–          If there is no payee, there would be no one to indorse the instrument payable –          Where the agent has no authority to execute the instrument, the intent of the
to order. Therefore useless to be considered negotiable. principal is controlling

–          Joint payees in indicated by the conjunction “and”. To negotiate, all must 24.   The date may be inserted in an instrument when:
indorse. 1. an instrument expressed to be payable at a fixed period after date is issued
undated
–          Being several payees is indicated by the conjunction “or”. 2. where acceptance of an instrument payable at a fixed period after sight is
undated (Sec. 13 NIL)
23.   Instrument is payable to bearer :

Effects:
a.       when it is expressed to be so payable

–          any holder may insert the true date of issuance or acceptance
b.       when payable to the person named or bearer
–          the insertion of a wrong date does not avoid the instrument in the hands of a c.       If negotiated to a holder in due course, it is valid and effectual for all purpose as
subsequent holder in due course though it was filled up strictly in accordance with the authority given and within
reasonable time. (Sec. 14 NIL)
–          as to the holder in due course, the date inserted (even if it be the wrong date)
is regarded as the true date. 2. Where only a signature on a blank paper was delivered:

25.   Subsequent Holder in Due Course not affected by the following 1. It was delivered by the person making it in order that it may be converted

deficiencies: into a negotiable instrument

2. The holder has prima facie authority to fill it up as such for any amount.
a.       incomplete but delivered instrument (Sec. 14 NIL) (Sec. 14 NIL)
Notes on Section 14
b.       complete but undelivered (Sec. 16 NIL)
–          if the instrument is wanting in material particular, mere possession of the
c.       complete and delivered issued without consideration or a consideration instrument is enough to presume prima facie authority to fill it up.
consisting of a promise which was not fulfilled (Sec 28 NIL)
–          material particular may be an omission which will render the instrument non-
26.   Holder in Due Course Affected by Abnormality/Deficiency: negotiable (e.g. name of payee), an omission which will not render the instrument
non-negotiable (e.g. date)
a.       incomplete and undelivered instrument (Sec. 15 NIL)

–          in the case of the signature in blank, delivery with intent to convert it into a
b.       maker/drawer’s signature forged (Sec. 23 NIL)
negotiable instrument is required. Mere possession is not enough.

27.   Incomplete but Delivered Instrument:

28.   Incomplete and Undelivered Instrument:

1. Where an instrument is wanting in any material particular:

General Rule: Where an incomplete instrument has not been delivered, it will not, if
completed and negotiated without authority, be a valid contract in the hands of any
a.       Holder has prima facie authority to fill up the blanks therein.
holder against any person who signed before delivery. (Sec. 15 NIL)

b.       It must be filled up strictly in accordance with the authority given and within a
Notes on Section 15
reasonable time.

–          it is a real defense. It can be interposed against a holder in due course.

–          delivery is not conclusively presumed where the instrument is incomplete 5)    an instrument entrusted to another who wrongfully completes it and negotiates it
to a holder in due course, delivery to the agent or custodian is sufficient delivery to
–          defense of the maker is to prove non-delivery of the incomplete instrument. bind the maker or drawer.

29.   Complete but Undelivered: 6)    If an instrument is completed and is found in the possession of another, there is
prima facie evidence of delivery and if it be a holder in due course, there is conclusive
General Rule: Every contract on a negotiable instrument is incomplete and revocable
presumption of delivery.
until delivery for the purpose of giving effect thereto.

7)    delivery may be conditional or for a special purpose but such do not affect the
a.       If between immediate parties and remote parties not holder in due course, to be
rights of a holder in due course.
effectual there must be authorized delivery by the party making, drawing, accepting or
indorsing. Delivery may be shown to be conditional or for a special purpose only 30.   General rule: a person whose signature does not appear on the instrument
in not liable.
b.       If the holder is a holder in due course, all prior deliveries conclusively presumed
valid Exception:

c.       If instrument not in hands of drawer/maker, valid and intentional delivery is 1. one who signs in a trade or assumed name (Sec. 18)
presumed until the contrary is proven (Sec. 16 NIL) 2. a duly authorized agent (Sec. 19)
3. a forger (Sec. 23)
Rules on delivery of negotiable instruments:

 
1)    delivery is essential to the validity of any negotiable instrument

31.   General rule: an agent is not liable on the instrument if he were duly authorized
2)    as between immediate parties or those is like cases, delivery must be with
to sign for or on behalf of a principal.
intention of passing title

Requisites:
3)    an instrument signed but not completed by the drawer or maker and retained by
him is invalid as to him for want of delivery even in the hands of a holder in due course 1. he must be duly authorized
2. he must add words to his signature indicating that he signs as an agent
4)    but there is prima facie presumption of delivery of an instrument signed but not 3. he must disclose his principal (Sec. 20 NIL)
completed by the drawer or maker and retained by him if it is in the hands of a holder Notes on Section 20
in due course. This may be rebutted by proof of non-delivery.
–          if an agent does not disclose his principal, the agent is personally liable on the 1. no right to retain

instrument. 2. no right to give a discharge

3. no right to enforce payment can be acquired.       (Sec. 23 NIL)
32.   Per Procuration – operates as notice that the agent has a limited authority
to sign. Exception:

Effects: –          the party against whom it is sought to be enforced is precluded from setting up
the forgery or want of authority.
–          the principal in only bound if the agent acted within the limits of the authority
given Notes on Section 23

–          the person who takes the instrument is bound to inquire into the extent and –          Section 23 applies only to forged signatures or signatures made without

nature of the authority given. (Sec. 21 NIL) authority

  –          Alterations such as to amounts or like fall under section 124

33.   General rule: Infants and corporations incur no liability by their indorsement or –          Forms of forgery are a) fraud in factum b) duress amounting to fraud c)

assignment of an instrument. (Sec. 22 NIL) fraudulent impersonation

Effects: –          Only the signature forged or made without authority is inoperative, the
instrument or other signatures which are genuine are affected
–          no liability attached to the infant or the corporation
–          The instrument can be enforced by holders to whose title the forged signature
–          the instrument is still valid and the indorsee acquires title is not necessary

  –          Persons who are precluded from setting up the forgery are a) those who
warrant or admit the genuineness of the signature b) those who are estopped.
34.   General rule: a signature which is forged or made without authority is wholly
inoperative. –          Persons who are precluded by warranting are a) indorsers b) persons
negotiating by delivery c) acceptors.
Effects:

–          drawee bank is conclusively presumed to know the signature of its drawer
–          if endorser’s signature is forged, loss will be borne by the forger and parties –          the drawee bank can recover from the collecting bank
subsequent thereto
–          the payee can recover from the drawer
–          drawee bank is not conclusively presumed to know the signature of the
indorser. The responsibility falls on the bank which last guaranteed the indorsement –          the payee can recover from the recipient of the payment, such as the

and not the drawee bank. collecting bank

–          Where the payee’s signature is forged, payments made by the drawee bank to –          the payee cannot collect from the drawee bank

collecting bank is ineffective. No debtor/creditor relationship is created. An agency to

–          the collecting bank bears the loss but can recover from the person to whom it
collect is created between the person depositing and the collecting bank. Drawee
paid
bank may recover from collecting bank who may in turn recover from the person
depositing.
–          if payable to bearer, the rules are the same as in PN.

Rules on liabilities of parties on a forged instrument

–          if the drawee has accepted the bill, the drawee bears the loss and his remedy
In a PN
is to go after the forger

–          a party whose indorsement is forged on a note payable to order and all parties
–          if the drawee has not accepted the bill but has paid it, the drawee cannot
prior to him including the maker cannot be held liable by any holder
recover from the drawer or the recipient of the proceeds, absence any act of
negligence on their part.
–          a party whose indorsement is forged on a note originally payable to bearer and
all parties prior to him including the maker may be held liable by a holder in due
 
course provided that it was mechanically complete before the forgery

35.   Every negotiable instrument is deemed prima facie to have been issued for a
–          a maker whose signature was forged cannot be held liable by any holder
valuable consideration. (Sec. 24 NIL)

 
Effects:

In a BOE
–          every person whose signature appears thereon is a party for value

–          the drawer’s account cannot be charged by the drawee where the drawee paid
–          presumption is disputable

–          the drawer has no right to recover from the collecting bank
  38.   An accommodation party is one who signs the instrument as maker, drawer,
acceptor, or indorser without receiving value therefor and for the purpose of lending
36.   Where value has at any time been given for the instrument, the holder is deemed his name to some other person.
a holder for value in respect to all parties who become such prior to that time. (Sec. 26
NIL) Effects:

  –          an accommodation party is liable to the holder for value notwithstanding that
such holder knew that of the accommodation. (Sec. 28 NIL)
37.   Effect of want of consideration:
 
1. Absence or failure of consideration may be set up against a holder not a
holder in due course (personal defense) Notes on Section 28
2. Partial failure of consideration is a defense pro tanto (Sec 28 NIL)
–          the accommodated party cannot recover from the accommodation party
 
–          want of consideration cannot be interposed by the accommodation party
Notes on Section 28
–          an accommodation maker may seek reimbursement from a co-maker even in
  the absence of any provision in the NIL; the deficiency is supplied by the New Civil
Code.
–          absence of consideration is where no consideration was intended to pass.

–          he may do this even without first proceeding against the debtor provided:
–          failure of consideration implies that consideration was intended by that it failed
to pass a.       he paid by virtue of judicial demand

–          the defense of want of consideration is ineffective against a holder in due b.       principal debtor is insolvent
course
 
–          a drawee who accepts the bill cannot allege want of consideration against the
drawer 39.   An instrument is negotiated when:

  1. it is transferred from one person to another

 2. that the transfer must be in a manner as to constitute the transferee a Notes on Section 40
holder
–          Section 40 applies only to instruments originally payable to bearer
For a bearer instrument – by delivery
–          It cannot apply where the instrument is payable to bearer because the only or
For payable to order – by indorsement and delivery (Sec. 30 NIL) last indorsement is in blank.

  43.   A holder may strike out any indorsement which is not necessary to his title.

40.   Indorsement to be must be: Effects:

1. written –          An indorser whose indorsement is struck out is discharged

2. on the instrument itself or upon a piece of paper attached (Sec. 31 NIL)
Notes on Section 31 –          All indorsers subsequent to such indorser who has been discharged are
likewise relieved. (Sec. 48 NIL)
–          the paper attached with the indorsement is an allonge

44.   Effects of a transfer without endorsement:

–          an allonge must be attached so that it becomes a part of the instrument, it
cannot be simply pinned or clipped to it. –          the transferee acquires such title as the transferor had

41.   Kinds of Indorsements: –          the transferee acquires the right to have the indorsement of the transferor
1. Special (Sec. 34)
2. Blank (Sec. 35) –          negotiation takes effect as of the time the indorsement is actually made (Sec.
3. Restrictive (Sec. 36) 49 NIL)
4. Qualified (Sec. 38)
5. Conditional (Sec. 39 NIL) 45.   Rights of a holder:

42.   Effects of indorsing an instrument originally payable to bearer:

–          a holder may sue in his own name

–          it may further be negotiated by delivery

–          a holder may receive payment.

–          the person indorsing is liable as indorser to such persons as to make title
Effects:
through his indorsement (Sec. 40 NIL)
–          if in due course it discharges the instrument (Sec. 51 NIL)  

46.   Requisites for a Holder in Due Course (HDC): 47.   A holder is not a HDC where an instrument payable on demand is negotiated at
an unreasonable length of time after its issue (Sec. 53 NIL)
a.       receives the instrument complete and regular on its face
48.   Rights of a HDC:
b.       became a holder before it was overdue and had no notice that it had been
previously dishonored if such was the fact –          holds the instrument free from any defect of title of prior parties

c.       takes the instrument for value and in good faith –          free from defenses available to prior parties among themselves (personal/
equitable defenses)
d.       at time he took the instrument, no notice of infirmity in instrument or defect in
the title of the person negotiating it (Sec. 52 NIL) –          may enforce payment of the instrument for the full amount against all parties
liable(Sec. 57 NIL)
Notes on Section 52
Notes on Section 57
–          every holder is presumed to be a HDC (Sec. 59)
–          Personal or equitable defenses are those which grow out of the agreement or
–          the person who questions such has the burden of proof to prove otherwise conduct of a particular person in regard to the instrument which renders it inequitable
for him through legal title to enforce it. Can be set up against holders not HDC
–          if one of the requisites are lacking, the holder is not HDC

–          Legal or real defenses are those which attach to the instrument itself and can
–          an instrument is considered complete and regular on its face if a) the omission
be set up against the whole world, including a HDC.
is immaterial b) the alteration on the instrument was not apparent on its face
Personal Defenses Real Defenses
–          an instrument is overdue after the date of maturity.
1. absence or failure of
consideration Alteration
–          on the date of maturity, the instrument is not overdue and the holder is a HDC
2. want of delivery of complete Want of delivery of incomplete
instrument instrument
–          acquisition of the transferee or indorsee must be in good faith
3. insertion of wrong date where Duress amounting to forgery
payable at a fixed period after date
and issued undated; or at a fixed
–          good faith means lack of knowledge or notice of defect or infirmity
period after sight and acceptance is
 undated –          a holder who derives his title through a HDC and is not a party to any fraud or

4. filling up the blanks contrary to illegality affecting the instrument, has all the rights of such HDC in respect to all
authority given or not within
reasonable time Fraud in factum or in esse contractus parties prior. (Sec. 58 NIL)

5. fraud in inducement Minority

 
6. acquisition of the instrument by
force, duress or fear Marriage in case of a wife
Rights of a holder not a HDC
7. acquisition of the instrument by Insanity where the insane person has
unlawful means a guardian appointed by the court
–          may sue in his own name
Ultra vires acts of a corporation where
8. acquisition of the instrument for its charter or by statue, it is prohibited
–          may receive payment and if it is in due course, the instrument is discharged
an illegal consideration from issuing commercial paper

9. negotiation in breach of faith Want of authority of agent –          holds the instrument subject to the same defenses as if it were non-negotiable
10. negotiation under circumstances Execution of instrument   between
amounting to fraud public enemies –          if he derives his title through a HDC and is not a party to any fraud or illegality
thereto, has all the rights of such HDC
1. Mistake Illegality of contract made by statue

12. intoxication Forgery

 
13. ultra vires acts of corporations
50.   General rule: every holder is deemed prima facie to be a holder in due course.
14. want of authority of the agent
where he has apparent authority
Exception:
15. illegality of contract where form
or consideration is illegal
–          where it is shown that the title of any person who has negotiated the
16. insanity where there is no notice
of insanity instrument is defective, the burden is on the holder to prove that he is a HDC or that a
person under whom he claims is a HDC (Sec. 59 NIL)

 
 

49.   A instrument not in the hands of a HDC is subject to the same defenses as if it
51.   A maker is primarily liable:
were non-negotiable.

Effects of making the instrument, the maker:

Exception:
a.       engages to pay according to tenor of instrument 1. the drawer will pay the amount thereof to the holder
2. will pay to any subsequent indorser who may be compelled to pay it. (Sec.
b.       admits existence of payee and his capacity to indorse (Sec. 60 NIL) 61 NIL)
Notes on Section 61
Notes on Section 60

–          a drawer may insert an express stipulation to negative or limit his liability
–          a maker’s liability is primarily and unconditional

53.   An acceptor is primarily liable

–          one who has signed as such is presumed to have acted with care and to have
signed with full knowledge of its contents, unless fraud is proved By accepting the instrument, an acceptor:

–          the payee’s interest is only to see to it that the note is paid according to its –          engages that he will pay according to the tenor of his acceptance
terms
–          admits the existence of the drawer, the genuineness of his signature and his
–          when two or more makers sign jointly, each is individually liable for the full capacity and authority to draw the instrument
amount even if one did not receive the value given
–          the existence of the payee and his then capacity indorse
–          the maker is precluded from setting up the defense of a) the payee is fictional,
b) that the payee was insane, a minor or a corporation acting ultra vires 54.   Irregular Indorser – a person not otherwise a party to an instrument places his
signature in blank before delivery is liable as an indorser in the following manner:
  1. if payable to order of a third person – liable to the payee and to all
subsequent parties
52.   A drawer is secondarily liable 2. if payable to order of the maker or drawer – liable to all parties subsequent
to the maker or drawer
Effects of drawing the instrument, the drawer: 3. if payable to bearer – liable to all parties subsequent to the maker or drawer
4. if signs for an accommodation party – liable to all parties subsequent to the
1. admits the existence of the payee,
payee (Sec. 64 NIL)
2. the capacity of such payee to indorse
55.   Warranties where negotiating by delivery or qualified endorsement:
3. engages that on due presentment, the instrument will be accepted or paid
1. the instrument is genuine and in all respect what it purports to be
or both according to its tenor.
2. the indorser has good title to it
3. all prior parties had the capacity to contract
If the instrument is dishonored, and the necessary proceedings on dishonor duly taken
 4. indorser has no knowledge of any fact that would impair the validity or the 56.   Warranties of a general indorser:
value of the instrument. 1. the instrument is genuine and in all respect what it purports to be
Limitations of warranties: 2. the he has good title to it
3. all prior parties had the capacity to contract
-if by delivery – extends only to immediate transferee 4. that the instrument at the time of his indorsement was valid and subsisting
(Sec. 66 NIL)
-warranty of capacity to contract does not apply to persons negotiating public or
corporate securities (Sec. 65 NIL) In addition:

Notes on Section 65 –          engages that the instrument will be accepted or paid or both according to its
tenor on due presentment
–          a qualified indorser is one who indorses without recourse or sans recourse

–          engages to pay the amount thereof if it be dishonored and the necessary
–          recourse – resort to a person secondarily liable after default of person primarily
proceedings on dishonor are taken
liable

Notes on Section 66
–          a qualified indorser cannot raise the defense of a) forgery b) defect of his title
or that it is void c) the incapacity of the maker, drawer or previous indorsers. –          the indorser under Section 66 warrants the solvency of a prior party

–          a qualified Indorsement makes the indorser mere assignor of title of –          the indorser warrants that the instrument is valid and subsisting regardless of
instrument, relieves him of general obligation to pay if instrument is dishonored, but he whether he is ignorant of that fact or not.
is still liable for the warranties arising from instrument only up to warranties of general
indorser –          warranties extend in favor of a) a HDC b) persons who derive their title from
HDC c) immediate transferees even if not HDC
–          the warranty is to the capacity of prior parties at the time the instrument was
negotiated. Subsequent incapacity does not breach the warranty. –          the indorser does not warrant the genuineness of the drawer’s signature

–          lack of knowledge of the indorser as to any fact that would impair the validity or –          general indorser is only secondarily liable

the value of the instrument must be subsisting all throughout.

57.   General rule: Presentment for payment is not necessary to charge persons

–          a person Negotiating by Delivery warrants same as those of qualified indorser primarily liable on the instrument. Presentment for payment is necessary to charge the

and extends to immediate transferees only drawer and indorsers. (Sec 70 NIL)
 Notes on Section 70 Notes on Section 72

–          presentation for payment – production of a BOE to the drawee for his –          only the holder or one authorized by him has the right to make presentment for
acceptance, or to a drawee or acceptor for payment. Also presentment of a PN to the payment
party liable for payment of the same.
–          presentment cannot be made on a Sunday or holiday
–          consists of a) a personal demand for payment at a proper place b) the bill or
note must be ready to be exhibited if required and surrendered upon payment. –          presentment for payment is made to the maker, or acceptor. Not to the person
secondarily liable.
–          parties primarily liable – persons by the terms of the instrument are absolutely
required to pay the same. E.g maker and acceptors. They can be sued directly. –          if the instrument is payable on demand – a) if it is a note – presentment must
be made within reasonable time after issue b) if it is a bill – presentment must be
–          if payable at the special place, and the person liable is willing to pay there at made within reasonable time after last negotiation.
maturity, such willingness and ability is equivalent to tender of payment.
59.   Presentment not required to charge the drawer:
–          presentment is necessary to charge persons secondarily liable otherwise they 1. he has no right to expect

are discharged 2. he has no right to require

–          Acts needed to charge persons secondarily liable: a) presentment for that the drawee or acceptor will pay (Sec 79 NIL)

payment/acceptance b) dishonor by non-payment/non-acceptance c) notice of

60.   Presentment not required to charge the indorser where:
dishonor to secondary parties
1. the instrument was made or accepted for his accommodation
2. he has no reason to expect that the instrument will be paid if presented
–          Acts needed to charge persons secondarily liable in other cases: a) Protest for
(Sec. 80 NIL)
non-payment by the drawee b) protest for non-payment by the acceptor for honor

 
58.   Proper presentment:
1. by the holder or an authorized person
61.   General rule: Presentment for payment necessary to charge persons secondarily
2. at a reasonable hour on a business day
liable otherwise they are discharged:
3. at a proper place
4. to the person primarily liable or if absent to any person found at the place
Exception:
where presentment is made (sec. 72 NIL)
–          Section 79 and 80 –          when the instrument has been dishonored by non-acceptance under Sec. 83

Notes on Section 79 and 80  

–          only the drawer or indorser are not discharged. All other parties secondarily 64.   How dishonored by non-acceptance:
liable are discharged.
–          the instrument was duly presented but payment is refused or cannot be
62.   Presentment for payment excused if: obtained

a.       after due diligence, presentment cannot be made –          presentment is excused and the instrument is overdue and unpaid (Sec. 83
NIL)
b.       presentment is waived
 
c.       the drawee is a fictitious person (Sec 82 NIL)
65.   Effects of dishonor by non-payment:
Notes on Section 82
–          an immediate right of recourse to all parties secondarily liable accrues to the
–          what is excused is the failure to make presentment. There is no need to make holder. (Sec. 84 NIL)
any presentment versus under section 81 (delay in presentment) presentment for
payment is still required after the cause of delay has ceased. Notes on Section 84

  –          parties cease to be secondarily liable and become principal debtors.

63.   Summary of rules as to presentment for payment: –          Liability becomes the same as that of the original obligors.

1. presentment not necessary to charge persons primarily liable 66.   Requisites for payment in due course:
2. necessary to charge persons secondarily liable except: 1. made at or after the maturity of the instrument
2. to the holder
–          the drawer under Sec. 79 3. in good faith
4. without notice of any defect in the holder’s title (sec. 88 NIL)
–          the indorser under Sec. 80
Notes on Section 88

–          when excused under Sec. 82

–          payment must be made to the possessor of the instrument –          Where presentment is waived, notice is also waived

–          possession of the note by the maker is presumptive evidence that it has been –          Where protest is waived, notice and presentment is waived
paid
71.   Notice of Dishonor – given by the holder to the parties secondarily liable,
67.   Notice of Dishonor may be given: drawer and each indorser, that the instrument was dishonored by non-acceptance or
1. by or on behalf or the holder non-payment by the drawee/maker
2. by or on behalf of any party who:
General rule: Any drawer or indorser to whom such notice is not given is discharged.
–          is a party to the instrument and might be compelled to pay the instrument
Exceptions:
–          to a holder who having taken it up would have a right of reimbursement from
the party to whom notice is given. (Sec. 90 NIL) 1. Waiver (Sec. 109)
2. Notice is dispensed (Sec. 112)
68.   Notice: 3. Not necessary to Drawer (Sec. 114)
1. may be written or oral (Sec. 96) 4. Not necessary to Indorser (Sec. 115)
2. written notice need not be signed or may be supplemented by verbal
communication (Sec. 95) – if notice is delayed, delay may be excused (Sec. 113)

3. may be by personal delivery or by mail (Sec. 96)

72.   Instances when Notice of Dishonor Not Necessary to Drawer
69.   Notice may be waived either expressly or implied:
1. before the time of giving notice has arrived
a.       drawer and drawee same person
2. after the omission to give due notice (Sec. 109 NIL)
70.   Protest may be waived:
b.       drawee is a fictitious/incapacitated person

Effects:
c.       drawer is the person to whom presentment for payment is made

–          deemed a waiver of presentment and notice of dishonor as well (Sec. 111 NIL)
d.       drawer has no right to expect that the drawee will accept/pay the instrument
(Sec. 114 NIL)
Notes on Section 111

73.   Instances when Notice Not Required to Indorser

–          Where notice is waived, presentment is not waived
a.       drawee was a fictitious/incapacitated person and the indorser was aware of –          if payment is not made by the principal debtor, payment only cancels the
such at the time of indorsement liability of the payor and those obligated after him but does not discharge the
instrument.
b.       indorser is the person to whom instrument was presented for payment
–          payment by an accommodation party does not discharge the instrument.
c.       instrument made/accepted for his accommodation (Sec. 115 NIL)
77.   Discharge of Secondary Parties:
74.   Omission to give notice of dishonor by non-acceptance doe not prejudice a HDC
(Sec. 117 NIL) a.       any act discharging the instrument

75.   Protest only necessary for a foreign bill of exchange. Protest for other negotiable b.       cancellation of indorser’s signature by indorsers
instruments is optional. (Sec. 118 NIL)
c.       discharge of prior party
76.   Causes of Discharge of the Instrument
d.       tender of payment by prior party
a.       payment by the debtor
e.       release of principal debtor
b.       payment by accommodated party
f.         extension of payment by the holder/postponement of right to enforce without
c.       intentional cancellation by holder of instrument assent of secondary parties and without reservation of right of recourse against
secondary parties (Sec 120 NIL)
d.       any other act discharging a simple monetary obligation
78.   Rights of a party secondarily liable who pays:
e.       debtor becomes holder of the instrument at/after maturity in his own right ( Sec
119 NIL) –          the instrument is not discharge

Notes on Section 119 –          the party is remitted to his former rights as to all prior parties

–          discharge of the instrument discharges all the parties thereto –          the party may strike out his own and all subsequent indorsements

–          payment must be in due course, and by the principal debtor or on his behalf –          the party may negotiate the instrument again

Exception:
–          an instrument cannot be renegotiated where it is payable to order of a –          there is no distinction between fraudulent and innocent alteration
rd
3  person and has been paid by the drawer
80.   Material Alteration – an alternation is said to be material if it alters the
–          and instrument cannot be renegotiated where is was made or accepted for effect of the instrument.
accommodation and it has been paid by the party accommodated.
Under Section 125 the following changes are considered material alterations:
78. Renunciation by a holder discharges an instrument when:
1. it is absolute and unconditional 1. dates

2. made in favor of a person primarily liable 2. the sum payable

3. made at or after maturity of the instrument 3. time and place of payment

4. in writing or the instrument is delivered up to the person primarily liable 4. number or relations of the parties

(Sec. 122 NIL) 5. medium or currency for payment

6. adding a place of payment where no place is specified
Notes on Section 122
7. any other which alters the affect of the instrument

–          if renounced in favor of a party secondarily liable, only he is exonerated from 81.   Instances where a BOE may be treated as a PN:

liability and all parties subsequent to him 1. where the drawer and the drawee are one and the same
2. where the drawee is a fictitious person

–          discharge by novation is allowed 3. where the drawee has no capacity to contract (Sec. 130 NIL)

79.   General rule: When materially altered, without the consent of all parties liable, the The holder has the option to treat it as a BOE or a PN

instrument is avoided except as against:

 

1. the party who has made the alteration

2. the party who authorized or assented to the alteration. 82.   Acceptance is the signification by the drawee of his assent to the order of the

3. subsequent indorsers drawer. It is an act by which a person on whom the BOE is drawn assents to the
request of the drawer to pay it. (Sec. 132 NIL)
Exception:
Acceptance may be:
–          if in the hands of a HDC, may be enforced according to its original tenor 1. actual
2. constructive
Notes on Section 124 3. general (Sec. 140)
4. qualified (Sec. 141)
Requisites of actual acceptance: –          Presentment is the production of a BOE to the drawee for his acceptance

–          in writing –          in on order case is presentment necessary to make parties liable.

–          signed by the drawee 90. Summary on presentment for acceptance of Bills of Exchange:

–          must not express the drawee will perform his promise by any other means a.       to make the drawee primarily liable and for the accrual of secondary liability
than payment of money (Sec. 144)

–          communicated or delivered to the holder b.       necessary to fix maturity date, where bill expressly stipulates presentment, bill
payable other than place of drawee (Sec. 143)
7. A holder has the right:
1. require that acceptance be written on the bill and if refused, treat it as if c.       when presentment is excused: drawee is dead, hides, is fictitious, incapacitated
dishonored (Sec. 133) person, after due diligence presentment cannot be made, presentment is refused on
2. refuse to accept a qualified acceptance and may treat it as dishonored (Sec.
another ground although presentment is irregular (Sec. 148)
142)
8. Constructive Acceptance: 1. General rule: Protest is required only for foreign bills
1. where the drawee to whom the bill has been delivered destroys it
2. the drawee refuses within 24 hrs after such delivery or within such time as is Exception:
given, to return the bill accepted or not.       (Sec. 137 NIL)
Notes on Section 137 –          inland bills and notes may also be protested if desired

–          drawee becomes primarily liable as an acceptor. Protest is required:

1. where the foreign bill is dishonored by non acceptance
–          mere retention is equivalent to acceptance 2. where the foreign bill is dishonored by non-payment
3. where the bill has been accepted for honor, it must be protested for non-
9. When presentment for acceptance is necessary: payment before it is presented for payment to the acceptor for honor
1. if necessary to fix the maturity of the bill 4. where the bill contains a referee in case of need, it must be protested for
2. if it is expressly stipulated that it shall be presented for acceptance non payment before presentment for payment to the referee in case of need
3. if the bill is drawn payable elsewhere than the residence or place of (Sec. 152)
business of the drawee (Sec. 143 NIL) Notes on Section 152
Notes on Section 143
–          Protest – formal statement in writing made by a notary under his seal of office –          Acceptor for honor is liable to the holder and to all the parties to the bill
at the request of the holder, in which it is declare that the some was presented for subsequent to the party for whose honor he has accepted (Sec. 164)
payment or acceptance (as the case may be) and such was refused.
2. How acceptance for honor is made:

–          it means all steps or acts accompanying the dishonor of a bill or note 1. in writing and indicated that it is an acceptance for honor

necessary to charge an indorser 2. signed by the person making the acceptance (Sec. 162 NIL)

–          required when the instrument is a foreign bill of exchange.  

3. Payment for Honor – payment made through a notarial act of honor of a

–          it must be made on the same date of dishonor, by a notary/respectable citizen
party liable/stranger to the bill after bill has been dishonored by non-payment
of the place in the presence of 2 credible witnesses so recourse to secondary parties
by the acceptor and protested for non-payment by the holder

1. Acceptance for Honor   (Sec. 161 NIL)– an acceptance of a bill made by a

Requisites:
stranger to it before maturirty, where the drawee of the bill has:
1. refused to accept it
a.       protest for non-payment
2. and the bill has been protested for non-acceptance
3. or where the bill has been protested for better security
b.       any person may pay supra protest
Requisites for acceptance for honor:

Form for payment of honor:

–          the bill must have been previously protested a) for non-acceptance b) or for
1. payment must be attested by notarial act appended to the protest, or form
better security
an extension to it.
2. notarial act of honor must be based on a declaration by the payer for honor
–          the bill is not overdue at the time of the acceptance for honor

 
–          the acceptor for honor must be a stranger to the bill

4. Bills in Set – bill of exchange drawn in several parts, each part of the set
–          the holder must give his consent
being numbered and containing a reference to the other parts, the whole of
the parts just constituting one bill (Sec 178 NIL)
Notes on Acceptance for Honor

 
–          Purpose: to save the credit of the parties to the instrument or some party to it
as the drawer, drawee, or indorser or somebody else.
Source:
Commercial Law Memory Aid 3. renunciation of holder:

Negotiable Instruments Law  holder may expressly renounce his rights vs. any party to the instrument,

Ateneo Central Bar Operations 2001 before or after its maturity

Advertisements  absolute and unconditional renunciation of his rights vs. principal debtor
REPORT THIS AD
made at or after maturity discharges the instrument
Posted in Commercial Law, Negotiable Instruments Law
 renunciation does not affect rights of HDC w/o notice.

5 Comments  Renunciation must be in writing unless instrument delivered up to person

Tags: commecial law, commlaw, negotiable instruments law primarily liable thereon

1. material alteration (sec. 124: material alteration w/o assent of all parties
Negotiable Instruments Law – Discharge
liable avoids instrument except as against party to alteration and subsequent
DEC 19 indorsers)

Posted by Magz  

NEGOTIABLE INSTRUMENTS LAW

1. Of secondary parties
Memory Aid 2. any act which discharges the instrument
Based on the Outline of the 1994 Edition of Campos & Campos
3. intentional cancellation of signature by holder

DISCHARGE 4. discharge of prior party

1. Of the Instrument 5. valid tender of payment made by prior party

2. payment in due course by or on behalf of principal debtor 6. release of principal debtor, unless holder’s right of recourse vs. 2ndary party

 Payment in due course: reserved

1. made at or after maturity 7. any agreement binding upon holder to extend time of payment, or to

2. to the holder thereof postpone holder’s right to enforce instrument, unless made with assent of

3. in good faith and without notice that his title is defective party secondarily liable, or unless right of recourse reserved.

4. payment in due course by party accommodated where party is made/ 8. Failure to make due presentment (sec. 70, 144)

accepted for accommodation 9. failure to give notice of dishonor

5. intentional cancellation by holder 10. certification of check at instance of holder

 if unintentional or under mistake or without authority of holder, inoperative. 11. reacquisition by prior party

Burden of proof  on party which alleges it was unintentional, etc.  where instrument negotiated back to a prior party, such party may reissue

1. any other act which discharges a simple contract and further negotiate, but not entitled to enforce payment vs. any intervening

2. principal debtor becomes holder of instrument at or after maturity in his own party to whom he was personally liable

right  where instrument is paid by party secondarily liable, it’s not discharged, but
 1. the party so paying it is remitted to his former rights as regard to all prior  
parties
2. and he may strike out his own and all subsequent indorsements, and again 1. Liability of Maker

negotiate instrument, except 2. Promises to pay it according to its tenor

 where it’s payable to order of 3rd party and has been paid by drawer 3. admits existence of payee and his then capacity to indorse

 where it’s made/accepted for accommodation and has been paid by party
accommodated.  

1. Status of drawee prior to acceptance or payment

 
 sec. 127 (bill not an assignment of funds in hands of drawee)

Reference:  University of the Philippines  sec. 189 (when check operates as assignment)

BarOps ’99  

Commercial Law – Val Feria, Mina Herrera, Gary Mallari & Rachel Ramos 1. Liability of Acceptor

Posted in Negotiable Instruments Law  Promises to pay inst according to its tenor
 Admits the following:
Leave a comment 1. existence of drawer
Tags: Negotiable Instruments Law - Discharge 2. genuineness of his signature

Negotiable Instruments Law – Liabilities of Parties 3. his capacity and authority to draw the instrument
4. existence of payee and his then capacity to endorse
DEC 19  sec. 191, 132, 133, 138 — formal requisites of acceptance
 sec. 136, 137, 150 — constructive acceptance
Posted by Magz
 sec. 134, 135 — acceptance on a separate instrument

NEGOTIABLE INSTRUMENTS LAW  Kinds of Acceptance:

Memory Aid 1. general

Based on the Outline of the 1994 Edition of Campos & Campos 2. qualified
1. conditional
LIABILITIES OF PARTIES
2. partial
1. PRIMARY PARTIES
3. local
 Person primarily liable: person who by the terms of the instrument is
4. qualified as to time
absolutely required to pay the same.
5. not all drawees
 Sec. 70 (effect of want of demand on principal debtor)

 
* sec. 142 (rights of parties as to qualified acceptance) 3. all prior parties had capacity to contract
4. he had no knowledge of any fact w/c would impair validity of instrument or
 Certification: Principles render it valueless
1. when check certified by bank on which it’s drawn, equivalent to acceptance  in case of negotiation by delivery only, warranty only extends in favor of
2. where holder of check procures it to be accepted/certified, drawer and all immediate transferee
indorsers discharged from al liability
3. check not operate as assignment of any part of funds to credit of drawer  
with bank, and bank is not liable to holder, unless and until it accepts or
certifies check  Liability of a General or Unqualified Indorser

4. certification obtained at request of drawer: secondary parties not released 1. instrument genuine, good title, capacity of prior parties

5. bank which certifies liable as an acceptor 2. instrument is at time of indorsement valid and subsisting

6. checks cannot be certified before payable 3. on due presentment, it shall be accepted or paid, or both, according to tenor
4. if it be dishonored, and necessary proceedings on dishonor be duly taken,
  he will pay the amt. To holder, or to any subsequent indorser who may be
compelled to pay it
1. SECONDARY PARTIES
2. Liability of Drawer  
3. Admits existence of payee and his then capacity to endorse
4. Engages that on due presentment instrument will be accepted, or paid, or  Order of Liability among Indorsers

both, according to its tenor and that 1. among themselves: liable prima facie in the order they indorse, but proof of

5. If it be dishonored, and the necessary proceedings on dishonor be duly another agreement admissible

taken, he will pay the amount thereof to the holder or to an subsequent 2. but holder may sue any of the indorsers, regardless of order of indorsement

indorser who may be compelled to pay it 3. joint payees/indorsees deemed to indorse jointly and severally

   

 drawer may insert in the instrument an express stipulation negativing / 1. Liability of  Accomodation Party

limiting his own liability to holder  Definition: one who signed instrument as maker/drawer/acceptor/ indorser

1. Liability of Indorsers: w/o receiving  value thereof, for the purpose of lending his name to some

 Qualified Indorser and one Negotiating by Delivery other person

1. Instrument  genuine, in all respects what it purports to be  AP liable on the instrument to holder for value even if  holder,  at time of

2. good title taking instrument, knew he was only an AP

  Liability of Irregular Indorser  Where a broker or agent negotiates an instrument without indorsement, he
 Where a person not otherwise a party to an instrument, places incurs all liabilities in Sec. 65, unless he discloses name of principal and fact
thereon his signature in blank before delivery, he’s liable as an that he’s only acting as agent
indorser, in accordance w/ these rules:
1. Instrument payable to order of 3rd person: liable to payee and to all I.  Presentment For Acceptance

subsequent parties
2. Instrument payable to the order of maker/drawer, or payable to bearer: When presentment for acceptance must be made

liable to all parties subsequent to maker/drawer

1. bill payable after sight, or in other cases where presentment for acceptance
3. Signs for accommodation of payee, liable to all parties subsequent to payee
necessary to fix maturity
 Sadaya v Sevilla Rules:
2. where bill expressly stipulates that it shall be presented for acceptance
1. a joint and several accommodation maker of a negotiable promissory note
3. where bill is drawn payable elsewhere than at residence / place of business
may demand from the principal debtor reimbursement for the amt. That he
of drawee
paid to the payee
2. a joint and several accommodation maker who pays on the said promissory
When failure to present releases drawer/indorser
note may directly demand reimbursement from his co-accommodation maker
without first directing his action vs. the principal debtor provided:
Failure to present for acceptance of negotiate bill of exchange within reasonable time
1. he made the payment by virtue of a judicial demand
2. or the principal debtor is insolvent
 

 
Reasonable Time

1. Liability of an Agent
Must consider
 Signature of any party may be made by duly authorized agent, establish as
in ordinary agency 1. nature of instrument
 Where instrument contains or a person adds to his signature words 2. usage of trade or business with respect to instrument
indicating that he signs for or on behalf of a principal, he is not liable on the 3. facts of each case
instrument if he was duly authorized, but the mere addition of words
describing him as an agent without disclosing his principal, does not exempt  
from personal liability.
 Signature per procuration operates as notice that the agent has but a limited How and When Made Sec. 145, 146, 147
authority to sign, and the principal is bound on ly in case the agent in so
signing acted within the actual limits of his authority When Excused Sec. 148
  Delay excused Sec. 81

Dishonor and Effects Manner Sec. 74, 72, 75

 sec. 149 (when dishonored by non-acceptance)
 sec. 150 (duty of holder where bill not accepted) Place Sec. 73

 sec. 151 (rights of holder where bill not accepted)

 sec. 89 (to whom notice of dishonor must be given) To Whom Sec. 72, 76, 77, 78

 sec. 117 (effect of omission to give notice of non-acceptance)

Dishonor by nonpayment Sec. 83, 84
II. For Payment

 
Where necessary Sec. 70

Notice of Dishonor
Where not necessary Sec. 79, 80, 82, 151, 111

General rule: to drawer and to each indorser, and any drawer or indorser to whom
Date and time of presentment of instrument bearing fixed maturity Sec. 71, 85, 86,
such notice is not given is discharged
194

 
 

Form, Contents, Time Sec. 95, 96, 102, 103, 104, 105, 106, 108, 113
Date of presentment
 Where instrument not payable on demand: presentment must be made on
 
date it falls due
 Where payable on demand: presentment must be made within reasonable
By Whom Given
time after issue, except that in case of a bill of exchange, presentment for
 By or on behalf of the holder or any party to the instrument who may be
payment will be sufficient if made within a reasonable time after last
compelled to pay it to the holder, and who, upon taking it up, would have a
negotiation (but note: though reasonable time from last negotiation, it may be
right to reimbursement from the party to whom the notice is given
unreasonable time from issuance thus holder may not be HDC under sec. 71)
 Notice of dishonor may be given by an agent either in his own name or in
 Check must be presented for payment within reasonable time after its issue
the name of any party entitled to give notice, whether that party be his
or drawer will be discharged from liability thereon to extent of loss caused by
principal or not
delay

 
  Where instrument has been dishonored in hands of agent, he 1. drawee fictitious, incapacitated, and indorser aware of the fact at time of
may either himself give notice to the parties liable thereon, or he may indorsement
give notice to his principal (as if agent an independent holder) 2. indorser is person to whom instrument presented for paymt
3. instrument made/accepted for his accommodation
 
 
In whose favor notice operates
1. when given by/on behalf of holder: insures to benefit of Protest
1. all subsequent holders and Definition: testimony of some proper person that the regular legal steps to fix the
2. all prior parties who have a right of recourse vs. the party to whom liability of drawer and indorsers have been taken
it’s given
2. where notice given by/on behalf of a party entitled to give notice: insures for  
benefit of a.  holder , and
When necessary: sec. 152,
b. all parties subsequent to party to whom notice given
Form and contents: sec. 153
 
By whom made: sec. 154
Waiver Sec. 109, 110
Time and Place: sec. 155, 156
Where not necessary to charge drawer
1. drawer/drawee same person For better security: sec. 158
2. drawee fictitious, incapacitated
3. drawer is person to whom instrument is presented for payment Excused: sec. 159

4. drawer has no right to expect/require that drawee/acceptor will honor

Waiver: sec. 111
instrument
5. drawer countermanded payment
 

 
Acceptance for Honor

Where not necessary to charge indorser

Sec. 161, 131, 171
  1. FORGERY:  real (lack of consent):
1. forged
Bills in Set: 178-183 2. made without authority of person whose signature it purports to
be.
  General Rule:
1. wholly inoperative
Reference:  University of the Philippines
2. no right to retain instrument, or give discharge, or enforce payment vs. any
BarOps ’99 party, can be acquired through or under such signature (unless forged
Commercial Law – Val Feria, Mina Herrera, Gary Mallari & Rachel Ramos signature unnecessary to holder’s title)
Posted in Negotiable Instruments Law Exception:

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unless the party against whom it is sought to enforce such right is precluded from
Tags: Negotiable Instruments Law - Liabilities of Parties
setting up forgery/want of authority
Negotiable Instruments Law – Defenses and Equities

precluded:
DEC 19

Posted by Magz 1. parties who make certain warranties, like a general indorser or acceptor
2. estopped/negligent parties
NEGOTIABLE INSTRUMENTS LAW * note  rules on Acceptance/Payment Under Mistake as applied to:
Memory Aid 1. 1.    overdraft
Based on the Outline of the 1994 Edition of Campos & Campos 2. 2.    stop payment order
3. 3.    forged indorsements
DEFENSES AND EQUITIES
 
KINDS OF DEFENSES
1. MATERIAL ALTERATION
1. real defense – attaches to instrument; on the principle that the right sought
 Where NI materially altered w/o assent of all parties liable thereon, avoided,
to be enforced  never existed/there was no contract at all
except as vs. a
2. personal defense – growing out of agreement; renders it inequitable to be
1. party who has himself made, authorized or assented to alteration
enforced vs. defendant
2. and subsequent indorsers.
DEFENSES
 But when an instrument has been materially altered and is in the hands of a
1. INCAPACITY: real; indorsement/assign by  corp/infant: passes property but
HDC not a party to the alteration, HDC may enforce payment thereof
corp/infant no liability
according to orig. tenor
1. ILLEGALITY: personal, even if no K because void under CC 1409
  Material Alteration 1. Where instrument is wanting in any material particular: person in possession
1. change date has prima facie authority to complete it by filing up blanks therein
2. sum payable, either for principal or interest 2. Signature on blank paper delivered by person making the signature in order
3. time of payment that the paper may be converted into a NI: prima facie authority to fill up as
4. number/relations of parties such for any amount
5. medium/currency of payment, adds place of payment where none specified,  In order that any such instrument, when completed, ma be enforced vs. any
other change/addition altering effect of instrument in any respect. person who became a party thereto prior to its completion:
*material alteration a personal defense when used to deny liability according to org. 1. must be filled up strictly in accordance w/ authority given

tenor of instrument, but real defense when relied on to deny liability according to 2. within a reasonable time

altered terms.  but if any such instrument after completion is negotiated to HDC, it’s valid

1. FRAUD for all purposes in his hands, he may enforce it as if it had been filled up

2. fraud in execution: real defense (didn’t know it was NI) properly.

3. fraud in inducement: personal defense (knows it’s NI but deceived as to Reference:  University of the Philippines

value/terms) BarOps ’99

1. DURESS Commercial Law – Val Feria, Mina Herrera, Gary Mallari & Rachel Ramos
 Personal, unless so serious as to give rise to a real defense for lack of Posted in Negotiable Instruments Law
contractual intent
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1. COMPLETE, UNDELIVERED INSTRUMENT
 Personal defense (sec. 16) Tags: Negotiable Instruments Law - Defenses and Equities

 If instrument not in poss. Of party who signed, delivery prima facie Negotiable Instruments Law – Holder in Due Course
presumed
DEC 19
 If holder is HDC, delivery conclusively presumed
1. INCOMPLETE, UNDELIVERED INSTRUMENT Posted by Magz
 Real defense (sec. 15)
 Instrument will not, if completed and negotiated without authority, be a valid NEGOTIABLE INSTRUMENTS LAW

contract in the hands of any holder, as against any person whose signature Memory Aid
was placed thereon before delivery Based on the Outline of the 1994 Edition of Campos & Campos

10. INCOMPLETE, DELIVERED

HOLDER IN DUE COURSE
 Personal defense (sec. 14)
HOLDER
 2 Kinds of Writings:

Sec. 191
RIGHTS OF HOLDER 2. free from defenses available to prior parties among themselves
1. sue thereon in his own name 3. may enforce payment of instrument for full amount, against all parties liable
2. payment to him in due course discharges instrument
 
 
* if in the hand of any holder (note definition of holder) other than a HDC, vulnerable to
HOLDER IN DUE COURSE: REQUISITIES same defenses as if non-negotiable
1. complete and regular upon its face
 sec. 124 (effect of alteration)  

 sec. 125 (what constitute material alterations)

1. holder became such before it was overdue, without notice of any previous RIGHTS OF PURCHASER FROM HOLDER IN DUE COURSE:

dishonor General Rule: in the hands of any holder other than a HDC, NI is subject to same

 sec. 53 (demand inst. nego after unreasonable length of time: not HDC) defenses as if it were non-negotiable.
 sec. 12 (effect antedating/postdating) Exception: holder who derives title through HDC and who is not himself a party to any
1. taken in good faith and for value fraud or illegality has all rights of such former holder in respect to all parties prior to
 sec. 24 (presumption of consideration) the latter.
 sec 25 (definition. of value)
 sec. 26 (definition. holder for value)  
 sec. 27 (lien as value)
1. at time negotiated to him, he had no notice  (sec. 56-def;  54-notice before WHO DEEMED HDC
full amt. paid) of —  prima facie presumption in favor of holder
1. infirmity in instrument  but when shown that title of any person who has negotiated instrument was
2. defect in title of person negotiating defective (sec. 55—when title defective): burden reversed (now with holder)
1. instrument/signature obtained through fraud, etc., illegal  but no reversal if party being made liable became bound prior to acquisition
consideration/means, or of defective title (i.e., where defense is not his own)
2. instrument negotiated in breach of faith, or fraudulent
circumstances  

  Reference:  University of the Philippines

BarOps ’99
RIGHTS OF HOLDER IN DUE COURSE: Commercial Law – Val Feria, Mina Herrera, Gary Mallari & Rachel Ramos
1. holds instrument free of any defect of title of prior parties Posted in Negotiable Instruments Law
  When an instrument is transferred from one person to another as to
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constitute the transferee the holder thereof.
Tags: Negotiable Instruments Law - Holder in Due Course  If payable to BEARER, negotiated by delivery; if payable to ORDER,
Negotiable Instruments Law – Transfer negotiated by indorsement of holder + delivery
INDORSEMENT
DEC 19
 Indorser generally enters into two contracts:

Posted by Magz 1. sale or assignment of instrument

2. to pay instrument in case of default of maker
NEGOTIABLE INSTRUMENTS LAW  Sec. 31 (how indorsement made)
Memory Aid  Sec. 41 (where payable to two or more)
Based on the Outline of the 1994 Edition of Campos & Campos  Sec. 43 (indorsement where name misspelled)
 Sec. 48 (cancellation of indorsement)
TRANSFER
 Sec. 45, 46 (presumptions)
DELIVERY
 Indorsement must be of entire instrument. (can’t be indorsement of only part
 NI incomplete and revocable until delivery for the purpose of giving effect
of amount payable, nor can it be to two or more indorsees severally. But okay
thereto
to indorse residue of partially paid instrument)
 as between
 Sec. 67 (liability of indorser where paper negotiable by delivery)
1. immediate parties
 Sec. 63 (when person deemed indorser)
2. a remote party other than  holder in due course
KINDS OF INDORSEMENT

delivery, to be effectual,  must  be made by or under the authority of the party 1. as to manner of future method of negotiation
2. special – specifies the person to whom/to whose order the instrument is to
making/drawing/accepting/indorsing
be payable; indorsement of such indorsee is necessary to further negotiation.

 in such case delivery may be shown to have been conditional, or for a 3. Blank – specifies no indorsee, instrument so indorsed is payable to bearer,

special purpose only, and not for the purpose of transferring the property in and may be negotiated by delivery

the instrument.  the holder may convert a blank indorsement into a special indorsement  by

PRESUMPTION OF DELIVERY writing over the signature of the indorser in blank any contract consistent with

Where the instrument is no longer in the possession of a party whose signature the character of the indorsement

appears thereon, a valid and intentional delivery by him is presumed until the contrary
 
is proved (*if in the hands of a HDC, presumption conclusive)
NEGOTIATION 1. as to kind of title transferred
2. restrictive
  prohibits further negotiation of instrument,  Where an instrument payable to bearer is indorsed specially, it may
 constitutes indorsee as agent of indorser, or nevertheless be further negotiated by delivery
 vests title in indorsee in trust for another  Person indorsing specially liable as indorser to only such holders as make
 rights of indorsee in restrictive ind.: title through his indorsement
 receive payment of inst. UNINDORSED INSTRUMENTS
 Bring any action thereon that indorser could bring  Where holder of instrument payable to his order transfers it for value without
 Transfer his rights as such indorsee, but all subsequent indorsees indorsing, transfer vests in transferee
acquire only title of first indorsee under restrictive indorsement 1. such title as transferor had therein
1. non-restrictive 2. right of tranferee to have indorsement of transferor
 for purposes of determining HDC negotiation effective upon actual
  indorsement

1. as to kind of liability assumed by indorser  

2. qualified-constitutes indorser as mere assignor of title (eg. “without
recourse”) Reference:  University of the Philippines
3. unqualified BarOps ’99
Commercial Law – Val Feria, Mina Herrera, Gary Mallari & Rachel Ramos
 

Posted in Negotiable Instruments Law

1. as to presence/absence of express limitations put by indorser upon primary
obligor’s privileges of paying the holder
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2. conditional – additional condition annexed to indorser’s liability.
Tags: Negotiable Instruments Law - Transfer
 Where an indorsement is conditional, a party required to pay the instrument
Negotiable Instruments Law – Negotiability
may disregard the condition, and make payment to the indorsee or his
transferee, whether condition has been fulfilled or not DEC 19
 Any person to whom an instrument so indorsed is negotiated will hold the
same/proceeds subject to rights of person indorsing conditionally Posted by Magz

1. unconditional
NEGOTIABLE INSTRUMENTS LAW

  Memory Aid
Based on the Outline of the 1994 Edition of Campos & Campos

INDORSEMENT OF BEARER INST.

  
NEGOTIABILITY
REQUISITES or at a fixed or determinable future time
1. 1.    in writing and signed by maker or drawer
 no person liable on the instrument whose signature does not appear  when it’s expressed to be payable at a fixed period after date or sight, or
thereon ( subject to exceptions)  on or before a fixed or determinable future time fixed therein, or
 one who signs in a trade or assumed name liable to the same extent as if  on or at a fixed period after the occurrence of a specified event which is
he had signed in his own name certain to happen, though the time of happening be uncertain
 signature of any party may be made by a duly authorized agent, no  an instrument payable upon a contingency not negotiable, and happening of
particular form of appt. necessary event doesn’t cure it
  *  relate to  sec. 11 ( presumption as to date) and sec. 17 (construction where
1. unconditional promise or order to pay instrument ambiguous)
 unqualified order or promise to pay is unconditional though coupled with * note effect of acceleration provisions, p. 30 Campos
1. an indication of a particular fund out of which reimbursement to be made, or
* note effect of provisions extending time of payment, p. 40 Campos
a particular account to be debited with amount, or
 
1. a statement of the transaction which gives rise to the instrument
1. 4.    payable to order
 an order or promise to pay out of a particular fund is not unconditional
 where it is drawn payable to the order of a specified person or to him or his
a sum certain in money
order. May be drawn payable to order of —
 even if stipulated to be paid—
 when the instrument is payable to order the payee must be named or
1. with interest, or
otherwise indicated therein with reasonable certainty
2. by stated installments, or
1. a payee not the maker/drawer/drawee, or
3. by stated installments with a provision that upon default in payment of any
2. drawer or maker, or
installment/interest, the whole shall become due, or
3. drawee, or
4. with exchange, whether at a fixed rate or at the current rate, or
4. two or more payees jointly, or
5. with costs of collection or an attorney’s fee, in case payment not made at
5. holder of an office for time being
maturity
or bearer,
 
 when expressed to be so payable
1. 3.    payable on demand,
 when payable to person named therein or bearer
 when expressed to be payable on demand, or at sight, or on presentation;
 when payable to order or fictitious/non-existent person, and such fact known
 when no time for payment  expressed, or
to the person making it so payable, or
 where an instrument is issued, accepted or indorsed when overdue, it is, as
 when name of payee doesn’t purport to be the name of any person, or
regards the person so issuing, accepting, or indorsing it, payable on demand
 Negotiable Instruments Law – Definitions
 when the only/last indorsement is in blank
1. 5.    where addressed to drawee: such drawee named/ indicated therein DEC 19
with reasonable certainty
 bill may be addressed to two or more drawees jointly, whether partners or Posted by Magz

not, but not to two or more drawees in the alternative or in succession

NEGOTIABLE INSTRUMENTS LAW
 bill may be treated as a PN, at option of holder, where
Memory Aid
1. drawer and drawee are same person
Based on the Outline of the 1994 Edition of Campos & Campos
2. drawee is fictitious/incapacitated
DEFINITIONS
EFFECT OF ADDITIONAL PROVISIONS
NEGOTIABLE INSTRUMENT
Gen. Rule: order/promise to do any act in addition to the payment of money renders  Written contract for the payment of money, by its form intended as
instrument non-negotiable. substitute for money and intended to pass from hand to hand to give the
holder in due course the right to hold the same and collect the sum due
Exception: negotiability not affected by provisions w/c
 
1. authorize sale of collateral security if instrument not paid at maturity
PROMISSORY NOTE
2. authorize confession  of judgment…
3. waives benefit of any law intended for advantage/protection of obligor  unconditional promise in writing made by one person to another signed by
4. give holder election to require something to be done in lieu of money the maker

CONTINUATION OF NEGOTIABLE CHARACTER  engaging to pay on demand, or at a fixed or determinable future time a sum
certain in money to order or to bearer
Until  where a note is drawn to the maker’s own order, it is not complete until
indorsed by him
1. restrictively indorsed
2. discharged by payment or otherwise  
Reference:  University of the Philippines
BILL OF EXCHANGE
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 unconditional order in writing addressed by one person to another  signed
Commercial Law – Val Feria, Mina Herrera, Gary Mallari & Rachel Ramos
by the person giving it
Posted in Negotiable Instruments Law
 requiring the person to whom it’s addressed to pay on demand or at a fixed
5 Comments or determinable future time a sum certain in money to order or to bearer

Tags: Negotiable Instruments Law - Negotiation

  check: bill of exchange drawn on a bank payable on demand. Kinds of THE LIFE OF A NEGOTIABLE INSTRUMENT:
checks: 1. issue
1. personal check 2. negotiation
2. manager’s/cashier’s check – drawn by a bank on itself. Issuance has the 3. presentment for acceptance in certain bills
effect of acceptance 4. acceptance
3. memorandum check – “memo” is written across its face, signifying that 5. dishonor by on acceptance
drawer will pay holder absolutely without need of presentment 6. presentment for payment
4. crossed check – 7. dishonor by nonpayment
 effects: 8. notice of dishonor
1. check may not be encashed but only deposited in bank 9. protest in certain cases
2. may be negotiated only once, to one who has an acct. with a bank 10. discharge
3. warning to holder that check has been issued for a definite purpose so that
he must inquire if he received check pursuant to such purpose, otherwise not  
HDC
 kinds:
1. general (no word between lines, or “co” between lines)
2. special (name of bank appearing between parallel lines)

BEARER

Person in possession of a bill/note payable to bearer

HOLDER

Payee or indorsee of a bill or note who is in possession of it, or the bearer thereof.