NEGOTIABLE INSTRUMENT Written contracts for the payment of money; by its form, intended as a 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. CHARACTERISTICS OF NEGOTIABLE INSTRUMENTS 1. Negotiability - right of transferee to hold the instrument and collect the sum due 2. Accumulation of secondary contracts instrument is negotiated from person to person PROMISSORY NOTE (Sec. 184) An unconditional promise to pay in writing made by one person to another, signed by the ma er, engaging to pay on demand or a fi!ed determinable future time a sum certain in money to order or bearer. When the note is drawn to ma er"s own order, it is not complete until indorsed by him. BILL OF EXCHANGE (Sec. 185) An unconditional order in writing addressed by one person to another, signed by the person giving it, re#uiring the person to whom it is addressed to pay on demand or at a fi!ed or determinable future time a sum certain in money to order or to bearer. CHECK (Sec. 185) A bill of e!change drawn on a ban and payable on demand. Ma a!e"#$ c%ec& $ne drawn by the ban "s manager upon the ban itself; and it is similar to a cashier"s chec both as to effect and use. %&nternational 'orporate (an v )ueco *+1 ,'-A +1. /20011

BPI Fa'()* Sa+( !$ Ba & + Ma (&a , -.5 SCRA -/- (011-)2 (y its peculiar character and general use in commerce, a manager"s chec is regarded substantially to be as good as the money it represents.'onse#uently, when a ban allows the delivery of a manager"s chec to a person who is not 2irectly charged with the collection of its ta! liabilities, such ban must be deemed to have assumed the ris of a possible misuse thereof, as it appears to have fallen short of the diligence e!pected from it. &t may still, however, pursue an action against the person responsible or who may have un3ustly benefited. Pa34!a($ +$. Sa%(56a (, 40- SCRA 5.7 (0114) )enerally, a manager"s chec is not legal tender and the creditor may accept or refuse it. (ut, payment by chec may be accepted as valid if no prompt ob3ection is made. C"8$$e9 c%ec& 4hough the N&5 is silent as to crossed chec s, courts can ta e 3udicial cogni6ance of the practice that a chec crossed with two parallel lines in the upper left hand corner means that it can only be deposited and not converted to cash. 4he effects of a crossed chec thus relate to the mode of payment - meaning that the drawer intends it to be only for deposit by the rightful person, the named payee. Ba:aa C(!a" +$. CA A holder of crossed-chec s is not obliged to in#uire, when he ac#uires them, as to purpose for which the chec s were issued. A payee who further negotiates cross-chec s that he accepted from someone cannot be considered a holder in good faith /and thus not a 7&2'1 is not applicable to this case. 7ere, when the payee ac#uired the chec s, he duly deposited them in his ban account, and therefore, the purpose behind the crossing was satisfied by the payee. N!8 +$. Pe8;)e, 4-4 SCRA 500 (0114) 4he law does not re#uire the payee to be interested in the obligation in consideration for which the chec was issued. 4he cause or reason of issuance is inconse#uential /in connection with (8 221 in determining criminal liability. A$$8c(a:e9 Ba & +. C84": 8< A;;ea)$, 018 SCRA 475 4he payee of crossed chec s issued with the notation 9for payee"s account only9 can sue a collecting ban

which allowed an unauthori6ed third person to deposit the chec s in his own account and to withdraw the proceeds of the chec s, because the proceeds of the chec s belonged to the payee and the ban paid the chec s although the third person had no title to the chec s. RE=UISITES OF A NEGOTIABLE INSTRUMENT ,ec. 1. An instrument to be negotiable, must conform to the following re#uirements: /a1 &t must be in writing and signed by the ma er or drawer; /b1 ;ust contain an unconditional promise or order to pay a certain sum in money; /c1 ;ust be payable on demand, or at a fi!ed or determinable future time; /d1 ;ust be payable to order or to bearer; and Where the instrument is addressed to a drawee, he must be named or otherwise indicated therein with reasonable certainty. HO> NEGOTIABILITY IS ?ETERMINE? (y the provisions of the Negotiable &nstrument 5aw, particularly ,ection 1 thereof 2. (y considering the whole instrument *. (y what appears on the face of the instrument and not elsewhere Sec 0 @ >HEN A SUM IS CERTAIN ,ec 2. 4he sum payable is a sum certain within the meaning of this Act, although it is to be paid: /a1 With interest; or /b1 (y stated installments; or /c1 (y stated installments, with a provision that, upon default in payment of any installment or of interest, the whole shall become due; or /d1 With costs of collection or an attorney"s fee, in case payment shall not be made at maturity. EFFECT OF A CON?ITIONAL PROMISE OR OR?ER A promise or order should not depend on a contingent event. &f it is conditional, it is nonnegotiable. Sec - @ >HEN PROMISE IS UNCON?ITIONAL ,ec *. An un#ualified order or promise to pay is unconditional within the meaning of this Act, though coupled with < /a1 An indication of a particular fund out of which reimbursement is to be made, or a particular account to be debited with the amount; or

/b1 A statement of the transaction which gives rise to the instrument. (ut an order or promise to pay out of a particular fund is not unconditional. Sec 4 @ >HAT CONSTITUTES ?ETERMINABLE FUTURE TIME ,ec =. An instrument is payable at a determinable future time, within the meaning of this Act, which is e!pressed to be payable < /a1 At a fi!ed period after date or sight; or /b1 $n or before a fi!ed or determinable future time specified therein; or /c1 $n or at a fi!ed period after the occurrence of a specified event, which is certain to happen, though the time of happening be uncertain. An instrument payable upon a contingency is not negotiable, and the happening of the event does not cure the defect. Sec 5 @ >HEN SOME OTHER ACT IS RE=UIRE? OTHER THAN PAYMENT OF MONEY IN AN INSTRUMENT An instrument which contains an order or promise to do any act in addition to the payment of money is not negotiable. (ut the negotiable character of an instrument otherwise negotiable is not affected by a provision which < /a1 Authori6es the sale of collateral securities in case the instrument be not paid at maturity; or /b1 Authori6es a confession of 3udgment if the instrument be not paid at maturity; or /c1 Waives the benefit of any law intended for the advantage or protection of the obligor; or /d1 )ives the holder an election to re#uire something to be done in lieu of payment of money. (ut nothing in this section shall validate any provision or stipulation otherwise illegal. T68 K( 9$ 8< A49!'e :$ 3* C8 <e$$(8 a. cognovit actionem b. relicta verificatione I';8":a : N8:e$ 8 Sec:(8 5 1. 5imitation on the provision: it cannot re#uire something illegal. 2. 4here are two inds of 3udgments by confession: a. cognovit actionem b. relicta verificatione *. 'onfessions of 3udgment in the 8hilippines are void as against public policy. =. &f the choice lies with the debtor, the instrument is rendered non-negotiable. Sec 7 @ INSTANCES THAT ?O NOT AFFECT THE BALI?ITY AN? NEGOTIABILITY OF AN INSTRUMENT

4he validity and negotiable character of an instrument are not affected by the fact that < /a1 &t is not dated; or /b1 2oes not specify the value given, or that any value has been given therefor; or /c1 2oes not specify the place where it is drawn or the place where it is payable; or /d1 (ears a seal; or /e1 2esignates particular ind of current money in which payment is to be made. (ut nothing in this section shall alter or repeal any statute re#uiring in certain cases the nature of the consideration to be stated in the instrument. Sec. / @ >HEN AN INSTRUMENT IS PAYABLE UPON ?EMAN? ,ec. > An instrument is payable on demand < /a1 Where it is e!pressed to be payable on demand, or at sight, or on presentation; or /b1 &n which no time for payment is e!pressed. Where an instrument is issued, accepted, or indorsed when overdue, it is, as regards the person so issuing, accepting, or indorsing it, payable on demand. >HEN AN INSTRUMENT IS PAYABLE TO OR?ER An instrument is payable to order when it is drawn payable to the order of a specified person or to a specified person or his order. Sec. 8 @ FOR >HOSE OR?ER AN INSTRUMENT CAN BE ?RA>N ,ec. ? 4he instrument is payable to order where it is drawn payable to the order of a specified person or to him or his order. &t may be drawn payable to the order of < /a1 A payee who is not ma er, drawer, or drawee; or /b1 4he drawer or ma er; or /c1 4he drawee; or /d1 4wo or more payees 3ointly; or /e1 $ne or some of several payees; or /f1 4he holder of an office for the time being. Where the instrument is payable to order the payee must be named or otherwise indicated therein with reasonable certainty. Sec. . @ INSTRUMENTS PAYABLE TO BEARER ,ec. @ 4he instrument is payable to bearer < /a1 When it is e!pressed to be so payable; or /b1 When it is payable to a person named therein or bearer; or /c1 When it is payable to the order of a fictitious or non-e!isting person, and such fact was

nown to the person ma ing it so payable; or /d1 When the name of the payee does not purport to be the name of any person; or /e1 When the only or last indorsement is an indorsement in blan . Sec. 1- @ INSTANCES >HEN A ?ATE MAY BE INSERTE? IN AN INSTRUMENT Where an instrument e!pressed to be payable at a fi!ed period after date is issued undated, or where the acceptance of an instrument payable at a fi!ed period after sight is undated, any holder may insert therein the true date of issue or acceptance, and the instrument shall be payable accordingly. 4he insertion of a wrong date does not avoid the instrument in the hands of a subse#uent holder in due course; but as to him, the date so inserted is to be regarded as the true date. EFFECT >HEN A ?ATE IS INSERTE? IN AN INSTRUMENT A holder may insert the true date of issuance or acceptance, the insertion of a wrong date does not avoid the instrument in the hands of a subse#uent holder in due course. As regards to the holder in due course, the date inserted /even if it is a wrong date1 is regarded as the true date. ?EFICIENCIES THAT ?O NOT AFFECT THE RIGHTS OF A SUBSE=UENT HOL?ER IN ?UE COURSE 1. &ncomplete but delivered instrument /,ec.1=1 2. 'omplete but undelivered /,ec. 1.1 *. 'omplete and delivered issued without consideration or a consideration consisting of a promise which was not fulfilled /,ec 2?1 ?EFICIENCIESCABNORMALITIES THAT AFFECT THE RIGHTS OF A HOL?ER IN ?UE COURSE 1. &ncomplete and undelivered instrument /,ec.1+1 2. ;a erAdrawer"s signature forged /,ec. 2*1 Re;43)(c Ba & +. C84": 8< A;;ea)$, 1.7 SCRA 111 Where the amount of the chec was altered by increasing it but the drawee ban failed to return it to the collecting ban within 2= hours, the collecting ban is absolved from liability for the drawee ban should detect the alteration. PNB +. C84": 8< A;;ea)$, 057 SCRA 4.1 4he alteration of a serial number of a chec is not material and does not entitle the drawee ban which paid it to recover the payment.

>HEN INSTRUMENTS ARE INCOMPLETE BUT ?ELIBERE? 11 Where an instrument is wanting in any material particular: a. 7older has prima facie authority to fill up the blan s therein. b. &t must be filled up strictly in accordance with the authority given and within a reasonable time. c. &f negotiated to a holder in due course, it is valid and effectual for all purposes as though it was filled up strictly in accordance with the authority given and within reasonable time. /,ec. 1=1 21 Where only a signature on a blan paper was delivered: a. &t was delivered by the person ma ing it in order that it may be converted into a negotiable instrument b. 4he holder has prima facie authority to fill it up as such for any amount. /,ec. 1=1 Sec. 15. @ >HEN AN INSTRUMENT IS INCOMPLETE AN? UN?ELIBERE? 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 holder, as against any person whose signature was placed thereon before delivery. /Note: &t is a real defense. &t can be interposed against a holder in due course. 2elivery is not conclusively presumed where the instrument is incomplete. 2efense of the ma er is to prove nondelivery of the incomplete instrument.1 Sec. 17 @ >HEN AN INSTRUMENT IS COMPLETE BUT UN?ELIBERE? ,ec. 1.. Bvery contract on a negotiable instrument is incomplete and revocable until delivery of the instrument for the purpose of giving effect thereto. As between immediate parties, and as regards a remote party other than a holder in due course, the delivery, in order to be effectual, must be made either by or under the authority of the party ma ing, drawing, accepting, or indorsing, as the case may be; and in such case the delivery may be shown to have been conditional, or for a special purpose only, and not for the purpose of transferring the property in the instrument. (ut where the instrument is in the hands of a holder in due course, a valid delivery thereof by all parties prior to him so as to ma e them liable to him is conclusively presumed. And where the instrument is no longer in the possession of a party whose signature appears thereon, a valid and intentional delivery by him is presumed until the contrary is proved. R4)e$ O ?e)(+e"* O< Ne!8:(a3)e I $:"4'e :$ 1. 2elivery is essential to the validity of any negotiable instrument 2. As between immediate parties or those in li e cases, delivery must be with intention of passing title *. An instrument signed but not completed by the drawer or ma er and retained by him is invalid as to him for want of delivery even in the hands of a holder in due course

=. (ut there is prima facie presumption of delivery of an instrument signed but not completed by the drawer or ma er and retained by him if it is in the hands of a holder in due course. 4his may be rebutted by proof of non-delivery. +. 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 bind the ma er or drawer. .. &f 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 presumption of delivery. >. 2elivery may be conditional or for a special purpose but such do not affect the rights of a holder in due course. PERSONS LIABLE IN AN INSTRUMENT )eneral rule: A person whose signature does not appear on the instrument is not liable. B!ception: 1. $ne who signs in a trade or assumed name /,ec. 1?1 2. A duly authori6ed agent /,ec. 1@1 *. A forger /,ec. 2*1 Sec 01 @ >HEN AN AGENT IS LIABLE ON THE INSTRUMENT ,ec. 20. Where the instrument contains or a person adds to his signature words indicating that he signs for or on behalf of a principal, or in a representative capacity, he is not liable on the instrument if he was duly authori6ed; but the mere addition of words describing him as an agent, or as filling a representative character, without disclosing his principal, does not e!empt him from personal liability. EFFECTS 8< SIGNATURE BY PROCURATION ,&)NA4C-B (D 8-$'C-A4&$N - operates as notice that the agent has a limited authority to sign. Bffects: 1. 4he principal is only bound if the agent acted within the limits of the authority given 2. 4he person who ta es the instrument is bound to in#uire into the e!tent and nature of the authority given. /,ec. 211 Sec. 00 @ LIABILITY OF INFANTS AN? CORPORATIONS FOR THEIR IN?ORSEMENT OR ASSIGNMENT ,ec. 22. 4he indorsement or assignment of the instrument by a corporation or by an infant passes the property therein, notwithstanding that from want of capacity the corporation or infant may incur no liability thereon.

SEC 0- @ EFFECT OF A FORGE? SIGNATURE OR ONE MA?E >ITHOUT AUTHORITY ,ec. 2*. When a signature is forged or made without the authority of the person whose signature it purports to be, it is wholly inoperative, and no right to retain the instrument, or to give a discharge therefor, or to enforce payment thereof against any party thereto, can be ac#uired through or under such signature, unless the party against whom it is sought to enforce such right is precluded from setting up the forgery or want of authority. NOTES ON SEC 01. ,ection 2* applies only to forged signatures or signatures made without authority 2. Alterations such as to amounts or the li e fall under section 12= *. $nly the signature forged or made without authority is inoperative, the instrument or other signatures which are genuine are not affected =. 4he instrument can be enforced by holders to whose title the forged signature is not necessary +. drawee ban is conclusively presumed to now the ,ignature of its drawer .. if endorser"s signature is forged, loss will be borne by the forger and parties subse#uent thereto >. drawee ban is not conclusively presumed to now the signature of the indorser. 4he responsibility falls on the ban which last guaranteed the indorsement and not the drawee ban . ?. Where the payee"s signature is forged, payments made by the drawee ban to the collecting ban are ineffective. No debtorAcreditor relationship is created. An agency to collect is created between the person depositing and the collecting ban . 4he drawee ban may recover from collecting ban who may, in turn, recover from the person depositing. FORMS OF FORGERY a1 fraud in factum b1 duress amounting to fraud c1 fraudulent impersonation Pe"$8 $ >%8 a"e P"ec)49e9 F"8' Se::( ! U; :%e F8"!e"* a1 those who warrant or admit the genuineness of the signature b1 those who are estopped. Pe"$8 $ >%8 a"e P"ec)49e9 3* >a""a :( ! a1 indorsers; b1 persons negotiating by delivery; c1 acceptors. PROMISSORY NOTEDR4)e$ O L(a3()(:(e$ O< Pa":(e$ O A F8"!e9 I $:"4'e :

1. A party whose indorsement is forged on a note payable to order and all parties prior to him including the ma er cannot be held liable by any holder 2. A party whose indorsement is forged on a note originally payable to bearer and all parties prior to him including the ma er may be held liable by a holder in due course provided that it was mechanically complete before the forgery *. A ma er whose signature was forged cannot be held liable by any holder BILL OF EXCHANGEDR4)e$ O L(a3()(:(e$ O< Pa":(e$ O A F8"!e9 I $:"4'e : &n a ($B 1. 4he drawer"s account cannot be charged by the drawee where the drawee paid 2. 4he drawer has no right to recover from the collecting ban *. 4he drawee ban can recover from the collecting ban =. 4he payee can recover from the drawer +. 4he payee can recover from the recipient of the payment, such as the collecting ban .. 4he payee cannot collect from the drawee ban >. 4he collecting ban bears the loss but can recover from the person to whom it paid ?. &f payable to bearer, the rules are the same as in 8N. @. &f the drawee has accepted the bill, the drawee bears the loss and his remedy is to go after the forger 10. &f the drawee has not accepted the bill but has paid it, the drawee cannot recover from the drawer or the recipient of the proceeds, absent any act of negligence on their part. F8"!e"* the counterfeiting of any writing, consisting of the signing of another"s name with intent to defraud, is forgery. CONSI?ERATION (SEC 04, 05 AN? 08) ,ec. 2=. Bvery negotiable instrument is deemed prima facie to have been issued for a valuable consideration; and every person whose signature appears thereon to have become a party thereto for value. ,ec. 2.. Where value has at any time been given for the instrument, the holder is deemed a holder for value in respect to all parties who became such prior to that time. ,ec. 2?. Absence or failure of consideration is matter of defense as against any person not a holder in due course; and partial failure of consideration is a defense pro tanto, whether the failure is an ascertained and li#uidated amount or otherwise. Ya ! +$. CA, 41. SCRA 15. (011-) 7e who posits that there was no consideration, is obliged to present convincing evidence to overthrow the presumption that every Negotiable &nstrument is ac#uired by every party for value. Sa'$8 +. C84": 8< A;;ea)$, 410 SCRA -48

,ince consideration is presumed, the ma er is liable to pay under a negotiable promissory note. B())a)4E +. C84": 8< A;;ea)$, 0/8 SCRA 541 ,ince a chec which was dishonored for lac of funds is presumed to have been issued for valuable consideration. 4he drawer should be ordered to pay its value if he failed to rebut the presumption. ACCOMMO?ATION PARTY An accommodation party is one who signs the instrument as ma er, drawer, acceptor, or indorser without receiving value for it and for the purpose of lending his name to some other person. P%()(;;( e Na:(8 a) Ba & +. C84": 8< A;;ea)$, 05 SCRA 7.A drawee ban which paid a chec on which the signature of the drawer had been forged cannot recover the payment from the collecting ban , because payment implies acceptance and an acceptor admits the genuineness of the signature of the drawer. A$$8c(a:e9 Ba & +. C84": 8< A;;ea)$, 050 SCRA 701 While a drawee ban which paid several chec s payable to order with forged endorsements can recover the payment from the collecting ban because the forged endorsement is inoperative, the drawer must share one-half of the loss where the drawer substantially contributed to the loss by continuing to release the chec to the forger although it new the forger was no longer the cashier of the drawer Ba c8 9e O"8 Sa+( !$ F M8":!a!e Ba & +. EG4(:a3)e 3a &( ! C8";8"a:(8 , 15/ SCRA 188 Where the endorsements on a chec presented by a collecting ban for clearing are forged, the drawee ban can recover the payment, for it is the duty of the collecting ban to see to it that the endorsements are genuine. A$:"8@E)ec:"8 (c$ C8";. +$. P%()!4a"a :ee, 411 SCRA 470 (011-) 4he 8res is personally liable. &n signing his name apart from being the 8res., he became a coma er. 8ersons who write their names on the fact of 8Ns are ma ers. Me:"8;8)(:a >a:e"68"&$ F Se6e"a!e S*$:e' +. C84": 8< A;;ea)$, 14- SCRA 01 Where a depositor who was allowed to print its chec s privately adopted no security measures in the printing of the chec s, 2* chec s with forged signatures of the authori6ed signatories were deposited over a period of three months, and the fraud was not discovered because of the failure of the depositor to reconcile the ban statements with its records, the depositor must bear the loss because of its negligence.

Ba & 8< P.I. +$. Ca$a M8 :e$$8"( I :e" a:(8 a)e, 4-1 SCRA 071 (01142 Eorgery is the counterfeiting of any writing, consisting of the signing of another"s name with intent to defraud, is forgery. 4he ban which allows the payment on a chec where the signature is forged is liable to the depositor-drawer. When one of two persons suffers the wrongful act of a third person, he whose negligence was the pro!imate cause of the loss must bear the loss. 8ursuant to its prime duty to ascertain well the genuineness of the signatures of its clientdepositors, the drawee-ban is e!pected to use reasonable business prudence. &n the performance of that obligation, it is bound by its internal ban ing rules and regulation that form part of the contract it enters into with its depositors. A drawee ban must restore to the account of the drawer the amounts of chec s on which the signature of its president was forged even of the forger was the independent auditor of the drawer, who was in charge of reconciling the ban statements with the records of the drawer. Sec 0. @ LIABILITY OF AN ACCOMMO?ATION PARTY ,ec. 2@. An accommodation party is one who has signed the instrument as ma er, drawer, acceptor, or indorser, without receiving value therefor, and for the purpose of lending his name to some other person. ,uch a person is liable on the instrument to a holder for value, notwithstanding such holder at the time of ta ing the instrument new him to be only an accommodation party. N8:e$ 8 SEC 0. 1. 4he accommodated party cannot recover from the accommodation party 2. Want of consideration cannot be interposed by the accommodation party *. An accommodation ma er may see reimbursement from a co-ma er even in the absence of any provision in the N&5; the deficiency is supplied by the New 'ivil 'ode. =. 7e may do this even without first proceeding against the debtor provided: a. 7e paid by virtue of 3udicial demand b. 8rincipal debtor is insolvent P"49e c(8 +. C84": 8< A;;ea)$, 14- SCRA / 4o be entitled to recover from an accommodation party, the holder of a negotiable instrument must be a holder in due course e!cept for the notice of want of consideration. Ca e9a +. C84": 8< A;;ea)$, 181 SCRA /70 A party who signed a promissory note as accommodation ma er in favor of the payees, who then indorsed it to a financing company, cannot raise the defense that he did not receive any value but is entitled to reimbursement from the party accommodated. Pe8;)e +. Ma (e!8, 148 SCRA -1

Where a party indorsed several chec s as accommodation endorser and the chec s were dishonored for lac of funds, she is liable to the holder for the payment of the chec s. Sec. -1 @ >HEN AN INSTRUMENT IS NEGOTIATE? ,ec. *0. An instrument is negotiated when it is transferred from one person to another in such manner as to constitute the transferee the holder thereof. &f payable to bearer, it is negotiated by delivery; if payable to order, it is negotiated by the indorsement of the holder completed by delivery. Sec. -1 @ RE=UISITES OF A BALI? IN?ORSEMENT ,ec. *1. 4he indorsement must be written on the instrument itself or upon a paper attached thereto. 4he signature of the indorser, without additional words, is a sufficient indorsement. KIN?S OF IN?ORSEMENTS 1. ,pecial /,ec. *=1 2. (lan /,ec. *+1 *. -estrictive /,ec. *.1 =. Fualified /,ec. *?1 +. 'onditional /,ec. *@1 Sec. 41. @ EFFECTS OF IN?ORSING AN INSTRUMENT ORIGINALLY PAYABLE TO BEARER ,ec. =0. Where an instrument, payable to bearer, is indorsed specially, it may nevertheless be further negotiated by delivery; but the person indorsing specially is liable as indorser to only such holders as ma e title through his indorsement. Sec. 48 @ EFFECTS >HEN A HOL?ER STRIKES OUT AN IN?ORSEMENT, >HICH IS NOT NECESSARY TO HIS TITLE ,ec. =?. 4he holder may at any time stri e out any indorsement, which is not necessary to his title. 4he indorser whose indorsement is struc out, and all indorsers subse#uent to him, are thereby relieved from liability on the instrument. Sec. 4. @EFFECTS OF A TRANSFER >ITHOUT EN?ORSEMENT ,ec. =@. Where the holder of an instrument payable to his order transfers it for value without indorsing it, the transfer vests in the transferee such title as the transferor had therein, and the transferee ac#uires, in addition, the right to have the indorsement of the transferor. (ut for the purpose of determining whether the transferee is a holder in due course, the negotiation ta es effect as of the time when the indorsement is actually made.

Sec. 51 @ RIGHTS OF A HOL?ER ,ec. +1. 4he holder of a negotiable instrument may sue thereon in his own name; and payment to him in due course discharges the instrument. RE=UISITES FOR A HOL?ER IN ?UE COURSE (H?C) ,ec. +2. A holder in due course is a holder who has ta en the instrument under the following conditions: /a1 4hat it is complete and regular upon its face; /b1 4hat he became the holder of it before it was overdue, and without notice that it had been previously dishonored, if such was the fact; /c1 4hat he too it in good faith and for value; /d1 4hat at the time it was negotiated to him he had no notice of any infirmity in the instrument or defect in the title of the person negotiating it. SEC 50 @ NOTES Notes: 1. Bvery holder is presumed to be a 72' /,ec. +@1 2. 4he person who #uestions such has the burden of proof to prove otherwise if one of the re#uisites are lac ing, the holder is not 72' *.=. An instrument is overdue after the date of maturity. +. $n the date of maturity, the instrument is not overdue and the holder is a 72' .. Ac#uisition of the transferee or indorsee must be in good faith >. )ood faith means the lac of nowledge or notice of defect or infirmity ?. A holder is not a 72' where an instrument payable on demand is negotiated at an unreasonable length of time after its issue /,ec. +*1 >HEN INSTRUMENT CONSI?ERE? COMPLETE AN? REGULAR ON ITS FACE An instrument is considered complete and regular on its face if: a1 the omission is immaterial; b1 the alteration on the instrument was not apparent on its face Sec. 5/ @ RIGHTS OF A HOL?ER IN ?UE COURSE ,ec. +>. A holder in due course holds the instrument free from any defect of title of prior parties, and free from defenses available to prior parties among themselves, and may enforce payment of the instrument for the full amount thereof against all parties liable thereon. HOL?ER IN ?UE COURSE @ Pe"$8 a) 8" EG4(:a3)e ?e<e $e$

8ersonal or e#uitable defenses are those which grow out of the agreement or conduct of a particular person in regard to the instrument which renders it ine#uitable for him through legal title to enforce it. 'an be set up against holders not 72' HOL?ER IN ?UE COURSE @ Le!a) 8" Rea) ?e<e $e$ 5egal or real defenses are those which attach to the instrument itself and can be set up against the whole world, including a 72'. Sec. 58 @ >HEN SUBAECT TO ORIGINAL ?EFENSES ,ec. +? &n the hands of any holder other than a holder in due course, a negotiable instrument is sub3ect to the same defenses as if it were nonnegotiable. (ut a holder who derives his title through a holder in due course, and who is not himself a party to any fraud or illegality affecting the instrument, has all the rights of such former holder in respect of all parties prior to the latter. RIGHTS OF A HOL?ER NOT A H?C 1. may sue in his own name 2. may receive payment and if it is in due course, the instrument is discharged *. holds the instrument sub3ect to the same defenses as if it were non-negotiable =. if he derives his title through a 72' and is not a party to any fraud or illegality thereto, has all the rights of such 72' Sec. 5. @ >HO IS A HOL?ER IN ?UE COURSE ,ec. +@. Bvery holder is deemed prima facie to be a holder in due course; but when it is shown that the title of any person who has negotiated the instrument was defective, the burden is on the holder to prove that he or some person under whom he claims ac#uired the title as holder in due course. (ut the last-mentioned rule does not apply in favor of a party who became bound on the instrument prior to the ac#uisition of such defective title. Ya ! +$. CA, 41. SCRA 15. (011-) Bvery holder is presumed to be a 72'. Also, a holder is not obliged to show that there was valuable consideration, since the same is presumed. 7e does not also have to show that he made the aforementioned in#uiry. Absence the showing of a circumstance that should have put the holder into such an in#uiry, the failure to in#uire is no tantamount to bad faith ...Ba c8 A:)a :(c8 +. A49(:8" Ge e"a), 81 SCRA --5 A collecting ban which allowed the depositor to withdraw the proceeds of a chec although the chec had not been cleared and was told by the depositornot to present the chec for payment until a later date although the chec was already due, is not a holder in due course and cannot recover from the drawer in case the chec is dishonored.

S:a:e I +e$:'e : H84$e +. I :e"'e9(a:e A;;e))a:e C84":, 1/5 SCRA -11 Where the postdated chec s issued by the drawer as a loan to the payee were crossed, were indorsed by the payee to an investment house and were dishonored for lac of funds, the investment house cannot hold the drawer liable, because it is not a holder in due course. ,ince the chec s were crossed and could only be deposited, it should have ascertained the title to the chec and the nature of the possession by the payee. &f it failed to do so, it is not a holder in good faith. 7ence, if the issuance of the chec was sub3ect to the condition that the payeewould deposit funds for the chec and failed to do so, the drawer can raise this defense. S:a:e I +e$:'e : H84$e, I c. +. C84": 8< A;;ea)$, 01/ SCRA -0 A drawer who issued two chec s as security for 3ewelry to be sold by the drawer is liable to an endorsee to whom the payee negotiated the chec s even if the drawer returned the pieces of 3ewelry to the payee, since the payee is presumed to be a holder in due course and the drawer cannot invo e want of consideration between the drawer and the payee as a defense. Sec. 71 @ LIABILITIES OF A MAKER ,ec. .0. 4he ma er of a negotiable instrument by ma ing it engages that he will pay it according to its tenor, and admits the e!istence of the payee and his then capacity to indorse. Sec. 71 @ NOTES Notes: 1. A ma er"s liability is primarily and unconditional 2. $ne who has signed as such is presumed to have acted with care and to have signed with full nowledge of its contents, unless fraud is proved *. 4he payee"s interest is only to see to it that the note is paid according to its terms =. When two or more ma ers sign 3ointly, each is individually liable for the full amount even if one did not receive the value given +. 4he ma er is precluded from setting up the defense that a1 the payee is fictional, b1 that the payee was insane, a minor or a corporation acting ultra vires. LIABILITY OF A ?RA>ER A drawer is secondarily liable. (y drawing the instrument, the drawer: 1. Admits the e!istence of the payee, 2. 4he capacity of such payee to indorse *. Bngages that on due presentment, the instrument will be accepted or paid or both according to its tenor. Notes:

1. &f the instrument is dishonored, and the necessary proceedings on dishonor duly ta en a. 4he drawer will pay the amount thereof to the holder b. Will pay to any subse#uent indorser who may be compelled to pay it. /,ec. .11 2. A drawer may insert an e!press stipulation to negative or limit his liability ACCEPTOR (y accepting the instrument, an acceptor: 1. Bngages that he will pay according to the tenor of his acceptance 2. Admits the e!istence of the drawer, the genuineness of his signature and his capacity and authority to draw the instrument *. 4he e!istence of the payee and his then capacity indorse IRREGULAR IN?ORSER A person not otherwise a party to an instrument places his signature in blan before delivery is liable as an indorser in the following manner: 1. &f payable to order of a third person - liable to the payee and to all subse#uent parties 2. &f payable to order of the ma er or drawer - liable to all parties subse#uent to the ma er or drawer *. &f payable to bearer - liable to all parties subse#uent to the ma er or drawer =. &f signs for an accommodation party - liable to all parties subse#uent to the payee /,ec. .=1 Sec. 75. @ >ARRANTIES AN? ITS LIMITATIONS ,ec. .+. Bvery person negotiating an instrument by delivery or by a #ualified indorsement warrants < /a1 4hat the instrument is genuine and in all respects what it purports to be; /b1 4hat he has a good title to it; /c1 4hat all prior parties had capacity to contract; /d1 4hat he has no nowledge of any fact which would impair the validity of the instrument or render it valueless. (ut when the negotiation is by delivery only, the warranty e!tends in favor of no holder other than the immediate transferee. 4he provisions of subdivision /c1 of this section do not apply to persons negotiating public or corporation securities, other than bills and notes. Sec. 75 @ NOTES 1. A #ualified indorser is one who indorses without recourse *. A #ualified indorser cannot raise the defense of a1 forgery b1 defect of his title or that it is void c1 the incapacity of the ma er, drawer or previous indorsers. =. A #ualified indorsement ma es the indorser mere assignor of title of instrument, relieves him

of general obligation to pay if instrument is dishonored, but he is still liable for the warranties arising from instrument only up to warranties of general indorser +. 4he warranty is to the capacity of prior parties at the time the instrument was negotiated. ,ubse#uent incapacity does not breach the warranty. .. 5ac of nowledge of the indorser as to any fact that would impair the validity or the value of the instrument must be subsisting all throughout. >. A person Negotiating by 2elivery warrants the same as those of #ualified indorser and e!tends to immediate transferees only Sec 77 @ >ARRANTIES OF A GENERAL IN?ORSER ,ec. ... Bvery indorser who indorses without #ualification warrants, to all subse#uent holders in due course < /a1 4he matters and things mentioned in subdivisions /a1, /b1, and /c1 of the ne!t preceding section; and /b1 4hat the instrument is at the time of his indorsement valid and subsisting. And, in addition, he engages that on due presentment, it shall be accepted or paid, or both, as the case may be, according to its tenor, and that if it be dishonored, and the necessary proceedings on dishonor be duly ta en, he will pay the amount thereof to the holder, or to any subse#uent indorser who may be compelled to pay it. Sec. 77 @ NOTES 1. 4he indorser under ,ection .. warrants the solvency of a prior party 2. 4he indorser warrants that the instrument is valid and subsisting regardless of whether he is ignorant of that fact or not. *. 4he indorser does not warrant the genuineness of the drawer"s signature =. )eneral indorser is only secondarily liable >a""a :(e$ eH:e 9 ( <a+8" 8<.... Warranties e!tend in favor of a1 a 72' b1 persons who derive their title from 72' c1 immediate transferees even if not 72' Sec /1 @ PRESENTMENT FOR PAYMENT ,ec. >0. 8resentment for payment is not necessary in order to charge the person primarily liable on the instrument; but if the instrument is, by its terms, payable at a special place, and he is able and willing to pay it there at maturity, such ability and willingness are e#uivalent to a tender of payment upon his part. (ut, e!cept as herein otherwise provided, presentment for payment is necessary in order to charge the drawer and indorsers. PRESENMENT FOR PAYMENT

production of a ($B to the drawee for his acceptance, or to a drawee or acceptor for payment. Also presentment of a 8N to the party liable for payment of the same. PRESENMENT FOR PAYMENT @ NOTES 1. &t consists of: a1 a personal demand for payment at a proper place; and, b1 the bill or note must be ready to be e!hibited if re#uired and surrendered upon payment. 2. 8arties primarily liable - persons by the terms of the instrument are absolutely re#uired to pay the same. B.g. ma er and acceptors. 4hey can be sued directly. *. &f payable at the special place, and the person liable is willing to pay there at maturity, such willingness and ability is e#uivalent to tender of payment. =. 8resentment is necessary to charge persons secondarily liable otherwise they are discharged +. Acts needed to charge persons secondarily liable: a1 presentment for paymentAacceptance; b1 dishonor by nonpaymentA non-acceptance; c1 notice of dishonor to secondary parties .. Acts needed to charge persons secondarily liable in other cases: a1 protest for nonpayment by the drawee; b1 protest for nonpayment by the acceptor for honor Sec. /0 @ RE=UISITES FOR PROPER PRESENTMENT ,ec. >2. 8resentment for payment, to be sufficient, must be made < /a1 (y the holder, or by some person authori6ed to receive payment on his behalf; /b1 At a reasonable hour on a business day; /c1 At a proper place as herein defined; /d1 4o the person primarily liable on the instrument, or if he is absent or inaccessible, to any person found at the place where the presentment is made. Pa*a3)e 8 ?e'a 9D >%e P"e$e :e9 &f the instrument is payable on demand: 1. 8resentment must be made within reasonable time after issue /if a note1 2. 8resentment must be made within reasonable time after last negotiation /if a bill1 P"e$e :'e : 8: "eG4("e9 :8 c%a"!e :%e 9"a6e" a. 7e has no right to e!pect b. 7e has no right to re#uire c. 4hat the drawee or acceptor will pay /,ec >@1 P"e$e :'e : 8: "eG4("e9 :8 c%a"!e :%e ( 98"$e" 6%e"e...

8resentment not re#uired to charge the indorser where: a. 4he instrument was made or accepted for his accommodation b. 7e has no reason to e!pect that the instrument will be paid if presented /,ec.?01 R4)e$ a$ :8 ;"e$e :'e : <8" ;a*'e : a. 8resentment not necessary to charge persons primarily liable b. Necessary to charge persons secondarily liable B!cept: i. 4he drawer under ,ec. >@ ii. 4he indorser under ,ec. ?0 PRESENTMENTD >%e eHc4$e9 4 9e" Sec. 80 After due diligence, presentment cannot be made b. 8resentment is waived c. 4he drawee is a fictitious person d. When the instrument has been dishonored by non-acceptance under ,ec. ?* PRESENTMENTD H86 9($%8 8"e9 3* 8 @acce;:a ce a. 4he instrument was duly presented but payment is refused or cannot be obtained b. 8resentment is e!cused and the instrument is overdue and unpaid /,ec. ?*1 E<<ec:$ 8< 9($%8 8" 3* 8 @;a*'e :D An immediate right of recourse to all parties secondarily liable accrues to the holder. /,ec. ?=1 Sec. 88 @ RE=UISITES OF A PAYMENT IN ?UE COURSE ,ec. ??. 8ayment is made in due course when it is made at or after the maturity of the instrument to the holder thereof in good faith and without notice that his title is defective. Sec. .1 @ TO >HOM A NOTICE OF ?ISHONOR MAY BE GIBEN ,ec. @0. 4he notice may be given by or on behalf of the holder, or by or on behalf of any party to the instrument who might be compelled to pay it to the holder, and who, upon ta ing it up, would have a right to reimbursement from the party to whom the notice is given. FORM OF A NOTICE ( Sec .5 a 9 .7) ,ec. @+. A written notice need not be signed, and an insufficient written notice may be supplemented and validated by verbal communication. A misdescription of the instrument does not vitiate the notice unless the party to whom the notice is given is in fact misled thereby. ,ec. @.. 4he notice may be in writing or merely oral and may be given in any terms which

sufficiently identify the instrument and indicate that it has been dishonored by non-acceptance or non-payment. &t may in all cases be given by delivering it personally or through the mails Sec. 11. @ >HEN NOTICE CAN BE >AIBE? ,ec. 10@. Notice of dishonor may be waived, either before the time of giving notice has arrived or after the omission to give due notice, and the waiver may be e!press or implied. Sec. 11. @ NOTES Notes: 1. 8rotest may be waived. &t is also deemed a waiver of presentment and notice of dishonor /,ec. 1111 2. Where notice is waived, presentment is not waived *. Where presentment is waived, notice is also waived =. Where protest is waived, notice and presentment is waived NOTICE OF ?ISHONOR (9e<.) )iven by the holder to the parties secondarily liable, drawer and each indorser, that the instrument was dishonored by nonacceptance or non-payment by the draweeAma er GENERAL RULE D N8:(ce 8< ?($%8 8" )eneral rule: Any drawer or indorser to whom such notice is not given is discharged. EXCEPTIONSD N8:(ce 8< ?($%8 8" 1. Waiver /,ec. 10@1 2. Notice is dispensed /,ec. 1121 *. Not necessary to 2rawer /,ec. 11=1 =. Not necessary to &ndorser /,ec. 11+1 Sec. 114 @ >HEN NOTICE OF ?ISHONOR IS NOT NECESSARY TO A ?RA>ER ,ec. 11=. Notice of dishonor is not re#uired to be given to the drawer in either of the following cases: /a1 Where the drawer and drawee are the same person. /b1 When the drawee is a fictitious person or a person not having capacity to contract. /c1 When the drawer is the person to whom the instrument is presented for payment. /d1 Where the drawer has no right to e!pect or re#uire that the drawee or acceptor will honor the instrument. /e1 Where the drawer has countermanded payment. Sec. 115 @ >HEN NOTICE TO AN IN?ORSER IS NOT RE=UIRE?

,ec. 11+. Notice of dishonor is not re#uired to be given to an indorser in either of the following cases: /a1 Where the drawee is a fictitious person or a person not having capacity to contract, and the indorser was aware of the fact at the time he indorsed the instrument; /b1 Where the indorser is the person to whom the instrument is presented for payment; /c1 Where the instrument was made or accepted for his accommodation NOTESD Sec 115 Note: 1. $mission to give notice of dishonor by nonacceptance does not pre3udice a 72' /,ec. 11>1 2. 8rotest only necessary for a foreign bill of e!change. 8rotest for other negotiable instruments is optional. /,ec. 11?1 S:a:e I +e$:'e : H84$e, I c. +. C84": 8< A;;ea)$, 01/ SCRA -0 4he holder of two chec s which were dishonored because the drawer withdrew her funds from the ban can hold the drawer liable even if no notice of dishonor was given to the drawer, since the drawer had no right to e!pect that the drawee ban would honor the chec s. A$$8c(a:e Ba & +. Ta , 447 SCRA 080 A drawee ban is liable for damages to a drawer whose chec s were dishonored for lac of funds because, it did not give him notice that the chec he deposited in his account was dishonored Sec. 11. @ CAUSES OF ?ISCHARGE OF THE INSTRUMENT ,ec. 11@. A negotiable instrument is discharged < /a1 (y payment in due course by or on behalf of the principal debtor; /b1 (y payment in due course by the party accommodated, where the instrument is made or accepted for accommodation; /c1 (y the intentional cancellation thereof by the holder; /d1 (y any other act which will discharge a simple contract for the payment of money; /e1 When the principal debtor becomes the holder of the instrument at or after maturity in his own right. NOTESD ?ISCHARGE OF INSTRUMENTS Notes: 1. 2ischarge of the instrument discharges all the parties thereto 2. 8ayment must be in due course, and by the principal debtor or on his behalf *. &f payment is not made by the principal debtor, payment only cancels the liability of the payor and those obligated after him but does not discharge the instrument. =. 8ayment by an accommodation party does not discharge the instrument Sec. 101 @ HO> A SECON?ARY PARTY IS ?ISCHARGE?

,ec. 120. A person secondarily liable on the instrument is discharged < /a1 (y any act which discharges the instrument; /b1 (y the intentional cancellation of his signature by the holder; /c1 (y the discharge of a prior party; /d1 (y a valid tender of payment made by a prior party; /e1 (y a release of the principal debtor, unless the holder"s right of recourse against the party secondarily liable is e!pressly reserved; /f1 (y any agreement binding upon the holder to e!tend the time of payment, or to postpone the holder"s right to enforce the instrument, unless made with the assent of the party secondarily liable, or unless the right of recourse against such party is e!pressly reserved. RIGHTS OF A PARTY SECON?ARILY LIABLE >HO ALREA?Y PERFORME? HIS OBLIGATION TO PAY 1. 4he instrument is not discharged 2. 4he party is remitted to his former rights as to all prior parties *. 4he party may stri e out his own and all subse#uent indorsements =. 4he party may negotiate the instrument again EXCEPTIONSD RIGHTS OF A PARTY SECON?ARILY LIABLE >HO ALREA?Y PERFORME? HIS OBLIGATION TO PAY 1. An instrument cannot be renegotiated where it is payable to order of a *rd person and has been paid by the drawer 2. &nstrument cannot be renegotiated where it was made or accepted for accommodation and it has been paid by the party accommodated. >HEN RENUNCIATION BY A HOL?ER ?ISCHARGES AN INSTRUMENT 1. ;ade in favor of a person primarily liable 2. ;ade at or after maturity of the instrument *. &n writing or the instrument is delivered up to the person primarily liable . N$4B,: 1. &f renounced in favor of a party secondarily liable, only he is e!onerated from liability and all parties subse#uent to him. 2. 2ischarge by novation is allowed. Ge e"a) R4)eD >%e 'a:e"(a))* a):e"e9, 6(:%84: :%e c8 $e : 8< a)) ;a":(e$ )(a3)e )eneral rule: 4he instrument is avoided B!cept as against:

1. 4he party who has made the alteration 2. 4he party who authori6ed or assented to the alteration. ,ubse#uent indorsers B!ception: &f in the hands of a 72', may be enforced according to its original tenor Ma:e"(a) A):e"a:(8 &f it alters the effect of the instrument. Sec. 105 @ MATERIAL ALTERATION RE=UISITES ,ec. 12+ Any alteration, which changes < /a1 4he date; /b1 4he sum payable, either for principal or interest; /c1 4he time or place of payment; /d1 4he number or the relations of the parties; /e1 4he medium or currency in which payment is to be made; $r which adds a place of payment where no place of payment is specified, or any other change or addition which alters the effect of the instrument in any respect, is a material alteration. INSTANCES >HEN A BOE MAY BE TREATE? AS A PN 1. 4he drawer and the drawee are one and the same 2. 4he drawee is a fictitious person *. 4he drawee has no capacity to contract. ACCEPTANCE (9e<.) the signification by the drawee of his assent to the order of the drawer. &t is an act by which a person on whom the ($B is drawn assents to the re#uest of the drawer to pay it. MO?ES OF ACCEPTANCE A''B84AN'B ;AD (B: 1. actual 2. constructive *. general =. #ualified

RE=UISITES OF AN ACTUAL ACCEPTANCE 1. &n writing 2. ,igned by the drawee *. ;ust not e!press that the drawee will perform his promise by any other means than payment of money =. 'ommunicated or delivered to the holder ACCEPTANCED RIGHT OF HOL?ER Note: A holder has a right to: 1. re#uire that acceptance be written on the bill and if refused, treat it as if dishonored /,ec. 1**1 2. refuse to accept a #ualified acceptance and may treat it as dishonored /,ec. 1=21 Sec. 1-/ @ CONSTRUCTIBE ACCEPTANCE ,ec. 1*>. Where a drawee to whom a bill is delivered for acceptance destroys the same, or refuses within twenty-four hours after such delivery, or within such other period as the holder may allow, to return the bill accepted or non-accepted to the holder, he will be deemed to have accepted the same. PRESENTMENT FOR ACCEPTANCE 1. &f necessary to fi! the maturity of the bill 2. &f it is e!pressly stipulated that it shall be presented for acceptance *. &f the bill is drawn payable elsewhere than the residence or place of business of the drawee. SUMMARY ON PRESENTMENT FOR ACCEPTANCE OF BILLS OF EXCHANGE 1. 4o ma e the drawee primarily liable and for the accrual of secondary liability /,ec. 1==1 2. Necessary to fi! maturity date, where bill e!pressly stipulates presentment, bill payable other than place of drawee /,ec. 1=*1 >%e ;"e$e :'e : ($ eHc4$e9 a. drawee is dead, hides, is fictitious, incapacitated person, b. after due diligence presentment cannot be made, c. presentment is refused on another ground although presentment is irregular /,ec. 1=?1 Sec 150 @ >HEN PROTEST RE=UIRE? ,ec. 1+2. Where a foreign bill appearing on its faceto be such is dishonored by non-acceptance, it mustbe duly protested for non-acceptance, and where such bill which has not previously been dishonored by non-acceptance is dishonored by non-payment, itmust be duly protested for nonpayment. &f it is not so protested, the drawer and indorsers are discharged. Where a bll does not

appear on its face to be a foreign bill, protest thereof in case of dishonor is unnecessary. PROTEST (9e<. a 9 ) A formal statement in writing made by a notary under his seal of office at the re#uest of the holder, in which it is declared that the same was presented for payment or acceptance /as the case may be1 and such was refused. &t means all steps or acts accompanying the dishonor of a bill or note necessary to charge an indorser

PROTESTD 6%e "eG4("e9 a 9 6%e 'a9e 1. -e#uired when the instrument is a foreign bill of e!change. 2. &t must be made on the same date of dishonor, by a notaryArespectable citi6en of the place in the presence of 2 credible witnesses so recourse to secondary parties BILL IN SET (9e<.) A bill of e!change drawn in several parts, each part of the set being numbered and containing a reference to the other parts, the whole of the parts 3ust constituting one bill. Lee +. CA, -/5 SCRA 55/. (0110) Although drafts issued in connection with letters of credit are negotiable instruments.