For Reimbursement Fund for Payment Stated Installment

A.(1) The drawee pays A. There is only one Means that the number of installments, the maturity of
the payee from his act-drawee pays each installment and the amount of each installment
own funds, directly from the are specified. The time of payment of installments must
particular fund at least be determinable.
Afterwards, (2) the indicated.
drawee pays himself The amount to be paid in installments must be specified
from the particular Conditional because or could be made certain.
fund indicated. fund may or may not
exist, and may or may Acceleration clause
not be sufficient A stipulation that the default in the payment of any date
B. Particular fund B. Particular fund of the installments or interest will make the whole sum
indicated is not the indicated is the direct payable even before the maturity.
direct source of source of payment
payment An agreement to pay at a definite date and an
additional promise to pay at an earlier date on the
Statement of Transaction occurrence of a specified event.
Giving rise to the instrument
A statement of the transaction does not destroy the The note, having all the requisites of Section 1, contains
negotiability of the instrument. the following: The makers, indorsers, guarantors of this
Exception: Where the promise to pay or order is made note, and the sureties severally waive presentment for
subject to the terms and conditions of the transaction payment and notice of dishonor, and consent that the
stated. time of its payment may be extended without notice, all
defenses on the ground of any extension of time of
payment being expressly waived.
Money need not be legal tender
Is the note negotiable?
An instrument is still negotiable although the amount to
be paid is expressed in currency that is not legal tender Payment with Attorneys Fees and Cost of Collection
so long as it is expressed in money.
March 15, 2016
Example: payable in Yen
I promise to pay P or order P10,000.00 on Feb. 14, 2017.
Under Rep. Act. No. 8183, the agreement to pay in Upon failure, I agree to pay collection and attorneys
foreign currency is valid. fees.

Sum is certain even if it is to be paid with: (sgd) M

a) Interest
b) In stated installments
c) In installments with acceleration clause
d) With exchange
e) Costs of collection or attorneys fees
Payment with interest
Where the instrument provides for the payment of
interest, without specifying the date from which interest
is to run, the interest runs from the date of the
instrument, and if the instrument is undated, from the
issue thereof.
With cost of collection & attorneys fees
In case payment is not made at maturity
Even if the sum payable is uncertain, such
uncertainty occurs after maturity when the
instrument is no longer negotiable in its full
commercial sense.
All that the law requires for the instrument to
be negotiable is for the sum at maturity to be
certain.

If some other act is required other than the payment of

money, it is non-negotiable
Pay Pepe or order P10,000.00 AND deliver a car.
(sgd) Melay
To: William
Not negotiable. While the part pertaining to payment of
a sum of money could be negotiated, the part relating
to the performance of other act would have to be
assigned.
General Rule: If some other act is required other than
the payment of money, it is non-negotiable.
Exceptions:
a. Sales of collateral securities
b. Confession of judgment
c. Waives benefit of law
d. Gives option to the holder to require something
to be done in lieu of money (Sec. 5)
Gives option to the holder to require something to be
done in lieu of money
Pay Pedro or order P10,000.00 or ten (10) sacks of rice,
at my option.
(sgd) Mario
Payable on Demand or At a fixed period or
Determinable Future Time
Payable on Demand (time instruments) (Sec. 7)
1.It is expressed to be so payable on demand
(Pay X or bearer P10,000.00 on demand)
At sight (At sight pay to the order of Pam 10,000.00)
On presentation (I promise to pay P or order P10,000.00
on presentation)
2. No period of payment is stipulated
(Pay X or order P10,000.00)
3. Issued, accepted, or endorsed after maturity
3 Types of Future Time
1) Fixed
2)Determinable-time in the future which takes some
computation
3) Occurrence of a specified event which is certain to
happen but the time of happening is uncertain
Ex. Death
Payable at Fixed Period/Time
(I promise to pay Pedro or order P10,000 on 31 July
2017.)
The holder may demand the payment of the instrument
only on said date and not before. Should he fail to
demand payment, the instrument becomes overdue but
remains valid and negotiable. It is merely converted into
a demand instrument.
Determinable Future Time
a. There is a fixed period after sight/date
b. On or before a specified date/fixed
determinable future time
c. On or at a fixed date after the occurrence of an
event certain to happen though the exact date
is not certain
At Fixed Period After Date
15 July 2017
I promise to pay Portia or order P10,000.00 ten (10)
after date.
(sgd) Mary
The note is payable on 25 July 2017 by simple
mathematical computation.
If the instrument is undated from the issue thereof.
At Fixed Period After Sight
This usually applies to a BE, AFTER SIGHT means after
the drawee, to whom the BE is addressed, shall have
seen the BE when it is presented to him by the holder
for acceptance. Sight does not apply to a PN as it is
not presented for acceptance.
25 July 2017
Pay to Petra or order P10,000.00 ten (10) after sight.
(sgd) Rona
To: Willy
If Petra presents the instrument for acceptance on July
31, 2017, its maturity is 10 August 2017.
On or Before a Fixed Time/Period
I promise to pay Pilar order P10,000.00 ten (10) on or
before November 15, 2017.
(sgd)Mencio
The instrument is due and will become payable on
November 15, 2017; although Mencio, the maker, has
the option to pay before such date.
I promise to pay Pamela or order P10,000.00 on or
before October 25.
(sgd)Matthew
Answer: Not negotiable. The time of payment is not
determinable as the year is not stated. Neither is it
payable on demand as it is to be paid at a certain time,
October 25.
On or Before a Determinable Future Time
I promise to pay Patricia or order P10,000.00 on or
before the next school semester.
On the Occurrence of a Specified Event
I promise to pay Paula or order P10,000.00 on the death
of her father.
At a Fixed Period AFTER the Occurrence of a Specified
Event
I promise to pay Pancho or order P10,000.00 five (5)
days AFTER the death of his father.
Ten (10) days before the death of Solomon, I promise
to pay bearer P10,000.00
(sgd) Mario
Answer: Not negotiable. The time of payment is
uncertain. The word used is before and the date of
maturity of the instrument can be determined only after
the note has become due.
On or At a Fixed Date after the Occurrence of an Event
certain to happen though the exact date is not certain
I promise to pay Popoy or order P10,000.00 ten (10)
days after the death of Solomon.
Negotiable. The death of Solomon is certain, and
therefore there is no condition but a mere suspensive
period.
Ten (10) days before the death of Solomon, I promise
to pay bearer P10,000.00
Not negotiable. The time of payment is uncertain. The
word used is before and the date of maturity of the
instrument can be determined only after the note has
become due.
Extension Clauses
An instrument is payable at a definite time if by its
terms it is payable at a definite time subject to
extension at the option of the holder, or to extend to a
further definite time at the option of the maker or
acceptor or automatically upon or after a specified act
or event.
Example: An instrument is still negotiable if it is payable
two (2) years from date subject to extension for
another one (1) year at the option of the maker.
Payment upon a CONTIGENCY-Not certain
Upon reaching the age of minority
If his father should die within 5 days
If his father dies of AIDS
Pay when able
Pay within a reasonable time-Not Certain
Is an instrument having all the requisites of Section 1 of
the NIL and containing a statement: It is agreed that if
my harvest will yield less than 100 sacks of rice, this
note shall be extended for one year negotiable?
Answer: Not negotiable. Where a note with a fixed
maturity provides that the maker has the option to
extend payment until the happening of a contingency,
the instrument would be non-negotiable under the
second paragraph of Section 4. The time for payment
may never come.

PAYABLE TO ORDER
It must be payable to the ORDER OF A
SPECIFIED PERSON (Pay to the order of Pedro)
It is payable to HIM OR HIS ORDER, meaning
payable to a SPECIFIED PERSON OR HIS ORDER
(Pay to Pedro or order)
The SPECIFIED PERSON may be
The drawee (Pay to the order of yourself)
Or the maker (Pay to the order of
myself/myself or order)
Or the holder of an office for the time being
(Pay to the order of the Chairman of PCGG)
An instrument payable to the order of bearer
is an order instrument.
Pay to Petrus or his assigns P10,000.00
(sgd)Mark
I promise to pay to the order of the Secretary
of XXX Association the sum of P10,000.00. Is
this negotiable?
PAYABLE TO BEARER (Sec. 9)
When expressed to be so payable
(Pay to bearer);
When payable to a person named therein or
bearer (Pay to Pedro or bearer);
When payable to the order of a fictitious or
non-existing person and such fact was known
to the person making it so payable (Pay to the
order of Malakas);
When thename of payee does not purport to be
the name of an person (Pay to Cash); or
When the last indorsement is an indorsement in
blank.
I promise to pay bearer Juan P10,000.00.
(sgd) Maria
Answer: Not negotiable. It is not a bearer
instrument. The word bearer is merely
descriptive of Juan, or it is nothing but a
modifier of Juan. The instrument is payable to a
specified person named Juan, who is a bearer.
Must a check payable to the order of cash be
still indorsed by the person presenting it for
payment?
Answer: The check is payable to bearer and
need not be indorsed.
THE COMMERCIAL BAD FAITH RULE
However, there is a commercial bad faith rule
exception to the fictitious payee rule. A showing
of commercial bad faith on the part of the
drawee bank, or any transferee of the check for
that matter, will work to strip it of this defense.
The exception will cause it to bear the loss.
Commercial bad faith is present if the transferee
of the check acts dishonestly, and is a partly to
the fraudulent scheme.
THE FICTITIOUS PAYEE RULE
(PNB vs. Rodriguez)
It is not limited to persons having no real existence.
An existing person may be considered a fictitious
payee, depending upon the intention of the one
making or drawing the instrument.
An actual, existing and living payee may also be
fictitious if the maker of the check did not intend
for the payee to in fact receive the proceeds of the
check. Thus, a check made expressly payable to a
non-fictitious and existing person is not necessarily
an order instrument. If the payee is not the
intended recipient of the proceeds of the check, the
payee is considered a fictitious payee and the check
is a bearer instrument.
Hence, a check stating Pay to the order of Pres.
Rody Duterte P10,000.00 is a bearer instrument if
Pres. Duterte is not the intended recipient.
The checks are bearer instruments.
When the payee is fictitious or not intended to
be the true recipient of the proceeds, the check
is considered as a bearer instrument, they may
be negotiated by mere delivery. A fictitious
person cannot be expected to indorse the
check.
The fictitious payee rule extends its protection
even to non-bank transferees of the checks.
THE DRAWEE MUST BE NAMED OR OTHERWISE
INDICATED THEREIN WITH REASONABLE CERTAINTY
Applies to BE
To enable the payee or subsequent holder to know
upon whom he shall present the instrument for
acceptance of for payment
Two or more drawees may be named JOINTLY,
but not in the alternative.
If named in the alternative or in succession, the
instrument is non-negotiable because the holder has no
right to proceed against the drawer and the other
parties secondarily liable until the bill is dishonored by
all drawees.
Thus, a BE addressed to Walter AND Willard is
negotiable, BUT not one addressed to Walter OR
Willard or Walter or in his absence, William
Problem: Can a bill of exchange or a promissory note
qualify as a negotiable instrument if:
a) It is not dated?
Yes. Sec. 6 (a) provides that the negotiability of
an instrument is not affected if it is not dated.
The date of issuance is not a requisite of
negotiability prescribed by Sec. 1 of NIL
b) The day and the month, but not the year of its
maturity, is given?
No. Absence of the year of maturity affects the
negotiability. The evident intent is to make the
instrument payable on a fixed date but the year
was omitted. Hence, the time for payment is not
determinable in this case.
Problem: Can a bill of exchange or a promissory note
qualify as a negotiable instrument if:
c) It is payable to cash?
Yes. Under Sec. 9 (d) of the NIL, an instrument is
payable to bearer if the name of the payee does
not purport to be the name of any person. The
name of the payee (cash) is an inanimate
object, hence it is a bearer instrument.
d) It names two alternative drawees?
No. Sec. 128 of the NIL provides that a bill may
not be addressed to two or more drawees in the
alternative or in succession. Otherwise, there is
no certainty as to the person to whom the
instrument may be presented for payment.
e) It does not state the place where it is made or
payable?
The negotiability of an instrument is not
affected if it does not state the place where it is
made or where it is payable. All that is required
under the NIL is compliance with Sec. 1 thereof.
DATE OF THE INSTRUMENT
Omission of the date will not affect negotiability
(Sec. 6)
If not dated, it will be considered to be dated as
of the time it was issued (Sec. 17)
If delivered, holder has a prima facie authority
to fill up the blanks (Sec. 14)
Where the instrument or an acceptance is
dated, such date is presumed to be the true
date of the making, drawing, acceptance or
indorsement, as the case may be
Ante-dating or post dating instrument will not
render the instrument invalid or non-negotiable
by that fact alone PROVIDED it is not done for
an illegal or fraudulent purpose. Otherwise, it is
invalid
The person to whom the instrument so dated is
delivered acquires title or ownership over it, not
as of the date it bears, but as of the date it is
delivered.
WHEN DATE MAY BE INSERTED (Sec. 13)
1. An instrument expressed to be payable
at a fixed period after date is issued
undated
2. Where the acceptance of an instrument
payable at a fixed period after sight is
undated
Effects:
Any 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 subsequent
holder in due course
As to the holder in due course, the date inserted
(even if it be the wrong date) is regarded as the
true date.
PROVISIONS, STIPULATIONS, OMISSIONS, AND OTHER
MATTERS NOT AFFECTING NEGOTIABILITY
1. When the SUM payable is (Sec. 2)
a. With interest
b. In installments
c. In installments with acceleration clause
d. With exchange
e. With costs of collection or attorneys fees if
not paid at maturity
II. Statement of a particular fund or transaction giving
rise to the instrument
The particular fund indicated should not be the direct
source of payment, else it becomes unconditional and
therefore non-negotiable. The fund should only be the
source of reimbursement.
A statement of the transaction does not destroy the
negotiability of the instrument.
Exception: Where the promise to pay or order is made
subject to the terms and conditions of the transaction
stated.
III. When the instrument authorizes
a. Sale of collateral securities if not paid at
maturity
b. Confession of judgment if not paid at maturity
c. Waiver of benefit of law
d. Gives option to the holder to require something
to be done in lieu of money
IV. Omissions that will NOT affect the negotiability of an
instrument (Sec. 6)
1) It is not dated
2) Does not specify the value given or that any had
been given
3) Does not specify the place where it is drawn or
payable
4) Bears a seal
5) Designates the kind of current money in which
payment is to be made
Presumption as to DATE: Where the instrument or an
acceptance or any indorsement thereon is dated, such
date is deemed prima facie to be the true date of the
making, drawing, acceptance, or indorsement, as the
case may be (Sec. 11)
THE INSTRUMENT NEED NOT FOLLOW THE FORM OR
THE EXACT WORDS OR LANGUAGE OF THE LAW (Sec.10)
It will suffice to substantially conform to the
forms prescribed; not required to use the exact
words of the law
May be written in a foreign language
Defect in language does not destroy
negotiability
Grammatical errors or errors in spelling should
no militate against the negotiability of the
instrument
CONSTRUCTION WHERE INSTRUMENT IS AMBIGUOUS
(Sec. 17) Where the language of the instrument is
ambiguous or there are omissions therein, the following
rules of construction apply:
a) Where the sum payable is expressed in words
and also in figures and there is discrepancy
between the two, the sum denoted by the
words is the sum payable; but if the words are
ambiguous or uncertain, reference may be had
to the figures to fix the amount;
b) Where the instrument provides for the payment
of interest, without specifying the date from
which interest is to run, the interest runs from
the date of the instrument, and if the
instrument is undated, from the issue thereof;
c) Where the instrument is not dated, it will be
considered to be dated as of the time it was
issued;
d) Where there is a conflict between the written
and printed provisions of the instrument, the
written provisions prevail;
e) Where the instrument is so ambiguous that
there is doubt whether it is a bill or note; the
holder may treat it as either at his election;
f) Where a signature is so placed upon the
instrument that it is not clear in what capacity
the person making the same intended to sign,
he is to be deemed an indorser;
g) Where an instrument containing the word I
promise to pay is signed by two or more
persons, they are deemed to be jointly and
severally liable thereon.
Sec. 130: A bill of exchange may be treated as a
promissory note at the option of the holder
1) Where the drawer and the drawee are one and
the same person.
2) Where the drawee is a fictitious person.
3) Where the drawee is a person not having
capacity to contract.
 Where the instrument is so ambiguous that there is
doubt whether it is a bill or note, the holder may treat
it either at his election.
ISSUE: the first delivery of the instrument, complete in
form to a person who takes it as a holder
DELIVERY: the transfer of possession, actual or
constructive, from one person to another with intent to
transfer title
NEGOTIATION: the transfer of an instrument from
person to another as to constitute the transferee the
holder of the instrument.
If the instrument is payable to bearer, it may be
negotiated by mere delivery although the law does not
prohibit negotiation by indorsement completed by
delivery.
If the instrument is payable to order, it must be
negotiated by indorsement completed by delivery.
(Sec.30)
Signature
General Rule: A person whose signature appears on the
instrument is liable thereon. So that a person whose
signature does not appear on the instrument in not
liable thereon.
Exceptions: instances where a persons signature
appears on the instrument and yet is NOT liable:
1) In case of an undelivered and incomplete
instrument (Sec. 16)
2) In case of indorsement or assignment by a
minor or incapacitated person, the latter shall
not incur any liability on the instrument
although such indorsement or assignment
passes title over the instrument (Sec. 22)
3) In case of a signature of an authorized agent
(Sec.18)
Exceptions: instances where a person whose signature
does NOT appear on the instrument but still liable:
1) The principal is liable if an agent signs in his
behalf (Sec. 19)
2) In case of forgery, the forger is liable even if his
signature does not appear on the instrument.
3) In case the person sought to be charged on the
instrument signs on an allonge (Sec. 134 &135)
4) Where a person uses an assumed name or trade
name (Sec. 18)
EFFECTS OF INSTRUMENTS SIGNED BY TWO OR MORE
PERSONS
Where the instrument containing the words I promise
to pay is signed by two or more persons, they are
deemed to be jointly and severally liable (SOLIDARY)
thereon
An instrument which begins with I, Either of us
promise to pay, when signed by two or more persons,
make them solidarily liable. The fact that the singular
pronoun is used indicates that the promise is individual
as to each other; meaning that each of the co-signers is
deemed to have made an independent singular promise
to pay the notes in full.
THE EXISTENCE OF THE DRAWER
He cannot refuse to pay the BE by alleging that the
drawer is a fictitious or non-existing person.
THE GENUINENESS OF THE DRAWERS SIGNATURE
The acceptor is supposed to be familiar with the
drawers signature, so that it is incumbent upon him
before accepting the BE to determine the genuineness
of the drawers signature. He cannot refuse to pay by
setting up the defense that the drawers signature was
forged.
THE CAPACITY OF THE DRAWER TO DRAW THE
INSTRUMENT
He cannot escape liability by alleging that the drawer
gave no consideration or has overdrawn his account or
has no account with him or that the drawer is incapable
of giving consent.
ACCEPTOR MAY VARY THE TERMS OF THE
INSTRUMENT SO THAT HE CAN BECOME LIABLE ONLY
ACCORDING TO HIS OWN TERMS. HOWEVER, HE IS
ABSOLUTELY LIABLE ACCORDING TO THE TENOR OF HIS
ACCEPTANCE.
RICA is the drawer of a BE payable to order of PORTIA
for P10,000.00 that is due on 31 July 2017. WALLY is the
drawee.
Wally can vary its terms by accepting as follows:
a) Accepted for P5,000.00 He becomes liable only
for P5,000.00 not P10,000.00 the tenor of his
acceptance.
b) Accepted, 10 days after sight. Thus, if presented
for acceptance on July 31, 2017, its maturity is
10 August 2017.
 c) Accepted. Payable upon delivery of a car. Wally 2. He must add words to his signature indicating
will be liable only upon compliance with the that he signs as an agent
condition, the delivery of a car. 3. He must disclose his principal.

THE ACCOMMODATION PARTY (Sec. 28) If an agent does not disclose his principal, the
An accommodation party is one who signs the agent is personally liable on the instrument.
instrument as maker, drawer, acceptor or indorser
without receiving value therefor and for the purpose of Signing as agent
lending his name to some other person. Liable personally
Paulo **ALFREDO
Effects: By Alonso President, XXX Corp.
An accommodation party is liable to the holder for value Agent
notwithstanding that such holder knew that of the
accommodation. Alonso **ALFONSO
As agent of Paulo agent/
The accommodation party cannot recover from President
the accommodation party
Want of consideration cannot be interposed by Alonso
the accommodation party For Paulo
The relation between an accommodation party
and the party accommodated is one of principal SIGNATURE PER PROCURATION (Sec. 21)
and surety;
The liability of the accommodation party is It operates as a notice that the agent has but a limited
primary and unconditional; immediate and authority to sign
direct
Effects:
THE CHECK CERTIFIER 1. The principal in only bound if the agent acted
A check certifier is primarily liable within the limits of the authority given
CONCEPT: an agreement whereby the bank certifying 2. The person who takes the instrument is bound
the check assumes liability for its payment. It assures to inquire into the extent and nature of the
the payee or any subsequent holder that the check is authority given.
genuine and that the bank will honor it when presented
for payment. A bank, however, is under no obligation to
certify a check even if the drawer has sufficient funds. SIGNATURE IN A TRADE OR ASSUMED NAME (Sec. 18)
Upon certification, the bank usually charges the account
of the drawer for the amount certified and shifts the One who signs a trade or assumed name will be liable to
money to a special account of the bank. the same extent as if he had signed in his own name.
Thus, if Mario signs a promissory note with Mario
Effects: Designs his trade name, Mario will be liable on the
1. It is equivalent to acceptance (Sec. 187) instrument to the same extent as if he signed his own
2. If procured by the holder, the drawer and all name.
indorsers are discharged (Sec. 188)
3. It does not operate as an assignment of the INDORSEMENT BY INFANT (MINOR) OR CORPORATION
funds of drawer to the drawee bank (Sec. 189) (Sec. 22)

THE AGENT (Sec. 20) General Rule: Infants (minors) and corporations incur
General Rule: An agent is not liable on the instrument if no liability by their indorsement or assignment of an
he were duly authorized to sign for or on behalf of a instrument.
principal.
Effects:
Requisites: 1. No liability attached to the infant or the
1. He must be duly authorized corporation
 2. The instrument is still valid and the indorsee
acquires title
3. The indorsement of the infant (minor) or the
corporation passes title
M makes
PN to the
Order of P minor
M P A B C D H instrument
1. Can H collect from (from M & P)?
H, whether a HDC or not, can collect from M &
P who cannot raise the defense of minority
because As indorsement passes title to the
instrument
2. From B, C & D?
H, a HDC or not, can collect from B, C & D
because of their warranty as indorsers: that all
prior parties had the capacity to contract (Secs.
65 & 66)
3. From A?
H, even if a HDC, cannot collect from A because
As minority is a real defense.
May a drawee be a HOLDER?
No. Sec. 191 defines a holder as a payee or indorsee
and a drawee is not a payee or indorsee.
The MAKER (Sec. 60)
Effects of making the instrument, the maker:
a. Engages to pay according to tenor of
instrument
b. Admits existence of payee and his capacity to
indorse
A makers liability is primary and unconditional
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.
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
PAYEES INTEREST
The payees interest is only to see to it that the note is
paid according to its terms
DRAWEE/ACCEPTOR
An acceptor is primarily liable
By accepting the instrument, an acceptor:
a) Engages that he will pay according to the
tenor of his acceptance
b) Admits the existence of the drawer, the
genuineness of his signature and his
capacity and authority to draw the
c) The existence of the payee and his then
capacity indorse
ACCEPTOR MAY VARY THE TERMS OF THE INSTRUMENT
SO THAT HE CAN BECOME LIABLE ONLY ACCORDING TO
HIS OWN TERMS, HOWEVER, HE IS ABSOLUTELY LIABLE
ACCORDING TO THE TENOR OF HIS ACCEPTANCE
Rica is the drawer of a BE payable to order of PORTIA
for P10,000.00 that is due on 31 July 2017. Wally is the
drawee.
WALLY can vary its terms by accepting as follows:
a) Accepted for P5,000.00. He becomes liable only
for P5,000.00 not P10,000, the tenor of his
acceptance.
b) Accepted, 10 days after sight. Thus, if presented
for acceptance on July 31, 2017, its maturity is
10 August 2017.
c) Accepted. Payable upon delivery of a car. Wally
will be liable only upon compliance with
condition, the delivery of a car.
ACCOMMODATION party
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 his name to some other person.
Effects:
An accommodation party is liable to the holder for
value notwithstanding that such holder knew that of
the accommodation.
The accommodated party cannot recover
from the accommodation party
Want of consideration cannot be interposed
by the accommodation party
The relation between an accommodated
party and the party accommodated is one
of principal and surety,
The liability of the accommodation party is
primary and unconditional; immediate and
direct.
NO. Mulan cannot hold Maui liable for lack of
consideration. Maui was not an accommodation
indorser who could be made liable even if he did not
receive value for the note. In cases of accommodation
indorsement, the indorser makes the indorsement for
the accommodation of the maker. Such indorsement is
generally for the purpose of better securing the
payment of the note-that is, he lends his name to the
maker, not to the holder. In other words, the
accommodation must be made in favor of the debtor
and not in favor of the creditor. (Maulini v. Serrano, 28
Phil 640). In this case, Maui lent his name to the
creditor, Mulan and therefore, the former was not an
accommodation party. Not being an accommodation
party, Maui can raise the defense of lack of
consideration.
D. Qualified
E. Conditional
Facultative indorsement: This is an indorsement
in which the indorser enlarges his liability by
writing over his signature a waiver of the usual
demand
Special Indorsement
Specifies the person to whom or to whose order
the instrument is to be payable. The
indorsement of the indorsee is necessary for the
further negotiation of the instrument.
(Sec. 34)
Pay to Antonio.

INDORSEMENT (sgd) Pablo

From the Latin term in dorsa meaning writing
on the back
The act of signing ones name on a negotiable Blank Indorsement
instrument payable to order indicating the Specifies no indorsee
intent to transfer ownership of the instrument If the instrument is an order instrument, it becomes a
to another. It creates a contract between the bearer instrument (if the last indorsement is in blank)
indorser and his transferee. The law does not and may be negotiated by mere delivery.
require that indorsement be made on a
particular side of the instrument, but they are (no indorsee)
usually written at the back for purposes of
convenience. (sgd) Pedro

If an indorsement is payable to bearer, an Restrictive Indorsement (Sec. 36)

indorsement is not required for its negotiation
but the transferee may demand that it be Kinds:
indorsed for purposes of security and the 1) Prohibits the further negotiation of the
identification of the transferor of the instrument.
instrument.
Pay to Ariel only.
Where to Indorse (sgd) Patricio
1) On the instrument itself 2) Constitutes the indorsee as agent of the
As a matter of practice, an indorsement is indorser (agency type)
written at the dorsal portion/back of the
instrument. However, it may be written or made Pay to Arthur for collection only.
on the face of the instrument itself. (sgd) Peter
2) On a separate paper: allonge
On a separate paper, called allonge, which must 3) Vests title in the indorsee in trust for or to the
be attached thereto to make such paper an use of some other person (trust type)
integral part of the instrument.
Pay to Ali in trust for Bobby
KINDS OF INDORSEMENTS (sgd) Pablo

A. Special Pay to Amy for the use of Mario.

B. Blank (sgd) Popoy
C. Restrictive
 Pay to Ara for my personal use. TWO OR MORE PAYEES TWO OR MORE
(sgd) Padre JOINTLY INDORSEES
Pay to the order of Pay to X and Y P10,000
EFFECT OF RESTRICTIVE INDORSEMENT A and B P10,000
(sgd) M (sgd) I
Destroys negotiability of instrument
A and B must indorse X and Y must indorse
Specifies the purpose of the indorsement or the unless one of them is
use to be made of the instrument authorized or they are Pay to X or Y P10,000
partners
It limits/restrains the NI to such purpose or use (sgd) I
TWO OR MORE PAYEES
QUALIFIED INDORSEMENT (Sec. 38) SEVERALLY Either X or Y may indorse

Constitutes the indorser a mere assignor of the title to Pay to the order of A or B Pay to X P8,000 and B
the instrument. It does not impair the negotiable P10,000 P2,000
character of the instrument. (sgd) M NOT A VALID
INDORSEMENT
It may be made by adding the words without A or B may indorse (Sec.32)
recourse / san recourse or words of similar import
such as indorser not holden,at the indorsees risk Who must indorse an instrument payable to a cashier
or other fiscal officer of a bank or corporation?
Pay to the order of Albert without recourse. The instrument may be negotiated by either:
(sgd) Placido 1. The indorsement of the officer, or
2. Through any other authorized officer of the
CONDITIONAL INDORSEMENT bank or corporation. (Sec. 42)
An indorsement subject to the happening of a
condition. Indorsement where name is misspelled

The party required to pay may disregard the
condition and pay the indorsee whether the
condition will be fulfilled or not. But any person
to whom the instrument so indorsed is
negotiated will hold the same, subject to the
rights of the person indorsing conditionally.
Manuel issues a PN payable to Pablo or order for
P10,000.00 Pablo indorses the the PN as follows:
1. The payee or indorsee may indorse the
instrument as therein described
2. He may also add to the misspelled name his
proper or correct signature
Pay to the order of Manulo whose correct name is
MANOLO
Manolo may indorse as follows:

Pay to the order of Abet if he wins the marathon (sgd) Manulo

next month. Or
(sgd) Pablo (sgd) Manulo (sgd) Manolo

Manuel may pay Abet only if he wins the

marathon.
Manuel, may pay Abet and disregard the
condition. Here, Abet, holds the proceeds
subject to the rights of Pablo. If Abet wins the
marathon, he acquires the proceeds absolutely.
If not, Abet must return the amount to Pablo.
Indorsement of instrument payable to bearer (Sec. 40)
Even if specially indorsed, it may be further negotiated
by mere delivery
A person specially indorsing is liable as indorser only to
such holders as to make title through his indorsement.

WHO MUST INDORSE? P specially indorsed to A delivery

M P or bearer A H
H cannot hold P liable; H did not acquire title through WARRANTIES OF AN INDORSER
the indorsement of P The instrument is GENUINE and IN ALL
RESPECTS WHAT IT PURPORTS TO BE (Sec. 65 &
ORDER INSTRUMENT IS CONVERTED TO A BEARER 66)
INSTRUMENT IF THE LAST INDORSEMENT IS A BLANK The instrument is GENUINE, VALID and
INDORSEMENT SUBSISTING
He has good title to the instrument
M P Pay to A The order instrument that
All prior parties had the capacity to contract
(sgd) P was converted into a
A Pay to B bearer instrument Warranties where negotiating by delivery or qualified
(sgd) A because of the blank indorsement (Sec. 65)
B (blank) indorsement may be 1. The instrument is genuine and in all respect
(sgd) B specially indorsed; it RE- what it purports to be
H Pay to X (instrument not a forgery/materially
ACQUIRES its status as an
(sgd) H altered/inc. & und.)
X order instrument.
2. The indorser has good title to it
(title is not defective, not obtained by fraud,
STRIKING OUT OF INDORSEMENT (Sec. 48) duress, force, fear or unlawful means, for
illegal consideration)
M P Pay to A ORDER INSTRUMENT 3. All prior parties had the capacity to contract
(sgd) P (not a minor, insane)
A Pay to B a) The holder may strike out any 4. Indorser has no knowledge of any fact that
(sgd) A indorsement IMMEDIATELY would impair the validity or the value of the
FOLLOWING a blank
B (blank) instrument (insolvency, absence of
indorsement in case of a blank
(sgd) B and special indorsement. consideration, illegality of the instrument)
C Pay to D
(sgd) C b) If there are only SPECIAL Limitations of warranties:
D Pay to E INDORSEMENT, the holder may
NOT strike out any indorsement
If by delivery extends only to immediate
(sgd) D since he must trace his title transferee
E Pay to H through all the indorsement. Warranty of capacity to contract does not apply
(sgd) E to persons negotiating public or corporate
H securities

INDORSERS WHEN TITLE TO THE INSTRUMENT IS DEFECTIVE (Sec. 55)

1) General Indorser
2) Qualified Indorser
(a qualified indorser is one who indorses without
recourse or sans recourse)
IRREGULAR/ ANOMALOUS INDORSER
A person not otherwise a party to an instrument
places his signature in blank before delivery is
liable as an indorser
A person who signs for the purpose of
identifying a person only and not for the
purpose of incurring any liability as to the
payment of a promissory note or bill of
exchange and clearly indicating that it is for the
purpose of identification only, is not an indorser.
One who only guarantees prior indorsements
does not become an indorser.
A) If he obtained the instrument, or any signature
thereto:
1) By fraud, as when an agent-broker
employed to buy stock and received a check
therefor, but had not bought a stock.
2) By duress, force and fear, as when the
maker signed a note under threat of killing
of a member of his family.
3) For an illegal consideration, such as, when a
note is issued to stifle a criminal
prosecution.
B) When the holder negotiates it in breach of trust
or circumstances amounting to fraud
1) When the payee negotiates a note which is
already paid.
2) When a payee negotiates a note which was
given as a security
 3) When a payee negotiates a note after he good title to it good title to it
fails to deliver the valuable consideration he 3. All prior parties 3. All prior parties
agreed to give in return for the note. had the capacity had the capacity
to contract to contract
WHAT CONSTITUTES NOTICE OF DEFECT? (Sec. 56) 4. Indorser has no 4. That the
knowledge of any instrument at the
1) ACTUAL KNOWLEDGE of the infirmity or defect, fact that would time of his
or impair the validity indorsement was
2) Knowledge of such facts that his action in taking or the value of the valid and
the instrument amounted to bad faith instrument subsisting
e.g. holder who was given a token value for an
instrument negotiated to him
NEGLIGENCE is NOT sufficient to constitute notice since MEANING OF ADMISSION OF GENUINENESS AND DUE
it is not equivalent to either actual knowledge or bad EXECUTION
faith. 1. That he signed it or that it was signed by
CONSTRUCTIVE notice NOT APPLICABLE to commercial another for him and with his authority
paper. 2. That at the time it was signed, it was in words
and figures exactly as set out in the pleading of
WARRANTIES OF A GENERAL INDORSER (Sec. 66) the party relying upon it
The instrument is genuine and in all respect what it 3. That any formal requisites required by law, such
purports to be as swearing, are complied with; and
That he has good title to it 4. Acknowledgment, or revenue stamp which it
All prior parties had the capacity to contract requires, are waived by him
That the instrument at the time of his indorsement was
valid and subsisting INSTRUMENT IS GENUINE & IN ALL RESPECT WHAT IT
PURPORTS TO BE
In addition:
Engages that the instrument will be accepted or paid or GI QI GI
both according to its tenor on due presentment M P or Order A B H
Engages to pay the amount thereof if it be dishonored
and the necessary proceedings on dishonor are taken M dishonors as note is a forgery/materially altered

Note: GENERAL INDORSER WARRANTS THE SOLVENCY P, A & B cannot raise defense of
OF THE MAKER forgery/material alteration notwithstanding
good faith or lack of knowledge of forgery or
GENERAL INDORSER material alteration.
Warrants the solvency of a prior party
The indorser warrants that the instrument is
valid and subsisting regardless of whether he is HE HAS GOOD TITLE/THAT TITLE IS NOT DEFECTIVE
ignorant of that fact or not
Warranties extend in favor of a) a HDC; b) GI QI GI
persons who derive their title from HDC; c) M P or Order A B H
immediate transferees even if not HDC
The indorser does not warrant the genuineness M dishonors as note was obtained by fraud
of the drawers signature
General indorser is only secondarily liable P, A & B cannot raise defense of defective title;
they warrant good title
Delivery/QI GI
1. The instrument is 1. The instrument is
genuine and in all genuine and in all ALL PRIOR PARTIES HAD CAPACITY TO CONTRACT
respect what it respect what it
purports to be purports to be
2. The indorser has 2. The indorser has
Cannot raise defense that a prior party is a minor, A - not liable to H. Warranty extends only to immediate
insane or deaf-mute who does not know how to write, transferee.
or a corporation is performing an ultra vires act.
B - not liable to H; he did not know of the insolvency
minor QI GI QI GI
M P or Order A B C H
Question No. 1:
M dishonors note due to minority M makes a promissory note that states: I, M,
promise to pay Php 5,000.00 to B or bearer. Signed, M.
P,A, B & C cannot raise defense of minority; M negotiated the note by delivery to B, B to N, and N to
they warrant that all prior parties had the O. B had known that M was bankrupt when M issued
capacity to contract the note. Who would be liable to O?

For QUALIFIED INDORSER For GENERAL INDORSER

He has no knowledge of
any fact that would impair
the validity of the
instrument or render it
valueless
QI is not liable as he has
knowledge of
1) Insolvency of a
person primary
liable; 2) the
absence or want
of consideration,
or 3) the illegality
of the instrument.
But QI will be liable if he
has knowledge of such
facts.
insolvent GI
M P or Order A B
Question No. 2:
The instrument is valid and P sold to M 10 grams of shabu worth
subsisting Php5,000.00. As he had no money at the time of the
sale, M wrote a promissory note promising to pay P or
Warrants the his order Php 5,000.00. P then indorsed the note to X
solvency of the (who did not know about the shabu), and X to Y. Unable
maker to collect from P, Y then sued X on the note. X set up the
defense of illegality of consideration. Is he correct?
Question No. 3:
A makes a note payable to B or order in payment of a
shabu. B, indorses it to C, who does not know that the
consideration is illegal, indorses it to D.
Can D enforce the note against C? May C set up the
defense that the note is void as it is issued for an illegal
consideration?
Answer (Q no. 3): No. C, as a general indorser, warrants
that the instrument is valid and subsisting even if he did
not know of the illegality of the consideration.
QI GI
H

M is insolvent and P, A & B has NO knowledge of

insolvency

A is not liable; he has no knowledge of the insolvency

P & B are liable. They warrant that the instrument is
valid and subsisting.

insolvent QI deliver deliver

w/knowledge w/knowledge not aware
M P or bearer A B H

P - liable to H; he violated warranty: he has knowledge

of any fact that would impair the validity of the
instrument or render it valueless