Negotiable Instruments Law Memory Aid

LEX LEONUM FRATERNITAS
1968
NEGOTIABLE INSTRUMENTS LAW b. may be negotiated only once, to

MEMORY AID one who has an acct. with a bank
c. warning to holder that check has
BASED ON THE OUTLINE OF THE 1994 EDITION OF CAMPOS & been issued for a definite purpose
CAMPOS
so that he must inquire if he
CONTENTS received check pursuant to such
purpose, otherwise not HDC
DEFINITIONS P1  kinds:
NEGOTIABILITY P1 a. general (no word between lines, or
TRANSFER P2 “co” between lines)
HOLDER IN DUE COURSE P3 b. special (name of bank appearing
DEFENSES AND EQUITIES P4 between parallel lines)
LIABILITIES OF PARTIES P5
DISCHARGE P8 BEARER
Person in possession of a bill/note payable to
bearer
DEFINITIONS
HOLDER
NEGOTIABLE INSTRUMENT Payee or indorsee of a bill or note who is in
possession of it, or the bearer thereof.
 Written contract for the payment of
money, by its form intended as
THE LIFE OF A NEGOTIABLE INSTRUMENT:
substitute for money and intended to
1. issue
pass from hand to hand to give the
2. negotiation
holder in due course the right to hold the
3. presentment for acceptance in certain bills
same and collect the sum due
4. acceptance
5. dishonor by on acceptance
PROMISSORY NOTE
6. presentment for payment
 unconditional promise in writing made
7. dishonor by nonpayment
by one person to another signed by the
8. notice of dishonor
maker
9. protest in certain cases
 engaging to pay on demand, or at a 10. discharge
fixed or determinable future time a sum
certain in money to order or to bearer
 where a note is drawn to the maker’s NEGOTIABILITY
own order, it is not complete until
indorsed by him REQUISITES
1. in writing and signed by maker or
BILL OF EXCHANGE
drawer
 unconditional order in writing addressed
 no person liable on the instrument whose
by one person to another signed by the
signature does not appear thereon
person giving it
( subject to exceptions)
 requiring the person to whom it’s
 one who signs in a trade or assumed name
addressed to pay on demand or at a
liable to the same extent as if he had
fixed or determinable future time a sum
signed in his own name
certain in money to order or to bearer
 signature of any party may be made by a
 check: bill of exchange drawn on a
duly authorized agent, no particular form of
bank payable on demand. Kinds of
appt. necessary
checks:
1. personal check
2. manager’s/cashier’s check – drawn 2. unconditional promise or order to pay
by a bank on itself. Issuance has the  unqualified order or promise to pay is
effect of acceptance unconditional though coupled with
3. memorandum check – “memo” is a. an indication of a particular fund out of
written across its face, signifying that which reimbursement to be made, or a
drawer will pay holder absolutely particular account to be debited with
without need of presentment amount, or
4. crossed check – b. a statement of the transaction which
 effects: gives rise to the instrument
a. check may not be encashed but  an order or promise to pay out of a
only deposited in bank particular fund is not unconditional
ACADEMIC ADVISERS: Political: Atty. Martinez ; Labor: Atty. Lorenzo ; Taxation: Atty. Cabaneiro ;
Criminal : Atty. Loyola ; Commercial : Atty. Loyola ;
Remedial: Atty. Perez ; Civil: Atty. Vista ; Legal Ethics: Atty. Loyola
Compiled and Edited by: Vice Amorsolo R. Camara Jr.
Through the indispensable efforts of San Beda and San Sebastian Brods
1968
 when the instrument is payable to order the

a sum certain in money payee must be named or otherwise
 even if stipulated to be paid--- indicated therein with reasonable certainty
a. with interest, or
b. by stated installments, or or bearer,
c. by stated installments with a  when expressed to be so payable
provision that upon default in  when payable to person named therein or
payment of any installment/interest, bearer
the whole shall become due, or  when payable to order or fictitious/non-
d. with exchange, whether at a fixed existent person, and such fact known to the
rate or at the current rate, or person making it so payable, or
e. with costs of collection or an  when name of payee doesn’t purport to be
attorney’s fee, in case payment not the name of any person, or
made at maturity  when the only/last indorsement is in blank
3. payable on demand, 5. where addressed to drawee: such drawee
 when expressed to be payable on named/ indicated therein with
demand, or at sight, or on presentation; reasonable certainty
 when no time for payment expressed,  bill may be addressed to two or more
or drawees jointly, whether partners or not,
 where an instrument is issued, accepted but not to two or more drawees in the
or indorsed when overdue, it is, as alternative or in succession
regards the person so issuing,  bill may be treated as a PN, at option of
accepting, or indorsing it, payable on holder, where
demand a. drawer and drawee are same person
b. drawee is fictitious/incapacitated
or at a fixed or determinable future
time EFFECT OF ADDITIONAL PROVISIONS
 when it’s expressed to be payable at a Gen. Rule: order/promise to do any act in
fixed period after date or sight, or addition to the payment of money renders
 on or before a fixed or determinable instrument non-negotiable.
future time fixed therein, or Exception: negotiability not affected by
 on or at a fixed period after the provisions w/c
occurrence of a specified event which is 1. authorize sale of collateral security if
certain to happen, though the time of instrument not paid at maturity
happening be uncertain 2. authorize confession of judgment…
 an instrument payable upon a 3. waives benefit of any law intended for
contingency not negotiable, and advantage/protection of obligor
happening of event doesn’t cure it 4. give holder election to require something to
be done in lieu of money
* relate to sec. 11 ( presumption as to
date) and sec. 17 (construction where CONTINUATION OF NEGOTIABLE
instrument ambiguous) CHARACTER
* note effect of acceleration provisions, p. Until
30 Campos 1. restrictively indorsed
* note effect of provisions extending time of 2. discharged by payment or otherwise
payment, p. 40 Campos
4. payable to order TRANSFER

 where it is drawn payable to the order of
a specified person or to him or his order. DELIVERY
May be drawn payable to order of ---  NI incomplete and revocable until delivery
a. a payee not the for the purpose of giving effect thereto
maker/drawer/drawee, or  as between
b. drawer or maker, or a. immediate parties
c. drawee, or b. a remote party other than holder in due
d. two or more payees jointly, or course
e. holder of an office for time being delivery, to be effectual, must be made by
or under the authority of the party
making/drawing/accepting/indorsing
1968
 in such case delivery may be shown to by writing over the signature of the indorser
have been conditional, or for a special in blank any contract consistent with the
purpose only, and not for the purpose of character of the indorsement
transferring the property in the
instrument B. as to kind of title transferred
1. restrictive
PRESUMPTION OF DELIVERY  prohibits further negotiation of instrument,
Where the instrument is no longer in the  constitutes indorsee as agent of indorser,
possession of a party whose signature or
appears thereon, a valid and intentional  vests title in indorsee in trust for another
delivery by him is presumed until the  rights of indorsee in restrictive ind.:
contrary is proved (*if in the hands of a  receive payment of inst.
HDC, presumption conclusive)  Bring any action thereon that indorser
could bring
NEGOTIATION  Transfer his rights as such indorsee,
 When an instrument is transferred from but all subsequent indorsees acquire
one person to another as to constitute only title of first indorsee under
the transferee the holder thereof. restrictive indorsement
 If payable to BEARER, negotiated by 2. non-restrictive
delivery; if payable to ORDER,
negotiated by indorsement of holder + C. as to kind of liability assumed by indorser
delivery 1. qualified-constitutes indorser as mere
assignor of title (eg. “without recourse”)
INDORSEMENT 2. unqualified
 Indorser generally enters into two
contracts: D. as to presence/absence of express
1. sale or assignment of instrument limitations put by indorser upon primary
2. to pay instrument in case of default obligor’s privileges of paying the holder
of maker 1. conditional – additional condition annexed
 Sec. 31 (how indorsement made) to indorser’s liability.
 Sec. 41 (where payable to two or more)  Where an indorsement is conditional, a
 Sec. 43 (indorsement where name party required to pay the instrument
misspelled) may disregard the condition, and make
 Sec. 48 (cancellation of indorsement) payment to the indorsee or his
 Sec. 45, 46 (presumptions) transferee, whether condition has been
 Indorsement must be of entire fulfilled or not
instrument. (can’t be indorsement of  Any person to whom an instrument so
only part of amount payable, nor can it indorsed is negotiated will hold the
be to two or more indorsees severally. same/proceeds subject to rights of
But okay to indorse residue of partially person indorsing conditionally
paid instrument) 2. unconditional
 Sec. 67 (liability of indorser where paper
negotiable by delivery) INDORSEMENT OF BEARER INST.
 Sec. 63 (when person deemed indorser)  Where an instrument payable to bearer is
indorsed specially, it may nevertheless be
KINDS OF INDORSEMENT further negotiated by delivery
A. as to manner of future method of  Person indorsing specially liable as
negotiation indorser to only such holders as make title
1. special – specifies the person to through his indorsement
whom/to whose order the instrument is
to be payable; indorsement of such UNINDORSED INSTRUMENTS
indorsee is necessary to further  Where holder of instrument payable to his
negotiation. order transfers it for value without
2. Blank – specifies no indorsee, indorsing, transfer vests in transferee
instrument so indorsed is payable to 1. such title as transferor had therein
bearer, and may be negotiated by 2. right of tranferee to have indorsement of
delivery transferor
 for purposes of determining HDC
 the holder may convert a blank negotiation effective upon actual
indorsement into a special indorsement indorsement
1968
Exception: holder who derives title through

HDC and who is not himself a party to any
HOLDER IN DUE COURSE fraud or illegality has all rights of such former
holder in respect to all parties prior to the latter.
HOLDER
Sec. 191 WHO DEEMED HDC
 prima facie presumption in favor of holder
RIGHTS OF HOLDER  but when shown that title of any person
1. sue thereon in his own name who has negotiated instrument was
2. payment to him in due course defective (sec. 55—when title defective):
discharges instrument burden reversed (now with holder)
 but no reversal if party being made liable
HOLDER IN DUE COURSE: REQUISITIES became bound prior to acquisition of
1. complete and regular upon its face defective title (i.e., where defense is not his
 sec. 124 (effect of alteration) own)
 sec. 125 (what constitute material
alterations)
2. holder became such before it was DEFENSES AND EQUITIES
overdue, without notice of any previous
dishonor KINDS OF DEFENSES
 sec. 53 (demand inst. nego after 1. real defense – attaches to instrument; on
unreasonable length of time: not the principle that the right sought to be
HDC) enforced never existed/there was no
 sec. 12 (effect contract at all
antedating/postdating) 2. personal defense – growing out of
3. taken in good faith and for value agreement; renders it inequitable to be
 sec. 24 (presumption of enforced vs. defendant
consideration)
 sec 25 (definition. of value) DEFENSES
 sec. 26 (definition. holder for value) 1. INCAPACITY: real; indorsement/assign by
 sec. 27 (lien as value) corp/infant: passes property but corp/infant
4. at time negotiated to him, he had no no liability
notice (sec. 56-def; 54-notice before
full amt. paid) of --- 2. ILLEGALITY: personal, even if no K
a. infirmity in instrument because void under CC 1409
b. defect in title of person negotiating
1. instrument/signature obtained 3. FORGERY: real (lack of consent):
through fraud, etc., illegal a. forged
consideration/means, or b. made without authority of person
2. instrument negotiated in breach whose signature it purports to be
of faith, or fraudulent
circumstances General Rule:
a. wholly inoperative
RIGHTS OF HOLDER IN DUE COURSE b. no right to retain instrument, or give
1. holds instrument free of any defect of discharge, or enforce payment vs. any
title of prior parties party, can be acquired through or under
2. free from defenses available to prior such signature (unless forged signature
parties among themselves unnecessary to holder’s title)
3. may enforce payment of instrument for Exception:
full amount, against all parties liable unless the party against whom it is
sought to enforce such right is precluded
* if in the hand of any holder (note definition from setting up forgery/want of authority
of holder) other than a HDC, vulnerable to precluded:
same defenses as if non-negotiable a. parties who make certain
warranties, like a general indorser
RIGHTS OF PURCHASER FROM or acceptor
HOLDER IN DUE COURSE b. estopped/negligent parties
General Rule: in the hands of any holder
other than a HDC, NI is subject to same * note rules on Acceptance/Payment Under
defenses as if it were non-negotiable. Mistake as applied to:
1968
1. overdraft

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LEX LEONUM FRATERNITAS

NEGOTIABLE INSTRUMENTS LAW b. may be negotiated only once, to

 when the instrument is payable to order the

4. payable to order TRANSFER

Exception: holder who derives title through

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