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GENERAL PRINCIPLES
Law on Negotiable Instruments
(4). Where a note is drawn to the maker’s own order, it is not complete until indorsed by
them.”
Essentially a promise in writing to pay a sum certain in money
The promise is to pay on demand or on a fixed or determinable future time
General characteristics: amount; place where contract to pay is executed; due date;
absolute promise to pay something; payable to order/bearer; payee; maker of the note
CHECK
A bill of exchange drawn on a bank payable on demand
HOLDER
The payee or indorsee of a bill or note, who is in possession of it, or the bearer thereof
If the instrument is payable to order, he who is the payee or indorsee and who is in
possession thereof
If the instrument is payable to bearer, he who is in possession thereof
ISSUE
First delivery of the instrument, complete in form to a person who takes it as a
holder
DELIVERY
Consists principally of placing the transferee in possession of the instrument, but it
must be accompanied by the intent to transfer title
“every contract on a negotiable instrument is incomplete and revocable until
delivery of the instrument for the purpose of giving effect thereto”
NEGOTIATION
• Transfer of an instrument from one person to another as to constitute the transferee the
holder of the instrument
• Mode of transferring an instrument
• Effect is to make the transferee the holder of the instrument
INDORSEMENT
Legal transaction, effected by the writing of one’s own name on the back of the
instrument or upon a paper attached thereto, with or without additional words specifying
the person to whom or to whose order the instrument is to be payable whereby one not
only transfers
one’s full legal title to the paper transferred but likewise enters into an implied guaranty that
the instrument will be duly paid
SPECIAL INDORSEMENT
Specifies the person to whom or to whose order the instrument is to be payable
BLANK INDORSEMENT
One that doesn’t specify the person to whom or to whose order the instrument is to
be payable
DISHONOR BY ACCEPTANCE
Where the bill is presented for acceptance, and acceptance is refused by the drawee, or
cannot be obtained, or where presentment for acceptance is excused, and the bill is not
accepted
DISHONOR BY NON-PAYMENT
Where the instrument is presented for payment and payment is refused or cannot be
obtained, or where presentment for payment is excused and the instrument is overdue and
unpaid
NOTICE OF DISHONOR
When an instrument has been dishonored by non-payment or non-acceptance
DISCHARGE
• An instrument is discharged by payment in due course by or on behalf of the principal
debtor
IN PROMISSORY NOTES
The maker is primarily liable
Agreement of the maker is that he will pay the instrument according to the tenor
NEGOTIABILITY
Attribute or property whereby a bill, note or check passes or may pass from hand to hand
similar to money, so as to give the holder in due course the right to hold the instrument and
collect the sums payable for himself free from defense.
Bill of Exchange
Bill of exchange, defined.
1. Draft
2. Trade acceptance
3. Banker’s acceptance
4. Treasury warrants
5. Money orders
6. Clean bills of exchange
7. Documentary bill of exchange
8. D/A bills of exchange
9. D/P bills of exchange
10. Time or usance bills
11. Bills in set
12. Inland bills
13. Foreign bills
DRAFT
> Common term for all bills of exchange and they are used synonymously
IN BANK DRAFTS, DRAWER AND DRAWEE BANK ARE LIABLE TO PURCHASER OF DRAFT
FOR NOT COMPLYING WITH HIS INSTRUCTIONS
> The drawee bank acting as “payor” bank is solely liable for acts not done in accordance with
the instructions of the drawer bank or of the purchaser of the draft
> The drawee bank has the burden of proving that it didn’t violate
TRADE ACCEPTANCE
> A bill of exchange payable to order and at a certain maturity, drawn by a seller against the
purchaser of goods as drawee, for a fixed sum of money, showing on its face the acceptance of
the purchaser of goods and that it has arisen out of a purchase of goods by the acceptor
> A draft drawn by the seller on the purchaser of goods sold and accepted by such purchaser
> States upon its face that the obligation of the acceptor arises out of purchase of goods from
the drawer
> Arises from credit obligations arising from the sale of goods and must have a definite maturity
BANKER’S ACCEPTANCE
> Draft of which the acceptor is a bank or banker engaged generally in the business of granting
banker’s acceptance credit
> Similar to a trade acceptance
> Drawn against the bank instead of the buyer
TRUST RECEIPT
> The written or printed document signed by the entrustee in favor of the entruster containing
terms and conditions substantially complying with the provisions of this decree
> The legal title to the matter entrusted remains in the entruster but the entruster gives to the
trustee a form of title which is good and legal against everybody except the entruster
> Entrustee—the person having or taking possession of goods, documents or instruments
under a trust receipt transaction, and any successor in interest of such person for the purpose
or purposes specified in the trust receipt agreement
> Entruster—person holding title over the goods, documents, or instruments subject of a TRA
and any successor-in-interest of such person
CERTIFICATE OF DEPOSIT
> Written acknowledgment by a bank of the receipt of money on deposit which the bank
promises to pay to the depositor, bearer, or to some other person or order
BONDS
> A promise, under seal to pay money
> More formal in character
> Runs for a longer period of time
> Issued under different legal circumstances
CLASSES OF BONDS
1. Mortgage bonds
2. Equipment bonds
3. Collateral trust bonds
4. Guaranteed bonds
5. Debentures
6. Income bonds
7. Convertible
8. Redeemable
9. Registered bonds
10. Coupon bonds
REQUISITES OF A NEGOTIABLE
INSTRUMENT
Law on Negotiable Instruments
IMPORTANCE OF FORMALITIES
> Essential for the security of the mercantile transactions
> Distinguish the negotiable instrument from the ordinary non-transferrable written
contract
Sec. 2. What constitutes certainty as to sum. The sum payable is a sum certain within the
meaning of this Act, although it is to be paid:
WITH INTEREST
> The fact that the sum payable is to be paid with interest doesn’t render the sum uncertain
> Amount can easily be computed
> When interest is stipulated but not specified, the legal interest shall be used
> Where there is no stipulation, the legal rate shall be paid when the debtor incurs delay
> Interest due shall earn legal interest from the time it is judicially demaned, although the
instrument may be silent upon this point
ESCALATION AND DEESCALATION CLAUSE—FORMER IS VALID IF
ACCOMPANIED BY THE LATTER
> Parties may stipulate that the rate of interest agreed upon be increased in the event that the
applicable maximum rate of interest is increased by law.
> Deescalation clause—stipulation in the agreement that the rate of interest agreed upon shall
be reduced if the maximum rate of interest is decreased by law.
BY STATED INSTALLMENTS
1. It must be stated
2. The maturity of each installment must be fixed or determinable—required in order to comply
with the requisite that the instrument, if not payable on demand, must be payable on a fixed or
eterminable future time
> Acceleration clause—“upon default in the payment of any installment, the whole sum payable
shall become due”
> It hastens the payment of the whole note
WITH EXCHANGE
> While the rate of exchange is not always the same and while it is technically true that the
resort must be had to extrinsic evidence to ascertain what it is, yet the current rate of exchange
between two places at a particular date is a matter of common commercial knowledge, or at
least easily ascertained by anyone so that the parties can always, without difficulty, ascertain
the exact amount necessary to discharge the paper
> Applies only to instruments drawn in one country and payable in another
EXCHANGE
> An instrument may thus stipulate that costs of collection and attorney’s fees shall be paid by
the debtor in addition to the principal in case the instrument shall not be paid in maturity
> Although the stipulation will make the sum after maturity uncertain, it will not affect the
certainty of the sum payable at maturity and therefore, will not affect the negotiability of the
instrument in which it is stipulated
APPLICATION OF SECTION
Whether or not the indication of a particular fund or particular account, or the statement
of the transaction which gives rise to the instrument, would make the promise or order
conditional
STATEMENT OF TRANSACTION
Instruments are not issued without any transaction upon which they are based
Generally negotiable but a statement of transaction will render the instrument non-
negotiable where the promise or order to pay is made subject to the conditions and terms
of the transactions stated, then the instrument is rendered non-negotiable
AS PER CONTRACT NOTES
The appearance of words “as per contract” on the face of the instruments in any
position doesn’t affect the negotiability of the instrument
CHATTEL NOTES
A promissory note given for a chattel and stipulating that the title to the chattel shall
remain in the vendor-payee until the note is paid, is not conditional
REFERENCE TO MORTGAGES
Provisions in the mortgage doesn’t affect the negotiability of the instrument it secures
Where a note otherwise negotiable contains the words “this note is secured by a
mortgage” and the mortgage contains clauses promising to do many acts other than the
payment of money, it was held that the note is not rendered non-negotiable
WHAT CONSTITUTES
DETERMINABLE FUTURE TIME -
NEGOTIABLE INSTRUMENTS
Law on Negotiable Instruments
(c) On or at a fixed 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.
“AFTER SIGHT”
After the drawee has seen the instrument upon presentment for acceptance
ACCELERATION NOTES
There are certain notes which contain acceleration provisions
Make it possible for the maker to pay the instrument at an earlier date or make it possible
for the holder to require payment of the instrument at an earlier date
2. Or contain, in notes secured by collateral, a provision that the maker shall supply additional
collateral in case of depreciation in the value of the original deposit, with the holder’s right
to declare the note due immediately on failure to make good the depreciation
a. It is rendered non-negotiable where it is payable at a fixed and future time, but with
an option on the part of the holder to declare it due and demandable before maturity
whenever he deems it insecure but to hold them non-negotiable is a spurious
construction of the Act
(a) authorizes the sale of collateral securities in case the instrument be not paid at
maturity; or
(c) waives the benefit of any law intended for the advantage or protection of the obligor;
or
(d) gives the holder an election to require something to be done in lieu of payment of
money.
But nothing in this section shall validate any provision or stipulation otherwise
illegal.
CONFESSION OF JUDGMENT
Must be after the date of maturity
Second exception to the rule
WARRANT OF ATTORNEY
Instrument in writing addressed to one or more attorneys named therein, authorizing
them, generally to appear in court, or in some specified court on behalf of the person
giving it, and to confess judgment in favor of some particular person named therein in
an action for debt
WAIVER OF BENEFIT
Waives the benefit of any law intended for the advantage and protection of the
obligor
Examples: presentment for payment, notice of dishonor, protest
Sec. 8. When payable to order. - The instrument is payable to order where it is drawn payable
to the order of a specified person or to him or his order. It may be drawn payable to the order
of:
Where the instrument is payable to order, the payee must be named or otherwise
indicated therein with reasonable certainty.
WORDS OF NEGOTIABILITY
Among others, for an instrument to be negotiable, it should contain words of
negotiability
There are only 2 ways by which an instrument and the bill or note is to be paid to the
person designated in the instrument or to any person to whom he has indorsed or delivered the
same
Without the words “or order” or “to order of”, the instrument is payable only to
the person designated therein and therefore, is non-negotiable
WHEN IS A NEGOTIABLE
INSTRUMENT PAYABLE TO BEARER?
Law on Negotiable Instruments
Sec. 10. Terms, when sufficient. - The instrument need not follow the language of this Act,
but any terms are sufficient which clearly indicate an intention to conform to the
requirements hereof.
Illustrative case:
JIMENEZ V. BUCOY
103 PHIL 40
FACTS:
In the intestate of the estate of spouses Young, Jimenez presents a promissory note signed by Pacita Young for
different amounts totaling P21,000. The administrator is willing to pay the promissory note on the premise that
the amount be adjusted. Claimant assails the adjustment and
hence, she instituted a case for collection of sum of money.
HELD:
The administrator calls attention to the fact that the notes contained no express promise to pay for a certain
amount. This is without merit. An acknowledge may become a promise to pay by the addition of words by
which a promise of payment is naturally implied, such as “payable”,
“payable” on a given date, “payable on demand”, “paid…when called for”.
To constitute a good promissory note, no precise words of contract are necessary, provided they amount, in legal
effect, a promise to pay.
PRESUMPTION AS TO DATE IN
NEGOTIABLE INSTRUMENTS
Law on Negotiable Instruments
Sec. 11. Date, presumption as to. - 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.
APPLICATION OF SECTION 11
1. The instrument contains the date of issue—prima facie the true date of the making or drawing of the instrument
2. In an accepted bill of exchange, the acceptance is dated—prima facie the date of acceptance
3. An instrument is indorsed, and the indorsement is dated—prima facie date of indorsement
PRIMA FACIE
Evidence produces for the time being a certain result but that result may be repealed by contrary evidence
Apparent, as it first appears
ANTE-DATED AND POST-DATED;
WHEN DATE MAY BE INSERTED -
NEGOTIABLE INSTRUMENTS
Law on Negotiable Instruments
Sec. 12. Ante-dated and post-dated. - The instrument is not invalid for the reason only that it is ante-dated or
post-dated, provided this is not done for an illegal or fraudulent purpose. The person to whom an instrument so
dated is delivered acquires the title thereto as of the date of delivery.
Sec. 13. When date may be inserted. - Where an instrument expressed to be payable at a fixed period after
date is issued undated, or where the acceptance of an instrument payable at a fixed period after sight is
undated, any holder may insert therein the true date of issue or acceptance, and the instrument shall be
payable accordingly. The insertion of a wrong date does not avoid the instrument in the hands of a subsequent holder
in due course; but as to him, the date so inserted is to be regarded as the true date.
SCOPE OF SECTION 14
> There are 2 steps in the execution of a negotiable instrument—
o The act of writing the instrument completely and in accordance with Section 1 of
the Negotiable Instruments Law
o The delivery of the instrument with the intention of giving effect to it
REASONABLE TIME
> Regard is had to the nature of the instrument, the usage of trade or business with respect to
such instrument and the facts of the particular case
> Term is very relative
PERSONAL DEFENSE
> Defense available only to holders who are not holders in due course
APPLICATION OF PROVISION
Section applies to an incomplete and undelivered instrument
IT IS A REAL DEFENSE
The possible defense of a party whose signature appears on an instrument prior to
delivery is that, as against him, the instrument is not valid for having been incomplete and
undelivered
Want of delivery of a mechanically incomplete instrument—defense that cannot only
be interposed against one who is not a holder in due course but also a holder in due course
DELIVERY IS NOT CONCLUSIVELY PRESUMED WHERE INSTRUMENT
IS INCOMPLETE
Section 15 and 16 read together
Sec. 16. Delivery; when effectual; when presumed. - Every 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 making, 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.
But 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 make 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.
SCOPE OF SECTION
Applies to an instrument mechanically complete but undelivered
UNDELIVERED INSTRUMENT IS INCOMPLETE
Every contract on a negotiable instrument is incomplete and revocable until delivery of the
instrument for the purpose of giving effect thereto
RIGHT TO REVOKE
Before delivery, the maker or drawer can revoke, cancel, or tear up the instrument
Criterion: Whether or not the party in question knows of the conditions or limitations
placed upon the delivery of the fact that the instrument was not delivered but stolen..
o If the party in question knows, he is an immediate party even if he is not physically remote
o If he doesn’t know, he is not an immediate party even if he is the next party immediately
PERSONAL DEFENSE
The possible defense of a party sought to be charged is that the instrument wasn't
delivered, or if delivered, the delivery wasn't authorized or only on a condition or for a
special purpose
“Want of delivery of a mechanically complete instrument” defense
It can however be interposed against an immediate party and remote parties not
holders in due course inasmuch as the presumption of valid and intentional delivery is only
rebuttable as to immediate parties and to remote parties who are not holders in due course
Only personal defense
CONSTRUCTION WHERE
NEGOTIABLE INSTRUMENT IS
AMBIGUOUS
Law on Negotiable Instruments
Sec. 17. Construction where instrument is ambiguous. - 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 a 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.
SIGNING A NEGOTIABLE
INSTRUMENT IN TRADE OR
ASSUMED NAME
Law on Negotiable Instruments
Sec. 18. Liability of person signing in trade or assumed name. - No person is liable on the
instrument whose signature does not appear thereon, except as herein otherwise
expressly provided. But one who signs in a trade or assumed name will be liable to the
same extent as if he had signed in his own name.
GENERAL RULE AS TO LIABILITY OF PERSON WHOSE SIGNATURE IS NOT ON INSTRUMENT
SIGNING AS AN AGENT IN A
NEGOTIABLE INSTRUMENT
Law on Negotiable Instruments
Sec. 19. Signature by agent; authority; how shown. - The signature of any party may be made by a duly authorized
agent. No particular form of appointment is necessary for this purpose; and the authority of the agent may be
established as in other cases of agency.
Sec. 20. Liability of person signing as agent, and so forth. - 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 authorized; but the mere addition of words describing him as an agent, or as
filling a representative character, without disclosing his principal, does not exempt him from personal liability.
SIGNATURE BY PROCURATION IN
NEGOTIABLE INSTRUMENTS
Law on Negotiable Instruments
EFFECT OF INDORSEMENT BY
INFANT OR CORPORATION
Law on Negotiable Instruments
FORGERY OF SIGNATURE IN
NEGOTIABLE INSTRUMENTS
Law on Negotiable Instruments
Sec. 23. Forged signature; effect of. - 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 acquired 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.
FRAUDULENT IMPERSONATION
• Suppose X represents himself as Juan Cruz when he is not to Y. Due to such
misrepresentation, he obtained from Y a note payable to the order of Juan Cruz. If Y intends
that the proceeds of the note will go to the real Juan Cruz and not X, but to whom Y issued the
note on the belief that X was Juan Cruz, would be a forgery.
2. That it was unauthorized, as in the case of an agent signing for his principal, or one
signing on behalf of a partnership or corporation or that in case of the latter, that the
corporation was not authorized under its charter to sign the instrument
3. That the party charged signed the instrument in some other capacity than that alleged in
the pleading setting it out
ACCEPTORS AS WARRANTORS
• A drawee, by accepting the bill, admits the genuineness off the signature of the
drawer
PRECLUDED
• Includes those cases where they are estoppels against the party desiring to set up the
forgery
UNREASONABLE DELAY
• Unreasonable delay, after his discovery of the forgery, on the part of one having the
opportunity and duty to speak, in disclosing the forgery upon commercial paper to the one who
ought to be apprised thereof, estops the former from thereafter asserting the forgery as against
the latter where the latter is prejudiced by such delay or failure
• Requisites:
o That the delay be unreasonable
o That the one who ought to be apprised of the forgery has been prejudiced
CONVERSION
• An unauthorized assumption and exercise of the right of ownership over goods or
personal chattels belonging to another, to the alteration of their condition or exclusion of the
owner’s right
AS AFFECTED BY QUESTION OF DELIVERY TO PAYEE
• The checks didn’t reach the hands of the payee. The bearing of such absence of delivery
is considered in some cases and held not to be material
• Where there is no delivery to the payee and no title vests upon him, he ought not to be
allowed to recover on the ground that he lost nothing because he never became owner of
the check and still retained his claim against the drawer
INDORSER’S NEGLIGENCE
• After a draft or check has once been negotiated so that it is in circulation, there is
little opportunity for negligence on the part of those through whose hands it passes; but as
to them, in most cases, the rule will apply that, as between innocent parties, the loss must fall
on the drawee
DUTY OF PURCHASER OF CHECK OR BILL
• One who purchases a bill or check is bound to satisfy himself that the paper is genuine; and
that by indorsing or presenting it for payment or putting it in circulation before presentation,
he impliedly asserts that he has performed his duty and the drawee who has without
actual negligence on his part, paid the forged demand, may recover the money paid from
such negligent purchaser
COMMERCIAL DOCUMENTS
• Documents or instruments which are used by businessmen or merchants to
promote or facilitate trade or credit transactions
CONSIDERATION IN NEGOTIABLE
INSTRUMENTS
Law on Negotiable Instruments
CONSIDERATION
Sec. 24. Presumption of consideration. - Every 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.
PRESUMPTION OF CONSIDERATION IS DISPUTABLE
• One of the disputable presumptions laid down by our Rules of Court is that a negotiable instrument was given or
indorsed for a sufficient consideration
VALUABLE CONSIDERATION IN
NEGOTIABLE INSTRUMENTS
Law on Negotiable Instruments
Sec. 25. Value, what constitutes. — Value is any consideration sufficient to support a
simple contract. An antecedent or pre-existing debt constitutes value; and is deemed
such whether the instrument is payable on demand or at a future time.
• Valuable consideration may in general terms be said to consist either in some right,
interest, profit or benefit accruing to the party who makes the contract, or some
forbearance, detriment, loss or some
responsibility to act, or labor, or service given, suffered, or undertaken by the other side
MEANING OF A HOLDER FOR VALUE
- NEGOTIABLE INSTRUMENTS
Law on Negotiable Instruments
Sec. 26. What constitutes holder for value. - 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 become such prior to
that time.
• Not limited to one who is known to have given valuable consideration for the
instrument he holds—it refers to any holder of an instrument for which value has been given at
any time
Sec. 27. When lien on instrument constitutes holder for value. — Where the holder has a lien on the instrument
arising either from contract or by implication of law, he is deemed a holder for value to the extent of his lien.
APPLICATION OF SECTION 27
• Suppose that A makes a note in the sum of P1000 payable to the order of B. B owes C P600. C is said to have
a lien on the note to the extent of P600 only, and to that extent, he is a holder for value.
• Can C as indorsee collect the whole amount of P1000 from A, or only P600? It depends. If A maker, has defenses
against B indorser, such as absence of consideration, C, even if a holder in due course can collect only P600 from
A, the extent of his lien.
• Reason for the rule: C is actually a holder in due course for P600 only. He is a holder in due course for such as
he is a holder for value for only P600. For the balance of P400 he is not a holder for value, and since being a holder
for value is one of the requisites of a holder in due course, he cannot be a holder in due course as far as the P400
is concerned.
• If A has personal defenses, he cannot use such as far as the P600 is concerned.
• If A on the other hand has real defenses, C cannot collect anything.
• But if A maker doesn't have any defenses at all against B indorser, then C can collect the whole amount of
P1000 and hold the P400 for
the benefit of B.
LIABILITY OF ACCOMODATION
PARTY IN NEGOTIABLE
INSTRUMENTS
Law on Negotiable Instruments
Sec. 29. Liability of accomodation party. - An accomodation party is one who has signed the instrument as
maker, drawer, acceptor, or indorser, without receiving value therefor, and for the purpose of lending his name to
some other person. Such a person is liable on the instrument to a holder for value, notwithstanding such holder, at
the time of taking the instrument, knew him to be only an accomodation party.
CORPORATIONS ARE NOT LIABLE AS ACCOMODATION PARTIES EVEN TO HOLDERS FOR VALUE
OFFICERS SIGNING FOR CORPORATION AS ACCOMODATION PARTY WITHOUT AUTHORITY TO DO SO FOR THEIR
INDIVIDUAL DEBTS OR TRANSACTIONS ARE PERSONALLY LIABLE THEREON
ACCOMODATION PARTY MAY ACCOMODATE ONE WHO IS NOT A PARTY TO THE INSTRUMENT
NEGOTIATION IN NEGOTIABLE
INSTRUMENTS
Law on Negotiable Instruments
METHOD OF TRANSFER
1. By assignment
2. By operation of law
3. By negotiation, which may be completed by indorsement completed by delivery or by mere
delivery
ASSIGNMENT
• Method of transferring a non-negotiable instrument whereby the assignee is merely
placed in the position of the assignor and acquires the instrument subject to all defenses
that might have been setup against the original payee
MODE OF ASSIGNMENT
• Differs in no respect from that of any other contract
• Although some sort of written instrument is customarily employed, it may be written
either on the instrument itself or on a separate piece of paper
NEGOTIATION
• Transfer of the instrument from one person to another in such a manner as to
constitute the transferee the holder thereof
• May either be by indorsement completed by delivery or by mere delivery
INDORSEMENT OF NEGOTIABLE
INSTRUMENTS
Law on Negotiable Instruments
Sec. 31. Indorsement; how made. - The indorsement must be written on the instrument
itself or upon a paper attached thereto. The signature of the indorser, without additional
words, is a sufficient indorsement.
NATURE OF AN INDORSEMENT
• It is not only a mode of transfer
• It is also a contract
• Every indorser is a new drawer and the terms are found on the face of the bill or note
• The indorsement of the bill or not implies an undertaking from the indorser to the
person in whose favor it is made and to every other person to whom the bill or note may
afterwards be transferred, exactly similar to that which is implied by drawing a bill except
that, in the case of drawing a bill, the stipulations with respect to the drawer’s
responsibility and undertaking don't apply
• The general indorser in effect, states to every person who follows him—this
instrument will be paid by the maker, if a note, or accepted the drawee or paid by the
acceptor, if a bill. If it is dishonored by
non-payment or non-acceptance, and you give me notice thereof, I will pay it.
EXCEPTION
• But where the instrument has been paid in part, it may be indorsed as to the residue
MONTINOLA V. PNB
88 PHIL 178
FACTS:
*Remember the case with the Japanese occupation and the mutilated
check.
HELD:
Where the indorsement of the check was only for a part of the amount payable, it is
not legally negotiated within the meaning of Section 32, which provides that the
indorsement must be an indorsement of the entire instrument. An indorsement which
purports to transfer to the indorsee a
part only of the amount payable doesn't operate as a negotiation of the instrument.
Montinola may therefore be not regarded as an indorsee. At most he may be regarded as a
mere assignee of the P30,000 sold to him.
Sec. 34. Special indorsement; indorsement in blank. - A special indorsement specifies the
person to whom, or to whose order, the instrument is to be payable, and the indorsement of
such indorsee is necessary to the further negotiation of the instrument. An indorsement in
blank specifies no indorsee, and an instrument so indorsed is payable to bearer, and may be
negotiated by delivery.
Sec. 35. Blank indorsement; how changed to special indorsement. - The holder may convert a
blank indorsement into a special indorsement by writing over the signature of the indorser in
blank any contract consistent with the character of the indorsement.
APPLICATION OF SECTION 35
• Suppose that A makes a note with B as payee. It is indorsed as follows:
o (Indorsement in blank) (Sgd.) B.
• Delivery was then made to C. C may place above the signature of B, “Pay to C.” so as to
make the indorsement thus:
o Pay to C.
(Sgd.) B.
• This converts the blank indorsement to a special indorsement
(c) Vests the title in the indorsee in trust for or to the use of some other persons.
But the mere absence of words implying power to negotiate does not make an indorsement
restrictive.
• Hence, any action the indorsee may file is subject to defenses available against the
indorser such as lack of consideration
• Thus, where the proof tends to show that the plaintiff holds the draft for collection only,
and that the acceptance of it by defendants was conditional, and that after such an
acceptance, the defendants refused to accept the goods evidenced by the draft, which
were returned to and accepted by the plaintiff, who agreed to release the defendants
from any liability, plaintiff thereafter cannot recover
(b) to bring any action thereon that the indorser could bring;
(c) to transfer his rights as such indorsee, where the form of the indorsement
authorizes him to do so.
But all subsequent indorsees acquire only the title of the first indorsee under the
restrictive indorsement.
CONDITIONAL INDORSEMENT
• An indorsement subject to a contingent event, that is, an event that may or may not
happen, or a past event unknown to the parties
• Suppose a note for P1000 with A maker, and B payee. It is then indorsed as follows
“Pay to Y if he passes the bar examinations. (Sgd.) B”—this is a conditional indorsement as Y
may or may not pass the bar examination.
APPLICATION OF SECTION 40
• Section applies only to instruments which are originally payable to bearer
• Cannot apply where the paper is originally made payable to order and indorsed in blank;
for by Section 9, a note or bill which is payable to order becomes payable only when the last
indorsement is in blank;
and hence, when a blank indorsement is followed by a special indorsement, the
instrument is not within the terms of Section 9.
Sec. 41. Indorsement where payable to two or more persons. - Where an instrument is
payable to the order of two or more payees or indorsees who are not partners, all must indorse
unless the one indorsing has authority to indorse for the others.
APPLICATION OF SECTION 41
• Applies only to instruments payable to two or more payees jointly
HOW INDORSEMENT OF JOINT PAYEES MADE
• Where the instrument is payable to two or more payees, all payees must each
indorse in order to negotiate the instrument
• If only one indorses, he passes only his part of the instrument—such an indorsement
wouldn't operate as such because it would not be an indorsement of the whole instrument
• Exceptions to the rule:
1. Where the payee or person indorsing has authority to indorse for the others
2. Where the payee or indorsees are partners
APPLICATION OF SECTION 42
Pay P1000 to the order of cashier, Lyceum of the Philippines.
(Sgd.) A
• Presumption is that the note is payable to Lyceum, not to the cashier personally
• And the note may be indorsed by any duly authorized officer of Lyceum other than
the cashier
DISPUTABLE PRESUMPTION
Sec. 43. Indorsement where name is misspelled, and so forth. - Where the name of a
payee or indorsee is wrongly designated or misspelled, he may indorse the instrument as
therein described
adding, if he thinks fit, his proper signature.
APPLICATION OF SECTION 43
• An instrument drawn or indorsed to “Juan Dytuco” whose real name is “Juan Dyjuco” may
be indorsed as follows:
o Pay to Y (Sgd.) Juan Dytuco Juan Dyjuco
o Or (Sgd.) Juan Dyjuco
Sec. 44. Indorsement in representative capacity. - Where any person is under obligation
to indorse in a representative capacity, he may indorse in such terms as to negative personal
liability.
Sec. 45. Time of indorsement; presumption. - Except where an indorsement bears date
after the maturity of the instrument, every negotiation is deemed prima facie to have been
effected before the instrument was overdue.
DISPUTABLE PRESUMPTION
Sec. 46. Place of indorsement; presumption. - Except where the contrary appears, every
indorsement is presumed prima facie to have been made at the place where the instrument
is dated.
Sec. 48. Striking out indorsement. - The holder may at any time strike out any indorsement which is not
necessary to his title. The indorser whose indorsement is struck out, and all indorsers subsequent to him, are
thereby relieved from liability on the instrument.
Sec. 49. Transfer without indorsement; effect of. - 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 acquires in addition, the right to have the indorsement of the transferor. But for the purpose
of determining whether the transferee is a holder in due course, the negotiation takes effect as of the time when the
indorsement is actually made.
APPLICATION OF SECTION 49
• Applies only to instruments payable to order
• Contemplates a case wherein delivery and payment of value but there was no indorsement
• One element lacking for the negotiation of the instrument
FACTS:
Templonuevo demanded payment from petitioner of a sum of money representing the
aggregate value of three checks which were allegedly payable to him but which were
deposited with the petitioner to Salazar’s account, without his knowledge and corresponding
endorsement. Finding
merit in the demands of Templonuevo, the bank then froze the account of the engineering firm
as the account of Salazar was already closed or had insufficient funds. Failure of any
settlement between Templonuevo and Salazar, this prompted the bank to debit the account
of Salazar and give back the money to Templonuevo through cashier’s check. The account of
Salazar was also debited for whatever charges incurred for the issuance of the cashier’s check.
The trial court held in favor of Salazar.
ISSUE:
Does a collecting bank, over the objections of its depositor, have the authority to
withdraw unilaterally from such depositor’s account the amount it had previously paid upon
certain unendorsed order instruments deposited by the depositor to another account that she
later closed?
HELD:
In the present case, the records do not support the finding made by the CA and the trial court
that a prior arrangement existed between Salazar and Templonuevo regarding the transfer of
ownership of the checks. This fact is crucial as Salazar’s entitlement to the value of the
instruments is based on the assumption that she is a transferee within the contemplation of
Section 49 of the Negotiable Instruments Law.
Transferees in this situation do not enjoy the presumption of ownership in favor of holders
since they are neither payees nor indorsees of such instruments. The weight of authority
is that the mere possession of a negotiable instrument does not in itself conclusively
establish either the right of the possessor to receive payment, or of the right of one who has
made payment to be discharged from liability. Thus, something more than mere possession by
persons who are not payees or indorsers of the
instrument is necessary to authorize payment to them in the absence of any other facts
from which the authority to receive payment may be inferred.
Even if the delay in the demand for reimbursement is taken in conjunction with Salazar’s
possession of the checks, it cannot be said that the presumption of ownership in
Templonuevo’s favor as the designated payee therein was sufficiently overcome. This is
consistent with the principle that if instruments payable to named payees or to their order
have not been indorsed in blank, only such payees or their indorsees can be holders and
entitled to receive payment in their own right.
The presumption that a negotiable instrument was given for a sufficient consideration
will not inure to the benefit of Salazar because the term “given” does not pertain merely
to a transfer of physical possession of the instrument. The phrase “given or indorsed” in the
context of a negotiable instrument refers to the manner in which such instrument may be
negotiated.
It is an exception to the general rule for a payee of an order instrument to transfer the
instrument without indorsement. Precisely because the situation is abnormal, it is but
fair to the maker and to prior holders to require possessors to prove without the aid of
an initial presumption in
their favor, that they came into possession by virtue of a legitimate transaction with the
last holder. Salazar failed to discharge this burden, and the return of the check proceeds
to Templonuevo was therefore warranted under the circumstances despite the fact that
Templonuevo may
not have clearly demonstrated that he never authorized Salazar to deposit the checks or to
encash the same. Noteworthy also is the fact that petitioner stamped on the back of the
checks the words: "All prior endorsements and/or lack of endorsements guaranteed,"
thereby making the assurance that it had ascertained the genuineness of all prior
endorsements. Having assumed the liability of a general indorser, petitioner’s liability
to the designated payee cannot be denied.
Consequently, petitioner, as the collecting bank, had the right to debit Salazar’s account
for the value of the checks it previously credited in her favor. However, the issue of whether
it acted judiciously is an entirely different matter. As businesses affected with public
interest, and because
of the nature of their functions, banks are under obligation to treat the accounts of
their depositors with meticulous care, always having in mind the fiduciary nature of their
relationship. In this regard, petitioner was clearly remiss in its duty to private
respondent Salazar as its depositor.
To begin with, the irregularity appeared plainly on the face of the checks. Despite the obvious
lack of indorsement thereon, petitioner permitted the encashment of these checks three times
on three separate occasions. This negates petitioner’s claim that it merely made a mistake
in crediting the value of the checks to Salazar’s account and instead bolsters the conclusion of
the CA that petitioner recognized Salazar’s claim of ownership of checks and acted deliberately
in paying the same, contrary to ordinary banking
policy and practice. It must be emphasized that the law imposes a duty of diligence on the
collecting bank to scrutinize checks deposited with it, for the purpose of determining their
genuineness and regularity. The collecting bank, being primarily engaged in banking, holds itself
out to the public as the expert on this field, and the law thus holds it to a high standard
of conduct. The taking and collection of a check without the proper indorsement
amount to a conversion of the check by the bank.
More importantly, however, solely upon the prompting of Templonuevo, and with full
knowledge of the brewing dispute between Salazar and Templonuevo, petitioner debited
the account held in the name of the sole proprietorship of Salazar without even serving due
notice upon her. This ran contrary to petitioner’s assurances to private respondent Salazar
that the account would remain untouched, pending the resolution of the controversy
between her and Templonuevo. For the above reasons, the Court finds no reason to disturb the
award of damages granted by the CA against petitioner. This whole incident would have
been avoided had petitioner adhered to the standard of diligence expected of one
engaged in the banking business. A depositor has the right to recover reasonable moral
damages even if the bank’s negligence may not have been attended with malice and bad
faith, if the former suffered mental anguish, serious anxiety, embarrassment and humiliation
•
Sec. 51. Right of holder to sue; payment. - The holder of a negotiable instrument may
to sue thereon in his own name; and payment to him in due course discharges the
instrument.
RIGHT TO SUE
• Holder of a negotiable instrument may sue on his own name, even if
he be a holder only for collection or as a pledge of the instrument
Sec. 52. What constitutes a holder in due course. - A holder in due course is a holder who
has taken the instrument under the following conditions:
(b) That he became the holder of it before it was overdue, and without notice that it has
been previously dishonored, if such was the fact;
(d) That 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.
AS TO ACCELERATED INSTRUMENTS
• When the instrument contains an acceleration clause, knowledge of the holder at
the time of acquisition thereof that one installment or interest, or both, as the case may
be, is unpaid, is notice that the instrument is overdue
AS TO INTEREST
• One who purchases in good faith an instrument upon which the interest is overdue is
a holder in due course
• But where by the terms of the instrument, the principal was to become due upon default
of the payment of instrument, then one who takes the instrument upon which the
interest is overdue is not a holder in due course
• Taking in good faith means that he doesn't have any knowledge of fact which would
render it dishonest for him to take a particular piece of negotiable paper
DEFECTS OF TITLE
• All those situations which at common law were known as equitable defenses and
also to cover those equities of ownership where there was breach of faith in negotiation
• Examples?
o Acquisition of the instrument by fraud
o Acquisition of the instrument by force, duress or fear
o Acquisition of the instrument by unlawful means
o Acquisition of the instrument by for an illegal consideration
o Negotiation of the instrument in breach of faith
o Negotiation of the instrument under circumstances which amount to fraud
DEFENSES
• Include those common law defenses outside those covered in Section 55
• These include mistake, absence and failure of consideration covered in Section 28, minority
and other forms of incapacity, lack of authority of an agent
INFIRMITIES
• Things that are wrong with the instrument itself
• What are these?
o Wrong date inserted where the instrument is expressed to be payable at a fixed period
after sight is undated
o Filling up a blank instrument not strictly in accordance with the authority given or not
within authority given or not within the reasonable time, where it was delivered wanting in
a material alteration
o Filling up without authority an incomplete and undelivered instrument
o Lack of valid and intentional delivery
o Forgery
o Material alteration
Sec. 53. When person not deemed holder in due course. - Where an instrument payable on
demand is negotiated on an unreasonable length of time after its issue, the holder is not
deemed a holder in due course.
Sec. 54. Notice before full amount is paid. - Where the transferee receives notice of any
infirmity in the instrument or defect in the title of the person negotiating the same before he
has paid the full amount agreed to be paid therefor, he will be deemed a holder in due course
only to the extent of the amount therefore paid by him.
Sec. 55. When title defective. - The title of a person who negotiates an instrument is defective
within the meaning of this Act when he obtained the instrument, or any signature thereto,
by fraud, duress, or force and fear, or other unlawful means, or for an illegal consideration, or
when he negotiates it in breach of faith, or under such circumstances as amount to a fraud.
Sec. 56. What constitutes notice of defect. - To constitutes notice of an infirmity in the
instrument or defect in the title of the person negotiating the same, the person to
whom it is negotiated must have had actual knowledge of the infirmity or defect, or
knowledge of such facts that his action in taking the instrument amounted to bad faith.
Sec. 57. Rights of holder in due course. - 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.
Sec. 58. When subject to original defense. - In the hands of any holder other than a
holder in due course, a negotiable instrument is subject to the same defenses as if it were
non-negotiable. But 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.
THE HOLDER ACQUIRING FROM A HOLDER IN DUE COURSE HAS THE BURDEN OF PROOF
TO SHOW PREDECESSOR IS INDEED A HOLDER IN DUE COURSE
Sec. 59. Who is deemed holder in due course. - Every 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 acquired the title as holder in due course. But the
last-mentioned rule does not apply in favor of a party who became bound on the instrument
prior to the acquisition of such defective title.
LIABILITIES OF PARTIES IN
NEGOTIABLE INSTRUMENTS
Law on Negotiable Instruments
Sec. 60. Liability of maker. - The maker of a negotiable instrument, by making it, engages that
he will pay it according to its tenor, and admits the existence of the payee and his then capacity
to indorse.
o That the payee was insane, a minor, or a corporation acting ultra vires because by
making the note, he admits the then capacity of the payee to indorse
Sec. 61. Liability of drawer. - The drawer by drawing the instrument admits the
existence of the payee and his then capacity to indorse; and engages that, on due
presentment, the instrument will be accepted or paid, or both, according to its tenor, and
that if it be dishonored and the necessary proceedings on dishonor be duly taken, he will
pay the amount thereof to the holder or to any subsequent indorser who may be
compelled to pay it. But the drawer may insert in the instrument an express
stipulation negativing or limiting his own liability to the holder.
PAYEE’S EXISTENCE
• Like the maker, the drawer admits to the existence of the payee and his capacity to indorse
Sec. 62. Liability of acceptor. - The acceptor, by accepting the instrument, engages that
he will pay it according to the tenor of his acceptance and admits:
(a) The existence of the drawer, the genuineness of his signature, and his capacity
and authority to draw the instrument; and
(b) The existence of the payee and his then capacity to indorse.
Sec. 63. When a person deemed indorser. - A person placing his signature upon an instrument otherwise than as
maker, drawer, or acceptor, is deemed to be indorser unless he clearly indicates by appropriate words his
intention to be bound in some other capacity.
LIABILITY OF AN IRREGULAR
INDORSER IN NEGOTIABLE
INSTRUMENTS
Law on Negotiable Instruments
Sec. 64. Liability of irregular indorser. - Where a person, not otherwise a party to an instrument, places thereon
his signature in blank before delivery, he is liable as indorser, in accordance with the following rules:
(a) If the instrument is payable to the order of a third person, he is liable to the payee and to all subsequent
parties.
(b) If the instrument is payable to the order of the maker or drawer, or is payable to bearer, he is liable
to all parties subsequent to the maker or drawer.
(c) If he signs for the accommodation of the payee, he is liable to all parties subsequent to the payee.
IRREGULAR INDORSEMENT
• An irregular indorser is one who not otherwise a party to an instrument, places his signature thereon his
signature in blank before delivery
IRREGULAR INDORSEMENT
• Its an indorsement in an unusual, peculiar, or singular manner
• His name appears where he would naturally expect another name
BEFORE DELIVERY
• It means the initial delivery
• Provision doesn’t apply if the signature was placed after delivery
Sec. 65. Warranty where negotiation by delivery and so forth. — Every person
negotiating an instrument by delivery or by a qualified indorsement warrants:
(a) That the instrument is genuine and in all respects what it purports to be;
(d) That he has no knowledge of any fact which would impair the validity of the
instrument or render it valueless.
But when the negotiation is by delivery only, the warranty extends in favor of no holder other
than the immediate transferee.
The provisions of subdivision (c) of this section do not apply to a person negotiating public
or corporation securities other than bills and notes.
APPLICATION OF SECTION 65
1. A person negotiating by mere delivery
2. A person negotiating by qualified indorsement
LIABILITY OF PERSON NEGOTIATING BY DELIVERY
• A person negotiating by mere delivery becomes liable to the holder only when the
holder cannot obtain payment by reason of the fact that any of the warranties of the person
negotiating by delivery is or becomes false
•
(a) The matters and things mentioned in subdivisions (a), (b), and (c) of the next preceding
section; and
(b) That the instrument is, at the time of his indorsement, valid and subsisting;
APPLICATION OF SECTION 66
LIABILITY OF ASSIGNOR
• The vendor in good faith shall be responsible for the existence and legality of the
credit at the time of the sale unless it should have been sold as doubtful but not for the
solvency of the debtor unless it has been so expressly stipulated or unless the insolvency
was prior to the sale and of common knowledge
•
Sec. 67. Liability of indorser where paper negotiable by delivery. — Where a person places his indorsement on
an instrument negotiable by delivery, he incurs all the liability of an indorser.
FACTS:
Checks were deposited by petitioner in its current account with the bank. These checks were from a certain Ramirez,
a consistent better in its games, who was a sales agent from Inter-Island Gas. Inter-Island later found out that
of the forgeries committed in the checks and thus, it informed all the parties concerned. Upon the demands on the
bank as the collecting bank, it debited the account of petitioner. Thereafter, petitioner tried to issue a check for
payment of shares of stock but such was dishonored for insufficient funds. It filed a complaint against the bank.
HELD:
Considering that the petitioner indorsed the said checks when it deposited them with the respondent, the petitioner
as an indorser guaranteed the genuineness of all prior indorsements thereon. The respondent which relied upon
the petitioner’s warranty should not be held liable for the resulting loss.
Furthermore, the provision in the deposit slip on the right of reservation by the bank applies only when there is
actual receipt of current funds or solvent credits. But as earlier on indicated, the transfer on account of the checks
were ineffectual because it was made under the mistaken and valid assumption that the indorsements of the payee
thereon were genuine.
Sec. 68. Order in which indorsers are liable. - As respect one another, indorsers are
liable prima facie in the order in which they indorse; but evidence is admissible to show
that, as between or among themselves, they have agreed otherwise. Joint payees or
joint indorsees who indorse are deemed to indorse jointly and severally.
APPLICATION OF SECTION
• Applies only with respect to an indorser as against another but not as against a holder in due course
• Every indorser is liable to all indorsers subsequent to him but not those prior to him whom he in turn makes
liable
•
LIABILITY OF AN AGENT OR BROKER
IN NEGOTIABLE INSTRUMENTS
Law on Negotiable Instruments
Sec. 69. Liability of an agent or broker. - Where a broker or other agent negotiates an
instrument without indorsement, he incurs all the liabilities prescribed by Section Sixty-five
of this Act, unless he discloses the name of his principal and the fact that he is acting
only as agent.
APPLICATION OF SECTION 69
• Instruments payable to bearer
• To escape personal liability as a party negotiating by delivery, the agent must disclose his principal and state
that he is acting only as an agent
Sec. 70. Effect of want of demand on principal debtor. - Presentment 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 equivalent to a tender
of payment upon his part. But except as herein otherwise provided, presentment for payment is necessary in order
to charge the drawer and indorsers.
MEANING OF PRESENTMENT FOR PAYMENT
• Production of a bill of exchange to the drawee for his acceptance, or to the drawee or acceptor for payment or
the production of the promissory note to the person liable for payment of the same
1. Personal demand for payment at the proper place
2. With the bill or note in readiness to exhibit it as required and to receive payment and surrender it if the debtor is
willing to pay
3. But if the bill is accepted, or if the bill isn’t required to be presented for
acceptance, it must be presented for payment to the persons primarily liable unless
excused
4. If the bill is dishonored by non-payment, notice of dishonor by non-payment must be
also be given to person secondarily liable unless excused, and in case of foreign bills, protest for
dishonor by non-pay7ment must be made unless excused
NECESSARY STEPS TO CHARGE PERSONS SECONDARILY LIABLE
• Presentment for payment must be made within the period required to the person primarily
liable unless excused
• If the note is dishonored by non-payment, notice of dishonor by non-payment must be
given to the person secondarily liable unless excused
PRESENTMENT WHERE
INSTRUMENT IS NOT PAYABLE ON
DEMAND AND PAYABLE ON
DEMAND
Law on Negotiable Instruments
Sec. 71. Presentment where instrument is not payable on demand and where payable on
demand. - Where the instrument is not payable on demand, presentment must be made
on the day it falls due. Where it is payable on demand, presentment must be made
within a reasonable time after its issue, except that in the case of a bill of exchange,
presentment for payment will be sufficient if made within a reasonable time after the last
negotiation thereof.
FACTS:
Private respondents approached petitioner and asked the latter to extend to them an
accommodation loan. They proposed to pay with interest. They even gave a check,
signed by Tat, drawn against Chinabank, and signed at the back by the private
respondents. They said that they will change the check with cash after one month and if
not, the check could be presented for payment and it would be paid. The loan was
actually extended but when the check was presented for payment, it was dishonored—
the account on which it is drawn has long been closed. The
trial courts held in favor of petitioner but this was reversed by the appellate court by ruling
that the check has passed through other hands before reaching the petitioner and the
said check wasn’t presented within reasonable time and after its issuance.
HELD:
Where the instrument is not payable on demand, presentment must be made on the day
it falls due. Where it is payable on demand, presentment must be made within a reasonable
time after issue, except that in case of a bill of exchange, presentment for payment is
sufficient if made within
reasonable time after the last negotiation thereof.
Notice may be given as soon as instrument has been dishonored and unless delay is
excused must be given within the time fixed by law.
In this case, presentment and notice of dishonor were not made within reasonable time.
September 1960—date when the check was drawn
March 1964—presented to drawee bank
April 1968—notice of dishonor
•
SUFFICIENT PRESENTMENT IN
NEGOTIABLE INSTRUMENTS
Law on Negotiable Instruments
(a) By the holder, or by some person authorized to receive payment on his behalf;
CASE DIGEST
FACTS:
New Sikatuna requested for a loan from Spouses Chua. Latter issued post-dated crossed
checks in favor of former. Thereafter, Sikatuna sold checks to SIHI which upon deposit,
checks were dishonored. The trial court decided the case in favor of SIHI.
HELD:
Jurisprudence provides the following effects of crossing a check:
1. The check may not be encashed but only deposited in the bank
2. The check may be negotiated only once—to one who has an account with a bank
3. The act of crossing the check serves the warning to the holder that the check has
been issued for a definite purpose so that he must inquire if he has received the check
pursuant to that
purpose, otherwise, he is not a holder in due course.
The checks in issue were crossed generally and issued payable to New Sikatuna Wood
which could only mean that the drawer has intended the same for deposit only by the
rightful person. Apparently, it was not the payee who presented the same for payment
and therefore, there was no proper presentment and the liability didn't attach to the drawer.
Thus, in the absence of due presentment, the drawer didn't become liable. Consequently,
no right of recourse is available to petitioner against the drawer of the subject checks
considering that the petitioner is the proper
party authorized to make presentment of the checks in question. Nonetheless, the holder
could still collect from New Sikatuna if the latter doesn't have a valid excuse from refusing
payment.
•
PLACE OF PRESENTMENT OF
NEGOTIABLE INSTRUMENTS
Law on Negotiable Instruments
(a) Where a place of payment is specified in the instrument and it is there presented;
(b) Where no place of payment is specified but the address of the person to make payment is
given in the instrument and it is there presented;
(c) Where no place of payment is specified and no address is given and the instrument
is presented at the usual place of business or residence of the person to make payment;
(d) In any other case if presented to the person to make payment wherever he can be
found, or if presented at his last known place of business or residence. (ORDER OF
PREFERENCE)
EXHIBITION OF NEGOTIABLE
INSTRUMENTS FOR PAYMENT
Law on Negotiable Instruments
Sec. 74. Instrument must be exhibited. - The instrument must be exhibited to the person
from whom payment is demanded, and when it is paid, must be delivered up to the party
paying it.
NECESSITY OF EXHIBITION OF INSTRUMENT
• Presentment includes not only demand for payment but also the exhibition of the
instrument
• Purpose is to enable the debtor to determine the genuineness of the instrument and
the right of the holder to receive payment and to
enable him to retain possession upon payment
CASE DIGESTS
HELD:
The contention of Ansaldo that the instrument should have been first presented to him is
bereft of merit.
First, it couldn’t be first raised on appeal.
Second, it is a petty issue for if according to him, such an exhibition was needed to give him
opportunity to determine the genuineness of the instrument, this was rendered
unnecessary not only by his omission to contest it, but also by his admission of the
authenticity of the note implicit from his averment that he made substantial payments thereon
and second, he made a waiver of demand, presentment, etc.
Sec. 76. Presentment where principal debtor is dead. - Where the person primarily liable
on the instrument is dead and no place of payment is specified, presentment for
payment must be made to his personal representative, if such there be, and if, with
the exercise of reasonable diligence, he can be found.
Sec. 77. Presentment to persons liable as partners. - Where the persons primarily liable
on the instrument are liable as partners and no place of payment is specified,
presentment for payment
may be made to any one of them, even though there has been a dissolution of the
firm.
Sec. 78. Presentment to joint debtors. - Where there are several persons, not partners,
primarily liable on the instrument and no place of payment is specified, presentment must
be made to them
all.
SECTIONS 76 TO 78 NOT APPLICABLE WHERE PLACE SPECIFIED
• Applies only where there is no place specified
WHERE PERSONS PRIMARILY LIABLE ARE PARTNERS THE PRESENMENT MUST BE MADE TO ANY ONE OF THEM
WHERE PERSONS PRIMARILY LIABLE ARE JOINT DEBTORS, PRESENTMENT MUST BE MADE TO ALL OF THEM
Sec. 79. When presentment not required to charge the drawer. - Presentment for
payment is not required in order to charge the drawer where he has no right to expect or
require that the drawee or acceptor will pay the instrument.
Sec. 80. When presentment not required to charge the indorser. - Presentment is not
required in order to charge an indorser where the instrument was made or accepted for his
accommodation and he has no reason to expect that the instrument will be paid if
presented.
APPLICATION OF SECTION 79 AND 80
• These provisions give exceptions to the general rule that if no presentment for
payment is made, the persons primarily liable are discharged
Sec. 81. When delay in making presentment is excused. - Delay in making presentment for
payment is excused when the delay is caused by circumstances beyond the control of the
holder and not imputable to his default, misconduct, or negligence. When the cause of
delay ceases to operate, presentment must be made with reasonable diligence.
Sec. 82. When presentment for payment is excused. - Presentment for payment is excused:
APPLICATION OF SECTION 82
• What is excused is failure to make presentment for payment and not mere delay
IMPLIED WAIVER
• Implied waiver of presentment may be manifested by any language or conduct or any agreement between the
parties reasonably calculated to lead the holder to believe that presentment is waived or to mislead or prevent him
from treating the bill as he otherwise would
(a) It is duly presented for payment and payment is refused or cannot be obtained; or
Sec. 84. Liability of person secondarily liable, when instrument dishonored. - Subject to
the provisions of this Act, when the instrument is dishonored by non-payment, an
immediate right of recourse to all parties secondarily liable thereon accrues to the
holder.
CASE DIGEST:
The appellate court reversed the lower court in its decision. It ruled that the bank was guilty of
unreasonably retaining and withholding the check, and that the delay in the presentment was
inexcusable, so that respondent thereby was discharged from liability.
HELD:
Section 84 is applicable, nonetheless, it should be read in correlation with Section 186, which
says that presentment should be within reasonable time.
3. Payment must be made by the debtor in good faith and without notice that his title is
defective
• If payment is made before maturity, it would constitute a negotiation back to the person
primarily liable and he can renegotiate it. Payment doesn’t discharge the instrument.
• Payment to indorsee who is not in possession of the instrument is not payment to a person
other than the holder is at the risk of the party so paying if the person wasn’t authorized by
the holder to receive payment. So also, the payment to the original payee after the
note had been transferred by him to a holder in due course doesn’t discharge the note
• Payment to a person by the debtor who knows that such person stole it, is not payment in
due course, as such payment is not in good faith. The maker of a note or the acceptor of a
bill must satisfy himself, when it is presented for payment, that the holder traces his
title through genuine indorsements, and if there is a forged indorsement, it is a nullity and no
right passes by it
NOTICE OF DISHONOR IN
NEGOTIABLE INSTRUMENTS
Law on Negotiable Instruments
MEANING OF NOTICE
• By notice of dishonor is meant bringing either verbally or by writing, to the knowledge of
the drawer or indorser of an instrument, the fact that a specified negotiable instrument, upon
proper proceedings taken, has not been accepted or hasn’t been paid, and that the party
notified is expected to paid it
NECESSITY AND PURPOSE OF NOTICE
• When an instrument is dishonored by NON-ACCEPTANCE or NON-PAYMENT, notice
of such dishonor must be given to persons secondarily liable, as the case may be.
Otherwise, such parties are discharged
BURDEN OF PROOF
• It is upon the plaintiff who seeks to enforce the defendant’s liability upon a
negotiable instrument as indorser to establish said liability by proving that notice was given to
the defendant within the time and in the manner required by the law that the instrument
in question had been dishonored
• Where these facts are not proven, the plaintiff doesn’t sufficiently establish the
defendant’s liability
• Where there is no proof in record tending to show that the plaintiff gave any notice
whatsoever to the defendant that the instrument in question had been dishonored, said
plaintiff hasn’t established its cause of action
Sec. 90. By whom given. - The 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 taking it up, would have a right to reimbursement from the party to whom the
notice is given.
Sec. 91. Notice given by agent. - Notice of dishonor may be given by any agent either in his
own name or in the name of any party entitled to given notice, whether that party be his
principal or not.
NOTICE OF AGENT
• Notice may be given by the agent and it is not necessary that the agent be
authorized by the principal
• He may give the notice in his name or in the name of his principal
• A collecting bank may give notice, and where it has done so, no notice from the owner is
necessary
• And where the cashier of the drawee bank which had refused to pay a check gave the
check to a notary to protest, which was done, it was held that the possession of the check by
the cashier was evidence of his agency of the holder to present it for protest
Sec. 92. Effect of notice on behalf of holder. - Where notice is given by or on behalf of the
holder, it inures to the benefit of all subsequent holders and all prior parties who have
a right of recourse against the party to whom it is given.
MEANING OF BENEFIT
• Benefit refers to the right to charge the person secondarily liable who received notice
• The party to whom this benefit inures can charge the party receiving notice of dishonor,
even if himself didn’t give the notice
Sec. 93. Effect where notice is given by party entitled thereto. - Where notice is given
by or on behalf of a party entitled to give notice, it inures to the benefit of the holder
and all parties subsequent to the party to whom notice is given.
Sec. 94. When agent may give notice. - Where the instrument has been dishonored in the
hands of an agent, he may either himself give notice to the parties liable thereon, or he
may give notice to his principal. If he gives notice to his principal, he must do so within
the same time as if he were the holder, and the principal, upon the receipt of such
notice, has himself the same time for giving notice as if the agent had been an independent
holder.
WHEN AGENT’S NOTICE MUST BE GIVEN
• When an instrument is dishonored in the hands of an agent, he can do either of the
following
o Directly give notice to the persons secondarily liable thereon
o Give notice to his principal
• If the agent decides to give notice to the principal, he must give notice within the time
allowed by law as if he were a holder
• The principal has also the same time to give notice to the persons secondarily liable
Sec. 95. When notice sufficient. - 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.
Sec. 96. Form of notice. - The 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. It may in all cases be given by delivering it personally
or through the mails.
NOTICE BY PHONE
• This could be done however it must be shown that the party to be notified was
really communicated with, that is, fully identified as to the party at the receiving end of the line
Sec. 97. To whom notice may be given. - Notice of dishonor may be given either to the party
himself or to his agent in that behalf.
Sec. 98. Notice where party is dead. - When any party is dead and his death is known to the
party giving notice, the notice must be given to a personal representative, if there be one,
and if with reasonable diligence, he can be found. If there be no personal representative,
notice may be sent to the last residence or last place of business of the deceased.
REQUISITES FOR NOTICE TO REPRESENTATIVE
1. Death is known to the party giving notice
2. There is a personal representative
3. If with reasonable diligence he could be found
Sec. 99. Notice to partners. - Where the parties to be notified are partners, notice to any one
partner is notice to the firm, even though there has been a dissolution.
Sec. 100. Notice to persons jointly liable. - Notice to joint persons who are not partners must be
given to each of them unless one of them has authority to receive such notice for the others.
Sec. 101. Notice to bankrupt. - Where a party has been adjudged a bankrupt or an insolvent,
or has made an assignment for the benefit of creditors, notice may be given either to the
party himself or to his trustee or assignee.
APPLICATION OF SECTION
1. Where the party secondarily liable has been declared a bankrupt or an insolvent
2. Where he has made an assignment of his properties for the benefits of creditors
• In such cases, notice be given to the party himself or his trustee or assignee
Sec. 102. Time within which notice must be given. - Notice may be given as soon as the
instrument is dishonored and, unless delay is excused as hereinafter provided, must be
given within the time fixed by this Act.
MAY NOTICE OF DISHONOR BE GIVEN BEFORE THE DATE OF
MATURITY
• No, such notice would be insufficient because an instrument cannot be said to be
dishonored for non-payment unless presented and presentment must be made on the
date of maturity unless of course, presentment is excused
• But even in such cases, the instrument cannot be said to be dishonored by non-
payment unless it is overdue and unpaid
• Notice of dishonor can be given only after the instrument has been actually
dishonored, and notice given before the paper due is premature and insufficient,
regardless of the indorser’s knowledge that the maker was in default
Sec. 103. Where parties reside in same place. - Where the person giving and the person to
receive notice reside in the same place, notice must be given within the following times:
(a) If given at the place of business of the person to receive notice, it must be given
before the close of business hours on the day following.
(b) If given at his residence, it must be given before the usual hours of rest on the day
following.
(c) If sent by mail, it must be deposited in the post office in time to reach him in usual
course on the day following.
Sec. 104. Where parties reside in different places. - Where the person giving and the
person to receive notice reside in different places, the notice must be given within the
following times:
(a) If sent by mail, it must be deposited in the post office in time to go by mail the
day following the day of dishonor, or if there be no mail at a convenient hour on last day,
by the next mail thereafter.
(b) If given otherwise than through the post office, then within the time that notice would
have been received in due course of mail, if it had been deposited in the post office
within the time specified in the last subdivision. (TO REACH HIM IN USUAL COURSE THE DAY
FOLLOWING)
Sec. 105. When sender deemed to have given due notice. - Where notice of dishonor is duly
addressed and deposited in the post office, the sender is deemed to have given due
notice, notwithstanding any miscarriage in the mails.
CONCLUSIVE PRESUMPTION
Sec. 106. Deposit in post office; what constitutes. - Notice is deemed to have been
deposited in the post-office when deposited in any branch post office or in any letter box
under the control of the post-office department.
Sec. 107. Notice to subsequent party; time of. - Where a party receives notice of
dishonor, he has, after the receipt of such notice, the same time for giving notice to
antecedent parties that the holder has after the dishonor.
Sec. 108. Where notice must be sent. - Where a party has added an address to his signature,
notice of dishonor must be sent to that address; but if he has not given such address, then
the notice must be sent as follows:
(a) Either to the post-office nearest to his place of residence or to the post-office where he
is accustomed to receive his letters; or
(b) If he lives in one place and has his place of business in another, notice may be
sent to either place; or
(c) If he is sojourning in another place, notice may be sent to the place where he is so
sojourning.
But where the notice is actually received by the party within the time specified in this
Act, it will be sufficient, though not sent in accordance with the requirement of this
section.
Sec. 109. Waiver of notice. - 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 expressed or implied.
IMPLIED WAIVER
• Waiver may be implied from acts, declarations, or silence
Sec. 110. Whom affected by waiver. - Where the waiver is embodied in the instrument
itself, it is binding upon all parties; but, where it is written above the signature of an indorser, it
binds him only.
Sec. 111. Waiver of protest. - A waiver of protest, whether in the case of a foreign bill of
exchange or other negotiable instrument, is deemed to be a waiver not only of a formal
protest but also of presentment and notice of dishonor.
Sec. 113. Delay in giving notice; how excused. - Delay in giving notice of dishonor is
excused when the delay is caused by circumstances beyond the control of the holder and
not imputable to his default, misconduct, or negligence. When the cause of delay ceases to
operate, notice must be given with reasonable diligence.
Sec. 114. When notice need not be given to drawer. - Notice of dishonor is not required
to be given to the drawer in either of the following cases:
(a) Where the drawer and drawee are the same person;
(b) When the drawee is fictitious person or a person not having capacity to contract;
(c) When the drawer is the person to whom the instrument is presented for payment;
(d) Where the drawer has no right to expect or require that the drawee or acceptor will
honor the instrument;
Sec. 115. When notice need not be given to indorser. — Notice of dishonor is not required
to be given to an indorser in either of the following cases:
(a) When the drawee is a fictitious person or person not having capacity to contract, and
the indorser was aware of that fact at the time he indorsed the instrument;
(b) Where the indorser is the person to whom the instrument is
presented for payment;
(c) Where the instrument was made or accepted for his accommodation.
Sec. 116. Notice of non-payment where acceptance refused. - Where due notice of
dishonor by non-acceptance has been given, notice of a subsequent dishonor by non-
payment is not necessary unless in the meantime the instrument has been accepted.
Sec. 117. Effect of omission to give notice of non-acceptance. - An omission to give notice of
dishonor by non-acceptance does not prejudice the rights of a holder in due course
subsequent to the omission.
Sec. 118. When protest need not be made; when must be made. - Where any negotiable
instrument has been dishonored, it may be protested for non-acceptance or non-payment, as
the case may be; but protest is not required except in the case of foreign bills of
exchange.
(b) By payment in due course by the party accommodated, where the instrument is
made or accepted for his accommodation;
(d) By any other act which will discharge a simple contract for the payment of money;
(e) When the principal debtor becomes the holder of the instrument at or after
maturity in his own right.
PRINCIPAL DEBTOR
• Person ultimately bound to pay the debt
INTENTIONAL CANCELLATION
• The cancellation must be intentional and made by the holder
• There must be an intention to cancel a negotiable instrument by the holder thereof
as such intention is an essential element of discharge on a negotiable instrument and a
negotiable note in a torn condition is presumed cancelled by the holder thereof
(e) By a release of the principal debtor unless the holder's right of recourse against the
party secondarily liable is expressly reserved;
(f) By any agreement binding upon the holder to extend 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 expressly
reserved.
EXTENSION OF TIME
• If the holder agrees to extend the time of payment, the indorsers are discharged
• However, where the extension of time is consented to by the party secondarily
liable, he is not discharged. Also, where the holder expressly reserves his right of recourse
against the party secondarily liable, the latter is not discharged.
Sec. 121. Right of party who discharges instrument. - Where the instrument is paid by a
party secondarily liable thereon, it is not discharged; but the party so paying it is
remitted to his former rights as regard all prior parties, and he may strike out his own and all
subsequent indorsements and against negotiate the instrument, except:
(a) Where it is payable to the order of a third person and has been paid by the drawer; and
(b) Where it was made or accepted for accommodation and has been paid by the party
accommodated.
Sec. 122. Renunciation by holder. - The holder may expressly renounce his rights against
any party to the instrument before, at, or after its maturity. An absolute and unconditional
renunciation of his rights against the principal debtor made at or after the maturity of the
instrument discharges the instrument. But a renunciation does not affect the rights of a
holder in due course without notice. A renunciation must be in writing unless the
instrument is delivered up to the person primarily liable thereon.
FORM OF RENUNCIATION
It must be in writing and must be express
MEANING OF CANCELLATION
Signifies not only the drawing of criss-cross lines but also tearing, obliterations,
erasures or burning
It may be made by any other means by which the intention to cancel the instrument may
be evident
BURDEN OF PROOF IS UPON THE PERSON WHO CLAIMS THAT THE CANCELLATION IS
INOPERATIVE
EFFECTS OF ALTERATION OF A
NEGOTIABLE INSTRUMENT
Law on Negotiable Instruments
Sec. 124. Alteration of instrument; effect of. - Where a negotiable instrument is materially
altered without the assent of all parties liable thereon, it is avoided, except as against a
party who has
himself made, authorized, or assented to the alteration and subsequent indorsers. But
when an instrument has been materially altered and is in the hands of a holder in due
course not a party to the alteration, he may enforce payment thereof according to its
original tenor.
RIGHTS OF ONE NOT HOLDER IN DUE COURSE
• Where an instrument has been materially altered, it is avoided in the hands of one who is
not a holder in due course as against a prior party who has not assented to the alteration
WHERE DRAWEE BANK PAYS ALTERED AMOUNT, DRAWER HAS THE RIGHT TO HAVE HIS
ACCOUNT DEBITED WITH CORRECT AMOUNT ONLY
BANKS ARE BOUND BY THE 24-HOUR CLEARING HOUSE RULE AND MUST NOTIFY THE
COLLECTING BANKS WITHIN 24 HOURS OF ALTERATION OF CHECKS
MATERIAL ALTERATION IN A
NEGOTIABLE INSTRUMENT
Law on Negotiable Instruments
Sec. 125. What constitutes a material alteration. - Any alteration which changes:
(f) Or 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.
MATERIAL ALTERATION IN A
NEGOTIABLE INSTRUMENT
Law on Negotiable Instruments
Sec. 125. What constitutes a material alteration. - Any alteration which changes:
80. Material Alteration – an alternation is said to be material if it alters the effect of the instrument.
Under Section 125 the following changes are considered material alterations:
1. dates
2. the sum payable
3. time and place of payment
4. number or relations of the parties
5. medium or currency for payment
6. adding a place of payment where no place is specified
7. any other which alters the affect of the instrument
8. where the drawer and the drawee are one and the same
9. where the drawee is a fictitious person
10. where the drawee has no capacity to contract (Sec. 130 NIL)
82. Acceptance is the signification by the drawee of his assent to the order of the drawer. It is an act by
which a person on whom the BOE is drawn assents to the request of the drawer to pay it. (Sec. 132 NIL)
– in writing
– must not express the drawee will perform his promise by any other means than payment of money
a. to make the drawee primarily liable and for the accrual of secondary liability (Sec. 144)
b. necessary to fix maturity date, where bill expressly stipulates presentment, bill payable other than
place of drawee (Sec. 143)
c. when presentment is excused: drawee is dead, hides, is fictitious, incapacitated person, after due
diligence presentment cannot be made, presentment is refused on another ground although presentment is
irregular (Sec. 148)
25. General rule: Protest is required only for foreign bills
Exception:
Protest is required:
– Protest – formal statement in writing made by a notary under his seal of office at the request of the
holder, in which it is declare that the some was presented for payment or acceptance (as the case may be)
and such was refused.
– it means all steps or acts accompanying the dishonor of a bill or note necessary to charge an indorser
– it must be made on the same date of dishonor, by a notary/respectable citizen of the place in the
presence of 2 credible witnesses so recourse to secondary parties
30. Acceptance for Honor (Sec. 161 NIL)– an acceptance of a bill made by a stranger to it before maturirty, where the
drawee of the bill has:
31. refused to accept it
32. and the bill has been protested for non-acceptance
33. or where the bill has been protested for better security
– the bill must have been previously protested a) for non-acceptance b) or for better security
– the bill is not overdue at the time of the acceptance for honor
– Purpose: to save the credit of the parties to the instrument or some party to it as the drawer, drawee,
or indorser or somebody else.
– Acceptor for honor is liable to the holder and to all the parties to the bill subsequent to the party for
whose honor he has accepted (Sec. 164)
37. Payment for Honor – payment made through a notarial act of honor of a party liable/stranger to the bill after bill has
been dishonored by non-payment by the acceptor and protested for non-payment by the holder
Requisites:
38. payment must be attested by notarial act appended to the protest, or form an extension to it.
39. notarial act of honor must be based on a declaration by the payer for honor
40. Bills in Set – bill of exchange drawn in several parts, each part of the set being numbered and containing a reference to
the other parts, the whole of the parts just constituting one bill (Sec 178 NIL)
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• Certification: Principles
77. when check certified by bank on which it’s drawn, equivalent to acceptance
78. where holder of check procures it to be accepted/certified, drawer and all indorsers discharged from al liability
79. check not operate as assignment of any part of funds to credit of drawer with bank, and bank is not liable to holder,
unless and until it accepts or certifies check
80. certification obtained at request of drawer: secondary parties not released
81. bank which certifies liable as an acceptor
82. checks cannot be certified before payable
107. bill payable after sight, or in other cases where presentment for acceptance necessary to fix maturity
108. where bill expressly stipulates that it shall be presented for acceptance
109. where bill is drawn payable elsewhere than at residence / place of business of drawee
Failure to present for acceptance of negotiate bill of exchange within reasonable time
Reasonable Time
Must consider
Date and time of presentment of instrument bearing fixed maturity Sec. 71, 85, 86, 194
Date of presentment
• Where instrument not payable on demand: presentment must be made on date it falls due
• Where payable on demand: presentment must be made within reasonable time after issue, except that in case of a bill of
exchange, presentment for payment will be sufficient if made within a reasonable time after last negotiation (but note:
though reasonable time from last negotiation, it may be unreasonable time from issuance thus holder may not be HDC
under sec. 71)
• Check must be presented for payment within reasonable time after its issue or drawer will be discharged from liability
thereon to extent of loss caused by delay
Place Sec. 73
Notice of Dishonor
General rule: to drawer and to each indorser, and any drawer or indorser to whom such notice is not given is
discharged
Form, Contents, Time Sec. 95, 96, 102, 103, 104, 105, 106, 108, 113
By Whom Given
• By or on behalf of the holder or any party to the instrument who may be compelled to pay it to the holder, and who,
upon taking it up, would have a right to reimbursement from the party to whom the notice is given
• Notice of dishonor may be given by an agent either in his own name or in the name of any party entitled to give notice,
whether that party be his principal or not
o Where instrument has been dishonored in hands of agent, he may either himself give notice to the parties liable
thereon, or he may give notice to his principal (as if agent an independent holder)
In whose favor notice operates
120. drawee fictitious, incapacitated, and indorser aware of the fact at time of indorsement
121. indorser is person to whom instrument presented for paymt
122. instrument made/accepted for his accommodation
Protest
Definition: testimony of some proper person that the regular legal steps to fix the liability of drawer and
indorsers have been taken
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KINDS OF DEFENSES
123. real defense – attaches to instrument; on the principle that the right sought to be enforced never
existed/there was no contract at all
124. personal defense – growing out of agreement; renders it inequitable to be enforced vs. defendant
DEFENSES
125. INCAPACITY: real; indorsement/assign by corp/infant: passes property but corp/infant no liability
126. ILLEGALITY: personal, even if no K because void under CC 1409
127. FORGERY: real (lack of consent):
a. forged
b. made without authority of person whose signature it purports to be.
General Rule:
Exception:
unless the party against whom it is sought to enforce such right is precluded from setting up forgery/want of
authority
precluded:
130. parties who make certain warranties, like a general indorser or acceptor
131. estopped/negligent parties
132. 1. overdraft
133. 2. stop payment order
134. 3. forged indorsements
*material alteration a personal defense when used to deny liability according to org. tenor of instrument, but
real defense when relied on to deny liability according to altered terms.
143. FRAUD
144. fraud in execution: real defense (didn’t know it was NI)
145. fraud in inducement: personal defense (knows it’s NI but deceived as to value/terms)
146. DURESS
• Personal, unless so serious as to give rise to a real defense for lack of contractual intent
147. COMPLETE, UNDELIVERED INSTRUMENT
• Personal defense (sec. 16)
• If instrument not in poss. Of party who signed, delivery prima facie presumed
• If holder is HDC, delivery conclusively presumed
148. INCOMPLETE, UNDELIVERED INSTRUMENT
• Real defense (sec. 15)
• Instrument 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
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HOLDER
Sec. 191
RIGHTS OF HOLDER
* if in the hand of any holder (note definition of holder) other than a HDC, vulnerable to same defenses as if
non-negotiable
Exception: holder who derives title through HDC and who is not himself a party to any fraud or illegality has
all rights of such former holder in respect to all parties prior to the latter.
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DELIVERY
• NI incomplete and revocable until delivery for the purpose of giving effect thereto
• as between
162. immediate parties
163. a remote party other than holder in due course
• in such case 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.
PRESUMPTION OF DELIVERY
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 (*if in the hands of a HDC, presumption
conclusive)
NEGOTIATION
• When an instrument is transferred from one person to another as to constitute the transferee the holder thereof.
• If payable to BEARER, negotiated by delivery; if payable to ORDER, negotiated by indorsement of holder + delivery
INDORSEMENT
KINDS OF INDORSEMENT
175. as to presence/absence of express limitations put by indorser upon primary obligor’s privileges of paying the
holder
176. conditional – additional condition annexed to indorser’s liability.
• Where an indorsement is conditional, a party required to pay the instrument may disregard the condition, and make
payment to the indorsee or his transferee, whether condition has been fulfilled or not
• Any person to whom an instrument so indorsed is negotiated will hold the same/proceeds subject to rights of person
indorsing conditionally
177. unconditional
• Where an instrument payable to bearer is indorsed specially, it may nevertheless be further negotiated by delivery
• Person indorsing specially liable as indorser to only such holders as make title through his indorsement
UNINDORSED INSTRUMENTS
• Where holder of instrument payable to his order transfers it for value without indorsing, transfer vests in transferee
178. such title as transferor had therein
179. right of tranferee to have indorsement of transferor
• for purposes of determining HDC negotiation effective upon actual indorsement
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* relate to sec. 11 ( presumption as to date) and sec. 17 (construction where instrument ambiguous)
or bearer,
Gen. Rule: order/promise to do any act in addition to the payment of money renders instrument non-
negotiable.
Until
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Posted by Magz
• Written contract for the payment of money, by its form intended as 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
PROMISSORY NOTE
• unconditional promise in writing made by one person to another signed by the maker
• engaging to pay on demand, or at a fixed or determinable future time a sum certain in money to order or to bearer
• where a note is drawn to the maker’s own order, it is not complete until indorsed by him
BILL OF EXCHANGE
• unconditional order in writing addressed by one person to another signed by the person giving it
• requiring the person to whom it’s addressed to pay on demand or at a fixed or determinable future time a sum certain in
money to order or to bearer
• check: bill of exchange drawn on a bank payable on demand. Kinds of checks:
204. personal check
205. manager’s/cashier’s check – drawn by a bank on itself. Issuance has the effect of acceptance
206. memorandum check – “memo” is written across its face, signifying that drawer will pay holder absolutely
without need of presentment
207. crossed check –
• effects:
208. check may not be encashed but only deposited in bank
209. may be negotiated only once, to one who has an acct. with a bank
210. warning to holder that check has been issued for a definite purpose so that he must inquire if he received check
pursuant to such purpose, otherwise not HDC
• kinds:
211. general (no word between lines, or “co” between lines)
212. special (name of bank appearing between parallel lines)
BEARER
HOLDER
Payee or indorsee of a bill or note who is in possession of it, or the bearer thereof.
213. issue
214. negotiation
215. presentment for acceptance in certain bills
216. acceptance
217. dishonor by on acceptance
218. presentment for payment
219. dishonor by nonpayment
220. notice of dishonor
221. protest in certain cases
222. discharge