TITLE V.
LIABILITIES OF PARTIES their obligation even if one of them didn’t
LIABILITIES DISTINGUISHED FROM
WARRANTIES
 Liability makes the parties liable to pay the
sum of certain in money stated in the
instrument.
Note: Conditioned on presentment and notice of
dishonor.
 Warranties impose no direct obligation to
pay in the absence of breach thereof. In
case of breach, the person who breached the
same may either be liable or barred from
asserting a particular defense.
Note: Does not require presentment and notice
of dishonor.
LIABILITY AND/OR WARRANTIES OF
PARTIES
1. LIABILITY OF MAKER
 Engages to pay according to the tenor of the
instrument; and
 Admits the existence of the payee and his
capacity to endorse
MAKER MUST PAY ACCORDING TO
THE TERMS OF THE NOTE
o The maker bound himself to pay personally.
He cannot shift the obligation without the
consent of the payee. He cannot allege that
he spends the money on expenses which
should be charged to a trust administered by
a creditor because it is not the payee’s
concern to know how the proceeds should
be spent. That is the sole concern of the
maker. The payee’s interest is merely to
see that the note is paid according to its
term.
LIABILITY OF 2 OR MORE MAKERS
o When 2 or more makers sign jointly or
severally, each of them is individually
liable for the payment of the full amount of
receive part of the value given therefor, as
he would be considered as an
accommodation party.
PAYEE’S EXISTENCE, ETC.
o The maker also admits of the existence of
the payee and his then capacity to indorse.
o He is precluded from setting up the
following defenses:
o That the payee is a fictitious person because
by making the note, he admits that the
payee exists
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
2. DRAWEE
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.
DRAWER SECONDARILY LIABLE
o He engages merely that the bill will be
accepted or paid or both, according to
its tenor, and that he will pay only
when
1. It is dishonored
2. And the necessary proceedings of
dishonor are duly taken
o The liability of the drawer is subject to
the two conditions and attaches only
upon their fulfillment
o The drawer, by merely drawing the bill
and signing his name in the bill as such
drawer, without more, impliedly
engages to be so secondarily liable, as  Where being unable to pay certain bills
if he has incorporated the provisions of
Section 61 in the bill
o If the bill is not paid, accordingly, if a
bill is not paid, the drawer becomes
liable for the payment of its value to
the holder provided that notice of
dishonor is given
Note: A bill of itself does not operate as an
assignment of funds in the hands of the drawee
available for the payment thereof and the drawee is
not liable unless and until the he accepts the same.
(Sec. 27)
3. 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.
ACCEPTOR PRIMARILY LIABLE
 Acceptor engages to pay absolutely
according to the tenor of its acceptance
 His liability is not subject to any
condition
 The acceptor is the drawee who
accepts the bill
 His acceptance immediately places a
legal liability on him for the
payment of the bill in favor of one who
became a holder thereof after
acceptance, and if he wants to escape
liability, it is up to him to show that he
is a mere agent of the drawer, or allege
and prove any other defense which he
has to the liability
EFFECT OF MORTGAGE EXECUTED
BY ACCEPTOR
of exchange which the drawee has
accepted, the latter makes a
mortgage in favor of the holder of
said bills upon certain merchandise the
value of which is sought to be
collected through said bills, in order
to secure the payment of said
amount if the merchandise is sold and
the integrity thereof while the sale is
not effected, the execution of said
mortgage doesn’t constitute a
Novation of the obligation represented
by said accepted bills unless it is
expressly stated in the mortgage
ACCEPTOR TO PAY ACCORDING
TO TENOR OF HIS ACCEPTANCE
 While the maker of a note engages to
pay according to the tenor of the note,
an acceptor engages to pay according
to the tenor of his acceptance, not of
the bill he accepts
 Tenor of his acceptance may be
different from the tenor of the bill, as
the acceptor may accept the bill with
qualifications
 If his acceptance is general, the tenor
of then bill is the same tenor as the
tenor of his acceptance
WHERE ORIGINAL TENOR IS
ALTERED BEFORE ACCEPTANCE
 Suppose the bill is originally for
P1000. Before the drawee X accepts
it, it is altered by the payee B to
P4000. Then X accepts it. How much
is X liable to a holder in due course?
 According to one view, X is liable for
P4000 and not P1000. The reason is
that the tenor of X’s acceptance is for
P4000.
EFFECT OF SECTION 124
 Under the first view, what is the effect
of Section 124 which provides that a
holder in due course can recover only
the original tenor of the instrument?
  It seems that this refers to the original
tenor of instrument taken from the
standpoint of the person primarily
liable, in X’s standpoint. In other
words, the original tenor of the
instrument is P4000, which is the tenor
of X’s acceptance.
 If after his acceptance, a subsequent
indorsee alters the bill to read P9000,
then X could be liable for P4000 only,
the original tenor of his acceptance,
even as to a holder of due course.
ADMISSION OF DRAWER’S
EXISTENCE, ETC.
 Drawer’s existence
 The genuineness of the drawer’s
signature
 The capacity and authority of the
drawer to draw the instrument
 He doesn’t admit the genuineness of
the indorser’s signatures
EFFECT OF ACCEPTOR’S
ADMISSIONS
 Acceptor consequently precluded from
setting up the defense that the drawer
is non-existent or fictitious because of
his admission of the drawer’s
existence
 Neither can he claim the drawer’s
signature is a forgery because he
admits the genuineness of the drawer’s
signature
 Neither can the drawee escape liability
by alleging want of consideration
between him and the drawer as by
accepting the bill, he admits the
capacity and authority of the drawer to
draw the bill.
4. INDORSERS
 General Indorser
a. Warrants all subsequent holder in due
course that:
 The instrument is genuine and in all
respect what it purports to be.
 He has good title to it.
 All prior parties had capacity to
contract.
 The instrument is, at the time of
endorsement, valid and subsisting.
b. Engages that the instrument will be
accepted or paid, or both, as the case may
be according to its tenor; and
c. If the instrument is dishonored and
necessary proceedings on dishonor be duly
taken, he will pay to the party entitled to be
paid.
d. Warrants that the instrument is, at the time
of his indorsement, valid and subsisting
 Qualified Indorser
Every person negotiating an
instrument by delivery or by a qualified
endorsement warrant that:
 The instrument is genuine and in all
respects what it purports to be;
 He has good title to it
 All prior parties had capacity to
contract;
 He has no knowledge of any fact
which would impair the validity of the
instrument or render it valueness.
 Order of Liability
o There is no order of liability
among the indorsers as against
the holder. He is free to choose to
recover from any indorser in case
of dishonor of the instrument.
o As respect one another, indorsers
are liable prima facie in the order
in which they indorse unless the
contrary is proven. (Sec. 68)
o General Rule: one whose
signature does not appear on the
instrument shall not be liable
thereon, except:
 The principal who signs
through an agent is
liable;
 The forger is liable;
 One who indorses in a
separate instrument or
where an acceptance is
written on a separate
paper is liable;
 One who signs his
assumed or trade name
is liable; and
 A person negotiating by
delivery (as in the case
of a bearer instrument)
is liable to his
immediate indorsee.
5. PARTIES NEGOTIATING BY MERE
DELIVERY
o Warranties same as those of
qualified indorsers; and
o Warranties extend to immediate
transferee only.
o No secondary liability; but is
liable for breach of warranty.
o Warrants that he has no
knowledge of any fact which
would impair the validity of the
instrument or render it valueless.
6. OTHER CASES
 Irregular Indorser
An Irregular Indorser is a person not a
person otherwise a party to an instrument, places
his signature thereon in blank before delivery.
 If the instrument is payable to the
order of 3rd person, he is liable to the
payee and subsequent parties.
 If the instrument is payable to order of
maker or drawer or to bearer, he is
liable to all parties subsequent to the
maker or drawer.
 If he signs for accommodation of the
payee, he is liable to all parties
subsequent to the payee.
 Bearer Instrument
A person negotiating by delivery (as in the
case of a bearer instrument) is liable to his
immediate indorsee.
 Accommodation Party
An accommodation 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
accommodation party.
1. The accommodation party is liable on the
instrument to a holder in value,
notwithstanding such holder at any time of
the taking of the instrument knew him to be
only an accommodation party.
2. The accommodation party doesn't receive
any valuable consideration for the
instrument he signs but he is liable to a
holder for value as if the contract was not
for accommodation.
Up to what extent is an accommodation party liable?
1. Right to revoke accommodation – before
the instrument has been negotiated for
value.
2. Right to reimbursement from
accommodated party – the accommodated
party is the real debtor. Hence, the cause of
action is not on the instrument but on an
implied contract of reimbursement.
3. Right to contribution from other solidary
accommodation maker.
 Agents signing in behalf of the Principal
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.

REQUISITES FOR AGENT TO ESCAPE

LIABILITY
1. Be duly authorized
2. Add words to his signature indicating that
he signs as an agent, that is, for or on behalf
of a principal, or a representative capacity
3. Disclose his principal.