NEGOTIABLE INSTRUMENTS REVIEWER (SEC 1-66 FIRST PART)

CABUHAT,MILEAKIMKARLA
cabuhat.mileakimkarla@gmail.com

NEGOTIABLE INSTRUMENTS
A. Negotiable Instruments written contracts for the payment of money; by its form,
intended as a substitute for money and intended to pass from hand to hand, to give the
holder in due course the right to hold the same and collect the sum due.
B. Characteristics of Negotiable Instruments:
A. negotiability right of transferee to hold the instrument and collect the sum due
B. accumulation of secondary contracts instrument is negotiated from person to
person
NEGOTIABLE INSTRUMENTS
Have requisites of Sec. 1 of the NIL
Have right of recourse against
intermediate parties who are secondarily
liable
Holder in due course may have rights
better than transferor
Subject is money
Instrument itself is property of value

NEGOTIABLE DOCUMENTS OF TITLE

does not contain requisites of Sec. 1 of NIL
no secondary liability of intermediate parties

transferee merely steps into the shoes of the

transferor
subject is goods
instrument is merely evidence of title; thing
of value are the goods mentioned in the
document

C. Promissory Note unconditional promise to pay in writing made by one person to

another, signed by the maker, engaging to pay on demand or a fixed determinable future
time a sum certain in money to order or bearer. When the note is drawn to makers own
order, it is not complete until indorse by him. (Sec. 184 NIL)
Parties:
1. maker
2. payee
3. bearer
D. 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 is addressed to pay on
demand or at a fixed or determinable future time a sum certain in money to order or to
bearer. (Sec. 126 NIL)
Parties:
1. drawer
2. payee
3. bearer
4. acceptor
E. Check bill of exchange drawn on a bank and payable on demand. (Sec. 185 NIL)
F. Difference between Promissory Note and bill of exchange
Promissory Note
Unconditional promise

Bill of Exchange
unconditional order

NEGOTIABLE INSTRUMENTS REVIEWER (SEC 1-66 FIRST PART)

CABUHAT,MILEAKIMKARLA
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Involves 2 parties
Maker primarily liable
only 1 presentment for payment

involves 3 parties
drawer only secondarily liable
generally 2 presentments for acceptance
and for payment

G. Distinctions between a Check and bill of exchange

CHECK
always drawn upon a bank or banker
always payable on demand

BOE
may or may not be drawn against a bank
may be payable on demand or at a fixed
or determinable future time
necessary that it be presented for
acceptance
not drawn on a deposit
the death of the drawer of the ordinary
bill of exchange does not

not necessary that it be presented for

acceptance
drawn on a deposit
the death of a drawer of a check, with
knowledge by the banks, revokes the
authority of the banker pay
must be presented for payment within a
reasonable time after its issue (6
months)

may be presented for payment within a

reasonable time after its last negotiation.

G. Distinctions between a Promissory Note and Check

PN
there are two (2) parties, the maker
and the payee
may be drawn against any person, not
necessarily a bank
may be payable on demand or at a
fixed or determinable future time
a promise to pay

CHECK
there are three (3) parties, the drawer,
the drawee bank and the payee
always drawn against a bank
-always payable on demand
an order to pay

SECTION 1
REQUISITES OF NEGOTIABLE INSTRUMENT
a.
be in writing signed by the drawer
b. contains an unconditional promise or order to pay a sum certain in money
c.
be payable on demand or at a fixed determinable future time
d. be payable to order or to bearer (Sec. 1 NIL)
e.
where the instrument is addressed to a drawee, he must be named otherwise
indicated therein with reasonable certainty

In order to be negotiable, there must be a writing of some kind, else there would be
nothing to be negotiated or passed from hand to hand. The writing may be in ink,
print or pencil. It may be upon parchment, cloth, leather or any other substitute of
paper.
It must be signed by the maker or drawer. It may consist of mere initials or even
numbers, but the holder must prove that what is written is intended as a signature
of the person sought to be charged.
The Bill must contain an order, something more than the mere asking of a
favor.

NEGOTIABLE INSTRUMENTS REVIEWER (SEC 1-66 FIRST PART)

CABUHAT,MILEAKIMKARLA
cabuhat.mileakimkarla@gmail.com

Sum payable must be in money only. It cannot be made payable in goods,

wares, or merchandise or in property.
A drawees name may be filled in under Section 14 of the NIL
SECTION 2

Sum is
a.
b.
c.
d.
e.

certain even if it is to be paid with:

interest
in installments
in installments with acceleration clause
with exchange
costs of collection or attorneys fees (Sec. 2 NIL)

General Rule: The promise or order should not depend on a contingent event. If it is
conditional, it is non-negotiable.
Exceptions:
a. indication of particular fund from which the acceptor disburses himself after payment
b. statement of the transaction which gives rise to the instrument. (Sec. 3 NIL)
SECTION 3

The particular fund indicated should not be the direct source of payment; else it
becomes unconditional and therefore non-negotiable. The fund should only be the
source of reimbursement.
A statement of the transaction does not destroy the negotiability of the instrument.
Exception: Where the promise to pay or order is made subject to the terms and
conditions of the transaction stated.
But an order or promise to pay out of a particular fund is CONDITIONAL
SECTION 4

Instrument is payable upon a determinable future time if:

a. there is a fixed period after sight/date
b. on or before a specified date/fixed determinable future time
c. on or at a fixed date after the occurrence of an event certain to happen though the
exact date is not certain (Sec. 4 NIL)
SECTION 5

authorizes SALE OF COLLATERAL securities

authorizes a CONFESSION OF JUDGMENT (written acknowledgment by defendant of
his indebtedness/liability to plaintiff) if not paid at maturity
Waives the BENEFIT OF ANY LAW intended for advantage/protection of obligor.
(eg. Pay bearer P1000. Notice of dishonor waived.)
gives HOLDER the election to require something to be done in lieu of payment of
money
(eg. I promise to pay P1000 to A or order or an air conditioner at the option of the
holder NEGOTIABLE;

NEGOTIABLE INSTRUMENTS REVIEWER (SEC 1-66 FIRST PART)

CABUHAT,MILEAKIMKARLA
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I promise to pay P1000 to A or order or air conditioner NON-NEGOTIABLE because

HOLDER cannot COMPEL him to make payment in MONEY)
There are two kinds of judgments by confession: a) cognovit actionem b) relicta
verificatione
SECTION 6

The validity and negotiability of an instrument is not affected by the fact that:
1. it is not dated
If there is a date stated but there is no such date in calendar, the law will deem the
NEAREST DATE of the month the date intended; eg. Note dated Apr31 will be
construed to be intended for Apr30
2. does not specify the value given or that any had been given
eg. NO written for value received
3. does not specify the place where it is drawn or payable
An instrument that does not specify the place of payment is presumed to be payable
at the place/residence/business of MAKER/DRAWER.
4. bears a seal
5. designates the kind of current money in which payment is to be made
eg. I promise to pay A or order P1000 in Central Bank of fifty peso bills.
SECTION 7
Instrument is payable upon demand if:
a. it is expressed to be so payable on sight or upon presentation
b. no period of payment is stipulated
c. issued, accepted, or endorsed after maturity (Sec. 7 NIL)

Where an instrument is issued, accepted or indorsed when overdue, it is, as regards

to the person so issuing, accepting, or indorsing it, payable on demand.
An OVERDUE instrument is a DEMAND paper. A HOLDER has immediate right of
payment for money promised/ordered to be paid.
Instead of ON DEMAND, other acceptable terms can be used:
a. at sight (used in BofE)
b. on presentation
c. on call
d. at anytime called for
if the time for payment is left blank (as opposed to being omitted), it may properly
be considered as an incomplete instrument and fall under the provisions of Sec. 14,
15, or 16 depending on how the instrument is delivered.
SECTION 8

Instrument is payable to order:

a. where it is drawn payable to the order of a specified person or
b. to a specified person or his order
Instrument may be drawn PAYABLE TO THE ORDER of:
a. PAYEE; not maker/drawer/drawee
b. Drawer (eg. Pay to the order of myself P1000)

NEGOTIABLE INSTRUMENTS REVIEWER (SEC 1-66 FIRST PART)

CABUHAT,MILEAKIMKARLA
cabuhat.mileakimkarla@gmail.com

- or maker (eg. I promise to pay to the order of myself P1000)

c. 2 or more PAYEES jointly (eg. Pay to the order of A and B P1000
d. 1 or more of several PAYEES (eg. Pay to the order of A or B P1000)
e. HOLDER OF AN OFFICE at the time being (eg. Pay to the order of the Commissioner
of BIR)

To the order of, or order, to A and his assigns can be used.

NO PAYEE, not named, not described NON-NEGOTIABLE because there would be
nobody who could indorse the instrument and nobody who could give the order or
authority to collect.
SECTION 9
Instrument is payable to bearer:
a. when it is expressed to be so payable
b. when payable to the person named or bearer eg.
(eg. Pay to A or bearer P1000; Pay to B or holder P1000)
c. payable to order of fictitious or non-existent person and this fact was known to
drawer
(eg. Pay to King Kong or order P1000)
d. name of payee not name of any person
(eg. Pay to the order of Queen of Planet Venus)
e. only and last indorsement is an indorsement in blank

fictitious person is not limited to persons having no legal existence. An existing

person may be considered fictitious depending on the intention of the maker or the
drawer.
fictitious person means a person who has no right to the instrument because the
maker or drawer of it so intended. He was not intended to be the payee.
where the instrument is drawn, made or prepared by an agent, the knowledge or
intent of the signer of the instrument is controlling.
Where the agent has no authority to execute the instrument, the intent of the principal
is controlling
SECTION 10

CLEARLY INDICATE THE INTENTION to conform the requirements thereof.

A MERE defect in language/grammatical error still NEGOTIABLE
SECTION 11

Presumption as to date
If instrument BEARS A DATE, it is PRESUMED to be the TRUE DATE (prima facie)
made by maker, drawn by drawer, accepted by drawee, or indorsed by payee/holder.

He who claims that some other date is the true date has the burden to ESTABLISH
the CLAIM.
SECTION 12

Ante-dated and Post-dated

Instrument is VALID although it is ANTE-DATED (earlier than true date) or POSTDATED (later than true date), provided that it is NOT DONE for illegal/fraudulent
purpose (eg. Bouncing check, NSF).
The person TO WHOM an instrument is dated is delivered acquires the TITLE thereto
as of the date of delivery.

NEGOTIABLE INSTRUMENTS REVIEWER (SEC 1-66 FIRST PART)

CABUHAT,MILEAKIMKARLA
cabuhat.mileakimkarla@gmail.com

The ANTE-DATED/POST-DATED may be negotiated BEFORE/AFTER the date given as

long as it is NOT NEGOTIATED AFTER ITS MATURITY.
SECTION 13

The date may be inserted in an instrument when:

an instrument expressed to be payable at a fixed period after date is issued

undated
where acceptance of an instrument payable at a fixed period after sight is undated
(Sec. 13 NIL)
Effects:
o any holder may insert the true date of issuance or acceptance
o the insertion of a wrong date does not avoid the instrument in the hands of
a subsequent holder in due course
o as to the holder in due course, the date inserted (even if it be the wrong
date) is regarded as the true date.
o The insertion of WRONG DATE constitutes MATERIAL ATERATION.
SECTION 14

INCOMPLETE AND DELIVERED INSTRUMENT: PERSONAL DEFENSES

1. AUTHORITY TO FILL UP THE BLANKS
The HOLDER/person in possession has prima facie authority TO COMPLETE an
INCOMPLETE INSTRUMENT by filling up the blanks therein
The law speaks of MATERIAL PARTICULAR (blanks for date, due date, name of
PAYEE, amount, rate of interest) may be filled in. It has been held that even the
blank for the name of the DRAWER may be filled up.
*The authority to complete is not an authority to alter. So, the HOLDER has NO AUTHORITY
to change the amount after it has been filled in, or to insert the words OR ORDER or OR
BEARER after the name of the PAYEE.
2. AUTHORITY TO PUT ANY AMOUNT
A signature on a BLANK paper delivered in order to be converted into a NI is a prima
facie authority to fill it up as such for any amount.
3. RIGHT AGAINST PARTY PRIOR TO COMPLETION
If an instrument is incomplete when delivered, the HOLDER has prima facie authority
to fill up the blanks thereon.
If a blank paper is delivered by the person making the signature, the HOLDER has
prima facie authority to fill it up for any amount if the person making the signature
INTENDED TO CONVERT it into NI.
In either case of the above (2) situations, the presumption is that the BLANK was
filled in ACCORDANCE W/ THE AUTHORITY GIVEN and W/IN REASONABLE TIME.
4. RIGHT OF HDC
not enforceable; personal defenses
The rule is founded upon the principle that where one of 2 persons must suffer by
the bad faith of another, the loss must fall upon the one who FIRST REPOSED
confidence and made it possible for the loss to occur.

NEGOTIABLE INSTRUMENTS REVIEWER (SEC 1-66 FIRST PART)

CABUHAT,MILEAKIMKARLA
cabuhat.mileakimkarla@gmail.com

SECTION 15
INCOMPLETE AND UNDELIVERED (REAL DEFENSES)
General Rule: Where an incomplete instrument has not been delivered, it will not, if
completed and negotiated without authority, be a valid contract in the hands of any holder
against any person who signed before delivery
In the absence of any delivery, the instrument though complete in all particulars, there is
NO CONTRACT
(2) RULES
1. DEFENSE EVEN AGAINST HDC
- Law is specific that instrument is NOT a VALID CONTRACT in the hands of any HOLDER
even HDC.
2. DEFENSE AVAILABLE TO PARTIES PRIOR TO DELIVERY
- The invalidity of the instrument is only w/ reference to the parties whose signatures
appear on the instrument BEFORE and NOT AFTER DELIVERY.
(eg. A (maker) P(steals) B C D; Instrument can be enforced against P, B, C because,
as indorsers, they warrant that the instrument is GENUINE and in all respects what it
purports to be, etc. As their signatures appear on the instrument after delivery, the
instrument is valid as to them; In case of P, he is liable not merely because he is an indorser
but also because he is the one responsible for the theft, and the completion and negotiation
of the instrument.)
SECTION 16
General Rule: Every contract on a negotiable instrument is incomplete and revocable until
delivery for the purpose of giving effect thereto.
COMPLETE AND UNDELIVERED (PERSONAL DEFENSES)
(4) RULES
1. UNDELIVERED Every contract on NI even if it is completely written is INCOMPLETE
AND REVOCABLE UNTIL it is delivery for the purpose of giving it effect.
a. DELIVERY transfer of possession, actual/constructive, from one person to
another. It may be made either by the maker/drawer himself or through a duly
authorized agent.
b. ISSUE FIRST delivery of the instrument, complete in form, to a person who
takes it as HOLDER.
c. HOLDER PAYEE/INDORSEE of bill/note who is in possession of it, or the BEARER
thereof.
2. IN POSSESSION OF PARTY OTHER THAN HDC
If a complete instrument is found in the possession of an IMMEDIATE PARTY (know
the conditions/limitations placed upon delivery of instrument) or a REMOTE PARTY
(indirect contractual relation to each other) other than HDC, there is prima facie
presumption of delivery but subject to rebuttal.
An UNDELIVERED instrument is INOPERATIVE because DELIVERY is a
PREREQUISITE to LIABILITY. However, if instrument is NO LONGER in the
possession of the person who signed it and it is COMPLETE in its terms, a VALID
AND INTENTIONAL delivery by him is PRESUMED until the contrary is proved.

NEGOTIABLE INSTRUMENTS REVIEWER (SEC 1-66 FIRST PART)

CABUHAT,MILEAKIMKARLA
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3. DELIVERED UNCONDITIONALLY OR FOR A SPECIAL PURPOSE

If delivery was made/authorized, it may be shown to have been conditional, or for a
special purpose only and not for the purpose of transferring the property (title) to the
instrument.
When delivery is made, it is presumed to be made w/ the intention to transfer
ownership of the instrument to the payee.
(eg. A delivers the note to B on condition that it will not be binding on him UNTIL comaker has been procured or for safekeeping, or for collection only.
B cannot enforce the instrument against A because A can set up the defense that the
delivery was conditional or for a special purpose only and not for the purpose of
transferring title to the instrument.
4. IN THE HANDS OF HDC
If a COMPLETE instrument is in the hands of HDC, a valid delivery thereof by all
parties PRIOR to him is CONCLUSIVELY PRESUMED.
A presumption is said to be CONCLUSIVE when it admits of no evidence to the
contrary
SECTION 17
Construction where instrument is AMBIGUOUS
a. Sum payable expressed both in WORDS and in FIGURES, and there is discrepancy
between the two, SUM in WORDS is SUM PAYABLE; but if WORDS are AMBIGUOUS
/UNCERTAIN, FIGURES may be the reference.
b. Instrument w/ interest but NO DATE specifies, interest runs from the date of instrument; if
instrument is UNDATED, from issue thereof.
c. Instrument UNDATED, considered to be dated as of time it was ISSUED.
d. Conflict between WRITTEN and PRINTED provisions of instrument, WRITTEN provisions
prevail.
*The reason for the rule is that the written words are deemed to express the true intention
of the MAKER/DRAWER because they are placed there by him w/o any particular contract in
view.
e. Instrument is AMBIGUOUS whether note or bill, the HOLDER may treat it as EITHER at
HIS ELECTION.
f. Signature placed in instrument UNCLEAR what capacity person making the same intended
to sign, he is deemed INDORSER.
*Signature of: (usually)
MAKER lower right-hand corner
DRAWEE lower left-hand corner
HOLDER back
g. Instrument contains words I promise to pay signed by TWO OR MORE PERSONS, they
are deemed to be JOINTLY AND SEVERALLY LIABLE thereon.
*I promise to pay signed by 2 or more persons SOLIDARY LIABILITY (anyone of the
signers may be held liable for the whole amount of instrument)
*We promise to pay signed by 2 or more persons JOINT LIABILITY (there are as many
debts are there are debtors, each debt being considered distinct and separate from each
other)

NEGOTIABLE INSTRUMENTS REVIEWER (SEC 1-66 FIRST PART)

CABUHAT,MILEAKIMKARLA
cabuhat.mileakimkarla@gmail.com

SECTION 18
Liability of person signing in trade or assumed name
GENERAL RULE: Only persons whose signatures appear on an instrument ARE LIABLE
thereon.
EXCEPTIONS:
a. Where a person signs in a trade or assumed name.
b. The PRINCIPAL is liable if a duly authorized agent signs on his own behalf.
c. In case of forgery, the FORGER is LIABLE even if his signature does not appear on the
instrument.
d. When the ACCEPTOR makes his acceptance of a bill on a SEPARATE paper.
e. Where a person makes a WRITTEN promise to ACCEPT a BILL BEFORE it is drawn.
SECTION 19
Signature by agent; authority; how shown
- The MAKER/DRAWER may sign the instrument PERSONALLY or by another DULY
AUTHORIZED by him.
- The authority of the AGENT may be shown, as in other cases of agency, to have been
given ORALLY or in WRITING subject to the provisions of the STATUTE OF FRAUDS. It has
been held competent for the AGENT to sign simply the PRINCIPALS NAME and to show his
authority to do so by other evidence.
SECTION 20
Liability of person signing as agent, etc.
(a) When agent MAY ESCAPE personal liability:
1. He is duly authorized;
2. He add words to his signature indicating that he signs AS AN AGENT, that is, for or
on behalf of a principal, or I a representative capacity;
3. He discloses his PRINCIPAL.
*The MERE addition of DESCRIPTIVE WORDS w/o DISCLOSING the PRINCIPAL will not
relieve signer from personal liability, although he add to his signature the word AGENT,
TRUSTEE, ADMINISTRATOR, GUARDIAN, or DIRECTOR (words added are but description
personae describing the person who signed the instrument)
SECTION 21

Per Procuration operates as notice that the agent has a limited authority to sign.
Act by w/c a PRINCIPAL gives power to another to act in HIS PLACE as he could
himself.
Has special and technical meaning; gives a WARNING that the AGENT has but a
LIMITED AUTHORITY so that IT IS the duty of the person dealing w/ him to
INQUIRE into the extent of his (AGENT) authority.

Effects:

NEGOTIABLE INSTRUMENTS REVIEWER (SEC 1-66 FIRST PART)

CABUHAT,MILEAKIMKARLA
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The principal in only bound if the agent acted within the limits of the authority given
The person who takes the instrument is bound to inquire into the extent and nature of the
authority given.

*The PRINCIPAL is NOT BOUND if the agent has exceeded the ACTUAL LIMITS of his
authority, although he may acted w/in the general scope of the agency.
(eg. A signature by procuration may be made as follows:
A Mercado
Per Procuration: B San Miguel)
Instead of per procuration, per proc., P.P., or pp may be used.
SECTION 22
Effect of indorsement by INFANT or CORPORATION
The indorsement/assignment of the instrument by a corporation or by an infant PASSES the
property therein, notwithstanding that from want of capacity, the corporation or infant may
incur NO LIABILITY thereon.
EFFECT OF INDORSEMENT BY INCAPACITATED PERSONS
1. MINORS
- As a general rule, contracts entered into by a minor ARE VOIDABLE at his instance or at
the instance of his guardian.
a. While MINOR NOT BOUND by his indorsement for lack of capacity, he CAN
TRANSFER certain RIGHTS. Minority is a real defense available to MINOR.
b. A MINOR may be BOUND where he is guilty of ACTUAL FRAUD committed by
specifically stating that he is of age, when, in fact he is not.
2. OTHER INCAPACITATED PERSONS
- As far as such persons (incapacitated, insane, demented, deaf-mutes, etc) are
concerned, THEIR CAPACITY IS A REAL DEFENSE, that is, available even against
HDC.
EFFECT OF INDORSEMENT BY A CORPORATION
As regards corporations, Section 22 applies to cases where corporation has committed ultra
vires acts (acts beyond its powers).
It has been held that a corporation IS NOT LIABLE on notes in a suit thereon by an indorsee,
where the corporation is WITHOUT CAPACITY to make the contract in fulfillment of w/c they
are executed.
SECTION 23
General rule: a signature which is forged or made without authority is wholly inoperative.

NEGOTIABLE INSTRUMENTS REVIEWER (SEC 1-66 FIRST PART)

CABUHAT,MILEAKIMKARLA
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Effects:
a. no right to retain
b. no right to give a discharge
c. no right to enforce payment can be acquired
Exception: the party against whom it is sought to be enforced is precluded from setting up
the forgery or want of authority.
FORGERY counterfeit-making or fraudulent alteration of any writing w/ INTENT TO
DEFRAUD (eg. Signing of anothers name; alteration of an instrument in the name,a mount,
description of person and the like)
- a REAL DEFENSE even against HDC
(2) Cases where SIGNATURE is wholly INOPERATIVE and NO RIGHT can be
acquired through the FORGED SIGNATURE:
1. Where signature on instrument is affixed by one who DOES NOT claim to act as an agent
and who has NO AUTHORITY to bind the person whose signature he has forged; and
2. Where signature is affixed by one who purports to be an AGENT BUT NO AUTHORITY to
bind the ALLEGED principal.
(2) CASES OF FORGERY IN GENERAL
1. Forgery of PROMISSORY NOTES
- indorsement of the note
- MAKERs signature
2. Forgery of BILLS OF EXCHANGE
- indorsement of the bill
- DRAWERs signature (either w/ acceptance by DRAWEE; or w/o such acceptance but the bill
is paid by DRAWEE)
*Section 23 DOES neither purport to declare the instrument TOTALLY VOID nor the GENUINE
signatures thereon INOPERATIVE. IT IS ONLY THE FORGED/UNAUTHORIZED SIGANTURE that
is declared to be INOPERATIVE.
In other words, RIGHTS MAY STILL EXIST and be enforced by virtue of such instrument as to
those whose signature thereto are found to be genuine.
M P A, X (obtains possession of note and forged As signature) B C
C cannot enforce the instrument against M and P because Cs rights against them are CUT
OFF by the FORGED SIGNATURE of A w/c is WHOLLY INOPERATIVE.
Neither can C enforce the note against A because As signature is wholly inoperative. C has
NO RIGHT to retain, discharge, or ENFORCE PAYMENT OF, the note UNDER the forged
signature of A.
But C may go against B whose signature is GENUINE and therefore, OPERATIVE. B is a
GENERAL INDORSER who warranted to C that the instrument is GENUINE and was VALID
and SUBSISTING (existing) at the time of Bs indorsement.
Of course, B or C has a right of recourse against X, the forger.
A can recover from M and P because his rights against them WERE NOT affected by forgery.
The signature of M and P are genuine and they are liable to A on their contract.

NEGOTIABLE INSTRUMENTS REVIEWER (SEC 1-66 FIRST PART)

CABUHAT,MILEAKIMKARLA
cabuhat.mileakimkarla@gmail.com

2 EXCEPTIONS TO THE GENERAL RULE THAT NO RIGHT/TITLE CAN BE ACQUIRED

TO AN NI THROUGH OR UNDER A FORGED/UNAUTHORIZED SIGNATURE
1. If the party against whom it is sought to enforce such right is PRECLUDED (stopped) from
setting up forgery or want of authority; and
2. Where forged signature is NOT necessary to the HOLDERS TITLE in w/c case the forgery
may be DISREGARDED.
(2) PERSONS PRECLUDED FROM SETTING UP THE DEFENSE OF FORGERY
1. Those who by their acts, silence, or negligence are estopped from setting up the defense
of forgery; and
2. Those who warrant/admit the genuineness of the signatures in question, namely:
a. indorsers
b. acceptors
c. persons negotiating by delivery
(4) RIGHTS OF PARTIES IN CASES OF FORGED INSTRUMENTS
1. Where note payable to order
- Where the note is payable to ORDER, the party whose indorsement (inoperative) is forged
IS NOT LIABLE to any holder even HDC.
- The other parties (including the MAKER) prior to the party whose signature is forged ARE
NOT ALSO LIABLE to ANY HOLDER. The instrument being payable to order, can be negotiated
ONLY BY INDORSEMENT COMPLETED BY DELIVERY. But since the indorsement is forged, it is
INOPERATIVE, and therefore, cannot operate to transfer ANY RIGHT/TITLE over the
instrument.
2. Where note payable to bearer
- Where the note, mechanically complete, is originally payable to bearer, the party whose
indorsement is forged is LIABLE to HDC but NOT to one who IS NOT HDC.
- The other parties (including the MAKER) prior to the party whose signature is forged, MAY
ALSO BE HELD LIABLE by one who is NOT HDC.
The reason is that the instrument being originally payable to bearer, it can be negotiated by
MERE DELIVERY even w/o indorsement. Hence, even if the indorsement is forged, the
FORGERY MAY BE DISREGARDED.
3. Where bill payable to order
- Where the bill is payable to ORDER, the party whose indorsement (inoperative) is forged IS
NOT LIABLE to any holder even HDC.
a. If DRAWEE pays under a forged indorsement, DRAWER NOT LIABLE on the bill
and DRAWEE may not debit the DRAWERs account.
b. Where, however, checks received MERELY FOR COLLECTION and deposit, the
bank, as agent, CANNOT BE EXPECTED to know/ascertain the GENUINENESS of all PRIOR
indorsements.
4. Where bill payable to bearer
- In case the bill is originally payable to BEARER, the DRAWEE may debit the DRAWERs
account in spite of the forged indorsement. The reason is that the forged instrument is NOT
NECESSARY to the title of the holder. The DRAWEE cannot recover from the HOLDER.

PARTIES

CAN COLLECT FROM

DRAWER
PAYEE

Drawee
Drawer

CANNOT COLLECT
FROM
Collecting Bank
Drawee Bank

REASON
No Privity
No privity

NEGOTIABLE INSTRUMENTS REVIEWER (SEC 1-66 FIRST PART)

CABUHAT,MILEAKIMKARLA
cabuhat.mileakimkarla@gmail.com

DRAWEE
INDORSER
MAKER

Collecting Bank
Collecting Bank

Drawer
Collection bank

No privity

Drawer, payee (only

if not forged)
Collecting Bank

Defending forgery cases:

1) In the forged signature, crucial/instrumental to the negotiation of the instrument
2) Are there any preclusions (estoppels, warranty)
3) Are there any privities anywhere?
SECTION 24
every negotiable instrument is deemed prima facie to have been issued for a valuable
consideration.
Effects:

Every person whose signature appears thereon is a party for value

Presumption is disputable
SECTION 26
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.
SECTION 27
Effect of want of consideration:
Absence or failure of consideration may be set up against a holder not a holder in due course
(personal defense)
Partial failure of consideration is a defense pro tanto

Absence of consideration is where no consideration was intended to pass.

Failure of consideration implies that consideration was intended by that it failed to

pass

The defense of want of consideration is ineffective against a holder in due course

A drawee who accepts the bill cannot allege want of consideration against the drawer
SECTION 28

An accommodation party is one who signs the instrument as maker, drawer, acceptor, or
indorser without receiving value therefor and for the purpose of lending his name to some
other person.

Effects:

an accommodation party is liable to the holder for value notwithstanding that such
holder knew that of the accommodation.

NEGOTIABLE INSTRUMENTS REVIEWER (SEC 1-66 FIRST PART)

CABUHAT,MILEAKIMKARLA
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the accommodated party cannot recover from the accommodation party

want of consideration cannot be interposed by the accommodation party

an accommodation maker may seek reimbursement from a co-maker even in the

absence of any provision in the NIL; the deficiency is supplied by the New Civil Code.

he may do this even without first proceeding against the debtor provided:
a.

he paid by virtue of judicial demand

b.

principal debtor is insolvent

SECTION 30
What constitutes negotiation
Negotiation to constitute the transferee the HOLDER thereof
2 METHODS OF NEGOTIATION
1. BEARER delivery
2. ORDER indorsement then delivery
*ANY person in possession of BEARER instrument is ALWAYS the bearer thereof, although he
may have NO legal RIGHT thereto. Meaning, if instrument is negotiated to HDC, the latter
may acquire BETTER RIGHT than transferor.
*NO NEGOTIATION if the transfer does NOT make the transferee the HOLDER of instrument.
(eg. If M makes a note payable to P or order, then P delivers w/o indorsement to A,
negotiation is NOT affected because A, by such transfer, DOES NOT become the HOLDER.)
just an ordinary ASSIGNMENT because it is ORDER instrument but NOT indorsed.
*PAYMENT of check (or other bill) by drawee-bank is NOT NEGOTIATION and does NOT make
bank the HOLDER; BANK is not the payee or indorsee; check is EXTINGUISHED and CANNOT
be put in circulation again to bind the drawer or indorser.
* The writing of HOLDERs name on the back of the check before surrendering for PAYMENT
to drawee-bank is NOT INDORSEMENT. Signature merely serves as RECEIPT OF MONEY.
Upon payment, the CHECK becomes merely a VOUCHER, NOT a transfer of TITLE thereto.
3 BASIC METHODS TO TRANSFER NI
1. ISSUE 1st DELIVERY of instrument COMPLETE in form to a person who takes it as
HOLDER
- 1st TRANSFER of instrument to PAYEE
2. NEGOTIATION - to constitute the transferee the HOLDER thereof
3. ASSIGNMENT assignee is placed in the position of assignor; assignee acquires
instrument subject to personal and real defenses available against assignor
*NI can be NEGOTIATED or ASSIGNED; NON-NI can only be ASSIGNED/TRANSFERRED, NOT
negotiated.

NEGOTIABLE INSTRUMENTS REVIEWER (SEC 1-66 FIRST PART)

CABUHAT,MILEAKIMKARLA
cabuhat.mileakimkarla@gmail.com

*Indorsement NOT ONLY mode of transfer but also involves NEW CONTRACT and
OBLIGATION on part of INDORSER an IMPLIED guaranty that instrument be paid according
to terms thereof.
NEGOTIATION
Only to NI
Transferee is HOLDER
HDC - REAL defenses
May acquire BETTER
title than PRIOR party
GENERAL INDORSER
warrants SOLVENCY of
PRIOR parties

INDORSER
NOT
LIABLE (unless there
is PRESENT-MENT and
NOTICE
of
DISHONOR)
Governed by NIL

ASSIGNMENT
All contracts
Transferee
is
ASSIGNEE
ASSIGNEE

PERSONAL and REAL

defenses
Merely steps in shoes
of ASSIGNOR
ASSIGNOR does NOT
warrant SOLVENCY of
prior parties (unless
stipulated
or
INSOLVENCY
known
to him)
ASSIGNOR IS LIABLE
even w/o NOTICE OF
DISHO-NOR
Governed by CIVIL
CODE on assignment
of credits

Can there be negotiation to a PAYEE?

MAKER/DRAWER PAYEE payee acquires title by ISSUANCE, NOT negotiation
MAKER/DRAWER AGENT of MAKER/DRAWER PAYEE payee acquires title by
NEGOTIATION
*If negotiation refers to instrument already completely executed/ISSUED, then ONLY
HOLDERS SUBSEQUENT TO PAYEE can acquire title by NEGOTIATION.
*There is NEGOTIATION also to PAYEE when instrument delivered BACK to him by LAST
HOLDER. (In such case, indorsement of LAST HOLDER not necessary because PAYEE is
remitted to his FORMER RIGHTS and all intervening parties are DISCHARGED from
LIABILITY.)
SECTION 31
Indorsement; how made
Indorsement be written on INSTRUMENT itself or upon paper attached (allonge) thereto.
Signature of INDORSER, w/o additional words, is SUFFICIENT INDORSEMENT.
INDORSEMENT (from Latin in dorsa writing on the back) writing of indorsers name on
the instrument w/ the intent EITHER 1.) to transfer TITLE to the same, or 2.) to
STRENGTHEN security of HOLDER by assuming contingent liability for its future payment,
OR BOTH.
*Indorsement w/o delivery conveys NO TITLE and NO HOLDER.

NEGOTIABLE INSTRUMENTS REVIEWER (SEC 1-66 FIRST PART)

CABUHAT,MILEAKIMKARLA
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NECESSITY (SIGNIFICANCE) OF INDORSEMENTS

1. Essential to the execution and for FURTHER NEGOTATION of ORDER instrument.
(eg. Note payable: to the order of P, P must indorse it BEFORE it can be further
negotiated)
2. Not necessary to a mere ASSIGNMENT.
(Thus, one can acquire title w/o indorsement of ORDER instrument but he CANNOT
be
HDC thereof although entitled to indorsement made.)
3. Determines SUBSEQUENT negotiations or transfer of instrument.
(Indorsement may determine whether another indorsement can be further
negotiated
[special indorsement] w/ indorsee name;
or NO further indorsement required for negotiation because it is converted into a
BEARER instrument negotiated by DELIVERY [blank instrument] w/ indorsee
signature only;
or RESTRICTED for further negotiation [restrictive indorsement] w/ additional
words w/c prohibit/limit further negotiation)
FORM OF INDORSEMENT
Law does NOT require EXCLUSIVE FORM by w/c indorsement be accomplished but it
must be IN WRITING.
Just like signature of maker/drawer, INDORSEMENT may be written in INK, PRINTED,
(RUBBER) STAMPED, TYPEWRITTEN, or any means that will create a mark.
LOCATION OF INSTRUMENT
1. On instrument itself
*As a matter of practice, indorsement is WRITTEN AT THE BACK of instrument
(referred to as dorsal portion of instrument) but it may be written on the face (although it
would entail risk of being held liable as co-maker [PN] or co-drawer [BofE].
2. Upon paper attached thereto (allonge)
*A paper that is merely clipped/pinned to an instrument is NOT an ALLONGE, and
anything written on it CANNOT be considered as INDORSEMENT. Accordingly, person in
possession of instrument is NOT the HOLDER.
*If there is still space for indorsements, the use of ALLONGE should be avoided so as
not to cause CONFUSION on ORDER OF LIABILITY of indorsers.
SECTION 32
Indorsement must be of entire instrument
(object of provision: to avoid multiplicity of suits/actions in court)
NO NEGOTIATION if indorsement transfer ONLY PART of AMOUNT payable (not HOLDER but
merely is an ASSIGNEE; renders instrument NON-NEGOTIABLE, NOT PAYEE/BEARER of
note, NOT INDORSEE.
(eg. The total payable is P10 000, Pay to A P8 000 NOT VALID NEGOTIATION)
Exception to entirety: Where instrument has been paid in part, it may be indorsed as to the
RESIDUE.
(eg. The total payable is P10 000, P2 000 is already paid. Pay to A P8 000 VALID
NEGOTIATION)
NO NEGOTIATION if indorsement transfer instrument to 2 or more indorsees severally.
(eg. Pay to A P8 000 and pay to B P2 000 NOT VALID NEGOTIATION)
However, there is VALID NEGOTIATION if indorsees are JOINT.

NEGOTIABLE INSTRUMENTS REVIEWER (SEC 1-66 FIRST PART)

CABUHAT,MILEAKIMKARLA
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(eg. Pay to A and B P10 00 VALID NEGOTIATION) A and B must BOTH indorse UNLESS
they are PARTNERS, or one is authorized to indorse for both of them, in w/c case, only one
may indorse.
SECTION 33
Kinds of Indorsement
5 CLASSIFICATIONS OF INDORSEMENT
1. As to the METHODS OF NEGOTIATION
Special
Blank
2. As to the KIND OF TITLE TRANSFERRED
Restrictive
Non-restrictive
3. As to the SCOPE OF LIABILITY OF INDORSER
Qualified
Unqualified (general)
4. As to the PRESENCE/ABSENCE OF LIMITATIONS
Conditional
Unconditional
5. Other kinds of indorsements
JOINT payable to two or more persons jointly
SUCCESSIVE in succession by several indorsers who are liable prima facie in ORDER in
w/c they indorse
REGULAR Delivery Indorsement
IRREGULAR (ANOMALOUS) (placed signature in blank before delivery) Indorsement
Delivery
FACULTATIVE indorser ENLARGES his liability by writing over his signature a WAIVER of
usual demand (formal protest) and NOTICE OF NON-PAYMENT (dishonor).
SECTION 34 & 35
Special, and blank indorsement
SPECIAL indorsement w/ indorsee name; can be further negotiated.
[eg. Pay to A; Pay to the order of A; Pay to A or order (Sgd.) B]
*If instrument originally payable to ORDER, INDORSEMENT NECESSARY for FURTHER
negotiation of instrument.
*If instrument originally payable to BEARER, it may be further negotiated by indorsement or
even by mere delivery but REMAINS a BEARER instrument even if specially indorsed.
(BEARER ALWAYS A BEARER.)
BLANK indorsement specifies no indorsee; can be negotiated by DELIVERY because it
becomes a BEARER instrument.
[eg. I promise to pay A or order P10 000 (Sgd.) B
A (payee) may indorse the instrument in blank by SIMPLY writing his signature at BACK of
instrument:
(Sgd.) A
]
*If instrument is payable to ORDER on its face and the ONLY or LAST indorsement is in
BLANK, it is CONVERTED into BEARER instrument.
*If instrument is payable to BEARER on its face, ANY indorsement, whether SPECIAL or
BLANK, does NOT change as BEARER instrument. (BEARER ALWAYS A BEARER.)

NEGOTIABLE INSTRUMENTS REVIEWER (SEC 1-66 FIRST PART)

CABUHAT,MILEAKIMKARLA
cabuhat.mileakimkarla@gmail.com

*A BLANK INDORSEMENT may be negotiated by delivery, or by indorsement and delivery.

However, ORDER instrument SPECIALLY INDORSED AFTER BLANK INDORSEMENT reacquires
status as ORDER INSTRUMENT.
(eg. ORDER instrument indorsed: SPECIAL SPECIAL BLANK (becomes a BEARER
instrument) SPECIAL (becomes ORDER instrument, again) SPECIAL)
Section 35 Blank SPECIAL
- Done by writing APPROPRIATE words OVER the signature of indorser in blank.
- The INDORSEE CANNOT add to the indorsement ANY contract INCONSISTENT w/ character
of indorsement. (eg. Adding protest waived; Demand and notice waived; Without
recourse; if such was NOT THE INTENTION of parties. Also, adding I hereby guaranty
payment will make INDORSER LIABLE as GUARANTOR and thus NOT ENTITLED to NOTICE
in case of DISHONOR.)
*The INSERTION of UNATHORIZED contracts constitutes MATERIAL ALTERATION and
AVOIDS INDORSEMENT.
[eg. BLANK SPECIAL
M P (special) A (blank) B (beomes BEARER) (if indorse specially, negotiation will be
effected only indorsement) C (special indorsee)
In example, the indorsement by P A and A B may appear:
Pay to A
(Sgd.) P
(sgd.) A
B, as HOLDER of instrument w/ BLANK indorsement, may PROTECT himself by converting it
into SPECIAL indorsement, as for example, by writing Pay to B, thereby indorsing it to
himself. Thus, the ff will appear:
Pay to A

(Sgd.) P
Pay to B

(sgd.) A

SECTION 36
Restrictive indorsement:
RESTRICTIVE INDORSEMENT RESTRAINS the negotia-bility of instrument for purpose or
to the person stated therein.
a. Prohibits further negotiation of instrument.
(becomes NON-NEGOTIABLE)
Pay to A only
Pay to A and to no other person
Here, A is the only one authorized to receive payment.
b. Constitutes INDORSEE the AGENT OF INDORSER (AGENCY type: AGENT NO TITLE to
instrument; holds instrument as AGENT of principal, the restrictive indorser subject to
restrictive indorsement.)
Pay to B for collection
Pay to B for collection and remittance
Pay to B for collection only
Pay to B for deposit
c. Vests title in INDORSEE in TRUST for or use of some other person

NEGOTIABLE INSTRUMENTS REVIEWER (SEC 1-66 FIRST PART)

CABUHAT,MILEAKIMKARLA
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(TRUST type: transfers TITLE to INDORSEE NOT FOR HIMSELF but in trust of for BENEFIT of
another person including INDORSER. The INDORSEE CANNOT NEGOTIATE instrument for
OWN BENEFIT BUT FOR BENEFICIAL OWNER.)
Pay to C in trust for D
Pay to C as trustee for D
Pay to A for my use
Pay to C for the use of D
Mere absence of words of negotiability does NOT make the indorsement restrictive.
*BUT if there are restrictive words stated like only, it prevents further negotiation, become
restrictive indorsement, and NON-NEGOTIABLE.
SECTION 40
Effects of indorsing an instrument originally payable to bearer:
It may further be negotiated by delivery
The person indorsing is liable as indorser to such persons as to make title through his
indorsement
Section 40 applies only to instruments originally payable to bearer
It cannot apply where the instrument is payable to bearer because the only or last
indorsement is in blank.
SECTION 48
A holder may strike out any indorsement which is not necessary to his title.
Effects:
An indorser whose indorsement is struck out is discharged
All indorsers subsequent to such indorser who has been discharged are likewise relieved.
SECTION 49
Effects of a transfer without endorsement:
The transferee acquires such title as the transferor had
The transferee acquires the right to have the indorsement of the transferor
negotiation takes effect as of the time the indorsement is actually made
SECTION 51
Rights of a holder:
A holder may sue in his own name
A holder may receive payment.
Effects:
If in due course it discharges the instrument
SECTION 52

NEGOTIABLE INSTRUMENTS REVIEWER (SEC 1-66 FIRST PART)

CABUHAT,MILEAKIMKARLA
cabuhat.mileakimkarla@gmail.com

Requisites for a Holder in Due Course (HDC):

a.
receives the instrument complete and regular on its face
b.
became a holder before it was overdue and had no notice that it had been previously
dishonored if such was the fact
c.
takes the instrument for value and in good faith
d.
at time he took the instrument, no notice of infirmity in instrument or defect in the
title of the person negotiating it (Sec. 52 NIL)

every holder is presumed to be a HDC (Sec. 59)

the person who questions such has the burden of proof to prove otherwise

if one of the requisites are lacking, the holder is not HDC

an instrument is considered complete and regular on its face if a) the omission is

immaterial b) the alteration on the instrument was not apparent on its face

an instrument is overdue after the date of maturity.

on the date of maturity, the instrument is not overdue and the holder is a HDC

acquisition of the transferee or indorsee must be in good faith

good faith means lack of knowledge or notice of defect or infirmity

SECTION 53
A holder is not a HDC where an instrument payable on demand is negotiated at an
unreasonable length of time after its issue
SECTION 56
Notice of an infirmity in the instrument
*Hard Evidence Actual knowledge
SECTION 57
Rights of a HDC:
holds the instrument free from any defect of title of prior parties
free from defenses available to prior parties among themselves (personal/ equitable
defenses)
may enforce payment of the instrument for the full amount against all parties liable
Personal or equitable defenses are those which grow out of the agreement or conduct of a
particular person in regard to the instrument which renders it inequitable for him through
legal title to enforce it. Can be set up against holders not HDC
Legal or real defenses are those which attach to the instrument itself and can be set up
against the whole world, including a HDC.
SECTION 58
a holder who derives his title through a HDC and is not a party to any fraud or illegality
affecting the instrument, has all the rights of such HDC in respect to all parties prior.

NEGOTIABLE INSTRUMENTS REVIEWER (SEC 1-66 FIRST PART)

CABUHAT,MILEAKIMKARLA
cabuhat.mileakimkarla@gmail.com

Rights of a holder not a HDC

may sue in his own name

may receive payment and if it is in due course, the instrument is discharged

holds the instrument subject to the same defenses as if it were non-negotiable

if he derives his title through a HDC and is not a party to any fraud or illegality
thereto, has all the rights of such HDC
What are the defects of Title:
1) Acquisition by Fraud
2) Acquisition by duress, force, fear and intimidation
3) By other Unlawful means
4) Acquisition for an Illegal consideration
5) Negotiation of Instrument in Bad Faith
6) Negotiation of Instrument under circumstances that amount to fraud
Infirmities of title:
Things that are wrong with the instrument itself (deface with the instrument) as distinguish
from things that are lacking in the contracts embodied in the instrument such infirmities in
the situation under:
1)
2)
3)
4)
5)
6)
7)

Section
Section
Section
Section
Section
Section
Section

13 wrong date
14 fill in the blanks
15 Without authority, incomplete delivery
16
21 Agent act by procuration
23 Forgery
124-125 Material alteration

SECTION 59
General rule: every holder is deemed prima facie to be a holder in due course.
Exception:
where it is shown that the title of any person who has negotiated the instrument is
defective, the burden is on the holder to prove that he is a HDC or that a person under
whom he claims is a HDC
A maker is primarily liable:

SECTION 60

Effects of making the instrument, the maker:

a.
engages to pay according to tenor of instrument
b.
admits existence of payee and his capacity to indorse
- A makers liability is primarily and unconditional
- One who has signed as such is presumed to have acted with care and to have signed with
full knowledge of its contents, unless fraud is proved
- The payees interest is only to see to it that the note is paid according to its terms
- When two or more makers sign jointly, each is individually liable for the full amount even if
one did not receive the value given

NEGOTIABLE INSTRUMENTS REVIEWER (SEC 1-66 FIRST PART)

CABUHAT,MILEAKIMKARLA
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-The maker is precluded from setting up the defense of a) the payee is fictional, b) that the
payee was insane, a minor or a corporation acting ultra vires
SECTION 61
A drawer is secondarily liable
Effects of drawing the instrument, the drawer:
admits the existence of the payee,
the capacity of such payee to indorse
Engages that on due presentment, the instrument will be accepted or paid or both
according to its tenor.
If the instrument is dishonored, and the necessary proceedings on dishonor duly
taken the drawer will pay the amount thereof to the holder will pay to any
subsequent indorser who may be compelled to pay it. (Sec. 61 NIL)
* a drawer may insert an express stipulation to negative or limit his liability
SECTION 62
An acceptor is primarily liable
By accepting the instrument, an acceptor:
engages that he will pay according to the tenor of his acceptance
admits the existence of the drawer, the genuineness of his signature and his capacity and
authority to draw the instrument
the existence of the payee and his then capacity indorse
SECTION 64
Irregular Indorser a person not otherwise a party to an instrument places his signature in
blank before delivery is liable as an indorser in the following manner:

if payable to order of a third person liable to the payee and to all subsequent
parties
if payable to order of the maker or drawer liable to all parties subsequent to the
maker or drawer
if payable to bearer liable to all parties subsequent to the maker or drawer
if signs for an accommodation party liable to all parties subsequent to the payee
SECTION 65

Warranties where negotiating by delivery or qualified endorsement:

the instrument is genuine and in all respect what it purports to be

the indorser has good title to it
all prior parties had the capacity to contract
indorser has no knowledge of any fact that would impair the validity or the value of
the instrument.

Limitations of warranties:

NEGOTIABLE INSTRUMENTS REVIEWER (SEC 1-66 FIRST PART)

CABUHAT,MILEAKIMKARLA
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-if by delivery extends only to immediate transferee

-warranty of capacity to contract does not apply to persons negotiating public or corporate
securities

a qualified indorser is one who indorses without recourse or sans recourse

recourse resort to a person secondarily liable after default of person primarily
liable
a qualified indorser cannot raise the defense of a) forgery b) defect of his title or
that it is void c) the incapacity of the maker, drawer or previous indorsers.
a qualified Indorsement makes the indorser mere assignor of title of instrument,
relieves him of general obligation to pay if instrument is dishonored, but he is still
liable for the warranties arising from instrument only up to warranties of general
indorser
The warranty is to the capacity of prior parties at the time the instrument was
negotiated. Subsequent incapacity does not breach the warranty.
Lack of knowledge of the indorser as to any fact that would impair the validity or
the value of the instrument must be subsisting all throughout.
A person negotiating by Delivery warrants same as those of qualified indorser and
extends to immediate transferees only

SECTION 66
Warranties of a general indorser:

the instrument is genuine and in all respect what it purports to be

the he has good title to it
all prior parties had the capacity to contract
that the instrument at the time of his indorsement was valid and subsisting

In addition:
engages that the instrument will be accepted or paid or both according to its tenor on due
presentment
engages to pay the amount thereof if it be dishonored and the necessary proceedings on
dishonor are taken
the indorser under Section 66 warrants the solvency of a prior party
the indorser warrants that the instrument is valid and subsisting regardless of whether he
is ignorant of that fact or not.
warranties extend in favor of a) a HDC b) persons who derive their title from HDC c)
immediate transferees even if not HDC
the indorser does not warrant the genuineness of the drawers signature
general indorser is only secondarily liable