Negotiable Instrument
-Must be in writing and signed by the maker or drawee -
Must contain an unconditional promise or order to pay a
sum certain in money
-Must be payable on demand or at a fixed or determinable
future time
-Must be payable to order or bearer
-Where the instrument addressed to a drawee, he must be
named or otherwise indicated therein with reasonable
certainty
Functions of nego instrument
-used as a substitute for money
-media of exchange for most commercial transact
-medium of credit transact
Characteristics
-Negotiability quality or attribute of a bill or note whereby
it may pass from one person to another similar to money -
Accumulation of secondary contracts as they are
transferred from one person to another. Once the instrument
is issued, additional parties can become involved.
Assignment involves a transfer of rights under a contract
Negotiation make the transferee of a nego inst the holder
thereof.
Check- a bill of exchange drawn on a bank payable on
demand
Kinds
-Memorandum memorandum
-Cashiers check drawn by cashier
-Managers check draw by bank manager
-Travelers check holders signature must appear twice
-Certified check paid on presentation / certified -
Crossed check parallel lines drawn diagonally
Canceled check -
Letter of credit letter from merchant of bank in one place
addressed to another in another place or country requesting
the addressee to pay money or deliver goods to a third party
therein named
Postal money order order for the payment of money to the
payee named therein drawn by one post office upon another
under authority of law
Treasury warrant government warrant for the payment of
money such as that issued in favor of a public officer or
employee covering payment or replenishment of cash
advances for official expenditures.
Bill of lading it is without an unconditional promise or order
to pay a sum certain in money
Certificate of stock written instrument signed by a proper
officer of a corporation stating that the person named therein
is the owner of a designated number of shares of stock.
Warehouse receipt it is a document of title likewise without
an unconditional promise or order to pay a sum certain in
money.
Pawn ticket not a nego inst
Holder refers to one who has taken the instrument as it
passes along in the course of negotiation towards the drawee
and not the drawee who on the acceptance and payment of
the inst, thereby strips it all of negotiability and reduces it to
a mere voucher or proof of payment
Bearer the person in possession of a bill or note which is
payable to bearer or legally qualifies as a bearer instrument.
Payable to bearer
-when it is expressed to be so payable
-when it is payable to a person named therein or bearer -
when it is payable to the order of a fictitious or non-existing
person, and such fact was known to the person making it so
payable
-when the name of the payee does not purport to be the
name of any person
-when the only or last indorsement is an indorsement in bank
Incomplete instrument where the instrument is wanting in
any material particular, the person in possession thereof has
a prima facie authority to complete it by filing up the blanks
therein.
Effect:
Authority to fill up the blanks the holder or the person in
possession has prima facie authority to complete an
incomplete instrument by filling up the blanks therein.
Authority to put any amount a signature on a blank paper
delivered in order that may be converted into a negotiable
instrument operates as a prima facie authority to fill it up as
such for any amount.
Right against a party prior to completion the instrument
may be enforced only against a party prior to completion if
filled up strictly in accordance with the authority given and
within a reasonable time
Incomplete and undelivered
-defense even against a holder in due course
-defense available to parties prior to deliver the invalidity of
the above instrument is only with reference to the parties
whose signatures appear on the instrument before and not
after delivery.
Delivery transfer of possession, actual or constructive, from
one person to another. It may be made either by the maker
or drawer himself or thought a duly authorized agent.
Issue the first delivery of the instrument, complete in form
to a person who takes it as holder
Holder the payee or endorsee of a bill or note who is in
possession of it, or the bearer thereof.
Persons signature on NI yet not liable
-general Rule only persons whose signature appear on an
instrument are liable thereon
-exceptions a person signs in a trade or assumed name -the
principal is liable if a duly authorized agent signs on his own
behalf
-in case of forgery, the forger is liable even his signature does
not appear on the instrument
-where the acceptor makes his acceptance of a bill a separate
paper
-where a person makes a written promise to accept a bill
before it is drawn.
Requisites in order that the agent signing cannot be
personally held liable
-he is duly authorized
-he adds words to his signature indicating that he signs as an
agent, that is, for or on behave of a principal or in a
representative capacity -he
discloses his principal
Forgery counterfeit-making or fraudulent alteration of any
writing, and may consist in the signing of anothers name of
the alteration of an instrument in the name, amount,
description of the person and the like with intent thereby to
defraud.
Effects -the signature is wholly inoperative and so no right
can be acquired through the forged signature. Forgery is,
therefore a real defense even against a holder in due course.
Forged signature be given full force
-if the party against whom it Is sought to enforce such right is
precluded in setting up the forgery or want of authority -
where the forged signature is not necessary to the holders
title, in which case the forgery may be disregarded.
Persons precluded ins setting up defense -those who by
their acts, silence or negligence are estopped from setting
up the defense of forgery -those who warrant or admit the
genuineness of the signatures in question indorsers
acceptors persons negotiating by delivery
Rights of parties in cases of forged indorsements -where
not payable to order the party whose indorsement is
forged is not liable to any holder, even a holder in due
course. The endorsement, being forged is inoperative -
where note payable to bearer mechanically complete is
originally payable to bearer, the party whose indorsement is
forged is liable to a holder in due course, but not to one
who is not a holder in due course.
-where bill payable to order the party whose indorsement is
forged is not liable to any holder, even holder in due course.
The forged indorsement is wholly inoperative. -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.
Holder for value - One who gives valuable consideration for
an instrument issued or negotiated to him is a holder for
value
Classes of holders
-holders simply
-holders for value
-holders in due course
Ordinary holder or mere holder a holder but does not meet
all the conditions to qualify as a holder in due course
Rights of holder
-he may sue on the instrument in his name
-he may receive payment and if the payment is in due course,
the instrument is discharged.
Conditions to qualify one holder in due course -presence of
all conditions all conditions must concur in order to qualify
a person as a holder in due course. -status as a mere assignee
the of a non NI cant attain the status of a holder in due
course. He is a mere assignee subject to defenses.
Payee as a holder in due course
-contrary view the holder in due course muse have acquired
the instrument through negotiation and an instrument is
issued and not negotiated
-affirmative view a holder in due course is a payee or
indorsee who is in possession
Holder in due course took the instrument free of most
defenses or adverse claims to it by other parties
-that is complete and regular upon its face. -that he
became the holder of it before it was overdue, and without
notice that it had been previously dishonored -that he took
it in good faith and for value
-that at the time it was negotiated to him, he had no notice of
any infirmity in the instrument or detect in the title of the
person negotiating it.
Absence of consideration means a total lack of any valid
consideration for the contract, in consequence of which the
alleged contract must fail
Failure of consideration means the failure or refusal of one
parties to do, perform or comply with the consideration
agreed upon.
effect is a defense pro tanto, whether the failure is an
ascertained and liquidated amount or otherwise.
Accommodation party the 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 another party.
Accommodation note or bill is one to which the
accommodation party has put his name, without
consideration for the purpose of accommodating some other
party who is to use it, and is expected to pay it.
Accommodated party one whose favor a person, without
receiving value therefore, signs an instrument for the purpose
of lending his credit and enabling said party to raise money
upon it.
Liability of accommodation party to a holder -absence of
consideration no a defense accommodation party 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 -accommodation party,
in effect, a surety may recover the accommodated party
for reimbursement. The relation between them is, in effect,
that of principal debtor and surety, the accommodation
party in lending his name being the surety for the
accommodated party
Kinds of accommodation party
-accommodation maker M as AP issues a promissory note
payable to P who may then negotiate to A -accommodation
drawer M, as AP, signs bill of exchange with P as payee,
and P may indorse the same to A. -accommodation acceptor
M, as AP, accepts a bill drawn on him by P in favor of
himself and P may indorse the same to A. -Accommodation
indroser M, as AP simply signs as an indroser in blank, the
bill or note made by P in favor of A, before it is delivered to
A.
AP to regular party
-AP signs an instrument without receiving value therefore,
while regular party signs instrument for value -AP signs an
inst for the purpose of lending his name to some other
person, while RP does not sign for that purpose -AP may
always show by parol evidence that he is only such, while a
RP cannot disclaim or limit his personal liability as appearing
on the instrument by parol evidence. -AP cannot avail of the
defense of absence or failure of consideration against a
holder not in due course, whole RP may avail of said defense
against a holder not in due course -AP, after paying the
holder, may sue for reimbursement the accommodated
party, although a subsequent party, while a RP may not sue
any subsequent party for reimbursement.
Endorsement is the writing of the name of the payee on the
instrument with the intent either to transfer the title to the
same or to strengthen the security of the holder by assuming
a contingent liability for its future payment or both.
Indorsement is the writing of the name of the payee on
the instrument with the intent either to transfer the title to
the same, or to strengthen the security of the holder by
assuming a contingent liability for its future payment, or both.
It involves the certainty of two things:
(a) the identity of the indorser (as being the payee or true
owner); and
(b) the genuineness of his signature.
Indorsement and assignment distinguished.
The two terms are to be distinguished in that the latter is
broader, and sometimes include the former. It is, however, a
common practice to speak of the indorsement of negotiable,
and the assignment of non-negotiable, instrument in blank
Necessity of indorsement.
1) Indorsement is essential to the execution of an instrument
payable to the order of the maker or drawer
(2) It is also essential to the negotiation of an order
instrument, not of a bearer instrument.
(3) It is not necessary to a mere assignment of a
negotiable or non-negotiable instrument
(4) Under proper circumstances, an estoppel may take
the place of an indorsement to uphold the transfer of a bill or
note such as where the indorsement is forged or
unauthorized and the party against whom the instrument is
sought to be enforced is precluded from setting up the
defense of forgery or want of authority.
BLANK INDORSEMENT has the signature of the indorser
w/o additional words
SPECIAL INDORSEMENT name of the indorsee specified
Place of indorsement.
The indorsement may be written:
(1) On the instrument itself.
(2) Upon a paper attached thereto.
Striking out indorsementThe 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.
When holder may strike out indorsement:
(1) An instrument payable to bearer on its face
(2) An instrument originally payable to order - P's
indorsement is necessary to the title of C since
P cannot validly negotiate the note which is
payable to order, to C by mere delivery
Defenses are grounds or reasons pleaded or offered by the
defendant in a case, showing why the plaintiff, as a matter of
law or fact, should not be given the relief he seeks.
Real defenses are those that are available against all parties,
both immediate and remote, including holders in due course
or holders through the latter.
(a) Incapacity as far as the incapacitated person is
concerned.
(b) Illegality of contract when declared by law,
except where the maker or drawer is himself a
party to the illegality; thus, a note for a
gambling debt is a mere personal defense
(c) Want of delivery of incomplete instrument
(d) Forgery
(e) Want of authority, apparent and real
(f) Duress amounting to forgery as where one takes
the hands of another and forces him at gunpoint
to sign his name.
(g) Fraud in factum or fraud in esse contractus
(h) Fraudulent alteration by holder
(i) Prescription
(j) Other infirmities appearing on the face of the
instrument
(k) Discharge at or after maturity
Personal defenses
(a) Filling of wrong date
(b) Filling up of blanks not in accordance with the
authority given and within reasonable time
(c) Want of delivery of complete instrument (d)
Absence or failure of consideration
 (e) Simple fraud or fraud in inducement
(f) Acquisition of instrument (not signature) by
duress, or force and fear
(g) Acquisition of instrument by unlawful means
(h) Acquisition of instrument for an illegal
consideration
(i) Negotiation of breach of faith
(j) Negotiation under circumstances that amounts to
fraud
(k) Innocent alteration or spoliation
Spoliation is an alteration made by a stranger to an
instrument. If the original meaning can be ascertained, the
holder in due course may recover according to its original
tenor
(1) Set-off between immediate parties (see Sec. 58.);
(m) Discharge by payment or renunciation or release
before maturity
(n) Discharge of party secondarily liable by
discharge of prior party
(o) Usurybecause the contract of loan itself is
not void but only the agreed interest
(p) Want of authority of the agent who has
apparent authority can show that the agent had no
express, implied, or apparent authority to sign, the
defense is real.
(1) Immediate parties. have direct contractual
relations towards each other
(2) Remote parties. A remote party is one who takes
title to an instrument by negotiation from either the
original payee or any subsequent holder.
(3) Prior parties.
Defenses subject to estoppel. Through estoppel, an
admission or representation is rendered conclusive upon
the person making it, and it cannot be denied or
disproved as against the person relying thereof.
Fraud in factum and fraud in inducement distinguished.
(1) Fraud in the execution or fraud in factum. It exists
in those cases in which a person, without negligence, has
signed an instrument which was in fact a negotiable
instrument, but was deceived as to the character of the
instrument and without knowledge of it, as where a note
was signed by one under the belief that he was signing as
a witness to a deed, or where the signature was
procured by fraudulent use of carbon paper. This kind of
fraud is a real defense (see Sec. 14.) because there is no
contract. It implies that the person did not know what he
was signing. But where the signer by the exercise of
reasonable diligence could have discovered the nature of
the instrument, the
Fraud cannot be considered a real defense, as where a
person, who can read, signed a note but failed to read it;
and
(2) Fraud in the inducement or simple fraud. It is that
which relates to the quality, quantity, value or character
of the consideration of the instrument. In this case, the
signer is led by deception to execute what he knows is a
negotiable instrument and, therefore, necessarily signed
with knowledge that the instrument would probably pass
into the hands of an innocent purchaser. Here, the deceit
is not in the character of the instrument but in its
amount or its terms. (Ogden, op. cit.f p. 326.) It implies
that the signer knew what he was signing but that he was
induced by fraud to sign.
Rights of holder not in due course.
(1) He may sue on the instrument in his own name
(2) He may receive payment and if the payment is in due
course, the instrument is discharged
(3) He is entitled to the instrument but holds it subject to the
same defenses as if it were non-negotiable
(4) He has all the rights of the holder in due course from
whom he derives his title in respect of all parties prior to
such holder, provided he is not himself a party to any
fraud or illegality affecting the instrument
Rights of purchaser from a holder in due course.
(1) Rights of a mere transferee
(2) Rights of transferee from a holder in due course.
Steps in issuance of negotiable instrument.
(1) the mechanical act of writing the instrument
completely and in accordance with the requirements of
Section 1
(2) the delivery of the complete instrument by the
maker or the drawer to the payee or holder with the
intention of giving effect to it.
Rules where instrument incomplete but delivered
(1) Authority to fill up the blanks.
(a) The law speaks of material particular
(b) The authority to complete is not an authority to
alter (2) Authority to put any amount
(3) Right against party prior to completion. The
instrument may be enforced only against a party
prior to completion if filled up strictly in accordance
with the authority given and within a reasonable
time.
(4) Right of holder in due course. The defense that
the instrument had not been filled up in accordance
with the authority given and within a reasonable
time is not available as against a holder in due
course.
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.
Material alteration is defined to be any change in the
instrument which affects or changes the liability of the parties
in any way, as specified in Section 125 or changes the
contract of the parties in any respect.
Effect of alteration of instrument.
(1) Alteration by a party. The effect of a material alteration
by the holder is to discharge the instrument and all prior
parties thereto who did not give their consent to such
alteration.
(a) Since no distinction is made, it does not matter
whether it is favorable or unfavorable to the party making
the alteration or to the interests of prior parties or whether it
is innocently or fraudulently made, since material alteration
includes innocent changes without regard to the motive or
the purpose of the party making it. So that, where the
instrument has been altered, although innocently, it is
discharged but the innocent party can sue upon the original
debt for which it has been given.
(b) The law makes certain exceptions as to the effect of
material alteration. It does not discharge the instrument as
against:
1) a party who has made the alteration
2) a party who authorized or assented to the alteration, and
3) indorsers who indorsed subsequent to the alteration.
(c) When an alteration is apparent, the party claiming under
the instrument has the burden to explain the alteration or
that he had no part therein or that he was a holder in due
course but where the alteration is not apparent on the face
by the use of ordinary care in inspecting the instrument, the
burden is on the party alleging it.
(2) Alteration by a stranger. When the material
alteration of the instrument is made by a stranger, it is called
spoliation.
(3) Right of holder in due course. The holder in due
course may recover according to its original tenor
What constitutes a material alteration.
(a) The date
(b) The sum payable, either for principal or interest
(c) The time or place of payment
(d) The number or the relations of the parties
(e) The medium or currency in which payment is to be
made
(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
Absence of consideration means a total lack of any valid
consideration for the contract, in consequence of which the
alleged contract must fall.
Failure of consideration means the failure or refusal of one of
the parties to do, perform or comply with the consideration
agreed upon
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.
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
Effect of insertion of wrong date. The insertion of a. wrong
date in an undated instrument by one having knowledge of the
true date of issue or acceptance will avoid the instrument as to
him or any one claiming under him but not as to a
subsequent holder in due course who may enforce the same
notwithstanding the improper date. In the hands of a holder in
due course, the date inserted, even if wrong, is to be regarded
as the true date.
When title is 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.
Defects of title are defined in Section 55 to cover all those
situations which are known as personal or equitable defenses
(infra.) and also to cover those equities of ownership where
there is a breach of faith in negotiation.
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.
Liability refers to the obligation of a party to a negotiable
instrument to pay the same according to its terms.
Primarily liable:
(a) the maker of a promissory note; (b)
the acceptor of a bill of exchange; (c)
the certifier of a check.
Secondarily (conditionally) liable:
(a) the drawer of a bill; and
(b) the indorser of a note or a bill
Not liable: The drawee until he accepts the instrument in
which case he becomes an acceptor.
Primary party and secondary party distinguished
-person primarily liable on the instrument is the person who by
the terms of the instrument is absolutely required to pay the
same. All other parties are secondarily liable
-former is unconditionally bound, the latter is conditionally
bound
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.
(1) Liability conditional. However, the drawer does not
promise to pay the bill absolutely. He makes no warranties but
he engages to pay after certain conditions are complied with,
to wit:
(a) The bill is presented for acceptance or for payment,
as the case may be, to the drawee;
(b) The bill is dishonored by non-acceptance or
nonpayment, as the case may be;
(c) The necessary proceedings of dishonor are duly
taken. Such proceedings are:
1) notice of dishonor is given to the drawer
subject to certain exceptions
2) in case of foreign bills, protest is made
followed by a notice of protest
(2) Liability of a general indorser. The drawer,
therefore, is only secondarily liable to the holder, or to any
subsequent indorser, who may be compelled to pay it. His
liabilities are conditional in the same manner as the liabilities
of a general indorser. The phrase "to any subsequent indorser"
refers to any of the indorsers between the drawer and the
holder. They may also be called as intervening indorsers. Note
that the drawer may, by express stipulation, inserted in the
instrument, negative or limit his own liability to the holder.
(3) Liability of a drawer of a check. The drawer may
not unilaterally discharge himself from liability on checks
issued by him merely as security and not for value to a payee
who negotiated the same without his knowledge and consent
to a holder in due course, by the mere expediency of
withdrawing his funds from the drawee bank. By issuing a
check, the drawer impliedly represents that funds or credit are
available for its payment in the drawee bank. The drawer can
still be made liable under a separate contract distinct from the
instrument.
Thus, in a case, where the drawer also executed a separate
letter of undertaking in consideration for the bank's
negotiation of its sight drafts, the drawer can still be made
liable under the letter of undertaking even if he is discharged
due to the bank's failure to protest the non-acceptance of the
drafts, where he promised to pay on demand the full amount
of the drafts. The liability under the letter of undertaking is
direct and primary, and independent from that under the sight
drafts, which subsists even if they are dishonored for
nonacceptance or non-payment.
Drawer distinguished from maker.
(1) The drawer issues a bill of exchange, while the
maker, a promissory note;
(2) The drawer is only secondarily liable, while the
maker is primarily liable
(3) The drawer can negative, or limit his liability, while
the maker may not do so.
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.
(1) Liability of drawee before acceptance. As already
pointed out, the drawee of a bill is not liable thereon before
acceptance. He is not obligated to the payee or any holder to
accept a bill although he may be liable to the drawer for breach
of contract if he refuses without valid reason to accept the bill.
As a general rule, a refusal by the drawee to accept a bill
constitutes a dishonor of the instrument which triggers the
liability of secondary parties drawer and indorser except
those indorsing qualifiedly, that is, without guaranteeing
payment. Unless the drawee accepts, he owes no duty to
either the payee or any other holder. His only obligation is to
the drawer to pay in accordance with the latter's orders.
(2) Liability of drawee after acceptance. Once the
drawee accepts, he becomes an acceptor. He is in virtually the
same position as the maker of a note. The same result takes
place when a drawee bank certifies a check drawn on the bank.
The acceptor is primarily bound on the instrument for by his
acceptance, he engages to pay it according to the terms of his
acceptance, subject to no condition whatsoever. His
acceptance, in other words, is a promise to pay. The bank
(drawee) on which a check is drawn, is under strict liability
based on the contract between the bank and its customer
(drawer), to pay the check only to the payee's order. The
drawer's instructions are reflected on the face and by the
terms of the check. otherwise, the bank violates its duty to
charge the drawer's account only for properly payable items
and shall be liable for the amount charged to the drawer's
account.
(3) Retraction of acceptance. The bill of exchange
itself implies a representation by the drawer that the drawee
is already in receipt of funds to pay, and the acceptance
(admission of the truth of that representation) makes the
drawee primarily liable. The drawee who has accepted cannot
retract this admission as against a holder for value, since he has
thereby obtained a suspension of the holder's remedies
against the drawer and an extension of credit.
(4) Payment of check despite stop-payment order. If
a drawee- bank accepts or pays a check despite a stop payment
order from the drawer, through oversight or otherwise, it
cannot refuse to pay the holder or recover what has been paid;
neither may it debit the drawer's account unless the
acceptance nor payment was made prior to the receipt of the
order.
(5) Similarity to liability of maker and drawer. The
acceptor has the same liability as the maker of a promissory
note and the drawer of a bill with respect to the existence of
the payee and his capacity to indorse, like the maker, neither
presentment for payment nor notice of dishonor is necessary
to charge him with liability, except where he is an acceptor for
honor.
Warranty of the acceptor
The acceptor, by signing the bill as such, warrants the existence
of the payee and his then capacity to indorse. In addition, he
also admits the existence of the drawer, the genuineness of his
signature, and his capacity and authority to draw the bill.
(1) Defenses precluded. The acceptor is consequently
precluded from asserting as a defense that the drawer is
fictitious or non-existent, or that the drawer's signature is a
forgery, or that he has no funds in his hands belonging to the
drawer with which to pay the bill, or that the drawer has
overdrawn his account, or that the drawer has no capacity to
contract or has no authority to draw a bill. By accepting
unconditionally, a bill, the drawee becomes liable to a holder,
and he cannot allege want or failure of consideration between
him and the drawer. The holder is a stranger as regards the
transaction between the drawer and the drawee.
(2) Matters not admitted. The acceptor does not admit
the genuineness of the indorser's signature, because it is only
the signature of the drawer that he warrants, although the
purported indorsement was on the bill at the time it was
accepted. An acceptor is only held to a knowledge of the
signature of the drawer. By accepting a bill, he only admits the
genuineness of such signature and cannot be charged with
knowledge of the want of genuineness of any other part of the
instrument or of the title of the holder.
Effect of want of demand on the 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.
Presentment for payment is meant the presentment of an
instrument (i.e., promissory note or accepted bill) to the
person primarily liable for the purpose of demanding and
receiving payment.
Presentment for payment to person primarily liable not
necessary.
(1) Liability absolute on date for payment
(2) Where instrument payable at a special place
(3) Where presentment required by terms of instrument
(4) Rule applicable to notes payable on demand
(5) Risk assumed by holder in case presentment not made
Presentment for payment to persons secondarily liable
necessary.
(1) Presentment first to primary party required
(2) Effect where presentment not made
What constitutes a sufficient presentment Presentment for
payment, to be sufficient, must be made
(a) By the holder, or by some person authorized to receive
payment on his behalf
(b) At a reasonable hour on a business day
(c) At a proper place as herein defined
(d) To the person primarily liable on the instrument, or if he is
absent or inaccessible, to any person found at the place where
the presentment is made.
Place of presentment Presentment for payment is made at
the proper place:
(a) Where a place for 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 the 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.
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.
Purpose of exhibition. The purpose is to enable the debtor:
(a) to determine the genuineness of the instrument and the
indorsements and the right of the holder to receive payment;
and
(b) to enable him, upon payment, to take possession of it to
guard against a lawsuit by a subsequent holder. In the case of
the acceptor who pays a bill, he has the right to have it
delivered to him for use as a voucher in settlement of accounts
with the drawer.
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.
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.
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.
What constitutes payment in due course. Payment is made
in due course when it is made at or after the maturity of the
instrument to the holder thereof in good faith and without
notice that his title is defective.
(1) Payment must be made at or after date of maturity
(2) Payment must be made to the holder.
(3) Payment must be made in good faith and without
notice that the holder's title is defective.
Time of maturity. Every negotiable instrument is payable at
the time fixed therein without grace. When the day of maturity
fells upon Sunday, or a holiday, the instruments is payable on
the next succeeding business day. Instruments falling due or
becoming payable on Saturday are to be presented for
payment on the next succeeding business day, except that
instruments payable on demand may, at the option of the
holder, be presented for payment before twelve o'clock noon
on Saturday when that entire day is not a holiday.
Time; How computed. Where the instrument is payable at a
fixed period after date, after sight, or after the happening of a
specified event, the time of payment is determined by
excluding the day from which time is to begin to run, and by
including the date of payment.
To whom notice of dishonor must be given. Except as
herein otherwise provided, when a negotiable instrument has
been dishonored by non-acceptance or non-payment, notice
of dishonor must be given to the drawer and each indorser,
and any drawer or indorser to whom such notice is not given is
discharged.
A negotiable instrument is considered to be dishonored:
(1) If it is not accepted when presented for acceptance
(2) If it is not paid when presented for payment at maturity;
(3) If presentment is excused or waived and the instrument is
past due and unpaid
Notice of dishonor is bringing, either verbally or in 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 has not been paid
and that the party notified is expected to pay it.
The object of giving notice of dishonor is two-fold:
(1) To inform the parties secondarily liable that the maker or
acceptor, as the case may be, has failed to meet his
engagement
(2) To advise such parties that they will be required to make
payment.
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.
Notice given by agent. 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.
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
Effect of failure to give notice of dishonor.
Any such person to whom such notice is not given is
discharged. However, although the indorser to whom notice is
not given is discharged, he is still liable for breach of warranties
pertaining to the instrument.
When notice need not be given to indorser.
(a) When the drawee is a fictitious person or a person not
having capacity to contract, and the indorser was aware of the
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.
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.
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
nonacceptance or nonpayment. It may in all cases be given by
delivering it personally or through the mails.
Contents of notice.
(1) the identity of the instrument
(2) the fact that it has been dishonored by non-
acceptance or non-payment; and
(3) a statement that the party giving notice intends to
look to the party addressed for payment.
How notice given.
(1) by personal delivery
(2) by mail
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.
To whom notice may be given. Notice of dishonor may be
given either to the party himself or to his agent in that behalf.
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.
(notice not necessary if any condition is opposite)
In any of the above situations, "notice may be sent to the last
residence or last place of business of the deceased."
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.
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 times fixed by this Act.
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.
Where parties reside in different piaces.
(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 that 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 has been deposited in the post office
within the time specified in the last subdivision.
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.
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 have 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 requirements of this section.
Acceptance; how made, etc. The acceptance of a bill is the
signification by the drawee of his assent to the order of the
drawer. The acceptance must be in writing and signed by the
drawee. It must not express that the drawee will perform his
promise by any other means than the payment of money.
Effect
- to bind the drawee and make him an actual party liable to
the instrument.
- By accepting a bill, the drawee admits everything essential
to its validity
- Upon acceptance, the bill, in effect, becomes a note
Formal requisites of acceptance.
(1) In writing
(2) Signed by the drawee
(3) Express a promise to pay money
(4) Delivered to the holder
Rights of parties as to qualified acceptance. The holder may
refuse to take a qualified acceptance, and if he does not obtain
an unqualified acceptance, he may treat the bill as dishonored
by non-acceptance. Where a qualified acceptance is taken, the
drawer and indorsers are discharged from liability on the bill,
unless they have expressly or impliedly authorized the holder
to take a qualified acceptance, or subsequently assent thereto.
When the drawer or an indorser receives notice of a qualified
acceptance, he must, within a reasonable time, express his
dissent to the holder, or he will be deemed to have assented
thereto.
Effect where the holder of a check procures it to be accepted
or certified. Where the holder of a check procures it to be
accepted or certified, the drawer and all indorsers are
discharged from liability thereon

Bills in set constitute one bill. Where a bill is drawn in a set,

(composed of several parts) each part of the set being
numbered and containing a reference to the other parts, the
whole of the parts constitutes one bill. The purpose then of
drawing a bill in set is to avoid the difficulties which would arise
in case of loss or miscarriage on the way of the bill.

When presentment not required to charge the indorser.

Presentment for payment 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.