Nego Reviewer

Negotiable Instruments Law (Aquino and Agbayani Notes) 1 Abad.Avila.Cancino.Concepcion.Chu.Layno.Mercado.Prinsipe.Reyes H. (2S A.Y.
2010-2011)
CHAPTER 1: GENERAL CONSIDERATIONS

WHAT IS A NEGOTIABLE INSTRUMENT? It is a written contract for the payment of money which is intended as a substitute for money and passes from one person to another as money, in such a manner as to give the holder in due course the right to hold the instrument free from defenses available to prior parties. The instrument must comply with Section 1 of the negotiable Instruments Law. Governing Law: Act 2031 Negotiable Instruments Law Impliedly repealed the Code of Commerce except on provisions that are not inconsistent with the NIL (e.g. rule on crossed checks)
APPLICABILITY OF THE NIL The provisions of the NIL are only applicable if the instrument involved is negotiable. Otherwise, the NIL can only be applied by analogy.
FUNCTIONS OF NEGOTIABLE INSTRUMENTS: (SEC-PF)
1. 2. 3. 4. 5.
Substitute for Money Medium of Exchange Credit instrument which increases credit circulation Increases the purchasing power in circulation Proof of transactions
Notes on Legal Tender: Definition: offered payment that, by law, cannot be refused in settlement of a debt, and have the debt remain in force. Negotiable instruments are not legal tender. Only notes and coins issued by the BSP are considered legal tender. Checks are declared by law not to be legal tender and creditors cannot be compelled to accept checks in payment of obligations Exceptions: 1. 2. The obligation is deemed paid if the check has been cleared and credited to his account. Impairment due to the fault of the creditor.
MAIN FEATURES OF NEGOTIABLE INSTRUMENTS: A. Negotiability Allows negotiable instruments to be transferred from one person to another so as to constitute the transferor a holder (a holder in due course). Such feature gives the negotiable instrument freedom as substitute for money. B. Accumulation of Secondary Contracts When negotiable instruments are transferred through negotiation, secondary contracts are accumulated because the indorsers become secondarily liable not only to their immediate transferees but also to any holder. It thus provides for greater security in dealing with such instruments.
Negotiable Instruments Law (Aquino and Agbayani Notes) 2 Abad.Avila.Cancino.Concepcion.Chu.Layno.Mercado.Prinsipe.Reyes H. (2S A.Y. 2010-2011)
KINDS OF NEGOTIABLE INSTRUMENTS Bill of Exchange: an 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. Commonly termed a draft. It is used to designate bills of exchange that are used in trade of goods. May be an inland bill or a foreign bill. 1. Inland Bill: drawn and payable in the Philippines. 2. Foreign Bill either drawn or payable abroad. Checks: a bill of exchange drawn on a bank and payable on demand. ORDINARY BILL OF EXCHANGE Not drawn on deposit. It is not necessary that the drawer of a BOE should have funds in the hands of the drawee. Death of the drawer of a BOE with the knowledge of the bank, does not revoke the authority of the banker to pay. May be presented for payment within a reasonable time after its last negotiation. CHECK It is necessary that a check is drawn on a deposit. Otherwise, there would be fraud. Death of knowledge the banker Must be reasonable the drawer of a check, with the by the bank, revokes the authority of to pay. presented for payment within a time after its issue.
Promissory Notes: A negotiable promissory note is an unconditional promise in writing made by one person to another, signed by the maker, engaging to pay on demand or at a fixed determinable future time, a sum certain in money to order or to bearer. Where a note is drawn to the makers own order, it is not complete until it is indorsed by him. Dean Sundiang: when the situation contemplated in the last sentence occurs, the person who signs assumes to personalities both as a maker and as an indorser. In what capacity is he then liable? In such case, he becomes liable as a maker. The requirement of having to indorse does not deviate his very capacity as the maker of the instrument. Furthermore, the maker has a more onerous liability compared to that of an indorser. Bills treated as Notes (Sec. 130) 1. When the drawer and the drawee are the same person. 2. The drawee is a fictitious person. 3. The drawee has no capacity to contract. Bills vs. Notes PROMISSORY NOTE Contains an unconditional promise. There are 2 parties on its face The person who signs it is the MAKER. The person who signs it is PRIMARILY LIABLE The person primarily liable is the maker There is only one presentment: for payment. BILL OF EXCHANGE Contains an unconditional order. There are 3 parties on its face. The person who signs it is the DRAWER The person who signs it is SECONDARILY LIABLE The person primarily liable is the DRAWEE-ACCEPTOR There are 2 presentments: 1. For acceptance 2. For payment
PARTIES TO NEGOTIABLE INSTRUMENTS Parties to a Promissory Note 1. 2. Maker: Person who promises to pay according to the tenor of the note. Payee: Person who is to receive payment from the maker.
Parties to a bill of exchange 1. 2. Drawer: Person who draws the bill and orders the drawee to pay a sum certain in money. Drawee: the one being commanded to pay the bill. NOTE HOWEVER, the drawee only becomes party to the transaction upon acceptance of the BOE. Otherwise, he is not liable at all.
Other Parties to a Negotiable Instrument: 1. 2. 3. Indorser: Persons who transfer the instrument through indorsement and completed by delivery. Holder: Payee or indorsee of a bill or note who is in possession of it or the bearer thereof. Bearer: person in possession of bill or note which is payable to bearer.
NEGOTIABLE INSTRUMENTS VS. NON-NEGOTIABLE INSTRUMENTS: DISTINCTIONS AND NOTES Only negotiable instruments are governed by the NIL. The application of NIL to non-negotiable instruments is only by analogy. Negotiable instruments can be transferred by negotiation or assignment. Non-negotiable instruments can only be transferred through assignment. The transferee of a non-negotiable instrument can never be a holder in due course; only an assignee. All defenses available may be raised against the last transferee. INCIDENTS OR STAGES IN THE LIFE OF A NEGOTIABLE INSTRUMENT
1. Preparation and signing complete with all the requisites provided for in Section 1 of NIL. 2. Issuance: first delivery of the instrument to the payee (from maker to payee/bearer or from
drawer to the payee/bearer).
3. Negotiation: transfer from one person to another so as to constitute the transferee a holder. 4. Presentment for acceptance for certain kinds of BOE the bill of exchange shall be presented
to the drawee so that the latter will signify his agreement to the order of the drawer to pay.
5. Acceptance: written assent of the drawee to the order (act which makes the drawee a party to
the instrument, thus making him primarily liable - Sundiang).
6. Dishonor by non-acceptance: refusal to accept by the drawee. 7. Presentment for payment: the instrument is shown to the maker or drawee/acceptor so that
the maker or drawee/acceptor will pay.
8. Dishonor by non-payment: refusal to pay by the maker or drawee/acceptor 9. Notice of Dishonor: notice to the persons secondarily liable that the maker or the
drawee/acceptor refused to pay or to accept the instrument. 10. Protest. 11. Discharge.
CHAPTER 2: Negotiability
Requisites of Negotiability (Section 1, NIL) Keyword: WUPOA
Negotiable Instruments Law (Aquino and Agbayani Notes) 4 Abad.Avila.Cancino.Concepcion.Chu.Layno.Mercado.Prinsipe.Reyes H. (2S A.Y. 2010-2011) 1. 2. 3. 4. 5.
It must be in writing and signed by the maker/drawer; It must contain an unconditional promise or order to pay a sum certain in money; It must be payable on demand, or at a fixed or determinable future time; It must be payable to order or bearer; Where the instrument is addressed to a drawee, he must be named or otherwise indicated therein with reasonable certainty.
HOW NEGOTIABILITY IS DETERMINED: 1. 2. 3. The whole instrument shall be considered; Only what appears on the face in the instrument shall be considered; The provisions of NIL, especially Section 1 thereof shall be applied.
Acceptance Acceptance of an instrument is not important in the determination of its negotiability. The nature of acceptance is important only in the determination of the liabilities of the parties involved. Indorsement The negotiability of an instrument is not affected by the indorsement placed therein. EFFECT OF ESTOPPEL
REQUISITE OF NEGOTIABILITY Requisite #1: IN WRITING AND SIGNED BY THE MAKER OR THE DRAWER It must be in writing. It may be printed, in ink or in pencil, and it may be written in any material that substitutes paper like cloth, leather, or parchment. Signed: marked by any means as long as they are adopted as the signature of the signer.
Requisite #2: IT MUST CONTAIN AN UNCONDITIONAL PROMISE OR ORDER TO PAY A SUM CERTAIN IN MONEY Unconditional Payment/Order The promise in a promissory note is the undertaking made by the maker to pay a sum certain in money to the payee or the holder. The order in a bill is a command made by the drawer addressed to the drawee ordering the latter to pay the payee or the holder a sum certain in money. The word promise or order need not appear to satisfy the requirements of Section 1(b) of NIL. The promise or order must be unconditional. An unqualified order or promise to pay is unconditional within the meaning of NIL although it is coupled with (Sec. 3, NIL): 1. An indication of a particular fund out of which reimbursement is to be made or a particular account to be debited with the amount. 2. A statement of the transaction which gives rise to the instrument. Conditional (therefore not negotiable): 1. An order or promise to pay out of a particular fund in this case, payment shall be subject to the availability or sufficiency of funds. 2. An instrument payable upon a contingency.
Indication of a Particular Fund for Payment vs. Fund for Reimbursement
Fund For Reimbursement The drawee pays the payee from his own funds; afterwards, the drawee pays himself from the particular fund indicated Particular fund indicated is not the direct source of payment. A Sum Certain in Money Money need not be legal tender. An instrument is still negotiable although the amount to be paid is expressed in currency that is not legal tender, so long as it is expressed in MONEY. If the obligor like the maker is given the option to deliver something in lieu of money, then the instrument is not negotiable. If the instrument gives the holder an election to require something to be done in lieu of payment in money, the instrument is still negotiable. A SUM CERTAIN: If the amount that is to be unconditionally paid by the maker or drawee can be determined from the face of the instrument even if it requires mathematical computation. Section 2: A sum is certain although it is to be paid a) with interest; or b) by stated installments; or c) by stated installments, with a provision that upon default in payment of any installment or of interest, the whole obligation shall become due; or d) with exchange, whether at a fixed rate or at a current rate; or e) with costs of collection or an attorneys fee, in payment shall not be made upon maturity. Stated Installments: the dates of each installment must be fixed or at least determinable and the amount to be paid for each installment must be stated. Fund for Payment There is only one act: the drawee pays directly from the particular fund indicated. Particular fund indicated is the direct source of payment.
Requisite #3: PAYABLE ON DEMAND OR AT A FIXED OR DETERMINABLE FUTURE TIME Aquino: an instrument is not negotiable if the maturity date of an instrument is not certain. Payable on Demand When an instrument is payable on demand, the persons liable may be required to pay at ANYTIME before the holder may so request. When Payable on Demand (Section 7): 1. When it is expressed so to be payable on demand, or at sight, or on presentation; 2. In which no time for payment is expressed. Sundiang (On at sight): what if the drawee is blind? It should not be taken literally. Payable at a determinable future Section 4: An instrument is payable at a determinable future time if it is expressed to be payable 1. At a fixed period after date or sight; 2. On or before a fixed or determinable future time specified therein; 3. On or at a fixed period after the occurrence of a specified event which is certain to happen, though the time of the happening be uncertain Clauses that affect maturity of the instrument 1. Acceleration clauses:
The negotiability of the instrument is not affected even if it is to be paid by stated installments, with a provision that upon the default in payment of any installment or of interest, the whole shall become due. Authorities seem quite uniform in holding that if the acceleration clause is dependent upon some act or default of the maker, the rule against uncertainty of maturity is not violated. 2. Insecurity Clauses: Provisions in the contract which allow the holder to accelerate payment if he deems himself insecure. The instrument rendered is not negotiable. The instrument is not negotiable because it is dependent upon the holders whims and caprice without the fault of the maker. (Query: can such instruments be considered instruments payable on demand, thus, not affecting the negotiability of the instrument?) Extenion Clauses An instrument is payable at a definite time if by its terms it is payable at a definite time subject to extension at the option of the holder, or to extension to a further definite time at the option of the maker or acceptor or automatically upon or after a specified act or event.
3.
Requisite #4: PAYABLE TO ORDER TO BEARER Notes An instrument that is payable to a specified person or entity is not negotiable because the NIL requires that the instrument must be payable to order or to bearer. The rule has always been that the instrument in order to be considered negotiable must contain the so called words of negotiability i.e. it must be payable to order or to bearer. These words serve as an expression of consent that the instrument may be transferred by negotiation. Bearer Instruments Where the instrument is a bearer instrument, the person in possession can demand payment from the person who are liable thereon. Section 9: An instrument is payable to bearer a) When it is expressed to be so payable; or b) When it is payable to a person named therein or bearer; or c) 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; or d) When the name of the payee does not purport to be the name of any person e) When the only last indorsement is an indorsement in blank. Fictitious Payee Rule: An instrument is a bearer instrument if it is payable to the order of a fictitious or non-existing person and such fact is known t the person making it so payable. In a fictitious payee situation, the drawee bank is absolved from liability and the drawer bears the loss. When faced with a check payable to a fictitious payee, it is treated as a bearer instrument that can be negotiated by delivery. The underlying theory is that one cannot expect a fictitious payee to negotiate the check by placing his indorsement thereon. And since the maker knew this limitation, he must have intended for the instrument to be negotiated by mere delivery. Thus, in case of controversy, the drawer of the check will bear the loss. The burden of proving that the instrument is payable to a fictitious payee rests on the person making such allegation. Exception to Fictitious Payee Rule: A showing of commercial bad faith on the part of the drawee-bank, or any transferee of the check for that matter, will work to strip it of this defense. There is a commercial bad
faith applicable when the transferee acts dishonestly where it has actual knowledge of the facts and circumstances that amount to bad faith, thus itself becoming a participant to the fraudulent scheme.
Order Instruments Section 8. The instrument is payable to order where it is drawn payable to the order of a specified person or to him or his order. It may be drawn payable to the order of: a) A payee who is not maker, drawer, or drawee; or b) The drawer or maker; or c) The drawee; or d) Two or more payees jointly; or e) One or some of several payees; or f) The holder of an office for the time being. Requisite #5: IDENTIFICATION OF THE DRAWEE Where the instrument is addressed to a drawee, he must be named or otherwise indicated therein with reasonable certainty. The holder must know to whom he should present it for acceptance and/or for payment, otherwise, the purpose of negotiable instrument as a tool in commercial dealings will be greatly hampered. A bill may be addressed to more than one drawee jointly, whether they are partners or not; but not to two or more drawees in the alternative or in succession, (Sec. 128). OMISSIONS AND PROVISIONS THAT DO NOT AFFECT NEGOTIABILITY Section 6. Omissions; seal; particular money. - The validity and negotiable character of an instrument are not affected by the fact that: it is not dated; or a) b) c) d) does not specify the value given, or that any value had been given therefor; or does not specify the place where it is drawn or the place where it is payable; or bears a seal; or designates a particular kind of current money in which payment is to be made.
The instrument is still negotiable if it is not dated. It should be noted, however, that there are cases where the date of the instrument is necessary and in the absence thereof can be inserted in the instrument. Section 13. When date may be inserted. - Where an instrument expressed to be payable at a fixed period after date is issued undated, or where the acceptance of an instrument payable at a fixed period after sight is undated, any holder may insert therein the true date of issue or acceptance, and the instrument shall be payable accordingly. The insertion of a wrong date does not avoid the instrument in the hands of a subsequent holder in due course; but as to him, the date so inserted is to be regarded as the true date. Other additional provisions that do not affect the negotiability of an instrument: Sec. 5. Additional provisions not affecting negotiability. - An instrument which contains an order or promise to do any act in addition to the payment of money is not negotiable. But the negotiable character of an instrument otherwise negotiable is not affected by a provision which: a) authorizes the sale of collateral securities in case the instrument be not paid at maturity; or b) authorizes a confession of judgment if the instrument be not paid at maturity; or c) waives the benefit of any law intended for the advantage or protection of the obligor; or d) gives the holder an election to require something to be done in lieu of payment of money. But nothing in this section shall validate any provision or stipulation otherwise illegal.
RELATED PROVISIONS: (AGBAYANI COMMENTARY)
Section 1. Form of negotiable instruments. - An instrument to be negotiable must conform to the following requirements: (a) It must be in writing and signed by the maker or drawer; There must be a writing of some kind for if the instrument were not in writing there would nothing to be negotiated or to pass from hand to hand. It may be in ink, print or pencil on a parchment, cloth leather or any substitute of paper. It must be signed by the maker or drawer; full name may be indicated but the surname is enough It may also consist of initials and numbers. Where the name is not signed the holder must prove that what is written is intended as a signatureof the person sought to be charged. Signature may be printed, typewritten, stamped, engraved, photographed or lithographed; but in every case there must be a showing that the party have adopted and used such signature. Where signature found: location of signature is not material what is important is that it appears therefrom that the person intended to make it his own.
(b) Must contain an unconditional promise or order to pay a sum certain in money; Bill of exchange A bill must contain an order to pay, a bill is an instrument demanding a right. The word order may not necessarily be used, any words equivalent may suffice to make an instrument a bill of exchange. Mere authorization to pay is not a negotiable instrument. A mere request to pay is not a negotiable instrument. Promissory note The promise to pay must be in the instrument itself although it is not necessary to use the word promise. It is enough that (1) words of equivalent meaning are used or (2) the promise is implied from promissory words contained in the instrument. Note: the promise to pay cannot be implied from the existence of a debt. Words equivalent to promise: agree, will pay, shall pay and the like. Unconditional promise or order to pay Promise or order must not be subject to any condition. Art. 1179 a condition is a 1) a future event that may or may not happen 2) a past event unknown to the parties. Sum payable must be definite and certain Amount of money to be paid must be determinable by inspection and must be stated plainly in the face of the instrument. Like the denomination of money it must be stated in the body of the instrument.
All that is required is that the principal should be certain. Sum payable must be in money only. Bonds, stocks, state paper, scrip, checks, foreign bills are not negotiable. Reason why NI should be in money: money is the one standard of value in actual business. All other commodities may rise and fall in value but in theory, at least, money measures this rise and fall and remains the same.
(c) Must be payable on demand, or at a fixed or determinable future time; (d) Must be payable to order or to bearer; and the words order or bearer are usually referred as words of negotiability. An instrument is not negotiable unless made payable to a person or his order or to bearer unless words of similar import is used such as assigns, assignees or holder.
(e) Where the instrument is addressed to a drawee, he must be named or otherwise indicated therein with reasonable certainty. This requierement refers only to a bill of exchang. Under section 14 drawees name may be omitted and be filled in under implied authority like any other blank. And an acceptance may supply the omission of a designation. Notes The formalities required by the NI are essential for the security of mercantile transactions. They distinguish the negotiable from non-negotiable. Where the instrument does not comply with the requirement of section 1 of the negotiable instruments law, the provision of the NIL will not govern. How negotiability determined: 1) NIL sec 1 2) considering the whole of the instrument 3) what appears on the face of the instrument and not elsewhere. The requirement lacking may not be supplied by using a separate instrument containing that requirement which is lacking.
Sec. 2. What constitutes certainty as to sum. - The sum payable is a sum certain within the meaning of this Act, although it is to be paid: (a) with interest; or The fact that the sum payable is to be paid with interest does not render the sum uncertain. The sum is certain when the principal sum is certain. Where interest is stipulated but not specified the rate is determined to be the legal rate. Interest shall earn interest from the time it is judicially demanded.
(b) by stated installments; or A NI with stated instalment does not readily render it non-negotiable. Instalments must conform to the ff : 1) must be stated 2) maturity of each instalment must be fixed and determinable.
The sum payable is a sum certain within the meaning of this act although it is to be paid by instalments, with the provision that upon default in payment of instalment or of interest the whole shall be due. The sum payable is a sum certain within the meaning of this act, although it is to be paid with exchange whether at a fixed rate or at a current rate. Exchange between two places at a particular date is a matter of common commercial knowledge, or at least easily ascertained by any one so that the parties can always without difficulty ascertain the exact amount necessary to discharge the paper. Gregorio araneta INC. v. PNB: held: although the plaintiffs application provides for payment at maturity of the draft this refers merely to the time when the plaintiff was bound to pay , and not to the rate of exchange at which the draft should be paid by the plaintiff swince the latters obligation is determined by the rate of exchange von the date the drafts was drawn and presented or negotiated which was not later than Aug. 31 1949xxxx. Plaintiff-appellant invokes an alleged banking practice, custom or practice whereby drafts should be paid at the rate existing on the date of its maturity. Even assuming the existence of this practice, the same is clearly immaterial for they have an express contract between the parties defining their rights andobligation.
(c) by stated installments, with a provision that, upon default in payment of any installment or of interest, the whole shall become due; or (d) with exchange, whether at a fixed rate or at the current rate; or (e) with costs of collection or an attorney's fee, in case payment shall not be made at maturity. Note: after the date of maturity the instrument will no longer be negotiable in the full commercial sense that is in the sense that any transferee acquiring it would acquire the instrument after it is overdue. The transferee will not be considered a holder in due course and hold the instrument subject to the defences as if it was non-negotiable. Atty. Fee must be reasonable. The written amount shall govern unless the court founds it unreasonable and unconscionable. Atty. Fees non recoverable subject to some exceptions provided by law. Sec. 3.When promise is unconditional. - An unqualified order or promise to pay is unconditional within the meaning of this Act though coupled with: (a) An indication of a particular fund out of which reimbursement is to be made or a particular account to be debited with the amount; or The problem which is sought to be solved by this section is whether or not the indication of a particular fund or particular account or the statement of the transactions which gives rise to the instrument would make promise or order conditional. An order or promise to pay out of a particular fund is not unconditional but if the order or promise is coupled only by a source where reimbursement in case of non-payment it is still unconditional. Where the payment is out from the funds indicated, the payment is subject to the condition that the funds indicated is sufficient.
(b) A statement of the transaction which gives rise to the instrument. Instruments are not issuede without any transactions which they are based. Where the promise or order is made subject to the terms and conditions of the transaction stated the instrument is rendered non-negotiable.
But an order or promise to pay out of a particular fund is not unconditional. Sec. 4. Determinable future time; what constitutes. - An instrument is payable at a determinable future time, within the meaning of this Act, which is expressed to be payable:
(a) At a fixed period after date or sight; or An instrument is payable at a determinable future time within the meaning of this act, which is expressed to be payable at a fixed period after date or after sight. After sight means after the drawee has seen the instrument upon presentment for acceptance.
(b) On or before a fixed or determinable future time specified therein; or
Acceleration clause: these provisions make it possible for the maker to pay the instrument at an earlier date or make it possible for the holder to require payment of the instrument at an earlier date. Kinds: 1) that which contain acceleration clauses on the makers default in payment of instalments or of interest or on the happening of the extrinsic event; 2) or contain in notes secured by collateral a provision that the maker shall supply additional collateral in case of depreciation in the value of the original deposits with the holders right to declare the note due immediately on failure to make good the depreciation or 3) contain provisions for acceleration where holder deems himself insecure. Conflicting opinion as to the second: 1) those who maintained that such stipulation renders the instrument non-negotiable argue that the time for payment becomes uncertain and indefinite. If the maker fails when demanded to furnish additional security to the satisfaction of the holder, the note matures at once. If the holder is not satisfied with the additional security the note matures at once and thus the time at which it may mature would depend upon the time at which the holder declared himself dissatisfied with the security delivered by the maker. 2) Those who maintain that the stipulation in question does not render the instrument non-negotiable. This view is from the standpoint of expediency as encouraging circulation and of business custom on account of their common acceptance by the commercial world such clauses should be interpreted as not affecting negotiability. Conflict of opinion as to third: 1) it has been held that a note is rendered non-negotiable where it is payable at a fixed future time, but with an option on the part of the holder to declare it due and payable before maturity whenever he deems it insecure; 2) it is submitted that these cases in holding an instrument payable at a fixed time but accelerable at the option of the payee or holder non-negotiable are directly contrary to the plain meaning of this section.
(c) On or at a fixed period after the occurrence of a specified event which is certain to happen, though the time of happening be uncertain. An instrument payable upon a contingency is not negotiable, and the happening of the event does not cure the defect. Sec. 5. Additional provisions not affecting negotiability. - An instrument which contains an order or promise to do any act in addition to the payment of money is not negotiable. But the negotiable character of an instrument otherwise negotiable is not affected by a provision which: (a) authorizes the sale of collateral securities in case the instrument be not paid at maturity; or a promise of the maker to furnishadditional collateral will render the note non-negotiable, as that would be an additional act to promise to pay money.
(b) authorizes a confession of judgment if the instrument be not paid at maturity; or Classes of confession of judgement: cognovits actionem- a written confession of an action by a defendant, subscribed, but not sealed and irrevocably authorizing any attorney of any court of record to confess judgement and issue execution usually for sum named Confession relicta verification- confession of judgement after plea has been entered.
Warrant of attorney an instrument in writing addressed to one or more attorneys named therein, authorizing them generally to appear in court or in some specified court on behalf of the person giving it, and to confess judgement in favor of some particular person therein named in action debt. Confession of judgement before maturity- a note which contain a provision authorizoing confession of judgement at any time thereafter, whether due or not is not negotiable.
Note: confession of judgement is void in the Philippines because: 1) enlarge the field of fraud; 2) under this instrument the promissor bargains away hi right to a day in court; 3) effect is to strike down the right of appeal. (c) waives the benefit of any law intended for the advantage or protection of the obligor; or (d) gives the holder an election to require something to be done in lieu of payment of money. But nothing in this section shall validate any provision or stipulation otherwise illegal. Sec. 6.Omissions; seal; particular money. - The validity and negotiable character of an instrument are not affected by the fact that: (a) it is not dated; or gen rule: omission of date does not render the instrument non-negotiable exp: when date is necessary to fix date of maturity
(b) does not specify the value given, or that any value had been given therefor; or gen rule: no value specified does not affect NI; Reason: value is presumed
(c) does not specify the place where it is drawn or the place where it is payable; or (d) bears a seal; or (e) designates a particular kind of current money in which payment is to be made. But nothing in this section shall alter or repeal any statute requiring in certain cases the nature of the consideration to be stated in the instrument. Sec. 7.When payable on demand. - An instrument is payable on demand: (a) When it is so expressed to be payable on demand, or at sight, or on presentation; or (b) In which no time for payment is expressed. Where an instrument is issued, accepted, or indorsed when overdue, it is, as regards the person so issuing, accepting, or indorsing it, payable on demand. Sec. 8.When payable to order. - The instrument is payable to order where it is drawn payable to the order of a specified person or to him or his order. It may be drawn payable to the order of: (a) A payee who is not maker, drawer, or drawee; or (b) The drawer or maker; or (c) The drawee; or (d) Two or more payees jointly; or
(e) One or some of several payees; or (f) The holder of an office for the time being. Where the instrument is payable to order, the payee must be named or otherwise indicated therein with reasonable certainty.
Note: payable to order means that a person promises to pay to the order of a specific person or to the duly authorized agent of that person. There is a necessity of paying the payee: reason: if there is no payee where the instrument is to be payable to his order no one could indorse the instrument. Consequently, it is useless to consider it negotiable.
Sec. 9.When payable to bearer. - The instrument is payable to bearer: (a) When it is expressed to be so payable; or
ex. Pay to bearer P1
(b) When it is payable to a person named therein or bearer; or Ex. Pay to hanselmorana or bearer
(c) 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; or When it is payable to the order of a fictitious person or non-existing person it is payable to bearer if such fact was known to the person making it so payable. Elements: 1) the payee named must be fictitious or non existing; 2) it must be known to the person making it so payable. The name is fictitious when it is feigned or pretended and a non-existing person one who does not exist in the sense that he was not intended to be the payee by the drawer Note: if the agent has no authority to execute the instrument himself the knowledge of the principal is controlling. If principal has no knowledge the instrument will not apply as to the principal. AngTekLian v. CA: Held: under the NIL a check drawn payable to cash is payable to bearer and the bank masy pay to the person presenting it for payment.
(d) When the name of the payee does not purport to be the name of any person; or (e) When the only or last indorsement is an indorsement in blank. Sec. 10.Terms, when sufficient. - The instrument need not follow the language of this Act, but any terms are sufficient which clearly indicate an intention to conform to the requirements hereof. Sec. 11.Date, presumption as to. - Where the instrument or an acceptance or any indorsement thereon is dated, such date is deemed prima facie to be the true date of the making, drawing, acceptance, or indorsement, as the case may be. This provision applies to three cases: 1)the instrument contains the date of the issue; 2) acceptance is dated; 3) indorsement is dated
Sec. 12.Ante-dated and post-dated. - The instrument is not invalid for the reason only that it is ante-dated or post-dated, provided this is not done for an illegal or fraudulent purpose. The person to whom an instrument so dated is delivered acquires the title thereto as of the date of delivery. Limitation on ante dating or post-dating: when it is done for fraudulent and illegal purposes.
Sec. 13.When date may be inserted. - Where an instrument expressed to be payable at a fixed period after date is issued undated, or where the acceptance of an instrument payable at a fixed period after sight is undated, any holder may insert therein the true date of issue or acceptance, and the instrument shall be payable accordingly. The insertion of a wrong date does not avoid the instrument in the hands of a subsequent holder in due course; but as to him, the date so inserted is to be regarded as the true date. Date is not necessary for the negotiability of the instrument. However date may be necessary to determine the date of maturity but not for negotiability. o o Date is important to determine when interest is to run Date is necessary to determine whether a party has acted within reasonable time.
Effects of inserting a wrong date: knowingly inserting the wrong date in an undated instrument will avoid the instrument as to the party inserting the wrong date.
Insertion of the wrong date does not avoid the instrument in the hands of a holder in due course
CHAPTER 3: Interpretation of Instruments

EFFECTS OF BEING AN ADOPTED STATUTE 1. 2. 3. Interpretation of Courts of the United States of the provisions of NIL can be applied in this jurisdiction. If there is no provision of the NIL or the Code of Commerce, the provisions of the the Negotiable Instruments Law (U.S.) or the Bill of Exchange Act of 1882 can be applied. Opinions and comments of authorities or legal writers on the provisions of the Uniform Negotiable Instruments Law or the BEA 1882 may also be applied in this jurisdiction.
EFFECT OF IMPLIED REPEALS ON THE CODE OF COMMERCE The NIL impliedly repealed the provisions of the code of commerce on promissory notes and bills but there are provisions in the Code of Commerce involving Negotiable Instruments e.g. crossed checks. RULES THAT APPLY IN CASES OF AMBIGUITY Sec. 17. Construction where instrument is ambiguous. - Where the language of the instrument is ambiguous or there are omissions therein, the following rules of construction apply: a) Where the sum payable is expressed in words and also in figures and there is a discrepancy between the two, the sum denoted by the words is the sum payable; but if the words are ambiguous or uncertain, reference may be had to the figures to fix the amount; b) Where the instrument provides for the payment of interest, without specifying the date from which interest is to run, the interest runs from the date of the instrument, and if the instrument is undated, from the issue thereof; c) Where the instrument is not dated, it will be considered to be dated as of the time it was issued; d) Where there is a conflict between the written and printed provisions of the instrument, the written provisions prevail; e) Where the instrument is so ambiguous that there is doubt whether it is a bill or note, the holder may treat it as either at his election; f) Where a signature is so placed upon the instrument that it is not clear in what capacity the person making the same intended to sign, he is to be deemed an indorser; g) Where an instrument containing the word "I promise to pay" is signed by two or more persons, they are deemed to be jointly and severally liable thereon.
OTHER RULES In case of ambiguity, the ambiguity shall be construed against the party who caused the vagueness.
RELATED PROVISIONS: (AGBAYANI COMMENTARY) SECTION 17: When section applicable. - it shall not be availed of if the terms of the instrument in question are clear and admit of no doubt. - only when the instrument in question is ambiguous, doubtful or obscure, or when there are omissions therein that the rules stated in this section apply. Sum payable expressed in words and figures. - sum payable in words must prevail. - Reasons: (1) the figures in the margin do not form part of the instrument and are simply for convenience or reference; and (2) it is easier to change the figures or to commit a mistake in regards to them than when the sum is written out in words. When words ambiguous. - when the words are ambiguous or uncertain, reference may be had to the figures to fix the amount. Payment of interest. - applies when interest is stipulated but the date when interest begins to be paid is not specified. - will earn interest from the date of the note or the date of its issue, at the legal rate. Instrument not dated. - if the instrument is date, will be presumed to be its true date. - the presumption is prima facie, or rebuttable between the parties. - proof may be adduced to show a different fate as to the true date of the issue, acceptance, or endorsement. - if the instrument is not dated, the date of its issue will considered its date. - it was held that an undated acceptance of an undated bill of exchange is payable on demand and will be considered to be dated as of the time it is executed. Conflict between written and printed provision. - the handwritten words will prevail. - written words are deemed to express the true intention of the maker because they are written by himself and printed forms are printed without any particular contract in view. Instrument in ambiguous. - there is a drawee and acceptor. - the payee or the holder may treat it wither as a bill or note. Capacity of party signing not clear. - deemed to be an endorser. Two or more persons signing. - "I promise to pay to C or order P1,000 (Sgd.) A and B" - A and B are deemed to be jointly and severally liable, not merely jointly liable. The holder of the instrument can collect the whole amount of the instrument from either one of them.
- inclusion of the other co-signer in the complaint as co-defendant is unnecessary. - "We promise" - joint liability
CHAPTER 4: Transfer and Negotiation

MODES OF TRANSFER 1. 2. Negotiation: The Transfer of the instrument from one person to another as to constitute the transferee a holder thereof. Assignment: The transferee is an assignee who merely steps into the shoes of the transferor. NEGOTIATION Negotiable Instruments Law Negotiable Instruments only Holder course YES in due ASSIGNMENT Civil Code Contracts in general or other assignable rights. Mere assignee NEVER
Applicable Law Type of transaction Nature of transferee Possibility to become a holder in due course Rights acquired
Availability of personal defenses
The transferee holder may acquire rights more than that of the transferor if he is a holder in due course The transfereeholder may be free from personal defenses if he is a holder in due course
Transferee merely steps in to the shoes of the transferor
Transferee is always subject to personal defenses.
HOW NEGOTIATION TAKES PLACE A. ISSUANCE Issuance is the first delivery of the instrument complete in form to a person who takes it as a holder (Sec. 191). Issue: the delivery is the final act essential to the consummation of the instrument as an obligation. B. SUBSEQUENT NEGOTIATION
Section 30. What constitutes negotiation. - An instrument is negotiated when it is transferred from one person to another in such manner as to constitute the transferee the holder thereof. a) If payable to bearer, it is negotiated by delivery; b) if payable to order, it is negotiated by the indorsement of the holder and completed by delivery. Indorsement of Bearer Instrument
Section 40. Indorsement of instrument payable to bearer. - Where an instrument, payable to bearer, is indorsed specially, it may nevertheless be further negotiated by delivery; but the person indorsing specially is liable as indorser to only such holders as make title through his indorsement. C. INCOMPLETE NEGOTIATION OF ORDER INSTRUMENT Two Rules under Section 49: 1. 2. Where the holder of the instrument payable to his order transfers is for value without indorsing it, the transfer vests in the transferee such title as transferor had therein, and the transferee acquires in addition, the right to have the indorsement of the transferor. For the purpose of determining whether the transferee is a holder in due course, the negotiation takes effect as of the time the indorsement is actually made.
The transaction is an equitable assignment and the transferee acquires the instrument subject to the defenses and equities available among prior parties. In addition, the presumption of sufficiency of consideration and title that is enjoyed by the holders will not be enjoyed by the transferee contemplated under Sec. 49. D. INDORSEMENT Section 31. Indorsement; how made. - The indorsement must be written on the instrument itself or upon a paper attached thereto. The signature of the indorser, without additional words, is a sufficient indorsement. Where indorsement should be placed: 1. 2. On the instrument itself; On a separate piece of paper attached to the instrument called allonge.
Other rules on indorsement: Indorsement must be of the entire instrument except when there was a previous partial payment (Sec. 32). Sec 32 further disallows negotiation of two or more indorsees severally.
Kinds of Indorsement 1. 2. Blank Indorsement: no indorsee is specified and it is done by affixing the indorsers signature. Special Indorsement: Designates the indorsee. (e.g. pay to x)
Note: the holder may convert a blank indorsement into a special indorsement by writing over the signature of the indorser in blank any contract consistent with the character of the indorsement (Sec. 35). 3. 4. 5. Qualified Indorsement: constitutes the indorser a mere assignor of the title to the instrument. It may be made by adding to the indorsers signature the words without recourse. Such an indorsement does not impair the negotiable character of the instrument. Conditional Indorsement (Sec. 39): the party required to pay the instrument may disregard the condition and make payment to the indorsee or his transferee whether the condition has been fulfilled or not. Restrictive indorsement (Sec. 36): An indorsement is restrictive which either: a. Prohibits the further negotiation of the instrument; or b. Constitutes the indorsee the agent of the indorser; or c. Vests the title in the indorsee in trust for or to the use of some other persons.
Rights of a Restrictive indorsee (Sec. 37):
1. 2. 3. To receive payment of the instrument; To bring any action thereon that the indorser could bring; To transfer his rights as such indorsee, where the form of the indorsement authorizes him to do so. In case of transfer, all subsequent indorsees acquire only the title of the firs indorsee under the restrictive indorsement.
Negotiation by Prior Party Where an instrument is negotiated back to a prior party, such party may reissue and further renegotiate the same. But he is not entitled to enforce payment thereof against any intervening party to whom he was personally liable (Sec. 50). However, he may strike out the intervening indorsements because they are not necessary for his title and he is liable to them because of his initial indorsement (Sec. 48). Consideration for issuance and subsequent transfer Every negotiable instrument is deemed prima facie to have been issued for a valuable consideration; and every person whose signature appears thereon to have become a party thereto for value (Section 24). Therefore it is up to the party who alleges that there was absence of consideration to prove such fact. The presumption will operate if there was negotiation. Consideration is not presumed if there was transfer without indorsement (BPI vs. CA, G.R. No. 136202, January 25, 2007). However, Section 28 provides that absence or failure of consideration is a matter of defense as against any person not a holder in due course; and partial failure of consideration is a defense pro tanto, whether the failure is an ascertained and liquidated amount or otherwise. RULES ON WHAT CONSTITUTES VALUABLE CONSIDERATION FOR PURPOSES OF ISSUANCE AND NEGOTIATION OF NEGOTIABLE INSTRUMENTS: Section 25. Value, what constitutes. Value is any consideration sufficient to support a simple contract. An antecedent or pre-existing debt constitutes value; and is deemed such whether the instrument is payable on demand or at a future time. Section 26. What constitutes holder for value. - Where value has at any time been given for the instrument, the holder is deemed a holder for value in respect to all parties who become such prior to that time. Section 27. When lien on instrument constitutes holder for value. Where the holder has a lien on the instrument arising either from contract or by implication of law, he is deemed a holder for value to the extent of his lien. What Constitutes Value: The simple contract referred to Section 25 refers to onerous contracts. Art 1350 Civil Code: In onerous contracts the cause is understood to be, for each contracting party, the prestation or promise of a thing or service by the other; in remuneratory ones, the service or benefit which is remunerated; and in contracts of pure beneficence, the mere liberality of the benefactor. Ty vs. People (439 SCRA 220): Valuable consideration consists in either rights, interest, profit or benefit accruing to the party who makes the contract or some forbearance, detriment, loss, or some responsibility to act, or labor, or service given, suffered or undertaken by the other party. It is enough that the oblige foregoes some right or privilege or suffers some detriment. There is valuable consideration if the parties resort to what is known as discounting. IN discounting, the instrument is negotiated to another because the transferee will pay the amount of the instrument. However, the transferee charges or deducts a certain percentage from the principal as its compensation. Love and affection do not constitute valuable consideration. A lien is also valuable consideration (please see Sec. 27).
Effect if value was previously given An exceptional case where a transferee who did not give valuable consideration for the instrument may nevertheless be considered a holder for value is contemplated under Sec. 26 of the NIL.

Section 24. Presumption of Consideration is Disputable. - negotiable instrument was given or endorsed for a sufficient consideration. - it is disputable in the sense that the said presumption is satisfactory if not contradicted. Consideration need not be alleged or proved. - it is unnecessary to aver or prove consideration, for consideration is imported and presumed from the fact that it is a negotiable instrument. - any allegation which sets forth the existence of valuable consideration for the transfer of an instrument by endorsement is sufficient, notwithstanding the failure to allege specifically the amount and nature of the consideration which was in fact paid to the endorser. Mere introduction of instrument is sufficient. - prima facie entitles the plaintiff of a recovery and unless such prima facie case is overcome by evidence produced by the defendant the plaintiff is entitled to recover. - the person claiming that a payee or an indorsee did not give valuable consideration given. Effect of lack of consideration. - the instrument is without effect and the payment of said note is not demandable. Section 25. Valuable consideration in general. - consideration: inducement to a contract that is, the cause, motive, price or impelling influence which induces a contracting party to enter into a contract. - consist either in some right, interest, profit or benefit accruing to the party who makes the contract, or some forbearance, detriment., loss or some responsibility to act, or labor, or service given, suffered or undertaken by the other side. - an obligation to give, to do or not to do, in favor of the party who make the contract, such as the maker or indorser. Pre-existing debt, Third person's pre-existing debt, Bank credits, Exchange of negotiable papers - sufficient consideration. Consideration as to surety or guarantor. - it is unnecessary to prove consideration between the surety and the creditor. Love or affection. - is good consideration, but does not constitute such valuable consideration as is sufficient itself to support the obligation of a bill or note, as between the parties. Section 26. Meaning of holder for value. - one who gives valuable consideration for an instrument issued or negotiated. - not limited to one who is known to have given valuable consideration for the instrument he holds. - any holder of an instrument for which value has been given at any time Section 27. Application of Section 27. - if maker has defenses against endorser, such as absence of consideration, even a holder in due course can collect from maker only the extent of the lien. Reason for the rule. - holder in due course is only a holder in due course for that amount only. Where defenses are real, non-existent. - if the defenses are real, holder in due course can collect nothing because maker can interpose those defense against the holder in due course as to the whole amount of the instrument. Sec. 28. Effect of want of consideration. - Absence or failure of consideration is a matter of defense as against any person not a holder in due course; and partial failure of consideration is a defense pro tanto, whether the failure is an ascertained and liquidated amount or otherwise.
Sec. 29. Liability of accommodation party. - An accommodation party is one who has signed the instrument as maker, drawer, acceptor, or indorser, without receiving value therefor, and for the purpose of lending his name to some other
person. Such a person is liable on the instrument to a holder for value, notwithstanding such holder, at the time of taking the instrument, knew him to be only an accommodation party. Sec. 30. What constitutes negotiation. - An instrument is negotiated when it is transferred from one person to another in such manner as to constitute the transferee the holder thereof. If payable to bearer, it is negotiated by delivery; if payable to order, it is negotiated by the indorsement of the holder and completed by delivery. Method of Transfer. 3 methods of transfer: (1) by assignment; (2) by operation of law; (3) by negotiation, which may either be by indorsement completed by delivery or by mere delivery. Assignment. It is the method of transferring a non-negotiable instrument whereby the assignee is merely placed in the position of the assignor and acquires the instrument subject to all defences that might have been set up against the original payee. Mode of assignment. Although some sort of written assignment is customarily employed, it may be written either on the instrument itself or on a separate piece of paper. Effect of assignment of non-negotiable instruments. The party holding the right drops out of the contract and another takes his place. The assignee is substituted in place of the assignor. The assignee and every subsequent person to whom the instrument comes by assignment may be considered as the person who made the instrument in the first instance and as having said and done everything in making the instrument which the original assignor said or did. The assignee takes the contract subject to equities, that is, to defenses to the contract which would avail in favor of the original party up to the time the notice of the assignment is given to the person against whom the contract is sought to be enforced. Assignment of negotiable instruments. A person taking a negotiable instrument by assignment in a separate paper takes it subject to the rules applying to assignment. And where the hold of a bill payable to order transfers it without indorsement, it operates as an equitable assignment. Transfer by operation of law. The full title to a bill or note may pass without either assignment, indorsement, or delivery, that is, by operation of law: (1) by the death of the holder, where the title vests in his personal representative, or (2) by the bankruptcy of the holder, where the title vests in his assignee or trustee, or (3) upon the death of a joint payee or indorsee, in which case the general is that the title vests at once in the surviving payee or indorsee. Negotiation. Usually, where the instrument is payable to order, it is negotiated by the indorsement of the holder completed by deliver, and where it is payable to bearer, by mere delivery. Is delivery to payee negotiation? The first view is that the issuance or delivery to the payee is not negotiation because negotiation refers to an existing negotiable instrument and, before delivery to the payee, the instrument is incomplete. The second view is that under this section and Section 191, an instrument is negotiated when it is delivered to the payee or to an indorsee; negotiation is not confined to transfer after delivery to the payee. This seems to be the better view, as delivery to the payee of the instrument constitutes him the holder thereof. Sec. 31. Indorsement; how made. - The indorsement must be written on the instrument itself or upon a paper attached thereto. The signature of the indorser, without additional words, is a sufficient indorsement. Nature of indorsement. An indorsement is not only a mode of transfer, it is also a contract. The indorsement of a bill or note implies an undertaking from the indorser to the person in whose favor it is made and to every other person to whom the bill or note may afterwards be transferred, exactly similar to that which is implied by drawing a bill except that, in the case of drawing a bill, the stipulation with respect to the drawers responsibility and undertaking do not apply. Where indorsement written. The indorsement may be written (1) on the instrument itself, or (2) upon a paper attached thereto, which is called an allonge. But the allonge must be tacked or pasted on the instrument so as to become a part of it, and where the separate paper is only temporary attached, and where the separate paper is only temporarily attached, it cannot be considered as allonge. How indorsement is written. Indorsement does not prove itself. It must be shown that the means was intended as an indorsement. Sec. 32. Indorsement must be of entire instrument. - The indorsement must be an indorsement of the entire instrument. An indorsement which purports to transfer to the indorsee a part only of the amount payable, or which
purports to transfer the instrument to two or more indorsees severally, does not operate as a negotiation of the instrument. But where the instrument has been paid in part, it may be indorsed as to the residue.
Indorsement must be of the entire instrument. Accordingly, an indorsement of a part of the instrument does not operate as negotiation thereof. Effect of partial indorsement when unauthorized. It does not operate as an indorsement, but it may constitute a valid assignment binding between the parties. The person to whom the instrument is indorsed would not be considered an indorsee but merely as assignee and would therefore take the instrument subject to the defenses available between the original parties. Exception. But where the instrument has been paid in part, it may be indorsed as to the residue. Transfer of two or more indorsees severally. An indorsement which purports to transfer the instrument to two or more indorsees severally does not operate as a negotiation of the instrument. Sec. 33 Kinds of indorsement. - An indorsement may be either special or in blank; and it may also be either restrictive or qualified or conditional. Kinds of indorsement. (1) special, (2) in blank, (3) absolute, (4) conditional, (5) restrictive, (6) qualified, (7) joint, (8) successive, (9) irregular, (10) facultative. Sec. 34 Special indorsement; indorsement in blank. - A special indorsement specifies the person to whom, or to whose order, the instrument is to be payable, and the indorsement of such indorsee is necessary to the further negotiation of the instrument. An indorsement in blank specifies no indorsee, and an instrument so indorsed is payable to bearer, and may be negotiated by delivery. How further negotiated. (1) Where the instrument is originally payable to order and it is negotiated by the payee by special indorsement, it can be further negotiated by the indorsee by indorsement completed by delivery; (2) Where the instrument is originally payable to order and it is negotiated by the payee by blank indorsement, it can be further negotiated by the holder by mere delivery; (3) Where the instrument is originally payable to bearer, it can be further negotiated by mere delivery, even if the original bearer negotiated it by special indorsement. Sec. 35 Blank indorsement; how changed to special indorsement. - The holder may convert a blank indorsement into a special indorsement by writing over the signature of the indorser in blank any contract consistent with the character of the indorsement. Limitation upon conversion of blank indorsement. The holder must not write any contract not consistent with the indorsement, that is, the contract so written must not change the contract of the blank indorser. Sec. 36 When indorsement restrictive. - An indorsement is restrictive which either: (a) Prohibits the further negotiation of the instrument; or (b) Constitutes the indorsee the agent of the indorser; or (c) Vests the title in the indorsee in trust for or to the use of some other persons. But the mere absence of words implying power to negotiate does not make an indorsement restrictive. Indorsee agent of the indorser. This is known as the agency type of restrictive indorsement. Effect of omission of words of negotiability. Under the law, mere absence of words implying power to negotiate does not make an indorsement restrictive. But while the omission of words of negotiability in the indorsement does not affect the negotiability of the instrument, such omission in the body thereof will render the instrument non-negotiable. Sec. 37 Effect of restrictive indorsement; rights of indorsee. - A restrictive indorsement confers upon the indorsee the right:
(a) to receive payment of the instrument; (b) to bring any action thereon that the indorser could bring; (c) to transfer his rights as such indorsee, where the form of the indorsement authorizes him to do so. But all subsequent indorsees acquire only the title of the first indorsee under the restrictive indorsement.
Restrictive indorsee may receive payment. Restrictive indorsee may bring any action. Restrictive indorsee may transfer his rights.
Sec. 38 Qualified indorsement. - A qualified indorsement constitutes the indorser a mere assignor of the title to the instrument. It may be made by adding to the indorser's signature the words "without recourse" or any words of similar import. Such an indorsement does not impair the negotiable character of the instrument. How qualified indorsement is made. A qualified indorsement is made by adding to the indorsers signature the words without recourse, sans recours, indorser not holden, with intent to transfer title only, and not to incur liability as indorser, or at the indorsees own risk. Effect of qualified indorsement. It constitutes the indorser a mere assignor of the title to the instrument. Without recourse means without resort to a person who is secondarily liable after the default of the person who is primarily liable. Qualified indorser has limited secondary liability. He is secondarily liable on his warranties as an indorser under Section 65, that is, the qualified indorser is liable if the instrument is dishonoured by non-acceptance or non-payment due to (1) forgery; (2) lack of good title on the part of the indorser; (3) lack of capacity to indorse on the part of the prior parties; (4) the fact that, at the time of the indorsement, the instrument was valueless or not valid and he knew of that fact. Effect of qualified indorsement on negotiability. A qualified indorsement does NOT impair the negotiable character of the instrument. Sec. 39 Conditional indorsement. - Where an indorsement is conditional, the party required to pay the instrument may disregard the condition and make payment to the indorsee or his transferee whether the condition has been fulfilled or not. But any person to whom an instrument so indorsed is negotiated will hold the same, or the proceeds thereof, subject to the rights of the person indorsing conditionally. Absolute indorsement. One by which the indorser binds himself to pay, upon no other condition than the failure of prior parties to do so and upon due notice to him of such failure. Conditional indorsement. An indorsement subject to the happening of a contingent event, that is, an event that may or may not happen, or a past event unknown to the parties. Right to disregard conditions / Obligations of conditional indorsee. The maker MAY disregard the condition and pay the indorsee even if the condition has not been fulfilled. Such payment will discharge him from liability on the instrument. However, the indorsee does not immediately acquire ownership over the sum. The indorsee must hold it in trust while the condition is not fulfilled. It is only upon the fulfilment of the condition that such ownership over the proceeds of the note is absolutely acquired by the conditional indorsee. Effect of conditional indorsement on negotiability. A conditional indorsement does not render an instrument nonnegotiable. But if the condition is on the face of the instrument, making the order or promise to pay conditional, the condition renders it non-negotiable as the promise or order therein would not be unconditional. Sec. 40 Indorsement of instrument payable to bearer. - Where an instrument, payable to bearer, is indorsed specially, it may nevertheless be further negotiated by delivery; but the person indorsing specially is liable as indorser to only such holders as make title through his indorsement. Application. This section applies only to instruments which are originally payable to bearer. It does NOT apply to instruments originally payable to order, even when they become payable to bearer because the only or last indorsement is in blank. Negotiation of instrument payable to bearer but specially indorsed. An instrument which is originally payable to bearer is always payable to bearer. Hence, even when specially indorsed, it can be negotiated by mere delivery.
Sec. 41 Indorsement where payable to two or more persons. - Where an instrument is payable to the order of two or more payees or indorsees who are not partners, all must indorse unless the one indorsing has authority to indorse for the others. Application. This section applies only to instruments payable to two or more payees jointly (and). It does NOT apply to instruments payable to two or more payees severally/solidary (or). How indorsement of joint payees made. Where the instrument is payable to two or more payees, all payees must each indorse in order to negotiate the instrument. If only one indorses, he passes only his part of the instrument. Such an indorsement would not operate as such because it would not be an indorsement of the entire instrument. EXCEPTIONS: (1) where the payee or indorsee indorsing has authority to indorse for the others, and (2) where the payees or indorsees are partners. Sec. 42 Effect of instrument drawn or indorsed to a person as cashier. - Where an instrument is drawn or indorsed to a person as "cashier" or other fiscal officer of a bank or corporation, it is deemed prima facie to be payable to the bank or corporation of which he is such officer, and may be negotiated by either the indorsement of the bank or corporation or the indorsement of the officer. Presumption is disputable. Proof may be adduced to show that the bill is payable to the cashier personally as real creditor to the maker. However, as to public corporations, a town treasurer has no authority to indorse the said instrument since corporation in this section does not include cities and towns. Sec. 43 Indorsement where name is misspelled, and so forth. - Where the name of a payee or indorsee is wrongly designated or misspelled, he may indorse the instrument as therein described adding, if he thinks fit, his proper signature. Sec. 44 Indorsement in representative capacity. - Where any person is under obligation to indorse in a representative capacity, he may indorse in such terms as to negative personal liability. How agent must indorse. He must indorse in the same manner as an agent of the maker, drawer or acceptor should in order to escape personal liability as required under Section 20. He must (1) add the words describing himself as an agent; (2) disclose his principal; and (3) must be duly authorized. Sec. 45 Time of indorsement; presumption. - Except where an indorsement bears date after the maturity of the instrument, every negotiation is deemed prima facie to have been effected before the instrument was overdue. Importance. In order that one may be a holder in due course, the instrument must be negotiated to him before it becomes overdue. The indorsement without date establishes prima facie presumption that the instrument was negotiated before maturity. Sec. 46 Place of indorsement; presumption. - Except where the contrary appears, every indorsement is presumed prima facie to have been made at the place where the instrument is dated. Importance. The place of indorsement sometimes is material because an indorsement is governed by the laws of the place where it is indorsed, although the instrument is drawn or made in a different place. Sec. 47 Continuation of negotiable character. - An instrument negotiable in its origin continues to be negotiable until it has been restrictively indorsed or discharged by payment or otherwise. When negotiable instrument rendered non-negotiable. Under this section, an instrument originally negotiable can be rendered negotiable only by: (1) restrictive indorsement; or (2) by a discharge thereof by payment or otherwise. Right of holder not in due course. The only disadvantage of a holder who is not a holder in due course is that the negotiable instrument is subject to defenses as if it were non-negotiable. Sec. 48 Striking out indorsement. - The holder may at any time strike out any indorsement which is not necessary to his title. The indorser whose indorsement is struck out, and all indorsers subsequent to him, are thereby relieved from liability on the instrument. When holder may or may not strike out indorsement. A holder may strike out any indorsement which is not necessary to his title. But where an instrument is transferred by a special indorsement, the holder has no right to strike out the name of the person mentioned in such indorsement and insert his own name in place thereof. The holder who acquires title subsequent to the succeeding special indorsement must trace his title not only through the blank indorsement but through the special indorsement as well.
Effects of striking out. (1) The indorser whose indorsement is struck out is relieved from his liability on the instrument, and (2) all subsequent indorsers are also relieved from their liability on the instrument. Sec. 49 Transfer without indorsement; effect of. - Where the holder of an instrument payable to his order transfers it for value without indorsing it, the transfer vests in the transferee such title as the transferor had therein, and the transferee acquires in addition, the right to have the indorsement of the transferor. But for the purpose of determining whether the transferee is a holder in due course, the negotiation takes effect as of the time when the indorsement is actually made. Application. This section applies only to instruments payable to order. This contemplates a case where there is delivery and payment of value but no indorsement. This operates as an equitable assignment. Rights of transferee for value. (1) The transferee acquires only the rights of the transferor. (2) The transferee has also the right to require the transferor to indorse the instrument. When transferee becomes holder in due course. The time for determining whether the transferee is a holder in due course is as of the time of actual indorsement, not at the time of the delivery. Sec. 50 When prior party may negotiate instrument. - Where an instrument is negotiated back to a prior party, such party may, subject to the provisions of this Act, reissue and further negotiable the same. But he is not entitled to enforce payment thereof against any intervening party to whom he was personally liable.
CHAPTER 5: Holders
Definition: A holder means the payee or indorsee of a bill or note who is in possession of it or the bearer thereof. 1. Holder of an order instrument: PAYEE or INDORSEE; 2. Holder of a bearer instrument: BEARER RIGHTS OF HOLDERS IN GENERAL Sec 51: Every holder of a negotiable instrument may sue thereon in his own name; and payment to him in due course discharges the instrument. It is not necessary that the holder is a holder in due course before he can enforce payment especially if there are no defenses available to the parties. The only disadvantage of a holder not in due course is that the instrument is subject to defenses as if it were non-negotiable. REQUISITES OF A HOLDER IN DUE COURSE (SEC 52): A holder is a holder in due course if he has taken the instrument under the following conditions: 1. That it is complete and regular upon its face; 2. That he became the holder of it before it was overdue and without notice that it has been previously dishonoured, if such was the fact; 3. That he took it in good faith and for value; 4. That at the time it was negotiated to him, he had no notice of any infirmity in the instrument or defect in the title of the person negotiating it. Holder It is actually the first requirement under Section 52 to be a holder. If a possessor of a negotiable instrument is not a holder, he can never be a holder in due course. Complete and Regular
An instrument is complete and regular upon its face if it contains no material or substantial alteration. If the alteration is not apparent, the firs requirement is still present because the instrument is still complete and regular upon its face. Taking before Overdue A holder who takes an overdue instrument is put on inquiry although he is not actually aware of any existing defense of a prior party. A. Installment Instruments With respect to instruments that are payable in installment, it is a general proposition under the Uniform Negotiable Instruments Law in the United States and Common Law that the transferee of an installment not a holder in due course as to any part of the note when the transfer has been made after the maturity of one or more though less than all of the installment. B. Overdue Interest Payments The mere fact that interest on a note was overdue does not, in the absence of a stipulation making the principal due upon failure to pay interest, affect an indorsee with notice of dishonour or put him on inquiry. But it is a material circumstance bearing on the question whether the indorsee acquired the note in good faith and without notice of defects of title. C. Demand Instruments Sec. 53: Where an instrument payable on demand is negotiated on an unreasonable length of time after its issue, the holder is not deemed a holder in due course. Unreasonable: regard has to be had in the nature of the instrument, the usage of trade or business (if any) with respect to such instruments, and the facts of the particular case (Sec. 193). Notice of Infirmity and Defect Effect of Notice: destroy the due course holding of the instrument Sec. 53: To constitute notice of an infirmity in the instrument or defect in the title of the person negotiating the same, the person to whom it is negotiated must have had actual knowledge of the infirmity or defect, or knowledge of such facts that his action in taking the instrument amounted to bad faith. Infirmity: any irregularity in the instrument. Defective Title: when the party 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 to amount to a fraud. (Sec. 57) Good Faith Ocampo vs. Gatchalian: Although good faith on the part of the holder is presumed, such presumption is destroyed if the payee or indorsee acquired possession of the instrument under circumstances that should have put it to inquiry as to the title of the holder who negotiated the instrument. Crossed Checks: as to crossed checks, a person who takes a crossed check without making further inquiries is not a holder in due course. The act of crossing a check serves as a warning to the holder that the check has been issued for a definite purpose so that he must inquire if he has received the check pursuant to that purpose. (Rule does not apply if the payee deposited the check). Holder for Value Value is a consideration sufficient to support a simple contract.
A holder is a holder for value if the instrument was indorsed to him by his immediate transferor to pay for a loan that was extended to the latter. The concept of value under the NIL is different from the concept of cause or consideration under the Civil Code. With respect to holders, the holder is a holder for value only to the extent that the consideration agreed upon has been paid, delivered, or performed. Sec. 54: Where the transferee receives notice of any infirmity in the instrument or defect in the title of the person negotiating the same before he has paid the full amount agreed to be paid therefor, he will be deemed a holder in due course only to the extent of the amount paid therefor by him. Accommodation Parties A holder for value under Sec. 29 of the NIL is one who must meet all the requirements of the holder in due course under Sec. 52 of the same law except notice of want of consideration. Lack of notice of any infirmity in the instrument or defect in title of the person negotiating it has no application. However, the inapplicability of the fourth requisite is limited to notice of absence of consideration, that is, notice of the fact that the party is a mere accommodation party who did not receive any consideration on the instrument. Presumptions The prima facie presumption is that every holder is a holder in due course and it is up to the person who is resisting the claim to prove that the holder is not a holder in due course. (Please see Sec. 59) The presumption does not operate if a demand instrument is negotiated for an unreasonable length of time. A holder cannot likewise be presumed a holder in due course if there is no proof whatsoever how the person who is claiming the rights of a holder in due course, acquired the instrument. The conclusion is further reinforced if the same person cannot explain how he acquired the instrument and there is no showing that he acquired it before it was dishonoured. Payee as a Holder in Due Course It is possible for a payee to be a holder in due course under any circumstance in which he meets the requirements of Sec. 52 of the NIL. The word holder in Sec. 52 may be replaced by the definition in Sec. 191. RIGHTS OF A HOLDER IN DUE COURSE 1. A holder in due course holds the instrument free from any defect of title of prior parties, and free from defenses available to prior parties among themselves, and may enforce payment of the instrument for the full amount thereof against all parties liable thereon. a. A holder in due course is free from personal defenses. b. A holder in due course is no free from real defenses A holder no in due course is subject to personal and real defenses. the law does not impose on a holder the obligation to inquire into the infirmity in the instrument or defect of the title of the person negotiating it to him. However, failure to make inquiry, when circumstances indicate defect, renders the holder not a holder in due course. Gross negligence may amount to legal absence of good faith (De Ocampo vs. Gatchalian, 3 SCRA 596).
2. 3.
SHELTER RULE General Rule: if a holder is not a holder in due course, he is subject to the same defenses as if it were non-negotiable. Exception: a holder who is not a holder in due course but he derived from his title from a holder in due course.
Sec. 58: x x x But a holder who derives his title through a holder in due course, and who is not himself a party to any fraud or illegality affecting the instrument, has all the rights of such former holder in respect of all parties prior to the latter. The rule is not applicable: 1. 2. If he was a previous holder not in due course who repurchased the instrument either personally or through an agent. Reacquisition of the instrument.
Rights of Holder in Bills in Set Bill in set: one bill that is drawn in set. Sec. 178: where a bill is drawn in a set, each part of the set being numbered and containing a reference to the other parts, the whole of the parts constitutes one bill. A problem arises if different parts of the set are negotiated to separate persons who are holders in due course. Rights available: Sec. 179: Where two or more parts of a set are negotiated to different holders in due course, the holder whose title first accrues is, as between such holders, the true owner of the bill. But nothing in this section affects the right of a person who, in due course, accepts or pays the parts first presented to him. Sec. 180: Where the holder of a set indorses two or more parts to different persons, he is liable on every such part, and every indorser subsequent to him is liable on the part he has himself indorsed, as if such parts were separate bills. Sec. 181: The acceptance may be written on any part and it must be written on one part only. If the drawee accepts more than one part of such accepted parts negotiated to different holders in due course, he is liable on every such part as if it was a separate bill. CONSUMER TRANSACTIONS Background Protection must be granted to consumers who transact with negotiable instruments to sellers who in turn, transact such instruments to finance companies who are deemed holders in due course. Thus, when consumers find defect in the products they buy, they cannot refuse payment of such instruments primarily due to the fact that such finance companies are holders in due course. Protection under Philippine Jurisprudence Consolidated Plywood Industries vs. IFC Leasing and Acceptance Corporation1: finance companies are better able to bear the risk of the dealers insolvency than the buyer. They are also in a better position to protect their interests against unscrupulous and insolvent dealers. Juanita Salas vs. CA2: finance companies are still holders in due course. (Thus, the Supreme Court appears to be inconsistent in their rulings regarding these transactions.) Protection under Consumer Act
1 2
RI 149 SCRA 448. 181 SCRA 296
Art. 146 of RA 7394 effectively abolished the distinction between a holder in due course and one who is not with respect to transfer to banks and financing companies of instruments that cover consumer credit sales. RIGHTS OF A HOLDER IN BILLS IN SET Sec. 178. Bills in set constitute one bill. - Where a bill is drawn in a set, each part of the set being numbered and containing a reference to the other parts, the whole of the parts constitutes one bill. Bill in set, defined. One composed of various parts, each part being numbered, and containing a reference to other parts, all of which parts constitute but one bill. Purpose. To increase the probability of the bill reaching its destination.
Sec. 179. Right of holders where different parts are negotiated. - Where two or more parts of a set are negotiated to different holders in due course, the holder whose title first accrues is, as between such holders, the true owner of the bill. But nothing in this section affects the right of a person who, in due course, accepts or pays the parts first presented to him. Suppose B, payee, wants to raise P4,000. In violation of his rights, he negotiates the first part of the bill to C and the second part to D, both of whom are holders in due course. Who is the true owner of the bill? If B negotiates to C on January 3, 1950 and to D on January 5, 1950, C is the true owner, as Cs title accrues first. BUT, if D succeeds in presenting his part of the bill for acceptance or payment, and X, the drawee, accepts or pays the second part in due course, X is protected and X can refuse to accept Cs part of the bill. Sec. 180. Liability of holder who indorses two or more parts of a set to different persons. Where the holder of a set indorses two or more parts to different persons he is liable on every such part, and every indorser subsequent to him is liable on the part he has himself indorsed, as if such parts were separate bills. Liability of holder who indorses two or more parts. (Continuation of illustration under note 1178) B is liable on both parts as if there are two bills, on the first to C and on the second to D. In other words, as a result of his negotiation of the two parts, B is liable for a total of P4,000. But A, the drawer, or X, the drawee, is liable only on one part or for P2,000 unless the drawee accepts both parts. Suppose that C and D respectively negotiate the parts they have to E, the first part, and f, the second part. C is liable to E for the part he indorsed to E and D is liable to F for the part he indorsed to F. Sec. 181. Acceptance of bill drawn in sets. - The acceptance may be written on any part and it must be written on one part only. If the drawee accepts more than one part and such accepted parts negotiated to different holders in due course, he is liable on every such part as if it were a separate bill. Drawee must accept only one part. If he accepts both parts, and they are negotiated to holders in due course, he is liable on evey such part as if it were a separate bill, that is for a total of P4,000. But he can ask reimbursement from A, drawer only on one part, that is, P2,000, because the order of the drawer to him is to pay only one part,
not both parts. Sec. 182. Payment by acceptor of bills drawn in sets. - When the acceptor of a bill drawn in a set pays it without requiring the part bearing his acceptance to be delivered up to him, and the part at maturity is outstanding in the hands of a holder in due course, he is liable to the holder thereon. Illustration. Suppose that X accepts only the first part. Then, he pays the second part without requiring the first part to be surrendered to him. On the date of maturity, X would still be liable to the holder of the first part on which appears his acceptance. Sec. 183. Effect of discharging one of a set. - Except as herein otherwise provided, where any one part of a bill drawn in a set is discharged by payment or otherwise, the whole bill is discharged. Effect of discharge of one part. Subject to the exceptions in Sections 180, 181, and 182, if one part is discharged, the whole bill is discharged. Reason: The bill constitutes only one bill. Example: Suppose that X, acceptor, pays the first part of which he accepted. The second and third parts are also discharged.
RELATED PROVISIONS: (AGBAYANI COMMENTARY) Sec. 51 Right of holder to sue; payment. - The holder of a negotiable instrument may to sue thereon in his own name; and payment to him in due course discharges the instrument. Rights of the holder in general. (1) He may sue on the instrument in his own name, even if he be a holder only for collection, or as a pledge of the instrument. (2) He may receive payment and if the payment is in due course, the instrument is discharged. Effect of payment to the holder. The payment in due course to the holder of an instrument discharges the instrument. Sec. 52 What constitutes a holder in due course. - A holder in due course is a holder who has taken the instrument under the following conditions: (a) That it is complete and regular upon its face; (b) That he became the holder of it before it was overdue, and without notice that it has been previously dishonored, if such was the fact; (c) That he took it in good faith and for value; (d) That at the time it was negotiated to him, he had no notice of any infirmity in the instrument or defect in the title of the person negotiating it. Where instruments held complete and regular. (1) Where the omission is immaterial (2) Where there is alteration in the instrument but the court, upon inspection, found that the alteration was not apparent (3) Although a printed name of a payee was stricken out, and another payees name inserted in writing, but the same is a common practice by the holder bank. When instrument is overdue. An instrument is overdue after the date of maturity. As to acceleration clause When the instrument contains an acceleration clause, knowledge of the holder at the time of acquisition thereof of that one instalment or interest is unpaid, is notice that the instrument is overdue.
As to interest One who purchases in good faith an instrument upon which the interest is overdue is a holder in due course. Acquisition in good faith. Good faith refers to the indorsee or transferee, not to the seller of the paper. He must NOT have knowledge or notice of equities of any sort which could be set up against a prior holder of the instrument. The test for determining whether a holder acquires an instrument in good faith is not whether he was negligent, but whether his purpose was dishonest. Even gross negligence does not establish bad faith. A subjective test of honesty, not an objective test of due care. Acquisition for value. Where the holder gave no valuable consideration for the transfer of the instrument to him, he cannot be a holder in due course. Article 1335 of the Civil Code: except in cases specified by law, lesion or inadequacy of cause shall not invalidate a contract, unless there has been fraud, mistake or undue influence. But while inadequacy of consideration is not of itself a sufficient ground for either legal or equitable relief, yet it may be shown as evidence of fraud. Defects of title. Defects are those defined by Section 55 to cover all those known as equitable defenses. Defenses include those which are not covered by Section 55 such as mistake, absence and failure of consideration, minority and other forms of incapacity, lack of authority, etc. Infirmities must include things that are wrong with the instrument itself. May the drawee be a holder in due course? The 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 an payment of the instrument, thereby strips it of all negotiability and reduces it to a mere voucher or proof of payment. May a pledgee be a holder in due course? The pledgee for value in good faith of a complete unmatured note, without notice of equities, is a holder in due course. Sec. 53 When person not deemed holder in due course. - Where an instrument payable on demand is negotiated on an unreasonable length of time after its issue, the holder is not deemed a holder in due course. Application. This section applies to instruments which are payable on demand. Sec. 54 Notice before full amount is paid. - Where the transferee receives notice of any infirmity in the instrument or defect in the title of the person negotiating the same before he has paid the full amount agreed to be paid therefor, he will be deemed a holder in due course only to the extent of the amount therefore paid by him. Sec. 55 When title defective. - The title of a person who negotiates an instrument is defective within the meaning of this Act when he obtained the instrument, or any signature thereto, by fraud, duress, or force and fear, or other unlawful means, or for an illegal consideration, or when he negotiates it in breach of faith, or under such circumstances as amount to a fraud. Defective title in general. The title of a person in an instrument becomes defective either: (1) in the acquisition, or (2) in the negotiation thereof. In acquisition, the title becomes defective when he obtains the instrument or any signature thereto by: (1) fraud, (2) duress or force and fear, (3) other unlawful means, or (4) for an illegal consideration. In negotiation, the title of a person becomes defective when he negotiates it: (1) with breach of faith, or (2) under such circumstances amounting to fraud. Sec. 56 What constitutes notice of defect. - To constitutes notice of an infirmity in the instrument or defect in the title of the person negotiating the same, the person to whom it is negotiated must have had actual knowledge of the infirmity or defect, or knowledge of such facts that his action in taking the instrument amounted to bad faith. Notice of defect of title in general. To constitute notice of defect or infirmity, the transferee must have actual knowledge, either: (1) of the defect or infirmity, or (2) of such facts that his action in taking the instrument amounts to bad faith. Sec. 57 Rights of holder in due course. - A holder in due course holds the instrument free from any defect of title of prior parties, and free from defenses available to prior parties among themselves, and may enforce payment of the instrument for the full amount thereof against all parties liable thereon. Rights of a holder in due course. (1) He may sue on the instrument in his own name;
Negotiable Instruments Law (Aquino and Agbayani Notes) 31 Abad.Avila.Cancino.Concepcion.Chu.Layno.Mercado.Prinsipe.Reyes H. (2S A.Y. 2010-2011) (2) (3) (4)
He may receive payment, and if the payment is in due course, the instrument is discharged; He holds the instrument free from any defect of title of prior parties and free from defenses available to prior parties among themselves; and He may enforce payment of the instrument for the full amount thereof against all parties liable thereon.
Section 58. When subject to original defences. In the hands of any holder other than a holder in due course, a negotiable instrument is subject to the same defences as if it were non-negotiable. But a holder who derives his title through a holder in due course, and who is not himself a party to any fraud or illegality affecting the instrument, has all the rights of such former holder in respect of all parties prior to the latter. 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 payment is in due course, the instrument is discharged. (3) He holds the instrument subject to the same defences as if it were non-negotiable; (4) But a holder not in due course who derives his title through a holder in due course and who is not a party to any fraud or illegality affecting the instrument, has all the rights of such former holder in respect of all parties prior to the latter. Holder acquiring from holder in due course Requisites: 1. That he derived his title from a holder in due course; and (2) that he was not himself a party to any fraud or illegality affecting the instrument A purchaser from a holder in due course is entitled to recover against prior parties even though he has notice of the defences, or notice of maturity of a negotiable certificate of deposit, or with knowledge of the equities In order that a holder who derives his title form a holder in due course may recover on the instrument, it is incumbent upon him to show that the person through whom he derives his title was a holder in due course As to one not a holder in due course reacquiring from holder in due course. If the original payee of a note unenforceable for lack of consideration repurchases the instrument after transferring it to a holder in due course, the paper again becomes subject in the payees hands to the same defences to which it would have been subject as if the paper had never passed through the hands of a holder in due course. The same is true where the instrument is retransferred to an agent of the payee.
Section 59. Who is deemed holder in due course. Every holder is deemed prima facie to be a holder in due course; but when it is shown that the title of any person who has negotiated the instrument was defective, the burden is on the holder to prove that he or some person under whom he claims acquired the title as holder in due course. But the last-mentioned rule does not apply in favor of a party who became bound on the instrument prior to the acquisition of such defective title. In whose favor presumption arises. The presumption expressed in this section arises only in favor of a person who is a holder in the sense defined in Section 191, that is, a payee or indorsee who is in possession of the draft, or the bearer thereof. In order to be a holder, one must be in possession of the note or the bearer thereof. However, when the instrument is not payable to the holder thereof or to bearer, there is said to be a defect in the title of the holder and the rule that a possessor of the instrument is prima facie a holder in due course does not apply. Presumption not applicable when the holders title was defective or suspicious. As holders title was defective or suspicious, it cannot be stated that the payee acquired the check without knowledge of said defect in holders title, and for this reason, the presumption that he is a holder in due course or that it acquired the instrument in good faith does not exist.
Reason for the rule. The guilty maker or holder of an instrument vitiated by fraud or illegality will naturally seek to put it in the hands of some other person in order to cut off the defense to which the instrument is subject, and a presumption arise against the bona fide of the transfer
CHAPTER 6: Parties who are Liable

NATURE OF LIABILITY Primary and Secondary Liability The holder is the person or entity who is given the right to demand the performance of the obligation reflected in the negotiable instrument, that is, the obligation to pay a sum certain in money. The passive subject (obligor/debtor) against whom the holder can enforce the right represented in the instrument are the persons who are primarily liable and the persons secondarily liable. 1. Primarily liable: the person, who, by the terms of the instrument, is absolutely required to pay the same. 2. Secondarily liable: if he engages that, on due presentment, the instrument shall be accepted or paid, or both as the case may be, according to its tenor, and that if it be dishonoured and the necessary proceedings on dishonour are duly taken, he will pay the amount thereof to the holder, or to any subsequent indorser who may be compelled to pay it. In other words, the person secondarily liable promises to pay if the person primarily liable refuses or fails to pay. Liability vs. Warranty Liability: the primary or secondary liability of the parties makes them liable to pay the sum certain in money stated in the instrument. Warranty: affirmations of fact on the part of the parties that impose no direct obligation to pay in the absence of breach thereof. An action on the indorsers special contract of indorsement is conditioned on presentment, and notice of dishonour; his liability for breach of warranty is not so conditioned. Furthermore, the action on the special contract cannot be brought until the maturity of the instrument while the action for breach of warranty, occurring as it does at the time of the transfer, may be brought at any time. Who is Liable for What? Primary Liabilities MAKER 1. Engages to pay according to the tenor of the instrument; 2. Admits the existence of the payee and his capacity to indorse. ACCEPTOR (Sec. 62 as to the warranties) 1. Engages to pay according to the tenor of his acceptance; 2. Admits the existence of the drawer, the genuineness of his signature, and his capacity and authority to draw the instrument; 3. Admits the existence of the payee and his capacity to indorse. (N.B.: The acceptor does not become liable until he accepts the bill or unless he certifies the check.) Secondary Liability
DRAWER 1. Admits the existence of payee and his capacity to indorse; 2. Engages that the instrument will be accepted or paid by the party primarily liable; 3. Engages that if the instrument is dishonoured ad proper proceedings are brought, he will pay to the party entitled to be paid. Payment without Acceptance Instruments that are payable on demand: acceptance is an unnecessary step. This is especially true in the case of checks. Question: Whether or not the drawee bank that pays the value of the check but does not accept the same is still liable for the warranties of an acceptor under Sec. 62? PNB vs. National City Bank of New York: the drawee does not warrant if it does not accept the checks. The warranty is in favor of the holders of the instrument after acceptance and when the drawee bank cashes or pays the check, the cycle of negotiation is terminated and it is illogical therafter to speak of subsequent holders who can invoke the warranty provided in Sec. 62 against the drawee. PNB vs. CA: Acceptance and payment are, within the purview of the law, essentially different things, for the former is a promise to perform the act, while the latter is the actual performance thereof. The actual payment of the amount of check implies not only an assent to said order of the drawer and recognition of the drawers obligation to pay the aforementioned sum, but also, a compliance with such obligation. Thus, the warranties of an acceptor under Sec. 62 of the NIL apply to the drawee who paid without prior acceptance. FEBTC vs. Gold Palace Jewellery Company: Payment of the negotiable instrument includes acceptance. Actual payment by the drawee is greater than his acceptance, which is merely a promise in writing to pay. Consequently, under this view, Sec. 62 applies to the drawee that paid without accepting the check. WARRANTIES OF INDORSERS General Indorser Sec. 66: Every indorser who endorses without qualification, warrants to all subsequent holders in due course: 1. That the instrument is genuine and in all respects what it purports to be; 2. That he has a good title to it; 3. That all prior parties had capacity to contract; 4. That the instrument is, at the time of the indorsement, valid and subsisting. The general indorser also engages that on due presentment, it shall be accepted or paid, or both, as the case may be, according to its tenor; and if it be dishonored and the necessary proceedings on dishonour be duly taken, he will pay the amount thereof to the holder, or to any subsequent indorser who may be compelled to pay it. Qualified Indorser Sec. 65: Every person negotiating an instrument by delivery or by a qualified indorsement warrants: 1. That the instrument is genuine and in all respects what it purports to be; 2. That he has a good title to it; 3. That he has no knowledge of any fact which would impair the validity of the instrument or render it valueless. Note: the warranty of persons negotiating by mere delivery extends to the immediate transferee only. Rule on the Liabilities of Agents General Note: am maker, drawer, acceptor, or indorser may act through an agent. However, an agent incurs all the liabilities as such maker, drawer, acceptor, or indorser unless he discloses the name of his principal and the fact that he is acting only as an agent.
Liabilities of Agents: Sec. 18: No person is liable on the instrument whose signature does not appear thereon, except as otherwise expressly provided. But one who signs in a trade or assumed name will be liable to the same extent as if he had signed in his own name. Sec. 19: the signature of any party may be made by a duly authorized agent. No particular form of appointment is necessary for his purpose; and the authority of the agent may be established as in other cases of agency. Sec. 20: Where the instrument contains or a person adds to his signature words indicating that he signs for or on behalf of a principal or in a representative capacity, he is not liable on the instrument if he was duly authorized; but the mere addition of words describing him as an agent, or as filling a representative character, without disclosing his principal, does not exempt him from personal liability. Sec. 21: A signature by procuration operates as notice that the agent has but a limited authority to sign, and the principal is bound only in case the agent in so signing acted within the actual limits of his authority. A Person who should sign the instrument General Note: a person must sign the instrument before he can be made liable under the same instrument. This is consistent with Sec. 18 of NIL which provides that no person is liable on the instrument whose signature does not appear thereon. Necessarily, the party must sign in his own name. Exceptions: the following person who did not sign on their own names are still liable: 1. One who signs in a trade or assumed name (Sec. 18); 2. One who signs through an agent or an authorized representative (Sec. 19); 3. Incapacitated persons who sign through their legal guardian; 4. Forgers of signatures (Sec. 23); 5. Persons whose signatures were forged but who are precluded from setting up the defense of forgery (Sec. 23); 6. In case of constructive acceptance (Sec. 137); Sec. 137: Where a drawee to whom a bill is delivered for acceptance destroys the same, or refuses within 24 hours after such delivery, or within such other period as the hodler may allow, to return the bill accepted or non-accepted to the holder, he will be deemed to have accepted the same. 7. 8. Indorsers who sign on a separate piece of paper known as an allonge; Persons who negotiate by mere delivery. They are liable for breach of warranty although they did not sign.
Tradename or Assumed Name If a person uses a trade name or an assumed name and he signs using such, he is liable as if he signed using his real name. AGENT When a person signs through his authorized agent, the effect is that the same as the situation where he personally signed the instrument. If the agent signs in the manner prescribed by the NIL, the agent is not personally liable and the only person who is liable is the principal. However, two things must be present: 1. He must indicate that he is signing as a mere agent; and 2. He must indicate the name of the principal. Per Procuration A signature by procuration operates as notice that the agent has but a limited authority to sign and the principal is bound only in case the agent in so signing acted within the actual limits of his authority. LIABILITIES OF ACCOMODATION PARTIES
Sec 29: an accommodation party is one who signed the instrument as maker, drawer, acceptor, or indorser, without receiving the value therefor, and for the purpose of lending his name to some other person. Such a person is liable on the instrument to a holder for value, notwithstanding such holder, at the time of taking the instrument, knew him to be only an accommodation party. Requisites under Sec 29: 1. 2. 3. He must be a party to the instrument, signing as a maker, drawer, acceptor, or indorser; He must not receive value therefor; and He must sign for the purpose of lending his name or credit to some other person.
The accommodation party lends his name to the accommodated party. He lends his name to enable the accommodated party to obtain credit or to raise money. He receives no part of the consideration for the instrument but assumes liability to the other parties thereto. It is not a valid defense that the accommodation party did not receive any valuable consideration when he executed the instrument. Surety of Accommodated Party By lending his name, the accommodation party, is in effect, a surety of the accommodated party. Thus, if he is an accommodation indorser, he is secondarily liable as an accommodation indorser and he cannot make the holder recover directly from the accommodated party. His only recourse is to seek reimbursement from the accommodated party. Irregular Indorser Although the law does not state that all irregular indorsers are accommodation parties, they are usually accommodation parties. Definition of an Irregular Indorser: A person, not otherwise a party to an instrument, who placed thereon his signature in blank before delivery. Prof. Ogden: the irregular or anomalous indorser is one who indorses the instrument in an unusual, singular or peculiar manner; it is irregular and an anomaly in the law.
Liabilities of an irregular indorser: 1. 2. 3. If the instrument is payable to the order of a third person, he is liable to the payee and to all subsequent parties. If the instrument is payable to the order of the maker or drawer, or is payable to bearer, he is liable to all parties subsequent to the payee. If he signs for accommodation of the payee, is liable to all parties subsequent to the payee.
Liability among themselves A solidary accommodation party may seek reimbursement from the accommodated party or other accommodation parties subject to the following rules: 1. 2. A joint and several accommodation party such as an accommodation maker may demand from the principal debtor reimbursement for the amount that he had paid to the payee; A joint and several accommodation maker who pays on the said promissory note may directly demand reimbursement from his co-accommodation maker without first directing his action against the principal debtor provided that: a. He made payment by virtue of a judicial demand, or b. A principal debtor is insolvent.
Liabilities of Corporations The rule on the liability of an accommodation party under Sec. 29 of the NIL does not apply to corporations.
A corporation cannot act as an accommodation party. The issue or indorsement of a negotiable paper by a corporation without consideration and for the accommodation of another is ultra vires. By way of exception, an officer or agent of a corporation shall have the power to execute or indorse a negotiable paper in the name of the corporation for the accommodation of a third person only if specifically authorized to do so. If a corporation is not liable, the holder may turn to its officers for relief. Personal liability of the officers and directors may attach in the following instances: 1. He assents: a. To a patently unlawful act of the corporation, or b. For bad faith or gross negligence in directing its affairs, or c. For conflict of interest, resulting in damages to the corporation, its stockholders or other persons 2. He consents to the issuance of watered down stocks or who, having knowledge thereof, does not forthwith file with the corporate secretary his written objection thereto; 3. He agrees to hold himself personally and solidarily liable with the corporation; or 4. He is made by a specific provision of law, to personally answer for his corporate action.

Section 60. Liability of maker. The maker of a negotiable instrument, by making it, engages that he will pay it according to its tenor, and admits the existence of the payee and his then capacity to indorse. Maker primarily liable. The engagement of the maker is to pay absolutely the note according to its tenor. The makers liability is primary and unconditional. And one who has signed as maker is presumed to have acted with care and to have signed the document in question with full knowledge of its contents unless, of course, fraud is proved
Liability of two or more makers. When two or more makers sign jointly and severally, each of them is individually liable for the payment of the full amount of their obligation even if one of them did not receive part of the value given therefor, a he would be considered an accommodation party. Payees existence etc. Aside from engaging to pay the instrument according to its tenor, the maker also admits the existence of the payee and his then capacity to indorse. The maker consequently is precluded from setting up the following defences: (1) that the payee is a fictitious person because, by making the note, he admits that the payee exists; and (2) that the payee as insane, a minor, or a corporation acting ultra vires because, by making the note, he admits the then capacity of the payee to indorse.
Section 61. Liability of drawer. The drawer by drawing the instrument admits the existence of the payee and his then capacity to indorse; and engages that, on due presentment, the instrument will be accepted or paid, or both, according to its tenor, and that if it be dishonored and the necessary proceedings on dishonour be duly taken. He will pay the amount thereof to the holder or to any subsequent indorser who may be compelled to pay it. But the drawer may insert in the instrument an express stipulation negativing or limiting his own liability to the holder Drawer secondarily liable. The drawer does not engage to pay the bill absolutely. He engages merely that the bill will be accepted or paid or both, according to its tenor, and that he will pay only when: (1) it is dishonored; and (2) the necessary proceedings of dishonour are duly taken. In the absence of due presentment, the drawer is not liable
To whom drawer secondary liable. The secondary liability of the drawer is in favor of: (1) the holder, or (2) if any of the indorsers intervening between the holder and the drawer is compelled to pay by the holder, the drawer will be liable to that indorser so compelled to pay The law allows the drawer to negative or limit his liability by express stipulation.
Section 62. Liability of Acceptor. The acceptor, by accepting the instrument, engages that he will pay it according to the tenor of his acceptance and admits: (a) The existence of the drawer, the genuineness of
his signature, and his capacity and authority to draw the instrument; and (b) The existence of the payee and his then capacity to indorse Acceptor primarily liable. The acceptor engages to pay absolutely according to the tenor of his acceptance. His liability is not subject to any condition. Before acceptance, the drawee is not liable on the bill. The execution of mortgage does not constitute any novation of the obligation represented by said accepted bills unless it is so expressly stated in said mortgage. It is to be noted that while the maker of a note engages to pay according to the tenor of the note, an acceptor engages to pay according to the tenor of his acceptance, not of the bill he accepts. This is an important distinction, for the tenor of the acceptors acceptance may be different from the tenor of the bill, as the acceptor may accept the bill with qualifications
Where original tenor is altered before acceptance. Suppose the bill is originally for P1000. Before the drawee X accepts it, it is altered by the payee to P4000. Then X accepts it. How much X is liable to a holder in due course?
View that altered tenor is tenor of acceptance. According to one view, X is laible for P4000. The reason is that the of Xs acceptance is for p4000. Moreover, he would be a party who has himself assented to the alteration. View that original tenor is tenor of acceptance. Section 62 should be paraphrased to state that the liability of the acceptor depends upon the terms of his acceptance, that is, whether it is a general or a qualified acceptance or an acceptance for honor. An author suggests that all three of these acceptance contracts are within the purview of Section 62 that the acceptor, by accepting the instrument, engages that he will pay it not according to the tenor of the bill since this would deny him the right to qualify the acceptance or to accept for honor but according to the tenor of his accecptance. Effect of Section 124. It seems that this refer to the original tenor of the instrument taken from the standpoint of the person principally liable.
Admission of drawers existence, etc. The acceptor, by his acceptance, admits: (1) the drawers existence, (2) the genuineness of the drawers signature; and (3) the capacity and authority of the drawer to draw the instrument. But he does not admit the genuine of the indorsers. He also admits the existence of the payee and his then capacity to indorse.
Effect of acceptors admissions. (1) precluded from setting up the defense that the drawer is non-existent or fictitious because of his admission of the drawers existence; (2) Neither can he claim that the drawers signature is a forgery since he admits its genuineness; (3) Neither can the drawee escape liability by alleging want of consideration between him and the drawer.
Section 63. When person deemed indorser. A person placing his signature upon an instrument otherwise than as a maker, drawer, or acceptor, is deemed to be indorser unless he clearly indicates by appropriate words his intention to be bound in some other capacity. When person deemed indorser. In the absence of any indication in what capacity a person whose signature is written on the instrument intends to be bound, he shall be deemed an indorser. But one making a note payable to his own order does not, by indorsement thereof, assume liability as indorser Indication to be bound otherwise. And one who signs otherwise than as maker, drawer, or acceptor, will not be deemed an indorser if he indicates by appropriate words his intention to be bound in some other capacity. Admissibility of parol evidence. Secition 63 is a statutory command that the legal effect of a blank indorsement cannot be changed by parol proof or by evidence from other source. So that, under this section, one who indorses in blank cannot show by parol that he signed merely as agent for a prior party and was not individually liable. He is an indorser. Also the intent to be bound in some other capacity than as an indorser must be indicated in the indorsement or on the face of the instrument and cannot be shown by parol.
Section 64. Liablitiy of irregular indorser. Where a person, not otherwise a party to an instrument, places thereon his signature in blank before delivery, he is liable as indorser, in accordance with the following rules: (a) If the instrument is payable to the order of a third person, he is liable to the payee and all subsequent parties. (b) If the instrument is payable to the order of the maker or drawer, or is payable to bearer, he is liable to all parties subsequent to the maker or drawer. (c) if he signs for the accommodation of the payee, he is liable to all parties subsequent to the payee. Irregular indorser. In order that a person may be considered an irregular indorser, the following requisites must be present: (1) he must not otherwise be a party to the instrument, that is, he must not be a maker, drawer, acceptor, or regular indorsee thereon; (2) he must sign the instrument in blank; and (3) he must sign before delivery. Reason for use of term. Such a party so signing is called an irregular or anomalous indorser because he indorses in an unsual, singular or peculiar manner. Meaning of before delivery. Delivery seems to include not only the original delivery to the payee but also every delivery from the party accommodated to a subsequent party. Application of Section 64. Where a person puts his signature after delivery, this section does not apply. It is Section 17(f) and Section 63 which will apply. This section deals only with the liability of the irregular indorser to the payee but does not fix the rights if various irregular indorsers as between themselves. Section 65. Warranty where negotiation by delivery and so forth. Every person negotiating an instrument by delivery or by a qualified indorsement warrants: (a) That the instrument is genuine and in all respects what it purports to be; (b) That he has good title to it; (c) that all prior parties had capacity to contract; (d) That he has no knowledge of any fact which would impair the validity of the instrument or render it valueless. But when negotiation is by delivery only, the warranty extends in favor of no holder other than the immediate transferee. The provisions of subdivision (c) of this section do not apply to a person negotiating public or corporation securities other than bills and notes. Application of Section 65. This section treats of the warranties of: (1) a person negotiating by mere delivery, and (2) a person negotiating by qualified indorsement. The first refers to instrument payable to bearer, either originally or when the only or last indorsement is in blank. But one indorsing in blank is not referred to here, as he negotiates by indorsement completed by delivery, not only by delivery. The second refers to instrument payable to order. A person negotiating by mere delivery becomes liable to the holder only when the holder cannot obtain payment from the person primarily liable by reason of the fact that any of the warranties of the person negotiating by delivery is or becomes false.\
Warranty as to genuineness. The party negotiating by mere delivery is liable to the holder when the latter cannot collect from the maker because the instrument is altered or the makers signature is forged. Warranty as to good title. The party negotiating by delivery is also liable to the holder if his title is defective as he acquired the instrument by means of fraud for which reason the holder cannot collect from the maker or acceptor. Warranty as to capacity to contract. The party negotiating by delivery is also liable to the holder if the maker is a minor or an incompent. Warranty as to ignorance of certain facts. Suppose that the maker was insolvent at the time of the negotiation of the instrument. The fact renders the instrument valueless, and for this reason, the holder cannot collect on the instrument against the insolvent maker. (1) If the party negotiating by delivery knew that the maker was insolvent,, and he concealed that fact, he would be liable because he warrants that he is ignorant of any fact that would render the instrument valueless, and it turns out that he knew it. (2) the party negotiating by delivery would also be liable, if he knew but concealed that the instrument is not valid for want of consideration. To whom warranties extend. In favor of no holder other than the immediate transferee.
Warranties not exclusive. The four warranties expressed in this section are not exclusive but may be extended by analogy to like situations Liability of Qualified Indorser. The only difference is that while the person negotiating by mere delivery is liable only to his immediate transferee, the person negotiating by qualified indorsement is liable to all parties who derive their title through hi indorsement. Nature of Liability. A qualified indorser or a person negotiating by mere delivery are secondarily liable, and that their secondary liability is limited, namely, to their warranties. In other words, they are secondarily liable only when the person primarily liable cannot pay because of a violation of any of the four warranties but they will not be liable if the person primarily liable cannot pay for any other reason than the violation of the four warranties. Section 66. Liability of general indorser. Every indorser who indorses without qualification, warrants to all subsequent holders in due course: (a) The matters and things mentioned in subdivisions (a), (b), and (c) of the next preceding section; and (b) that the instrument is, at the time of his indorsement, valid and subsisting; And in addition he engages that, on due presentment, it shall be accepted or paid, or both, as the case may be, according to its tenor, and that if it be dishonored and the necessary proceedings on dishonour be duly taken, he will pay the amount thereof to the holder, or to any subsequent indorser who may be compelled to pay it. Application of Section 66. This section deals with the liability or warranties of one negotiating by general indorsement. It has been held that this section includes an indorser for collection. Liability of general indorser. It will be noted that the first three warranties of a general indorser are the same as those of qualified indorser or of a person negotiating by mere delivery. The fourth warranty of a general indorser is that the instrument is, at the time of his indorsement, valid and subsisting. Fourth warranty of general indorser and qualified indorser, distinguished. While the qualified indorser or person negotiating by mere delivery warrants that he is ignorant of any fact that will render the instrument valueless or impair its validity, the general indorser warrants that the instrument he is indorsing is valid and subsisting regardless of whether he is ignorant of that fact or not. But the fourth warranty of a general indorser does not run in favor of holders who are parties to the illegal transaction. To whom warranties extend. (1) subsequent holders in due course. (2) Persons who derive their title from holders in due course. (3) Immediate transferees, even if they are not holders in due course. Otherwise, the transferee of a qualified indorser would have greater rights than the transferee of a general indorser Warranties do not extend to drawee. The indorser of a check does not warrant the genuineness of the drawers signature to the drawee who pays it since the drawer is not a holder in due course under section 52 nor a holder under section 191. Other liability of the general indorser. Same as the secondary liability of a drawer. This is to say that the general indorser is liable if the instrument is dishonored. And it has been held that the law does not require that the reason for the dishonour be established. When parol evidence admissible as to extrinsic agreement of indorsers. It has, however, been held that any prior or contemporaneous conversation in connection with a note or its indorsement may be proven by parol evidence, and that an extrinsic agreement between indorsers and indorsee which cannot be embodied in the instrument without impairing its credit is provable by parol provided that such extrinsic agreement should not vary, alter or destroy the obligations attached by law to the indorsement. Liability of indorser and assignor compared. Like the qualified indorser and a person negotiating by delivery, but not like the general indorser., an assignor is not responsible for the insolvency of the principal debtor. On the other hand, unlike a qualified indorser and a person negotiating by delivery, but like the general indorser, the assignor warrants the existence and legality of the credit assigned and will, therefore, be liable to the assignee in case the assignee cannot collect from the principal debtor where the credit assigned is illegal or non-existent. Section 67. Liability of indorser where paper negotiable by delivery. where a person places his indorsement on an instrument negotiable by delivery, he incurs all the liability of an indorser
Section 68. Orders in which indorsers are liable. As respects one another, indorsers are liable prima facie in the order in which they indorse; but evidence is admissible to show that, as between or among themselves, they have agreed otherwise. Joint payees or joint indorsees who indorse are deemed to indorse jointly and severally. Application of Section 68. This rule applies only with respect to an indorser or as against another but not as against a holder in due course. Under this rule, every indorser is liable to all indorsers subsequent to him but not those prior to him whom he in turn makes liable. Liability as against holder. The rule that indorsers are liable in the order they indorse is only as between or among themselves but not as against the holder. As to the holder they are liable in any order. Joint and several liability of joint payees. Joint payees or joint indorsees are deemed to indorse jointly and severally. Effect of lack of notice of dishonour etc. One of the joint indorsers cannot escape liability because proper notice of dishonour was not given to his joint indorser. Consequently, when the holder expressly releases the first indorser, the second indorser will be discharged. Section 69. liability of an agent or broker. Where a broker or other agent negotiates an instrument without indorsement, he incurs all the liabilities prescribed by Section 65 of this act, unless he discloses the name of his principal and the fact that he is acting only as agent. Application. This section seems to refer to instruments which are payable to bearer. The liability and warranties of the agent are those stated in Section 65.
CHAPTER 7: Defenses
REAL DEFENSES VS. PERSONAL DEFENSES: 1. 2. Real defenses: those wherein the facts disclose an absence of one or more of the essential elements of a contract, or where the admitted contract is vitiated for all purposes for reasons of public policy. Personal defenses: those wherein the facts present a true contract but where, for various reasons, such as fraud, duress, mistake, prior breach of contract by the holder, discharge before maturity, and the like, the defendant is excused from his obligation to perform.
Types of Real and Personal Defenses REAL DEFENSES Minority (available only to the minor). Forgery Non-delivery of complete instrument Material Alteration Ultra Vires Corporation act of PERSONAL DEFENSES Failure or Absence of Consideration Illegal consideration Non-delivery of complete instrument Conditional delivery complete instrument Fraud in inducement Filling up blank not within authority Duress or Intimidation Filling up blank beyond of
Fraud in Factum or Esse Contractus Illegality if declared void for any purpose
Vicious force or violence Want of authority Prescription Discharge in Insolvency reasonable time Transfer in breach of faith Mistake Insertion of wrong date Ante-dating or post dating for illegal or fraudulent purpose. MINORITY AND OTHER CAUSES OF INCAPACITY Sec. 22: the indorsement or assignment of the instrument b corporation or by an infant passes the property therein, notwithstanding that from want of capacity, the corporation or infant may incur no liability thereon. Minority Negotiation by a minor passes title to the instrument. The minor himself is not liable and the defense is available only to the minor himself. Ultra Vires Acts Definition: an ultra vires act is one committed outside the object for which a corporation is created as defined by the law of its organization and therefore beyond the power conferred upon it by law. Ultra Vires vs. Illegal Act 1. 2. An ultra vires act is merely voidable which may be enforced by performance, ratification, or estoppels An illegal act is void and cannot be validated.
NON-DELIVERY AND CONDITIONAL DELIVERY Non Delivery of Incomplete Instrument Sec. 14. Blanks; when may be filled. - Where the instrument is wanting in any material particular, the person in possession thereof has a prima facie authority to complete it by filling up the blanks therein. And a signature on a blank paper delivered by the person making the signature in order that the paper may be converted into a negotiable instrument operates as a prima facie authority to fill it up as such for any amount. In order, however, that any such instrument when completed may be enforced against any person who became a party thereto prior to its completion, it must be filled up strictly in accordance with the authority given and within a reasonable time. But if any such instrument, after completion, is negotiated to a holder in due course, it is valid and effectual for all purposes in his hands, and he may enforce it as if it had been filled up strictly in accordance with the authority given and within a reasonable time. Sec. 15. Incomplete instrument not delivered. - 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, as against any person whose signature was placed thereon before delivery. Note: In section 14 of the NIL, there is prima facie authority to fill up the incomplete instrument because there was delivery. In Section 15, no such authority is presumed because there was no delivery. Undelivered and Delivered Complete Instruments Sec. 16. Delivery; when effectual; when presumed. - Every contract on a negotiable instrument is incomplete and revocable until delivery of the instrument for the purpose of giving effect thereto. As between immediate parties and as regards a remote party other than a holder in due course,
the delivery, in order to be effectual, must be made either by or under the authority of the party making, drawing, accepting, or indorsing, as the case may be; and, in such case, the delivery may be shown to have been conditional, or for a special purpose only, and not for the purpose of transferring the property in the instrument. But where the instrument is in the hands of a holder in due course, a valid delivery thereof by all parties prior to him so as to make them liable to him is conclusively presumed. And where the instrument is no longer in the possession of a party whose signature appears thereon, a valid and intentional delivery by him is presumed until the contrary is proved. Outline of the Rules under Sec. 16 1. 2. 3. 4. 5. 6. 7. A negotiable instrument must be delivered. If the instrument has not been delivered, the contract concerning the instrument is incomplete and revocable. Thus, there must be delivery whenever the instrument is issued or negotiated. Delivery must be either by or under the authority of the party making, drawing, accepting, or indorsing the instrument. If the instrument is no longer in the hands of the maker or the drawer, he is presumed to have already delivered the instrument to another (payee) for the purpose of issuing the same As between immediate parties and remote parties who are not holders in due course, the delivery of a complete instrument may be established to be conditional or for a special purpose and not for the purpose of transferring title. As between immediate parties and remote parties who are not holders in due course, it may be established that there was no delivery at all of the complete instrument. As to holders in due course, it cannot be established that there was no delivery. Delivery is conclusive as to the holder in due course if he is in possession of a complete instrument. As to holders in due course, it cannot be established that the delivery was conditional or for a special purpose. As to him, delivery is conclusively presumed to be unconditional and for the purpose of transferring title without any reservation or condition.
Other Notes 1. Delivery means transfer of possession of the negotiable instrument by one person to another with the intention to transfer title to the instrument. This is involved in the issuance of the instrument, negotiation of the instrument and in other forms of transfer. Transferee acquires no right if the instrument was not delivered to him. Without delivery, transfer is incomplete. The delivery of the negotiable instrument for purposes of issuance or negotiation position of the parties in the chain of negotiation may be made personally by the person who is supposed to transfer like the maker, drawer, or indorser or to his authorized agent/representative. (as to agents/representatives, they must be authorized.) If the instrument is no longer in the hands of the maker or the drawer, he is presumed to have already delivered the instrument to another (payee) for the purpose of issuing the same. If the instrument is no longer in the hands of the indorser, he is presumed to he is presumed to have delivered the same for purposes of transferring title. Immediate parties do not refer to the position of the parties in the chain of negotiation but immediate refers to persons who are familiar with the circumstances regarding the transfer. With respect to the holder, the most important thing to consider is whether or not the holder who is trying to collect based on the instrument is a holder in due course or not. The fact that the party is an immediate party or a remote party is important under Sec. 16 in order to determine if it can be established as against them if the delivery was conditional or for a special purpose.
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FILLING UP BLANKS BEYOND AUTHORITY (See Sec. 14) applies to an incomplete but delivered instrument. The defense available to parties primarily liable against the holders is classified as a personal defense which is available against the holder who is not a holder in due course. Outline of Rules under Sec. 14:
Negotiable Instruments Law (Aquino and Agbayani Notes) 43 Abad.Avila.Cancino.Concepcion.Chu.Layno.Mercado.Prinsipe.Reyes H. (2S A.Y. 2010-2011) 1. A person in possession of an instrument that is wanting in a material particular has prima facie 2.
3. authority to complete it by filling up the blanks therein strictly in accordance with the authority given and within reasonable time. If a person delivers a blank paper to another person containing his signature for the purpose of converting it into a negotiable instrument, the person to whom the instrument is delivered has prima facie authority to fill it up for any amount. If the holder of the instrument, after it was filled up, is a holder in due course, the holder may enforce the instrument as if it has been filled up strictly in accordance with the authority given and within a reasonable time.
MATERIAL PARTICULAR Example: an instrument that does not state the amount to be paid is not a complete instrument and a material particular is missing. Not limited to the matters mentioned as requisites under Sec. 1 of the NIL. It may include any detail that affects the tenor of the instrument or the rights of the parties. It also includes matters mentioned in Sec. 125. Sec. 125: any alteration which changes: 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, is a material alteration. Prima Facie Authority Incomplete Instrument If the maker or drawer delivers an instrument to the payee although it is wanting in material particular, the payee is deemed to have prima facie authority to fill it up. The moment the instrument is completed, the presumption is that the instrument was completed with prior authority from the maker or the drawer and that the person who completed the instrument did not exceed in his authority. Sec. 14 also presumes that the instrument was completed in accordance with the authority that it was given. 2. Signed bank piece of paper If a person delivers a blank piece of paper containing his signature to another person for the purpose of converting it into a negotiable instrument the person to whom the instrument is delivered has prima facie authority to fill it up with any amount. Requisites for presumption to operate: i. There must be delivery of a paper to another person; ii. The paper that was delivered was a blank paper containing the signature of the person who will deliver; iii. The delivery was for the purpose of converting the paper into a negotiable instrument. Holder in Due Course If the holder is an HDC, then the last sentence of Sec. 14 still applies even if what was delivered was a blank piece of paper signed by the person delivering the same but without authority to convert it into a negotiable instrument. 1.
3.
Fraud Fraud in Inducement vs. Fraud in execution FRAUD IN INDUCEMENT FRAUD IN EXECUTION
The person who signs the instrument intends to sign the same as a negotiable instrument but was induced to do so only through fraud Consent is vitiated by fraud Only a personal defense Notes If fraud is committed in the performance of a collateral obligation, the nature of fraud is similar to fraud in inducement and the defense is likewise a personal defense. In the defense of fraud in factum, the person who signs the instrument lacks the knowledge of the character or essential terms of the instrument. The defense is not available if the party involved had reasonable opportunity to obtain such knowledge. Factors to be considered in determining presence of reasonable opportunity: 1. 2. 3. 4. 5. 6. Age and sex of the obligor; Intelligence, education, and business experience; Ability to read and understand the language used; The representations made to him and his reason to rely on them or to have confidence in the person making them; him, or any other information; The apparent necessity or lack of it, for acting without delay. When a person is induced to sign an instrument not knowing its character as a note or a bill. The person who signs the instrument does not know that he is signing a negotiable instrument. A real defense.
MATERIAL ALTERATION Alteration must be material before it can be considered a defense. Otherwise, it is not a defense at all. However, a material alteration is only a partial real defense because the holder in due course can enforce it according to its original tenor. (See Secs. 124 and 125 for application of rules on application) Sec. 124. Alteration of instrument; effect of. - Where a negotiable instrument is materially altered without the assent of all parties liable thereon, it is avoided, except as against a party who has himself made, authorized, or assented to the alteration and subsequent indorsers. But when an instrument has been materially altered and is in the hands of a holder in due course not a party to the alteration, he may enforce payment thereof according to its original tenor. Concept of Alteration PNB vs. CA (256 SCRA 491): An alteration is said to be material if it alters the effect of the instrument. It means an unauthorized change in an instrument that purports to modify in any respect the obligation of any party or an unauthorized addition of words or numbers or other change to an incomplete instrument relating to the obligation of a party. In other words, a material alteration is one which changes the items which are required to be stated in Sec. 1 of the Negotiable Instruments Law. (according to Justice Vitug, an innocent alteration and spoliation will not avoid the instrument, but the holder may enforce it only according to its original tenor. In addition, there is no alteration if only serial numbers were altered. Other Notes: An alteration that totally prevents recovery constitutes a material alteration it cannot be enforced by the holder in due course according to its original tenor.
Alteration of the amount payable is material alteration. If the negotiable instrument involved is a check, and the same was deposited by the holder in a collecting bank, the collecting bank will suffer the loss in case of material alteration because the warranties of the collecting bank are that of a general indorser. Effect of alteration on payee who is a holder in due course: the collecting bank cannot debit the account of a payee who is a holder in due course if the collecting bank returned the amount of the altered check to the drawee bank. It is the drawee bank that should bear the loss and if the collecting bank reimbursed the drawee bank the amount of the altered check, the collecting bank would only be considered as acting on its own and should be responsible for its own action. Reasons by the Supreme Court:3 7. 1. 2. Presence or absence of any third person who might read or explain the instrument to The payment of a check by the drawee includes its acceptance contemplated under Sec. 62. Actual payment is greater than acceptance. Payee is thus protected in Sec. 62. By paying the collecting bank, the drawee, recognized and complied with its obligation to pay in accordance with the tenor of his acceptance. In other words, the drawee is liable on its payment of the check according to the tenor of the check at the time of payment, which was raised the amount. The payee of the altered check may be a holder in due course. A payee who is a holder in due course, who relied on the drawee banks clearance and payment of the draft and not being negligent, the payee is amply protected by Sec. 62. It further reasserts the usefulness, stability and currency of negotiable paper without seriously endangering accepted banking practices. The preferential treatment given to the paying bank by common law jurisdictions cannot be applied in this jurisdiction, absent any similar provision in our law. If the collecting bank cannot be considered to have acted as the representative of the drawee bank when it debited respondents account, because the drawee bank had no right to recover what it had paid. The collecting bank cannot invoke the warranty of the payee/depositor who indorsed the instrument for collection to shift the burden it brought upon itself. This is precisely because the said indorsement is only for purposes of collection which, under Section 36, is a restrictive indorsement.
3. 4. 5. 6. 7.
Another view with respect to extent of recovery of holder in due course: It is worth noting that there is a view to the effect that even if the payee in the said case is a holder in due course who is entitled to protection, the protection should be in accordance with Sec. 124 of the Negotiable Instruments Law. Opposite view regarding liability of payee and collecting bank: it also should be pointed out that the obligation to return the amount of the altered check is an obligation that is fixed by jurisprudence and statutory provisions. It is not a mere voluntary act but is one dictated by law and jurisprudence. Hence, the view is that as between the drawee-bank and the collecting bank, it is the collecting bank that shall be responsible for the loss in case of alteration. There is also jurisprudence to the effect that the collecting banks right of recourse is against the depositor-payee; that the payee will shoulder the loss because he has the same warranties of a general indorser when he signs the check for deposit. (TimAq agrees with this view) Ante-dating or Post-dating Sec. 12. Ante-dated and post-dated. - The instrument is not invalid for the reason only that it is antedated or post-dated, provided this is not done for an illegal or fraudulent purpose. The person to whom an instrument so dated is delivered acquires the title thereto as of the date of delivery.
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FEBTC vs. Gold Palace Jewellery Company, G.R. No. 168274, August 20, 2008.
In other words: If the post-dating or the ante-dating is for an illegal or fraudulent purpose, a personal defense is available against the holder. INSERTION OF A WRONG DATE Insertion of a wrong date may be a personal defense. If a wrong date is inserted, the holder in due course has the right to regard the wrongfully inserted date as the true date. Sec. 13: 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. ABSENCE OR FAILURE OF CONSIDERATION Absence or failure of consideration is a matter of defense as against any person not course. Partial failure of consideration is a defense pro tanto, whether the failure is liquidated amount or otherwise. Hence, the personal defense of failure of consideration seller who received the negotiable instrument because of his promise to deliver goods, with such promise. DURESS AND INTIMIDATION To constitute duress, there must be an actual or threatened exercise or power possessed by the party benefited thereby, for the purpose of obtaining the note (or bill), such as to deprive the maker of that quality of mind essential to the making of a contract. Degree of duress is relative depending on the circumstances of the parties and of the situation. Threats to a feeble and old person might be duress to one while it may not be so to another. Available even though there may be some consideration to support the instrument. The fact that the defendant did not act as a reasonable man would in resisting the coercion exercised upon him will not likewise prevent him from setting up the defense of duress. Duress is a real defense or if it is vicious or if it is what is referred to as duress amounting to forgery. (ex. A person who exerts force is practically writing the note itself by holding the hands of another.) Illegality General Rule: illegality of the transaction that gave rise to a particular transaction is only a personal defense. Exception: When the law which declares the transaction illegal likewise declares that the negotiable instrument or document issued in connection thereto is void against any party. PRESCRIPTION Extinctive prescription is considered a real defense that may be raised even against a holder in due course. Prescriptive Period: 10 years from the time the cause of action accrued. With respect to checks, the action of the depositor against his drawee bank commences to run from the time he is given notice of payment. FORGERY AND WANT OF AUTHORITY General Rules Sec. 23. Forged signature; effect of. - When a signature is forged or made without the authority of the person whose signature it purports to be, it is wholly inoperative, and no right to retain the instrument, or a holder in due ascertained and is present if the failed to comply
to give a discharge therefor, or to enforce payment thereof against any party thereto, can be acquired through or under such signature, unless the party against whom it is sought to enforce such right is precluded from setting up the forgery or want of authority. Cut-Off Rule: Section 23 does not avoid the instrument and only the forged signature is rendered inoperative. According to the cut-off rule, the parties prior to the forged signature are cut-off from the parties after the forgery in the same sense that prior parties cannot be held liable and can raise the defense of forgery. The only instance when prior parties are liable is if they are precluded from setting up the defense of forgery either because of their warranties, representations or their negligence. Gampesaw vs. CA (218 SCRA 682): A party whose signature to an instrument was forged was never a party and never gave his consent to the contract which gave rise to the instrument. If a persons signature is forged as a maker of a promissory note, he cannot be made to pay because he never made the promise to pay. Or where a persons signature as a drawer of the check is forged, the drawee bank cannot charge the amount thereof against the drawers account because he never gave the bank the order to pay. Persons Precluded from Setting up Forgery 1. 2. Parties who warrant or admit the genuineness of the signature in question; and Those who by their acts, silence, or negligence are stopped from setting up the defense of forgery. These include acts or omission that amount to ratification, express or implied.
Warranty
Indorsers, persons negotiating by delivery and acceptors are warrantors of the genuineness of certain signatures on the instrument. They are precluded from setting up the defense of forgery in certain cases. (ex. Sec. 62 NIL) Negligence
A drawer who can otherwise recover from the drawee may be barred from doing so because of its negligence or may have to suffer reduction of the amount. Included therein is ones failure to comply with the rules or agreement or on the return of checks. However, negligence cannot be imputed to the drawer by the mere fact that the person responsible for the forgery is his employee or even an independent auditor. Estoppel Example: if the drawer opportunity and Ratification the drawer was already informed that a check bearing his forged signature is being encashed, will be deemed to have ratified the forgery if he failed to act on such information despite to do so.
Forgery in Notes Makers Signature
Where the makers signature is forged, the maker is not liable to all subsequent parties whether the instrument is an order instrument or a bearer instrument. (See Sec. 23) However, indorsers after the forgery are still secondarily liable to the holder. These indorsers warrant that the instrument is genuine and in all respect what it purports to be. Hence, they can no longer claim that the instrument is not genuine. Indorsers Signature
On Order Instruments: Where the indorsement of the payee is forged in a note payable to order, the instrument cannot be enforced against the payee and the maker. The payees forged signature is wholly inoperative and no right to enforce payment can be obtained against any party prior to the forgery. The indorsers after the forgery are liable because they warrant that they have good title to the instrument.
On Bearer Instruments: In bearer instruments, the signature of the payee or holder is unnecessary to pass title to the instrument. Hence, the maker may still be liable to a holder in due course even if an indorsement was forged after the issuance of the note. The rule is consistent with Sec. 60 which provides that the undertaking of the maker is to pay the instrument according to its tenor. The tenor of the instrument is that he engages to pay any bearer of the instrument. Forgery in Bills of Exchange Drawers Signature
Where the drawers signature is forged, the drawer is not liable whether or not the instrument is payable to bearer or payable order. There is no right to enforce payment against the drawer under the forged signature. This is true even if the instrument is a bearer instrument because the drawer was never a party to the instrument he did not promise to pay anybody. In addition, the drawers account cannot be debited if his signature in a check was forged. Drawee-Acceptors Warranties: drawee bank cannot recover the amount because by accepting the instrument, he warrants all those mentioned in Sec. 63. Negligence of Drawee: It can be further explained that the liability of the drawee in case the drawers signature was forged can also be traced to the drawees negligence. Indorsers Signature On Order Instruments: Where the instrument of the payee in a bill of exchange was forged after delivery of the instrument by the drawer to the said payee, the subsequent holder cannot enforce payment thereof against the drawee, the drawer, or the payee. Parties prior to the forgery can raise the defense of forgery. Parties after the forgery are cut-off from the parties prior to the forgery. Hence, indorsers after the forgery may still be secondarily liable to the holder but indorsers prior to the said forgery are not liable. If the instrument involved is a check, the drawee cannot charge the account of the drawer if the payees or any indorsers signature is forged. The drawee, in turn has the right of recourse against the collecting bank. Other notes: 1. 2. 3. 4. The payee can claim against the collecting bank. The drawer cannot opt to recover from the collecting bank. There is no privity of contract between the drawer and the collecting bank. The last indorser will be liable for the amount indicated in the negotiable instrument even if a previous indorsment was forged. When the collecting bank is made liable, the collecting bank may recover from its depositor who had not given value for the money paid to him has no right to retain the money he received.
On Bearer Instruments: the same rule that is applicable to forged indorsement in a bearer promissory note applies to forged indorsement in a bearer bill of exchange. The holder of a bearer instrument can still recover from the drawer if a special indorsement was forged because the forged signature is unnecessary for his title.
CHAPTER 8 ENFORCEMENT OF LIABILITY

STEPS TO CHARGE THE PARTIES LIABLE Persons primarily liable persons who are absolutely required to pay the instrument (Sec.191)
Promissory note - maker Bill of exchange - acceptor
The liability of persons primarily liable automatically attaches the moment they make or accept the instrument as the case may be. effect: no further act is necessary in order that liability may accrue how liability is enforced: by presenting the instrument for payment Persons secondarily liable those who promise to pay if the person primarily liable refuses or fails to pay; those who engage that, on due presentment, the instrument shall be accepted or paid, or both, as the case may be, 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. Drawer Indorsers The liability of persons secondarily liable cannot be enforced immediately. There are necessary steps to be taken. If the said steps are not complied with, they are discharged from the instrument or their obligation is extinguished.
Steps in Enforcing Liability on promissory note: (indorser) 1. 2. Presentment for payment must be made within the required period to the maker Notice of dishonor should be given
Steps in Enforcing Liability on bill of exchange: (drawer and indorser) 1. 2. a. b. 3. a. b. Presentment for acceptance If dishonored by non-acceptance: Notice of dishonor should be given to the indorsers and drawers If the bill is a foreign bill, there must be protest for dishonor by non-acceptance If the bill is accepted: Presentment for payment to the acceptor should be made If the bill is dishonored upon presentment for payment i. Notice of dishonor must be given to person secondarily liable ii. If the bill is a foreign bill, protest for dishonor by non-acceptance must be made
PRESENTMENT FOR PAYMENT (Secs. 70-88) Presentment production of a bill of exchange to the drawee for his acceptance or to the drawee or acceptor for payment or the production of a promissory note to the party liable for payment of the same Presentment for payment consists of: a. Personal demand for payment at the proper place b. To exhibit the bill or note is required and to receive payment and surrender it if the debtor is willing to pay Requisites: Who: by the holder, or by some person authorized to receive payment on his behalf When: at a reasonable hour on a business day Where: at a proper place as herein defined To Whom: to the person primarily liable on the instrument, of if he is absent or inaccessible, to any person found at the place where the presentment is made
Effect if the 4 requisites are not complied with: as if no presentment for payment was done persons secondarily liable are discharged1. Who makes presentment for payment a. b. Holder Some person authorized to receive payment on his behalf (examples: (1) collecting bank; (2) agent; (3) heirs; (4) successors-in-interest)
2. When presentment is made a. Date of presentment Instrument NOT payable on demand on the day it falls due or on the maturity date fixed Instrument payable on demand Promissory note within a reasonable time after its issue Bill of exchange within a reasonable time after last negotiation reasonable time so much time as is necessary under the circumstances for a reasonable prudent and diligent man to do conveniently what the contract or duty requires should be done, having a regard for the rights and possibility of loss, if any, to the other party last negotiation last transfer for value Note: Subsequent transfers between banks for purposes of collection are not negotiations contemplated herein stale check one which has not been presented for payment within a reasonable time after its issue (after 180 days or 6 months); valueless
Instrument payable at a bank must be presented during banking hours Exception: person to make payment has no funds there to meet it at any time during the day; said person may present at any hour before the bank is closed b. Time of presentment How is the time computed excluding the day from which the time is to begin to run and by including the date of payment
Instrument is payable at a fixed time payable at the time fixed therein without grace Day of maturity of instrument falls on a Sunday or a holiday payable on Monday or succeeding business day Day of maturity falls on a Saturday or instrument becomes payable on a Saturday i. Instrument payable at a fixed or determinate future time next succeeding business day ii.Instrument is payable on demand Saturday, before 12noon or Monday at the option of the holder Note: On the day of payment, the party liable is entitled to the whole of that day within which to make payment Summary When Presentment for Payment is Made Date Instrument not payable on On the day instrument falls due Time At the time fixed without
demand grace
If day of maturity falls on a Sunday or a holiday payable on Monday or succeeding business day If day of maturity falls on a Saturday or instrument becomes payable on a Saturday next succeeding business day Instrument payable on demand Promissory note Within a reasonable time after its last issue Within a reasonable time after last negotiation Day of maturity falls on a Saturday or instrument becomes payable on a Saturday Saturday, before 12nn or Monday at the option of the holder
Bill of exchange
3. Where presentment is made Place of presentment: (Sec. 73) a. b. c. Where a place of payment is specified in the instrument, and it is thee presented Where no place of payment is specified but the address of the person to make payment is given in the instrument and it is there presented 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 Payable at a special place (Sec.70) 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 maker/acceptor is still liable to pay presentment for payment for person primarily liable is NOT necessary effect: if holder will not present the instrument at the special place, he loses his right to the payment of interest place of payment a house, bank, counting room, store or place of business, where the holder can present a note, where the maker can deposit or provide funds to meet it, and where a legal offer to pay can be made 4. To whom presentment for payment is made: a. To the person primarily liable on the instrument or if he is absent or inaccessible to any person found at the place where presentment is made b. Person primarily liable is dead and no place of payment is specified: personal representative, if such there be and if with the exercise of due diligence, he can be found c. Persons primarily liable are partners and no place of payment is specified, presentment may be made to any one of them d. There are several persons primarily liable and are not partners and no place of payment is specified, presentment must be made to them all Notes: Letters b-d are not applicable if place is specified. In such case, presentment must be made to any person found in the specified place. Although the indorser himself be the personal representative of the deceased person primarily liable, presentment for payment is still necessary. Exhibition of the instrument (Sec.74) 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: a. To determine the genuineness of the instrument and the right of the holder to receive payment b. To enable him to reclaim possession upon payment When excused: a. When the debtor does not demand to see the instrument but refuses payment on some other grounds b. When the instrument is lost or destroyed When unnecessary: a. Omission to contest it b. Admission of the authenticity of the note implicit from the averment that substantial payments were made thereon c. Express waiver of demand, presentment, protest, and notice of protest and non-payment in the note Note: Demand by telephone is NOT sufficient because exhibition of the instrument is NOT possible. When delay of presentment for payment is excused: (Art. 81) When delay is caused by circumstances beyond the control of the holder and not imputable to his default, misconduct or negligence. Note: When the cause of delay ceases to operate, presentment must be made with reasonable diligence. Dishonor by non-payment of instrument:
1. 2. It is duly presented for payment and payment is refused or cannot be obtained Presentment is excused and the instrument is overdue and unpaid
Effect of dishonor by non-payment: An immediate right of recourse to all parties secondarily liable thereon accrues to the holder (necessary condition: notice of dishonor was given to them)
Summary of Rules as to presentment for Payment General Rules: 1. Presentment for payment is NOT necessary to charge persons primarily liable. 2. Presentment for payment is necessary in order to charge the drawer and indorsers (Sec.70) Exceptions: a. When drawer need not be given notice (Sec.79) where drawer has NO right to expect or require that the drawee or acceptor will pay the instrument examples: Drawer ordered stop payment of a check Drawers balance is less than the amount of the check b. When indorser need not be given notice (Sec.80) 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 c. When presentment for payment is excused (Sec.82) Where after the exercise of reasonable diligence, presentment cannot be made Where drawee is a fictitious person By waiver of presentment, express or implied When the instrument has been dishonored by non-acceptance (Sec.151)
d.
NOTICE OF DISHONOR bringing either verbally or by writing to the knowledge of the drawer or indorser of an instrument, the fact that a specified negotiable instrument upon proper proceedings taken, has not been accepted or has not been paid, and that the party notified is expected to pay it. purpose: to charge persons secondarily liable burden of proof: holder must prove notice was given to drawer or indorser as the case may be Form of Notice (Secs. 95&96) may be verbal or in writing contents: a. b. c. d. Notes: Sufficient description of the bill or note Statement that the instrument has been dishonored upon presentment for acceptance for payment Statement that the instrument has been protested if protest is required An announcement of the intention to look to the party addressed for payment
If the written notice lacks any of the aforementioned matters that should be stipulated in the contents, the person given notice may orally state that there was dishonor to complete or validate the notice of dishonor. If there is misdescription, the notice is still valid and effective except if a party was in fact misled. For purposes of BP 22, notice of dishonor must be in writing; verbal notice is not enough. If notice of dishonor is in writing, it can be delivered personally to the person to whom notice should be given or it may be sent to him by mail. (Sec.96)
1. Who gives notice of dishonor a. Principal b. 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. 2. When is notice of dishonor given Rule: Notice may be given AS SOON AS the instrument is dishonored Where parties (person giving and person to receive notice) reside in same place (Sec.103) 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 If given at his residence, it must be given before the usual hours of rest4 on the day following. 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 places
Within the time that notice would have been received in due course of mail, if it had been deposited in the post office within the time specified in the last subdivision.
If sent by mail, it must be deposited in the post office in time to go by mail the day following the day of dishonor or if there be no mail at a convenient hour on last day, by the next mail thereafter
3. Where notice of dishonor is given Rules: (Sec.108)

4
Usual hours of rest any of the hours when the member of the household are attending their ordinary affairs
a. b. c. d. Where a party has added an address to his signature, notice of dishonor must be sent to that address If no address, either to the post office nearest to his place of residence or to the post-office where he is accustomed to receive his letters If he lives in one place and has his place of business in another, notice may be sent to either place If he is sojourning in another place, notice may be sent to the place where he is so sojourning
4. a. b. c.
To whom notice of dishonor is given The indorsers or drawers themselves; or Agent of the indorsers or drawer With respect to corporations, notice should be given to those who are duly authorized by the board to bind the corporation.
Special circumstances: a. Where party (drawer/indorser) is dead Rule: Notice should be given to the partys personal representative Requisites: - Person who should give notice knows that the person to receive notice is dead - Person who is supposed to receive notice has a personal representative - Personal representative could be found after the exercise of reasonable diligence Notice to partners Rule: Notice to one partner will bind the partnership
b.
c. Notice to persons jointly liable Rule: Notice should be given to each of them unless one has authority to receive such notice for the others d. Notice to bankrupt Rule: Notice may be given either to the party himself or to his trustee or assignee Waiver of Notice of Dishonor Waiver means the person who is making the waiver renounces the benefit of the act or matter in his favor When done: either before the time of giving notice has arrived or after the omission to give due notice (Sec.109) To whom binding: Where the waiver is embodied in the instrument itself, it is binding upon all parties, but where it is written above the signature of an indorser, it binds him only. (Sec.110) Summary of Rules as to notice of dishonor: General Rules: 1. Notice of dishonor need NOT be given to persons primarily liable 2. Notice of dishonor is necessary to charge drawers or indorsers Exceptions: a. When notice is waived Sec. 109: Notice of dishonor may be waived either before the time of giving notice has arrived or after the omission to give due notice and the waiver may be express or implied. b. When dispensed with
Sec.112: Notice of dishonor is dispensed with when after the exercise of reasonable diligence, it cannot be given to or does not reach the parties sought to be charged. c. When notice need not be given to drawer Sec. 114: Notice of dishonor is NOT required to be given to the drawer in either of the following cases: Where the drawer and drawee are the same person When the drawee is a fictitious person or a person not having capacity contract When the drawer is the person to whom the instrument for payment is made Where the drawer has no right to expect or require that the drawee or acceptor will honor the instrument Where the drawer has countermanded payment d. When notice need not be given to indorser Sec.115: Notice of dishonor is NOT required to be given to an indorser in either of the following cases: When the drawee is a fictitious person or person not having capacity to contract and the indorser was aware of that fact at the time he indorsed the instrument Where the indorser is the person to whom the instrument is presented for payment Where the instrument was made or accepted for his accommodation e. Where due notice of dishonor by non-acceptance has been given Sec. 116: Where due notice of dishonor by non-acceptance has been given, notice of a subsequent dishonor by non-payment is not necessary unless in the meantime the instrument has been accepted. f. As to a holder in due course without notice Sec. 117: An omission to give notice of dishonor by non-acceptance does not prejudice the rights of a holder in due course subsequent to the omission. PRESENTMENT FOR ACCEPTANCE production of a bill of exchange to the drawee for his acceptance General Rule: Presentment for acceptance is NOT necessary in order to render any party to the bill liable. Exceptions: (Sec.143) 1. Where the bill is payable after sight or in any other case where presentment for acceptance is necessary in order to fix maturity of the instrument 2. Where the bill expressly stipulates that it shall be presented for acceptance 3. Where the bill is drawn payable elsewhere than at the residence or place of business of the drawee.
In the above 3 circumstances where presentment for acceptance is necessary, the following are the requisites to charge persons secondarily liable: 1. 2. Make presentment for acceptance Negotiate the bill within a reasonable time
Presentment for acceptance, how made 1. a. b. 2. a. b. Who makes presentment for acceptance Holder Any person in his behalf When presentment for acceptance is made At a reasonable hour on a business day; and Before the bill is overdue
Days presentment may be made:
Payable at a fixed date on the day of maturity Day of maturity is Sunday next succeeding business day Day of maturity is Saturday or payable at Saturday before 12nn provided it is not
holiday
3. Where presentment for acceptance is made 4. To whom presentment for acceptance is made a. Drawee or some person authorized to accept or refuse in his behalf b. 2 or more drawees, not partners all of them unless one has authority to accept or refuse for all c. Drawee is dead personal representative d. Drawee is bankrupt, insolvent or made an assignment for the benefit of his creditors drawee himself or his trustee or assignee
Where presentment for acceptance is excused: (Sec.148)

1. 2. 3.
Where the drawee is dead, or has absconded or is a fictitious person or a person not having capacity to contract by bill Where after the exercise of reasonable diligence, presentment cannot be made Where although presentment has been irregular, acceptance has been refused on some other ground (example: presentment is made on a Sunday but acceptance is refused on the ground that drawer has no funds in the hands of the drawee)
1. When it is duly presented for acceptance and such an acceptance is refused or cannot be obtained 2. When presentment for acceptance is excused and bill is not accepted Notes: If bill is dishonored by non-acceptance, holder must give: (1) notice of dishonor by nonacceptance; and (2) protest (in case of foreign bill). Otherwise, drawers and indorsers are discharged. (Sec.150) If bill is dishonored by non-acceptance, no presentment for payment is necessary to hold drawers and indorsers liable. (Sec. 151) But if after previous non-acceptance, bill is subsequently accepted, presentment for payment is necessary. If bill is accepted for honor, presentment for payment is necessary to charge acceptor for honor. ACCEPTANCE signification by the drawee of his assent to the order of the drawer (Sec.132) Kinds of acceptance: 1. Actual acceptance Requisites: a. b. c. In writing Signed by the drawee Must not express that drawee will perform his promise by any other means than the payment of money d. Must be communicated or delivered to holder Notes: An oral acceptance is not binding on the drawee. Acceptance by telegram has been held sufficient.
Dishonor by non-acceptance (Sec.149)
Acceptance is not required for checks for they are payable on demand. Without signature of drawee, he would not be bound. Acceptance must be expressed to be payable in money only. Acceptance is incomplete until delivery or notification. The acceptor or drawee who has not communicated his acceptance or transmitted the accepted bill to the holder, may revoke an acceptance before delivery and cancel the written acceptance. Is payment equivalent to acceptance? NO. acceptance a promise to perform an act payment actual performance Where acceptance may be written a.On the bill itself b.On a separate paper i. Acceptance as to an existing bill ii.Acceptance as to a non-existing bill requisites: The contemplated drawee shall describe the bill to be drawn and promise to accept it Bill shall be drawn within a reasonable time after such promise is written Holder shall take the bill upon the credit of the promise
2. Constructive acceptance (Sec.137)

a. Where the drawee to whom the bill is delivered destroys it b. Where the drawee refuses, within 24 hours c. After such delivery, or within such time as is given him, to return the bill accepted or not accepted Notes: The bill is at all times the property of the holder and he is entitled to have it when he wants it. Mere failure to return the bill within 24 hours is an acceptance. When acceptance may be made: a.Before the bill has been signed by the drawer b.Even when the bill is otherwise incomplete c. Even when the bill is overdue d.Even after it has been dishonored by non-acceptance or non-payment 3. General acceptance one that assents without qualification to the order of the drawer (Sec.139) acceptance to pay at a particular place
4. Qualified acceptance (Sec.141)

a. Conditional; that is to say, which makes payment by the acceptor dependent on the fulfillment of a condition stated therein Example: Accepted, if Y marries Z. Sgd. X Partial; that is to say, an acceptance to pay part only of the amount for which the bill is drawn Example: Bill is for P1000. Accepted for P500 only. Local; that is to say, an acceptance to pay only at a particular place Example: Accepted. Payable at PNB only. Qualified as to time Example: Bill is payable 30 days after sight. Accepted, payable 60 days after sight. Acceptance of some, one or more of the drawees but not all
b.
c.
d.
e.
Example: The drawees of a bill are X and Y and it is accepted only by X. Effect of taking a qualified acceptance drawer and indorsers are discharged Why? Drawers and indorsers warrant tht the bill would be paid as drawn, or as indorsed by them, and a qualified acceptance would vary their contract without their consent. Exception: If the drawers and indorsers expressly or impliedly gave their consent to the qualified acceptance. PROTEST a formal statement in writing made by a notary under his seal of office at the request of a holder of a bill or note, in which it is addressed that the same was on a certain day presented for payment (or acceptance), and such payment (or acceptance) was refused, whereupon the notary protests against all parties to such instrument and declares that they will be held responsible for all loss or damage arising from its dishonor. all the steps or acts accompanying the dishonor of a bill or note necessary to charge an indorser. necessary only for foreign bills. Foreign bill a bill of exchange that is not drawn and/or payable in the Philippines When protest is required: 1. Where the foreign bill is dishonored by non-acceptance 2. Where the foreign bill is dishonored by non-payment 3. Where the bill has been accepted for honor, it must be protested for non-payment before it is presented for payment to the acceptor for honor 4. Where the bill contains a referee in case of need, it must be protested for non-payment before it is protested for payment to the referee in case of need 5. When the bill is dishonored by acceptor for honor Protest in case of inland bills Protest is NOT necessary in inland bills. But, it is not prohibited and is discretionary on the part of the holder. Advantage of protest in inland bills: The certificate of the notary public is generally made prima facie evidence of the facts relating to presentment, demand, non-payment, and notice of dishonor, which are set forth in the certificate. Main purpose of protest: to furnish to the holder legal testimony of presentment, demand, and notice of dishonor to be used in an action against the drawer and indorsers. Reasons for requiring protest: 1. For uniformity in international transactions because most countries require it 2. In order to furnish authentic and satisfactory evidence of the dishonor to the drawer, who from his residence abroad, may experience difficulty in verifying the matter and may be forced to rely on the representation of the holder. Procedure for protest 1. How protest is made Sec. 153. The protest must be annexed to the bill or must contain a copy thereof, and must be under the hand and seal of the notary making it and must specify: a. b. c. d. The time and place of presentment The fact that presentment was made and the manner thereof The cause or reason for protesting the bill The demand made and the answer given, if any, or the fact that the drawee or acceptor could not be found 2. Who makes protest Sec. 154: Protest may be made by:
a. b. Notary public; or Any respectable resident of the place where the bill is dishonored in the presence of two or more credible witnesses 3. When protest is made Sec. 155: When a bill is protested, such protest must be made on the day of its dishonor unless delay is excused as herein provided. When a bill has been duly noted, the protest may be subsequently extended as of the date of the noting. duly noted notary public jots down a note on the bill, or a paper attached thereto, or in his registry book, consisting of his initials or signature and those matters required to be stated in Sec.153. the noting must be made on the day of dishonor but it may be extended into a formal protest afterwards. 4. Where protest is made Sec. 156: General Rule: A bill must be protested at the place where it is dishonored Exception: except that when a bill drawn payable at the place of business or residence of some person other than the drawee has been dishonored by non-acceptance, it must be protested for non-payment at the place where it is expressed to be payable, and no further presentment for payment to ro demand on the drawee is necessary. Note: Where a bill has already been protested for non-acceptance, protest for non-payment is merely optional. Protest for better security one made by the holder against the drawer and indorsers where the acceptor has been adjudged a bankrupt or insolvent or has made an assignment for the benefit of creditors before the bill matures. merely optional on the part of the holder when made: a. b. c. After acceptance Before the date of maturity When the acceptor has been adjudged bankrupt or insolvent or has made an assignment for the benefit of creditors purpose: to inform drawer and indorsers of the fact that acceptor is insolvent and may not pay the bill, and to enable them to make necessary arrangements so that they will not be held liable thereon and prevent loss of re-exchange.
CHAPTER 9 DISCHARGE OF NEGOTIABLE INSTRUMENTS

CONCEPT Discharge release from further liability, obligation or from the binding effect of the negotiable instrument As to paper: puts an end to it as a contractual obligation As to the parties: Operates as a release of some or all of them from further obligation and liability under the instrument. INSTRUMENT, HOW DISCHARGED.
Sec. 119: A negotiable instrument is discharged: 1. By payment in due course by or on behalf of the principal debtor payment in due course5 requisites: a. Must be made by or on behalf of the principal debtor/accommodated party b. Payment must be made to the holder c. Payor must be in good faith and without notice that holders title is defective d. Payment is made at or after the maturity date of the instrument principal debtor person ultimately bound to pay the debt Payment by a third person General Rule: Instrument is NOT discharged. Exception: Payment for honor. Note: If a person paid the holder with the intention of acquiring title over the instrument, payor is NOT a third person. 2. By payment in due course by the party accommodated where the instrument is made or accepted for his accommodation As between the accommodation party and the accommodated party, the latter is the one ultimately liable, hence a principal debtor. 3. By the intentional cancellation by the holder thereof how made: a. b. c. Tearing the instrument Burning the instrument Writing across the instrument the word cancelled If cancellation is unintentional, made under a mistake, or without the authority of holder, cancellation is inoperative (instrument is NOT discharged). cancellation signifies not only the drawing of criss-cross lines but also tearing, obliterations, erasures or burning. Burden of proof: lies on the party who alleges that the cancellation was made unintentionally, under a mistake, or without authority. 4. By any other act which will discharge a simple contract for the payment of money Art. 1231: Extinguishment of obligations a. Payment b. Loss of the thing due c. Condonation or remission of the debt d. Confusion or merger of rights e. Compensation f. Novation g. Annulment/rescission h. Fulfillment of resolutory condition i. Prescription 5. When the principal debtor becomes the holder of the instrument at or after maturity in his own right requisites: a.
5
Reacquisition must be made by principal debtor
Sec.88:
b. In his own right c. At or after the date of maturity in his own right not in a representative capacity (e.g. maker is agent or maker is holder as executor or administrator) When instrument is reacquired before maturity Instrument is NOT discharged Merely constitutes a negotiation back to principal debtor who may in turn renegotiate the instrument (Sec.50) Persons secondarily liable on the instrument, how discharged Sec. 120: A person secondarily liable on the instrument is discharged: a. b. c. d. e. f. Notes: By any act which discharges the instrument By the intentional cancellation of his signature by the holder By the discharge of a prior party By a valid tender of payment made by a prior party By a release of the principal debtor unless the holders right of recourse against the party secondarily liable is expressly reserved By any agreement binding upon the holder to extend the time of payment or to postpone the holders right to enforce the instrument unless made with the assent of the party secondarily liable or unless the right of recourse against such party is expressly reserved.
No consideration is necessary to support a discharge by intentional cancellation of an indorsers signature by the holder. Discharge of prior party discharges party subsequent thereto. reason: subsequent parties cannot exercise their right of recourse against discharged prior party. application: discharge of prior party must arise from the acts of holder; it does NOT cover discharge by operation of law like discharge by reason of bankruptcy, discharge of party not given due notice of dishonor, discharge by statute of limitations. valid tender of payment act by which one produces and offers to a person holding a claim or demand against him the amount of money which he considers and admits to be due in satisfaction of such claim or demand without any stipulation or condition. release of principal debtor General Rule: Discharges the instrument and parties secondarily liable are deprives of their right of recourse Exception: When the holders right of recourse against party secondarily liable is expressly reserved. Reason: the effect of such reservation is the implied reservation of their right of recourse against person primarily liable Note: The release must be a voluntary act of holder, not by operation of law and is for value. As to effect of release to accommodation maker/acceptor: Rule: He is NOT discharged by the release of the principal debtor Extension of time General Rule: Persons secondarily liable are discharged
reason: an agreement to extend time of payment varies the original undertaking of the parties secondarily liable. Assurance of drawer and indorsers is payment according to the tenor of the instruments. Exceptions: 1. extension is consented to the by the party secondarily liable 2. where holder expressly reserves his right of recourse against person secondarily liable Requisites: 1. 2. it must be a binding contract, supported by valuable consideration and for a definite period must be made with the principal debtor not with a third party Effects of payment by indorser (Sec.121) Instrument is NOT discharged but indorser who paid is discharged Indorser is remitted to his former rights against parties prior to him Indorser can strike out his indorement and all subsequent indorsements rationale: indorsement of paying party subsequent indorsements are NOT necessary for his title indorser can renegotiate the instrument exceptions:
1. 2. 3. 4.
a. where it is payable to the order of a 3rd person and has been paid by the drawer
when it is made or accepted for accommodation and has been paid by the party accommodated Renunciation by holder (Sec.122) renunciation act of surrendering a right or claim without recompense but it can be applied with equal propriety to the relinquishing of a demand upon an agreement supported by consideration. Form: 1. Must be express 2. In writing Time of making renunciation by holder: 1. Before maturity 2. At maturity 3. After maturity When it discharges instrument: 1. 2. When it is absolute and unconditional When it is made in favor of the person primarily liable 3. When it is made at or after maturity b.
CHAPTER 10 CHECKS
Check a bill of exchange payable on demand drawn on a bank (Sec.185) essence: payable on demand (because the contract between the banker and the customer is that the money is needed on demand) KINDS OF CHECKS: 1. Cashiers check one drawn by the cashier of a bank in the name of the bank against the bank itself payable to a third person or order
Demand draft does not operate as an assignment of funds in the hands of the drawee who is not liable on the instrument until he accepts it. Cashiers check is a primary obligation of the bank which issues it and constitutes its written promise to pay upon demand a bill of exchange drawn by a bank on itself and accepted in advance by the act of its issuance
Nature and use: By its very nature, a cashiers check is the banks order to pay drawn upon itself,
committing in effect its total resources, integrity and honor behind the check. A cashiers check by its peculiar character and general use in the commercial world is regarded substantially to be as good as the money which it represents (Tan vs. CA) 2. Managers check a check drawn by the manager of a bank in the name of the bank against the bank itself payable to a third person similar to cashiers check as to effect and use 3. Memorandum check a check on which is written the word memorandum, memo, and mem signifying that the drawer engages to pay the bona fide holder absolutely and not upon a condition to pay upon presentment and non-payment a check given by a borrower to a lender for the amount of a shot loan with the understanding that it is not to be presented at the bank but will be redeemed by the maker himself when the loan falls due and which understanding is evidence by writing the word memorandum, memo or mem on the check given by the drawer to the payee more in the nature of a memorandum of indebtedness than as payment drawer may be sued the same as upon a promissory note 4. Travelers check instrument purchased from banks, express companies, or the like, in various denominations which can be used like cash upon second signature by the purchaser has the characteristics of a cashiers check of the issuer requires the signature of the purchaser at the time he buys it and also at the time he uses it 5. Certified check one drawn by a depositor upon funds to his credit in a bank which a proper officer of the bank certifies will be paid when duly presented for payment Certification almost similar to acceptance discharges at the instance of the holder an agreement whereby the bank against whom a check is drawn, undertakes to pay it at any future time when presented for payment bank debits the drawers account at the time of certification and sets aside funds out of the drawers control effect: same as though the money had been paid by the bank to the holder and redeposited by him in his own credit (payee/holder becomes the depositor of the bank)
Notes: Bank is not obligated to the depositor to certify checks. Drawee is not liable to the holder for the refusal of the bank to certify a check The refusal of a bank does not dispense with the requirement of presentment for payment since a check is of right presentable only for payment at the bank on which it is drawn
certification is equivalent to acceptance drawee bank is bound on the instrument upon certification drawee bank incurs liabilities under Sec. 62 (liability of acceptor)
RELATED PROVISIONS: (AGBAYANI COMMENTARY) Sec. 119. Instrument; how discharged. - A negotiable instrument is discharged: (a) By payment in due course by or on behalf of the principal debtor; (b) By payment in due course by the party accommodated, where the instrument is made or accepted for his accommodation; (c) By the intentional cancellation thereof by the holder; (d) By any other act which will discharge a simple contract for the payment of money; (e) When the principal debtor becomes the holder of the instrument at or after maturity in his own right. PAYMENT BY PRINCIPAL DEBTOR In order to discharge the instrument, the payment must be a payment in due course, and second, a payment made by the principal debtor If payment is made before the date of maturity, the instrument is not discharged as the payment is not in due course Where payment is made by a party who is not a primary obligor or an accommodation party, his payment only conceals his own liability and those who are obligated after him. All prior parties primarily or secondarily liable on the bill, are liable to such a payer, and the payer may cancel indorsements subsequent to his own and reissue the paper, and it will be valid as against the prior parties PAYMENT BY THIRD PERSONS If payment is made by a third person, the instrument is not discharged because payment is not made by the person principally liable Not any one who desires may pay the instrument and then recover of the maker. He must be a person who has in some way made himself liable for the payment of the instrument. Exception: where an instrument has been protested and someone voluntarily makes payment supra protest or for honor. And if the instrument was to give money in payment, the instrument is discharged. SUMMARY OF DISCHARGE BY PAYMENT 1. Payment by a person ultimately liable, whatever his position in the paper, is a discharge of the instrument 2. Payment by an accommodation party isnt a discharge of the instrument, whatever his position thereon and whether the indorsement be regular or anomalous 3. Payment by the drawer or indorser is not a discharge of the instrument **PRINCIPAL DEBTOR Person ultimately bound to pay the debt PAYMENT BY CHECK OR OTHER NEGOTIABLE PAPER 1. When they actually have been cashed or 2. When, through the fault of the creditor, they have been impaired A creditor isnt bound to accept a check in satisfaction of his demand because a check, even if good when offered, doesnt meet the requirements of legal tender WAIVER OF OBJECTION TO TENDER OF PAYMENT BY CHECK
It is the general rule that an object to a tender must, to be available to the creditor, be made in good time and that the grounds for objection must be specified; and that an objection to tender on one ground is a waiver of all other objections which could have been made at that time It is ordinarily required of one to whom payment is offered in the form of a check, that he makes his objection at the time of the offer of by check instead of an offer of payment in money Payment by check has become so generally recognized as acceptable in business transactions that it has been held that omission to make objection to a check as tender payment is regarded as a waiver of the right to demand payment in money Reason for the ruleto afford the debtor the opportunity to secure the specific money which the law prescribes shall be accepted in payment of debts PAYMENT BY ACCOMMODATED PARTY The one ultimately liable on the accommodation instrument is the latter Hence, his payment in due course discharges the instrument as if payment was made by the principal debtor under paragraph (a). INTENTIONAL CANCELLATION The cancellation must be intentional and made by the holder There must be an intention to cancel a negotiable instrument by the holder thereof as such intention is an essential element of discharge on a negotiable instrument and a negotiable note in a torn condition is presumed cancelled by the holder thereof WILL AN EXTENSION OF TIME GRANTED BY THE HOLDER TO THE DEBTOR DISCHARGE THE INSTRUMENT? No, according to the majority view Because while it isnt omitted in Section 120, it is omitted in Section 119 Shows the legislative intent to that an extension of time by the holder will not discharge the instrument PRINCIPAL DEBTOR ACQUIRES INSTRUMENT Reacquisition must be by the principal debtor and in his own right at or after the date of maturity In his own rightnot in a representative capacity WHEN INSTRUMENT REACQUIRED BEFORE MATURITY A reacquisition by the principal debtor in his own right but before maturity will not discharge the instrument It will merely be a negotiation back to the principal debtor DISCHAGE BY OPERATION OF LAW If a judgment is obtained on a bill or note, the bill or note is thereby extinguished and merged in the judgment. But the judgment alone, without actual satisfaction, is not extinguishment as between plaintiff and other parties not jointly liable with the original defendant, whether those parties be prior or subsequent to the defendant A discharge in bankruptcy, unless otherwise provided by statute, releases a bankrupt from all his provable debts, and therefore will discharge the bankrupt on all bills accepted, or notes made by him but will not discharge the other parties Sec. 120. When persons secondarily liable on the instrument are discharged. - A person secondarily liable on the instrument is discharged: (a) By any act which discharges the instrument; (b) By the intentional cancellation of his signature by the holder; (c) By the discharge of a prior party; (d) By a valid tender or payment made by a prior party; (e) By a release of the principal debtor unless the holder's right of recourse against the party secondarily liable is expressly reserved; (f) By any agreement binding upon the holder to extend the time of payment or to postpone the holder's right to enforce the instrument unless made with the assent of the party secondarily liable or unless the right of recourse against such party is expressly reserved. EFFECT OF SECTION 120 IS A SURETYSHIP
Generally the courts regard this provision as exclusive, as a complete codification of the law of discharge of secondary parties by the six methods therein set forth ACTS THAT DISCHARGE INSTRUMENT Any of the acts that will discharge an instrument under Section 119 will discharge a party secondarily liable thereon, such as payment in due course by the maker. This will discharge the indorsers in the note. DISCHARGE BY OPERATION OF LAW IS NOT INCLUDED 1. Discharge by reason of bankruptcy 2. Discharge of a party not given due notice of dishonor 3. Discharge by the statute of limitations VALID TENDER OF PAYMENT If D an indorser validly tenders payment and F unjustifiably refuses to do accept, D is discharged Tender of payment: act by which one produces and offers to a person holding a claim or demand against him the amount of money which he considers and admits to be due, in satisfaction of such claim or demand without any stipulation or condition **RELEASE MUST BE ACT OF HOLDER **RELEASE MUST BE FOR VALUE EFFECT OF RELEASE ON ACCOMMODATION MAKER OR ACCEPTOR General rule is that he is not discharged by the holders release of the principal debtor even if the release be made with knowledge of the true relation of the parties and, conversely, the release of the accommodation maker or acceptor does not discharge the principal debtor through the latter occupies the position of a party secondarily liable on the instrument EXTENSION OF TIME If the holder agrees to extend the time of payment, the indorsers are discharged Exceptions- (1) where the extension of time is consented to by the party secondarily liable, he is not discharged; (2) where the holder expressly reserves his right of recourse against the party secondarily liable, the latter is not discharged. REQUISITES OF AGREEMENT FOR EXTENSION OF TIME 1. It must be a binding contract, supported by valuable consideration and for a definite period 2. It must be made with the principal debtor and not with a third par Sec. 121. Right of party who discharges instrument. - Where the instrument is paid by a party secondarily liable thereon, it is not discharged; but the party so paying it is remitted to his former rights as regard all prior parties, and he may strike out his own and all subsequent indorsements and against negotiate the instrument, except: (a) Where it is payable to the order of a third person and has been paid by the drawer; and (b) Where it was made or accepted for accommodation and has been paid by the party accommodated.
EXCEPTION TO THE RIGHT TO RENEGOTIATE Where a drawer of a certified check was required to take up the check because of the failure of the drawee bank, the instrument is not discharged and he is subrogated to the rights of the payee.
Sec. 122. Renunciation by holder. - The holder may expressly renounce his rights against any party to the instrument before, at, or after its maturity. An absolute and unconditional renunciation of his rights against the principal debtor made at or after the maturity of the instrument discharges the instrument. But a renunciation does not affect the rights of a holder in due course without notice. A renunciation must be in writing unless the instrument is delivered up to the person primarily liable thereon. APPLICATION OF SECTION 122 1. Applies only to renunciation by the unilateral act of the holder without consideration and in cases where the instrument is not delivered up to the person intended to be released
2. Renunciationact of surrendering a right or claim without recompense but it can be applied with equal propriety to the relinquishing of a demand upon an agreement supported by a consideration FORM OF RENUNCIATION It must be in writing and must be express However, if the instrument is delivered to the person primarily liable, the renunciation may be ORAL. TIME FOR MAKING RENUNCIATION 1. Before maturity 2. At maturity 3. After maturity
WHEN RENUNCIATION DISCHARGES INSTRUMENT 1. When it is absolute and unconditional 2. When it is made in favor of the person primarily liable 3. Made at or after maturity
Sec. 123. Cancellation; unintentional; burden of proof. - A cancellation made unintentionally or under a mistake or without the authority of the holder, is inoperative but where an instrument or any signature thereon appears to have been cancelled, the burden of proof lies on the party who alleges that the cancellation was made unintentionally or under a mistake or without authority. MEANING OF CANCELLATION Signifies not only the drawing of criss-cross lines but also tearing, obliterations, erasures or burning It may be made by any other means by which the intention to cancel the instrument may be evident
WHEN CANCELLATION IS INOPERATIVE 1. When made unintentionally 2. When made under mistake 3. When made without the authority of the holder **BURDEN OF PROOF IS UPON THE PERSON WHO CLAIMS THAT THE CANCELLATION IS INOPERATIVE
Sec. 124. Alteration of instrument; effect of. - Where a negotiable instrument is materially altered without the assent of all parties liable thereon, it is avoided, except as against a party who has himself made, authorized, or assented to the alteration and subsequent indorsers. But when an instrument has been materially altered and is in the hands of a holder in due course not a party to the alteration, he may enforce payment thereof according to its original tenor.
RIGHTS OF ONE NOT HOLDER IN DUE COURSE Where an instrument has been materially altered, it is avoided in the hands of one who is not a holder in due course as against a prior party who has not assented to the alteration WHERE INSTRUMENT NOT AVOIDED AS TO HOLDER NOT IN DUE COURSE 1. A party who has made the material alteration 2. A party who has authorized the material alteration 3. A party who has assented to the material alteration 4. Any subsequent indorsers RIGHTS OF HOLDER IN DUE COURSE NOT A PARTY TO THE ALTERATION He may enforce the instrument in its original tenor He could recover the altered tenor to any party who has made, authorized or assented the alteration, or any subsequent indorser of the instrument **NO DISTINCTION BETWEEN FRAUDULENT AND INNOCENT ALTERATION RIGHT TO COLLECT ORIGINAL CONSIDERATION
When the alteration wasn't fraudulently done, the holder may recover the original consideration
**WHERE DRAWEE BANK PAYS ALTERED AMOUNT, DRAWER HAS THE RIGHT TO HAVE HIS ACCOUNT DEBITED WITH CORRECT AMOUNT ONLY As between the bank and its depositors, the payment of forged or altered checks by it is made at its peril and cannot be charged against the depositors account UNLESS some negligent act or misconduct of his has contributed to induce such payment, the bank itself being free from negligence. **BANKS ARE BOUND BY THE 24-HOUR CLEARING HOUSE RULE AND MUST NOTIFY THE COLLECTING BANKS WITHIN 24 HOURS OF ALTERATION OF CHECKS
Sec. 125. What constitutes a material alteration. - Any alteration which changes: (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, is a material alteration.
WHEN ALTERATION IS MATERIAL If it alters the effect of the instrument
Examples of MATERIAL ALTERATION: (1) substituting the words or bearer for order; (2) writing protest waived above blank indorsements; (3) a change in the date from which interest is to run; (4) adding the words with interest with or without a fixed rate; (5)an alteration in the maturity of a note, whether the time for payment is thereby curtailed or extended; (6) An instrument is payable to PNB, the plaintiff added the word Marion; (7) striking out the name of the payee and substituting that of the person who actually discounted the note
Examples of IMMATERIAL ALTERATION: (1 )changing I promise to pay to we promise to pay where there are two makers; (2) adding the word annual after the interest clause; (3) adding the date of maturity as a marginal notation; (4)filling in the date of actual delivery where the makers of a note gave it with the date in blank, july.; (5) where there is a blank for the place of payment, filling in the blank with the place desired
CHAPTER 12 LETTERS OF CREDIT AND TRUST RECEIPTS

LETTER OF CREDIT Commerce branch of human activity the purpose of which is to bring products to the consumer by means of exchanges or operations which tend to supply and extend them to him, habitually, with intent to gain, at the proper time and place, and in good quality and quantity. Commercial transactions those entered into by merchants to pursue activities as merchants Merchants one whose business is buying and selling goods for profit; a person or entity that holds itself out as having expertise peculiar to the goods in which it deals, and is therefore held by the law to a higher standard than a consumer or other non-merchant is held Who are merchants? (Art.1, Code of Commerce) 1. Those who having capacity to engage in commerce, habitually devote themselves to it 2. Commercial or industrial companies which may be created in accordance with existing legislation Essential requisites of a merchant: Filipino individual Legal capacity to engage in commerce Habitually engages himself therein A single act of a party or person may be considered a habitual act. 3. Must be at least 18 years old (RA 6809) 4. Must have free disposition of his property Filipino association 1. Commercial or industrial company 2. Created in accordance with existing legislations 3. With legal capacity to engage in commerce 4. Habitually engaged therein Rule on Minors 1. 2. General Rule: Minors may not engage in commerce Exceptions: 1. When the minor continues the business of his parents or predecessors through a guardian 2. Investment in stocks of a corporation A minor at least 7 years old may open a bank savings account or time deposit and withdraw the same without assistance of his parent or guardian (PD 734) Persons disqualified in engaging in commercial transactions A. 1. 2. 3. B. 1. Absolutely Disqualified Persons suffering the penalty of civil interdiction Persons declared as bankrupt Persons disqualified by special laws or provisions Relatively Disqualified Justices of the SC, judges, and officials of the department of public prosecutors in actual service
2. 3. 4. 5. 6. 7. 8. 9. Administrative, economic or military heads of districts, provinces or posts Employees engaged in the collection and administration of public funds of the State, appointed by the government Stock or brokers of any class Those who by virtue of laws or special provisions, may engage in commerce in a determinate territory Members of Congress President, Vice-President, members of Cabinet and their deputies or assistants Members of Constitutional Commission President, Vice-President, members of the Cabinet, Congress, Supreme Court and the Constitutional Commission, Ombudsman with respect to any loan, guaranty or other form of financial accommodation for any business purpose by any government-owned or controlled bank to them
Commercial contract an agreement between two or more merchants or nonmerchants binding themselves to give or to do something in commercial transactions Macariola v. Asuncion: Art. 14 of the Code of Commerce (a Spanish law) providing for the relative disqualification of judges is political in nature as it regulates the relationship between the government and certain public officers and employees like justices and judges. Upon the transfer of sovereignty from Spain to US and later on US to Philippines, said provision must be deemed abrogated because where there is change of sovereignty, political laws of the former sovereign, whether compatible or not with those of the new sovereign are automatically abrogated. There being no explicit re-enactment by the new sovereign, disqualification should be considered to have since lost its legal and binding force on judges. Hence, the Court ruled in the said case that there was no violation of the said rule when Asuncion associated himself with a company as a stockholder while being concurrently a CFI judge. Jose Berin v. Judge Felixberto Barte: The Court ruled that Barte committed an impropriety in acting as a broker in the sale of a real estate. This is so since while Sec. 14 of the Code of Commerce had already been abrogated as ruled in Macariola v. Asuncion, the Code of Judicial Conduct which took effect on October 20, 1989, refrained judges from entering into financial and business dealings that tend to reflect adversity o the courts impartiality. Letter of Credit
a letter issued by one merchant to another for purpose of attending to a commercial transaction (Art. 567, Code of Commerce)6 Modern concepts: an engagement by a bank or other person made at the request of a customer that the issuer will honor drafts or other demands for payment upon compliance with th conditions specified in the credit (Prudential Bank v. IAC; Bank of Commerce v. Serrano) one wherein the bank merely substitutes its own promise to pay for the promise to pay of one of its customers who in return promises to pay the bank the amount of funds mentioned in the letter of credit plus credit or commitment fees mutually agreed upon
Not favored by Dean Sundiang
Negotiable Instruments Law (Aquino and Agbayani Notes) 72 Abad.Avila.Cancino.Concepcion.Chu.Layno.Mercado.Prinsipe.Reyes H. (2S A.Y. 2010-2011) one issued by a bank in order to aid a person who may not have a capital for the importation of goods and merchandise7 a request by one bank (addressed usually to another bank) to advance money or credit to a third person, upon fulfillment of certain conditions, usually by the latter on the promise of the issuer bank to repay the same; issuer in turn look for the person applying for the same for satisfaction
Conditions of a letter of credit: (Art. 568, Code of Commerce) 1. 2. to be issued in favor of a definite person and not to order to be limited to a fixed and specified amount or to one or more undetermined amounts, but within a maximum the limits of which has to be stated exactly
When does the letter of credit become void (Art. 572, Code of Commerce) if the bearer of a letter of credit does not make use of it within the period agreed upon with the drawer If there is no period stipulated,
within six months counted from the date in any point in the Philippines within 12 months outside the Philippines
Basic parties to a letter of credit 1. Buyer procures the letter of credit and obliges himself to reimburse the issuing bank upon receipt of the documents of title 2. Bank (issuing/opening) undertakes to pay the seller upon receipt of the draft and proper documents of title and to surrender the documents to buyer upon reimbursement 3. Seller (payee/beneficiary) who in compliance with the contract of sale ships the goods to the buyer and delivers the documents of title and draft to the issuing bank to recover payment Other parties: Paying bank bank on which the drafts are to be drawn Confirming bank notifies the beneficiary, assumes the direct obligation to the seller; has primary liability Notifying bank correspondent bank of the issuing bank, assumes no liability except to notify and/or transmit to the beneficiary the existence of a letter of credit, check authenticity of credit8 Negotiating bank correspondent bank which buys or discounts a draft under the letter of credit; liability is dependent upon the stage of negotiation Before negotiation no liability to seller After negotiation has contractual relationship with seller Three contracts in a letter of credit 1. 2. Contract between buyer and seller - governed by the contract of sale executed by them Contract between issuing bank and buyer - governed by the terms of application and agreement for the issuance of letter of credit
7 8
Definition of Dean Relationship between notifiying bank and issuing bank: agency
3. Contract between issuing bank and seller Governed by the terms of the letter of credit itself Independence Principle a bank, in determining compliance with the terms of a letter of credit is required to examine only the shipping documents presented by the seller and is precluded from determining whether the main contract is actually accomplished or not assures the seller of prompt payment independent of any breach of the main sales contract the contract of sale between buyer and seller is independent from the letter of credit itself; the issuing bank need only to determine the tender documents presented by seller and has the obligation to pay upon compliance with the terms of the letter of credit works to the benefit of both issuing bank and beneficiary/seller Rule of strict compliance the documents tendered by the seller or beneficiary must strictly conform to the terms of the letter of credit, i.e. they must include all documents required by the letter of credit Fraud exception: exists when the beneficiary for the purpose of drawing on the credit, fraudulently presents to the confirming bank documents that contain expressly or by implication material representations of fact that to his knowledge are untrue effect: court may issue injunction to bar payment by the issuing bank requirements of injunction: a. b. c. There is clear proof of fraud Fraud constitutes fraudulent abuse of the independent purpose of the letter of credit and not only fraud under the main agreement Irreparable injury might follow if injunction is not granted or recovery of damages would seriously be damaged
Kinds of Letter of Credit 1. 2. 3. 4. 5. 6. Confirmed letter of credit whenever beneficiary stipulates that the obligation of the opening bank shall also be made the obligation of a bank to himself Unconfirmed letter of credit obligation only of the issuing bank Irrevocable letter of credit obligates the issuing bank to honor drafts drawn in compliance with the credit and can neither be cancelled nor modified without the consent of all parties including in particular the beneficiary/exporter Revocable letter of credit can be cancelled at anytime before payment; intended to serve as a means of arranging payment but not as a guarantee of payment Revolving letter of credit valid for several transactions over a given period of time such as a week or month Non-revolving letter of credit one that is valid for one transaction only
TRUST RECEIPTS LAW
Trust Receipts Law (PD 115) Bank becomes entruster of the goods while the buyer-importer is the entrustee. The goods will in effect be released by the bank to the buyer by the delivery of the documents of title or bill of lading covering the goods. Buyer as entruster is obligated to sell the goods and to apply the proceeds thereof to the payment of the loan extended by the entruster-bank, buyer will only get the balance of the proceeds of the sale after making such application.
Purposes: (Section 2) 1. 2. 3. To encourage and promote the use of trust receipts as an additional and convenient aid to commerce and trade To regulate trust receipt transactions in order to assure the protection of rights and the enforcement of the obligations of the parties involved therein To declare the misuse and/or misappropriation of goods or the proceeds realized from the sale of goods, documents or instruments released under trust receipts as a criminal offense punishable under Art.315 of the RPC
Trust receipt transaction transaction between an entruster and entrustee whereby the entruster, who owns or holds absolute title or security interests over certain specified goods, documents or instruments, releases the same to the possession of the entrustee upon the latters execution and delivery to the entruster of a trust receipt wherein the entrustee binds himself to hold the specified goods, documents, or instruments with the obligation to turn over to the entruster the proceeds thereof to the extent of the amount owing to the entruster or the goods, documents, or instruments themselves if they are unsold and not otherwise disposed of. Parties to a trust receipt transaction: (Sec.3, PD 115) 1. 2. Entrustee person having or taking possession of goods, documents, instruments under a trust receipt transaction and any successor-in-interest of such person Entruster person holding title over the goods, documents, or instruments subject of a trust receipt transaction and any successor-in-interest of such person
Rights of the entruster: (Sec.7) 1. To receive the proceeds of the sale of the goods, documents or instruments released under a trust receipt to the entrustee to the extent of the amount owing to the entruster 2. To the return of the said goods, documents or instruments in case they could not be sold 3. To cancel the trust in case the entrustee defaults, take possession of the goods, documents or instruments and sell the same at public or private sale
Obligations of the entrustee (Sec.9)
1. To hold the goods, documents or instruments in trust for the entruster and to dispose
of them strictly in accordance with the terms of the trust receipt
Negotiable Instruments Law (Aquino and Agbayani Notes) 75 Abad.Avila.Cancino.Concepcion.Chu.Layno.Mercado.Prinsipe.Reyes H. (2S A.Y. 2010-2011) 2. To receive the proceeds of the sale of the goods, documents or instruments in trust 3. 4. 5. 6.
for the entruster and to turn over the same to the entruster to the extent of the amount owing to the entruster To insure the goods for their total value against loss from fire, theft, pilferage or other casualties To keep the goods, documents or instruments or the proceeds thereof whether in money or whatever form, separate and capable of identification as property of the entruster To return the goods, documents, or instruments to the entruster in case they could not be sold or upon demand of the entruster To observe all other terms and conditions of the trust receipt

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Negotiable Instruments Law (Aquino and Agbayani Notes) 1 Abad.Avila.Cancino.Concepcion.Chu.Layno.Mercado.Prinsipe.Reyes H. (2S A.Y.

CHAPTER 1: GENERAL CONSIDERATIONS

FUNCTIONS OF NEGOTIABLE INSTRUMENTS: (SEC-PF)

Indication of a Particular Fund for Payment vs. Fund for Reimbursement

(b) On or before a fixed or determinable future time specified therein; or

ex. Pay to bearer P1

CHAPTER 3: Interpretation of Instruments

CHAPTER 4: Transfer and Negotiation

Availability of personal defenses

Transferee merely steps in to the shoes of the transferor

Transferee is always subject to personal defenses.

Rights of a Restrictive indorsee (Sec. 37):

RELATED PROVISIONS: (AGBAYANI COMMENTARY)

RI 149 SCRA 448. 181 SCRA 296

CHAPTER 6: Parties who are Liable

RELATED PROVISIONS: (AGBAYANI COMMENTARY)

Forgery in Notes Makers Signature

CHAPTER 8 ENFORCEMENT OF LIABILITY

Promissory note - maker Bill of exchange - acceptor

3. Where notice of dishonor is given Rules: (Sec.108)

Where presentment for acceptance is excused: (Sec.148)

Dishonor by non-acceptance (Sec.149)

2. Constructive acceptance (Sec.137)

4. Qualified acceptance (Sec.141)

CHAPTER 9 DISCHARGE OF NEGOTIABLE INSTRUMENTS

Reacquisition must be made by principal debtor

WHEN ALTERATION IS MATERIAL If it alters the effect of the instrument

CHAPTER 12 LETTERS OF CREDIT AND TRUST RECEIPTS

Not favored by Dean Sundiang

TRUST RECEIPTS LAW

Obligations of the entrustee (Sec.9)

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