NEGO Notes

NEGOTIABLE INSTRUMENTS LAWFORMS OF NEGOTIABLE INSTRUMENTS:

PROMISSORY NOTE (Sec. 184)- An unconditional promise in writing made by one

person to another, signed by the maker, engaging the pay on demand or at a fixed or determinable future time.

BILLS OF EXCHANGE (Sec. 126)- 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.

CHECK (Sec. 185)- A bill of exchange drawn on a bank payable on

demand

REQUISITIES OF NEGOTIABILITY:

Sec. 1 An instrument to be negotiable must conform to the following requirements:

It must be in writing and signed by the maker or 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 to bearer; and Where the instrument is addressed to a drawee, he

must be named or otherwise indicated therein with reasonable certainty.

A. Must be in writing and signed by the maker or drawer Form of signature is immaterial – as long as he affixes his

customary signature Place of signature not important Must the maker or drawer personally sign the

instrument?

Sec. 18 Liability or person signing in trade or assumed name. – No person is liable on the instrument whose signature does not appear thereon, except as herein otherwise expressly provided.But one who signs in trade or assumed name will be liable to the same extent as if he had signed in his own name.

Sec. 19 Signature by agent; authority; how shown. – The signature of any party may be made by a duly authorized agent. No particular form of appointment is necessary for this purpose and the authority of the agent may be established as in other cases of agency.

Sec. 20 Liability of a person signing as agent, etc. – Where the instrument contains or person adds to his signature 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.

B. Must contain an unconditional promise or order to pay a sum certain in money 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

b. A statement of the transaction which gives rise to the instrument.

But an order or promise to pay out of a particular fund is not unconditional.

Payment in moneySec. 6(e) designates a particular kind of current money in which payment is to be made.

NEGOTIABLE INSTRUMENTS LAW Certainty as to sum payable

Sec. 2 Certainty as to sum; what constitutes – The sum payable is a sum certain within the meaning of this Act, although it is to be paid:

a. With interest; orb. By stated installments; orc. By stated instalments, with a provision that

upon default in payment if any instalment or of interest the whole shall become due; or

d. With exchange, whether at a fixed 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.

*certainty can always be arrived at by simple mathematical equation*general rule: as long as the payment of interest is stipulated in writing

Suppose the rate of interest and maturity are stipulated but date of issuance is not indicated – 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 him the date so inserted is to be regarded as the true date.

“stated instalments” – the amount of each and every instalment must be stated and the date when each and every installment is due must be fixed on the instrument

“acceleration clause” – upon default in the payment of any instalment or of interest, the whole amount of the instrument shall become due and demandable

“fixed rate” – agreed by the parties “current rate” – rate of exchange applicable from day to

day

C. Must be payable on demand or at a fixed or determinable future time Sec. 7 When payable on demand. – An instrument is

payable on demand:a. Where it is expressed to be payable on

demand, or at sight or on presentation; orb. In which no time for payment is expressed.Where an instrument is issued, accepting, or indorsed when overdue, it is as regards the person so issuing, accepting, or indorsing it, payable on demand.

When instrument issued, accepted, or indorsed Is overdue, it is only as regards the very person so issuing, accepting, or indorsing is the instrument payable on demand.

When payable on a fixed date: if the day, month, and year are definitely stated on the face of the instrument.

NEGOTIABLE INSTRUMENTS LAW

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; orb. On or before a fixed or determinable future

time specified therein; orc. 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.

D. It must be payable to order or to bearer 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 a maker, drawer, or drawee; or

b. The drawer or maker; orc. The drawee; ord. Two or more payees jointly; ore. One or more several payees; orf. The holder or 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.

Two ways whereby an instrument may be made payable to order: (1) payable to the order of specified person and (2) payable to him (specified person) or order.

There must always be a specified person named in the instrument and the instrument must always be paid to the person designated in the instrument or to any person to whom he has indorsed and delivered the same.

Sec. 9 When payable to bearer. – The instrument is payable to bearer:

a. When it is expressed to be so payable; orb. When it is payable to a person named therein

or bearer; orc. 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; or

e. When the only or last indorsement is an indorsement in blank.

Ways of making the instrument payable to bearer:a. When expressed to be so payable

“I promise to pay to bearer, P100.00” (Sgd) Ab. When payable to a person named therein or bearer.

“I promise to pay to Maria Santos or bearer, P100.00.”- The word bearer must come after the specified

person.c. When it is payable to the order of a fictitious or non-

existing person, and such fact is known to the person making it so payable.To comply with this requirement the ff requisites must concur:1. The instrument must be payable to the order of a

specified payee.2. The specified payee is either fictitious or non-

existing.


3. The maker or drawer must know that this payee is fictitious or non-existing.

The concurrence of all of the above will make the instrument payable to bearer. “I promise to pay to the order of Batman,P200” (Sgd)A- This is negotiable provided that the maker believes

that Batman does not exist.d. When the name of payee does not purport to be the

name of any person. “Pay to the order of CASH, P500.00.” (Sgd) A

e. When the only or last indorsement is an indorsement in blank.- Applies to instruments, originally payable to order.

It does not apply to instruments originally payable to bearer, because in the latter case, no matter what kind of indorsement is made, the instrument remains payable to bearer.

“I promise to pay to the order of B, P500.00.” (Sgd) A- The above instrument is originally payable to order.

In order to negotiate it, B has to indorse it. So if B simply signs his signature at the back of the note and delivers it to C, the only indorsement appearing is an indorsement in blank. In the hands of C, the instrument is payable to bearer. (For an instrument to be payable to bearer, it can be negotiated by mere delivery.)

E. Where the instrument is addressed to a drawee, he must be named or otherwise indicated therein with reasonable certainty. Applies only to bills of exchange – the drawee is the

person being commanded by the drawer to pay the payee. If he accepts, he becomes primarily liable. Therefore, any person who will take the bill must know the person who will be primarily liable, he must know to whom he should present it for acceptance and for payment.

May be addressed to two or more drawees jointly but not in the alternative or in succession.

Option to treat as promissory noteSec. 130 When bill may be treated as promissory note. – Where in a bill the drawer and drawee are the same person or where the drawee is a fictitious person, or a person not having capacity to contract, the holder may treat the instrument, at his option, either as a bill of exchange or a promissory note.

- If the person so identified is the drawer himself, a fictitious person, or a person not having capacity to contract, the instrument may be treated as a note because what is stated in the instrument amounts to the promise of a drawer.

- Ex. Cashier’s checks – the drawee may sometimes be the drawer himself. In this case, the instrument is in effect a promissory note executed by the drawer.

NEGOTIABLE INSTRUMENTS LAWOMISSIONS AND PROVISIONS THAT DO NOT AFFECT NEGOTIABILITY:

A. OMISSIONSSec. 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; orb. Does not specify the value given, or that any value

had been given therefor; orc. Does not specify the place where it is drawn or the

place where it is payable; ord. Bears a seal; ore. 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.

Undated instruments - where such dates are necessary to determine the

maturity date (not for negotiability) of the instrument.

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.

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.

“Ante-dated” – when it contains a date earlier than the true date of issuance“Post-dated” – when it contains a date later than the true date of its issuance

- May be negotiated before or after the date given as long as it is not negotiated after its maturity.

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.

- It is necessary that the date of issue or acceptance, as the case may be, be specified so as to determine the date of maturity. Unless the true date is inserted, one will now know when the instrument will be due.

- The date of acceptance must be the date when the bill was presented to the drawee and not the date when it was actually accepted by him. (Sec. 136, 138)

- The insertion of a wrong date in an undated instrument by one having knowledge of the true date of issue or acceptance will avoid the

instrument as to him but not as to a subsequent holder in due course who may enforce the same notwithstanding the improper date.

- The insertion of a wrong date constitutes a material alteration.

B. PROVISIONSSec. 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 judgement 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.

NEGOTIABLE INSTRUMENTS LAWSTEPS IN ISSUANCE OF NEGOTIABLE INSTRUMENTS:

1. The mechanical act of writing the instrument completely and in accordance with the requirements of Sec.1; and

2. The delivery of the complete instrument by the maker or the drawer to the payee or holder with the intention of giving effect to it.

Such instrument, complete and delivered, is negotiable and may be enforced accordingly.

APPLICATION OF SECTIONS 14, 15, 1614: applied to an incomplete instrument which has been delivered by the maker or the drawer to the payee or holder15: an incomplete instrument undelivered16: a complete instrument but undelivered

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 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.

Rules where instrument incomplete but delivered:1. Authority to fill up the blanks – the holder or the person

in possession has prima facie authority to complete an incomplete instrument by filling up the blanks therein.

a. “material particular” – any particular proper to be inserted in a negotiable instrument to make it complete, and the power to fill in the blanks extends, therefore, to every complete feature of the instrument

b. Authority to complete is not authority to alter (Sec. 124)

2. Authority to put any amount – a signature on a blank paper delivered in order that may be converted into a negotiable instrument operates as prima facie authority to fill it up as such for any amount. *if the person making the signature intended to convert it into a negotiable instrument, in the absence of such a showing, there cannot arise a prima facie authority

3. Right against party prior to completion – the instrument may only be enforced against a party prior to completion if filled up strictly in accordance with the authority given and within a reasonable time.

4. Right of holder in due course - the defense that that instrument had not been filled up in accordance with the authority given and within a reasonable time is not available as against a holder in due course.

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.

Rules where instrument incomplete and undelivered:1. Defense even against a holder in due course – the fact

that an incomplete instrument, completed without authority, had not been delivered, is a defense even against a holder in due course.

2. Defense available to parties prior to delivery – the invalidity of the instrument is only with reference to the parties whose signatures appear on the instrument before and not after delivery.

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.

Rules where instrument mechanically complete:1. Undelivered - every contract on negotiable instrument

even if completely written is incomplete and revocable until its delivery for the purpose of giving it effect.

a. “delivery” – the transfer of possession, actual or constructive, from one person to another (Sec. 191); it may be made either by the maker or drawer himself or through a duly authorized agent

b. “issue” – defined as the first delivery of the instrument, complete in form, to a person who takes it as holder (Sec. 191)

c. “holder” – the payee or indorsee of a bill or note who is in possession of it, or the bearer thereof

2. In possession of party other than a holder in due course – if a complete instrument is found in the possession of an immediate party or a remote party other than a holder in due course, there is a prima facie presumption of delivery but subject to rebuttal,

3. Delivered conditionally or for a special purpose – if delivery was made or authorized, it may be shown to have been conditional, or for a special purpose only and not for the purpose of transferring the property (title) to the instrument.

4. In the hands of a holder in due course – if a complete instrument is in the hands of a holder in due course, a valid delivery thereof by all parties prior to him is conclusively presumed. *conclusive means admission of evidence to the contrary is not allowed

NEGOTIABLE INSTRUMENTS LAWRULES ON INTERPRETATION OF AMBIGUOUS AND INCOMPLETE INSTRUMENTS

Sec. 17. Construction where instrument is ambiguous. - Where the language of the instrument is ambiguous or there are omissions therein, the following rules of construction apply:

(a) Where the sum payable is expressed in words and also in figures and there is a discrepancy between the two, the sum denoted by the words is the sum payable; but if the words are ambiguous or uncertain, reference may be had to the figures to fix the amount; (b) Where the instrument provides for the payment of interest, without specifying the date from which interest is to run, the interest runs from the date of the instrument, and if the instrument is undated, from the issue thereof; (c) Where the instrument is not dated, it will be considered to be dated as of the time it was issued; (d) Where there is a conflict between the written and printed provisions of the instrument, the written provisions prevail; (e) Where the instrument is so ambiguous that there is doubt whether it is a bill or note, the holder may treat it as either at his election; (f) Where a signature is so placed upon the instrument that it is not clear in what capacity the person making the same intended to sign, he is to be deemed an indorser; (g) Where an instrument containing the word "I promise to pay" is signed by two or more persons, they are deemed to be jointly and severally liable thereon.


PROMISSORY NOTE BILL OF EXCHANGE1. Contains an

unconditional promiseContains an unconditional order

2. Two (2) parties on its face – maker, payee

Three (3) parties on its face – drawer, payee, and drawee

3. The person who signs it is the maker

The person who signs it is the drawer

4. The person who signs it, the maker, is primarily liable

The person who signs it, the drawer, is secondarily liable

5. The person primarily liable is the maker

The person primarily liable is the drawee-acceptor

6. There is only one presentment: for payment

There are two presentments: a) for acceptance and b) for payment

OTHER TYPES OF BILLS OF EXCHANGE:Bank check – a check is a bill of exchange, drawn on a bank payable on demand (Sec. 185)

A check differs from an ordinary bill of exchange in that the drawee on a check is always a bank, whereas the drawee on an ordinary bill of exchange may be a bank, a person, a partnership or a corporation.

A check is always payable on demand while an ordinary bill may be payable on demand, or a fixed date or a determinable future time.

A check need not be presented for acceptance, while an ordinary bill of exchange is required to be presented for acceptance.

A check must be presented for payment within a reasonable time after its issue or the drawer will be discharged from the liability thereon to the extent of the loss caused by the delay. (Sec. 186)

A check of itself does not operate as an assignment to any part of the funds to the credit of the drawer within the bank, and the bank is not liable to the holder, unless and until it accepts or certifies the check. (Sec. 189)


HOLDER IN DUE COURSE

Sec. 52 What constitutes a holder in due course. – A holder in due course is a holder who has taken the instrument under the 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 had been previously dishonoured, 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.

“holder” – the payee or indorsee of a bill or notem who is in possession of it, or the bearer thereof (Sec. 191)

It is not necessary that all these requisites be present at all times - it is sufficient that these requisites concur at time of negotiation, for it is at such time that the holder takes the instrument.

Two kinds of holders:(1) Holder in due course(2) Holder not in due course

Sec. 53 Where person not deemed holder in due course. – Where an instrument payable on demand is negotiated an unreasonable length of time after its issue, the holder is not deemed a holder in due course.

A. It is complete and regular upon its face An instrument is complete if it doesn’t lack any

material particular or any matter essential for negotiability.

If the instrument was initially incomplete and was completed, and even if the completion was unauthorized, so long as the holder has no notice of such at the time he takes the instrument, he will still be a holder in due course. (Sec. 14)

“upon its face” – there should be no irregularities, alterations or erasures visible or apparent on the face of the instrument; does not arise suspicion

B. That he became the holder of it before it was overdue, and without notice that it had been previously dishonoured, if such was the fact Two requisites:

(1) That the instrument was negotiated to the holder before it was overdue; and

(2) That holder had no notice of a previous dishonor.

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 person taking an overdue instrument should certainly question why the instrument is still in circulation even if it is overdue.

If the instrument is payable on demand, the holder must take it within a reasonable time after its issuance, otherwise he will be deemed not holder in due course. (Sec. 53)

C. That he took it in good faith and for value. The holder must have taken the instrument

without knowledge of any legal or equitable defense that could be set up against his title.

Although good faith on the part of the holder is presumed, such presumption is destroyed if the payee or indorsee “acquired possession of the sintrument under circumstances that should have put it to inquiry as to the title of the holder who negotiated the instrument” (De Ocampo vs. Gatchalian)

Sec. 24 Presumption of consideration. – Every negotiable instrument is deemed prima facie to have been issued for a valuable consideration, and every person whose signature appears thereon to have become a party thereto for value.

Sec. 25 Value; what constitutes. – Value is any consideration sufficient to support a simple contract. An antecedent or pre-existing debt constitutes value, and is deemed such whether the instrument is payable on demand or at a future time.

NEGOTIABLE INSTRUMENTS LAWSec. 26 What constitutes a 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.

Another term for “consideration”; it is not necessary that the value or consideration must be exactly equal to the face value of the instrument.

Sec. 54 Notice before full amount 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 had paid the full amount agreed to paid for therefor, he will be deemed a holder in due course only to the extent of the amount theretofor paid by him.

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. Refers to infirmity in the instrument – those

matters that may avoid the instrument, like material alteration, forgery, and absence or illegal consideration

Defect of title of the person negotiating the instrument – such person either has no title to the instrument, or he has obtained the instrument or any signature thereto, by fraud, duress, or force and fear, on 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

Person negotiating must have a good title Even if the person negotiating has a defective title,

provided the holder has no such notice at the time the instrument is negotiated to him, he qualifies as a holder in due course.

Sec. 55 When title is defective. – The title of a person who negotiates an instrument is defective within the meaning of this Act, when he obtained the instrument, or any signature thereto, by fraud, duress, or force and fear, or other unlawful means, or for an illegal consideration, or when he negotiated it in breach of faith, or under such circumstances as amount to a fraud.

Sec. 56 What constitutes of defect. – To constitute notice of an infirmity in the instrument of 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.

Note:Sec. 52 par. 4 – the word “or” should be interpreted to mean “and”. Two factors must concur under this requirement for one to be a holder in due course:

1) Absence of actual knowledge or notice of the infirmity of the instrument and/or defect; and

2) Absence of knowledge of conditions and circumstances sufficient to make the holder believe that his taking of the instrument amounts to fraud or bad faith.

NEGOTIABLE INSTRUMENTS LAWSec. 57 Rights of a 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 is liable thereon.

Sec. 59 Who deemed a 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.

NEGOTIABLE INSTRUMENTS LAWFORGERY

Sec. 23 Forged signature; effect – When signature is forged or made without authority of the person whose signature it purports to be, it is wholly inoperative, and no right to retain the instrument, or to give a discharge therefor, or to enforce payment thereof against any party thereto, can be acquired through or under such signature unless the party against whom it is sought to enforce such right is precluded from setting up the forgery or want of authority.

Definition. By forgery it is meant the counterfeit making or fraudulent alteration of any writing, and may consist in the signing of another’s name, or the alteration of an instrument in the name, amount, description of the person and the like, with intent to defraud.

If the forgery consists of alteration in the amount, Sec. 124 applies

Even if the maker or drawer’s signature was forged, the instrument is still negotiable. The rights of the parties will still be determined on the basis of NIL.

Other Forms of Forgery:(1) Fraud in factum(2) Duress amounting to forgery(3) Fraudulent impersonation in certain cases

Fraud in factum or fraud in esse contractus - B obtains the signature of A by telling A that it is

only for autograph purposes. Then B writes above the signature a negotiable instrument. The fraud here amounts to forgery.

o No intention to issue an instrumentFraud in inducement

- A sells B what he represents to B as a diamond ring, which in fact is only glass. B issues to A a check. The check is not a forgery. The fraud here is inducing B to issue the check.

o There was intention (of B) to issue the instrument.

Duress amounting to forgery- A takes B’s hand and forces him to sign his name

Fraudulent impersonation- X represents himself to be Juan Cruz, when in fact

he is not to Y. Due to such misrepresentation, he obtained from Y a note payable to the order of Juan Cruz. If Y intends that the proceeds of the note will go to the real Juan Cruz and not X, but to whom Y issued the note on the belief that X was Juan Cruz, it would be a forgery.

EFFECT OF FORGED SIGNATURE Where a signature on an instrument is forged, it is the

forged signature which is inoperative. The instrument is still operative, even as against the very party whose signature, it was forged, If such party is precluded from setting up the fact of forgery.

A forged signature, whether it be that of the drawer, the maker, the payee, or any other party, is wholly inoperative and no one can gain title to the instrument through such forged signature against parties prior to the forgery.

A person whose signature to an instrument was forged was never a party and never consented to the contract which allegedly gave rise to such instrument.

Whoever alleges forgery must prove such fact. It cannot be presumed, it must be duly established.

“Cut-off” rule: The parties prior to the forged signature are cut-off from the parties after the forgery in the sense that prior parties cannot be held liable and case raise the defense of forgery. The holder can enforce the instrument against parties who became such after the 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.

*Read: Gempesaw vs. Court of Appeals Republic Bank vs. Ebrada

PERSONS PRECLUDED FROM SETTING UP FORGERYException to general rule (Sec. 23) is where “a party against whom it is sought to enforce a right is precluded from setting up the forgery or want of authority”

(1) Parties who warrant or admit the genuineness of the signature in question; and

(2) Those who, by their acts, silence, or negligence are estopped from setting up the defense of forgery. (ratification, express or implied)

FORGERY IN NOTESA. Maker’s signature

- The maker is NOT liable to all subsequent parties whether the instrument is an order instrument or a bearer instrument

- Maker’s forged signature is wholly inoperative and no right to enforce payment against the maker is obtained by any holder.

- Indorsers after the forgery are still secondarily liable to the holder – these indorsers warrant that the instrument is genuine and in all respects what it purports to be. Hence, they can no longer claim that the instrument is not genuine.

B. Indorser’s signaturea. 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 payee’s 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.

b. Bearer instruments- Since the signature of the payee or holder

is unnecessary to pass title, the maker may still be liable to a holder in due course even if an indorsement was forged after the issuance of the note.


FORGERY IN BILLS OF EXCHANGEA. Drawer’s signature

- The drawer is NOT liable whether or not the instrument is payable to bearer or payable to order. There is no right to enforce payment against the drawer under the forged signature.

- Even if bearer instrument because the drawer was never a party to the instrument – he did not promise to pay anybody.

- The drawer’s account cannot be debited if his signature in a check was forged because a drawee-bank is bound to know the signature of its client, the drawer. Hence, the drawee-bank is liable if it encashed checks bearing the forged signature of the drawer. In such cases, the drawee has no recourse against the collecting bank.

B. Indorser’s signature(1) Order instruments

- Where the indorsement 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 is a check, the drawee cannot charge the account of the drawer if the payee’s or any indorser’s signature is forged. The drawee, in turn has the right of recourse against the collecting bank.

(2) Bearer instruments- 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. (same as in bearer instrument in notes)

- Drawee can charge the account of the drawer

NEGOTIABLE INSTRUMENTS LAWCONSIDERATION

Sec. 24 Presumption of consideration. – Every negotiable instrument is deemed prima facie to have been issued for a valuable consideration, and every person whose signature appears thereon to have become a party thereto for value.

Presumption is disputable in the sense that the said presumption is satisfactory if not contradicted.

Need not be alleged or proved Effect of lack of consideration: the same is without any

effect and the payment of the note is not demandable.

Sec. 25 Value; what constitutes – Value is any consideration sufficient to support a simple contract. An antecedent or pre-existing debt constitutes value; and is deemed such whether the instrument is payable on demand or at a future time.

“consideration” – means inducement to a contract, that is, the cause, motive, price or impelling influence which induces a contracting party to enter into a contract

“valuable consideration” – an obligation to give, to do, or not to do, in favor of the party who makes the contract, such as the maker or indorser

Consideration founded on (1) love and affection, or (2) upon gratitude, is good consideration, but does not constitute such valuable consideration sufficient to support the obligation of a bill or note.

Sec. 26 What constitutes holder for value. – Where value has at any time been given for the instrument, the holder is deemed a holder for value in respect to all parties who become such prior to that time.

“holder for value” – one who has given a valuable consideration for the instrument issued or negotiated to him; the holder is deemed as such not only as regards the party to who value has been given by him but also in respect to all those who became parties prior to the time when value was given

Sec. 27 When lien on instrument constitutes holder for value. – Where the holder has a lien on the instrument arising either from contract or by implication of law, he is deemed a holder for value to the extent of his lien.

Where a holder has a lien on instrument:

(1) If the amount of the instrument is more than the debt secured by such instrument, the pledgee is a holder for value to the extent of his lien. He can collect the full value of the instrument, and apply the same to the payment of the debt but he must deliver the surplus to the pledgor. (Art. 2118, Civil Code)(2) If, between the pledgor and the party liable on the instrument, there are existing defenses, then the pledgee can collect on the instrument only to the extent of the amount of debt. (3) If the amount of the debt is less than or the same as the debt secured by the instrument, the pledgee is a holder for value for the full amount and may, therefore, recover all.(4) If the defenses of the party liable on the instrument are real defenses, then the pledgee can recover nothing upon 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.

Absence of consideration = total lack of any valid consideration = alleged contract must fail

“absence” – no consideration was intended to pass; “failure” implies that the giving of valuable consideration was contemplated but that it failed to pass

“Absence or failure of consideration is a matter of defense as against any person NOT holder in due course”, therefore, these defenses are only personal or equitable defenses

NEGOTIABLE INSTRUMENTS LAWACCOMMODATION PARTY

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.

Requisites: 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

An accommodation note is one to which the accommodation party has put his name, without consideration, for the purpose of accommodating some other party who is to use it and is expected to pay it. The credit given to the accommodation party is sufficient consideration to the accommodation maker.

“without receiving value therefor” means without receiving value by virtue of the instrument and not, as it apparently is supposed to mean, without receiving payment for lending his name

Effect of placing the words “value received”: this will not negate the character of the note as an accommodation paper

Rights and legal position of the accommodation party:- The accommodation party is generally regarded as

a surety for the party accommodated. - When the “accommodation parties make payment

to the holder of the notes, they have the right to sue the accommodated party for reimbursement since the relation between them is in effect that of principal and sureties, the accommodation parties being the sureties.”

Accommodated party cannot recover from the accommodation party. As between them, absence of consideration is a defense. As between them, these is an understanding that the accommodated party either is (1) to reimburse the amount which the accommodation party may be obliged to pay, or (2) to pay the instrument directly to the holder.

Liability of the accommodation party: the accommodation party is “liable on the instrument to a holder for value, notwithstanding such holder at the time of the taking of the instrument knew him to be only an accommodation party.”

What is meant by “holder for value” in this provision is a holder for value who could have been a holder in due course if not for the fact that such holder upon taking the instrument knew the party be an accommodation party

The accommodation party is liable to a holder for value as if the contract was not for accommodation. It is not a valid defense that the accommodation party did not receive any valuable consideration when he executed the instrument. Nor is it correct to say that the holder for value is not a holder in due course merely because, at the time he acquired the instrument, he knew that the indorser was only an accommodation party.

Where the holder is NOT otherwise a holder in due course, Sec. 28 will govern, not Sec. 29

Corporations are not liable as accommodation parties even to holders for value: ultra vires act- Except: officers signing for corporation as

accommodation party if specifically authorized to do so

Kinds of accommodation party:1. Accommodation maker

- M, as accomm party issues a P/N payable to P who may then negotiate it to A

2. Accommodation drawer- M, as accomm party, signs a BOE with P as payee,

and P may indorse the same to A3. Accommodation acceptor

- M, as accomm party, accepts the bill drawn on him by P in favor of himself and P may indorse the same to A

4. Accommodation indorser- M, as accomm party, simply signs as an indorser in

blank, the bill or note made by P in favor of A, before it is delivered to A

NEGOTIABLE INSTRUMENTS LAWNEGOTIATION AND INDORSEMENT

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 completed by delivery.

Modes of transfer: 1. Non-negotiable instruments

Assignment – the method of transferring a non-negotiable instrument whereby the assignee is merely places in the position of the assignor and acquires the instrument subject to all defenses that might have been set up against the original payee.

2. Negotiable instruments: through negotiation or assignment

Methods of negotiation:(1) Instruments payable to order – indorsement + delivery(2) Instruments payable to bearer – mere delivery

Effect of delivery of order instrument without indorsement: Without the indorsement, the transferee would not be the holder of the instrument, he not being the payee, indorsee, or the bearer thereof. However, the assignee acquires the right to have the indorsement of the assignor. When indorsement is subsequently obtained, the transfer operated as a negotiation only as of the time the indorsement is actually made. (Sec. 49)

NEGOTIATION ASSIGNMENTAs to applicable law: Negotiable Instruments Law

Civil Code of the Philippines

As to type of transaction/instrument: Negotiable instruments only

Contracts in general or assignable rights

As to the nature of transferee: The transferee is a holder who may be a holder in due course

The transferee is a mere assignee

As to the possibility of becoming a holder in due course: The transferee can be a holder in due course in proper cases

The transferee can never be a holder in due course

As to the rights acquired: The transferee-holder may acquire more rights than the transferor if he is a holder in due course

The transferee cannot acquire more rights than the transferor because he merely steps into the shows of the transferor

As to availability of personal defenses: The transferee-holder may be free from personal defenses if he is a holder in due course

The transferee is always subject to personal defenses

Is delivery to payee negotiation? Yes, under sec. 30 and 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. Delivery to him of the instrument constitutes him the holder thereof (as defined in Sec. 30)

*De Ocampo & Co. vs. Gatchalian

Issue means the first delivery of the instrument complete in its form to a person who takes it as a holderDelivery means transfer of possession, actual or constructive, from one person to another (Sec. 191)

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.

“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 stipulations with respect to the drawee’s responsibility and undertaking do not apply” (Ogden)

Indorsement is the writing of the name of the payee on the instrument with the intent either to transfer the title to the same, or to strengthen the security of the holder by assuming a contingent liability for its future payment, or both

The payee by signing the instrument and delivering it to another person (in payment of debt payee owes to him or for any other reason) becomes an indorser. The person who receives the indorsed instruments is the indorsee.

Indorsement alone without delivery conveys no title and creates no holder

An indorsement is not only a mode of transfer, it is also a contract. Every indorser is a new drawer and the terms are found on the face of the bill or note. Each indorsement generates an additional contract between the indorser and all subsequent holders

Where indorsement written: (1) on the instrument itself, or (2) upon a paper attached thereto - allonge

How indorsement written: “writing” includes “print”; 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.

General rule: indorsement must be of the entire instrument(Reason: the instrument must be delivered to the indorsee and there cannot be partial delivery of one instrument)

Effect of partial indorsement when unauthorized: Cannot 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 an assignee and would therefore take the instrument subject to defenses available between the original partiesException: “But where the instrument has been paid in part, it may be indorsed as to the residue” (Sec. 32)

Example: A, the maker has paid P600, B can indorse the instrument as to the balance, thus: “Pay to X P400. (Sgd.) B”

Transfer to two or more indorsees severally:Does not operate as a negotiation of the instrument

Example: “Pay to C P600 and to D P400. (Sgd.) B” But negotiation is valid where the indorsees are joint (Sec. 41)

Example: “Pay to X and Y. (Sgd.) B” To negotiate, both indorsements of X and Y are required

NEGOTIABLE INSTRUMENTS LAWKINDS OF INDORSEMENTSec. 33 Kinds of indorsement. – An indorsement may be either special or in blank; and it may also be either restrictive or qualified or conditional.

Classification of Indorsement:1. As to the methods of negotiation

a. Special (Sec. 34)b. Blank

2. As to the kind of title transferreda. Restrictiveb. Non-restrictive (Sec. 36)

3. As to scope of liability of indorsera. Qualifiedb. Unqualified or general (Sec. 38, 66)

4. As to presence or absence of limitationsa. Conditionalb. Unconditional (Sec. 39)

5. The other kinds of indorsementsa. Joint (Sec. 41)b. Successive (Sec. 50, 68)c. Irregular or anomalous (Sec. 64)d. Facultative (Sec. 111)

Special indorsement and Blank indorsementSec. 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.

Two forms of special indorsements:1. One that specifies the person to whom the

instrument is to be paid“Pay to A”

2. One that specifies the person to whose order the instrument is to be payable“Pay to the order of A”

*in either case, indorsement must be followed by the signature of the indorser. The words of negotiability are not necessary and their omission does not affect the negotiability of an instrument which is negotiable on its face

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. The reason is that the effect of a blank indorsement is to make the instrument payable to bearer

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.

(once a bearer instrument, always a bearer instrument)

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: the holder must not write any contract not inconsistent with the indorsement, that is, the contract so written must not change the contract of the blank indorser

Restrictive indorsementSec. 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.

Examples:Prohibits further negotiation“Pay to A only”“Pay to A only and to no other person”

Constitutes indorsee agent of indorser“Pay to A for collection” or “Pay to A collection and remittance”“Pay to A for collection only” “Pay to A for deposit”“Pay to A as agent of P”

NEGOTIABLE INSTRUMENTS LAWVests title in indorsee for the benefit of the indorser or a third party“Pay to A in trust for B” or “Pay to A as trustee for P”“Pay to A for my use” or “Pay to A for the use of B”

Effect of omission of words of negotiability:The mere absence of the words of negotiability does not make an indorsement restrictive. “Pay to X” is the same as “Pay to X or order”. The omission of the word “order” does not render the indorsement restrictive. But, such omission in the body itself 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.

Qualified IndorsementSec. 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.

Example:“Pay to the order of A without recourse on me. (Sgd.) P”“Pay to A, indorser not holder.”

“without recourse” means without resort to a person who is secondarily liable after the default of the person who is primarily liable

Effect of qualified indorsement:1. The purpose of a qualified indorsement is to

transfer title without guaranteeing payment. It constitutes the indorser a mere assignor of the title to the instrument.

2. It does not mean that the qualified indorser incurs no liability at all, the effect of indorsement is merely to limit his liability. He is secondarily liable for breach of his warranties as an indorser under Sec. 65. Thus, the qualified indorser is liable if the instrument is dishonored by non-acceptance or non-payment due to:

(a) Forgery, (b) lack of good title on the part of the indorser, (c) lack of capacity to indorse on the part of the prior parties, or (d) the fact that, at the time of the indorsement, the instrument was valueless or not valid and he knew of that fact

Illustration: A makes a note payable to B or his order, and B indorses the note thus: “Sans recourse, Pay to C, (Sgd) B.”If C cannot compel A to pay because A’s signature is forged, C can recover from B, as B warrants the genuineness of A’s signature. But if C cannot compel A to pay because A is insolvent and B did not know that fact at the time of negotiation, B cannot be held liable because his indorsement is merely a qualified one.

3. Does not impair the negotiable character of the instrument

NEGOTIABLE INSTRUMENTS LAWConditional IndorsementSec. 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

Example:A note for P1000 with A, maker and B, payee. It is indorsed as follows: “Pay to Y, if he passes the Bar examinations. (Sgd.) B.”

Right to disregard conditions:A, maker, can disregard the condition and pay to Y, indorsee, even if Y has not yet passed the Bar examinations. Such a payment will discharge him from liability on the instrument. But, of course, A may refuse to pay on the ground of non-fulfillment of condition

Obligation of conditional indorsee:Y, indorsee, holds the note or the proceeds thereof, if he is paid by A, subject to the rights of the indorser, B. If A disregards the condition, and pays Y the P1000, without waiting for the condition to be fulfilled, Y does not immediately acquire ownership over the sum. Y must hold it in trust while the condition is not yet fulfilled. It is upon the fulfillment of the condition that such ownership over the proceeds of the note is absolutely acquired by the conditional indorsee Y. In case of non-fulfillment, as when Y does not pass the examination, he must turn over the P1000 to B, the conditional indorser.

Effect of conditional indorsement on negotiability: A conditional indorsement does not render an instrument non-negotiable. 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.

Joint IndorsementSec. 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.

Exceptions:1. Where the payees or indorsees are partners;2. Where the payee or indorsee indorsing has

authority to indorse for the others

NEGOTIABLE INSTRUMENTS LAWSuccessive IndorsementSec. 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 negotiate the same. But he is not entitled to enforce payment thereof against any intervening party to whom he was personally liable.

Effect of renegotiation to prior parties: he cannot enforce payment against any intervening party to whom he was personally liable

Reason: to avoid circuity of suits

Illustration: A makes a note for P1000 with B as the payee. Indorsement from B to C, C to Jose Soriano, Jose Soriano to C, C to D, D to E, E to F, and F back to Jose SorianoJose Soriano may renegotiate the note, but Jose cannot enforce payment of the note against C, D, E and F, to whom he is liable.

Sec. 68 Order in which indorsers are liable. – As respects to 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.

Irregular or anomalous IndorsementSec. 64 Liability of irregular indorser. – Where a person, not otherwise a party to an instrument, places thereon his signature in blank before delivery, he is liable as indorser, in accordance with the following rules:

(a) If the instrument is payable to the order of a third person, he is liable to the payee and to all subsequent parties.

(b) If the instrument is payable to the order of the maker or drawer, or is payable to bearer, he is liable to all parties subsequent to the maker or drawer.

(c) If he signs for the accommodation of the payee, he is liable to all parties subsequent to the payee.

NEGOTIABLE INSTRUMENTS LAWSec. 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.

Effect of special indorsement where instrument originally payable to bearer: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.

Effect of liability of special indorser: The person indorsing specially is liable as indorser only to such holders as make title through his indorsement.

Illustration: A note for P1,000 payable to bearer. A, maker and C, bearer. C delivered it to D. D specially indorsed it to E, indorsee. E specially indorsed it to F, indorsee. F delivered it to G, bearer.

- D is not liable to G because G did not take titles through D’s indorsement but through delivery of F. Delivery was sufficient to transfer title to G because the instrument is originally payable to bearer and it can always be negotiated by delivery.

- D is liable to E and F, because they acquired their title over the instrument through D’s indorsement as E and F can trace their title through a series of unbroken indorsements from D, special indorser. (Had F indorsed the note to G instead, D would be liable also to G for the same reason)

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.

“corporations” do 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 by 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 as an agent of the maker, drawer

or acceptor should in order to escape personal liability as required under Sec. 20

(1) He must add words describing himself as an agent; and

(2) At the same time disclose his principal(3) He must be duly authorized.

Sec. 46 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.

Apply Sec. 52 (b), the instrument must be negotiated to him before it becomes overdue. The indorsement without date establishes a prima facie presumption that

the instrument was negotiated before maturity, and one who denies that the holder of such instrument is a holder in due course has the burden of proof.

Sec. 46 Place of indorsement; presumption. – Except where the contrary appears, every indorsement is presumed prima facie to have been made at the place where the instrument is dated.

Sec. 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.

An instrument originally negotiable can be rendered non-negotiable only by:(1) Restrictive indorsement; or(2) By a discharge thereof by payment or otherwise

*restrictive indorsement that prohibits further negotiation of the instrument under Sec. 36; an instrument restrictively indorsed ceases to be negotiable only to the extent of the restriction indicated by the indorsement Sec. 47

Negotiability after date of maturity:- An indorsee or a transferee after maturity takes the

instrument subject to defenses between original parties, because after maturity such subsequent parties take the instrument after it becomes overdue, and therefore under Sec. 52 (b), they are not holders in due course

- After maturity, the instrument ceases to be negotiable in the sense that a transferee after maturity is not a holder in course, and therefore, is not free from defenses obtaining between prior parties. Transfer to such transferees would be equivalent to a mere assignment and subject to defenses.

Legal position of holder taking overdue instrument: - He is a “holder with notice”, because he takes the

bill which, on the face of it, ought to have been paid

- He may or may not be a holder for value and his rights will be regulated accordingly

Right of holder not in due course:- It does not follow that simply because one is not a

holder in due course, he cannot recover. 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 indorsements. – 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.

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; nor can he strike out such name and convert such special indorsement into a blank indorsement.

NEGOTIABLE INSTRUMENTS LAWIllustration:A makes a note for P1,000 payable to bearer and it is delivered to B. B indorsed note to C. C indorsed note to D. D delivers note to E without indorsement.

- Indorsement of B and C are not necessary to vest ownership of the note in E. Mere delivery is sufficient. E can therefore, strike out C’s indorsement for any of them.

Effect of striking out:(1) The indorser whose indorsement is struck out is

relieved from his liability on the instruments; and(2) All subsequent indorsers are also relived 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.

Applies only to instruments payable to order; applies to a case where there is delivery and payment of value but no indorsement = 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

Illustration:A, maker (no valuable consideration) makes a note to B, payee. B delivers the note to C (no indorsement). C does not know of the absence of consideration.

- C, transferee cannot recover from A, maker because C acquires only B’s rights, and B cannot collect from A who can set up against B, absence of consideration.

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 delivery. Negotiation is completed at the time of indorsement.

Illustration:B delivered note to C on Dec. 1, 1950 and actually indorsed it to C on Dec. 15, 1950. On Dec. 10, 1950, after the delivery but before indorsement, C learned of the absence of consideration.

- C is not a holder in due course because on Dec. 15, the actual date of indorsement, he already had notice of the absence of consideration, and for the purpose of determining whether or not he is a holder in due course, the negotiation takes effect as of the time of indorsement. (Had C known of the absence of consideration on Dec. 16, after the date of indorsement, C would be a holder in due course)

Sec. 50 When prior party 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 negotiate the same. But he is not entitled to enforce payment thereof against any intervening party to whom he was personally liable.

Right of prior party to negotiate:

Illustration: A makes a note for P1000 with B as the payee.Indorsement from B to C, C to Jose Soriano, Jose Soriano to C, C to D, D to E, E to F, F back to Jose Soriano.

- Jose Soriano may renegotiate the note- Effect of renegotiation to prior parties: Jose Soriano

cannot enforce the payment of the note against C, D, E and F; to whom he is liable. Why? To avoid circuity of suits.

NEGOTIABLE INSTRUMENTS LAWRIGHTS OF THE HOLDER

Sec. 51 Right of holder to sue; payment. – The holder of a negotiable instrument may sue thereon in his own name; and payment to him in due course discharges the instrument.

Rights of holder in general: 1. He may sue on the instrument in his own name; 2. He may receive payment and if the payment is in

due course, the instrument is discharged Payment in due course is payment made: (1) at or after

the maturity of the instrument, (2) to the holder thereof, (3) in good faith and without notice that his title is defective (Sec. 88)

Sec. 52 Holder in due course Sec. 57 Rights of holder in due course. – A holder in due course holds the instrument free from any defect of title to 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;2. He may receive payment and if the payment is in

due course, the instrument is discharged;3. He holds the instrument free form any defect of

title to prior parties and free from defenses available to prior parties among themselves; and

4. He may enforce payment of the instrument for the full amount thereof against all parties liable thereon.

Defenses referred to in this section which the holder in due course is free, are equitable defenses only

Personal defenses- Cut off by negotiation of the instrument to a holder

in due coursevs. Real defenses (Sec. 58)- Those which attach to the instrument itself, which

is available against all persons even as against all persons even as against a holder in due course.

Sec. 58 When subject to original defenses. – In the hands of any holder other than a holder in due course, a negotiable instrument is subject to the same defenses as If it were non-negotiable. But a holder who derives his title through a holder in due course, and who is not himself a party to any fraud or illegality affecting the instrument has all the rights of such former holder in respect of all parties prior to the latter.

Rights of holder not in due course:1. He may sue on the instrument in his own name;2. He may receive payment and if the payment is in

due course, the instrument is discharged;3. He holds the instrument subject to the same

defenses as if it were non-negotiableA holder not in due course acquires the instrument subject to all defenses, whether personal or real, because he is treated as a mere assignee of a non-negotiable paper. 4. But a holder not in due course 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.

Holder acquiring from holder in due course: General rule: Equitable defenses can be interposed against a person not a holder in due courseException: 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 to all parties prior to the latter.

Though he is not himself a holder in due course, equitable defenses cannot be interposed against hi by parties prior to the holder in due course from whom he derived his title. But real defenses can be interposed as against him. Note that there are two 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.

Illustration:A, maker, issued a note to B, payee who induced A to do so by means of fraud. Successive indorsements to C, C to D, holder in due course. D indorsed to E, who had notice of want of consideration but did not take part in it.

- Want of consideration, an equitable defense, cannot be set up against E, by prior parties to D, such as C and B, even if E is not a holder in due course, without taking part in the fraud

- Why? E acquired all the rights of D, and the rights of D as far as parties prior to D are concerned are that of a holder in due course.

- E is in effect, a holder in due course, relatively speaking, that is, relative to C and B, parties prior to D.

Suppose E files an action against maker, A. Must E prove that D was a holder in due course or is the presumption under Sec. 59, that every holder is presumed to be a holder in due course sufficient?

- E must prove that D was a holder in due course - The presumption under Sec. 59, refers to a

“holder”, hence, one who is a payee or indorsee who has possession of the instrument or the bearer thereof, and D is not such holder because while he is an indorsee is in the instrument, he is not in possession thereof, it being in the possession of E.(Fossum vs. Fernandez Hermanos)

Sec. 59 Who deemed a 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.

Only in favor of a person who is a “holder” as defined in Sec. 191, that is, a payee or indorsee who is in possession of the note or the bearer thereof

NEGOTIABLE INSTRUMENTS LAWDefenses – grounds or reasons pleaded or offered by the defendant in a case, showing why the plaintiff, as a matter of law or fact, should not be given the relief he seeks.

Personal or equitable defenses Real or legal defensesThose which grow out of the agreement or conduct of a particular person in regard to the instrument which renders it inequitable for him, though holding legal title, to enforce it against the defendant, but which are not available against bona fide purchasers for value without notice. (Ogden)

They can be set up against persons not in due course.

Those that attach to the instrument itself and can be set up against the whole world, including a holder in due course.

They are called personal defenses because they are available only against that person or a subsequent holder who stands in privity with him.

They are called real defenses because they attach to the res, i.e. the instrument itself, regardless of the merits or demerits of the plaintiff.

Examples of personal defenses

1. Absence or failure of consideration, partial or total (28)2. Want of delivery of complete instrument (16)3. Insertion of wrong date in an instrument where it is payable

at a fixed period after date and it is issued undated or where it is payable at a fixed period after sight and the acceptance is undated (13)

4. Filling up of blank contrary to authority given or not within reasonable time, where the instrument is delivered (14)

5. Fraud in inducement (55)6. Acquisition of instrument by force, duress, or fear (55)7. Acquisition of the instrument by unlawful means (55)8. Acquisition of the instrument for an illegal consideration

(55)9. Negotiation in breach of faith (55)10. Negotiation under circumstances that amount to fraud (55)11. Mistake12. Intoxication according to better authority13. Ultra vires acts of corporations where the corporation has

the power to issue negotiable paper but the issuance was not authorized for the particular purpose for which it is issued

14. Want of authority of agent where he has apparent authority15. Insanity where there is no notice of insanity on the part of

the one contracting with the insane person16. Illegality of contract where form or consideration is illegal

Examples of real defenses:

1. Incapacity as far as the incapacitated person is concerned2. Illegality of contract when declared by law, except where

the maker or drawer is himself a party to its illegality; thus, a note for a gambling debt (an illegal consideration) is a mere personal defense (55)

3. Want of delivery of incomplete instrument (15)4. Forgery (23)5. Want of authority, apparent or real (23)6. Duress amounting to forgery

7. Fraud in factum or fraud in esse contractus (14)8. Fraudulent alteration by holder (124, 124)9. Prescription 10. Other infirmities, appearing on the face of the instrument

(52)11. Discharge at or after maturity (88, 118, 121,122)


LIABILITIES OF PARTIES

Sec. 60 Liability of maker. – The maker of a negotiable instrument, by making it, engages that he will pay it according to its tenor and admits the existence of the payee and his then capacity to indorse.

Maker is primarily liable- The maker is liable to pay absolutely and

unconditional- 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

Maker must pay according to terms of the note Liability of two or more makers

- 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, as he would be considered as accommodation party

Engages to pay according to its tenor and admits the existence of the payee and his then capacity to indorse- The maker, by merely signing his name in a note,

represents to the world that the payee is an existing person with the then capacity to indorse. The maker consequently is precluded from setting up the following defenses: (1) that the payee is a fictitious person because by making the note, he admits that the payee exists; and (2) that the payee was insane, a minor, or a corporation acting ultra vires because, by making the note, he admits the then capacity of the payee to indorse.

Illustration:A makes a note payable to B who is insane. B indorses to C, C to D. D files an action against A. Can A interpose the defense that B’s indorsement did not pass title because B had no capacity to indorse?

- No. Because A, by making the note, admits the capacity of B to indorse.

- B’s indorsement passes title under Sec. 22

Sec. 61 Liability of drawer. – The drawer by drawing the instrument admits the existence of the payee and his then capacity to indorse; and engages that on due presentment, the instrument will be accepted or paid, or both, according to its tenor, and that if it be dishonored and the necessary proceedings on dishonor he 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 is secondarily liable. He engages that the bill will be accepted or paid or both,

according to its tenor, and that he will pay only when: (1) it is dishonored; (2) and the necessary proceedings of dishonor are duly taken.

To whom liable:(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.

Is drawer of unaccepted bill primarily liable?- No, by virtue of Sec. 192 which defines a person

primarily liable as one “who by the terms of the instrument is absolutely required to pay the same”.

Drawer also admits the payee’s existence and his then capacity to indorse.

The law allows the drawer to negative or limit his liability by express stipulation, as by adding to his order to pay the words: (1) “without recourse”, (2) “I shall not be liable in case of non-payment or non-acceptance”.

Sec. 62 Liability of acceptor. – The acceptor, by accepting the instrument, engages that he will pay it according to the tenor of his acceptance and admits:

(a) The existence of the drawer, the genuineness of his signature, and his capacity and authority to draw the instrument; and

(b) The existence of the payee and his then capacity to indorse.

Acceptor primarily liable, not subject to any condition The acceptor is a drawee who accepts the bill, thus

before acceptance, the drawee is not liable on the bill. “The drawee by acceptance becomes liable to the payee or his indorsee, and also to the drawer himself.”

Acceptor to pay according to the tenor of his acceptance- An acceptor engages to pay according to the tenor

of his acceptance, and not of the bill he accepts (because the acceptor may accept the bill with qualifications)

- But if his acceptance is general, the tenor of the bill is the same tenor as his acceptance.

Where original tenor is altered before acceptance

Illustration:The bill is originally P1000. Before the drawee X accepts it, it is altered by the payee to B for P4000. Then X accepts it. How much is X liable to a holder in due course?

- X is liable for P4000, not P1000 because the tenor of X’s acceptance is for P4000, the amount called for by the time he accepted.

- Effect of Sec. 124 (a holder in due course can recover only the original tenor of the instrument): Refers to the original tenor of the instrument taken from the standpoint of the person primarily liable. Thus, the original tenor of the instrument is P4,000, which is the tenor of X’s acceptance. If after his acceptance, a subsequent indorsee alters the bill to read P9,000, then X could be liable only for P4,000, the original tenor of his acceptance, even as to holder in due course.

The acceptor, by his acceptance, admits: (1) the drawer’s existence; (2) the genuineness of the drawer’s signature; and (3) the capacity and authority of the drawer to draw the instrument. But he does not admit the genuineness of the indorsers’ signature.

Effect of acceptor’s admissions:(1) The acceptor is consequently precluded from

setting up the defense that the drawer is non-existent or fictitious because of his admission of the drawer’s existence;

NEGOTIABLE INSTRUMENTS LAW(2) Neither can he claim that the drawer’s signature is

a forgery because he admits the genuineness of the drawer’s signature;

(3) Neither can the drawee escape liability by alleging want of consideration between him and the drawer as, by accepting the bill, he admits the capacity and authority of the drawer to draw the bill.

Sec. 63 When a person deemed indorsers. – A person placing his signature upon an instrument otherwise than as maker, drawer, or acceptor, is deemed to be indorser unless he clearly indicates by appropriate words his intention to be bound in some other capacity.

Sec. 64 Liability of irregular indorser. – Where a person, not otherwise a party to an instrument, places thereon his signature in blank before delivery, he is liable as indorser, in accordance with the following rules:

(a) If the instrument is payable to the order of a third person, he is liable to the payee and to all subsequent parties.

(b) If the instrument is payable to the order of the maker or drawer, or is payable to bearer, he is liable to all parties subsequent to the maker or drawer.

(c) If he signs for the accommodation of the payee, he is liable to all parties subsequent to the payee.

Irregular indorser- He indorses in an unusual, singular or peculiar

manner (his name appears where we would naturally expect another name)

Meaning of “before delivery”- This section applies where the signature is blank is

places on the instrument before delivery- Where a person puts his signature on the

instrument after delivery, apply Sec. 17 (f) and Sec. 63

Sec. 65 Warranty where negotiation by delivery and so forth. – Every person negotiating an instrument by delivery or by a qualified indorsement warrants:

(a) That the instrument is genuine and in all respects what it purports it to be;

(b) That he has a 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.

Applies to:(1) A person negotiating by mere delivery, and

- Refers to instrument payable to bearer, either originally or when the only or last indorsement is in blank (but this does not refer to one indorsing in blank, as he negotiates by indorsement completed by delivery, not by delivery only)

(2) A person negotiating by qualified indorsement - 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 the fact that any of the warranties of the person negotiating by delivery is or becomes false.

A. Warranty as to genuineness- Example: instrument is altered or the signature is

forged

B. Warranty as to good title- Example: the party negotiating by delivery is

defective is acquired the instrument by means of fraud

C. Warranty as to capacity to contract- Example: the maker is a minor, a lunatic or other

cases of incompetency, a married woman, or a corporation acting ultra vires

D. Warranty as to ignorance of certain facts- Example: the maker was insolvent at the time of

the negotiation of the instrument, which renders the instrument valueless and the holder cannot collect on the instrument against the insolvent maker

NEGOTIABLE INSTRUMENTS LAW- If the party negotiating by delivery knew that the

maker was insolvent, and concealed such fact, he would be liable because he warrants that he is ignorant of any fact that would render the instrument valueless.

- Should the party negotiating did not know the maker’s insolvency, he would not be liable.

- The party negotiating by delivery would also be liable, if he knew but concealed the instrument is not valid for want of consideration because he warrants that he did not know of any fact which would impair the validity of the instrument.

To whom warranties extend: in favor of no holder other than the immediate transferee

Illustration: B, bearer of a note payable to bearer, negotiates it by delivery to C, C to D and D to E.

- B and C are not liable to E even if their warranties are or become false because E is not their immediate transferee. It is only D only who is liable to E. B, however, is liable to C but not to D, and C is liable to D.

Liability of qualified indorser:- Qualified indorser has the same warranties as those

of a person negotiating by mere delivery.- While the person negotiating by mere delivery is

liable only this immediate transferee, the person negotiating by qualified indorsement is liable to all parties who derive their title through his indorsements.

Nature of liability: - A qualified indorsement or a person negotiating by

mere delivery are secondarily liable and that their secondarily liability is limited, to their warranties.

- They are secondarily liable only when the person primarily liable cannot pay because of a violation of any of the warranties but they will not be liable if the person primarily liable cannot pay for any other reason than the violation of the warranties.

NEGOTIABLE INSTRUMENTS LAWSec. 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 dishonor he duly taken he will pay the amount thereof, to the holder or to any subsequent indorser who may be compelled to pay it.

General indorser- Liable secondarily; he is liable, for any reason, the

person primarily liable cannot pay (as distinguished from the limited secondarily liability of the qualified indorser or of the person negotiating by mere delivery under Sec. 65

- He is secondarily liable if the instrument is dishonored, which need not be established, it is sufficient that there was dishonor

Indorser’s liability where person primarily liable is insolvent: where the person primarily liable is insolvent, the general indorser is liable even if he neither knew nor concealed that fact because he engages to pay if the person primarily liable cannot pay.

SUMMARIES OF DISTINCTIONS BETWEEN LIABILITIES OF PERSONS NEGOTIATING

Qualified indorser General indorser

Negotiation by delivery: only to the immediate transferee

As to all parties subsequent to them who acquire title through his indorsement, regardless if HDC or not

As to parties subsequent to them – those deriving their title from holders in due course and his immediate transferee

Sec. 65Warrants only that he is ignorant of any fact which would impair the validity of the instrument or render it valueless

Sec. 66Warrants that the instrument is valid and subsisting

Does not engage to pay the instrument if it is dishonored by non-acceptance or non-payment except when such dishonor arises from his 4 warranties;

His secondary liability is limited to the 4 warranties

Engages to pay the holder or any intervening party who may be compelled by the holder to pay if the instrument is dishonored either by non-acceptance or non-payment, whether such dishonor arises from the warranties or from other causes such as insolvency;

His secondary liability is not limited to the 4 warranties

Sec. 67 Liability of indorser where paper negotiable by delivery. – Where a person places his indorsement on an instrument negotiable by delivery, he incurs all the liability of an indorser.

Illustration:A makes a note payable to bearer which is delivered to B, bearer. B can negotiate the note by mere delivery and his liability and warranties would be those stated in Sec. 65But if he indorses the note, his liabilities and warranties would be: (1) as stated in Sec. 66, if he indorses generally; or (2) as stated in Sec. 65, if he indorses qualifiedly

Sec. 68 Order 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.

Applies to indorsers as against another, not against a holder in due course

Every indorser is liable to all indorsers subsequent to him but not those prior to him whom he in turn makes liable*successive negotiations and successive indorsements

Illustration:From B to C to D to E to F, holder. If D is made to pay by F, D can file an action against C and B, indorsers prior to him (D) but not against E, an indorser subsequent to him (D) because indorsers are presumed among themselves to be liable in the order in which they indorse.

F, holder, can file an action against any one of them in any order and none of them can set up against him an agreement among themselves that one indorser should be held liable first.

Joint payees or joint indorsees are deemed to indorse jointly and severally

Sec. 69 Liability of an agent or broker. – Where a broker or other agent negotiates an instrument without indorsement, he incurs all the liabilities prescribed by Section 65 of this Act, unless he discloses the name of his principal and the fact that he is acting only as agent.

Refers to instruments which are payable to bearer. The liability and warranties of the agent are those stated in Sec. 65

To escape personal liability as a party negotiating by delivery the agent must (1) disclose his principal; and (2) state that he is acting only as an agent.

NEGOTIABLE INSTRUMENTS LAWPROCEDURE TO MAKE PERSONS SECONDARILY LIABLEWho Are Primarily Liable?

(a) Maker – in promissory note(b) Acceptor – in a bill of exchange

Who Are Secondarily Liable?(a) Drawer(b) Indorser

Failure to take any of the two steps (presentment for payment and notice of dishonor) will discharge the persons secondarily liable.

To Whom Presentment Made(a) Promissory Note: Maker(b) Bill of Exchange: Drawee/Acceptor

PRESENTMENT FOR PAYMENTSec. 70 Effect of want of demand on principal debtor. – Presentment for payment is not necessary in order to charge the person primarily liable on the instrument; but if the instrument is, by its terms, payable at a special place, and he is able and willing to pay it there at maturity, such ability and willingness are equivalent to a tender of payment upon his part. But except as herein otherwise provided, presentment for payment is necessary in order to charge the drawer and indorsers.

Production of a bill of exchange to the drawee for his acceptance, or to the drawee or acceptor for payment or the production of the promissory note to the person liable for payment of the same

Presentment for payment NOT necessary to charge persons primarily liable

Presentment for payment NECESSARY to charge persons secondarily liable, otherwise they are discharged

STEPS TO CHARGE PERSONS SECONDARILY LIABLE IN BILLS OF EXCHANGE

Presentment for acceptance to the drawee or negotiation within reasonable time after acquisition unless excused If the bill is dishonored by non-acceptance, notice of dishonor by non-acceptance shall be given to persons secondarily liable unless excused / If bill is accepted or if the bill isn’t required to be presented for acceptance, it must be presented for payment to the persons primarily liable unless excused If bill dishonored by non-payment, notice of dishonor by non-payment must also be given to persons secondarily liable unless excused

Sec. 71 Presentment where instrument is not payable on demand and where payable on demand. – Where the instrument is not payable on demand, presentment must be made on the day it falls due. Where it is payable on demand, presentment must be made within reasonable time after its issue, except that in case of a bill of exchange, presentment for payment will be sufficient if made within reasonable time after the last negotiation thereof.

Must be made at the date of maturity Time for presentment

- If note, presentment for payment within reasonable time for issue

- If bill, presentment within reasonable time from last negotiation (last transfer for value)

Sec. 72 What constitutes a sufficient presentment. – Presentment for payment, to be sufficient, must be made:

(a) By the holder, or by some person authorized to receive payment on his behalf;

(b) At a reasonable hour on a business day;(c) At a proper place as herein defined;(d) To the person primarily liable on the instrument, or is he

has absent or inaccessible, to any person found at the place where the presentment is made.

If requisites not complied with, it is not sufficient and persons secondarily liable are discharged

To persons primarily liable on the instrument- If note, to MAKER- If bill, to DRAWEE-ACCEPTOR

Sec. 73 Place of presentment. – Presentment for payment is made at the proper place:

(a) Where a place for payment is specified in the instrument and it is there presented;

(b) Where no place of payment is specified but the address of the person to make payment is given in the instrument and it is there presented;

(c) Where no place for 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 as his last known place of business or residence (ORDER OF PREFERENCE)

Sec. 74 Instrument must be exhibited. – The instrument must be exhibited to the person from whom payment is demanded, and when it is paid, must be delivered up to the party paying it.

Necessity of exhibition of instrument: to enable the debtor to determine the genuineness of the instrument and the right of the holder to receive payment and to enable him to retain possession upon payment

Demand by telephone NOT sufficient When exhibition excused:

1. When debtor doesn’t demand to see the instrument but refuses payment on some other grounds

2. When the instrument is lost or destroyed

NEGOTIABLE INSTRUMENTS LAWSec. 75 Presentment where instrument payable at bank. – Where the instrument is payable at a bank, presentment for payment must be made during banking hours, unless the person making payment has no funds there to meet it at any time during the day, in which case presentment at any hour before the bank is closed on that day is sufficient.

Sec. 76 Presentment where principal debtor is dead. – Where the person primarily liable on the instrument is dead and no place of payment is specified, presentment for payment must be made to his personal representative, if such there be, and if, with the exercise of reasonable diligence, he can be found.

Sec. 77 Presentment to persons liable as partners. – Where the persons primarily liable on the instrument are liable as partners and no place of payment is specified, presentment for payment may be made to any one of them, even though there has been a dissolution of the firm.

Sec. 78 Presentment to joint debtors. – Where there are several persons, not partners, primarily liable on the instrument and no place of payment is specified, presentment must be made to them all.

Sec. 76-78 applies only where there is no place specified

Sec. 79 When presentment not required to charge the drawer. – Presentment for payment is not required in order to charge the drawer where he has no right to expect or require that the drawee or acceptor will pay the instrument.

Sec. 80 When presentment not required to charge the indorser. – Presentment is not required in order to charge an indorser where the instrument was made or accepted for his accommodation and he has no reason to expect that the instrument will be paid if presented.

Application of Sec. 79-80: EXCEPTIONS to the general rule that if no presentment for payment is made, the persons primarily liable are discharged- In other words, only the drawer or indorser is NOT

discharged, but all others secondarily liable are relieved of their liability

Illustration: Where drawer need not be given noticeWhere A withdraws his fund from X, drawee bank, so that they are not sufficient to pay the bill, he has no right to expect or require that the drawee or acceptor would pay the instrument.Where the holder does not make presentment to X, A would not be discharged by such failure.

Presentment is NOT required to charge the drawer in the following cases:1. Check has been stopped2. Where drawer’s balance is less than the amount of

the check3. Where the drawer of the bill containing the words

“Pay from balance” has no money on deposit with the drawee but expected to arrange with the broker to cover drafts

Sec. 81 When delay in making presentment is excused. – Delay in making presentment for payment is excused when the delay is caused by circumstances beyond the control of the holder and not imputable to his default, misconduct, or negligence. When the cause of delay ceases to operate, presentment must be made with reasonable diligence.

Examples of excuses for delay: Overwhelming calamity, malignant diseased, interruption of trade negotiations by political circumstances, etc.

Sec. 82 When presentment for payment is excused. – Presentment for payment is excused:

(a) Where, after the exercise of reasonable diligence, presentment, as required by this Act, cannot be made;

(b) Where the drawee is a fictitious person;(c) By waiver of presentment, express or implied.

SUMMARY OF RULES AS TO PRESENTMENT FOR PAYMENT:1. Presentment for payment is not necessary to charge

persons primarily liable 2. But it is necessary to charge a person secondarily liable,

EXCEPT:a. As to drawer, under Sec. 79b. As to indorser, under Sec. 80c. When dispensed with, under Sec. 82d. When the instrument has been dishonored by

non-acceptance

Sec. 83 When instrument dishonored by non-payment. – The instrument is dishonored by non-payment when:

(a) It is duly presented for payment and payment is refused or cannot be obtained; or

(b) Presentment is excused and the instrument is overdue and unpaid.

Sec. 84 Liability of person secondarily liable, when instrument dishonored. – Subject to the provisions of this Act, when the instrument is dishonored by non-payment, an immediate right of recourse to all parties secondarily liable thereon accrues to the holder.

As to holders, after an instrument is dishonored by non-payment, the persons secondarily liable thereon ceases to be secondarily liable

They become principal debtors and their liability becomes the same as that of principal obligors – provided a NOTICE OF DISHONOR has been given to them

If no notice is given, they are discharged If they are charged with dishonor and notice, while it is

true that they become principal debtors as to the holder, yet as among themselves, persons secondarily liable are presumed liable in the order that they become parties to the instrument

Sec. 85. Time of maturity. - Every negotiable instrument is payable at the time fixed therein without grace. When the day of maturity falls upon Sunday or a holiday, the instruments falling due or becoming payable on Saturday are to be presented for payment on the next succeeding business day except that instruments payable on demand may, at the option of the holder, be presented for payment before twelve o'clock noon on Saturday when that entire day is not a holiday.

Sec. 86. Time; how computed. - When the instrument is payable at a fixed period after date, after sight, or after that happening of a specified event, the time of payment is determined by excluding the day from which the time is to begin to run, and by including the date of payment.

Sec. 87. Rule where instrument payable at bank. - Where the instrument is made payable at a bank, it is equivalent to an order to the bank to pay the same for the account of the principal debtor thereon.

NEGOTIABLE INSTRUMENTS LAWSec. 88. What constitutes payment in due course. - Payment is made in due course when it is made at or after the maturity of the payment to the holder thereof in good faith and without notice that his title is defective.

PAYMENT IN DUE COURSE1. Payment must be made at or after the date of

maturity2. Payment must be to the holder3. Payment must be made by the debtor in good faith

and without notice that his title is defective

If payment is made maturity, it would constitute a negotiation back to the person primarily liable and he can renegotiate it. Payment does not discharge the instrument.

Payment to indorsee who is not in possession of the instrument is not payment to a person other than a holder is at the risk of the party so paying if the person wasn’t authorized by the holder to receive payment. So also, the payment to the original payee after the note has been transferred by him to a holder in due course doesn’t discharge the note.

The maker of a note or the acceptor of a bill must satisfy himself, when it is presented for payment, that the holder traces his title through genuine indorsements, and if there is a forged indorsement, it is a nullity and no right passes by it.

NEGOTIABLE INSTRUMENTS LAWNOTICE OF DISHONORSec. 89 To whom notice of dishonor must be given. – Except as herein otherwise provided, when a negotiable instrument has been dishonored by non-acceptance or non-payment, notice of dishonor must be given to the drawer and to each indorser, and any drawer or indorser to whom such notice is not given is discharged.

Notice of dishonor is bringing either verbally or by writing, to the knowledge of the drawer or indorser of an instrument, the fact that a specified negotiable instrument, upon proper proceedings taken, has not been accepted or hasn’t been paid, and that the party notified is expected to pay it

Two Kinds of Notice of Dishonor:1. Dishonor by Non-acceptance (only to BOE)2. Dishonor by Non-payment

Notice of such dishonor must be given to persons secondarily liable, otherwise such parties are discharged

Illustration:“I promise to pay F or order.” (Sgd.) AB C D E FF makes presentment for payment to A, maker, on the date of maturity. A refuses to pay.If F doesn’t give notice of dishonor to B,C,D and E and prove the same, they are discharged and F cannot file an action against them.

Persons primarily liable need not be notified

EXCEPTIONS TO REQUIREMENT OF NOTICE:

Sec. 109 Waiver of notice. – Notice of dishonor may be waived either before the time of giving notice has arrived, or after the omission to give due notice, and the waiver may be expressed or implied.

Sec. 112. When notice is dispensed with. - 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.

Sec. 114. When notice need not be given to drawer. – Notice of dishonor is not required to be given to the drawer in either of the following cases:

(a) Where the drawer and drawee are the same person; (b) When the drawee is fictitious person or a person not having capacity to contract; (c) When the drawer is the person to whom the instrument is presented for payment; (d) Where the drawer has no right to expect or require that the drawee or acceptor will honor the instrument; (e) Where the drawer has countermanded payment.

Sec. 115. When notice need not be given to indorser. — Notice of dishonor is not required to be given to an indorser in either of the following cases:

(a) When the drawee is a fictitious person or person not having capacity to contract, and the indorser was aware of that fact at the time he indorsed the instrument; (b) Where the indorser is the person to whom the instrument is presented for payment; (c) Where the instrument was made or accepted for his accommodation.

Sec. 116. Notice of non-payment where acceptance refused. - Where due notice of dishonor by non-acceptance has been given, notice of a subsequent dishonor by non-payment is not necessary unless in the meantime the instrument has been accepted. Sec. 117. Effect of omission to give notice of non-acceptance. - An omission to give notice of dishonor by non-acceptance does not prejudice the rights of a holder in due course subsequent to the omission.

NEGOTIABLE INSTRUMENTS LAWSec. 90. By whom given. - The notice may be given by or on behalf of the holder, or by or on behalf of any party to the instrument who might be compelled to pay it to the holder, and who, upon taking it up, would have a right to reimbursement from the party to whom the notice is given.

Notice may be given by:- The holder- Another in behalf of the holder - Any party to the instrument who may be compelled

to pay it to the holder – against any party whom he as a right of reimbursement should such party giving notice pay the instrument

- Another person in behalf of such party

Sec. 91. Notice given by agent. - Notice of dishonor may be given by any agent either in his own name or in the name of any party entitled to given notice, whether that party be his principal or not. Sec. 92. Effect of notice on behalf of holder. - Where notice is given by or on behalf of the holder, it inures to the benefit of all subsequent holders and all prior parties who have a right of recourse against the party to whom it is given.

“Benefit” refers to the right to charge the person secondarily liable who received notice

The party to whom this benefit inures can charge the party receiving notice of dishonor, even if he himself didn’t give the notice

“Inures to the benefit of the following”- All parties prior to the holder, who have a right of

recourse against the party to whom notice is given- All holders subsequent to the holder giving notice

Illustration:“I promise to pay B or order P1000” (Sgd.) AB C D E FF notifies B, C, D, E

1. The notice of F to B inures to the benefit of C, D, and E as they are parties prior to F, who have a right of recourse against B

2. The notice of F to C inures to the benefit of D and E but not for the benefit of B

3. Suppose that after notice given by F, further negotiation was made to G H I. The notice given by F inures to the benefit of all of them and they don’t need to give another notice of dishonor to B, C, D, and E to make them liable

Sec. 93. Effect where notice is given by party entitled thereto. - Where notice is given by or on behalf of a party entitled to give notice, it inures to the benefit of the holder and all parties subsequent to the party to whom notice is given. Sec. 94. When agent may give notice. - Where the instrument has been dishonored in the hands of an agent, he may either himself give notice to the parties liable thereon, or he may give notice to his principal. If he gives notice to his principal, he must do so within the same time as if he were the holder, and the principal, upon the receipt of such notice, has himself the same time for giving notice as if the agent had been an independent holder.

Sec. 95 When notice sufficient. – A written notice need not be signed and an insufficient written notice may be supplemented and validated by verbal communication. A misdescription of the instrument does not vitiate the notice unless the party to whom the notice is given is in fact misled thereby.

Sec. 96 Form of notice. – The notice may be in writing or merely oral and may be given in any terms which sufficiently identify the instrument, and indicate that it has been dishonored by non-acceptance or non-payment. It may in all cases be given by delivering it personally or through the mails.

Form and contents of notice:- It may be oral or in writing- Whether oral or in writing, it must contain:

1. Sufficient description of the instrument to identify it

2. A statement that it has been presented for payment and for acceptance and that it has been dishonored, and

3. A statement that the party giving notice intends to look for the party addressed for payment

Effect of defect in notice:- If notice is not signed, it will not invalidate it- If notice is not written, it can be supplemented by

oral communication- If there is misdescription, it would only vitiate the

notice if the person is misled thereby

Notice by phone: must be fully identified as to the party at the receiving end of the line

May be given by personal delivery or by mail

Sec. 97. To whom notice may be given. - Notice of dishonor may be given either to the party himself or to his agent in that behalf.

Sec. 98. Notice where party is dead. - When any party is dead and his death is known to the party giving notice, the notice must be given to a personal representative, if there be one, and if with reasonable diligence, he can be found. If there be no personal representative, notice may be sent to the last residence or last place of business of the deceased. Sec. 99. Notice to partners. - Where the parties to be notified are partners, notice to any one partner is notice to the firm, even though there has been a dissolution. Sec. 100. Notice to persons jointly liable. - Notice to joint persons who are not partners must be given to each of them unless one of them has authority to receive such notice for the others. Sec. 101. Notice to bankrupt. - Where a party has been adjudged a bankrupt or an insolvent, or has made an assignment for the benefit of creditors, notice may be given either to the party himself or to his trustee or assignee.

Sec. 102. Time within which notice must be given. - Notice may be given as soon as the instrument is dishonored and, unless delay is excused as hereinafter provided, must be given within the time fixed by this Act.

Notice of dishonor can be given only after the instrument has been actually dishonored

At the date of maturity: Provided that the instrument has been presented for payment and it has been dishonored

NEGOTIABLE INSTRUMENTS LAWSec. 103. Where parties reside in same place. - Where the person giving and the person to receive notice reside in the same place, notice must be given within the following times:

(a) If given at the place of business of the person to receive notice, it must be given before the close of business hours on the day following. (b) If given at his residence, it must be given before the

usual hours of rest on the day following. (c) If sent by mail, it must be deposited in the post office in

time to reach him in usual course on the day following.

Sec. 104. Where parties reside in different places. - Where the person giving and the person to receive notice reside in different places, the notice must be given within the following times:

(a) If sent by mail, it must be deposited in the post office in time to go by mail the day following the day of dishonor, or if there be no mail at a convenient hour on last day, by the next mail thereafter.

(b) If given otherwise than through the post office, then within the time that notice would have been received in due course of mail, if it had been deposited in the post office within the time specified in the last subdivision.

Sec. 105. When sender deemed to have given due notice. - Where notice of dishonor is duly addressed and deposited in the post office, the sender is deemed to have given due notice, notwithstanding any miscarriage in the mails.

Sec. 106. Deposit in post office; what constitutes. – Notice is deemed to have been deposited in the post-office when deposited in any branch post office or in any letter box under the control of the post-office department.

Sec. 107. Notice to subsequent party; time of. – Where a party receives notice of dishonor, he has, after the receipt of such notice, the same time for giving notice to antecedent parties that the holder has after the dishonor.

Sec. 108. Where notice must be sent. – Where a party has added an address to his signature, notice of dishonor must be sent to that address; but if he has not given such address, then the notice must be sent as follows:

(a) Either to the post-office nearest to his place of residence or to the post-office where he is accustomed to receive his letters; or(b) If he lives in one place and has his place of business in another, notice may be sent to either place; or(c) If he is sojourning in another place, notice may be sent to the place where he is so sojourning.

But where the notice is actually received by the party within the time specified in this Act, it will be sufficient, though not sent in accordance with the requirement of this section.

Sec. 116. Notice of non-payment where acceptance refused. – Where due notice of dishonor by non-acceptance has been given, notice of a subsequent dishonor by non-payment is not necessary unless in the meantime the instrument has been accepted.

Illustration:Note payable on Dec. 31, 1950- F, holder presents it for acceptance to X, drawee on Dec. 1,

1950- X refuses to accept the bill- F gives notice of dishonor to drawer, A and to the indorsers,

B, C, D, and E- There is no necessity for presentment of payment and you

need not give notice of dishonor by non-payment (Sec. 151)- But suppose, X drawee accepts the bill on Dec. 15. F must

then present the bill for payment to X on Dec. 31. If X refuses to pay, F must give notice of dishonor to A, B, C, D, and E in order to charge them, as in the meantime the instrument has been accepted.

Sec. 117. Effect of omission to give notice of non-acceptance. – An omission to give notice of dishonor by non-acceptance does not prejudice the rights of a holder in due course subsequent to the omission.

Illustration:“Pay to B or oder P1000.” (Sgd.) ATo: XB C D E F G (holder in due course)

F, when the instrument was still in his hands, presented the bill for acceptance to X and the latter refused to accept the bill. F fails to give notice to B, C, D, and E.B, C, D, and E are not discharged with regard to G because omission to give notice of dishonor by non-acceptance doesn’t prejudice the rights of a holder in due course subsequent to the omission.

Sec. 118. When protest need not be made; when must be made. – Where any negotiable instrument has been dishonored, it may be protested for non-acceptance or non-payment, as the case may be; but protest is not required except in the case of foreign bills of exchange.

SUMMARY AS TO NOTICE OF DISHONOR:1. Like presentment for payment, notice of dishonor

need not be given to persons primarily liable.2. But aside from presentment for payment to

persons primarily liable, notice of dishonor to persons secondarily liable is necessary to charge the latter except – a. When notice is waived (Sec. 109)b. When dispensed with (Sec. 112)c. As to drawer (Sec. 114)d. As to indorser (Sec. 115)e. Where due notice of dishonor by non-

acceptance has been givenf. As to holder in due course without notice


DISCHARGE 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 must be in due course and made by the principal debtor

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 obliged 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

Cancellation must be intentional

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.

Any of the acts that will discharge an instrument under Sec. 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 of prior party- The intentional cancellation of D’s signature also

discharges E, as D is a prior party of E. Valid tender of payment

- If D, indorser validly tenders payment and F unjustifiably refuses to accept, D is discharged

Release of principal debtor- If the holder F discharges A, maker, the parties

secondarily liable, B, C, D, and E are also discharged

Sec. 121. Right of party who discharges instrument. – Where the instrument is paid by a party secondarily liable thereon, it is not discharged; but the party so paying it is remitted to his former rights as regard all prior parties, and he may strike out his own and all subsequent indorsements and against negotiate the instrument, except:

(a) Where it is payable to the order of a third person and has been paid by the drawer; and

(b) Where it was made or accepted for accommodation and has been paid by the party accommodated.

Illustration:A is the drawer of the bill addressed to X, drawee, payable to the order of B.B C D E FSupposed D pays the bill. What are the effects?

First: instrument is not discharged but it discharges D Second: D is remitted to his former rights against parties

prior to him, such as A, B and C. If D was formerly a holder in due course, even if at the time of payment he had already notice of defects of title, he can enforce his rights against any of them free from defenses, as he is remitted to his former rights. 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 payee’s hands to the same defenses to which it would have been subject if the paper had never passed through the hands of a holder in due course.

Third: D can strike out his indorsement and the subsequent indorsements of E and F

Fourth: D can renegotiate the instrument EXCEPTIONS TO RIGHT TO RENEGOTIATE:

- If instead of D, it is a A drawer who pays as the bill is payable to the order of a third person, B, A can no longer negotiate the instrument

- Or if B, payee is an accommodated party, and B pays, he cannot negotiate the bill, as B is the ultimate party to pay it, and he doesn’t have a right of recourse against either X drawee or A drawer

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.

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.

SUMMARY OF DISCHARGED BY PAYMENT:1. Payment by a person ultimately liable, whatever

his position in the paper, is a discharge of the instrument.

2. Payment by accommodation party isn’t 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.


ACCEPTANCESec. 132. Acceptance; how made, by and so forth. – The acceptance of a bill is the signification by the drawee of his assent to the order of the drawer. The acceptance must be in writing and signed by the drawee. It must not express that the drawee will perform his promise by any other means than the payment of money.

Sec. 133. Holder entitled to acceptance on face of bill. – The holder of a bill presenting the same for acceptance may require that the acceptance be written on the bill, and, if such request is refused, may treat the bill as dishonored.

Sec. 134. Acceptance by separate instrument. - Where an acceptance is written on a paper other than the bill itself, it does not bind the acceptor except in favor of a person to whom it is shown and who, on the faith thereof, receives the bill for value.

Sec. 135. Promise to accept; when equivalent to acceptance. – An unconditional promise in writing to accept a bill before it is drawn is deemed an actual acceptance in favor of every person who, upon the faith thereof, receives the bill for value.

Sec. 136. Time allowed drawee to accept. – The drawee is allowed twenty-four hours after presentment in which to decide whether or not he will accept the bill; the acceptance, if given, dates as of the day of presentation.

Sec. 137. Liability of drawee returning or destroying bill. – Where a drawee to whom a bill is delivered for acceptance destroys the same, or refuses within twenty-four hours after such delivery or within such other period as the holder may allow, to return the bill accepted or non-accepted to the holder, he will be deemed to have accepted the same.

Sec. 138. Acceptance of incomplete bill. – A bill may be accepted before it has been signed by the drawer, or while otherwise incomplete, or when it is overdue, or after it has been dishonored by a previous refusal to accept, or by non payment. But when a bill payable after sight is dishonored by non-acceptance and the drawee subsequently accepts it, the holder, in the absence of any different agreement, is entitled to have the bill accepted as of the date of the first presentment.

Sec. 139. Kinds of acceptance. - An acceptance is either general or qualified. A general acceptance assents without qualification to the order of the drawer. A qualified acceptance in express terms varies the effect of the bill as drawn.

Sec. 140. What constitutes a general acceptance. – An acceptance to pay at a particular place is a general acceptance unless it expressly states that the bill is to be paid there only and not elsewhere.

Sec. 141. Qualified acceptance. – An acceptance is qualified which is:

(a) Conditional; that is to say, which makes payment by the acceptor dependent on the fulfillment of a condition therein stated;

(b) Partial; that is to say, an acceptance to pay part only of the amount for which the bill is drawn;

(c) Local; that is to say, an acceptance to pay only at a particular place;

(d) Qualified as to time;(e) The acceptance of some, one or more of the drawees

but not of all.

Sec. 142. Rights of parties as to qualified acceptance. – The holder may refuse to take a qualified acceptance and if he does not obtain an unqualified acceptance, he may treat the bill as dishonored by non-acceptance. Where a qualified acceptance is taken, the drawer and indorsers are discharged from liability on the bill unless they have expressly or impliedly authorized the holder to take a qualified acceptance, or subsequently assent thereto. When the drawer or an indorser receives notice of a qualified acceptance, he must, within a reasonable time, express his dissent to the holder or he will be deemed to have assented thereto.

PRESENTMENT FOR ACCEPTANCESec. 143. When presentment for acceptance must be made. – Presentment for acceptance must be made:

(a) Where the bill is payable after sight, or in any other case, where presentment for acceptance is necessary in order to fix the maturity of the instrument; or

(b) Where the bill expressly stipulates that it shall be presented for acceptance; or

(c) Where the bill is drawn payable elsewhere than at the residence or place of business of the drawee.

In no other case is presentment for acceptance necessary in order to render any party to the bill liable.

Sec. 144. When failure to present releases drawer and indorser. – Except as herein otherwise provided, the holder of a bill which is required by the next preceding section to be presented for acceptance must either present it for acceptance or negotiate it within a reasonable time. If he fails to do so, the drawer and all indorsers are discharged.

Sec. 145. Presentment; how made. – Presentment for acceptance must be made by or on behalf of the holder at a reasonable hour, on a business day and before the bill is overdue, to the drawee or some person authorized to accept or refuse acceptance on his behalf; and

(a) Where a bill is addressed to two or more drawees who are not partners, presentment must be made to them all unless one has authority to accept or refuse acceptance for all, in which case presentment may be made to him only;

(b) Where the drawee is dead, presentment may be made to his personal representative;

(c) Where the drawee has been adjudged a bankrupt or an insolvent or has made an assignment for the benefit of creditors, presentment may be made to him or to his trustee or assignee.

Sec. 146. On what days presentment may be made. - A bill may be presented for acceptance on any day on which negotiable instruments may be presented for payment under the provisions of Sections seventy-two and eighty-five of this Act. When Saturday is not otherwise a holiday, presentment for acceptance may be made before twelve o’clock noon on that day.

Sec. 147. Presentment where time is insufficient. – Where the holder of a bill drawn payable elsewhere than at the place of business or the residence of the drawee has no time, with the exercise of reasonable diligence, to present the bill for acceptance before presenting it for payment on the day that it falls due, the delay caused by presenting the bill for acceptance before presenting it for payment is excused and does not discharge the drawers and indorsers.

NEGOTIABLE INSTRUMENTS LAWSec. 148. Where presentment is excused. - Presentment for acceptance is excused and a bill may be treated as dishonored by non-acceptance in either of the following cases:

(a) Where the drawee is dead, or has absconded, or is a fictitious person or a person not having capacity to contract by bill.

(b) Where, after the exercise of reasonable diligence, presentment can not be made.

(c) Where, although presentment has been irregular, acceptance has been refused on some other ground.

Sec. 149. When dishonored by non- acceptance. – A bill is dishonored by non-acceptance:

(a) When it is duly presented for acceptance and such an acceptance as is prescribed by this Act is refused or can not be obtained; or

(b) When presentment for acceptance is excused and the bill is not accepted.

Sec. 150. Duty of holder where bill not accepted. - Where a bill is duly presented for acceptance and is not accepted within the prescribed time, the person presenting it must treat the bill as dishonored by non-acceptance or he loses the right of recourse against the drawer and indorsers.

Sec. 151. Rights of holder where bill not accepted. – When a bill is dishonored by non-acceptance, an immediate right of recourse against the drawer and indorsers accrues to the holder and no presentment for payment is necessary.

ACCEPTANCE FOR HONORSec. 161. When bill may be accepted for honor. – When a bill of exchange has been protested for dishonor by non-acceptance or protested for better security and is not overdue, any person not being a party already liable thereon may, with the consent of the holder, intervene and accept the bill supra protest for the honor of any party liable thereon or for the honor of the person for whose account the bill is drawn. The acceptance for honor may be for part only of the sum for which the bill is drawn; and where there has been an acceptance for honor for one party, there may be a further acceptance by a different person for the honor of another party.

Sec. 162. Acceptance for honor; how made. – An acceptance for honor supra protest must be in writing and indicate that it is an acceptance for honor and must be signed by the acceptor for honor.

Sec. 163. When deemed to be an acceptance for honor of the drawer. – Where an acceptance for honor does not expressly state for whose honor it is made, it is deemed to be an acceptance for the honor of the drawer.

Sec. 164. Liability of the acceptor for honor. - The acceptor for honor is liable to the holder and to all parties to the bill subsequent to the party for whose honor he has accepted.

Sec. 165. Agreement of acceptor for honor. – The acceptor for honor, by such acceptance, engages that he will, on due presentment, pay the bill according to the terms of his acceptance provided it shall not have been paid by the drawee and provided also that is shall have been duly presented for payment and protested for non-payment and notice of dishonor given to him.

Sec. 166. Maturity of bill payable after sight; accepted for honor. – Where a bill payable after sight is accepted for honor, its maturity is calculated from the date of the noting for non-acceptance and not from the date of the acceptance for honor.

Sec. 167. Protest of bill accepted for honor, and so forth. – Where a dishonored bill has been accepted for honor supra protest or contains a referee in case of need, it must be protested for non-payment before it is presented for payment to the acceptor for honor or referee in case of need.

Sec. 168. Presentment for payment to acceptor for honor, how made. – Presentment for payment to the acceptor for honor must be made as follows:

(a) If it is to be presented in the place where the protest for non-payment was made, it must be presented not later than the day following its maturity.

(b) If it is to be presented in some other place than the place where it was protested, then it must be forwarded within the time specified in Section one hundred and four.

Sec. 169. When delay in making presentment is excused. – The provisions of Section eighty-one apply where there is delay in making presentment to the acceptor for honor or referee in case of need.

Sec. 170. Dishonor of bill by acceptor for honor. – When the bill is dishonored by the acceptor for honor, it must be protested for non-payment by him.

PAYMENT FOR HONORSec. 171. Who may make payment for honor. - Where a bill has been protested for non-payment, any person may intervene and pay it supra protest for the honor of any person liable thereon or for the honor of the person for whose account it was drawn.

Sec. 172. Payment for honor; how made. - The payment for honor supra protest, in order to operate as such and not as a mere voluntary payment, must be attested by a notarial act of honor which may be appended to the protest or form an extension to it.

Sec. 173. Declaration before payment for honor. - The notarial act of honor must be founded on a declaration made by the payer for honor or by his agent in that behalf declaring his intention to pay the bill for honor and for whose honor he pays.

Sec. 174. Preference of parties offering to pay for honor. – Where two or more persons offer to pay a bill for the honor of different parties, the person whose payment will discharge most parties to the bill is to be given the preference.

Sec. 175. Effect on subsequent parties where bill is paid for honor. – Where a bill has been paid for honor, all parties subsequent to the party for whose honor it is paid are discharged but the payer for honor is subrogated for, and succeeds to, both the rights and duties of the holder as regards the party for whose honor he pays and all parties liable to the latter.

Sec. 176. Where holder refuses to receive payment supra protest. - Where the holder of a bill refuses to receive payment supra protest, he loses his right of recourse against any party who would have been discharged by such payment.

Sec. 177. Rights of payer for honor. – The payer for honor, on paying to the holder the amount of the bill and the notarial expenses incidental to its dishonor, is entitled to receive both the bill itself and the protest.

NEGOTIABLE INSTRUMENTS LAWPROTESTSec. 152. In what cases protest necessary. - Where a foreign bill appearing on its face to be such is dishonored by nonacceptance, it must be duly protested for nonacceptance, by nonacceptance is dishonored and where such a bill which has not previously been dishonored by nonpayment, it must be duly protested for nonpayment. If it is not so protested, the drawer and indorsers are discharged. Where a bill does not appear on its face to be a foreign bill, protest thereof in case of dishonor is unnecessary.

Sec. 153. Protest; how made. - 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) The time and place of presentment;(b) The fact that presentment was made and the manner

thereof;(c) The cause or reason for protesting the bill;(d) The demand made and the answer given, if any, or the

fact that the drawee or acceptor could not be found.

Sec. 154. Protest, by whom made. - Protest may be made by:(a) A notary public; or(b) By any respectable resident of the place where the bill is

dishonored, in the presence of two or more credible witnesses.

Sec. 155. Protest; when to be made. – 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.

Sec. 156. Protest; where made. - A bill must be protested at the place where it is dishonored, 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 nonacceptance, it must be protested for non-payment at the place where it is expressed to be payable, and no further presentment for payment to, or demand on, the drawee is necessary.

Sec. 157. Protest both for non-acceptance and non-payment. - A bill which has been protested for non-acceptance may be subsequently protested for non-payment.

Sec. 158. Protest before maturity where acceptor insolvent. – Where the acceptor has been adjudged a bankrupt or an insolvent or has made an assignment for the benefit of creditors before the bill matures, the holder may cause the bill to be protested for better security against the drawer and indorsers.

Sec. 159. When protest dispensed with. – Protest is dispensed with by any circumstances which would dispense with notice of dishonor. Delay in noting or protesting is excused when delay is caused by circumstances beyond the control of the holder and not imputable to his default, misconduct, or negligence. When the cause of delay ceases to operate, the bill must be noted or protested with reasonable diligence.

Sec. 160. Protest where bill is lost and so forth. – When a bill is lost or destroyed or is wrongly detained from the person entitled to hold it, protest may be made on a copy or written particulars thereof.

GENERAL PROVISIONS

Sec. 191. Definition and meaning of terms. – In this Act, unless the contract otherwise requires:“Acceptance” means an acceptance completed by delivery or notification;“Action” includes counterclaim and set-off;“Bank” includes any person or association of persons carrying on the business of banking, whether incorporated or not;“Bearer” means the person in possession of a bill or note which is payable to bearer;“Bill” means bill of exchange, and “note” means negotiable promissory note;“Delivery” means transfer of possession, actual or constructive, from one person to another;“Holder” means the payee or indorsee of a bill or note who is in possession of it, or the bearer thereof;“Indorsement” means an indorsement completed by delivery;“Instrument” means negotiable instrument;“Issue” means the first delivery of the instrument, complete in form, to a person who takes it as a holder;“Person” includes a body of persons, whether incorporated or not;“Value” means valuable consideration;“Written” includes printed, and “writing” includes print.

Sec. 192. Persons primarily liable on instrument. – The person “primarily” liable on an instrument is the person who, by the terms of the instrument, is absolutely required to pay the same. All other parties are “secondarily” liable.

NEGO Notes

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