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Negotiable Instruments

- written contract for the payment of money, by its form intended as substitute for money and intended to pass from hand to hand to give the holder in due course the right to hold the same and collect the sum due- governing law is Act No. 2031(Negotiable Instruments Law) which took effect on march 4,1911- with regards to negotiable instruments, the provisions of the civil code apply suppletorily to NIL and not the other way around (GSIS vs. CA)- doubts are resolved in favor of negotiability- negotiability of an instrument is determined from the writing, that is, on the face of the instrument itself

Functions of Negotiable Instruments [ SEC ]1) As substitute for money2) As a medium of exchange for most commercial

transactions3) As a medium for credit transactions

Characteristics of Negotiable Instruments1) Negotiability – the ability to transfer to another a title

and right better than what the transferor had. Through the process of negotiation, the instrument could pass to a holder in due course who acquires the instrument free from any defect of title from prior parties and free from defenses available to prior parties.

2) Accumulation of secondary rights – indorsement by responsible parties create as many contracts as the instrument passes from hand to hand

Non-negotiable instrument- an instrument which does not meet the requirement laid down to qualify an instrument as a negotiable one, or an instrument which in its inception was negotiable but has lost its quality and negotiability.

Non-negotiable instruments are covered by the general provisions of the Civil Code, not by the Negotiable Instruments Law.

Common Forms of Negotiable Instruments1) Promissory note

- those in which the issuer (maker) promises to pay to someone (payee)

- an unconditional promise in writing made by on person to another, signed by the maker, engaging to pay on demand, or at a fixed or determinable future time, a sum certain in money to order or to bearer. (Sec. 184)

2) Bill of exchange- those in which the issuer(drawer) has ordered a 3 rd

person(drawee) to pay to someone (payee) - 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.

- by accepting, the drawee becomes the acceptor who becomes primarily liable like the maker of a note, the drawer becoming only a surety

* checks are special form of bill of exchange. A check is a bill of exchange drawn on a bank and payable on demand. [Section 185, Negotiable Instruments Law]

Inland Bill of Exchange An inland bill of exchange is one which, on its face,

purports to be both drawn and payable in the Philippines. Any other bill is a foreign bill.

Kinds of Checks1) personal check2) manager’s/cashier’s check – drawn by a bank on itself.

Issuance has the effect of acceptance

3) memorandum check – “memo” is written across its face, signifying that drawer will pay holder absolutely without need of presentment

4) crossed check – it has to parallel lines in the upper lefteffects: a) check may not be encashed but only deposited in

bankb) may be negotiated only once, to one who has an

acct. with a bankc) warning to holder that check has been issued for a

definite purpose so that he must inquire if he received check pursuant to such purpose, otherwise not holder in due course

Bill of exchange v. promissory note

Bill of Exchange Promissory note

unconditional order unconditional promisethree (3) parties two (2) in note

drawer in a bill is only secondarily liable

maker in a promissory is primarily liable

a bill drawn payable to drawer's own order is

complete without indorsement

a note drawn payable to maker's own order is not

complete until indorsed by hima bill must be presented for acceptance in some cases

there is no need of presentment for note

reasonable time from last negotiation

reasonable time from issue

Check vs Bill of Exchange

CHECK Bill of exchange

always drawn upon a bank or banker

may or may not be drawn against a bank

always payable on demandmay be payable on demand or

at a fixed or determinable future time

not necessary that it be presented for acceptance

necessary that it be presented for acceptance

drawn on a deposit not drawn on a deposit

the death of a drawer of a check, with knowledge by the banks, revokes the authority

of the banker pay

the death of the drawer of the ordinary bill of exchange does

not

must be presented for payment within a reasonable

time after its issue (6 months)

may be presented for payment within a reasonable time after

its last negotiation.

Other Examples1) Negotiable instruments

a) Certificates of depositb) Certificates of time deposit (Caltex vs CA, 212 S

448)c) Bank notesd) Due billse) Bondsf) Mortgage noteg) Title-retaining noteh) Judgment notei) Draftsj) trade acceptancesk) banker’s acceptances

* letters a to h are special types of promissory notes while letters i to k are types of bills of exchange

2) Non-negotiable instrumentsa) Treasury warrants – payable to a particular fundb) Certificate of stock – without unconditional promise

or order to pay a sum certain in moneyc) Letter of credit – in favor of a specified persond) Money order – not a commercial transaction but for

government function; may be indorsed only oncee) Document of title – (warehouse receipt, bill of

lading, dock warrant, quedan) without unconditional promise or order to pay a sum certain in money

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f) Trust receiptg) Pawn ticket

Negotiation vs AssignmentNegotiation Assignment

Rights

Holder in due course has better

rights than the transferor

Assignee steps into the shoes of the

assignor and merely acquires

whatever rights the assignor have

Defense

Holder in due course is free from personal defenses available to prior

parties

Assignee is subject to all defenses available against the assignor

NoticeNegotiation may be done even without

notice to the debtor

Notice must be given to the debtor

Negotiable Instruments, not legal tender An offer of a negotiable instrument in payment of a

debt is not a valid tender of payment and may be refused receipt by the creditor

A negotiable instrument is merely a substitute for money and not money, the delivery of such does by itself operate as payment

The delivery of a negotiable instrument in payment of an obligation does not constitute payment unless they are cashed or their value is impaired thru the fault of creditor

Incidents in the “life” of a negotiable instrument [ INPADPDNPD ]

a) I SSUE – the first delivery, that is, form the drawer or maker to the payee

b) N EGOTIATION – the transfer of a negotiable instrument from one person to another in such a manner as to constitute the holder thereof

c) P RESENTMENT for acceptance – the production of a bill to the drawee for his acceptance

d) A CCEPTANCE – the signification by the drawee of his assents to the order of the drawer

e) D ISHONOR by non-acceptance – when a bill is presented for acceptance and such is refused or cannot be obtained, or when presentment for acceptance is excused and the bill is not accepted

f) P RESENTMENT for payment – the production of the bill to the drawee or acceptor for payment; or the production of a note to the party liable (maker) for the payment of the same

g) D ISHONOR by non-payment – when a note or a bill is duly presented for payment is refused or cannot be obtained, or when presentment for payment is excused and the instrument is overdue and unpaid

h) N OTICE of dishonor – the bringing (oral or written) to the knowledge of the drawer and the indorser (parties secondarily liable), the fact that a negotiable instrument has not been accepted and that the party notified is expected to pay it

i) P ROTEST – a formal statement in writing made by a notary public upon the request of a holder of a foreign bill in which it is declared that the same was presented for acceptance and such was refused or when the same is dishonored by non-payment

j) D ISCHARGE – the release of all parties (primary and secondary) from the obligation arising thereunder. It renders the instrument without force and effect and consequently , it can no longer be negotiated .

CHAPTER I: FORM AND INTERPRETATION

Section 1: Form of Negotiable Instrument What the section states:

Requisites of Negotiable Instrument: [ WUDON ]a) Must be in writing and signed by the maker or drawer

b) Must contain an unconditional promise or order to pay a sum certain in money

c) Must be payable on demand or at a fixed or determinable future time

d) Must be payable to order or bearere) Where the instrument is addressed to a drawee, he

must be named or otherwise indicated therein with reasonable certainty

Comments: In determining the negotiability of an instrument, the

following must be considered:a) The whole instrumentb) Only what appears on the face of the instrumentc) The provisions of the NIL especially Section 1 thereof

which gives the requirements of negotiability A valid instrument is not necessarily negotiable. Every

negotiable instrument is presumed to be a contract but not every contract is a negotiable instrument.

The requirement indicated in subsections a,b,c and d in Section 1 are necessary in order that a promissory may be negotiable while all the subsections from a to e are necessary in order that a bill of exchange may be negotiable

Under subsection a, the maker refers to the person issuing a promissory note, while the drawer, to the person issuing the bill of exchange.

In subsection b, the instrument must contain an “unconditional promise” if it is a promissory note and “unconditional order” if it is a bill of exchange.

In referring to the requisite that “the instrument must be in writing”, the writing may be made upon leather, cloth or any other substitute for paper as long as it is movable in nature.

Although the signature of the maker or drawer as a general rule is placed at the lower right hand corner of the instrument, it may appear in any part thereof whether at the top, middle or bottom or at the margin.

If the signature is so placed upon the instrument that it is not clear in what capacity the person intended to sign, he is deemed an indorser (sec. 17) and not a maker or a drawer.

There is no rule with regards to the signature of the maker or drawer, what is important is that the signer has intended to adopt the signature on the instrument as his own and to obligate himself for its payment.

In subsection b, the term money properly includes all legal tender. Legal tender is that sort of money in which a debt, or other obligation calling for money, may be lawfully paid, if the contract does not specify the medium of payment.

In subsection e, where a bill is addressed to the “treasurer” of a corporation, the drawee is sufficiently indicated with reasonable certainty. The trade name may also be used as in the case of the payee.

Subsection e is important to enable the payee or holder to know upon whom he is to call for acceptance or payment.

BQ!!! (2000)a) MP bought a used cell phone from JR. JR preferred cash but MP is a friend so JR accepted MR‘s promissory note for P10,000. JR thought of converting the note into cash by endorsing it to his brother KR. The promissory note is a piece of paper with the following hand -printed notation: MP WILL PAY JR TEN THOUSAND PESOS IN payment of money which is intended as a substitute for TODAY. Below this notation MP‘s signature with 8/1/00 next to it, indicating the date of the promissory note. When JR presented MP‘s note to KR, the latter said it was not a negotiable instrument under the law and so could not be a valid substitute for cash. JR took the opposite view, insisting on the note‘s negotiability. You are asked to referee. Which of the opposing views is correct? b) TH is an indorsee of a promissory note that simply states: PAY TO JUAN TAN OR ORDER 400 PESOS. The note has no date, no place of payment and no consideration mentioned. It was signed by MK and written under his letterhead specifying the ad dress, which happens to be his residence. TH accepted the promissory note as payment for services rendered to SH, who in

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turn received the note from Juan Tan as payment for a prepaid cell phone card worth 450 pesos. The payee acknowledged having received the note on August 1, 2000. A Bar reviewee had told TH, who happens to be your friend, that TH is not a holder in due course under Article 52 of the Negotiable Instruments Law (Act 2031) and therefore does not enjoy the rights and protection under the statute. TH asks for our advice specifically in connection with the note being undated and not mentioning a place of payment and any consideration. What would your advice be? (2%).SUGGESTED ANSWER:a) KR is right. The promissory note is not negotiable. It is not issued to order or bearer. There is no word of negotiability containing therein. It is not issued in accordance with Section 1 of the Negotiable Instruments Lawb) The fact that the instrument is undated and does not mention the place of payment does not militate against its being negotiable. The date and place of payment are not material particulars required to make an instrument negotiable. The fact that no mention is made of any consideration is not material. Consideration is presumed.

Section 2: Certainty as to Sum; what constitutesWhat the section states:

The following instruments are considered payable in sum certain[ IIDEC ]

a) Paid with interestb) Paid by stated installmentsc) Paid by stated installments, with a provision that upon

default in payment of any installment or of interest the whole shall become due

d) With exchange, whether at a fixed rate or at the current rate

e) With costs of collection or an attorney’s fee in case payment shall not be made at maturity

Comments: The “sum certain” requirement is met if the holder can

determine from the instrument itself the amount he is entitled to receive at maturity

Since a negotiable instrument is a device intended as a substitute for money, it is therefore, essential that it represents a fixed amount to be paid wholly in money. The amount to be paid must be stated plainly on the face of the instrument or at least, may be ascertained upon its face by computation, independent of any extrinsic evidence.

The basic test is whether the holder can determine by calculation or computation the amount payable when the instrument is due.

In subsection a, if the interest is not indicated, the interest to be used is the legal rate of 12% per annum

If the instrument provides for the payment of interest without stating the date from which interest is to run, it shall be computed from the date of the instrument and if the instrument is not dated, from the issue thereof.

In subsection b, (a) the interest of each installment and (b) the due date of each installment must be fixed in the instrument

Subsection c refers to instruments payable by stated installments with an acceleration clause. It does not make an instrument payable upon contingency (and thus non-negotiable) since the time of payment will surely come and the exact value of the instrument can be ascertained.

In subsection d, an exchange is the charge for the expense of providing funds at the place where the instrument is payable to cover such instrument which is issued at another place. It may be at a fixed rate or at the current rate.

Under R.A. 8183, every monetary obligation must be paid in Philippine currency which is the legal tender in the Philippines. However, the parties may agree that the obligation or transaction shall be settled in any other currency at the time of payment.

In subsection e, although costs of collection and attorney’s fee are uncertain as to the amount, both

only takes place after maturity when the instrument ceases to be negotiable in the full commercial sense.

Section 3: When promise unconditional What the section states:

The following are considered unconditional [ RS ]a) An indication of a particular out of which

reimbursement is to be made, or a particular account to be debited with the amount

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

Not unconditional => a promise to pay out of a particular fund

Comments: In subsection a, the “particular account” referred to is

the source of reimbursement. The payee is paid first out of any source before the drawee is reimbursed out of a particular account. In such situation, payment to the payee is ascertained. In other words, the fund indicated is not the direct source of payment but only the source of reimbursement which is an act subsequent to the payment.

The last paragraph on other hand is conditional thus non-negotiable since the payment to the payee depends solely on a particular fund. The ability to pay relies upon the adequacy or existence of the fund designated.

The test of negotiability in every case is said to be whether or not the instrument carries the general personal credit of the maker or drawer. If it does, the instrument is negotiable; if it carries only the credit of a particular fund, the instrument is non-negotiable.

In subsection b, the “statement of the transaction” refers to the consideration. Consideration is not condition thus not affecting negotiability.

Section 4: Determinable future time; what constitutes What the section states:

An instrument is payable at a determinable future time when it is payable [ FBS ]

a) At a fixed period after date or sightb) On or before a fixed or determinable future time

specified thereinc) 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

Not negotiable => instrument payable upon a contingency. Happening of the event will not cure the defect.

Comments: Payable at a fixed time

“I promised to pay P or order the sum of P10,000.00 on September,2010”

Payable at a fixed period after date“Sixty(60) days after date, I promise to pay P or order the sum of P10,000.00”The date of maturity may be determined beforehand by counting 60 days from the date of its issuance. But an instrument payable “at the earliest possible time after date” is not payable at a definite time.

Payable at a fixed period after sight“Sixty (60) days after sight, pay to the order of P the sum of P10,000.00”After sight means after the instrument is seen by the drawee upon presentment for acceptance or accepted by the drawee. Hence, the date of maturity may be determined beforehand by counting 60 days from the date it is presented to the drawee.

Payable on or before at a fixed time“On or before September 10,2010, I promise to pay P or order P10,000.00”Here, the maker has the option to pay on September 10, 2010 or before the date. The legal right of P, the payee, is clear and certain. He can demand payment only at the time fixed and not before. The maker has the mere option to pay in advance of the legal liability if he sees fit.

Payable on or before determinable future time

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“On or before the start of the next school semester, I promised to pay P or order P10,000.00”The determinable future time specified is “the next school semester.” The maker map pay before the start of the semester if he shall so choose. The phrase “determinable future time” means a time that can be determined with certainty after the execution of the instrument.

Payable on the occurrence of a specified event“I promised to pay or order the sum of P10,000.00 upon the death of his father.”The instrument is negotiable because the specified event, the death of the father of P, is absolutely certain to happen although the time of happening or occurrence is not known or uncertain.

Payable after the occurrence of a specified event“Thirty(30) days after the death of his father, I promise to pay P or order the sum of P10,000.00”But a bill or note payable before the occurrence of the specified event is not negotiable since the date of maturity can only be ascertained when it is already overdue.

Payable upon contingency“Pay to the order of P the sum of P10,000.00 upon his reaching the age of majority.”The bill is non-negotiable because the order is conditional. The payment is not certain. P may die before reaching the age of majority in which case the bill will never mature. A contingency is an uncertain future event which may or not happen.

Section 5: Additional provisions not affecting negotiabilityWhat the section states:

An instrument which contains an order or promise to do any act in addition to the payment of money is not negotiable.

The negotiable character of an instrument is not affected by a provision which: [ SCWE ]

a) Authorizes the sale of collateral securities in case the instrument be not paid at maturity

b) Authorizes the confession of judgment if the instrument be not paid at maturity

c) W aives the benefit of any law intended for the advantage or protection of the obligor

d) Gives the holder an election to require something to be done in lieu of payment of money

Comments: In subsection a, the additional act is to be performed

after the date of maturity when the instrument is no longer negotiable in full commercial sense. Until the date of maturity, the promise is to pay money only.

The situation described in subsection b is not authorized nor contemplated by our law. But the invalidity of the provision as to the confession of judgment does not render the instrument non-negotiable. It remains valid as to the amount.

Subsection c includes waiver of notice of dishonor, waiver of protest, waiver of presentment for payment, waiver of demand or waiver of exemption from attachment or execution. The waiver does not render the instrument non-negotiable.

An example of subsection d is:“I promise to pay P or order P15,000.00 or an air conditioner a the option of the holder.”In this case, the holder has the choice. The instrument is therefore, negotiable as it is as good as an instrument payable in money. If the option is with the promisor, the instrument is non-negotiable because the holder cannot compel him to make payment in money.

Section 6: Omissions; seal; particular money What the section states:

The following does not affect the validity and negotiable character of an instrument [ DVPSM ]

a) It is not datedb) Does not specify the value given, or that any value has

been given therefor

c) Does not specify the place where it is drawn or the place where it is payable

d) Bears a seale) Designates a particular kind of current money in which

payment is to be made

Comments: In subsection a, the date in a bill or note is not

necessary. The omission of date will not render the instrument non-negotiable. In such case, the instrument will be considered to be dated as of the time it was issued. The holder also may insert the true date in the instrument.

In subsection b, in a negotiable instrument, consideration is presumed and there is no need to put it.

In subsection c, an instrument is presumed to have been made where it is dated. A note that does not specify the place of payment is presumed to be payable at the place of residence of the maker. If the place of execution or payment is not stated, it is presumed to be payable at the place of residence of the maker.

In subsection e, the law does not require that payment should be made in legal tender. Money, as used in the law, is not necessarily limited to “legal tender” as defined by law.

Section 7: When payable on demand What the sections states:

An instrument is payable on demand [ EN ]a) Where it is expressed to be payable on demand, or at

sight, or on presentationb) In which no time for payment is expressed Where an instrument is issued, accepted or indorsed

when overdue, it is, as regards the person so issuing, accepting, o indorsing it, payable on demand

Comments: An instrument payable on demand is due and payable

immediately after delivery. Aside from “on demand”, the words “at sight”, “on

presentation”, “on call”, “at any time called for”, “at such time as the payee may require” or “at the holder’s convenience” may be used.

Subsection b implies that if not time for payment is expressed, it is payable on demand.

The last paragraph defines the new bill doctrine. The issuance, acceptance and indorsement after maturity date, in legal effect create a new instrument payable on demand.

Section 8: When payable to order What the section states:

An instrument is payable to order where it is drawn payable to the order of a specified person or to him or his order

An instrument may be drawn payable to the order of [NREJSO]

a) A payee who is not maker, drawer or draweeb) The drawer or makerc) The draweed) Two or more payees jointly e) One or some several payeesf) The holder of an office for the time being If the instrument is payable to order, the payee must be

named or otherwise indicated therein with reasonable certainty

Comments: A note payable to the order of the maker is not

completed until indorsed When the instrument is payable to order of drawee,

being both the payee and drawee, a party can pay himself on maturity from funds belonging to the drawer in his possession.

In relation to the last paragraph, when the payee in an order instrument is not named or otherwise indicated therein with reasonable certainty, the instrument is non-negotiable.

Section 9: When payable to bearer

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What the section states: The instrument is payable to bearer when [ ENFNB ]a) It is expressed to be so payableb) It is payable to a person named therein or bearerc) 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

d) The name of the payee does not purport to be the name of any person

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

Comments: Bearer means the person in possession of a bill or note

which is payable to bearer. An instrument payable to bearer may be transferred by delivery without indorsement. Delivery alone is enough to effect negotiation of the instrument. Whoever possesses it is the bearer.

In relation to subsection a, “pay to holder” or “pay to P or holder” is a bearer instrument.

An example of subsection b is “pay to P or bearer P10,000.00”.

In subsection c, the phrase “person making it so payable” refers to the maker or drawer rather than the party actually executing the instrument. It is essential that the payee is known to the maker or drawer to be a fictitious or non-existing person, otherwise, it would not be a bearer instrument but an order instrument. The reason for treating this type of instrument as bearer paper is due to the fact that the maker or drawer knows that the payee is not capable of indorsing thus he cannot expect the instrument to circulate through the indorsement of the payee and therefore he must intended the same to be transferred by mere delivery just like an instrument payable to bearer.

“fictitious person” is not limited to persons having no legal existence. An existing person may be considered fictitious depending on the intention of the maker or the drawer.

“fictitious person” means a person who has no right to the instrument because the maker or drawer of it so intended. He was not intended to be the payee.

Examples of those referred in subsection d are “pay to cash”, “pay to cash or order”, “pay to money”, “pay to payroll” etc.

Subsection e refers to the conversion of an order instrument to a bearer instrument. A blank indorsement converts an order instrument to a bearer instrument.

BQ!!! (2005)A delivers a bearer instrument to B. B then specially indorses it to C and C later indorses it in blank to D. E steals the instrument from D and, forging the signature of D, succeeds in negotiating it to F who acquires the instrument in good faith and for value. a) If, for any reason, the drawee bank refuses to honor the check, can F enforce the instrument against the drawer? b) In case of the dishonor of the check by both the drawee and the drawer, can F hold any of B, C and D liable secondarily on the instrument?SUGGESTED ANSWER:a) Yes. The instrument was payable to bearer as it was a bearer instrument. It could be negotiated by mere delivery despite the presence of special indorsements. The forged signature is unnecessary to presume the juridical relation between or among the parties prior to the forgery and the parties after the forgery. The only party who can raise the defense of forgery against a holder in due course is the person whose signature is forged.b) Only B and C can be held liable by F. The instrument at the time of the forgery was payable to bearer, being a bearer instrument. Moreover, the instrument was indorsed in blank by C to D. D, whose signature was forged by E cannot be held liable by F.

Section 10: Terms, when sufficientWhat the section states:

Any language may be used in a negotiable instrument as long as the terms used sufficiently clearly indicate

an intention to conform with the requirements of a negotiable instrument

Comments: The substance of the transaction rather that of its form

is the criterion of negotiability.

Section 11: Date, presumption as to What the section states:

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

Comments: If the instrument bears a date, it is presumed that said

date is the date when it was made or drawn He who claims that some other date is the true date has

the burden to establish such claim. Instances where date is necessary to determine

maturity (but not for negotiability) of the instrument: a) where the instrument is payable at a fixed period after date and b) where the instrument is payable at a fixed period after sight or presentment.

Section 12: Ante-dated and Post-datedWhat the section states:

The instrument is still valid even if it is ante-dated or post-dated as long as it is not done for an illegal of fraudulent purpose

The person to whom an instrument so dated is delivered acquires the title thereto as of the date of deliver

COMMENTS:- An instrument is ante-dated when it contains a date earlier that the true date of its issuance- An instrument is post-dated when it contains a date later than that of true date of its issuance- An instrument may be negotiated before or after the date given as long as it is negotiated after its maturity- An example of illegal ante-dating is that done to conceal the charge of an usurious interest. An example of illegal post-dating is to issue a post-dated check in payment of an obligation because of insufficiency of funds without bona fide intention to cover the amount of the check.

Section 13: When date may be inserted What the section states:

The holder is authorized to put a date on an instrument: a) Where an instrument is payable at a fixed period after

date but is issued undatedb) Where the instrument is payable at a fixed period after

sight but the acceptance is undated 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 inserted is to be regarded as the true date

Comments: The insertion of a wrong date in an undated instrument

by one having knowledge of the true date of issue or acceptance will avoid the instrument as to him or any one claiming under him but not as to a subsequent holder in due course who may enforce the same notwithstanding the improper date. In the hands of a holder in due course, the date inserted, even if wrong, is regarded as the true date. The reason for the rule is that “one who signs such an instrument furnishes the means of fraud and is estopped to deny his liability thereon. The insertion of a wrong date constitutes a material alteration.

Section 14: Blanks when may be filledWhat the section states:

Where the instrument is wanting in any material particular, the person in possession thereof has the prima facie authority to complete it by filling up the blanks therein

A signature on a blank paper delivered by a person making the signature in order that the paper may be

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converted into a negotiable instrument operates as a prima facie authority to fill it up as such for any amount

In order for a completed instrument to be enforced against any person who became a prior party thereto prior to its completion, it must be filled up strictly in accordance with the authority given and within reasonable time

If it is negotiated after completion to a holder in due course, it is valid and he may enforce it as if it had been filled up strictly in accordance with the authority given and within reasonable time.

Comments: Section 14 applies only to an incomplete instrument

which has been delivered by the maker or drawer to the payee or holder.

When considering Section 14, it is important to bear in mind the distinction of 2 classes of instrument:

a) Those in which obvious blanks are left at the time they are made or indorsed , as such a character as manifestly to indicate that the instrument are incomplete until such blanks shall be filled up. In this class, one who signs or indorses is liable to bona fide holders thereof on the doctrine of implied authority.

b) Those which are apparently complete, containing blanks only because the written matter does not fully occupy the entire paper as to preclude the insertion of additional words or figures or both. Here, the liability for the amount of the instrument which has been increased by filling up unoccupied spaces therein is placed upon the doctrine of negligence.

Material particular may be defined as any particular proper to be inserted in a negotiable instrument to make it complete.

The word “material” is not synonymous with “necessary” so as to restrict the right filling a blank to something essential to a complete negotiable instrument. Thus, blanks for date, due date, name of payee, amount, or rate of interest may be filled in. Even the blank for the name of drawee may be filled in.

The presumption is that the blank was filled up in accordance with the authority given and within reasonable time. The person who signed his name has the burden to rebut the presumption of agency by contrary proof of want of authority, or proving that the authority granted was exceeded. Such “reasonable time” for filling up the instrument is to be reckoned from the time of issuance of the instrument because the interest involved is that of the issuer and not from the time of each successive negotiation.

Section 14 is a personal defense, thus the defense that the instrument had not been filled up in accordance with the authority given and within reasonable time is not available as against a holder on due course.

BQ!!! (2005)Brad was in desperate need of money to pay his debt to Pete, a loan shark. Pete threatened to take Brad‘s life if he failed to pay. Brad and Pete went to see Señorita Isobel, Brad‘s rich cousin, and asked her if she could sign a promissory note in his favor in the amount of P10,000.00 to pay Pete. Fearing that Pete would kill Brad, SeñoritaIsobel acceded to the request. She affixed her signature on a piece of paper with the assurance of Brad that he will just fill it up later. Brad then filled up the blank paper, making a promissory note for the amount of P100,000.00. He then indorsed and delivered the same to Pete, who accepted the note as payment of the debt. What defense or defenses can Señorita Isobel set up against Pete? Explain. (3%)SUGGESTED ANSWER:The defense (personal defense) which Señorita Isobel can set up against Pete is that the amount of P100,000.00 is not in accordance with the authority given to her to Brad (in the presence of Pete) and that Pete was not a holder in due course for acting in bad faith when accepted the note as payment despite his knowledge that it was only 10,000.00 that was allowed by Señorita Isobel during their meeting with Brad.

Section 15: Incomplete instrument not delivered

What the section states: Where an instrument which is incomplete and

undelivered is completed and negotiated without authority, it is not a valid contract in the hands of any holder as against any person whose signature was placed thereon before delivery

Comments: Section 15 is a real defense, it is a defense which can be

used even against a holder in due course. There is a prima facie presumption of delivery however and the party invoking the defense must rebut by proof to the contrary.

The invalidity of the instrument in Section 15 is only with reference to the parties whose signatures appear on the instrument before and not after delivery.

BQ!!! (2006)Jun was about to leave for a business trip. As his usual practice, he signed several blank checks. He instructed Ruth, his secretary, to fill them as payment for his obligations. Ruth filled one check with her name as payee placed P30,000.00 thereon, endorsed and delivered it to Marie. She accepted the check in good faith as payment for goods she delivered to Ruth. Eventually, Ruth regretted what she did and apologized to Jun. Immediately he directed the drawee bank to dishonor the check. When Marie encashed the check, it was dishonored.1. Is Jun liable to Marie? (5%)SUGGESTED ANSWER:Yes. This covers the delivery of an incomplete instrument, under Section 14 of the Negotiable Instruments Law, which provides that there was prima facie authority on the part of Ruth to fill-up any of the material particulars thereof. Having done so, and when it is first completed before it is negotiated to a holder in due course like Marie, it is valid for all purposes, and Marie may enforce it within a reasonable time, as if it had been filled up strictly in accordance with the authority given.

2. Supposing the check was stolen while in Ruth's possession and a thief filled the blank check, endorsed and delivered it to Marie in payment for the goods he purchased from her, is Jun liable to Marie if the check is dishonored? (5%)SUGGESTED ANSWER:No. Even though Marie is a holder in due course, this is an incomplete and undelivered instrument, covered by Section 15 of the Negotiable Instruments Law. 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, including Jun, whose signature was placed thereon before delivery. Such defense is a real defense even against a holder in due course, available to a party like Jun whose signature appeared prior to delivery.

Section 16: Delivery; when effectual; when presumedWhat the section states:

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

In such case the delivery may be shown to have been conditional, or for special purpose only, and not for the purpose of transferring the property in the instrument.

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.

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.

Comments: Section 16 is a personal defense

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As a general rule, a negotiable instrument like any other written contract, has no legal inception or existence, as such, until it has been delivered in accordance with its purpose and intent of the parties, without the initial delivery of the instrument, there can be no liability thereon. Moreover, such delivery must be intended to give effect to the instrument.

Delivery means transfer of possession, actual or constructive, from one person to another with the intent to transfer title thereto

Issue is defined as the first delivery of the instrument, complete in form, to a person who takes it as holder.

Holder means payee or indorsee of a bill or note who is in possession of it, or the bearer thereof

Immediate parties refer to those who are “immediate” in the sense of having or being held to know of the conditions or limitations placed upon the delivery of the instrument.

Remote parties are parties who are not in contractual relation to each other. But if they are chargeable, for example, with knowledge or notice of any infirmities in the instrument of defect in the title of the person negotiating the same, they will be considered as immediate parties for purposes of section 16.

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.

Section 17: Construction where instrument is ambiguousWhat the sections states:

The ff. rules are to apply in case of ambiguitySituation Construction Remedy

In the sum payable, discrepancy between the

words and figures

Sum denoted in words is the sum payable. If words are

ambigious, then the figures may be referred

Instrument provides for interest but there is no date in

which interest is to run

Interest runs from the date of instrument and if undated

from the issue thereofInstrument is not dated It is considered dated at the

time of the issuanceConflict between written and

printed provision of the instrument

Written provision prevails

Instrument is ambiguous that there is doubt whether it is a

note or bill

Holder may treat it as either according to his election

Signature is placed upon the instrument that it is not clear at what capacity he is signing

The person is deemed an indorser

Instrument contains the words “I promise to pay” is signed by

2 or more persons

They are deemed to be jointly and severally liable

Comments:NO COMMENT. SELF-EXPLENATORY

Section 18: Liability of a person signing in trade or assumed nameWhat the section states:

No person is liable on the instrument whose signature does not appear thereon, except when the NIL otherwise provided

One who signs in a trade assumed name will be liable to the same as if he had signed in his own name.

Comments: As a general rule, only persons whose signature

appears in the instrument are liable thereon. Exceptions: [ TAFAP ]a) Where a person signs in a trade name or assumed

name (Sec 18 par 2)b) The principal is liable if a duly authorized agent

signs on his own behalf (Sec 19)c) In case of forgery (Sec 23), the forger is liable

even if his signature does not appear in the instrument.

d) Where the acceptor makes his acceptance of a bill on a separate paper (Sec 134)

e) Where a person makes a written promise to accept a bill before it is drawn (Sec 135)

Trade name = “alyas” , pseudoname, pen name, screen name

One who signs in a trade name or assumed name is liable as if he signed his own name. It is necessary however that the party who signed intended to be bound by his signature.

Section 19: Signature by agent; authority; how shown

What the section states: Signature of any party may be made by a duly

authorized agent No particular form of appointment is necessary Authority of the agent may be established as in other

case of agency

Comments: See comments in Sec 20

Section 20: Liability of person signing as agent and so forthWhat the section states:

Where the instrument contains or a person adds his signature words indicating that he signs for on behalf of a principal, he is not liable in the instrument if he was duly authorized

The mere addition describing himself as an agent without disclosing his principal, does not exempt the agent from personal liability

Comments: In order that an agent may escape personal liability, the

following are the requisites: [ AID ]a) He is duly authorizedb) He adds words to his signature indicating that he

signs as an agent, that is, for in behalf of the principal, or in a representative capacity

c) He discloses his principal

Section 21: Signature by procurationWhat the law states:

A signature by “procuration” operates as notice that the agent has but limited authority to sign, and the principal is bound only in case the agent in so signing acted within the actual limits of his authority.

Comments: Procuration is defined as “the act by which a principal

gives power to another to act on his place as he could do himself”

The term “procuration” has a special and technical meaning. It gives a warning that the agent has but a limited authority, so that it is the duty of the person dealing with him to inquire into the extent of his authority.

Section 22: Effect of indorsement by infant or corporationWhat the section states:

The indorsement or assignment of the instrument by a corporation or by an infant passes the property therein, notwithstanding that from want of capacity the corporation or infant may incur no liability thereon

Comments: The word “infant” refers to minors A minor is not bound by his indorsement for lack of

capacity. He is however, not incapacitated to transfer certain rights. Section 22 merely provides that the indorsement of an infant is not void and that his capacity is not a defense in favor of prior parties and does not take away the infant’s right to disaffirm his indorsement and recover the instrument even against an innocent indorsee or subsequent holder for value.

Minority is not even a personal defense which may be set up by parties other than the minor, but it is a real defense available to the minor. Hence, he may also

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disaffirm and recover the instrument from a holder in due course.

The rule in Section 22 applies to other incapacitated persons as well. Other persons, besides minors, who have no capacity to give consent are insane or demented person and deaf-mutes who do not know how to write.

With regards to corporations, Section 22 applies to cases where the corporation has committed ultra vires acts or acts beyond its power.

Section 23: Forged signature; effect ofWhat the section states:

When a 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.

Comment: Forgery is the counterfeit-making or fraudulent

alteration of a 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 the intent thereby to defraud.

Forgery is a real defense The forged signature is wholly inoperative and no right

can be acquired thru it Section 23 declares inoperative:

a) False signatureb) A signature written without authority from the

person whose signature purports to be How committed:

a) By faking or feigning the signature of a person without his authority

b) Fraudulent representation or inducementc) Duress amounting to forgeryd) By signing the name of a fictitious payee where

the instrument is not payable to bearer (fraudulent impersonation)

Effect:a) The signature forged or made without authority is

wholly inoperativeb) No right to retain the instrument or give discharge

therefore or to enforce payment thereof against any party thereto can be acquired thru or under such signature forged or made without authority

Exceptions:a) If the party against whom it is sought to enforce

such right is precluded from setting up forgery or the want of authority

b) Where the forged signature is not necessary to pass the title (ex. Forged indorsement on bearer instrument)

Section 23 does not purport to declare the instrument totally void nor the genuine signatures thereon inoperative. It is only the forged or unauthorized signature that is declared to be inoperative. In other words, rights may still exist and can be enforced by virtue of such instrument as to those whose signature thereto are found to be genuine.

Those who are precluded(estopped) from setting up the defense of forgery:a) Those who by their acts, silence or negligence are

estopped from setting up the defense of forgeryb) Those who warrant or admit the genuineness of

the signatures in question, namely:1) Indorsers2) Acceptors3) Persons negotiating the delivery

drawee bank is conclusively presumed to know the signature of its drawer

if indorser's signature is forged, loss will be borne by the forger and parties subsequent thereto

drawee bank is not conclusively presumed to know the signature of the indorser. The responsibility falls on the

bank which last guaranteed the indorsement and not the drawee bank.

where the payee's signature is forged, payments made by the drawee bank to the collecting bank are ineffective. No debtor/creditor relationship is created. An agency to collect is created between the person depositing and the collecting bank. The drawee bank who may, in turn, recover from the person depositing.

Example!M makes a note payable to the order of P. P indorses it to A. X obtains the possession of the note fraudulently and indorses it to B by forging A’s signature. B indorses to C.

M (maker) => P (payee) => A (signature forged by X) => B => C

C cannot enforce the instrument against M and P because C’s rights against them are cut off by the forged signature of A which is wholly inoperative. Neither can C enforce the note against A because A’s signature is wholly inoperative.

But C may go against B whose signature is genuine and therefore operative. B is a general indorser who warranted to C that the instrument is genuine and was valid and subsisting at the time of B’s indorsement.

B or C has a right of recourse against X, the forger A can recover from M and P because his rights

against them were not affected by the forgery. The signatures of M and P are genuine and they are liable to A on their contract.

BQ!!! (2006)Discuss the legal consequences when a bank honors a forged check. SUGGESTED ANSWER:The legal consequences when a bank honors a forged check are as follows:(a) When Drawer's Signature is Forged: By accepting the check cannot set up the defense of forgery, because by accepting the instrument, the drawee bank admits the genuineness of signature of drawer (Family Bank vs. Buenaventura). Unless a forgery is attributable to the fault or negligence of the drawer himself, the remedy of the drawee-bank is against the party responsible for the forgery. Otherwise, drawee-bank bears the loss (BPI Family Bank v. Buenaventura). A drawee-bank paying on a forged check must be considered as paying out of its funds and cannot charge the amount to the drawer (Samsung Construction Co. Phils, v. Far East Bank). If the drawee-bank has charged drawer's account, the latter can recover such amount from the drawee-bank (Associated Bank v. CA). However, the drawer may be precluded or estopped from setting up the defense of forgery as against the drawee-bank, when it is shown that the drawer himself had been guilty of gross negligence as to have facilitated the forgery (Metropolitan Waterworks v. CA). When the signature of the drawer is forged, as between the drawee-bank and collecting bank, the drawee-bank sustains the loss, since the collecting bank does not guarantee the signature of the drawer. The payment of the check by the drawee bank constitutes the proximate negligence since it has the duty to know the signature of its client-drawer. (Philippine National Bank v. CA).(b) Forged Payee's Signature:When drawee-bank pays the forged check, it must be considered as paying out of its funds and cannot charge the amount so paid to the account of the depositor. In such case, the bank becomes liable since its primary duty is to verify the authenticity of the payee's signature (Traders Royal Bank v. Radio Philippines Network).(c) Forged IndorsementDrawer's account cannot be charged, and if charged, he can recover from the drawee-bank (Associated Bank v. CA). Drawer has no cause of action against collecting bank, since the duty of collecting bank is only to the payee. A collecting bank is not guilty of negligence over a forged indorsement on checks for it has no way of ascertaining the authority of then endorsement and when it caused the checks to pass through the clearing house before allowing withdrawal of the

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proceeds thereof (Manila Lighter Transportation, Inc. v. CA). On the other hand, collecting bank which endorses a check bearing a forged endorsement and presents it to the drawee bank guarantees all prior endorsements including then forged endorsement itself and should be held liable therefor (Traders Royal Bank v. RPN). Drawee-bank can recover from the collecting bank because even if the indorsement on the check deposited by the bank's client is forged, collecting bank is bound by its warranties as an indorser and cannot set up defense of forgery as against drawee bank(Associated Bank v. CA).

BQ!!! (1995)Alex issued a negotiable PN (promissory note) payable to Benito or order in payment of certain goods. Benito indorsed the PN to Celso in payment of an existing obligation. Later Alex found the goods to be defective. While in Celso‘s possession the PN was stolen by Dennis who forged Celso‘s signature and discounted it with Edgar, a money lender who did not make inquiries about the PN. Edgar indorsed the PN to Felix, a holder in due course. When Felix demanded payment of the PN from Alex the latter refused to pay. Dennis could no longer be located.1. What are the rights of Felix, if any, against Alex, Benito, Celso and Edgar? Explain2. Does Celso have any right against Alex, Benito and Felix? Explain.SUGGESTED ANSWER:1. Felix has no right to claim against Alex, Benito and Celso who are parties prior to the forgery of Celso‘s signature by Dennis. Parties to an instrument who are such prior to the forgery cannot be held liable by any party who became such at or subsequent to the forgery. However, Edgar, who became a party to the instrument subsequent to the forgery and who indorsed the same to Felix, can be held liable by the latter.2. Celso has the right to collect from Alex and Benito. Celso is a party subsequent to the two. However, Celso has no right to claim against Felix who is a party subsequent to Celso

CHAPTER II: CONSIDERATION

Section 24: Presumption of ConsiderationWhat the law states:

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

Comments: Consideration means an inducement to a contract, that

is, the cause, price or impelling influence which induces a contracting party to enter into the contract.

Like all other contracts, a negotiable instrument must have a consideration or cause. It is not necessary however that the consideration be expressly stated in the instrument.

Absence of consideration is a personal defense In civil code, illegal consideration makes the contract

void. In NIL, illegal consideration is treated merely as a personal defense not available against a holder in due course. Only parties involved in the illegality and subsequent parties who are not holders in due course can be adversely affected by such defect (Martinez vs Rodriguez).

Section 25: Value, what constitutesWhat the section states:

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.

Comments: A valuable consideration need not adequate. It is

sufficient if it is valuable one

Section 26: What constitutes holder for value

What the section states: 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

Comments: A holder for value is one who has given a valuable

consideration for the instrument issued or negotiated to him.

A holder of a negotiable instrument is presumed to be a holder for value until the contrary is shown. A holder who has not given value for an instrument obviously will suffer no loss by being unable to recover from the primary party in the event that the latter has a personal defense assertable by him

Examples!1) M issues a note to P, the payee, without

consideration. P, also without consideration, indorses it to A who, with value, indorses it to B.

Under section 26, B is deemed a holder for value not only as regards A but also as regards M and P. If B is a holder in due course, he may enforce payment for the full amount of the note against M,P and A. If B is not a holder in due course, M can set up the defense of absence of consideration.

2) Now suppose in the same example above, B negotiates the note to C by way of a gift

C is a holder for value within the meaning of section 26 as against M, P and A because they become parties prior to the time when the value was given on the note by B.

Section 27: When lien on instrument constitutes holder for valueWhat the section states:

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

Comments: One who has taken a negotiable instrument as collateral

security for debt has a lien on the instrument Examples!a) M makes a promissory note for P1,000.00 to the order of

P wo pledges it to A to secure the payment of P’s debt of P800.00. The note is indorsed and delivered by P to A. In this case, A is a holder for value to the extent of P800.00 which is also the extent of his lien. On the maturity of the note, even if the debt of P800.00 is not yet due, A may recover the full amount of P1,000.00, holding the surplus for P, the pledgor.

b) If M has defenses against P, indorser, such absence or failure of consideration, A can collect only P800.00on the note even if he is a holder in due course. As the note in the hands of M is void, all that ought to be recovered by A is the amount due on the loan.

c) Supposing the amount of the instrument is P700.00 then A is a holder for value for the full amount of P700.00 and is entitled to recover to that extent.

Section 28: Effect of want of considerationWhat the section states:

Absence or failure of consideration is a matter of defense as against any person not a holder in due course

Partial failure of consideration is a defense pro tanto whether the failure is an ascertained and liquidated amount or otherwise

Comments: Pro tanto = for so much Absence of consideration means a total lack of any valid

consideration for the contract, in consequence of which the alleged contract must fall.

Failure of consideration means the failure or refusal of one of the parties to do, perform or comply with the consideration agreed upon. In other words, something was agreed upon as consideration but for some cause, such agreed consideration failed to materialize.

Example!M makes a promissory note to P in payment for a parcel of land. P failed to deliver it to M because he sold it

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again to X who in good faith registered the sale, there is a failure of consideration so that P cannot recover from M. If only 2/3 portion of the land was delivered, there would be a partial failure of consideration which would bar recovery only pro tanto. Hence, P could recover only 2/3 of the note as M is not liable to the extent of 1/3 which is the price of the undelivered portion.

Sec 29: Liability of accommodation partyWhat the section states:

An accommodation party is one who 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.

The accommodation party 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.

Comments: Accommodation bill or note is one to which the

accommodation party has put his name, without consideration, for the purpose of accommodating some other party who use it, and expected to pay it.

In lending his name to the accommodated party, the accommodation party is, in effect, a surety of the former.

Example!P is in immediate need of P 30,000.00 but he cannot find anybody to lend him the sum he needs. No one trusts him because because he has no credit. He goes to M, a rich relative, who is willing to accommodate him by letting him borrow on his (M’s) credit. So M signs a promissory note payable to P, receiving no consideration therefor. P then indorses the note to the PNB which discounts the note because of M’s credit.In this case, the promissory note is an accommodation note, and P is the accommodated party. P cannot enforce the note against M should P pay PNB because P gave no consideration to M and he was merely accommodated by M. M may simply sign the promissory note payable to PNB to accommodate P in order that P can borrow from PNB.

Rights of an accommodation party: [ RRC ]a) Right to revoke accommodation – since a signature

for a accommodation is gratuitous, it may be revoked or rescinded by cancellation or by notice of to those interested at any time before the instrument has been negotiated for value.

b) Right to reimbursement from accommodated party – after making payment to the holder, the accommodation party has a party has a right to obtain reimbursement from the accommodated party.

c) Right to contribution from other solidary accommodation maker – where the solidary accommodation maker paid to the bank, the balance due on a promissory note, he may seek contribution from the other solidary accommodation makers in the absence of contrary agreement between them and subject to the conditions imposed by law.

The law uses the words “without receiving value therefor” as one of the requisites in order that a person may be considered an accommodation party. This does not mean, however, that one cannot be an accommodation party merely because he has received some consideration for the use of his name. The said expression only means that no value has been received for the negotiable instrument and not “without receiving payment for lending his name.”

Kinds of accommodation partya) Accommodation maker – M, as accommodation

party, issues a promissory note payable to P who may then negotiate it to A.

b) Accommodation drawer – M, as accommodation party, signs a bill of exchange with P as payee, and P may indorse the same to A

c) Accommodation acceptor – M, as accommodation party, accepts a bill drawn on him by P in favor of himself and P may indorse the same to A

d) Accommodation indorser – M, as accommodation 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.

Accommodation party vs regular party [ VLPAR ]

Accommodation Party Regular Party

Signs the instrument without receiving value therefor

Signs the instrument for value

Signs an instrument for the purpose of lending his name

to some other personDoes not sign for that purpose

May always show by parol evidence that he is only such

Cannot disclaim or limit his liability as appearing on the

instrument by parol evidenceCannot avail of the defense of

absence or failure of consideration against the holder not in due course

May avail of the defense of absence or failure of

consideration against the holder not in due course

After paying the holder, may sue for reimbursement the

accommodated party, although subsequent party

May not sue any subsequent party for reimbursement

BQ!!! (1990)To accommodate Carmen, maker of a promissory note, Jorge signed as ind orser thereon, and the instrument was negotiated to Raffy, a holder for value. At the time Raffy took the instrument, he knew Jorge to be an accomodation party only. When the promissory note was not paid, and Raffy discovered that Carmen had no funds, he sued Jorge. Jorge plead s in defense the fact that he had endorsed the instrument without receiving value therefor, and the further fact that Raffy knew that at the time he took the instrumen Jorge had not received any value or consideration of any kind for his indorsement. Is Jorge liable? Discuss. Suggested Answer:Yes. Jorge is liable. Sec 29 of the NIL provides that an accommodation party is liable on the instrument to a holder for value, notwithstanding the holder at the time of taking said instrument knew him to be only a accommodation party. This is the nature or the essence ofaccommodation

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