CHAPTER II - CONSIDERATION  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 OF CONSIDERATION IS DISPUTABLE•      One of the disputable presumptions laid down by our Rules of Court is that  a  negotiable  instrument  was  given  or  indorsed  for  a  sufficient consideration   

CONSIDERATION NEED NOT ALLEGED OR PROVED•      In  an  action  based  on  a  negotiable  instrument,  it  is  unnecessary  to aver or prove consideration for it is imported and presumed from the fact that it is a negotiable instrument  

MERE INTRODUCTION OF INSTRUMENT SUFFICIENT•      The  mere  introduction  of  the  instrument  sued  on  in  evidence,  prima facie  entitles  the  plaintiff  of  a  recovery  and  unless  such  prima  facie case is overcome by evidence produced by the defendant the plaintiff is entitled to recover  

EFFECT OF LACK OF CONSIDERATION•      The same is without legal effect and the payment for 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.

VALUABLE CONSIDERATION, IN GENERAL•      Consideration  is  the  inducement—cause  or  impelling  influence  which induces a contracting party to enter into the contract•      Valuable consideration may in general terms be said to consist either in  some  right,  interest,  profit  or  benefit  accruing  to  the  party  who makes  the  contract,  or  some  forbearance,  detriment,  loss  or  some responsibility to act, or labor, or service given, suffered, or undertaken by the other side

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.  

MEANING OF A HOLDER FOR VALUE•      One who gives valuable consideration for an instrument issued or negotiated to him is a holder for value•      Not  limited  to  one   who  is  known  to  have  given  valuable consideration for the instrument he holds—it refers to any holder of an instrument for which value has been given at any time 

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.   

APPLICATION OF SECTION 27

•      Suppose that A makes a note in the sum of P1000 payable to the order of  B.    B  owes  C  P600.    C  is  said  to  have  a  lien  on  the  note  to  the extent of P600 only, and to that extent, he is a holder for value. •      Can C as indorsee collect the whole amount of P1000 from A, or only P600? It depends.  If A maker, has defenses against B indorser, such as  absence  of  consideration,  C,  even  if  a  holder  in  due  course  can collect only P600 from A, the extent of his lien. •      Reason for the rule: C is actually a holder in due course for P600 only.  He  is  a  holder  in  due  course  for  such  as  he  is  a  holder  for  value  for only P600.  For the balance of P400 he is not a holder for value, and since being a holder for value is one of the requisites of a holder in due course,  he  cannot  be  a  holder  in  due  course  as  far  as  the  P400  is concerned.   •      If A has personal defenses, he cannot use such as far as the P600 is concerned. •      If A on the other hand has real defenses, C cannot collect anything.   •      But  if  A  maker  doesn't  have  any  defenses  at  all  against  B  indorser, then C can collect the whole amount of P1000 and hold the P400 for the benefit of B.   

Section 28. Effect of want of consideration. Absence or failure of consideration is a matter of defense as against any person not a holder in due course; and partial failure of consideration is a defense pro tanto, whether the failure is an ascertained and liquidated amount or otherwise.

Sec.  29.  Liability  of  accomodation  party.  -  An  accomodation 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 accomodation party.  

ACCOMODATION PARTY: REQUISITES•      One  who  has  signed  the  instrument  as  maker,  drawer,  indorser, acceptor, without receiving any value therefore and for the purpose of lending his name to some other person •      Requisites: 1.    He must be a party to the instrument, signing as maker, acceptor, indorser, or drawer 2.    He must not receive any value therefore 3.    He must sign for the purpose of lending his name or credit  

RIGHTS AND LEGAL POSITION OF AN ACCOMODATION PARTY•      The  accomodation  party  is  generally  regarded  as  a  surety  for  the party accomodated •      When the accomodation parties make payment to the holder of the notes,  they  have  the  right  to  sue  the  accomodated  party  for reimbursement  since  the  relation  between  them  is  in effect  that  of  a principal and sureties, the accomodation parties being the sureties  

ACCOMMODATED PARTY CANNOT RECOVER FROM ACCOMMODATING PARTY•      Absence of consideration is a defense •      In fact as between them, the understanding is that the accomodated party either is to 1.    To reimburse the amount which the accomodation party may be obliged to pay 2.    To pay the instrument directly to the holder  

LIABILITY OF THE ACCOMODATION PARTY•      The  accomodation  party  is  liable  on  the  instrument  to  a  holder  in value,  notwithstanding  such  holder  at  any  time  of  the  taking  of  the instrument knew him to be only an accomodation party •      The  accomodation  party  doesn't  receive  any  valuable  consideration for the instrument he signs

but he is liable to a holder for value as if the contract wasn't for accomodation  CORPORATIONS  ARE  NOT  LIABLE  AS  ACCOMODATION  PARTIES  EVEN  TO HOLDERS FOR VALUE  OFFICERS   SIGNING   FOR   CORPORATION   AS   ACCOMODATION   PARTY WITHOUT  AUTHORITY  TO  DO  SO  FOR  THEIR  INDIVIDUAL  DEBTS  OR TRANSACTIONS ARE PERSONALLY LIABLE THEREON  HOLDER MUST OTHERWISE BE A HOLDER IN DUE COURSE  ACCOMODATION  PARTY  MAY  ACCOMODATE  ONE  WHO  IS  NOT  A  PARTY TO THE INSTRUMENT  ACCOMODATION   PARTY   CAN   INTERPOSE   DEFENSE   OF   WANT   OF CONSIDERATION AGAINST ONE NOT HOLDER IN DUE COURSE. 

NEGOTIATION  Sec.   30.   What   constitutes   negotiation.   -   An   instrument   is negotiated  when  it  is  transferred  from  one  person  to  another  in such manner as to constitute the transferee the holder thereof. If payable to bearer, it is negotiated by delivery; if payable to order, it is  negotiated  by  the  indorsement  of  the  holder  and  completed  by delivery.  

METHOD OF TRANSFER1.    By assignment  2.    By operation of law 3.    By negotiation, which may be completed by indorsement completed by delivery or by mere delivery  

ASSIGNMENT•      Method  of  transferring  a  non-negotiable  instrument  whereby  the assignee is merely placed in theposition of the assignor and acquires the  instrument  subject  to  all  defenses  that  might  have  been  setup against the original payee  

MODE OF ASSIGNMENT•      Differs in no respect from that of any other contract •      Although some sort of written instrument is  customarily employed, it may be written either on the instrument itself or on a separate piece of paper  

EFFECT OF ASSIGNMENT OF A NON-NEGOTIABLE INSTRUMENT•      The effect of the assignment is that the party holding the right drops out of the contract and another takes his place •      The assignee is substituted in place of the assignor •      The  assignee  and  every  subsequent  person  to  whom  the  instrument comes by assignment may be considered as the person who made the instrument  in  the  first  instance  and  as  having  said  and  done everything in making the instrument which the original assignor did or said.   •      Each assignee takes his chance as to the exact position in which any party making an assignment of it stands •      And  as  it  is  called  in  law,  the  assignee  takes  the  contract  subject  to equities, that is, to defenses to the contract which would avail in favor of  the  original  party  up  to  the  time  the  notice  of 

the  assignment  is given  to  the  person  against  whom  the  contract  is  sought  to  be enforced  

ASSIGNMENT OF A NEGOTIABLE INSTRUMENT•      A person taking a negotiable instrument by assignment in a separate piece of paper takes it subject to the rules applying to assignment  •      And  where  the  holder  of  a  bill  payable  to  order  transfers  it  without indorsement, it operates an equitable assignment   

TRANSFER BY OPERATION OF LAW1.    By  the  death  of  his  holder  where  the  title  vests  in  his  personal representative, or 2.    By the bankruptcy of the holder, where title vests in his assignee or trustee 3.    Upon  the  death  of  a  joint  payee  or  indorsee  in  which  case  the general rule is that the title vests at once in the surviving payee or trustee

NEGOTIATION•      Transfer  of  the  instrument  from  one  person  to  another  in  such  a manner as to constitute the transferee the holder thereof •      May  either  be  by  indorsement  completed  by  delivery  or  by  mere delivery  

IS DELIVERY TO PAYEE A NEGOTIATION?•      First  view:  no  because  negotiation  refers  to  an  existing  negotiable instrument  and  before delivery  to  the  payee,  the  instrument  is incomplete. •      Second  or  better  view:  under  this  section  and  section  191,  an instrument  is  negotiated  when  it  is  delivered  to  the  payee  or  to  an indorsee 

Indorsement of Negotiable Instruments Sec.  31.  Indorsement;  how  made.  -  The  indorsement  must  be written on the instrumentitself or upon a paper attached thereto. The  signature  of  the  indorser,  without  additional  words,  is  a sufficient indorsement.  

NATURE OF AN INDORSEMENT•      It 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 •      The  indorsement  of  the  bill  or  not  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  drawer’s responsibility and undertaking don't apply•      The  general  indorser  in  effect,  states  to  every  person  who  follows him—this instrument will be paid by the maker, if a note, or accepted  the drawee or paid by the acceptor, if a bill.  If it is dishonored by non-payment or non-acceptance, and you give me notice thereof, I will pay it.  

WHERE THE INDORSEMENT IS WRITTEN•      The  indorsement  may  be  written  on  the  instrument  itself  or  upon  a paper attached thereto •      Allonge: paper attached to the instrument  

MAY  ALLONGE  BE  USED  WHERE  THERE  IS  ROOM  ON  INSTRUMENT  FOR INDORSEMENT?•      It  has  been  held  that  the  use  of  an  allonge  is  able  only  when there  is  a  physical  impossibility  of  writing  the  indorsement  on  the instrument  itself,  and  an  indorsement  on  a 

separate  piece  of  paper where there is sufficient space on the instrument for indorsement will be considered as a mere assignment and not a negotiation 

HOW INDORSEMENT WRITTEN?•      Means must show that there is indorsementSec.   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 theinstrument has been paid in part, it may be indorsed as to the residue.  

INDORSEMENT MUST BE OF THE WHOLE INSTRUMENT•      The  general  rule  is  that  the  instrument  must  be  of  the  entire instrument  •      Accordingly,  an  indorsement  of  a  part  of  the  instrument  doesn't operate as a negotiation thereof 

EFFECT OF PARTIAL INDORSEMENT•      It doesn't operate as an indorsement •      It  may  constitute  a  valid  assignment  though  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  the  defenses  available  between  the original parties  

EXCEPTION•      But where the instrument has been paid in part, it may be indorsed as to the residue  

TRANSFER TO TWO OR MORE INDORSEES SEVERALLY•      An  indorsement  which  purports  to  transfer  the  instrument  to  two  or more  indorsees  severally,  doesn't  operate  as  a  negotiation  of  the instrument  

MONTINOLA V. PNB88 PHIL 178

 FACTS: *Remember  the  case  with  the  Japanese  occupation  and  the  mutilated check.  HELD: Where  the  indorsement  of  the  check  was  only  for  a  part  of  the  amount payable,  it  is  not  legally  negotiated  within  the  meaning  of  Section  32, which provides that 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  doesn't  operate  as  a  negotiation  of  the instrument.  Montinola may therefore be not regarded as an indorsee.  At most he may be regarded as a mere assignee of the P30,000 sold to him. In  which  case,  as  an  assignee,  he  is  subject  to  the  defenses  available  to the drawer Provincial Treasurer.  Sec.  33.  Kinds  of  indorsement.  -  An  indorsement  may  be  either special or in blank; and it may also be either restrictive or qualified or conditional.  

KINDS OF INDORSEMENT1.    Special 2.    In blank 3.    Absolute 4.    Conditional 5.    Restrictive 6.    Qualified  

7.    Joint 8.    Successive 9.    Irregular 10.  Facultative    Sec.  34.  Special  indorsement;  indorsement  in  blank.  -  A  special indorsement specifies the person to whom, or to whose order, the instrument is to be payable, and the indorsement of such indorsee is  necessary  to  the  further  negotiation  of  the  instrument.  An indorsement in blank specifies no indorsee, and an instrument so indorsed is payable to bearer, and may be negotiated by delivery.  

SPECIAL AND BLANK INDORSEMENT 

HOW FURTHER NEGOTIATED1.    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  of  the  instrument  completed  by delivery 2.    Where  the  instrument  is  originally  payable  to  order  and  it  is negotiated  by  the  payee  in  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  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.  

APPLICATION OF SECTION 35•      Suppose  that  A  makes  a  note  with  B  as  payee.    It  is  indorsed  as follows: o      (Indorsement in blank) (Sgd.) B. •      Delivery was then made to C.  C may place above the signature of B, “Pay to C.” so as to make the indorsement thus:  o      Pay to C.        (Sgd.) B. •      This converts the blank indorsement to a special indorsement  

LIMITATION UPON CONVERSION OF BLANK INDORSEMENT•      Holder   must   not   write   any   contract   not   consistent   with   the indorsement,  that  is,  the contract  so  written  must  not  change  the contract of the blank indorser •      The  following  has  been  held  to  be  inconsistent  with  the  contract  of blank indorsement—“pay to X and Y”, “Demand and notice waived”, “I guaranty payment”, “Without recourse”  Sec.   36.   When   indorsement   restrictive.   -   An   indorsement   is restrictive which either:        (a) Prohibits the further negotiation of the instrument; or               (b) Constitutes the indorsee the agent of the indorser; or               (c) Vests the title in  the  indorsee in trust for or  to the use of some other persons.   But the  mere absence of words  implying  power  to negotiate does not make an indorsement restrictive.  

PROHIBITION OF FURTHER NEGOTIATION

1.    Pay to C only 2.    Pay to C and no other person  INDORSEE AGENT OF THE INDORSER •      Known as the agency-type of indorsement  “Pay to C for collection” (Sgd.) B  •      Hence,  any  action  the  indorsee  may  file  is  subject  to  defenses available against the indorser such as lack of consideration •      Thus, where the proof tends to show that the plaintiff holds the draft for  collection  only,  and  that  the  acceptance  of  it  by  defendants  was conditional, and that after such an acceptance, the defendants refused to  accept  the  goods  evidenced  by  the  draft,  which  were  returned  to and  accepted  by  the  plaintiff,  who  agreed  to  release  the  defendants from any liability, plaintiff thereafter cannot recover  

INDORSEMENTS FOR DEPOSIT•      An  indorsement  for  deposit  constitutes  the  indorsee  the  agent  of  the indorser •      “Pay  to  C  for  deposit  (Sgd.)  B”—such  an  indorsement,  like  an indorsement  for  collection,  constitutes  a  relation  of  title  in  the depositor in the absence of any practice or agreement to the contrary •      In any event, a restrictive indorsement of an instrument for collection or  deposit,  or  to  the  use  of  the  indorser  and  for  his  benefit,  in  the absence of any other circumstances, will not divest the indorser of his title thereto until the money is paid •      Indorsements for deposits are usually informal  

VESTS TITLE IN INDORSEE IN TRUST FOR ANOTHER1.    Pay to X in trust for C 2.    Pay to X for use of C  

CAN  THE  MAKER  SET  UP  AGAINST  THE  INDORSEE  HIS  DEFENSES AGAINST THE RESTRICTIVE INDORSER?There are two views to this question: 1.    Sulbrason-Dickinson  v.  Hopkins:  an  indorsement  to  A  for  the benefit  of  B  was  held  restrictive  under  Section  47  of  the  NIL, making  the  indorsee  and  its  successors  subject  to  the  good defenses against the restrictive indorser 2.    Some learned writers held this view to be unsound.  Thus, it has been held that the indorsee of a check indorsed in trust for a third person  who  is  a  holder  in  due  course  could  recover  from  the drawer who had a defense of failure of consideration, for while the restrictive indorsement creating a trust gives notice of this trust to  subsequent   purchasers,   it   did   not   give   notice   of   defenses obtaining between prior parties.   •      TO MAKE IT EASIER TO UNDERSTAND—first, you have to make a distinction  between  what  kind  of  restrictive  indorsement  was made.  Was it a trust type or an agency type?  If it was an agency type, the indorsee just fills in the shoes of the restrictive indorser.  And  thus,  he  is  susceptible  and  open  to  the  defenses  that  the maker  can  have  against  the  indorser.    It  is  different  if  it  is  trust type  because  the  indorsee  does  not  step  inside  the  shoes of  the indorser  and  thus,  the  maker  can  no  longer  set  up  against  the indorsee his defenses against the indorser.    

PRESUMPTION OF CONSIDERATION IN RESTRICTIVE INDORSEMENTS•      As a general rule, an indorsement of a negotiable bill which purports to pass  the  title  to  the  bill  to  the  indorsee,  imports  a  consideration  and the  burden  of  proving  want  of  consideration  rests  upon 

the  party alleging it •      The   restrictive   indorsements   which   are   held   to   negative   the presumption  of  a consideration  are  such  as  to  indicate  that  they  are intended to pass title but merely to enable the indorsee to collect for the  benefit  of  the  indorser,  such  as  indorsements  “for  collection”  or others showing that the indorser is entitled to the proceeds •      But  an  indorsement  to  one  person  for  the  use  or  benefit  of  another, affords no such indication.  The indorser parts with the whole title to the bill and the presumption is that he done so for a consideration. •      The only effect of such an indorsement, by way of restriction, is to give notice  of  the  rights  of  the  beneficiary  named  in  the  indorsement  and protect him against misappropriation  

EFFECT OF OMISSION OF WORDS OF NEGOTIABILITY•      The  mere  absence  of  words  of  negotiability  doesn't   make  the indorsement restrictive •      While  the  omission  of  words  in  the  indorsement  doesn't  affect negotiability of the instrument, such omission in the body thereof will render the instrument non-negotiable  Sec.  37.  Effect  of  restrictive  indorsement;  rights  of  indorsee.  -  A restrictive indorsement confers upon the indorsee the right:        (a) to receive payment of the instrument;               (b) to bring any action thereon that the indorser could bring;               (c)  to  transfer  his  rights  as  such  indorsee,  where  the  form  of the indorsement authorizes him to do so.   But  all  subsequent  indorsees  acquire  only  the  title  of  the  first indorsee under the restrictive indorsement.  

RESTRICTIVE INDORSEE MAY RECEIVE PAYMENT•      A  restrictive  indorsement  confers  upon  the  indorsee  the  right  to receive payment of the instrument  

RESTRICTIVE INDORSEE MAY BRING AN ACTION•      A restrictive indorsement confers upon the indorsee the right to bring any action thereon that the indorser could bring •      In a restrictive indorsement “for deposit”, can the indorsee such as B in the illustration, bring an action against the indorser, such as A?  Yes if the indorser received value for said indorsement  

RESTRICTIVE INDORSEE MAY TRANSFER HIS RIGHTS•      It is stated in the interpretation of the clause in Section 47 declaring a paper  negotiable  in  its  origin  to  continue  negotiable  until  it  has  been restrictively indorsed, is that the words “until it has been restrictively indorsed”  don't  contemplate  every  restrictive  indorsement  but  a restrictive  indorsement  that  prohibits  the  further  negotiation  of  the instrument under subdivision 1 of Section 36 •      Section  46  didn't  mean  to  declare  the  effects  of  a  restrictive indorsement but to preserve as far as possible the negotiability of an instrument negotiable in its origin and that the implication of Section 47  should  not  be  taken  as  destroying  negotiability  of  an  instrument heretofore universally accepted as negotiable  

EXTENT OF NEGOTIABILITY AFTER RESTRICTIVE INDORSEMENT•      That  all  forms  of  restrictive  negotiability  impose  some  degree  of limitation on negotiability •      That they don't all impose the same degree of limitation •      That the indorsement itself discloses the extent of the limitation in the particular case  

LIMITATION ON TRANSFER OF RIGHT: ILLUSTRATION•      But  all  subsequent  indorsees  acquire  only  title  of  the  first  indorsee under the restrictive indorsement •      Illustrations of this rule: o      In the indorsement, “pay to A for collection,” the rights of the subsequent    indorsees    are    subject    to    the    restrictive indorsement—namely,   he   can   collect   only   for   being   a restrictive  indorsee,  he  acquires  only  the  title  of  the  first indorsee whose right is merely to collect o      Suppose the P1000 note is indorsed as “Pay to B for deposit only.  (Sgd.)  A”  and  that B  owes  Y  P1000,  B  cannot  transfer the note to Y for said debt.  Or suppose B transfers the note to another person for P1000, B cannot use the P1000 for his own personal expenses.  He must safely keep the money for the benefit of A. o      “Pay to A for account of B”—gives notice that the instrument cannot be negotiated by A for his own debt or benefit    Sec.   38.   Qualified   indorsement.   -   A   qualified   indorsement constitutes  the  indorser  a  mere  assignor  of  the  title  to  the instrument. It may be made by adding to the indorser's signature the words "without recourse" or any words of similar import. Such an  indorsement  does  not  impair  the  negotiable  character  of  the instrument.  

HOW QUALIFIED INDORSEMENT IS MADE•      By  adding  to  the  indorser’s  signature  the  words  “without  recourse”, “Sans recours”, “indorser not holden”, or “with intent to transfer title only and not to incur liability as indorser”, “at indorsee’s own risk”  

EFFECT OF QUALIFIED INDORSEMENT •      Constitutes the indorser a mere assignor of the title to the instrument  •      One who indorses without recourse states that all parties to the paper are genuine; I am the lawful owner of the paper and I have title to it and  know  of  no  reason  why  you  could  not  recover  on  it  as  a  valid instrument,  but  on  thing  I  don't  guarantee;  I  don't  guarantee  the financial responsibility on that paper but I do say that I hold the title the same as any other personal property  

QUALIFIED INDORSER HAS LIMITED SECONDARY LIABILITY•      He is secondarily liable on his warranties as an indorser under Section 65,  that  is,  the  qualified  indorser  is  liable  if  the  instrument  is dishonored by non-acceptance or non-payment due to: 1.    Forgery 2.    Lack of good title on the part of the indorser 3.    Lack of capacity to indorse on the part of the prior parties 4.    The fact that, at the time of the indorsement, the instrument was valueless or not valid and he knew of that fact  

A   QUALIFIED   INDORSEMENT   DOESN'T   IMPAIR   THE   NEGOTIABLE CHARACTER OF THE INSTRUMENT Sec.  39.  Conditional  indorsement.  -  Where  an  indorsement  is conditional, the party required to pay the instrument may disregardthe 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  a  contingent  event,  that  is,  an event  that may or may not happen, or a past event unknown to the parties •      Suppose  a  note  for  P1000  with  A  maker,  and  B  payee.    It  is  then indorsed as follows “Pay to Y if he passes the bar examinations. (Sgd.) B”—this is a conditional indorsement as Y may or may not pass the bar examination.  

OBLIGATION OF CONDITIONAL INDORSEE•      Y indorsee holds the note or the proceeds thereof, if he is paid by A, subject to the rights of B •      If  A  disregards  the  condition  and  pays  Y  without  waiting  for  the condition  to  be  fulfilled,  Y  doesn't  immediately  acquire  ownership  of the sum •      Y must hold in trust while the condition is not 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  

A CONDITIONAL INDORSEMENT DOESN'T RENDER AN INSTRUMENT NON-NEGOTIABLE Sec. 40. Indorsement of instrument payable to bearer. - Where an instrument,   payable   to   bearer,   is   indorsed   specially,   it   may nevertheless  be  further  negotiated  by  delivery;  but  the  person indorsing  specially  is  liable  as  indorser  to  only  such  holders  as make title through his indorsement.  

APPLICATION OF SECTION 40•      Section  applies  only  to  instruments  which  are  originally  payable  to bearer •      Cannot apply where the paper is originally made payable to order and indorsed in blank; for by Section 9, a note or bill which is payable to order  becomes  payable  only  when  the  last  indorsement  is  in  blank; and  hence,  when  a  blank  indorsement  is  followed  by  a  special indorsement, the instrument is not within the terms of Section 9.  

NEGOTIATION  OF  INSTRUMENT  PAYABLE  TO  BEARER  BUT  SPECIALLY INDORSED•      Where   an   instrument   payable   to   bearer   is   indorsed,   it   may nevertheless be further negotiated by delivery  •      An instrument which is originally payable to bearer is always payable to bearer •      Hence, even when it has been specially indorsed, it is still payable to bearer  

EFFECT ON LIABILITY OF SPECIAL INDORSERPay P1000 to bearer (Sgd.) A *C is bearer and he delivered to D *D specially indorsed it to E *E specially indorsed it to F *F delivered to G, bearer. •      Is D liable to G being the first who specially indorsed the instrument?  No,  because  G  didn't  take  title  through  D’s  indorsement  but  through delivery of D •      To whom D is liable? To E and F, because they acquired the title to the instrument  through  the  special  indorsement  of  D.    Had  F  merely indorsed the instrument to G, D would be liable also to G for the same reason.  Sec.  41.  Indorsement  where  payable  to  two  or  more  persons.  - Where an instrument is payable to the order of two or more payees or indorsees who are not partners, all must indorse

unless the one indorsing has authority to indorse for the others.  APPLICATION OF SECTION 41 •      Applies only to instruments payable to two or more payees jointly   

HOW INDORSEMENT OF JOINT PAYEES MADE•      Where  the  instrument  is  payable  to  two  or  more  payees,  all  payees must each indorse in order to negotiate the instrument •      If only one indorses, he passes only his part of the instrument—such an indorsement wouldn't operate as such because it would not be an indorsement of the whole instrument •      Exceptions to the rule: 1.    Where the payee or person indorsing has authority to indorse for the others 2.    Where the payee or indorsees are partners   Sec.  42.  Effect  of  instrument  drawn  or  indorsed  to  a  person  as cashier. - Where an instrument is drawn or indorsed to a person as "cashier"  or  other  fiscal  officer  of  a  bank  or  corporation,  it  is deemed  prima  facie  to  be  payable  to  the  bank  or  corporation  of which  he  is  such  officer,  and  may  be  negotiated  by  either  the indorsement of the bank or corporation or the indorsement of the officer.   APPLICATION OF SECTION 42 Pay P1000 to the order of cashier, Lyceum of the Philippines.  (Sgd.) A  •      Presumption is that the note is payable to Lyceum, not to the cashier personally •      And  the  note  may  be  indorsed  by  any  duly  authorized  officer  of Lyceum other than the cashier 

DISPUTABLE PRESUMPTION 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  describedadding, if he thinks fit, his proper signature.  APPLICATION OF SECTION 43 •      An instrument drawn or indorsed to “Juan Dytuco” whose real name is “Juan Dyjuco” may be indorsed as follows: o      Pay to Y (Sgd.) Juan Dytuco    Juan Dyjuco o      Or (Sgd.) Juan DyjucoSec.  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?1.    He must add words describing himself as agent 2.    At the same time, disclose his principal 3.    He must be duly authorized  Sec.  45.  Time  of  indorsement;  presumption.  -  Except  where  an indorsement bears date after the maturity of the instrument, every negotiation is deemed prima facie to have been effected before the instrument was overdue.   

DISPUTABLE PRESUMPTION  

IMPORTANCE OF THIS PROVISION•      This  provision  becomes  importance  when  considered  in  connection with Section 52 (b) •      Under  the  provision,  in  order  that  one  may  become  a  holder  in  due course,  the  instrument  must  be  negotiated  to  him  before  it  becomes overdue •      The  indorsement  without  date  establishes  a  prima  facie  presumption that the instrument was indorsed 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.  

IMPORTANCE OF PLACE OF INDORSEMENT•      The   place   of   indorsement   is   sometimes   material   because   an indorsement is governed by the laws of the state where it is indorsed, although the instrument is drawn or made in a different state  Sec.  47.  Continuation  of  negotiable  character.  -  An  instrument negotiable in its origin continues to be negotiable until it has been restrictively indorsed or discharged by payment or otherwise.  

WHEN NEGOTIABLE INSTRUMENT RENDERED NON-NEGOTIABLE1.    Restrictive   indorsement   which   further   prohibits   the   further negotiation of an instrument  2.    By a discharge thereof by payment or otherwise  

NEGOTIABILITY AFTER DATE OF MATURITY•      FIRST  VIEW:  negotiability  ceases  in  the  full  commercial  sense  after maturity  and  negotiability  ceases  by  default  of  the  maker  in  his payment •      SECOND VIEW: negotiability continues even after maturity •      RECONCILIATION  OF  THE  TWO:  the  mercantile  character  of  the instrument  as  a  negotiable  paper  and  of  the  contracts  of  the  several parties to it, continues after maturity and until it is paid except: that 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  paragraph  b  of  Section  52,  they  are  not  holders  in due course •      After  maturity,  an  instrument  originally  negotiable  continues  to  be negotiable in the sense that the contracts of the parties to it continue and are governed by the Negotiable Instruments Law •      After maturity the instrument ceases to be negotiable in the sense that a transferee after maturity is not a holder in due course and therefore not free from defenses obtaining between prior parties  

LEGAL POSITION OF HOLDER TAKING OVERDUE INSTRUMENT•      He is a holder with notice.  He may or may not be a holder for value and his rights will be regulated accordingly.  He takes a bill which on the face of it, ought to have been paid. •      He is bound to make two inquiries—has what ought to have been done really have been done?  And if not, why not?  

RIGHT OF HOLDER NOT IN DUE COURSE•      He can recover checks in his possession but the only disadvantage is that the negotiable instrument is subject to the defenses as if it were non-negotiable 

Sec.  48.  Striking  out  indorsement.  -  The  holder  may  at  any  time strike out any indorsement which is not necessary to his title. The indorser   whose  indorsement  is  struck  out,  and   all 

indorsers subsequent  to  him,  are  thereby  relieved  from  liability  on  theinstrument.   

WHEN HOLDER MAY OR MAY NOT STRIKE OUT INDORSEMENT•      But  where  the  instrument  is  transferred  by  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•      The  holder  who  acquires  title  subsequent  to  the  succeeding  special indorsement   must   trace   his   title   not   only   through   the   blank indorsement but through the special indorsement as well  

EFFECT OF STRIKING OUT1.    The indorser whose indorsement is struck out is relieved from his liability on the instrument 2.    All  subsequent  indorsers  are  also  relieved  from  their  liability  on the instrument

Sec.  49.  Transfer  without  indorsement;  effect  of.  -  Where  the holder of an instrument payable to his order transfers it for value without indorsing it, the transfer vests in the transferee such title as  the  transferor  had  therein,  and  the  transferee  acquires  in addition,  the  right  to have the indorsement of the transferor.  But for the purpose of determining whether the transferee is a holder in due course, the negotiation takes effect as of the time when the indorsement is actually made.   APPLICATION OF SECTION 49 •      Applies only to instruments payable to order •      Contemplates a case wherein delivery and payment of value but there was no indorsement •      One element lacking for the negotiation of the instrument  

RIGHTS OF TRANSFEREES FOR VALUE1.    The  transferee  acquires  only  the  rights  of  the  transferor.    This means  that  if  a  defense  is  available  against  the  transferor,  that defense is also available against the transferees 2.    The  transferee  has  also  the  right  to  require  the  transferor  to indorse the instrument  

BPI V. COURT OF APPEALSGR 136202, JANUARY 25, 2007

 FACTS: Templonuevo  demanded  payment  from  petitioner  of  a  sum  of  money representing  the  aggregate  value  of  three  checks  which  were  allegedly payable  to  him  but  which  were  deposited  with  the  petitioner  to  Salazar’s account, without his knowledge and corresponding endorsement.  Finding merit in the demands of Templonuevo, the bank then froze the account of the engineering firm as the account of Salazar was already closed or had insufficient  funds.    Failure  of  any  settlement  between  Templonuevo  and Salazar, this prompted the bank to debit the account of Salazar and give back the money to Templonuevo through cashier’s check.  The account of Salazar was also debited for whatever charges incurred for the issuance of the cashier’s check.  The trial court held in favor of Salazar.    ISSUE: Does  a  collecting  bank,  over  the  objections  of  its  depositor,  have the  authority  to  withdraw  unilaterally  from  such  depositor’s  account  the amount it had previously paid upon certain unendorsed order instruments deposited by the depositor to another account that she later closed?  HELD: In the present case, the records do not support the finding made by the CA and the trial court that a prior

arrangement existed between Salazar and Templonuevo regarding the transfer of ownership of the checks. This fact is crucial as Salazar’s entitlement to the value of the instruments is based on the assumption that she is a transferee within the contemplation of Section 49 of the Negotiable Instruments Law.  Transferees in this situation do not enjoy the presumption of ownership in favor  of  holders  since  they  are  neither  payees  nor  indorsees  of  such instruments.  The  weight  of  authority  is  that  the  mere  possession  of  a negotiable  instrument  does  not  in  itself  conclusively  establish  either  the right of the possessor to receive payment, or of the right of one who has made payment to be discharged from liability. Thus, something more than mere  possession  by  persons  who  are  not  payees  or  indorsers  of  the instrument  is  necessary  to  authorize  payment  to  them  in  the  absence  of any  other  facts  from  which  the  authority  to  receive  payment  may  be inferred.  Even if the delay in the demand for reimbursement is taken in conjunction with  Salazar’s  possession  of  the  checks,  it  cannot  be  said  that  the presumption of ownership in Templonuevo’s favor as the designated payee therein was sufficiently overcome. This is consistent with the principle that if  instruments  payable  to  named  payees  or  to  their  order  have  not  been indorsed in blank, only such payees or their indorsees can be holders and entitled       to       receive       payment       in       their       own       right.  The  presumption  that  a  negotiable  instrument  was  given  for  a  sufficient consideration  will  not  inure  to  the  benefit  of  Salazar  because  the  term “given” does not pertain merely to a transfer of physical possession of the instrument. The phrase “given or indorsed” in the context of a negotiable instrument  refers  to  the  manner  in  which  such  instrument  may  be negotiated.   It is an exception to the general rule for a payee of an order instrument to transfer   the   instrument   without   indorsement.   Precisely   because   the situation  is  abnormal,  it  is  but  fair  to  the  maker  and  to  prior  holders  to require  possessors  to  prove  without  the  aid  of  an  initial  presumption  in their  favor,  that  they  came  into  possession  by  virtue  of  a  legitimate transaction  with  the  last  holder.  Salazar  failed  to  discharge  this  burden, and  the  return  of  the  check  proceeds  to  Templonuevo  was  therefore warranted under the circumstances despite the fact that Templonuevo may not have clearly demonstrated that he never authorized Salazar to deposit the  checks  or  to  encash  the  same.  Noteworthy  also  is  the  fact  that petitioner  stamped  on  the  back  of  the  checks  the  words:  "All  prior endorsements  and/or  lack  of  endorsements  guaranteed,"  thereby  making the  assurance  that  it  had  ascertained  the  genuineness  of  all  prior endorsements.   Having   assumed   the   liability   of   a   general   indorser, petitioner’s   liability   to   the   designated   payee   cannot   be   denied.  Consequently,  petitioner,  as  the  collecting  bank,  had  the  right  to  debit Salazar’s account for  the value of the checks it previously credited in her favor.  However,  the  issue  of  whether  it  acted  judiciously  is  an  entirely different matter.  As businesses affected with public interest, and because of  the  nature  of  their  functions,  banks  are  under  obligation  to  treat  the accounts  of  their  depositors  with  meticulous  care,  always  having  in  mind the  fiduciary  nature  of  their  relationship.    In  this  regard,  petitioner  was clearly  remiss  in  its  duty  to  private  respondent  Salazar  as  its  depositor.  To begin with, the irregularity appeared plainly on the face of the checks. Despite the obvious lack of indorsement thereon, petitioner permitted the encashment of these checks three times on three separate occasions. This negates  petitioner’s  claim  that  it  merely  made  a  mistake  in  crediting  the value of the checks to Salazar’s account and instead bolsters the conclusion of the CA that petitioner recognized Salazar’s claim of ownership of checks and  acted  deliberately  in  paying  the  same,  contrary  to  ordinary  banking policy and practice. It must be emphasized that the law imposes a duty of diligence on the collecting bank to scrutinize checks deposited with it, for the purpose of determining their genuineness and regularity. The collecting bank, being primarily engaged in banking, holds itself out to the public as the  expert  on 

this  field,  and  the  law  thus  holds  it  to  a  high  standard  of conduct.    The  taking  and  collection  of  a  check  without  the  proper indorsement   amount   to   a   conversion   of   the   check   by   the   bank.  More  importantly,  however,  solely  upon  the  prompting  of  Templonuevo, and  with  full  knowledge  of  the  brewing  dispute  between  Salazar  and Templonuevo, petitioner debited the account held in the name of the sole proprietorship  of  Salazar  without  even  serving  due  notice  upon  her.  This ran contrary to petitioner’s assurances to private respondent Salazar that the  account  would  remain  untouched,  pending  the  resolution  of  the controversy between her and Templonuevo. For the above reasons, the Court finds no reason to disturb the award of damages  granted by  the  CA  against  petitioner.  This  whole  incident  would have  been  avoided  had  petitioner  adhered  to  the  standard  of  diligence expected of one engaged in the banking business. A depositor has the right to  recover  reasonable  moral  damages  even  if  the  bank’s  negligence  may not  have  been  attended  with  malice  and  bad  faith,  if  the  former  suffered mental anguish, serious anxiety, embarrassment and humiliation

Sec.  50.  When  prior  party  may  negotiate  instrument.  -  Where  an instrument  is  negotiated  back  to  a  prior  party,  such  party  may, subject to the provisions of this Act, reissue and further negotiable the same. But he is not entitled to enforce payment thereof against any intervening party to whom he was personally liable.

RIGHTS OF THE HOLDER  Sec.  51.  Right  of  holder  to  sue;  payment.  -  The  holder  of  a negotiable  instrument  may  to  sue  thereon  in  his  own  name;  and payment to him in due course discharges theinstrument.

RIGHTS OF A HOLDER IN GENERAL1.    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  

RIGHT TO SUE•      Holder of a negotiable instrument may sue on his own name, even if he be a holder only for collection or as a pledge of the instrument  

RIGHT OF TRANSFEREE OF UNINDORSED INSTRUMENT•      Such possessor may sue in his own name if his transferor could have done so •      Under Section 49, a transfer for value, but without indorsement, of an instrument is payable to order vests in the transferee such title as the transferor had therein.  

EFFECT OF PAYMENT TO THE HOLDER•      The payment in due course to the holder of the instrument discharges the instrument •      It  is  in  due  course  if  it  is  made  at  or  after  the  maturity  of  the instrument; or to the holder thereof; in good faith and without notice that his title is defective 

ec. 52. What constitutes a holder in due course. - A holder in due course  is  a  holder  who  has  taken  the  instrument  under  the following conditions:        (a) That it is complete and regular upon its face; 

              (b) That he became the holder of it before it was overdue, and without notice that it has been previously dishonored, if such was the fact;               (c) That he took it in good faith and for value;               (d) That at the time it was negotiated to him, he had no notice of any infirmity in theinstrument or defect in the title of the person negotiating it.   

PRESUMPTION HOLDER IN DUE COURSE•      Generally, every holder is prima facie a holder in due course •      Any one, therefore, who claims otherwise must prove that the holder in question acquired theinstrument with one or more of the conditions lacking •      Any  holder  proved  to  have  taken  an  instrument  with  one  of  the conditions enumerated lacking is not a holder in due course  

ACQUISITION BEFORE THE INSTRUMENT IS OVERDUE•      The holder of the instrument must have become the holder before the instrument has become overude•      Illustrations— o      One  who  has  purchased  2  promissory  notes  without  the necessary  indorsement  on  the  part  of  the  holder  after payment  thereof  had  already  been  one  year  overdue  and without  having  made  inquiries  about  the  solvency  of  the makers cannot be considered as a holder in due course o      One  taking  past  due  paper  is  chargeable  with  notice  of  all equities  between  the  original  parties  but  nbt  with  equities between intermediate indorsers o      If  the  instrument  is  overdue,  it  is  also  a  notice  that  it  has been dishonored  

WHEN INSTRUMENT IS OVERDUE•      When it after the date of maturity •      On  the  date  of  maturity,  the  instrument  is  not  overdue  and  a  holder who acquires theinstrument on that date is a holder in due course  •      If the instrument is overdue, there might be something wrong with the instrument  

AS TO ACCELERATED INSTRUMENTS•      When  the  instrument  contains  an  acceleration  clause,  knowledge  of the  holder  at  the  time  of  acquisition  thereof  that  one  installment  or interest,  or  both,  as  the  case  may  be,  is  unpaid,  is  notice  that  the instrument is overdue  

AS TO INTEREST•      One  who  purchases  in  good  faith  an  instrument  upon  which  the interest is overdue is a holder in due course •      But where by the terms of the instrument, the principal was to become due  upon  default  of  the payment  of  instrument,  then  one  who  takes the  instrument  upon  which  the  interest  is  overdue  is  not  a  holder  in due course  

WHAT IS AN ACQUISITION IN GOOD FAITH?•      Good faith refers to the indorsee or transferee and not to the seller of the paper•      Taking in good faith means that he doesn't have any knowledge of fact which  would  render  it  dishonest  for  him  to  take  a  particular  piece  of negotiable paper  

MEANING OF HOLDER IN GOOD FAITH

•      Holder without knowledge or notice of equities of any sort which could be set up against a prior holder of an instrument  

EFFECT OF FAILURE TO MAKE INQUIRY•      Ordinarily,  failure  to  inquire  after  notice  merely  sufficient  to  cause  a person  of  ordinary  prudence  to  make  inquiry  as  to  an  infirmity  in  a negotiable instrument and defect in the holder’s title, is not evidence of purchaser’s bad faith so as to bar him from recovery •      TEST OF HONESTY—whether or not his purpose is dishonest?  

WHEN FAILURE TO MAKE INQUIRY IS INDICIA OF BAD FAITH?•      Failure  to  make  inquiry  when  circumstances  strongly  indicate  defect, renders the holder not a holder in due course  

ACQUISITION FOR VALUE•      Where the holder gave no valuable consideration for the transfer of the instrument to him,  he cannot be a holder in due course •      Discounting of a negotiable instrument is still considered to be taking for value  

EFFECT OF INADEQUACY OF INSTRUMENT•      Generally, lesion or inadequacy of cause shall not invalidate a contract, unless there has been fraud, mistake or undue influence •      It may be an evidence of fraud  •      An amount paid for an instrument if a trifling sum should be a red flag and may by itself establish notice   

ACQUISITION WITHOUT NOTICE OF DEFECT OF TITLE OR OF INFIRMITY•      The   following   may   be   chargeable   with   notice—one   taking   an instrument  which  is  overdue;  and  one  acquiring  an  instrument  for  a grossly inadequate consideration  GOOD FAITH MEANS LACK OF NOTICE OF DEFECT OR INFIRMITY  

DEFECTS OF TITLE•      All  those  situations  which  at  common  law  were  known  as  equitable defenses  and  also  to  cover  those  equities  of  ownership  where  there was breach of faith in negotiation •      Examples? o      Acquisition of the instrument by fraud o      Acquisition of the instrument by force, duress or fear o      Acquisition of the instrument by unlawful means o      Acquisition of the instrument by for an illegal consideration o      Negotiation of the instrument in breach of faith o      Negotiation  of  the  instrument  under  circumstances  which amount to fraud  

DEFENSES•      Include those common law defenses outside those covered in Section 55 •      These include mistake, absence and failure of consideration covered in Section 28, minority and other forms of incapacity, lack of authority of an agent  

INFIRMITIES•      Things that are wrong with the instrument itself •      What are these? o      Wrong date inserted where the instrument is expressed to be payable at a fixed period after sight is

undated o      Filling  up  a  blank  instrument  not  strictly  in  accordance  with the authority given or not within authority given or not within the  reasonable  time,  where  it  was  delivered  wanting  in  a materialalteration o      Filling  up  without  authority  an  incomplete  and  undelivered instrument o      Lack of valid and intentional delivery o      Forgery o      Material alteration  

MAY A PAYEE BE A HOLDER IN DUE COURSE?•      Yes, if he satisfies the requirements as set forth in Section 52  

MAY A DRAWEE BE A HOLDER IN DUE COURSE?•      A holder refers to one who has taken the instrument as it passes along in the course of negotiation towards the drawee and not the drawee, who, on the acceptance and payment of the instrument, thereby strips the instrument of all negotiability and reduces it to a mere voucher or proof of payment  Sec. 53. When person not deemed holder in due course. - Where an instrument  payable  on  demand  is  negotiated  on  an  unreasonable length of time after its issue, the holder is not deemed a holder in due course. 

WHAT CONSTITUTES UNREASONABLE LENGTH OF TIME?•      Jurisprudence  doesn't  state  an  exact  period,  nonetheless,  there  is practically no authorities hold that a reasonable time for negotiating a demand note could be extended beyond a year   Sec. 54. Notice  before full amount is paid. -  Where the transferee receives notice of any infirmity  in the instrument or defect in the title of the person negotiating the same before he has paid the full amount agreed to be paid therefor, he will be deemed a holder in due course only to the extent of the amount therefore paid by him.   Sec. 55. When title defective. - The title of a person who negotiates an instrument is defective within the meaning of this Act when he obtained  the  instrument,  or  any  signature  thereto,  by  fraud, duress, or force and fear, or other unlawful means, or for an illegal consideration, or when he negotiates it in breach of faith, or under such circumstances as amount to a fraud.  

DEFECTIVE TITLE IN GENERAL•      In the acquisition or negotiation thereof  Sec. 56. What constitutes notice of defect. - To constitutes notice of an  infirmity  in  the instrument  or  defect  in  the  title  of  the  person negotiating  the  same,  the  person  to  whom  it  is  negotiated  must have had actual knowledge of the infirmity or defect, or knowledge of such facts that his action in taking the instrument amounted to bad faith.  

NOTICE OF DEFECT IN GENERALTo  constitute  a  notice  of  defect  or  infirmity,  the  holder  must  have  actual knowledge either: 1.    Of the defect or infirmity 2.    Or of facts that his action in taking the instrument amounts to bad faith  

ACTUAL KNOWLEDGE•      Actual knowledge is required and not mere suspicion, surmise or fear  

TAKING AMOUNTING TO BAD FAITH•      Bad faith consists in guilty knowledge, or willful ignorance, showing a vicious or evil mind •      While  mere  suspicion  is  not  enough,  where  there  is  knowledge  of suspicious  circumstances, 

coupled  with  means  of  verifying  them, taking the instrument may amount to bad faith  Sec.  57.  Rights  of  holder  in  due  course.  -  A  holder  in  due  course holds the instrumentfree from  any defect of  title of prior parties, and   free   from   defenses   available   to   prior   parties   among themselves, and may enforce payment of the instrument for the full amount thereof against all parties liable thereon.   

RIGHTS OF A HOLDER IN DUE COURSE1.    He may sue on the instrument in his won name 2.    He may receive payment and if the payment is in due course, the instrument is discharged 3.    He  holds  the  instrument  free  from  any  defect  of  title  of  prior parties  and  free  from  defenses  available  to  prior  parties  among themselves 4.    And  he  may  enforce  payment  of  the  instrument  for  the  full amount thereof against all parties liable thereto   

LEGAL AND EQUITABLE DEFENSES•      The holder in due course is free from equitable defenses only  

AN ALTERATION MAY BE A REAL OR PERSONAL DEFENSE.  WHY?•      An alteration irrespective of original tenor, it can be enforced—real •      Irrespective  of  difference  between  original  and  altered  tenor,  can collect only limited amount—personal  

EQUITABLE OR PERSONAL DEFENSES•      Those  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  

LEGAL OR REAL DEFENSE•      Attach  to  the  instrument  itself  and  can  be  set  up  against  the  whole world, including a holder in due course •      The right sought to be enforced has never existed or ceased to exist •      Defense against everybody  THE   INSTRUMENT   SUBJECT   TO   A   REAL   DEFENSE   CAN   STILL   BE ENFORCED.    IT  CANNOT  BE  ENFORCED  WITH  REGARD  THE  PERSON  TO WHOM THE LEGAL DEFENSE IS AVAILABLE.   

BETWEEN WHOM DEFENSE CAN BE RAISED IN NOTES•      In  general,  the  defense  of  want  of  consideration  may  only  be  raised between immediate parties •      But this could be raised in the instance that the holder has notice  of the want in consideration  

BETWEEN WHOM DEFENSE MAY BE RAISED IN BILLS•      The  want  or  failure  of  consideration  may  be  interposed  in  an  action brought  by  the  payee  against  the  drawer  or  by  the  indorsee  against the payee indorsing, or by the drawer against the acceptor, but not in an action between the payee and acceptor •      In  the  latter  case,  the  defense  is  available  only  if  there  is  no consideration  received  by  the  defendant  for  his  liability  and  plaintiff must have given no consideration for his title  

WANT OF DELIVERY OF COMPLETE INSTRUMENT•      Where the instrument is mechanically complete and is not wanting in any material particular, want of delivery is an equitable defense •      As against holders not in due course, it can be shown that no delivery was made, or that the delivery

was conditional or for a special purpose •      Where the instrument is stolen, the defense is also equitable •      But where the instrument is payable to order, it is a real defense—for the person would have to commit forgery on the instrument   

FRAUD IN INDUCEMENT IS A PERSONAL OR EQUITABLE DEFENSE•      Relates to the quantity, quality, value or character of the consideration of the instrument  

FOR MISTAKE TO INVALIDATE CONSENT•      It should refer to the substance of the thing which is the object of the contract, or those conditions which have principally moved one or both parties to enter into the contract  

FRAUD IN FACTUM OR FRAUD IN ESSE CONTRACTUS IS A LEGAL DEFENSE•      This fraud exists in those cases which a person without negligence has signed  an  instrument  which  was  in  fact  a  negotiable  instrument  but was  deceived  as  to  the  character  of  the  instrument  and  without knowledge of it •      Essential element is that the maker or indorser, as the case may be, must have exercised ordinary diligence and in no manner contributed negligently to the imposition  MINORITY IS A LEGAL DEFENSE ONLY AVAILABLE TO THE MINOR  WHERE  THE  CORPORATION  IS  ABSOLUTELY  PROHIBITED  FROM  ISSUING ANY NEGOTIABLE INSTRUMENT, THE PAPER CANNOT BE ENFORCED EVEN BY A HOLDER IN DUE COURSE  WHERE  THE  CONTRACT  OR  INSTRUMENT  ITSELF  IS  MADE  VOID  BY STATUTE, THE ILLEGALITY OF THE INSTRUMENT IS A REAL DEFENSE  Sec.  58.  When  subject  to  original  defense.  -  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 A HOLDER NOT IN DUE COURSE1.    He may sue on 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-negotiable  4.    But a holder not in due course who derives his title from a holder in  due  course  and  who  isn’t  a  party  himself  to  any  fraud  or illegality affecting the instrument, has all the rights of such former holder in respect of parties prior to the latter  THE  HOLDER  ACQUIRING  FROM  A  HOLDER  IN  DUE  COURSE  HAS  THE BURDEN  OF  PROOF  TO  SHOW  PREDECESSOR  IS  INDEED  A  HOLDER  IN DUE COURSE  Sec.  59.  Who  is  deemed  holder  in  due  course.  -  Every  holder  is deemed  prima  facie  to  be  a  holder  in  due  course;  but  when  it  is shown  that  the  title  of  any  person  who  has  negotiated  the instrument was defective, the burden is on the holder to prove that he  or  some  person  under  whom  he  claims  acquired  the  title  as holder in due course. But the last-mentioned rule does not apply in favor of a party who became bound on the instrument prior to the acquisition of such defective title.  

IN WHOSE FAVOR PRESUMPTION ARISES•      In order to be a holder, he must be in possession  of the note or the bearer thereof 

WHEN PRESUMPTION ACCRUES•      It  is  presumed  that  the  holder  acquired  the  note  under  all  the circumstances required under Section 52 •      Before the presumption arises, he must prove that he is the holder of the  instrument,  that  is,  that  he  is  the  indorsee  in  possession  of  the instrument, as it is payable to order  

WHEN BURDEN IS SHIFTED•      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  under  whom  he  claims,  acquired  the  title  as  holder  in  due course  THE PRESUMPTION IS NOT APPLICABLE WHEN  THE HOLDER’S TITLE WAS DEFECTIVE OR SUSPICIOUS 

LIABILITIES OF PARTIES IN NEGOTIABLE INSTRUMENTS  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 PRIMARILY LIABLE•      Engagement of the maker is to pay absolutely for the note according to its tenor •      His liability is primarily and unconditional •      One  who  has  signed  an  instrument  as  a  maker  is  presumed  to  have acted with care and to have  signed the instrument with full knowledge of its contents, unless of course, if fraud is proved  

MAKER MUST PAY ACCORDING TO THE TERMS OF THE NOTE•      The  maker  bound  himself  to  pay  personally.    He  cannot  shift  the obligation without the consent of the payee.  He cannot allege that he spend  the  money  on  expenses  which  should  be  charged  to  a  trust administered  by  a  creditor  because  it  is  not  the  payee’s  concern  to know how the proceeds should be spent.  That is the sole concern of the maker.  The payee’s interest is merely to see that the note is paid according to its term.  

LIABILITY OF 2 OR MORE MAKERS•      When  2  or  more  makers  sign  jointly  or  severally,  each  of  them  is individually liable for the payment of the full amount of their obligation even if one of them didn’t receive part of the value given therefor, as he would be considered as an accommodation party  

PAYEE’S EXISTENCE, ETC.•      The  maker  also  admits  of  the  existence  of  the  payee  and  his  then capacity to indrose •      He is precluded from setting up the following defenses: o      That  the  payee  is  a  fictitious  person  because  by  making  the note, he admits that the payee existso      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 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  be duly taken, he will pay the amount

thereof to the holder or to any subsequent  indorser  who  may  be  compelled  to  pay  it.  But  the drawer   may   insert   in   the   instrument   an   express   stipulation negativing or limiting his own liability to the holder.  

DRAWER SECONDARILY LIABLE•      He  engages  merely  that  the  bill  will  be  accepted  or  paid  or  both, according to its tenor, and that he will pay only when  1.    It is dishonored 2.    And the necessary proceedings of dishonor are duly taken •      The liability of the drawer is subject to the two conditions and attaches only upon their fulfillment  •      The drawer, by merely drawing the bill and signing his name in the bill as such drawer, without more, impliedly engages to be so secondarily liable, as if he has incorporated the provisions of Section 61 in the bill •      If  the  bill  is  not  paid,  accordingly,  if  a  bill  is  not  paid,  the  drawer becomes liable for the payment of its value to the holder provided that notice of dishonor is given  

TO WHOM DRAWER IS SECONDARILY LIABLE1.    The holder 2.    Or 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?•      Yes •      It  was  held  that  until  the  bill  has  been  accepted,  the  drawer  is  the principal  debtor  and  after  acceptance,  the  drawee  or  acceptor  is  the principal debtor and the drawer becomes secondarily liable  

PAYEE’S EXISTENCE•      Like the maker, the drawer admits to the existence of the payee and his capacity to indorse  

NEGATIVES HIS LIABILITY•      The law s the drawer to negative or limit his liability  by express stipulation  •      By adding words such as “without recourse” or “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•      Acceptor  engages  to  pay  absolutely  according  to  the  tenor  of  its acceptance •      His liability is not subject to any condition •      The acceptor is the drawee who accepts the bill •      His  acceptance  immediately  places  a  legal  liability  on  him  for  the payment of the bill in favor of one who became a holder thereof after acceptance, and if he wants to escape liability, it is up to him to show that he is a mere agent of the drawer, or allege and prove any other defense which he has to the liability  

EFFECT OF MORTGAGE EXECUTED BY ACCEPTOR

•      Where being unable to pay certain bills of exchange which the drawee has  accepted,  the  latter  makes  a  mortgage  in  favor  of  the  holder  of said bills upon certain merchandise the value of which is sought to be collected  through  said  bills,  in  order  to  secure  the  payment  of  said amount if the merchandise is  sold and the integrity thereof while the sale is not effected, the execution of said mortgage doesn’t constitute a Novation of the obligation represented by said accepted bills unless it is expressly stated in the mortgage  

ACCEPTOR TO PAY ACCORDING TO TENOR OF HIS ACCEPTANCE•      While the maker of a note engages to pay according to the tenor of the note,  an  acceptor  engages  to  pay  according  to  the  tenor  of  his acceptance, not of the bill he accepts •      Tenor of his acceptance may be different from the tenor of the bill, as the acceptor may accept the bill with qualifications •      If his acceptance is general, the tenor of then bill is the same tenor as the tenor of his acceptance  

WHERE ORIGINAL TENOR IS ALTERED BEFORE ACCEPTANCE•      Suppose the bill is originally for P1000.  Before the drawee X accepts it, it is altered by the payee B to P4000.  Then X accepts it.  How much is X liable to a holder in due course?   •      According  to  one  view,  X  is  liable  for  P4000  and  not  P1000.    The reason is that the tenor of X’s acceptance is for P4000.  

EFFECT OF SECTION 124•      Under the first view, what is the effect of Section 124 which provides that a holder in due course can recover only the original tenor of the instrument? •      It seems that this refers to the original tenor of instrument taken from the  standpoint  of  the  person  primarily  liable,  in  X’s  standpoint.    In other words, the original tenor of the instrument is P4000, which is the tenor of X’s acceptance.   •      If  after  his  acceptance,  a  subsequent  indorsee  alters  the  bill  to  read P9000, then X could be liable for P4000 only, the original tenor of his acceptance, even as to a holder of due course.  

ADMISSION OF DRAWER’S EXISTENCE, ETC.•      Drawer’s existence •      The genuineness of the drawer’s signature •      The capacity and authority of the drawer to draw the instrument •      He doesn’t admit the genuineness of the indorser’s signatures  

EFFECT OF ACCEPTOR’S ADMISSIONS 1.    Acceptor consequently precluded from setting up the defense that the drawer is non-existent or fictitious because of his admission of the drawer’s existence 2.    Neither can he claim 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  indorser.  -  A  person  placing  his signature upon aninstrument 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.  

WHEN PERSON DEEMED INDORSER

•      In  the  absence  of  any  indication  in  what  capacity  a  person  whose signature is written on theinstrument intends to be bound, he shall be deemed as an indorser  

INDICATION TO BE BOUND OTHERWISE THAN INDORSER•      Will not be deemed as an indorser if he indicates by appropriate words his intention to be bound in some other capacity •      But anyone who assumes the responsibility of identifying the payee of a check is answerable to thebank cashing the check if the bank pays its amount to such payee so identified  

ADMISSIBILITY OF PAROL EVIDENCE•      The  statutory  command  that  the  legal  effect  of  a  blank  instrument cannot be changed by parol proof or by evidence from other source •      The  intent  to  be  bound  in  some  other  capacity  than  as  an  indorser must be indicated in the indorsement or on the face of the instrument and cannot be shown by parol  

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 INDORSEMENT•      An  irregular  indorser  is  one  who  not  otherwise  a  party  to  an instrument, places his signature thereon his signature in blank before delivery  

IRREGULAR INDORSEMENT•      Its an indorsement in an unusual, peculiar, or singular manner •      His name appears where he would naturally expect another name  

BEFORE DELIVERY•      It means the initial delivery •      Provision doesn’t apply if the signature was placed after delivery 

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 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 instrumentor render it valueless.  

 But when the 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 orcorporation securities other than bills and notes.  

APPLICATION OF SECTION 651.    A person negotiating by mere delivery 2.    A person negotiating by qualified indorsement 

LIABILITY OF PERSON NEGOTIATING BY DELIVERY •      A  person  negotiating  by  mere  delivery  becomes  liable  to  the  holder only when the holder cannot obtain payment by reason of the fact that any  of  the  warranties  of  the  person  negotiating  by  delivery  is  or becomes false 

Sec. 66. Liability of general indorser. - Every indorser who indorses without  qualification,  warrants  to  all  subsequent  holders  in  due course: (holders in good faith)        (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  be duly  taken, he  will pay the amount thereof to the holder,  or  to  any  subsequent  indorser  who  may  be  compelled  to pay it.  APPLICATION OF SECTION 66•      Deals  with  the  liability  or  warranties  of  one  negotiating  by  general indorsement,  as  distinguished  from  qualified  indorsers  or  persons negotiating by mere delivery •      It has been held that this section includes an indorser for collection  

LIABILITY OF GENERAL INDORSER1.    That the instrument is genuine and in all respects what it purports to be  2.    That he has a good title to it 3.    That all prior parties had capacity to contract 4.    And that the instrument is, at  the time of his indorsement, valid and subsisting  

FOURTH WARRANTY OF GENERAL INDORSER AND QUALIFIED INDORSER, DISTINGUISHED•      While the qualified indorser or person negotiating by delivery warrants that he is ignorant of any fact that will render the instrument valueless or impair its validity, the general indorser warrants that theinstrument he  is  indorsing  is  valid  and  subsisting  regardless  of  whether  he  is ignorant of that fact or not  

THE WARRANTIES OF A GENERAL INDORSER EXTEND TO THE FOLLOWING1.    Holders in due course 2.    Persons who derive their title from holders in due course 3.    Immediate transferees even if they are not holders in due course  

WARRANTIES DON’T EXTEND TO DRAWEE•      The  indorser  of  a  check  doesn’t  warrant  the  genuineness  of  the drawer’s signature to the drawee who pays it since the drawee is not a holder in due course •      The warranties provided do not run in favor of the drawee in respect to the  genuineness  of  the  drawer’s  signature  but  only  in  favor  of subsequent holders in due course 

OTHER LIABILITY OF GENERAL INDORSER•      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 of dishonor be duly taken, he  will  pay  the  amount  to  the  holder,  or  to  any  subsequent  indorser who may be compelled to pay it  

GENERAL INDORSER IS SECONDARILY LIABLE•      Secondary liability not confined to the four warranties •      He is liable if for any reason, the person primarily liable cannot pay, as distinguished  from  the  limited  secondary  liability  of  the  qualified indorser or of the person negotiating by mere delivery •      The reason for dishonor need not be established.  As long as there was dishonor, this is sufficient. 

LIABILITY OF ASSIGNOR•      The  vendor  in  good  faith  shall  be  responsible  for  the  existence  and legality of the credit at the time of the sale unless it should have been sold  as  doubtful  but  not  for  the  solvency  of  the  debtor  unless  it  has been so expressly stipulated or unless the insolvency was prior to the sale and of common knowledge 

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.  CASE DIGESTS: SECTION 67  

JAI ALAI V. BPI66 SCRA 29

 

FACTS:Checks were deposited by petitioner in its current account with the bank.  These  checks  were  from  a  certain  Ramirez,  a  consistent  better  in  its games,  who  was  a  sales  agent  from  Inter-Island  Gas.    Inter-Island  later found  out  that  of  the  forgeries  committed  in  the  checks  and  thus,  it informed all the parties concerned.  Upon the demands on the bank as the collecting bank, it debited the account of petitioner.  Thereafter, petitioner tried  to  issue  a  check  for  payment  of  shares  of  stock  but  such  was dishonored for insufficient funds.  It filed a complaint against the bank.  

HELD:Considering that the petitioner indorsed the said checks when it deposited them  with  the  respondent,  the  petitioner  as  an  indorser  guaranteed  the genuineness  of  all  prior  indorsements  thereon.    The  respondent  which relied  upon  the  petitioner’s  warranty  should  not  be  held  liable  for  the resulting loss.    Furthermore, the provision in the deposit slip on the right of reservation by the  bank  applies  only  when  there  is  actual  receipt  of  current  funds  or solvent credits.  But as earlier on indicated, the transfer on account of the checks were ineffectual because it was made under the mistaken and valid assumption that the indorsements of the payee thereon were genuine.    

Sec.  68.  Order  in  which  indorsers  are  liable.  -  As  respect  one another, indorsers are liableprima facie in the order in which they indorse;  but  evidence  is  admissible  to  show  that,  as  between  or among  themselves,  they  have  agreed  otherwise.    Joint  payees  or joint  indorsees  who  indorse  are  deemed  to  indorse  jointly  and severally.   

APPLICATION OF SECTION•      Applies only with respect to an indorser as against another but not as 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  

JOINT AND SEVERAL LIABILITY OF JOINT PAYEES•      Joint payees or joint indorsees are deemed to indorse solidarily  

EFFECT OF LACK OF NOTICE OF DISHONOR, ETC.•      One of the joint indorsers cannot escape liability because proper notice of dishonor wasn’t given to his joint indorser 

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 Sixty-five of this Act, unless he discloses  the  name  of  his  principal  and  the  fact  that  he  is  acting only as agent.  

APPLICATION OF SECTION 69•      Instruments payable to bearer •      To  escape  personal  liability  as  a  party  negotiating  by  delivery,  the agent must disclose his principal and state that he is acting only as an agent 

Sec.   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 theinstrument 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.  

MEANING OF PRESENTMENT FOR PAYMENT•      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 1.    Personal demand for payment at the proper place 2.    With the bill or note in readiness to exhibit it as required and to receive payment and surrender it if the debtor is willing to pay  

PRESENTMENT  FOR  PAYMENT  NOT  NECESSARY  TO  CHARGE  PERSONS PRIMARILY LIABLE•      It cannot be validly claimed that it is presentment of the bill which is the operative  act that makes the acceptor liable under his acceptance  

PAYABLE AT A SPECIAL PLACE•      If the bill is payable at the PNB, is it necessary to make presentment for  payment  to X  in  order  to  charge  him?    No,  the  rule  is  the  same.  The only effect is that if, X is able and willing to pay the bill at the PNB at  maturity,  it  is  equivalent  to  a  tender  of  payment  on  the  part  of drawee X.  PRESENTMENT NECESSARY TO CHARGE PERSONS SECONDARILY LIABLE  

NECESSARY STEPS TO CHARGE PERSONS SECONDARILY LIABLE IN BILLS OF EXCHANGE1.    In the three steps required by law, presentment for acceptance to the drawee or negotiation within reasonable time after acquisition unless excused 2.    If the bill is dishonored by non-acceptance, notice of dishonor by non-acceptance  must  be  given  to  persons  secondarily  liable unless  excused  and  in  case  of  foreign  bills,  protest  for  dishonor by non-acceptance must be made unless excused3.    But  if  the  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 4.    If  the  bill  is  dishonored  by  non-payment,  notice  of  dishonor  by non-payment must be also be given to person secondarily liable unless excused, and in case of foreign bills, protest for dishonor by non-pay7ment must be made unless excused  

NECESSARY STEPS TO CHARGE PERSONS SECONDARILY LIABLE•      Presentment for payment must be made within the period required to the person primarily liable unless excused •      If the note is dishonored by non-payment, notice of dishonor by non-payment must be given to the person secondarily liable unless excused