negotiable.docx

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Category Archives: NegotiableInstruments LawCommercial Law – Negotiable Instruments Law

JUN 28

Posted by Mag

1. Negotiable Instruments – written contracts for the payment of money; by its

form, intended as a 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.

2. Characteristics o! Negotiable Instruments:

a. negotiability – right of transferee to hold the instrument and collect the sum due

b. accumulation of secondary contracts – instrument is negotiated from person to

person

3. "i#erence between Negotiable Instruments !rom Non$Negotiable

Instruments:

Negotiable Instruments Non-negotiable Instruments

Contains all the requisites of Sec. 1 of the

NIL

does not contain all the requisites of Sec.

1 of the NIL

Transferred by negotiation transferred by assignment

Holder in due course may have better

rights than transferor

transferee acquires rights only of his

transferor

Prior arties !arrant ayment

rior arties merely !arrant legality of

title

Transferee has right of recourse against

intermediate arties transferee has no right of recourse

4. "i#erence between Negotiable Instruments an% Negotiable "ocuments

o! &itle

Negotiable Instruments Negotiable Documents of Title

Have requisites of Sec. 1 of the NIL does not contain requisites of Sec. 1 of NIL

Have right of recourse against intermediate

arties !ho are secondarily liable no secondary liability of intermediate arties

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Holder in due course may have rights betterthan transferor

transferee merely stes into the shoes of thetransferor

Sub"ect is money sub"ect is goods

Instrument itself is roerty of value

instrument is merely evidence of title# thing

of value are the goods mentioned in the

document

. Promissory !ote – unconditional promise to pay in writing made by one person to

anther, signed by the ma"er, engaging to pay on demand or a #$ed determinable future

time a sum certain in money to order or bearer. %hen the note is drawn to ma"er&s own

order, it is not complete until indorse by him. '(ec. 1)4 !*+

Parties-

1. ma"er2. payee

. 'ill o! ()change – unconditional order in writing addressed by one person to

another, signed by the person giving it, re/uiring the person to whom it is addressed to

pay on demand or at a #$ed or determinable future time a sum certain in money to

order or to bearer. '(ec. 12 !*+

Parties-

1. drawer

2. payee3. drawee0 acceptor

. Chec* – bill of e$change drawn on a ban" and payable on demand. '(ec. 1) !*+

). "i#erence between +romissory Note an% 'ill o! ()change

Promissory Note Bill of Exchange

$nconditional romise unconditional order

Involves % arties involves & arties

'a(er rimarily liable dra!er only secondarily liable

only 1 resentment ) for aymentgenerally % resentments ) for accetanceand for ayment

. "istinctions between a Chec* an% 'ill o! ()change

CHECK BOE

) al!ays dra!n uon a ban( or ban(er ) may or may not be dra!n against a



ban(

) al!ays ayable on demand

) may be ayable on demand or at a fi*ed

or determinable future time

) not necessary that it be resented for

accetance

) necessary that it be resented for

accetance

) dra!n on a deosit ) not dra!n on a deosit

) the death of a dra!er of a chec(+ !ith(no!ledge by the ban(s+ revo(es the

authority of the ban(er ay

) the death of the dra!er of the ordinary

bill of e*change does not

) must be resented for ayment !ithin areasonable time after its issue ,-

months

) may be resented for ayment !ithin a

reasonable time after its last negotiation.

1. "istinctions between a +romissory Note an% Chec*

PN CHECK

) there are t!o ,% arties+ the ma(er and

the ayee

) there are three ,& arties+ the dra!er+

the dra!ee ban( and the ayee

) may be dra!n against any erson+ not

necessarily a ban( ) al!ays dra!n against a ban(

) may be ayable on demand or at a fi*ed

or determinable future time /al!ays ayable on demand

) a romise to ay ) an order to ay

11. ,ther -orms o! Negotiable Instruments:

a. certi#cates of deposits

b. trade acceptances

c. bonds in the nature of promissory notes

d. drafts which are bills of e$change drawn by 1 ban" to another

e. letters of credit

12. &rust .ecei/t – a security transaction intended to aid in the #nancing of importers

and retailers who do not have sucient funds to #nance their transaction and ac/uire

credit e$cept to use as collateral the merchandise imported

13. .e0uisites o! a Negotiable Note 1+N: 13U",



*t must-

a. be in writing signed by the drawer

b. contains an unconditional promise or order to pay a sum certain in money

c. be payable on %emand or at a #$ed determinable future time

d. be payable to order or to bearer '(ec. 1 !*+

14. .e0uisites o! a Negotiable 'ill 1',(: 13U",C

*t must-

1. be in writing signed by the drawer

2. contains an unconditional promise or order to pay a sum certain in money

3. be payable on %emand or at a #$ed determinable future time

4. be payable to order or to bearer

. the drawee must be named or otherwise indicated with reasonable certainty '(ec. 1

!*+Notes on 3ection 4:

– *n order to be negotiable, there must be a writing of some "ind, else there would

be nothing to be negotiated or passed from hand to hand. 5he writing may be in in",

print or pencil. *t may be upon parchment, cloth, leather or any other substitute of

paper.

– *t must be signed by the ma"er or drawer. *t may consist of mere initials or even

numbers, but the holder must prove that what is written is intended as a signature of

the person sought to be charged.

– 5he 6ill must contain an order, something more than the mere as"ing of a favor.

– (um payable must be in money only. *t cannot be made payable in goods, wares,

or merchandise or in property.

– 7 drawee&s name may be #lled in under (ection 14 of the !*+

1. "etermination o! negotiability

1. by the provisions of the !egotiable *nstrument +aw, particularly (ection 1 thereof

2. by considering the whole instrument3. by what appears on the face of the instrument and not elsewhere

8*n determining is the instrument is negotiable, only the instrument itself and no other,

must be e$amined and compared with the re/uirements stated in (ec. 1. *f it appears

on the instrument that it lac"s one of the re/uirements, it is not negotiable and the

provisions of the !*+ do not govern the instrument. 5he re/uirement lac"ing cannot be



supplied by using a separate instrument in which that re/uirement which is lac"ing

appears.

1. 3um is certain even i! it is to be /ai% with:

a. interest

b. in installments

c. in installments with acceleration clause

d. with e$change

e. costs of collection or attorney&s fees '(ec. 2 !*+

1. 9eneral :ule- 5he promise or order should not depend on a contingent event. *f it

is conditional, it is nonnegotiable.

<$ceptions-

a. indication of particular fund from which the acceptor disburses himself after

payment

b. statement of the transaction which gives rise to the instrument. '(ec. 3 !*+

6ut an order or promise to pay out of a particular fund is not unconditional

Notes on 3ection 5

– 5he particular fund indicated should not be the direct source of payment, else it

becomes unconditional and therefore nonnegotiable. 5he fund should only be the

source of reimbursement.

– 7 statement of the transaction does not destroy the negotiability of the

instrument. <$ception- %here the promise to pay or order is made sub=ect to the terms

and conditions of the transaction stated.

1). Instrument is /ayable u/on a %eterminable !uture time i!:

a. there is a #$ed period after sight0date

b. on or before a speci#ed date0#$ed determinable future time

c. on or at a #$ed date after the occurrence of an event certain to happen though

the e$act date is not certain '(ec. 4 !*+



Notes on 3ection 6

– *f the instrument is payable upon a contingency, the happening of the event

does not cure the defect 'still nonnegotiable

1. 7eneral .ule: I! some other act is re0uire% other than the /ayment o!money it is non$negotiable9

<$ceptions-

a. sale of collateral securities

b. confession of =udgment

c. waives bene#t of law

d. gives option to the holder to re/uire something to be done in lieu of money '(ec.

!*+

Notes o! 3ection

– +imitation on the provision, it cannot re/uire something illegal.

– 5here are two "inds of =udgements by confession- a cognovit actionem b relicta

veri#catione

– >onfessions of =udgement in the Philippines are void as against public policy.

– *f the choice lies with the debtor, the instrument is rendered nonnegotiable.

2. &he vali%ity an% negotiability o! an instrument is not a#ecte% by the !act

that:

1. it is not dated

2. does not specify the value given or that any had been given

3. does not specify the place where it is drawn or payable

4. bears a seal

. designates the "ind of current money in which payment is to be made '(ec. !*+

21. Instrument is /ayable u/on %eman% i!:

a. it is e$pressed to be so payable on sight or upon presentation

b. no period of payment is stipulated

c. issued, accepted, or endorsed after maturity '(ec. !*+



%here an instrument is issued, accepted or indorsed when overdue, it is, as regards to

the person so issuing, accepting, or indorsing it, payable on demand.

Notes on 3ection ;

– if the time for payment is left blan" 'as opposed to being omitted, it may properly beconsidered as an incomplete instrument and fall under the provisions of (ec. 14, 1, or

1 depending on how the instrument is delivered.

22. Instrument is /ayable to or%er:

– where it is drawn payable to the order of a speci#ed person or

– to a speci#ed person or his order

*t may be drawn payable to the order of-

1. a payee who is not a ma"er, drawer, or drawee

2. the drawer or ma"er

3. the drawee

4. two or more payees =ointly

. one or some of several payees

. the holder of an oce for the time being '(ec. ) !*+

Notes on 3ection 8

– 5he payee must be named or otherwise indicated therein with reasonable

certainty.

– *f there is no payee, there would be no one to indorse the instrument payable to

order. 5herefore useless to be considered negotiable.

– ?oint payees in indicated by the con=unction @andA. 5o negotiate, all must

indorse.

– 6eing several payees is indicated by the con=unction @orA.

23. Instrument is /ayable to bearer :

a. when it is e$pressed to be so payable

b. when payable to the person named or bearer

c. payable to order of #ctitious or none$istent person and this fact was "nown to

drawer



d. name of payee not name of any person

e. only and last indorsement is an indorsement in blan" '(ec. !*+

Notes on 3ection <

– @#ctitious personA is not limited to persons having no legal e$istence. 7n e$isting

person may be considered #ctitious depending on the intention of the ma"er or the

drawer.

– @#ctitious personA means a person who has no right to the instrument because

the ma"er or drawer of it so intended. Be was not intended to be the payee.

– where the instrument is drawn, made or prepared by an agent, the "nowledge or

intent of the signer of the instrument is controlling.

– %here the agent has no authority to e$ecute the instrument, the intent of the

principal is controlling

24. &he %ate may be inserte% in an instrument when:

1. an instrument e$pressed to be payable at a #$ed period after date is issued undated

2. where acceptance of an instrument payable at a #$ed period after sight is undated

'(ec. 13 !*+

<Cects-

– any holder may insert the true date of issuance or acceptance

– the insertion of a wrong date does not avoid the instrument in the hands of a

subse/uent holder in due course

– as to the holder in due course, the date inserted 'even if it be the wrong date is

regarded as the true date.

2. 3ubse0uent =ol%er in "ue Course not a#ecte% by the !ollowing

%e>ciencies:

a. incomplete but delivered instrument '(ec. 14 !*+

b. complete but undelivered '(ec. 1 !*+

c. complete and delivered issued without consideration or a consideration consisting

of a promise which was not ful#lled '(ec 2) !*+

2?9 =ol%er in "ue Course A#ecte% by Abnormality@"e>ciency:



a. incomplete and undelivered instrument '(ec. 1 !*+

b. ma"er0drawer&s signature forged '(ec. 23 !*+

2;9 Incom/lete but "elivere% Instrument:

1. %here an instrument is wanting in any material particular-

a. Bolder has prima facie authority to #ll up the blan"s therein.

b. *t must be #lled up strictly in accordance with the authority given and within a

reasonable time.

c. *f negotiated to a holder in due course, it is valid and eCectual for all purpose as

though it was #lled up strictly in accordance with the authority given and within

reasonable time. '(ec. 14 !*+

2. %here only a signature on a blan" paper was delivered-

1. *t was delivered by the person ma"ing it in order that it may be converted into a

negotiable instrument

2. 5he holder has prima facie authority to #ll it up as such for any amount. '(ec. 14 !*+

Notes on 3ection 46

– if the instrument is wanting in material particular, mere possession of the

instrument is enough to presume prima facie authority to #ll it up.

– material particular may be an omission which will render the instrument non

negotiable 'e.g. name of payee, an omission which will not render the instrument non

negotiable 'e.g. date

– in the case of the signature in blan", delivery with intent to convert it into a

negotiable instrument is re/uired. Dere possession is not enough.

2). Incom/lete an% Un%elivere% Instrument:

9eneral :ule- %here an incomplete instrument has not been delivered, it will not, if

completed and negotiated without authority, be a valid contract in the hands of anyholder against any person who signed before delivery. '(ec. 1 !*+

Notes on 3ection 4

– it is a real defense. *t can be interposed against a holder in due course.

– delivery is not conclusively presumed where the instrument is incomplete



– defense of the ma"er is to prove nondelivery of the incomplete instrument.

2. Com/lete but Un%elivere%:

9eneral :ule- <very contract on a negotiable instrument is incomplete and revocable

until delivery for the purpose of giving eCect thereto.

a. *f between immediate parties and remote parties not holder in due course, to be

eCectual there must be authoriEed delivery by the party ma"ing, drawing, accepting or

indorsing. Felivery may be shown to be conditional or for a special purpose only

b. *f the holder is a holder in due course, all prior deliveries conclusively presumed

valid

c. *f instrument not in hands of drawer0ma"er, valid and intentional delivery is

presumed until the contrary is proven '(ec. 1 !*+

.ules on %elivery o! negotiable instruments:

1 delivery is essential to the validity of any negotiable instrument

2 as between immediate parties or those is li"e cases, delivery must be with intention

of passing title

3 an instrument signed but not completed by the drawer or ma"er and retained by

him is invalid as to him for want of delivery even in the hands of a holder in due course

4 but there is prima facie presumption of delivery of an instrument signed but not

completed by the drawer or ma"er and retained by him if it is in the hands of a holder in

due course. 5his may be rebutted by proof of nondelivery.

an instrument entrusted to another who wrongfully completes it and negotiates it

to a holder in due course, delivery to the agent or custodian is sucient delivery to bind

the ma"er or drawer.

*f an instrument is completed and is found in the possession of another, there is

prima facie evidence of delivery and if it be a holder in due course, there is conclusive

presumption of delivery.

delivery may be conditional or for a special purpose but such do not aCect the

rights of a holder in due course.

59 7eneral rule: a /erson whose signature %oes not a//ear on the

instrument in not liable9



<$ception-

1. one who signs in a trade or assumed name '(ec. 1)

2. a duly authoriEed agent '(ec. 1

3. a forger '(ec. 23

31. 9eneral rule- an agent is not liable on the instrument if he were duly authoriEed to

sign for or on behalf of a principal.

:e/uisites-

1. he must be duly authoriEed

2. he must add words to his signature indicating that he signs as an agent

3. he must disclose his principal '(ec. 2 !*+

Notes on 3ection 2

– if an agent does not disclose his principal, the agent is personally liable on the

instrument.

529 +er +rocuration – o/erates as notice that the agent has a limite%

authority to sign9

<Cects-

– the principal in only bound if the agent acted within the limits of the authority

given

– the person who ta"es the instrument is bound to in/uire into the e$tent and

nature of the authority given. '(ec. 21 !*+

33. 9eneral rule- *nfants and corporations incur no liability by their indorsement or

assignment of an instrument. '(ec. 22 !*+

<Cects-

– no liability attached to the infant or the corporation

– the instrument is still valid and the indorsee ac/uires title



34. 9eneral rule- a signature which is forged or made without authority is wholly

inoperative.

<Cects-

1. no right to retain2. no right to give a discharge

3. no right to enforce payment can be ac/uired. '(ec. 23 !*+

<$ception-

– the party against whom it is sought to be enforced is precluded from setting up

the forgery or want of authority.

Notes on 3ection 25

– (ection 23 applies only to forged signatures or signatures made without

authority

– 7lterations such as to amounts or li"e fall under section 124

– Gorms of forgery are a fraud in factum b duress amounting to fraud c

fraudulent impersonation

– Hnly the signature forged or made without authority is inoperative, the

instrument or other signatures which are genuine are aCected

– 5he instrument can be enforced by holders to whose title the forged signature is

not necessary

– Persons who are precluded from setting up the forgery are a those who warrant

or admit the genuineness of the signature b those who are estopped.

– Persons who are precluded by warranting are a indorsers b persons negotiating

by delivery c acceptors.

– drawee ban" is conclusively presumed to "now the signature of its drawer

– if endorser&s signature is forged, loss will be borne by the forger and parties

subse/uent thereto

– drawee ban" is not conclusively presumed to "now the signature of the indorser.

5he responsibility falls on the ban" which last guaranteed the indorsement and not the

drawee ban".



– %here the payee&s signature is forged, payments made by the drawee ban" to

collecting ban" is ineCective. !o debtor0creditor relationship is created. 7n agency to

collect is created between the person depositing and the collecting ban". Frawee ban"

may recover from collecting ban" who may in turn recover from the person depositing.

.ules on liabilities o! /arties on a !orge% instrument

In a +N

– a party whose indorsement is forged on a note payable to order and all parties

prior to him including the ma"er cannot be held liable by any holder

– a party whose indorsement is forged on a note originally payable to bearer and

all parties prior to him including the ma"er may be held liable by a holder in due course

provided that it was mechanically complete before the forgery

– a ma"er whose signature was forged cannot be held liable by any holder

In a ',(

– the drawer&s account cannot be charged by the drawee where the drawee paid

– the drawer has no right to recover from the collecting ban"

– the drawee ban" can recover from the collecting ban"

– the payee can recover from the drawer

– the payee can recover from the recipient of the payment, such as the collecting

ban"

– the payee cannot collect from the drawee ban"

– the collecting ban" bears the loss but can recover from the person to whom it

paid

– if payable to bearer, the rules are the same as in P!.

– if the drawee has accepted the bill, the drawee bears the loss and his remedy is

to go after the forger



– if the drawee has not accepted the bill but has paid it, the drawee cannot

recover from the drawer or the recipient of the proceeds, absence any act of negligence

on their part.

3. <very negotiable instrument is deemed prima facie to have been issued for a

valuable consideration. '(ec. 24 !*+

<Cects-

– every person whose signature appears thereon is a party for value

– presumption is disputable

3. %here 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. '(ec. 2

!*+

3. <Cect of want of consideration-

1. 7bsence or failure of consideration may be set up against a holder not a holder in due

course 'personal defense

2. Partial failure of consideration is a defense pro tanto '(ec 2) !*+

Notes on 3ection 28

– absence of consideration is where no consideration was intended to pass.

– failure of consideration implies that consideration was intended by that it failed

to pass

– the defense of want of consideration is ineCective against a holder in due course

– a drawee who accepts the bill cannot allege want of consideration against the

drawer



3). 7n accommodation party is one who signs the instrument as ma"er, drawer,

acceptor, or indorser without receiving value therefor and for the purpose of lending his

name to some other person.

<Cects-

– an accommodation party is liable to the holder for value notwithstanding that

such holder "new that of the accommodation. '(ec. 2) !*+

Notes on 3ection 28

– the accommodated party cannot recover from the accommodation party

– want of consideration cannot be interposed by the accommodation party

– an accommodation ma"er may see" reimbursement from a coma"er even in the

absence of any provision in the !*+; the de#ciency is supplied by the !ew >ivil >ode.

– he may do this even without #rst proceeding against the debtor provided-

a. he paid by virtue of =udicial demand

b. principal debtor is insolvent

3. 7n instrument is negotiated when-

1. it is transferred from one person to another

2. that the transfer must be in a manner as to constitute the transferee a holder

Gor a bearer instrument – by delivery

Gor payable to order – by indorsement and delivery '(ec. 3 !*+

4. *ndorsement to be must be-

1. written

2. on the instrument itself or upon a piece of paper attached '(ec. 31 !*+



Notes on 3ection 54

– the paper attached with the indorsement is an allonge

– an allonge must be attached so that it becomes a part of the instrument, it

cannot be simply pinned or clipped to it.

649 Bin%s o! In%orsements:

1. (pecial '(ec. 34

2. 6lan" '(ec. 3

3. :estrictive '(ec. 3

4. Iuali#ed '(ec. 3)

. >onditional '(ec. 3 !*+

629 (#ects o! in%orsing an instrument originally /ayable to bearer:

– it may further be negotiated by delivery

– the person indorsing is liable as indorser to such persons as to ma"e title

through his indorsement '(ec. 4 !*+

Notes on 3ection 6

– (ection 4 applies only to instruments originally payable to bearer

– *t cannot apply where the instrument is payable to bearer because the only or

last indorsement is in blan".

43. 7 holder may stri"e out any indorsement which is not necessary to his title.

<Cects-

– 7n indorser whose indorsement is struc" out is discharged

– 7ll indorsers subse/uent to such indorser who has been discharged are li"ewise

relieved. '(ec. 4) !*+

669 (#ects o! a trans!er without en%orsement:

– the transferee ac/uires such title as the transferor had

– the transferee ac/uires the right to have the indorsement of the transferor

– negotiation ta"es eCect as of the time the indorsement is actually made '(ec. 4

!*+



69 .ights o! a hol%er:

– a holder may sue in his own name

– a holder may receive payment.

<Cects-

– if in due course it discharges the instrument '(ec. 1 !*+

6?9 .e0uisites !or a =ol%er in "ue Course 1="C:

a. receives the instrument complete and regular on its face

b. became a holder before it was overdue and had no notice that it had been

previously dishonored if such was the fact

c. ta"es the instrument for value and in good faith

d. at time he too" the instrument, no notice of in#rmity in instrument or defect in

the title of the person negotiating it '(ec. 2 !*+

Notes on 3ection 2

– every holder is presumed to be a BF> '(ec.

– the person who /uestions such has the burden of proof to prove otherwise

– if one of the re/uisites are lac"ing, the holder is not BF>

– an instrument is considered complete and regular on its face if a the omission is

immaterial b the alteration on the instrument was not apparent on its face

– an instrument is overdue after the date of maturity.

– on the date of maturity, the instrument is not overdue and the holder is a BF>

– ac/uisition of the transferee or indorsee must be in good faith

– good faith means lac" of "nowledge or notice of defect or in#rmity

4. 7 holder is not a BF> where an instrument payable on demand is negotiated at an

unreasonable length of time after its issue '(ec. 3 !*+



689 .ights o! a ="C:

– holds the instrument free from any defect of title of prior parties

– free from defenses available to prior parties among themselves 'personal0

e/uitable defenses

– may enforce payment of the instrument for the full amount against all parties

liable'(ec. !*+

Notes on 3ection ;

– Personal or e/uitable defenses are those which grow out of the agreement or

conduct of a particular person in regard to the instrument which renders it ine/uitable

for him through legal title to enforce it. >an be set up against holders not BF>

– +egal or real defenses are those which attach to the instrument itself and can be

set up against the whole world, including a BF>.

Personal 0efenses eal 0efenses

1. absence or failure of consideration 2lteration

%. !ant of delivery of comleteinstrument

3ant of delivery of incomleteinstrument

&. insertion of !rong date !here ayable

at a fi*ed eriod after date and issuedundated# or at a fi*ed eriod after sight

and accetance is undated 0uress amounting to forgery

4. filling u the blan(s contrary to

authority given or not !ithin reasonable

time 5raud in factum or in esse contractus

6. fraud in inducement 'inority

-. acquisition of the instrument by force+duress or fear 'arriage in case of a !ife

7. acquisition of the instrument byunla!ful means

Insanity !here the insane erson has aguardian aointed by the court

8. acquisition of the instrument for anillegal consideration

$ltra vires acts of a cororation !here its

charter or by statue+ it is rohibited fromissuing commercial aer

9. negotiation in breach of faith 3ant of authority of agent



1:. negotiation under circumstancesamounting to fraud

;*ecution of instrument bet!een ublicenemies

1. 'ista(e Illegality of contract made by statue

1%. into*ication 5orgery

1&. ultra vires acts of cororations

14. !ant of authority of the agent !herehe has aarent authority

16. illegality of contract !here form orconsideration is illegal

1-. insanity !here there is no notice of

insanity

4. 7 instrument not in the hands of a BF> is sub=ect to the same defenses as if it

were nonnegotiable.

<$ception-

– a holder who derives his title through a BF> and is not a party to any fraud or

illegality aCecting the instrument, has all the rights of such BF> in respect to all parties

prior. '(ec. ) !*+

.ights o! a hol%er not a ="C

– may sue in his own name

– may receive payment and if it is in due course, the instrument is discharged

– holds the instrument sub=ect to the same defenses as if it were nonnegotiable

– if he derives his title through a BF> and is not a party to any fraud or illegalitythereto, has all the rights of such BF>

. 9eneral rule- every holder is deemed prima facie to be a holder in due course.

<$ception-



– where it is shown that the title of any person who has negotiated the instrument

is defective, the burden is on the holder to prove that he is a BF> or that a person

under whom he claims is a BF> '(ec. !*+

1. 7 ma"er is primarily liable-

<Cects of ma"ing the instrument, the ma"er-

a. engages to pay according to tenor of instrument

b. admits e$istence of payee and his capacity to indorse '(ec. !*+

Notes on 3ection ?

– a ma"er&s liability is primarily and unconditional

– one who has signed as such is presumed to have acted with care and to have

signed with full "nowledge of its contents, unless fraud is proved

– the payee&s interest is only to see to it that the note is paid according to its

terms

– when two or more ma"ers sign =ointly, each is individually liable for the full

amount even if one did not receive the value given

– the ma"er is precluded from setting up the defense of a the payee is #ctional, b

that the payee was insane, a minor or a corporation acting ultra vires

2. 7 drawer is secondarily liable

<Cects of drawing the instrument, the drawer-

1. admits the e$istence of the payee,

2. the capacity of such payee to indorse3. engages that on due presentment, the instrument will be accepted or paid or both

according to its tenor.

*f the instrument is dishonored, and the necessary proceedings on dishonor duly ta"en

1. the drawer will pay the amount thereof to the holder

2. will pay to any subse/uent indorser who may be compelled to pay it. '(ec. 1 !*+



Notes on 3ection ?4

– a drawer may insert an e$press stipulation to negative or limit his liability

3. 7n acceptor is primarily liable

6y accepting the instrument, an acceptor-

– engages that he will pay according to the tenor of his acceptance

– admits the e$istence of the drawer, the genuineness of his signature and his

capacity and authority to draw the instrument

– the e$istence of the payee and his then capacity indorse

69 Irregular In%orser – a person not otherwise a party to an instrument places his

signature in blan" before delivery is liable as an indorser in the following manner-1. if payable to order of a third person – liable to the payee and to all subse/uent

parties

2. if payable to order of the ma"er or drawer – liable to all parties subse/uent to the

ma"er or drawer

3. if payable to bearer – liable to all parties subse/uent to the ma"er or drawer

4. if signs for an accommodation party – liable to all parties subse/uent to the payee

'(ec. 4 !*+

9 arranties where negotiating by %elivery or 0uali>e% en%orsement:

1. the instrument is genuine and in all respect what it purports to be

2. the indorser has good title to it3. all prior parties had the capacity to contract

4. indorser has no "nowledge of any fact that would impair the validity or the value of

the instrument.

Limitations o! warranties:

if by delivery – e$tends only to immediate transferee

warranty of capacity to contract does not apply to persons negotiating public or

corporate securities '(ec. !*+

Notes on 3ection ?

– a /uali#ed indorser is one who indorses without recourse or sans recourse

– recourse – resort to a person secondarily liable after default of person primarily

liable



– a /uali#ed indorser cannot raise the defense of a forgery b defect of his title or

that it is void c the incapacity of the ma"er, drawer or previous indorsers.

– a /uali#ed *ndorsement ma"es the indorser mere assignor of title of instrument,

relieves him of general obligation to pay if instrument is dishonored, but he is still liable

for the warranties arising from instrument only up to warranties of general indorser

– the warranty is to the capacity of prior parties at the time the instrument was

negotiated. (ubse/uent incapacity does not breach the warranty.

– lac" of "nowledge of the indorser as to any fact that would impair the validity or

the value of the instrument must be subsisting all throughout.

– a person !egotiating by Felivery warrants same as those of /uali#ed indorser

and e$tends to immediate transferees only

?9 arranties o! a general in%orser:

1. the instrument is genuine and in all respect what it purports to be

2. the he has good title to it

3. all prior parties had the capacity to contract

4. that the instrument at the time of his indorsement was valid and subsisting '(ec.

!*+

*n addition-

– engages that the instrument will be accepted or paid or both according to its

tenor on due presentment

– engages to pay the amount thereof if it be dishonored and the necessary

proceedings on dishonor are ta"en

Notes on 3ection ??

– the indorser under (ection warrants the solvency of a prior party

– the indorser warrants that the instrument is valid and subsisting regardless of

whether he is ignorant of that fact or not.

– warranties e$tend in favor of a a BF> b persons who derive their title from BF>

c immediate transferees even if not BF>

– the indorser does not warrant the genuineness of the drawer&s signature

– general indorser is only secondarily liable



. 9eneral rule- Presentment for payment is not necessary to charge persons

primarily liable on the instrument. Presentment for payment is necessary to charge the

drawer and indorsers. '(ec !*+

Notes on 3ection ;

– presentation for payment – production of a 6H< to the drawee for his

acceptance, or to a drawee or acceptor for payment. 7lso presentment of a P! to the

party liable for payment of the same.

– consists of a a personal demand for payment at a proper place b the bill or

note must be ready to be e$hibited if re/uired and surrendered upon payment.

– parties primarily liable – persons by the terms of the instrument are absolutely

re/uired to pay the same. <.g ma"er and acceptors. 5hey can be sued directly.

– if payable at the special place, and the person liable is willing to pay there at

maturity, such willingness and ability is e/uivalent to tender of payment.

– presentment is necessary to charge persons secondarily liable otherwise they

are discharged

– 7cts needed to charge persons secondarily liable- a presentment for

payment0acceptance b dishonor by nonpayment0nonacceptance c notice of dishonor

to secondary parties

– 7cts needed to charge persons secondarily liable in other cases- a Protest for

nonpayment by the drawee b protest for nonpayment by the acceptor for honor

89 +ro/er /resentment:

1. by the holder or an authoriEed person

2. at a reasonable hour on a business day

3. at a proper place

4. to the person primarily liable or if absent to any person found at the place where

presentment is made 'sec. 2 !*+

Notes on 3ection ;2

– only the holder or one authoriEed by him has the right to ma"e presentment for

payment

– presentment cannot be made on a (unday or holiday

– presentment for payment is made to the ma"er, or acceptor. !ot to the person

secondarily liable.



– if the instrument is payable on demand – a if it is a note – presentment must be

made within reasonable time after issue b if it is a bill – presentment must be made

within reasonable time after last negotiation.

<9 +resentment not re0uire% to charge the %rawer:

1. he has no right to e$pect

2. he has no right to re/uire

that the drawee or acceptor will pay '(ec !*+

?9 +resentment not re0uire% to charge the in%orser where:

1. the instrument was made or accepted for his accommodation

2. he has no reason to e$pect that the instrument will be paid if presented '(ec. ) !*+

1. 9eneral rule- Presentment for payment necessary to charge persons secondarily

liable otherwise they are discharged-

<$ception-

– (ection and )

Notes on 3ection ;< an% 8

– only the drawer or indorser are not discharged. 7ll other parties secondarily

liable are discharged.

?29 +resentment !or /ayment e)cuse% i!:

a. after due diligence, presentment cannot be made

b. presentment is waived

c. the drawee is a #ctitious person '(ec )2 !*+

Notes on 3ection 82

– what is e$cused is the failure to ma"e presentment. 5here is no need to ma"e

any presentment versus under section )1 'delay in presentment presentment for

payment is still re/uired after the cause of delay has ceased.

3. (ummary of rules as to presentment for payment-



1. presentment not necessary to charge persons primarily liable

2. necessary to charge persons secondarily liable e$cept-

– the drawer under (ec.

– the indorser under (ec. )

– when e$cused under (ec. )2

– when the instrument has been dishonored by nonacceptance under (ec. )3

4. Bow dishonored by nonacceptance-

– the instrument was duly presented but payment is refused or cannot be

obtained

– presentment is e$cused and the instrument is overdue and unpaid '(ec. )3 !*+

. <Cects of dishonor by nonpayment-

– an immediate right of recourse to all parties secondarily liable accrues to the

holder. '(ec. )4 !*+

Notes on 3ection 86

– parties cease to be secondarily liable and become principal debtors.

– +iability becomes the same as that of the original obligors.

??9 .e0uisites !or /ayment in %ue course:

1. made at or after the maturity of the instrument

2. to the holder

3. in good faith

4. without notice of any defect in the holder&s title 'sec. )) !*+

Notes on 3ection 88

– payment must be made to the possessor of the instrument

– possession of the note by the ma"er is presumptive evidence that it has been

paid



?;9 Notice o! "ishonor may be given:

1. by or on behalf or the holder

2. by or on behalf of any party who-

– is a party to the instrument and might be compelled to pay the instrument

– to a holder who having ta"en it up would have a right of reimbursement from the

party to whom notice is given. '(ec. !*+

?89 Notice:

1. may be written or oral '(ec.

2. written notice need not be signed or may be supplemented by verbal communication

'(ec.

3. may be by personal delivery or by mail '(ec.

?<9 Notice may be waive% either e)/ressly or im/lie%:

1. before the time of giving notice has arrived

2. after the omission to give due notice '(ec. 1 !*+

;9 +rotest may be waive%:

<Cects-

– deemed a waiver of presentment and notice of dishonor as well '(ec. 111 !*+

Notes on 3ection 444

– %here notice is waived, presentment is not waived

– %here presentment is waived, notice is also waived

– %here protest is waived, notice and presentment is waived

1. Notice o! "ishonor – given by the holder to the parties secondarily liable, drawer

and each indorser, that the instrument was dishonored by nonacceptance or non

payment by the drawee0ma"er

9eneral rule- 7ny drawer or indorser to whom such notice is not given is discharged.

<$ceptions-

1. %aiver '(ec. 1

2. !otice is dispensed '(ec. 112

3. !ot necessary to Frawer '(ec. 114

4. !ot necessary to *ndorser '(ec. 11

– if notice is delayed, delay may be e$cused '(ec. 113



;29 Instances when Notice o! "ishonor Not Necessary to "rawer

a. drawer and drawee same person

b. drawee is a #ctitious0incapacitated person

c. drawer is the person to whom presentment for payment is made

d. drawer has no right to e$pect that the drawee will accept0pay the instrument

'(ec. 114 !*+

;59 Instances when Notice Not .e0uire% to In%orser

a. drawee was a #ctitious0incapacitated person and the indorser was aware of such

at the time of indorsement

b. indorser is the person to whom instrument was presented for payment

c. instrument made0accepted for his accommodation '(ec. 11 !*+

4. Hmission to give notice of dishonor by nonacceptance doe not pre=udice a BF>

'(ec. 11 !*+

. Protest only necessary for a foreign bill of e$change. Protest for other negotiable

instruments is optional. '(ec. 11) !*+

;?9 Causes o! "ischarge o! the Instrument

a. payment by the debtor

b. payment by accommodated party

c. intentional cancellation by holder of instrument

d. any other act discharging a simple monetary obligation

e. debtor becomes holder of the instrument at0after maturity in his own right ' (ec

11 !*+

Notes on 3ection 44<

– discharge of the instrument discharges all the parties thereto

– payment must be in due course, and by the principal debtor or on his behalf



– if payment is not made by the principal debtor, payment only cancels the

liability of the payor and those obligated after him but does not discharge the

instrument.

– payment by an accommodation party does not discharge the instrument.

;;9 "ischarge o! 3econ%ary +arties:

a. any act discharging the instrument

b. cancellation of indorser&s signature by indorsers

c. discharge of prior party

d. tender of payment by prior party

e. release of principal debtor

f. e$tension of payment by the holder0postponement of right to enforce without

assent of secondary parties and without reservation of right of recourse against

secondary parties '(ec 12 !*+

;89 .ights o! a /arty secon%arily liable who /ays:

– the instrument is not discharge

– the party is remitted to his former rights as to all prior parties

– the party may stri"e out his own and all subse/uent indorsements

– the party may negotiate the instrument again

<$ception-

– an instrument cannot be renegotiated where it is payable to order of a 3rd person

and has been paid by the drawer

– and instrument cannot be renegotiated where is was made or accepted for

accommodation and it has been paid by the party accommodated.

;89 .enunciation by a hol%er %ischarges an instrument when:

1. it is absolute and unconditional

2. made in favor of a person primarily liable

3. made at or after maturity of the instrument



4. in writing or the instrument is delivered up to the person primarily liable '(ec. 122

!*+


– if renounced in favor of a party secondarily liable, only he is e$onerated from

liability and all parties subse/uent to him

– discharge by novation is allowed

. 9eneral rule- %hen materially altered, without the consent of all parties liable, the

instrument is avoided e$cept as against-

1. the party who has made the alteration

2. the party who authoriEed or assented to the alteration.

3. subse/uent indorsers

<$ception-

– if in the hands of a BF>, may be enforced according to its original tenor


– there is no distinction between fraudulent and innocent alteration

89 Material Alteration – an alternation is sai% to be material i! it alters the

e#ect o! the instrument9

Jnder (ection 12 the following changes are considered material alterations-

1. dates

2. the sum payable

3. time and place of payment

4. number or relations of the parties

. medium or currency for payment

. adding a place of payment where no place is speci#ed

. any other which alters the aCect of the instrument

849 Instances where a ',( may be treate% as a +N:

1. where the drawer and the drawee are one and the same2. where the drawee is a #ctitious person

3. where the drawee has no capacity to contract '(ec. 13 !*+

5he holder has the option to treat it as a 6H< or a P!



)2. 7cceptance is the signi#cation by the drawee of his assent to the order of the

drawer. *t is an act by which a person on whom the 6H< is drawn assents to the re/uest

of the drawer to pay it. '(ec. 132 !*+

Acce/tance may be:

1. actual

2. constructive

3. general '(ec. 14

4. /uali#ed '(ec. 141

.e0uisites o! actual acce/tance:

– in writing

– signed by the drawee

– must not e$press the drawee will perform his promise by any other means than

payment of money

– communicated or delivered to the holder

. A hol%er has the right:

1. re/uire that acceptance be written on the bill and if refused, treat it as if dishonored

'(ec. 133

2. refuse to accept a /uali#ed acceptance and may treat it as dishonored '(ec. 142

). Constructive Acce/tance:

1. where the drawee to whom the bill has been delivered destroys it

2. the drawee refuses within 24 hrs after such delivery or within such time as is given,to return the bill accepted or not. '(ec. 13 !*+

Notes on 3ection 45;

– drawee becomes primarily liable as an acceptor.

– mere retention is e/uivalent to acceptance

. hen /resentment !or acce/tance is necessary:

1. if necessary to #$ the maturity of the bill

2. if it is e$pressly stipulated that it shall be presented for acceptance

3. if the bill is drawn payable elsewhere than the residence or place of business of the

drawee '(ec. 143 !*+


– Presentment is the production of a 6H< to the drawee for his acceptance

– in on order case is presentment necessary to ma"e parties liable.



<9 3ummary on /resentment !or acce/tance o! 'ills o! ()change:

a. to ma"e the drawee primarily liable and for the accrual of secondary liability '(ec.

144

b. necessary to #$ maturity date, where bill e$pressly stipulates presentment, billpayable other than place of drawee '(ec. 143

c. when presentment is e$cused- drawee is dead, hides, is #ctitious, incapacitated

person, after due diligence presentment cannot be made, presentment is refused on

another ground although presentment is irregular '(ec. 14)

1. 9eneral rule- Protest is re/uired only for foreign bills

<$ception-

– inland bills and notes may also be protested if desired

+rotest is re0uire%:

1. where the foreign bill is dishonored by non acceptance

2. where the foreign bill is dishonored by nonpayment

3. where the bill has been accepted for honor, it must be protested for nonpayment

before it is presented for payment to the acceptor for honor

4. where the bill contains a referee in case of need, it must be protested for non

payment before presentment for payment to the referee in case of need '(ec. 12

Notes on 3ection 42

– Protest – formal statement in writing made by a notary under his seal of oce at

the re/uest of the holder, in which it is declare that the some was presented for

payment or acceptance 'as the case may be and such was refused.

– it means all steps or acts accompanying the dishonor of a bill or note necessary

to charge an indorser

– re/uired when the instrument is a foreign bill of e$change.

– it must be made on the same date of dishonor, by a notary0respectable citiEen of

the place in the presence of 2 credible witnesses so recourse to secondary parties

1. Acce/tance !or =onor '(ec. 11 !*+– an acceptance of a bill made by a stranger

to it before maturirty, where the drawee of the bill has-

1. refused to accept it

2. and the bill has been protested for nonacceptance

3. or where the bill has been protested for better security



.e0uisites !or acce/tance !or honor:

– the bill must have been previously protested a for nonacceptance b or for

better security

– the bill is not overdue at the time of the acceptance for honor

– the acceptor for honor must be a stranger to the bill

– the holder must give his consent

Notes on Acce/tance !or =onor

– Purpose- to save the credit of the parties to the instrument or some party to it as

the drawer, drawee, or indorser or somebody else.

– 7cceptor for honor is liable to the holder and to all the parties to the bill

subse/uent to the party for whose honor he has accepted '(ec. 14

2. =ow acce/tance !or honor is ma%e:

1. in writing and indicated that it is an acceptance for honor

2. signed by the person ma"ing the acceptance '(ec. 12 !*+

3. +ayment !or =onor – payment made through a notarial act of honor of a party

liable0stranger to the bill after bill has been dishonored by nonpayment by the

acceptor and protested for nonpayment by the holder

:e/uisites-

a. protest for nonpayment

b. any person may pay supra protest

-orm !or /ayment o! honor:

1. payment must be attested by notarial act appended to the protest, or form an

e$tension to it.

2. notarial act of honor must be based on a declaration by the payer for honor

4. 'ills in 3et – bill of e$change drawn in several parts, each part of the set being

numbered and containing a reference to the other parts, the whole of the parts =ust

constituting one bill '(ec 1) !*+



3ource:

Commercial Law Memory Ai%

Negotiable Instruments Law

Ateneo Central 'ar ,/erations 24

Posted in >ommercial +aw, !egotiable *nstruments +aw

3 >omments

Tags: commecial law, commlaw, negotiable instruments law

Negotiable Instruments Law – "ischarge

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Posted by Mag

NEGOTIABLE INSTR!ENTS LA" Memory Aid

6ased on the Hutline of the 14 <dition of >ampos K>ampos

"I3C=A.7(

1. Hf the *nstrument

2. payment in due course by or on behalf of principal debtor

• Payment in due course-

1. made at or after maturity

2. to the holder thereof

3. in good faith and without notice that his title is defective

4. payment in due course by party accommodated where party is made0 accepted for

accommodation

. intentional cancellation by holder

• if unintentional or under mista"e or without authority of holder, inoperative. 6urden

of proof on party which alleges it was unintentional, etc.

1. any other act which discharges a simple contract

2. principal debtor becomes holder of instrument at or after maturity in his own right

3. renunciation of holder-

•holder may e$pressly renounce his rights vs. any party to the instrument, before or

after its maturity

• absolute and unconditional renunciation of his rights vs. principal debtor made at or

after maturity discharges the instrument

• renunciation does not aCect rights of BF> w0o notice.

• :enunciation must be in writing unless instrument delivered up to person primarily

liable thereon

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1. material alteration 'sec. 124- material alteration w0o assent of all parties liable avoids

instrument e$cept as against party to alteration and subse/uent indorsers

1. Hf secondary parties2. any act which discharges the instrument

3. intentional cancellation of signature by holder

4. discharge of prior party

. valid tender of payment made by prior party

. release of principal debtor, unless holder&s right of recourse vs. 2ndary party

reserved

. any agreement binding upon holder to e$tend time of payment, or to postpone

holder&s right to enforce instrument, unless made with assent of party secondarily

liable, or unless right of recourse reserved.

). Gailure to ma"e due presentment 'sec. , 144

. failure to give notice of dishonor

1. certi#cation of chec" at instance of holder

11. reac/uisition by prior party

• where instrument negotiated bac" to a prior party, such party may reissue and

further negotiate, but not entitled to enforce payment vs. any intervening party to

whom he was personally liable

• where instrument is paid by party secondarily liable, it&s not discharged, but

1. the party so paying it is remitted to his former rights as regard to all prior parties

2. and he may stri"e out his own and all subse/uent indorsements, and again negotiate

instrument, e$cept

• where it&s payable to order of 3rd

party and has been paid by drawer• where it&s made0accepted for accommodation and has been paid by party

accommodated.

.e!erence: University o! the +hili//ines

'ar,/s D<<

Commercial Law – Eal -eria Mina =errera 7ary Mallari F .achel .amos

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Negotiable Instruments Law – Liabilitieso! +arties

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Posted by Mag



LIA'ILI&I(3 ,- +A.&I(3

1. +.IMA.G +A.&I(3

• Person primarily liable- person who by the terms of the instrument is absolutely

re/uired to pay the same.

• (ec. 'eCect of want of demand on principal debtor

1. +iability of Da"er2. Promises to pay it according to its tenor

3. admits e$istence of payee and his then capacity to indorse

1. (tatus of drawee prior to acceptance or payment

• sec. 12 'bill not an assignment of funds in hands of drawee

• sec. 1) 'when chec" operates as assignment

1. +iability of 7cceptor

• Promises to pay inst according to its tenor

• 7dmits the following-

1. e$istence of drawer

2. genuineness of his signature

3. his capacity and authority to draw the instrument

4. e$istence of payee and his then capacity to endorse

• sec. 11, 132, 133, 13) L formal re/uisites of acceptance

• sec. 13, 13, 1 L constructive acceptance

• sec. 134, 13 L acceptance on a separate instrument

• Minds of 7cceptance-

1. general2. /uali#ed

1. conditional

2. partial

3. local

4. /uali#ed as to time

. not all drawees





8 sec. 142 'rights of parties as to /uali#ed acceptance

• >erti#cation- Principles

1. when chec" certi#ed by ban" on which it&s drawn, e/uivalent to acceptance2. where holder of chec" procures it to be accepted0certi#ed, drawer and all indorsers

discharged from al liability

3. chec" not operate as assignment of any part of funds to credit of drawer with ban",

and ban" is not liable to holder, unless and until it accepts or certi#es chec"

4. certi#cation obtained at re/uest of drawer- secondary parties not released

. ban" which certi#es liable as an acceptor

. chec"s cannot be certi#ed before payable

1. 3(C,N"A.G +A.&I(3

2. +iability of Frawer

3. 7dmits e$istence of payee and his then capacity to endorse

4. <ngages that on due presentment instrument will be accepted, or paid, or both,

according to its tenor and that

. *f it be dishonored, and the necessary proceedings on dishonor be duly ta"en, he will

pay the amount thereof to the holder or to an subse/uent indorser who may be

compelled to pay it

• drawer may insert in the instrument an e$press stipulation negativing 0 limiting his

own liability to holder

1. Liability o! In%orsers:

• Iuali#ed *ndorser and one !egotiating by Felivery

1. *nstrument genuine, in all respects what it purports to be

2. good title

3. all prior parties had capacity to contract

4. he had no "nowledge of any fact w0c would impair validity of instrument or render it

valueless

• in case of negotiation by delivery only, warranty only e$tends in favor of immediate

transferee

• Liability o! a 7eneral or Un0uali>e% In%orser

1. instrument genuine, good title, capacity of prior parties

2. instrument is at time of indorsement valid and subsisting

3. on due presentment, it shall be accepted or paid, or both, according to tenor



4. if it be dishonored, and necessary proceedings on dishonor be duly ta"en, he will pay

the amt. 5o holder, or to any subse/uent indorser who may be compelled to pay it

•

,r%er o! Liability among In%orsers1. among themselves- liable prima facie in the order they indorse, but proof of another

agreement admissible

2. but holder may sue any of the indorsers, regardless of order of indorsement

3. =oint payees0indorsees deemed to indorse =ointly and severally

1. Liability o! Accomo%ation +arty

• Fe#nition- one who signed instrument as ma"er0drawer0acceptor0 indorser w0o

receiving value thereof, for the purpose of lending his name to some other person

• 7P liable on the instrument to holder for value even if holder, at time of ta"inginstrument, "new he was only an 7P

• +iability of *rregular *ndorser

• %here a person not otherwise a party to an instrument, places thereon his

signature in blan" before delivery, he&s liable as an indorser, in accordance w0

these rules-

1. *nstrument payable to order of 3rd person- liable to payee and to all subse/uent

parties

2. *nstrument payable to the order of ma"er0drawer, or payable to bearer- liable to all

parties subse/uent to ma"er0drawer

3. (igns for accommodation of payee, liable to all parties subse/uent to payee• (adaya v (evilla :ules-

1. a =oint and several accommodation ma"er of a negotiable promissory note may

demand from the principal debtor reimbursement for the amt. 5hat he paid to the

payee

2. a =oint and several accommodation ma"er who pays on the said promissory note may

directly demand reimbursement from his coaccommodation ma"er without #rst

directing his action vs. the principal debtor provided-

1. he made the payment by virtue of a =udicial demand

2. or the principal debtor is insolvent

1. Liability o! an Agent

• (ignature of any party may be made by duly authoriEed agent, establish as in

ordinary agency

• %here instrument contains or a person adds to his signature words indicating that he

signs for or on behalf of a principal, he is not liable on the instrument if he was duly



authoriEed, but the mere addition of words describing him as an agent without

disclosing his principal, does not e$empt from personal liability.

• (ignature per procuration operates as notice that the agent has but a limited

authority to sign, and the principal is bound on ly in case the agent in so signing acted

within the actual limits of his authority

• %here a bro"er or agent negotiates an instrument without indorsement, he incurs allliabilities in (ec. , unless he discloses name of principal and fact that he&s only

acting as agent

*. Presentment Gor 7cceptance

%hen presentment for acceptance must be made

1. bill payable after sight, or in other cases where presentment for acceptance

necessary to #$ maturity

2. where bill e$pressly stipulates that it shall be presented for acceptance

3. where bill is drawn payable elsewhere than at residence 0 place of business of drawee

%hen failure to present releases drawer0indorser

Gailure to present for acceptance of negotiate bill of e$change within reasonable time

:easonable 5ime

Dust consider

1. nature of instrument

2. usage of trade or business with respect to instrument

3. facts of each case

Bow and %hen Dade (ec. 14, 14, 14

%hen <$cused (ec. 14)

"ishonor an% (#ects

• sec. 14 'when dishonored by nonacceptance

• sec. 1 'duty of holder where bill not accepted

• sec. 11 'rights of holder where bill not accepted

• sec. ) 'to whom notice of dishonor must be given



• sec. 11 'eCect of omission to give notice of nonacceptance

II9 -or +ayment

%here necessary (ec.

%here not necessary (ec. , ), )2, 11, 111

Fate and time of presentment of instrument bearing #$ed maturity (ec. 1, ), ), 14

"ate o! /resentment

• %here instrument not payable on demand- presentment must be made on date it

falls due

• %here payable on demand- presentment must be made within reasonable time after

issue, e$cept that in case of a bill of e$change, presentment for payment will be

sucient if made within a reasonable time after last negotiation 'but note: t%oug%

reasonable time from last negotiation, it ma& be unreasonable time from issuance

t%us %ol'er ma& not be ($) un'er sec* +

• >hec" must be presented for payment within reasonable time after its issue or

drawer will be discharged from liability thereon to e$tent of loss caused by delay

Felay e$cused (ec. )1

Danner (ec. 4, 2,

Place (ec. 3

5o %hom (ec. 2, , , )

Fishonor by nonpayment (ec. )3, )4

Notice o! "ishonor

9eneral rule- to drawer and to each indorser, and any drawer or indorser to whom such

notice is not given is discharged

Gorm, >ontents, 5ime (ec. , , 12, 13, 14, 1, 1, 1), 113



'y hom 7iven

• 6y or on behalf of the holder or any party to the instrument who may be compelled to

pay it to the holder, and who, upon ta"ing it up, would have a right to reimbursement

from the party to whom the notice is given• !otice of dishonor may be given by an agent either in his own name or in the name

of any party entitled to give notice, whether that party be his principal or not

• %here instrument has been dishonored in hands of agent, he may either

himself give notice to the parties liable thereon, or he may give notice to his

principal 'as if agent an independent holder

In whose !avor notice o/erates

1. when given by0on behalf of holder- insures to bene#t of

1. all subse/uent holders and

2. all prior parties who have a right of recourse vs. the party to whom it&s given

2. where notice given by0on behalf of a party entitled to give notice- insures for bene#t

of a. holder , and

b. all parties subse/uent to party to whom notice given

%aiver (ec. 1, 11

here not necessary to charge %rawer

1. drawer0drawee same person

2. drawee #ctitious, incapacitated

3. drawer is person to whom instrument is presented for payment

4. drawer has no right to e$pect0re/uire that drawee0acceptor will honor instrument

. drawer countermanded payment

here not necessary to charge in%orser

1. drawee #ctitious, incapacitated, and indorser aware of the fact at time ofindorsement

2. indorser is person to whom instrument presented for paymt

3. instrument made0accepted for his accommodation

+rotest



$e-nition- testimony of some proper person that the regular legal steps to #$ the

liability of drawer and indorsers have been ta"en

%hen necessary- sec. 12,

Gorm and contents- sec. 13

6y whom made- sec. 14

5ime and Place- sec. 1, 1

Gor better security- sec. 1)

<$cused- sec. 1

%aiver- sec. 111

Acce/tance !or =onor

(ec. 11, 131, 11

6ills in (et- 1)1)3


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Tags: Negotiable Instruments Law # Liabilities of .arties

Negotiable Instruments Law – "e!ensesan% (0uities

"(C 4<

Posted by Mag


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"(-(N3(3 AN" (HUI&I(3

BIN"3 ,- "(-(N3(3

1. real defense – attaches to instrument; on the principle that the right sought to be

enforced never e$isted0there was no contract at all

2. personal defense – growing out of agreement; renders it ine/uitable to be enforced

vs. defendant

"(-(N3(3

1. *!>7P7>*5N- real; indorsement0assign by corp0infant- passes property but corp0infant

no liability

1. *++<97+*5N- personal, even if no M because void under >> 141. GH:9<:N- real 'lac" of consent-

1. forged

2. made without authority of person whose signature it purports to be.

7eneral .ule:

1. wholly inoperative

2. no right to retain instrument, or give discharge, or enforce payment vs. any party,

can be ac/uired through or under such signature 'unless forged signature unnecessary

to holder&s title

()ce/tion:

unless the party against whom it is sought to enforce such right is precluded from

setting up forgery0want of authority

precluded-

1. parties who ma"e certain warranties, li"e a general indorser or acceptor

2. estopped0negligent parties

/ note rules on Acceptance0.a&ment n'er !ista1e as applie' to:

1. * o2er'raft

2. 3* stop pa&ment or'er

3. 4* forge' in'orsements

1. MA&(.IAL AL&(.A&I,N

• %here !* materially altered w0o assent of all parties liable thereon, avoided, e$cept

as vs. a

1. party who has himself made, authoriEed or assented to alteration

2. and subse/uent indorsers.



• 6ut when an instrument has been materially altered and is in the hands of a BF> not

a party to the alteration, BF> may enforce payment thereof according to orig. tenor

• Daterial 7lteration

1. change date

2. sum payable, either for principal or interest

3. time of payment4. number0relations of parties

. medium0currency of payment, adds place of payment where none speci#ed, other

change0addition altering eCect of instrument in any respect.

/material alteration a personal 'efense w%en use' to 'en& liabilit& accor'ing to org*

tenor of instrument, but real 'efense w%en relie' on to 'en& liabilit& accor'ing to

altere' terms*

1. G:7JF

2. fraud in e$ecution- real defense 'didn&t "now it was !*

3. fraud in inducement- personal defense '"nows it&s !* but deceived as to value0terms

1. "U.(33• Personal, unless so serious as to give rise to a real defense for lac" of contractual

intent

1. C,M+L(&( UN"(LIE(.(" IN3&.UM(N&

• Personal defense 'sec. 1

• *f instrument not in poss. Hf party who signed, delivery prima facie presumed

• *f holder is BF>, delivery conclusively presumed

1. INC,M+L(&( UN"(LIE(.(" IN3&.UM(N&

• :eal defense 'sec. 1

• *nstrument will not, if completed and negotiated without authority, be a valid

contract in the hands of any holder, as against any person whose signature was placed

thereon before delivery

49 INC,M+L(&( "(LIE(.("

• Personal defense 'sec. 14

• 2 Minds of %ritings-

1. %here instrument is wanting in any material particular- person in possession has

prima facie authority to complete it by #ling up blan"s therein

2. (ignature on blan" paper delivered by person ma"ing the signature in order that the

paper may be converted into a !*- prima facie authority to #ll up as such for any

amount

• *n order that any such instrument, when completed, ma be enforced vs. any person

who became a party thereto prior to its completion-1. must be #lled up strictly in accordance w0 authority given

2. within a reasonable time

• but if any such instrument after completion is negotiated to BF>, it&s valid for all

purposes in his hands, he may enforce it as if it had been #lled up properly.


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Negotiable Instruments Law – =ol%er in"ue Course

"(C 4<

Posted by Mag



=,L"(. IN "U( C,U.3(

=,L"(.

(ec. 11

.I7=&3 ,- =,L"(.

1. sue thereon in his own name

2. payment to him in due course discharges instrument

=,L"(. IN "U( C,U.3(: .(HUI3I&I(3

1. complete and regular upon its face

• sec. 124 'eCect of alteration

• sec. 12 'what constitute material alterations

1. holder became such before it was overdue, without notice of any previous dishonor

• sec. 3 'demand inst. nego after unreasonable length of time- not BF>

• sec. 12 'eCect antedating0postdating

1. ta"en in good faith and for value

•

sec. 24 'presumption of consideration• sec 2 'de#nition. of value

• sec. 2 'de#nition. holder for value

• sec. 2 'lien as value

1. at time negotiated to him, he had no notice 'sec. def; 4notice before full amt.

paid of L

1. in#rmity in instrument

2. defect in title of person negotiating


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1. instrument0signature obtained through fraud, etc., illegal

consideration0means, or

2. instrument negotiated in breach of faith, or fraudulent circumstances

.I7=&3 ,- =,L"(. IN "U( C,U.3(:

1. holds instrument free of any defect of title of prior parties

2. free from defenses available to prior parties among themselves

3. may enforce payment of instrument for full amount, against all parties liable

8 if in the hand of any holder 'note de#nition of holder other than a BF>, vulnerable to

same defenses as if nonnegotiable

.I7=&3 ,- +U.C=A3(. -.,M =,L"(. IN "U( C,U.3(:

General Rule- in the hands of any holder other than a BF>, !* is sub=ect to same

defenses as if it were nonnegotiable.

E6ception- holder who derives title through BF> and who is not himself a party to any

fraud or illegality has all rights of such former holder in respect to all parties prior to the

latter.

=, "((M(" ="C

• prima facie presumption in favor of holder

• but when shown that title of any person who has negotiated instrument was

defective 'sec. Lwhen title defective- burden reversed 'now with holder

• but no reversal if party being made liable became bound prior to ac/uisition of

defective title 'i.e., where defense is not his own


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Negotiable Instruments Law – &rans!er

"(C 4<

Posted by Mag



&.AN3-(.

"(LIE(.G

• !* incomplete and revocable until delivery for the purpose of giving eCect thereto

• as between

1. immediate parties

2. a remote party other than holder in due course

delivery, to be eCectual, must be made by or under the authority of the party

ma"ing0drawing0accepting0indorsing

• in such case delivery may be shown to have been conditional, or for a special

purpose only, and not for the purpose of transferring the property in the instrument.

+.(3UM+&I,N ,- "(LIE(.G

%here 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 7/if in t%e %an's of a ($), presumption conclusi2e8N(7,&IA&I,N

• %hen an instrument is transferred from one person to another as to constitute the

transferee the holder thereof.

• *f payable to 6<7:<:, negotiated by delivery; if payable to H:F<:, negotiated by

indorsement of holder O delivery

IN",.3(M(N&

• *ndorser generally enters into two contracts-

1. sale or assignment of instrument

2. to pay instrument in case of default of ma"er

•

(ec. 31 'how indorsement made• (ec. 41 'where payable to two or more

• (ec. 43 'indorsement where name misspelled

• (ec. 4) 'cancellation of indorsement

• (ec. 4, 4 'presumptions

• *ndorsement must be of entire instrument. 'can&t be indorsement of only part of

amount payable, nor can it be to two or more indorsees severally. 6ut o"ay to indorse

residue of partially paid instrument

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• (ec. 'liability of indorser where paper negotiable by delivery

• (ec. 3 'when person deemed indorser

BIN"3 ,- IN",.3(M(N&

1. as to manner of future method of negotiation

2. special – speci#es the person to whom0to whose order the instrument is to be

payable; indorsement of such indorsee is necessary to further negotiation.

3. 6lan" – speci#es no indorsee, instrument so indorsed is payable to bearer, and may

be negotiated by delivery

• the holder may convert a blan" indorsement into a special indorsement by writing

over the signature of the indorser in blan" any contract consistent with the character

of the indorsement

1. as to "ind of title transferred

2. restrictive

• prohibits further negotiation of instrument,

• constitutes indorsee as agent of indorser, or

• vests title in indorsee in trust for another

• rights of indorsee in restrictive ind.-

• receive payment of inst.

• 6ring any action thereon that indorser could bring

• 5ransfer his rights as such indorsee, but all subse/uent indorsees ac/uire only

title of #rst indorsee under restrictive indorsement

1. nonrestrictive

1. as to "ind of liability assumed by indorser

2. /uali#edconstitutes indorser as mere assignor of title 'eg. @without recourseA

3. un/uali#ed

1. as to presence0absence of e$press limitations put by indorser upon primary obligor&s

privileges of paying the holder

2. conditional – additional condition anne$ed to indorser&s liability.

• %here an indorsement is conditional, a party re/uired to pay the instrument maydisregard the condition, and ma"e payment to the indorsee or his transferee, whether

condition has been ful#lled or not

• 7ny person to whom an instrument so indorsed is negotiated will hold the

same0proceeds sub=ect to rights of person indorsing conditionally

1. unconditional



IN",.3(M(N& ,- '(A.(. IN3&9

• %here an instrument payable to bearer is indorsed specially, it may nevertheless be

further negotiated by delivery

• Person indorsing specially liable as indorser to only such holders as ma"e title

through his indorsement

UNIN",.3(" IN3&.UM(N&3

• %here holder of instrument payable to his order transfers it for value without

indorsing, transfer vests in transferee

1. such title as transferor had therein

2. right of tranferee to have indorsement of transferor

• for purposes of determining BF> negotiation eCective upon actual indorsement


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Tags: Negotiable Instruments Law # Transfer

Negotiable Instruments Law – Negotiability

"(C 4<

Posted by Mag



!<9H5*76*+*5N.(HUI3I&(3

1. 49 in writing an% signe% by ma*er or %rawer

• no person liable on the instrument whose signature does not appear thereon

' sub=ect to e$ceptions

• one who signs in a trade or assumed name liable to the same e$tent as if he had

signed in his own name

• signature of any party may be made by a duly authoriEed agent, no particular form of

appt. necessary


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1. unconditional promise or order to pay

• un/uali#ed order or promise to pay is unconditional though coupled with

1. an indication of a particular fund out of which reimbursement to be made, or a

particular account to be debited with amount, or

1. a statement of the transaction which gives rise to the instrument

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

a sum certain in money

• even if stipulated to be paidL

1. with interest, or

2. by stated installments, or

3. by stated installments with a provision that upon default in payment of any

installment0interest, the whole shall become due, or

4. with e$change, whether at a #$ed rate or at the current rate, or

. with costs of collection or an attorney&s fee, in case payment not made at maturity

1. 59 /ayable on %eman%• when e$pressed to be payable on demand, or at sight, or on presentation;

• when no time for payment e$pressed, or

• where an instrument is issued, accepted or indorsed when overdue, it is, as regards

the person so issuing, accepting, or indorsing it, payable on demand

or at a #$ed or determinable future time

• when it&s e$pressed to be payable at a #$ed period after date or sight, or

• on or before a #$ed or determinable future time #$ed therein, or

• on or at a #$ed period after the occurrence of a speci#ed event which is certain to

happen, though the time of happening be uncertain

• an instrument payable upon a contingency not negotiable, and happening of event

doesn&t cure it

8 relate to sec* 7 presumption as to 'ate8 an' sec* + 7construction w%ere

instrument ambiguous8

/ note e9ect of acceleration pro2isions, p* 4 )ampos

/ note e9ect of pro2isions e6ten'ing time of pa&ment, p* ; )ampos

1. 69 /ayable to or%er

• where it is drawn payable to the order of a speci#ed person or to him or his order.

Day be drawn payable to order of L

• when the instrument is payable to order the payee must be named or otherwise

indicated therein with reasonable certainty

1. a payee not the ma"er0drawer0drawee, or

2. drawer or ma"er, or

3. drawee, or



4. two or more payees =ointly, or

. holder of an oce for time being

or bearer

• when e$pressed to be so payable

• when payable to person named therein or bearer

• when payable to order or #ctitious0none$istent person, and such fact "nown to the

person ma"ing it so payable, or

• when name of payee doesn&t purport to be the name of any person, or

• when the only0last indorsement is in blan"

1. 9 where addressed to drawee- such %rawee name%@ in%icate% therein with

reasonable certainty

• bill may be addressed to two or more drawees =ointly, whether partners or not, but

not to two or more drawees in the alternative or in succession

• bill may be treated as a P!, at option of holder, where

1. drawer and drawee are same person

2. drawee is #ctitious0incapacitated(--(C& ,- A""I&I,NAL +.,EI3I,N3

9en. :ule- order0promise to do any act in addition to the payment of money renders

instrument nonnegotiable.

<$ception- negotiability not aCected by provisions w0c

1. authoriEe sale of collateral security if instrument not paid at maturity

2. authoriEe confession of =udgment

3. waives bene#t of any law intended for advantage0protection of obligor

4. give holder election to re/uire something to be done in lieu of money

C,N&INUA&I,N ,- N(7,&IA'L( C=A.AC&(.

Jntil

1. restrictively indorsed

2. discharged by payment or otherwise


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Tags: Negotiable Instruments Law # Negotiation

Negotiable Instruments Law – "e>nitions

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Posted by Mag



F<G*!*5*H!(

N(7,&IA'L( IN3&.UM(N&

• %ritten 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

P:HD*((H:N !H5<

• unconditional promise in writing made by one person to another signed by the ma"er

• engaging to pay on demand, or at a #$ed or determinable future time a sum certain

in money to order or to bearer

• where a note is drawn to the ma"er&s own order, it is not complete until indorsed by

him

6*++ HG <Q>B7!9<

• unconditional order in writing addressed by one person to another signed by the

person giving it

• re/uiring the person to whom it&s addressed to pay on demand or at a #$ed or

determinable future time a sum certain in money to order or to bearer

• chec"- bill of e$change drawn on a ban" payable on demand. Minds of chec"s-

1. personal chec"

2. manager&s0cashier&s chec" – drawn by a ban" on itself. *ssuance has the eCect of

acceptance

3. memorandum chec" – @memoA is written across its face, signifying that drawer will

pay holder absolutely without need of presentment

4. crossed chec" –• eCects-

1. chec" may not be encashed but only deposited in ban"

2. may be negotiated only once, to one who has an acct. with a ban"

3. warning to holder that chec" has been issued for a de#nite purpose so that he must

in/uire if he received chec" pursuant to such purpose, otherwise not BF>

• "inds-

1. general 'no word between lines, or @coA between lines





2. special 'name of ban" appearing between parallel lines

6<7:<:

Person in possession of a bill0note payable to bearer

=,L"(.

Payee or indorsee of a bill or note who is in possession of it, or the bearer thereof.

&=( LI-( ,- A N(7,&IA'L( IN3&.UM(N&:1. issue

2. negotiation

3. presentment for acceptance in certain bills

4. acceptance

. dishonor by on acceptance

. presentment for payment

. dishonor by nonpayment

). notice of dishonor

. protest in certain cases

1. discharge


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