the great nego reference

7/27/2019 The Great Nego Reference

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THE GREAT NEGO REFERENCE (to all things connected)

13 + 125Sec 13 (When date may be inserted) vs Sec 125 (Wrong date as material alteration)

Wrong date a personal defense;23 + 125 Sec 23 (Forged signatures, effect of) vs Sec 125 (Forged instruments)

23 + 65 Sec 23 (Forged signatures) + Sec 65 (Warranty of Signature by Indorsers)

Indorsers, persons negotiating by delivery as persons precluded from setting up thedefense of forgery

26 + 52 + 58 Sec 26 (What constitutes a holder for value) + Sec 52 vs Sec 58

Mno consideration- Pno consideration- Awith considerationB (holder forvalue; M, P, A liable)

If B is HIDC: sec 52 (what constitutes a holder in due course) If B is not HIDC: M may set up defense Sec 28 (Effect of want of consideration) +

Sec 58 (Personal defense)

28 + 29 Want of consideration + Accomodation party

Accomodation party is an exception for the need of consideration. He only lends his

signature/credit

The accommodated party is primarily/ultimately liable Except when the accommodation party signed as an acceptor

-What if there are 2 or 3 accomodated parties and one of them pays the accommodation

party? Is this situation still covered by the negotiable instruments law? The Civil Code will be applied

Quasi-contract Payment by a 3rd party? 1236? 1237?

General Rule: Sec 32, Indorsement must be of entire instrument

Sec 36: Restrictive Indorsementslimited to purpose

If the indorsement is restrictive

Can the holder collect? YES Can the holder negotiate? NO

Restrictive indorsement destroys the negotiability of the indorsement

Sec 34 + Sec 8

Payable to order instrument + blank indorsement = payable to bearer instrument38 + 65 Sec 38 (Qualified Indorsement) + Sec 65 (Warranty of Signature by Indorsers)

Limited indorsement; liable for breach of warranties (see Sec 65) but not for otherreasons (insolvency, etc)

39 + 1 Sec 39 (Conditional Indorsement) + Sec 1 (Negotiable Instruments)


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Conditional indorsement renders instrument non-negotiable40 + 9+65/66 Indorsement of instrument payable to bearer + When payable to bearer

Only for instruments originally payable to bearer Mpayable to bearer P (indorses) Amere delivery B

B will have no right against P since B did not obtain title from Ps indorsement. But Aand M liable to B

Mpayable to bearer P (indorses) Aindorses B- mere delivery CP is liable to A and B under 65/66

INDORSEMENT GAMES

Sec 40: Originally Payable to Bearer

A is the maker of PN of originally payable to bearer.A to B.B to C.C indorses to D. D

to E. E to F.A B C + indorsement D E F

Valid negotiation to F?o Yes.

Does the SI convert the bearer to an order instrument?o No.

Can F go after A?o Yes, because he is the makerthe party primarily liable

Can F go against C?o No, there is no unbroken chain of indorsemento C specially indorsed

The person indorsing specially is liable only to those holders whocan trace their title to the instrument by a series of unbrokenindorsement from such special indorsement

Ampil: In other words, you can only run after the person whomyou can trace your title to

o Ampil: The person negotiating by mere delivery does not sign on theinstrument and, thus, you cannot trace your title to him

You dont even know who he is You dont know where it came from, so how can you run after that

party?

o You have to trace title back to C through an unbroken chain of specialindorsementscontinuous

Ampil: If there is a break, then how do you know that your title reallycame from C?

General Rule: Sec 47, an instrument negotiable in origin is always negotiable

Exceptions:

1. When restrictively indorsed (Sec 36)2. When discharged by payment (Sec 119)

A maker of PN originally payable to order. B is the payee. B indorses it to C. C indorses it

to D. D to E.E to F.F holder.

A B + indorsement C + indorsement D E F F collects from A upon date of maturity. A dishonors the instrument. F wants to go after C?


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o Mainstream: F cannot collect because Section 40 is limited to instruments thatare originally bearer

o Ampil: But most practitioners use Section 40 by analogy even when theinstrument is originally payable to order that was just converted

A B + indorsement C + special indorsement D + indorsement E + blankindorsement FOriginally order. C specially indorses to D. D indorsed to E. E blank indorsement to F.

Valid negotiation?o Yes, because the blank indorsement converted it to bearer instrument

Originally order. A to B. B si C. C si D. D bi E. E delivers to F. F si G. G delivers to H. H bi

I. I delivers to J.

A B+ special indorsement C+ special indorsement D+ blank indorsement E

delivery F +special indorsement G delivery H +blank indorsement I delivery J

Valid negotiation to H? Or is H merely an assignee? Order instrument not indorsed Valid negotiation to J? Or is J merely an assignee? F specially indorsed it to G. Once F specially indorsed it G, turning it back to order.

o Where G merely delivered it to Hassignment onward At that point, the negotiability stopped

-G si H. Will J have acquired the instrument via negotiation?

Negotiation? When H acquired the instrument, it was indorsement in blank to I, making I holder of

a bearer instrument

-What if G did not indorse it?

H would then be a mere assignee G would be the last special indorsee and as such, his indorsement is necessary for a

valid negotiation

I and J would also be an assignee If J is a mere assignee, can J collect from A?

o He can only collect absent any personal defenses against himo It does not follow that just because the person assignee that he cannot collect

it only means that the assignee is exposed to defenses

-How to be an assignee

Instrument is not negotiable under Section 1 The negotiation is not valid He does not comply with Section 52

CONVERSIONS!!! And other kinds of indorsements and such

-An originally bearer instrument will always be a bearer instrument

Once originally bearer always bearer, regardless of the special indorsementso It needs to be originally bearer upon issuance

-An originally order instrument can convert to a bearer instrument through a blank

instrument


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Once it is a bearer instrument, it can already be just delivered withoutindorsement

Once that converted instrument is specially indorsed, it turns back to an orderinstrument

-Restrictive indorsement Can you still negotiate? No Can you assign? Yes

48 + 120 Striking out indorsements + Discharge of Secondarily Liable Parties

Payable to bearer + indorsement = still bearer instrument, negotiable by mere delivery(Sec 40)

Holder of bearer instrument may strike out all intervening indorsements (superfluous)Originally bearer that had SI

The assignee can strike out the special indorsement so there will be a validnegotiation by delivery to him

Or he can compel the assignor to complete the negotiation by indorsingAll negotiable instruments can be restrictively indorsed

Ampil: But if youre the holder of an originally bearer instrument with arestrictive indorsement, then strike it out

o Ampil: The negotiability that was destroyed was restored by the striking out

50 + 58/59 + 120 Prior Party may negotiate instrument + Holder through a holder in due

course + Effect of reacquisition by prior party

Reacquirer (he may negotiate the same further, provided it is not due)M P AB C DB E (B may not sue C & D)

B may strike out C and D

B, C, D are discharged as to E

A to B (HDIC). B to C. C to D. D to B (overdue)

A B (HDC) C D B (overdue)

Can B strike out the other indorsements to make him again a HDIC?o Ampil: The law is silent

Can B still be a HDIC if he strikes out C and D????

Took it the first timeHDIC Took it the second timeassignee Theres no reckoning point when a HDIC loses his status Ampil: I believe that he cannot because legalities must yield to realities, such that at

the time he took it the 2nd time, it was overdue and, as such, he is only an assignee

o To sustain him as a HDIC would be to reward him for his cleverness or fraudo He cannot deny that he does not know that the instrument is overdue

The 2nd time it return to him, there was a forgery

Ampil: He can strike out the forged signature In this case, he does not know that he subsequent signatures have been forgedso he

can strike them out


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49 + 51 Right of holder to sue + transfer without indorsement

Payable to order; transfer for value without indorsement allowed (transferee not holderbut assignee) but subject to defenses

If you have it indorsed, holder will only become holder at the actual date of indorsement If he finds out about infirmities before he has it indorsed,

52 + (14 , 124, 83) Complete and regular upon its face vs. Blanks, alteration, Dishonored by

non-payment

Stuff you shouldn't have notices about to be HIDC58 + 23 holder through a holder in due course, forged signature

If HTHIDC is not aware of forgery, may still enforce payment. Personal defenses notapplicable

Section 58: you absorb the HIDCness of the HIDC even if you are aware of defectsA maker. B to C. C to D. D to E.

A B no delivery C thief D E

C stole the note from B (no delivery from B to C) D does not know that the note is stolen (D is a HDIC) D negotiates to E and E knows that it was stolen Can E collect from A?

o Yes! Because he obtained it from D, an HDC Benefit from Sec 58 What if D also knew that the note was stolen? Can E collect from A?

o No, because personal defenses can be set upA B no delivery C thief D knows E knows F knows G Does not know!

-A to B. C steals the note from B. C to D. D knows that it is stolen. D to E. E knows that itstolen. E to F. F knows that it is stolen. F to G. G does not know that it is stolen. Can G

collection from A?

Yes, because he complies with Section 52 and he does not need Section 58! G to H. H knows that it was stolen. Can H collection from A?

o Yes, because G is an HDIC from whom H acquired his title to H can use Section 58 to his advantage

H to I. I knows that it was stolen. Can I collect from A? I to J. J knows that it was stolen. Can J collect from A? J to K. K knows that it was stolen. Can J collect from A?

oAmpil: No, this would be stretching the benefits of Section 58 in an unlimitedway. Doing this would mean that in the chain of transfers, there needs to be

only one HDIC and all those who come after him are treated as such. This is

absurd.

o Ampil: But the intent of the NIL is confidence, trust, circulation, a robusteconomy, more trade in goods, services, and commerce

So this interpretation, although absurd, is actually consistent with thegoal of the NIL

No one asks if cash is stolen, right?More section 58:


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Ampil: Even if you have knowledge, but you acquired it from a HDIC, then youare considered a HDIC

o Ampil: But remember that he is not really a HDIC he is only treated as oneo But the only thing a holder under Section 58 may have is knowledge of any

infirmity or defect

The holder cannot be a party to any illegality or infirmity-A to B. B to C. B has a personal defense against C (C was supposed to deliver a carfailure

of consideration). C to D. D to E. E is a HDIC (does not know) E to F. F knows about the

failure of consideration? Can F collect from A?

A B has personal defense against (failure of consideration) C D E (HDC) F

knows about failure of consideration

Yes, through Section 58 What if F was the reason why B was unable to deliver?

o But, if F is a party to the fraud or illegality, he cannot enjoy Section 58.-General indorser

If the instrument is presented for payment and is dishonored and that he violates anyof the three warranties, he will pay it

-Qualified indorser

Does not assume secondarily liability

-Parties primarily liable:

Maker Acceptor

-Parties secondarily liable:

Indorser Drawer

-Drawee is not liable until he accepts

-Section 64: Irregular Indorsers

-How do you know if the indorser is an irregular indorser?

-A maker. B payee. B to C (signed B). C to D (signed C). D to E (signed D).

Routine Signature of X between B and Cwho the fuck is this guy?

o X is not part of the sequenceo A signature that is not expectedo Irregular indorsero Ampil: Someone wants to make himself liable!

Payable to order third persono X is liable to C onwardo B is a third person

Payable to order of drawer or makero X is liable to B onward


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Signs for the accommodation of the payeeo Accomodated party is Bo Accomodation party is X, the regular indorsero X is liable to C onwardo X cannot be held liable by B, the accommodated party

Sec 60 + 18-21 Liability of maker

General rule: No person is liable on an instrument unless his signature appears thereon

Sec 60 + Sec 29 Accommodation party is maker; debtor

Sec 61 + Sec 89 x Sec 38

Qualified indorsers not liable even if dishonored; does not assume 2ndary liabilitySECTION 65: General Indorsements

Indorsement by deliveryliability to IMMEDIATE transferee Qualified indorsementall subsequent indorsers who MAKE TITLE on his

indorsement

What is important for there to be breach of the warranties under this section is thatthere must be knowledge!

Ampil: So even if there is a fact, but the QI or the person negotiating by delivery doesnot know about, then the same will not be liable

If there is a breach of any of the warranties, the QI or person negotiating by deliveryare liable, not under the NI, but under his contractual obligation (general contract law)

A QI basically tells the whole world: If the party primarily liable does not pay ordishonors this instrument, do not come to me, because I will not pay it to you

o Ampil: He qualifies his indorsementIf the GI breaks any of his any warranties, he is liable under general contract law

Because the 4 warranties are contractsthey are a meeting of the mindsThe GI also assumes secondary liability because he engages that on due presentment

A GI basically tells the whole world that in case the party primarily liable cannot payit, come to me, I will pay to you

This is not assumed by a QI or a person negotiating by deliverySec 65 x Sec 38

Qualified indorsers liable if warranties are breachedSec 65 + Sec 30, Sec 9

Warranty where negotiation by delivery + negotiation by delivery, instrument payable to

bearer

Solvency not a guarantyrecourse cant be had against indorserSec 89 + Sec 65/66

Notice of dishonor makes indorsers liable bec of their guaranties If no notice of dishonor = indorsers discharged


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Sec 67 x Sec 40 Indorsers of Bearer Instruments and Special Indorsements of Bearer

instruments

-A to B. B to C. C signs before delivering to D. D to E.

For E to be able to run after C, D must also sign as a general indorser Instrument originally payable to bearer is always bearer If someone signs, then he assumes the liability of a general indorser Under Section 40, E can only hold C liable, if he can trace his title to C through an

unbroken chain of indorsements

Section 68

A to B. B to C. C to D. D to E. E to F. F holder. F presents the instrument for payment to A the maker. A does not want to pay. F goes through the necessary proceedings on dishonor. F goes after E based on Es secondary liability E pays F. Who does E go after?

o As a general rule: E will go after DIt is important to know if the instrument is originally bearer or converted bearer to

determine a valid negotiation and to fix the liabilities of the parties

Sec 69Sec 20

Liability of agent (Negotiation) and Liability of agent (general)

PRESUMPTION: Sec 68 every indorser is liable to all indorsers subsequent to him

HOLDER + Sec 89 (notice of dishonor) = enforce payment on indorsers

Sec 70 vs 79/80 (excuse for non-payment) or Sec 82 (Presentment dispensed)

Presentment for payment

Sec 71: Presentment for payable on demand stuff

-If a BoE that is payable on demand is not presented for payment within a reasonable time

from its last negotiation, what is its legal effect?

Will the BoE become overdue?

If it is overdue and the BoE is subsequently transferred, is the latter a HDIC? Will the party primary liable be discharged?

o No Will the parties secondarily liable be discharged?

o Yes Can the BoE still be transferred or negotiated to a HDIC?

o No, Section 52 But can it still be transferred?

o Yes, but the subsequent holder will be a mere assignee


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Sec 83+Sec 89+Sec 84

Instrument dishonored by non-payment + notice of dishonor = makes secondary parties liable

(drawer, indorser by delivery, qualified indorser, general indorser)

-If presentment for payment is excused and presentment for payment is made, will the parties

secondarily liable be discharged? Yes if primarily liable parties pay

-If presentment for payment is excused and presentment for payment is not made, will the

parties primarily liable be discharged?

-If a NI reached you when it is overdue, then you have to wonder why it is still circulating

Ampil: Chances are the maker probably rejected or dishonored ito If you acquire it, then sure, but you are not protected by the NILno

protection against personal defenses

Presentment for payment

Relationship between the holder and the party primarily liable-If you are the party primarily liable and then you make payment, what else will you do?

Get the note back to get rid of any evidence of your indebtednesso PUT IT OUT OF CIRCULATION

Sec 89 + Sec 93

Notice of dishonor inures to the benefit of the HOLDER and to all parties subsequent to the

holder to whom notice is given + parties subsequent to the holder who gave notice

Sec 117 + Sec 89 x Sec 52

Omission to give notice of dishonor BY NON-ACCEPTANCE does not prejudice HIDCSec 119 + Sec 88

Payment in due course discharges instrument

Sec 119 + Art 1231 (Civil Code)

Extinguishment of obligations discharges instrument

Sec 120 + Sec 48

Striking out indorsements discharges indorsers secondarily liable

Sec 122 + Sec 52

Renunciation does not affect the rights of HIDC without notice

Condonation a personal defense for secondary parties

Defense TalkPERSONAL DEFENSES can be defeated by a holder in due course

But in order for this protection to be wrapped around the HIDC, three things must bepresent:

The instrument must comply with Section 1it must be negotiable tobegin with

There must be a valid negotiation The holder must be a holder in due course under Section 52


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-Real defenses = Absolute defenses

Real defense > HDC Ampil: Basically, the debtor wins

-Personal defenses = Equitable defenses Can be defeated by a HDC Ampil: Basically, the creditor wins

the great nego reference

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