Sie sind auf Seite 1von 40

Negotiable Instruments notes for midterms (for finals

see below)
GLENN TUAZON
Section 1: IMPORTANT!
An instrument to be negotiable must conform to the following
requirements:
(a)It must be in writing and signed by the maker or drawer
(b)Must contain an unconditional promise or order to pay a sum certain
in money;
(c) Must be payable on demand or at a fixed or determinable future
time;
(d)Must be payable to order or to bearer; and
(e)Where the instrument is addressed to a drawee, he must be named
or otherwise indicated therein with reasonable certainty.
What should be considered for negotiability:
1. Whole of instrument
2. Only what appears on the instruments face
a. N.I.L., especially section 1

Any signature is valid and binding as long as the person making the signature
intends to bound by it. It can be at any part of the instrument but if it is
unclear at what capacity he signed as, he is just deemed an indorser.
Legal tender the sort of money in which a debt or any obligation with money
may be lawfully paid in, in the absence any stipulation
A non-negotiable instrument may still be assigned or transferred.
There must be a promise to pay; acknowledgement of debt is NOT enough.
o Due to X P10,000 is NOT a promise to pay.
No payment date assumed to be immediately demandable.
Drawee (E) has to accept the note to become a party.
o Accepted + signature of the drawee he becomes an acceptor.
o The drawer (R) becomes a surety.
o E has to pay damages if he refuses to accept Ds bill, when D has funds in
the hands of E.

Sum certain in money permissible clauses:


1. Interest
a. Fixed interest
b. Increased or decreased interest
c. Unspecified interest 12% is legal rate

2. By stated installments
a. Elements specified:
i. Interest of each installment
ii. Due date of each installment
3. Installments with acceleration clause
a. Acceleration at the option of the maker NEGOTIABLE
b. Acceleration at the option of the holder X NEGOTIABLE
4. With fixed or current exchange rate
a. Exchange only applicable to foreign bills, not inland or domestic bills
5. With costs of collection or attorneys fee if payment is not made upon
maturity.
a. Here, even if uncertain, payment is made AFTER maturity, where the
instrument ceases to be negotiable in the full commercial sense.

Unconditional promise or order to pay permissible clauses:


1. Particular fund to be reimbursed with the amount or to be debited with the
amount;
a. Because here, the fund indicated is not the direct source of payment,
only the source of reimbursement or debit
b. If the fund is the direct source of payment, it is not unconditional
because it is dependent on the existence of the account or the amount
of funds therein
2. A statement of the transaction which gave rise to the instrument
a. BUT if terms and conditions are in another paper, it is X NEGOTIABLE
Unconditional promise to pay:

Payable, to be paid, I agree to pay, I guaranty to pay, M obliges himself to


pay, Good for, due on demand all promises to pay
I.O.U., due P1000, for value received all just acknowledgement of
indebtedness
EXCEPTION: if it used words of negotiability, like due P or bearer or due P
or order it is NEGOTIABLE, even without express promise to pay

Unconditional order to pay:

EVEN WITHOUT USING order Let the bearer or W will much oblige R to
pay P or order
Mere requests are not enough, although polite commands are fine.

Determinable future time:


1. Fixed period after date or sight;
a. sight means upon presentment to the drawee

b. IF WITHOUT YEAR then it is not determinable


c. WEIRD: On demand or at the end of the year, I promise to pay P or
order P1,000
i. This is X NEGOTIABLE because the payee has absolute control
when it becomes demandable
ii. BUT, in our jurisdiction, the fixed maturity date (end of the
year) must just be discarded and treat it as a demand
instrument.
d. I promise to pay on Sept. 30, 2004 but if I fail to collect, this note shall
be extended to Nov. 30, 2004. NEGOTIABLE because it WILL become
negotiable.
2. ON OR BEFORE a fixed or determinable future time specified therein;
3. On or AT a fixed period after the occurrence of a CERTAIN FUTURE EVENT
(although when it happens it uncertain)
a. If payable upon contingency, EVEN IF IT HAPPENS, it is X NEGOTIABLE
b. 30 days after death of P valid; 30 days after P reaches age of
majority invalid

Additional provisions not affecting negotiability:


GENERAL RULE: instrument which contains another act in addition to the payment
of money is X NEGOTIABLE. Exceptions:
1. Authorize sale of collateral securities in case the instrument be not paid at
maturity
a. Ex. I promise to pay P P30,000 on or before 10 December 2005. P
may sell the gold ring I offered as security if the debt will not be paid
by maturity.
2. Authorize a confession of judgment if the instrument be not paid at maturity
a. Definition: enable the holder to obtain a judgment without delay of a
law suit
b. Cognavit actiomen written confession of action by the defendant
acknowledging his indebtedness
c. Relicta verificationem abandon pleading
3. Waive the benefit of any law intended for the advantage/protection of obligor;
examples:
a. Protest (sec 111)
b. Presentment for payment (sec 70)
c. Demand
d. Exemption from attachment/execution
4. Gives the holder an election to require something to be done in lieu of
payment of money
a. If at the option of PROMISSOR, it is X NEGOTIABLE
Omissions/additions not affecting negotiability:

1.
2.
3.
4.
5.

No date
Value given not stated
Place drawn or payable not stated
Bears seal
Designates particular kind of money

When payable on demand:


1. Expressed to be payable:
a. On demand
b. On sight
c. Upon presentation
2. No time for payment was expressed
a. Parol evidence:
i. Can show contemporaneous oral agreement fixing time for
payment
ii. But cannot defeat instrument payable on demand
3. Instrument issued, accepted, or indorsed when overdue

Payable to order may be drawn


payable to order of:
P not the M, R, W (Respectively: I
promise to pay P1 to order of P; Pay to
order of P P1, sgd. R; Pay to order of P
P1, sgd. R, to W)
M (I promise to pay to order of myself
P1, sgd. M), or R (Pay to order of
myself P1, sgd. R, to W)
W (Pay to order of yourself P1, sgd. R,
to W)
Two or more joint Ps (Pay to order of P
and A P1)
One or more several Ps (Pay to order
of P, A, or B, or any of them, or any two
of them, P1)
Holder of an office for time being
(Pay to order of the Commissioner of
Internal Revenue)
Miscellaneous Provisions

On terms:
o Intent governs
o Foreign language is fine

Payable to bearer when:


Expressed to be so (*** Pay to
bearer, P is X NEGOTIABLE)
Payable to P or bearer
Payable to order of fictitious or nonexistent person, and this fact is
known to person making it so
payable
Name of the payee is not the name
of any person
Only or last indorsement in blank

Grammatical errors are fine


presumed to be true date of making, drawing, accepting, or indorsing
Generally, no need for date
Exception:
Fixed period after date
Fixed period after sight/presentment
Ante-dating or post-dating is VALID, unless for fraudulent purpose
o But title acquired upon date of DELIVERY, not date in instrument
May insert date for instrument payable at fixed period after date OR sight
o ANY holder may insert true date of issue/acceptance
o INSERTER OF WRONG DATE: instrument is avoided to him or anyone
claiming under him EXCEPT if holder in due course: the date will hold
true
Construction:
o Words > numbers
o Interest from date of instrument;
If no date, from issue thereof
o No date, dated from issue
o Written provisions over printed words
o Ambiguous whether bill or note holder elects
o Ambiguous signature assume as indorser
o I promise to pay, signed by 2 or more persons solidary
We promise to pay, signed by two makes just joint
Non-signatory will NOT be liable on instrument, EXCEPT:
o Person signs in trade/assumed name
o Principal bound by agents signature
o Forgery forger liable even without his real signature on the
instrument
o Acceptance by the acceptor on separate paper
o Prior written promise to accept a bill before drawn
AGENT< when is not liable elements:
o 1. He is duly authorized
o 2. Indicated representative capacity
o 3. Discloses the principal
Mere descriptive words like agent or trustee without
disclosing principal agent or representative still liable
Procuration when the principal gives power to another to act in his place
as could himself
o Ex. Jovencio F. Cinco, Per Procuration: Domingo M. Navarro
Other terms: per pro., per proc., P.P., PP.
Serves as a warning that the agent has limited authority: duty
of person dealing with agent to inquire as to scope of power
o Principal not bound if agent exceeded authority
Authority to make or indorse negotiable paper must be expressly
granted
o
Date
o
o

But exceeding authority: mere personal defense; thus, not a defense


against a BONA FIDE HOLDER
Minority/other incapacitated persons
o Voidable only
o Not a defense for those contracting with the minor
o A REAL defense (even against innocent holders) for the minor
Ex. M P (minor) A. M cannot pay A. A sues P. P may set
up minority as defense.
BUT not when there is actual fraud (i.e. the minor
misrepresented his age)
o Only bound to restitute to extent he has been benefited
Corporations
o Corporation is not liable on notes where the corporation is without
capacity to make the contract seeking to be executed (ultra vires)
o If merely voidable (and not void), this defense is not available
o

CONSIDERATION

Presumption: consideration exists


o Every person whose signature appears on the N.I. have become a
party thereto for value
o Consideration: cause, price, or impelling influence which induced a
party to enter into the contract
o Value: any consideration sufficient to support a simply contract
Includes antecedent/pre-existing debts
Whether instrument is payable on demand or at a future time
Need not be ADEQUATE. Just VALUABLE.
If consideration is founded on mere love, affection,
gratitude, etc. cannot be enforced between original
parties.
HOLDER FOR VALUE
o Definition: one who has given a valuable consideration for the
instrument issued/negotiated to him
o Regarded as such for all parties prior to time value was given
Ex. M P (w/o consideration) A (w/o consideration) B (w/
consideration)
In this case, B can enforce payment to M, P, and A
There can be no defense of absence of consideration
Ex. M P (w/o consideration) A (w/o consideration) B (w/
consideration) C (as a gift)
C is also holder for value against M, P, A who were parties
prior to B attaining it for value
Ex. E (drawee bank) P (payee) W (collecting bank)

W is not a holder for value yet because it parted with


nothing
This is just a bookkeeping entry
Value passed when sum is checked out. But when is the
sum checked out?
o First rule: deemed checked out through first
money in, first money out rule
o Second rule: as long as the balance of the account
is equal to or more than the amount of check, the
balance had not been withdrawn; THUS THE BANK
IS NOT A HOLDER FOR VALUE (better rule)
o Holder has a lien on the instrument = holder for value
SOURCE:
From contract, or
By implication of law
One who has taken a negotiable instrument as collateral security
for a debt
If amount of instrument > debt secured by instrument:
pledge is holder for value to extent of his lien: can collect
full value of instrument, apply it to the debt, and deliver
surplus to pledger
o Ex. M P (P1,000) A (pledged to secure Ps debt
to A for P800) and then P indorsed and delivered
to A
Upon maturity of note, even if the original
debt is not due, A may recover P1,000 hold
surplus or P200 for P
If amount of instrument < or = debt secured by
instrument: pledge is holder for value for full amount
o Same ex. but original P.N. is worth P700, then A can
recover full amount.
If there are personal defenses on instrument between
pledgor and party liable, pledge can only collect until
extent of debt
o First ex. but M has defense against P (lack of
consideration)
A may recover only P800 on the note
(because it is void), so only the loan counts
If the defense of the party liable is REAL, then no recovery
by pledge.
o First ex. but Ms signature is a forgery.
A may not recover anything, because forgery
is a real defense.
Lack or failure of consideration.
o Lack of consideration: personal defense between the parties

Ex. M P (for parcel of land that does not exist)


Between the parties = no recovery for lack of
consideration
Same ex., but M P A (holder in due course)
A can recover from M
o Failure of consideration: when a party fails or refuses to do, perform,
or comply with consideration agreed upon
Same rules as lack of consideration
o Partial failure of consideration: proportionate recovery
Ex. 2/3rd of land delivered 2/3rd of P.N. recoverable
Liability of accommodation party.
o Definition: signed the instrument as M/R/acceptor/indorser without
receiving value therefor
Although mere receipt of compensation is not enough to
discount him from being an accommodation party (it must be no
compensation for the instrument)
EXAMPLES:
Accommodation M
o M (a.p.) P.N. P, who indorses it to A
Accommodation R
o M (a.p.) BOE P, who indorses it to A
Accommodation W
o P M (a.p.) as W P, who indorses it to A
Accommodation I
o P A, M signing it with his name or in blank
o Purpose: to lend his name to some other person (loan of ones
credit)
Usually expects that the accommodated party, not he, is the one
that pays for the bill when it falls due
Like a surety obtain reimbursement from accommodated party
Accommodated party cannot enforce note against the
accommodation party, because there was no consideration for it
There is a presumption against accommodation, but this
may be proved by parol evidence
o Liable on the instrument to a holder for value, even if the holder only
knew him as an accommodation party
This talks about a subsequent holder for value, negotiated by
and from the accommodated party onwards
Accommodation party may revoke the instrument before
it is negotiated
Does not apply to corporations, because it cannot indorse/issue
N.I. without corporation
Only the signatories will be PERSONALLY liable

Difference between an accommodation party and a regular party

Accommodation
Without receiving value
Lends his name to some other person
May prove by parole evidence his being
an accommodation party
Cannot avail of defense of lack of
consideration to holder in due course
May sue for reimbursement from
accommodated party

Regular
Receiving value
X
Cannot disclaim liability by parole
evidence
Can avail of this defense
Regular party may not sue for
reimbursement

DEFENSES
Incomplete and delivered (Sec 14)
Distinguish:
o Those with obvious blanks
apparent authority to fill up
for signer/indorser/holder
o Those apparently complete
but do not fill up the entire
page doctrine of
negligence
(1) Fill up MATERIAL PARTICULARS
o But not to ALTER
(2) To put any amount if there is
just a signature on a blank piece
of paper
o Need to prove intent of M
to have the blank paper
turned into a NI
Defenses
o Can be enforced against
party prior to completion if:
1. Filled up according
to authority given
2. Within reasonable
time
o VS HOLDER IN DUE COURSE
the abovementioned
(scope of authority/time
violations) are NOT
defenses (merely personal).
Complete but undelivered (Sec 16)
Negotiable instruments have no
legal existence until delivered
o Delivery may be through
agent; but receipt of checks

Incomplete and undelivered (Sec 15)


Completed and delivered without
authority
Defenses
o VS HOLDER IN DUE COURSE
the completion and
delivery without authority is
a valid defense (REAL
defense, not just personal)
o Only applies to parties
whose names appear in the
instrument prior to
delivery.
Distinguish:
o Left check in drawer (no
negligence)
o Left check on top of table
(negligence)

Complete and delivered

by collector of payee is not


delivery yet (especially if
collector is mere employee,
and not an agent)
Defenses
o VS IMMEDIATE PARTIES and
REMOTE PARTIES THAT ARE
NOT HOLDERS IN DUE
COURSE: personal defense
applies
o VS REMOTE PARTIES THAT
ARE HOLDERS IN DUE
COURSE: no defense
applies (valid delivery)
Presume remote parties are not
aware of infirmities
Privity differentiates immediate
and remote parties
Presume that delivery was for
transfer; BUT it may be shown
that it was delivered for some
other special purpose

FORGERY

Forged or without authority of the person whose signature it purports to be


o Inoperative, no right to retain the instrument, or give discharge, or enforce
payment THROUGH OR UNDER the signature
o UNLESS precluded from setting up the forgery or want of authority
Forgery is a REAL DEFENSE even against a holder in due course
o Burden of proof lies on the party alleging forgery
Cases of forgery:
o Forgery of promissory notes
Forgery of indorsement
Forgery of the makers signature
o Forgery of bills of exchange
Forgery of indorsement
Forgery of the drawers signature either:
With acceptance by the drawee
Without such acceptance but the bill is paid by the drawee
Severable (only the forged signature is inoperative) no rights only after the
forgery
o Ex. M payable to P Pay to A (P) Pay to B (A but forged by X) Pay to
C (B)
C cannot enforce against parties prior to forgery (M or P)
C cannot enforce against party whose signature was forged (A)

C can enforce against B (party after forgery who warranted the


forgery)
All parties post forgery has action versus the forger (X)
Party who signature was forged may enforce against prior parties (A
to P or M)
Two exceptions:
o 1. Party estopped from setting up forgery as defense (but these parties
can still recover under quasi-delicts)
1. Those who by their acts, silence, or negligence are estopped
Ex. Said its alright
Ex. Failed to inform the payee of the forgery many months
after discovery
Ex. Negligently failed to examine checks returned to him
Ex. Irregularity apparent on the face negligence
2. Those who warrant or admit the genuineness of the signature
Indorsers
Acceptors
Persons negotiating by delivery
o 2. Forged signature is not necessary to holders title
Central Bank Circular No. 9 24 hour period only within which the drawee-bank
must return a check to the collecting bank if the check is defective for any
reason
o 24-hour period upheld in Republic v Equitable Banking Corporation
o Remedy of drawee bank is against forger
o Generally, collecting bank bears the loss, but after 24 hours, the drawee
bank bears the loss
o Contra: Associated Bank v CA 24 hour requirement removed by
Philippine Clearing House, as long as the drawee bank reports
immediately
Right of DRAWEE to recover payment made where drawers signature
was forged
o Question: Can drawee of a B.O.E. recover a payment made to a holder in
due course where the signature of the drawer was forged?
o GENERAL RULE: the drawee bears the loss (cannot recover)
Acceptance prior to payment not a prerequisite
Because it is presumed the drawee knows the signature of the
drawer at least better than the holder in due course does
Also to maintain confidence in negotiable instruments
Also, the drawee bank should know the signature of the
depositor/drawer (its client) and when it pays out money of that
depositors account wrongly it should be liable for the loss
If both the drawee and collecting banks were negligent, liability is
proportionate to comparative negligence
Right of DRAWEE to recover payment where payees or indorsers
signature was forged

GENERAL RULES:
The drawee may recover from the INDORSER/ENCASHER
The drawee may not recover from the DRAWER/depositor
EXCEPTION: when it is the AGENT or EMPLOYEE of the
drawer/depositor that perpetuates the forgery, because
sooner or later some leak will show on the drawers book
o It is not the duty of the drawee to know whether or not the payees or
indorsers signature is genuine or not. It is the duty of indorser to warrant
the genuineness of the signatures in the negotiable instrument.
Rights of parties when there are forged indorsements
o 1. When note payable to order
Party whose indorsement is forged is NOT liable even to a holder in
due course
Parties prior to forged indorsement are not liable either
o 2. When note payable to bearer
Party whose indorsement is forged is LIABLE to a holder in due
course
But NOT to a holder not in due course
Parties prior to forged indorsement are LIABLE even to a holder not
in due course
Because the instrument can be negotiated by mere delivery
The only defense available is against a holder not in due
course
Ex. (Bearer instrument) M P A B (As signature forged by X)
C D (holder in due course)
Indorsement of M, P, or A not necessary to vest ownership to
D
M, P, and A can be liable to D
D may also enforce the note against B and C, as indorsers
o 3. When bill payable to order
Party whose indorsement is forged is not liable to any holder even a
holder in due course
If signature of the payee is FORGED, the collecting bank is liable to
the payee
As if the collecting bank converted the check without
indorsement
If drawee pays under a forged indorsement, the drawer is not liable
(drawee may NOT collect from drawer)
But drawee may recover from forger/subsequent parties
If the collecting bank receives the check for mere collection and
deposit cannot be expected to know the genuineness of all prior
indorsements
BUT if it stamped on the checks its guarantee that all prior
indorsements guaranteed then collecting bank is bound as
warrantor
o

Generally, the COLLECTING BANK or the LAST INDORSER suffers


the loss (because act of presenting the check to the drawee is
tantamount to indorsement of genuineness)
If drawer pays to an impostor mistakenly believing he was the
payee, this is NOT a forgery. Indorsement of the check is not a
forgery DRAWER liable to holder in due course.
Ex. Insurance company (R), H&S Bank (E), payable to order of P X
forged Ps signature as indorser and deposited in P.N. bank (C.B.)
P.N. indorsed the check to H&S (E), who paid and deducted from
insurance companys (R) account.
H&S (E) liable to insurance company (R).
o Because Ps signature is inoperative as forged.
P.N. bank (C.B.) liable to H&S (E).
o As warrantor.
X, forger, liable to P.N. bank.
o Because X is the forger.
X is liable both criminally and civilly.
P not liable for the check and may demand another check.
Insurance company (R) not liable because its order to pay to
P or his order and not any other person.

Negotiable Instruments notes for finals


GLENN TUAZON

NEGOTIATION

3 methods of transfer:
o Issue
o Negotiation
Indorsement + delivery order
Delivery bearer
o Assignment rules of non-negotiable instruments apply
Order instrument that is just delivered: assignment
Payment by drawee not negotiation
o BPI v CA: writing of name of holder on the back of the check before
surrendering to drawee-bank for payment is NOT an indorsement;
signature is just a receipt for the money. The drawee-bank is neither
payee nor indorsee.
Negotiation to payee?
o First delivery to payee just issue
o First delivery of instrument is to other person (such as agent) payee
acquired title by negotiation
o Delivery of instrument to the payee by the last holder negotiation
Evidence to prove conditional negotiation:
o Condition precedent can be proven by parol evidence
o Condition antecedent CANNOT be proven by parol evidence (because it
contravenes the written contract)

Negotiation
Negotiable instruments only
Transferee is holder
HDC only subject to real defenses
HDC may acquire better title than
indorser
General I warrants solvency of prior
parties
I not liable unless with presentment and
notice of DH
Governed by NIL

Assignment
Ordinary K
Transferee is assignee
Assignee subject to personal and real
defenses
Assignee steps into assignors shoes
Assignor does not generally warrant
solvency of prior parties
Assignor liable even without
presentment and notice of DH
Governed by Civil Code (1624-1635)

Indorsement
o FORM
Write on instrument itself or attached paper

Written includes print


If on attached paper allonge
Signature without additional words is enough
Must be of entire instrument
Cannot indorse just part
Else, becomes just assignee (becomes non-negotiable)
Cannot indorse to 2 or more severally
Joint = valid negotiation
Solidary = non-negotiable
If partially paid, residue may be indorsed
TYPES:
Methods
Special
o Specifies person to whom whose order it is payable
(still order)
o Need not use words of negotiability
Blank
o Becomes payable by bearer
o Converted to special if holder writes over the
signature of the indorser any K consistent with the
character of indorsement
Kind of title transferred
Restrictive
o When:
1. Prohibits further negotiation
2. Indorsee is the agent
3. Vests title to indorsee in trust
NOT WHEN its missing words of negotiability
o Effect: Indorsee can
1. Receive payment on instrument
2. Bring any action that the indorser can bring
3. Transfer his rights as indorsee when
indorsement authorizes him to do so
Subsequent transferees only receive
rights of I
Non-restrictive
Scope of liability of indorser
Qualified
o Indorser is mere assignor
o Without recourse (not willing to warrant solvency of
prior parties)
BUT still liable for breaches of warranty
1. Forgery
2. Lack of good title
3. Lack of capacity to K

4. Instrument valueless/invalid and known


to him
o Still negotiable
Unqualified/general
Presence or absence of limitations
Conditional
o Distinguish:
Conditional indorsement valid
Condition on face of instrument nonnegotiable
o Party liable may make payment regardless of
fulfillment of condition, but the payment held in trust
by the recipient subject to indorsers condition
If condition not fulfilled return money to the
indorser
Unconditional
Other kinds:
Joint
o Must be indorsed by ALL
Except if one can indorse for all
Except if they are partners
o Delivery of co-payee to the other: transfer full title
Successive
Irregular/anomalous
Facultative
Bearer instrument that is indorsed specially:
o Can still be negotiated by delivery
o But special indorser only liable to those who make title through his
indorsement
o ONLY applies to instruments originally payable to bearer
Indorsed to cashier/fiscal officer
o Prima facie deemed to be payable to the bank/corporation
DOES NOT include towns
May be disputed
o May be indorsed by the bank/corporation or the officer
Misspelled name:
o May indorse as misspelled, adding his proper signature
o Or proper signature
Indorsed in representative capacity: authority need not be in writing
Time negotiated:
o Prima facie: negotiated before overdue
UNLESS date appears on the indorsement
Place of negotiation:
o Prima facie: made at place where the instrument is dated
Continues to be negotiable until:
o Restrictively indorsed

Discharged by payment
Even if overdue still negotiable (just not HDC)
Corollary if non-negotiable but indorsed to bearer or to order: BECOMES
NEGOTIABLE AS TO INDORSER AND SUBSEQUENT HOLDER
Striking out indorsements:
o Bearer instrument
May strike out intervening indorsements not necessary of his title
release them from liability
All, any, or none
o Order instrument
If there is indorsement in blank, may strike out subsequent
indorsements (released)
BUT NEVER the payees indorsement (need his order)
Transfer without indorsement (for order instrument)
o Acquire transferor-for-values rights
o May compel indorsement
But to see if HDC, the indorsement is the reckoning point
If gratuitous CANNOT compel indorsement
When prior party reacquires the instrument
o Before maturity: may renegotiate it, EXCEPT:
Payable to order of 3rd person and paid by the drawer
Paid by accommodated party
When instrument is discharged
o But there is NO action on intervening parties between the acquisitions
o
o
o

RIGHTS OF THE HOLDER


Art 52. What constitutes a HDC A holder in due course is a holder who has taken
the instrument under the following conditions:
a) That it is complete and regular upon its face
b) That he became the holder of it before it was overdue, and without notice
that it had been previously dishonored, if such was the fact
c) The he took it in good faith and for value
d) That at the time it was negotiated to him he had no notice of any infirmity in
the instrument or defect in the title of the person negotiating it
Rights of ANY HOLDER:
1. May sue in his own name
2. Payment in due course to him discharges the instrument
Three types of holders:
1. Holder only
2. Holder for value

3. Holder in due course


a. If NOT in due course: subject to same defenses v. negotiable
instrument BUT still negotiable
Holder in due course
o Presumed
o X apply to holder of non-negotiable instrument
o Payee can be holder in due course Sec 191 treats payee as holder
Contrary view: instrument was not negotiated to the payee per se
o Drawee is NOT a holder
Four requisites:
o 1. Complete and regular
Complete: Must not lack any MATERIAL particular
Regular: must have no obvious alterations upon mere inspection
o 2. Before it was overdue
When overdue
1. Date of maturity is time fixed
2. If demand instrument, lapse of unreasonable time after
issue (PN) or last indorsement (BOE)
3. If date fixed, overdue at beginning of day after fixed date
Overdue still negotiable
If in installments:
Overdue as to those due before transfer, regardless of notice
or not
HDC as to installments maturing in the future (if no
knowledge of non-payment)
o 3. Good faith and for value
Bad faith: need not know exact truth; just that something is wrong
with the transaction
Good faith: not just honesty but also lack of suspicious
circumstances
For value:
Love and affection do not constitute value within meaning of
the law
According to US Uniform Commercial Code:
o 1. To extent of fulfillment of consideration/acquisition
of security/lien on instrument
o 2. When he takes the instrument in payment of or as
security for antecedent claim w/n the claim was due
o 3. When he gives an N.I. for it or makes an irrevocable
instrument to a third person
o 4. Without notice of infirmity in instrument or defect of title
RECKONING POINT: at the time of negotiation
Must have actual knowledge of infirmity or defect
Mere negligence is not enough
BUT if there are suspicious circumstance and available
means to inform oneself, then there is BF

Need not know exactly about the fraud or particulars thereof


just that there is fraud
Defect of title personal defenses; if acquired through:
Fraud
Duress, force, and fear
Other unlawful means
Illegal consideration
OR negotiated in breach of faith

For transferee who purchases the N.I. and there is no full payment yet:
o Only HDC to extent of what was paid before notice of defect
o No legal obligation to pay the balance
Ex. M P A (paid 12K, balance is 8K). P fails to deliver goods to
M. A is HDC only to extent of 12K

Rights of HDC
May sue on the instrument in his own
name
May receive payment and if payment is
in due course, instrument discharged
Holds instrument free from any defect of
title of prior parties
Holds instrument free from defenses of
prior parties among themselves

Rights of H not in DC
May sue on the instrument in his own
name
May receive payment and if payment is
in due course, instrument discharged
Entitled to instrument, but holds it
subject to defenses, as if it were nonnegotiable
Has all the rights of the HDC from whom
he derives title as to all parties prior to
the holder
As long as he is not a party to
fraud//illegality

May enforce payment for full amount


against all parties liable

When subject to original defenses


o For H not in DC: subject to same defenses as if it were non-negotiable
o H who derives title from HDC and not a party to fraud acquires that
persons rights to prior to the latter
Reason: as to not limit the rights of the innocent holder; itll be
limited if a third party knowledgeable of the fraud (but not a party
thereto) cannot be a HDC
o BUT a non-HDC cannot wash an instrument by giving it to
another and reacquiring it
He will re-acquire his prior status
Ex. M P (simple fraud) A (w/ notice) B (HDC) C (w/ notice)
D (w/ notice)
C is HDC, having acquired rights from HDC
If C P, P is still subject to personal defenses by M

D is not HDC, having acquired rights from X HDC


If C A, still X HDC; if CB, still HDC
o All defenses subject to estoppel
o Presumption that the holder is HDC
(No presumption applies for the prior holders)
BUT if it is shown that the title of any negotiating person is
defective: burden of proof shifts: need to prove now that he is HDC
Exception: if going against party who became bound to the
instrument prior to defective title
Ex. M P A (simple fraud) B C D
o D still enjoys presumption as HDC, if going against M,
because M become bound to instrument prior to defect
Real defenses:
o Against all parties, immediate and remote, including HDCs
o Only unenforceable against the party entitled to set up the defense
BUT not against those to whom defense is unavailable (example,
forgers and those who assented to it)
o Usually, because of the absence of essential element of a contract or the
contract is void by law
o Examples:
Incapacity as far as incapacitated person is concerned
Illegality of K when declared by law (except when M/R is himself a
party to the illegality becomes merely personal defense)
Incomplete and undelivered
Forgery
Want of authority apparent and real (agents)
Duress amounting to forgery as when one takes hands of another
and forces him to sign
Fraud in factum or fraud in esse contractus (Sec. 14)
Person didnt know that the contract was a N.I.
Fraudulent alteration by holder
Prescription
Infirmities on face of instrument
Discharge at or after maturity
Personal defenses:
o Grow out of conduct of a particular person that renders it inequitable for
him to enforce it against party to be made liable
o BUT available for HDCs
o Examples:
Filling of wrong date
Filling up of blanks not in accordance to authority given
Complete and undelivered
Absence/failure of consideration
Simple fraud/fraud in inducement
Person knew it was a N.I.
Acquisition of instrument (not signature) by duress or force/fear

Acquisition of instrument by unlawful means


Acquisition of instrument for illegal consideration
Negotiation breach of faith
Negotiation under circumstances amounting to fraud
Innocent alteration/spoliation
Set-off between immediate parties
Discharge by payment/renunciation/release before maturity
Discharge of party secondarily liable by discharge of prior party
Usury
Agent with apparent authority, but has want of authority
Immediate, remote, and prior parties
o Immediate parties direct contractual relation to each other
Privity, not proximity
No distinction between real and personal defenses (technically, all
defenses are real)
o Remote parties takes title to instrument by negotiation from either
original payee or subsequent holder
Prior party can only set up real defenses, if HDC
Prior party can set up even personal defenses, if not HDC
o Prior parties simply means before
HDC free from personal defenses made my prior parties among
themselves

LIABILITIES OF PARTIES
Liability of M:
Pay instrument according to its
tenor
Admit existence of P and his then
capacity to indorse

Liability of A:
Pay instrument according to tenor
of acceptance (not tenor of
instrument)
o BUT if there is alteration
and A was not aware of
such, then he pays
according to the original
tenor of the instrument, not
his acceptance
Admit existence of R, genuineness

Liability of R:
Admit existence of P and his then
capacity to indorse
Pay instrument if with due
presentment and due notice of
dishonor
o BUT R may insert in the
instrument express
stipulations limiting his
liability
Liability of irregular I (not a party, but
placed signature in blank before
delivery):
If payable to order of 3rd person,
liable to P and all subsequent
parties
If payable to order of M or R, liable
to all parties subsequent to M or R
o Here, M and P are the same
person
If signed for accommodation of P,

of his signature (*just the Rs not


the Is), and his capacity and
authority to draw
Admit existence of P and his then
capacity to indorse
On stop-payment orders by R:
If A accepted nonetheless: cannot
refuse to pay P (already
estopped), cannot debit Rs
account
Unless A accepted before the
order

liable to all parties subsequent to


the P

Warranties of indorsers:
If instrument negotiated by delivery
or qualified indorsement (without
recourse):
They are not liable unless there is
breach of any of the 4 warranties
(not subsidiarily liable)
o Qualified indorser to all
subsequent parties who
make title from his
indorsement
o Negotiated by delivery
just to immediate
transferee
Instrument is genuine in all respects
He has good title to it
All prior parties had capacity to contract
Does not apply to persons
negotiating public/corporation
securities other than bills and
notes
No knowledge of any fact that would
impair instrument

1. Primarily liable:
a. M
b. A
c. Certifier of check

Liability of general indorser:


Pay after due presentment and
notice of dishonor
BUT his warranties are even more
so, separate from his subsidiary
liability on the instrument to pay
Includes a person who placed his
indorsement on an instrument
negotiable by delivery
o If special only to holders
who make title through his
indorsement
o If w/o qualification treated
as general indorser
Instrument is genuine in all respects
He has good title to it
All prior parties had capacity to contract
Does not apply to persons
negotiating public/corporation
securities other than bills and
notes
The instrument is at the time of
indorsement, valid and subsisting
If the instrument is invalid then he
is liable w/n there is knowledge of
infirmity

2. Secondarily liable (a) due presentment for payment/acceptance to primary


party, b) due notice of dishonor):
a. R
b. I
i. If has signature on instrument but NOT M, A, or R deemed
indorser
1. Unless indicated in instrument intent to be bound in another
capacity
a. G or S
b. Differentiate:
i. Payment guaranteed will pay even without
attempt to collect from the party liable
ii. Collection guaranteed will pay after failure to
collect
c. Agent bank for collection: guarantees genuineness of
all prior indorsements but NOT the Rs signature
2. Not just a presumption, but fixing of absolute status
ii. Order of liability:
1. Among indorsers there is prima facie order of liability (in
order of indorsement)
a. May be disputed by parol evidence written or oral
i. Ex. irregular indorser will not be liable to
accommodated party, even if the latters
signature appears after his
b. As to holder he is not bound by order/internal
agreement
2. Joint payees/joint indorsees:
a. Solidarily liable cannot escape liability just because
no notice to the other
b. BUT we promise joint liability only
iii. If agent or broker:
1. Need to disclose name of principal and his acting as an agent
only
2. ELSE, liable akin to negotiation by delivery/qualified
indorsement
3. Not liable:
a. E until he accepts BOE

PRESENTMENT FOR PAYMENT

NOT NECESSARY to charge the person primarily liable (M/A)


o EVEN IF required by instrument
o But if instrument is payable at a special place:
Able and willing to pay it there at maturity equal to tender of
payment
But necessary for those secondarily liable

Discharged if there is no presentment made unless excused or


dispensed with
When presentment needed:
o Fixed/DFT on day it falls due
o On demand reasonable time after issue
If BOE reasonable time after last negotiation
Requisites of sufficient presentment:
o 1. By holder/agent
o 2. Reasonable hour on a business day
Bank: banking hours
Unless if debtor has no sufficient funds can present at
any hour before bank closes that day
Place of business: business hours
Residence: usual hours of rising and retiring
Rules on time of maturity:
If Sunday/holiday next business day
If Saturday and it is a time instrument next business day
If Saturday and it is a demand instrument may be
presented before 12 noon or Monday
Computation of time:
If fixed period after date/sight: exclude day when running
begins and include date of payment
o 3. At proper place in following order:
As stipulated
If specific branch of company, cant pay at principal office
If none stipulated but address of person is indicated, there
If neither is stipulated, usual place of business/residence
Else, wherever he can be found or last known business
place/residence
Rule on banks: tacit order for bank to pay from account of
debtor
But not if the order is any bank
o 4. To primarily liable person
If absent/inaccessible, to any person found at place of
presentment
Mode of presentment:
o Must exhibit instrument to person
But if the person to pay does not ask to see the instrument, then
it is deemed a waiver
o When paid deliver to paying party
Rules on persons
o When debtor is dead and no place of payment specified:
Present to personal representative
If he can be found with reasonable diligence else, dispensed
with
o When partners are liable and no place of payment specified:
o

When

Presentment made to any one of them


Even though there has been dissolution
non-partners jointly liable:
Presentment made to all of them

Exceptions to presentment:

When
o
o
o

When
o

o
o
o
o

delay excused prerequisites:


Circumstances beyond control of holder
Not imputable to default, misconduct, or negligence
BUT, when cause ceases, presentment must be made with reasonable
diligence
dispensed with:
When presentment cannot be made, after exercise of reasonable
diligence
Ex. when government had closed the bank
Ex. when proper place cannot be determined because none of
the provided places apply
BUT NOT simple knowledge of Ms insolvency
When E is fictitious person
Waiver, express or implied
It must be secondarily liable party that waives presentment
Dishonored by non-acceptance
When not needed to charge R:
When he has no right to expect or require that A will pay the
instrument
When not needed to charge I:
When instrument made for Is accommodation only (thus, M/A is
simply a surety/accommodation party)
Or when no reason to expect that the M will pay

NOTICE OF DISHONOR

The R or each I who are not given notice of dishonor discharged


o But not discharged as to subsequent innocent indorsees who did not know
of failure of prior party to give notice to the party primarily liable
Objective:
o To inform the parties that the M/A failed to meet engagement
o To advice them that they will be required to make payment
Who can give notice:
o 1 and 2. Holder or another in his behalf
Who benefits from notice given by/in behalf of holder:
1. All subsequent parties to holder
2. All parties prior to holder who have right to recourse
against party given notice

Ex. M P A B C D
Instrument dishonored in hands of C, and C
gave notice to A
Benefited:
D (subsequent holder)
B (prior party who has recourse against party
given notice)
3 and 4. Another party to instrument who might be compelled to
pay or another in his behalf
And towards a party he has a right to reimbursement
Ex. M P A B C
o Instrument is dishonored in hands of C
o C may give notice to B
o In turn B may give notice to A or P because he has
right to reimbursement from them (but not A to B, for
instance)
Who benefits from notice given by/in behalf of this entitled party:
1. Holder
2. All parties subsequent to party to whom notice is given
o Ex. M P A B C D
C gave notice to P
Benefited:
D (holder)
A and B (parties subsequent to whom notice is
given)
on agents giving notice:
Differentiate:
Need not be authorized, in order to give notice of dishonor
But MUST be authorized to receive notice of dishonor
If dishonored in hands of agent:
May inform the parties liable
Or inform his principal
Within same time period as if he were holder
Then principal has same time period to give notice thereafter
on form of notice:
May be oral or written
Need not be signed
1. Instrument properly identified
Misdescribed instrument no vitiation of notice, unless party
given notice is misled
2. Indicate that it had been dishonored
Insufficient written notice may be supplemented by verbal
communication
Personally/through mail
on parties
If party is dead:
o

Rules
o

Rules
o

o
Rules
o

Must be given to personal representative provided that:


1. Death is known to party giving notice
2. There is a personal representative
3. He can be found with reasonable diligence
If any of the requisites do not apply, notice may be sent to last
residence/place of business of deceased
o If they are partners: notice to one is enough, even w/ dissolution
o If jointly liable, but not partners: notice to all, except if one is authorized to
receive notice in behalf of others
But if joint payees/join indorsees they are solidarily liable (notice
to just one does not discharge others), so the rule above does not
refer to them
This applies to joint accommodation indorsers
o If bankrupt/insolvent party:
Notice to party
Or trustee/assignee
Time when notice of DH must be given:
o When parties reside in same place
If given at place of business: before close of business hours on the
day following DH
If given at residence: before usual hours of rest on the day following
DH
If sent by mail: deposited in time, as to reach him in usual course of
they day following DH (time of deposit controls)
Not liable for lost mail
Deposit in:
o P.O
o Any branch of the P.O.
o Any letter box under P.O.s control
o When parties reside in different places
If sent by mail:
Deposited in post office in time to go by mail the day
following DH
If inconvenient hour, the next mail thereafter
If given through other means:
Must receive notice at same time as if he were given notice
by mail
o N.B. when time to give notice falls on Sunday/holiday must give notice
the following business day
o He who was given notice has same time to give notice to antecedent
parties
Where notice must be sent
o If address stated, give notice there
o ELSE:
P.O. nearest to his place of residence/P.O. where he is accustomed
to receive letters

Either residence/place of business (if different)


Where he is sojourning
o BUT these rules may be relaxed, as long as notice is received
Exceptions to notice of DH:
o Waiver:
May be express or implied
Ex. of implied
o Payment of interest by indorser upon learning of Ms
default
o Admission of liability after DH
o Promise to pay note if M does not pay
o Suggesting plan of settlement
Before or after time to give notice has arrived
o Whom affected by waiver embodied in instrument:
It binds all parties
EXCEPT if waiver is above signature of indorser only just him
o Waiver of protest: deemed waiver of protest AND presentment AND notice
of DH
Waiver of presentment: deemed waiver of notice of DH too (called
facultative indorsement, if indorser waives)
BUT not the other way around
o When dispensed with:
If cannot be given after reasonable diligence
Should endeavor to find the whereabouts of party (looking at
directory is not enough)
Need not be given to R:
When R and E are same person
E is fictitious/no capacity to contract
R is person to whom instrument was presented for payment
R has no right to expect/require that E/A will honor
R has countermanded payment (stop payment order)
Need not be given to I:
E is fictitious/no capacity to contract and indorser was aware
of this at time of indorsement
I is person to whom instrument was presented for payment
Instrument made/accepted for his accommodation (thus he is
primarily liable anyway)
No need to give notice of non-payment
If there was notice of non-acceptance
o Unless accepted in meantime
N.B. failure to give notice of non-acceptance by prior party
DOES NOT prejudice subsequent HDC
o Delay excused:
Circumstances beyond holders control
W/ no default, negligence, misconduct
After cause is gone, notice must be given

DISCHARGE OF INSTRUMENT
How discharged:
1. Payment in due course by/in behalf of principal debtor requirements:
a. By principal debtor/in his behalf
b. Made at or after date of maturity
c. Made to holder
d. Made in GF and w/o notice of defect in holders title
2. Payment in due course by accommodated party
3. Intentional cancellation by holder
4. By other acts that discharge K (payment, loss, compensation, condonation,
confusion, novation)
5. When principal debtor becomes holder of instrument in his own right (at/after
maturity)

All parties are released, whether primary or secondary


Instrument cannot be negotiated anymore

When secondarily liable party is discharged:


1. Any act which discharges instrument (see above)
2. Intentional cancellation of his signature by holder
a. No consideration needed
3. Discharge of prior party
a. Must be discharge made by holder, not by operation of law
4. Valid tender of payment by prior party
a. Even if there was unjustified refusal to accept tender
5. Release of principal debtor
a. Unless right of recourse against secondarily liable party is reserved
6. Extension of time of payment (with holder)
a. Unless assented to by secondarily liable party
b. Or right to recourse against the secondarily liable party is reserved
c. MUST:
i. Be supported by valuable consideration
ii. And for definite period

If a party secondarily liable pays the instrument:


o It does not discharge the instrument
BUT discharges him and subsequent parties
He may strike out subsequent indorsements
o He is returned to former position against prior parties
o And he may negotiate the instrument again, except:
If it has been paid by the R, when payable to order of third person
Paid by accommodated party
Holder may renounce rights v. any party
o If v. principal instrument discharged

Can only be at or after maturity


Contra: secondarily liable parties can be discharged before,
at, or after maturity
o Does not affect HDCs rights if no notice
o Renunciation: must be in writing
Unless instrument delivered up to person primarily liable
o This applies to unilateral acts by holder (i.e. no consideration)
Oral release w/o consideration is ineffective
Cancellation
o No effect if:
Unintentional
By mistake or fraud
Without authority
o BUT presumption is that it was done intentionally
Alteration:
o VOIDED if alteration is MATERIAL
DISCHARGE all prior parties who did not assent to the alteration
W/N the alteration was beneficial or not
o Except against:
He who made alteration
Authorized alteration
Assented to alteration
o BUT if in hands of HDC may enforce instrument according to its original
tenor
o If alteration made by stranger: spoliation
English rule: same effect as alteration
American rule: no effect if original meaning can still be ascertained
o Ex. M (3,000) P A (raises amount to 8,000 with Ps consent) B C
D (X HDC)
M discharged
D cant enforce against M even for original tenor
A liable to D for 8,000 (although D is X HDC)
P also liable for 8,000 as he assented
B and C also liable to D for 8,000 as subsequent indorsers
o Ex. M (3,000) P A (raises amount to 8,000 with Ps consent) B C
D (HDC)
D can enforce instrument against M for 3,000
D can recover 8,000 from P, A, B, C should M dishonor
o Which alterations are material
Date
Unless not material to fix maturity
Sum payable (principal or interest)
Unless only change of marginal figures, but not words
Time or place of payment
Change to correct date immaterial
Number or relations of parties

Medium or currency
Adds place of payment

BILLS OF EXCHANGE
Form and interpretation

When a PN is like a BOE: when indorsed by the payee


o M = acceptor, indorser = drawer, indorsee = payee
When a BOE is like a PN: when accepted by the drawee
o A = maker, R = surety
o Certified check: bank = maker
Classes of BOEs:
o Draft: common term for BOEs
Demand draft, sight draft, time draft
Bank draft drawn by a bank against its branch or another bank
Domestic draft drawn and payable in one country
International draft drawn in one country, payable in another
Liabilities in bank drafts:
Drawee bank must comply with instructions of drawer-bank;
has burden of proof in violations
Drawer bank liable for debiting customers account despite
stop payment order; has burden of proof here
Differentiate:
Bank draft always drawn on a bank
Check always drawn on a bank and payable on demand
o Trade acceptance: BOE drawn by seller on purchaser of goods and
accepted by latter
Has definite date of maturity: only in purchase and sale of goods
As if the purchaser as given seller a PN
Bankers acceptance: if drawn against a bank
Usually the purchaser has to give collateral or deposit
Drawee:
o Stranger to the bill
o Not bound to accept
o E who refuses to accept
Cannot be held liable even by HDC
But can be liable to R for refusing to accept
o If check dishonored, then action of P is not against drawee-bank, but
against R
o There can be 2 joint Es (partners or not), but not
Alternative Es
Successive Es
Inland bill drawn and payable in Philippines (on its face)
Foreign bill Any other bill

Unless proof otherwise appears on face of bill can be treated as inland


Purpose of distinction
To see if protest needed
To determine applicable law
When BOE may be treated as PN:
o If R & E are same person
Ex. bank on its branch
Ex. corporation on its treasurer
Ex. agent on his principal
o If E is fictitious
o E no capacity to K
Referee to whom H can resort to after DH
o But not required to go after referee
o
o

Acceptance

Form:
o Must be in writing
o Signed by E
o Express a promise to pay money
o Delivered back to holder by the E/A
Holders right:
o Can compel A to write acceptance on face of bill
o If not can treat bill as DH
o Although it is not required per se to have acceptance written on face of
BOE
If acceptance is on separate instrument:
o Only binds those to whom the acceptance is shown
o And who took instrument for value on faith thereof
If acceptance is through unconditional promise in writing before bill is drawn:
o Deemed as actual acceptance as to third person
o Who took instrument for value on faith thereof
Time limit: 24 hours after presentment, to decide if he will accept
o Acceptance deemed as date of presentment
Constructive acceptance:
o E willfully destroys the bill
o Refused to return within 24 hours after delivery
o Contra: but there is NO implied acceptance, only constructive
o This only applies for presentment for ACCEPTANCE, not for payment
E may still accept bill:
o Even before it was completed
But if the bill was transferred to the holder while incomplete, he is
NOT a HDC
o Even after it was overdue
o After it was DH
Deemed that it was accepted after the first presentment
Kinds of acceptance:

General assent without qualification


Acceptance to pay in a particular place still general
EXCEPT if it expressly states that the bill will only be paid there
Qualified:
Conditional: dependent on fulfillment of a particular condition
Partial: only for part of the amount
Local: to pay only in a particular place
As to time: payable after lapse of certain period only
Some of the Es only, but not all
Right of H if qualified:
May treat it as DH
BUT if the H accepts:
R and Is are discharged, unless they assented to qualified
acceptance
R and Is must dissent within reasonable of notice that there was
mere qualified acceptance

Presentment for acceptance

When needed:
o If bill is payable after sight, or presentment needed to fix maturity of
instrument
Ex. Payable 30 days after sight
o Bill expressly stipulates need for presentment
o Bill is payable elsewhere than residence/business place of E
Ex. bill payable to P at Manila, and E lives in QC
o BUT it is in Hs best interest to present it for acceptance:
To bind E as A
Else, only R and Is can be considered debtors
When:
o H, WITHIN REASONABLE TIME, must either:
Present it for acceptance or
Negotiate it within reasonable time
o ELSE, the R and Is are discharged
How:
o By or on behalf of H
o Reasonable hour
o Business day
o Before bill is overdue and within reasonable time
o To E or person authorized to accept in his behalf
o Place is immaterial
o If to 2 or more drawees:
If partners can be to either
Else must be to all (unless 1 authorized to accept for all)
o E is dead:
To personal representative
o E is bankrupt:

MAY present to assignee/trustee


Days: same as presentment for payment
Excuse for delay:
o When there is insufficient time to present for acceptance, then present for
payment
o Because the E lives elsewhere from place of payment
Ex: maturity is Sept 10 payable in Manila, H got it at Sept 9, and E
lives in Zamboanga
Excuse non-presentment for acceptance:
o 1. E is dead, has absconded, fictitious, or has X capacity to contract
o 2. After exercise of reasonable diligence
o 3. Whereas presentment was irregular, there was refusal because of some
other ground
When BOE is DH by non-acceptance:
o 1. Presented, but refused or cannot be obtained
o 2. Presentment excused and bill is not accepted
Duty of H after non-acceptance:
o Take necessary proceedings against R and Is
o OR ELSE, R and Is are discharged
o H may already proceed against R and Is
Even without presentment for payment
Even without waiting for maturity

Protest

Applies to foreign bill (appearing on its face) that has been DH by nonacceptance or non-payment
o If not protested, R and Is discharged
o If it being foreign does X appear on its face, then it need not be protested
Protest: executed by N.P./competent person certifying that the facts of DH has
taken place
o Formal declaration of DH
o Must be annexed to the bill (or must contain copy of bill)
With seal of N.P. and signed
Specify:
Time and place of presentment
Presentment was made and manner thereof
Cause and reason for protest
Demand made and answer given if any or fact that E/A
could not be found
Procedure:
o After DH, holder takes instrument to NP
No need for witnesses
o NP presents the instrument again to the DHing party
o If refused, NP makes a minute of the DH on the instrument or in notarial
register

NPs Initials, year, month, day of DH and his charges


Certificate of fact of protest affix notarial seal (noting)
NP sends notice of DH to all parties on the instrument
made:
Made on day of DH
Except when excused
Else, discharge secondarily liable parties
o But N.P. need not issue certificate on same day as noting
But upon issue of certificate, it retroacts to day of noting
Where made:
o Where it was DH
o EXCEPT if DH by non-acceptance, protested where it is payable (other
than where E resides/conducts business) protest there
When protested for non-acceptance, protest for non-payment discretionary
Protest for better security:
o Before maturity of bill
o If A was adjudged insolvent/made assignment to creditors
o Optional merely to apprise
Protest dispensed with for same reasons as in notice of DH
o As with delay
Loss/destruction of bill:
o Does not excuse protest
o Protest made on copy or written particulars of bill
o
o
When
o

Payment for honor

Where bill was protested for non payment


o Any person may intervene and pay for it supra protest
o WHETHER A PARTY TO THE BILL OR NOT
R, stranger, whoever
o Not applicable to PNs
Form: needs notarial act of honor appended to the protest or forming an
extension of it
o Made by payer for honor/agent declaration intention to pay for honor and
for whose honor
o Then notify within reasonable time party for whose honor it is paid
o ELSE, mere voluntary payment under Civil Code
Where two or more offer to pay for honor, then the one whose payment
discharges the most parties is preferred
o If party refuses to be paid for his honor: lose recourse against any party
who would have been discharged
Effect:
o Discharge all subsequent parties to one whose honor it was paid for
o Payer for honor subrogated to rights of the holder as to party he paid for
and all those liable to that party
Payer for honor receives:
o Bill itself

And protest

PROMISSORY NOTES AND CHECKS

PN payable to Ms order not complete until delivered by the M

Special types:

Certificate of deposit
o Bank = debtor, depositor = creditor
o Bank promises to pay to depositor, or to him or his order, or to third
person/order
o On demand/fixed date often with interest
o =/= deposit slip
Bond
o Evidence of indebtedness issued by public/private corporation
o Long period of time, and for very large amounts
Registered bond non negotiable; only payable to person appearing
on face of certificate
Coupon bond with interest coupons that may be detached and
negotiated like PNs independent of main instrument
Bank note issued by bank for circulation payable to bearer on demand
Due bill PN, on its face: person acknowledges his indebtedness to another
Mortgage note indicates that the M can be foreclosed if note is not paid
o Chattel M note
o Real Estate M note
Title-retaining note thing remains in Es name, until fully paid
Collateral note M pledges securities to payee to secure payment
Judgment note attached power of attorney enabling payee to take judgment
against maker without formality of trial if note not paid

Check

Defining characteristics: drawn on bank; payable on demand


o R must be person other than bank (if R is a bank, then it is a draft)
o No need for presentment for acceptance
But bank stands as A, technically
Certification, instead of acceptance
Either on check itself or on separate instrument
Discharges persons secondarily liable if procured by holder
o If procured by some other person, no discharge
Operates as assignment of funds of R in hands of E-bank
o Thus, the P/H becomes the new depositor of the Ebank
Bank primary debtor and cannot refuse upon certification
R may not issue a stop order payment anymore

o
o

o
Types
o

BANK ESTOPPED
o Cant challenge genuineness of signature
o Cant use lack of funds as defense
Can only be certified when payable
Without certification: remedy is for H to go after R
When bank may refuse:
Bank insolvent
Rs deposit insufficient
R insolvent and proper notice received by bank
R dies and proper notice received by bank
R countermanded payment
H refuses to identify himself
Bank believes check is forged
Check is stale/postdated
Also serves as receipt when paid and cancelled by the bank
Delivery of check itself is not payment of debt may be refused by
creditor
Not a valid tender of payment
Only when cashed
Substitute for cash: misappropriation of check into anothers account:
ESTAFA
Postdated checks as if they werent issued until the day indicated
of checks:
Memorandum check:
memorandum/memo/mem written on face of check
R engages to pay H absolutely, without need for presentment + due
notice
Check = evidence of debt, but may also be presented for payment
to bank
Cashiers check:
Drawn by cashier of a bank against the bank itself
Not subject to countermand
Can be treated as PN, with bank as M
Usually treated as good as cash
Managers check:
Drawn by bank manager against bank itself
Substantially as good as the money it represents
Travelers check:
Hs signature must appear twice
First upon issue
Second for counter-signature by him in presence of payee
To provide traveler convenient payment method without hassle of
carrying cash
Sold by banks and express companies
Certified check:
Upon its face: E-bank agrees to pay upon presentation

Stamped: certified
Crossed check:
Specially: two parallel lines on upper left corner name of particular
bank or company written
The E-bank will only pay to that bank/entity
Else, E-bank can be held liable a second time
Generally: no name written, or and co.
Must pay check through bank/banker (cannot be pay to
cash)
Still negotiable, albeit to those with bank account
Payees account only indicates that it must be deposited in
account of payee only
Has cause of action against bank, because it must exercise due
diligence
When checks become stale: 6 months
o No automatic discharge of R only if he suffers any loss from delay
o Banks will normally not pay without consulting R
When indorsement of R not necessary: when paid to cash
Bank need not identify who the bearer is
o But may ensure identity of bearer, if reasonable
Duty of depositor:
o Diligence, as to DEPOSITORY BANK
Exercise diligence by keeping record of all checks issued in record
slip
To check for forgeries
o None, as to collecting bank
No privity
o

Check
Always drawn on bank
Always payable on demand
Drawn against previous deposit
Need not be presented for acceptance
Ordinarily intended for immediate
payment
Death of R = revokes banks authority to
pay
Must be presented for payment within
reasonable time after issue
R = discharged from liability to extent
of loss caused by delay if not
presented within reasonable time
Indorser totally discharged
When certified R and Is totally
discharged

Ordinary BOE
May or may not be
May or may not be
Need not be
Requires presentment for acceptance
Instrument of credit, intended for
circulation
Death of R = does not revoke authority
Must be presented for payment within
reasonable time after last negotiation
R = totally discharged if not presented
within reasonable time

When accepted, R and Is still liable


(secondarily)

LETTERS OF CREDIT

Definition:
o instrument issued by bank guaranteeing its clients ability to pay for
imported goods and services
o Authorizing a firm/individual to draw drafts on the bank
o Under certain conditions present:
Draft
Required shipping documents
Sometimes used for non-sale settings, to reduce risk of nonperformance
Three distinct contracts:
o 1. Sale between buyer and seller
o 2. Contract of buyer with issuing bank
o 3. Letter of credit proper in which bank promises to pay seller pursuant
to conditions
PERFECTION once the correspondent bank pays seller/person in whose
favor it was opened
o Just a mode of payment, so it doesnt affect perfection of the sale
contract (first K)
Essential parties (at least 3):
o Buyer/applicant procures LOC, obliges self to reimburse issuing bank
o Issuing bank undertakes to pay seller upon receipt of draft +
documents of title
o Seller/beneficiary ships goods and delivers documents to recover
payment from bank
Optional parties (CORRESPONDING BANKS):
o Advising bank conveys to seller existence of credit
No duty to assume the LOC
o Confirming bank lends credence to LOC issued by unknown bank
Direct obligation and liability with regard to it is primary
o Paying bank undertakes to encash drafts drawn by exporter
o Negotiation bank buyer may approach negotiating bank to have draft
discounted instead of approaching issuing bank
Has right of recourse against issuer bank
Relationships:
o Issuing bank and seller technically have no privity
But seller can enforce his right
o NOT a contract pour autrui because issuer must honor drafts
regardless (even if sale contract failed)
o NOT an assignment (buyer/applicant cant draw on LOC)
o NOT a guarantee/surety
o NOT a negotiable instrument (not payable to order/bearer)
STRICT COMPLIANCE NEEDED

But only on basis of documents submitted no regard to minute details


of original sale contract (independence principle)
o EXCEPTION to independence principle: FRAUD
Ex. untruthfulness of certificate accompanying demand for
payment
REMEDY: injunction, which should not be granted unless
Clear proof
Fraud to abuse LOC, and not just under the main contract
Irreparable injury might follow if injunction not granted
Irrevocable LOC the issuing bank may not unilaterally revoke undertaking,
except with sellers and buyers consent
o Cannot be cancelled even by court order
Confirmed LOC assumed by correspondent bank: gives absolute assurance
that the beneficiary will undertake the issuing banks obligation according to
terms
MARGIN FEE: tax on sale of foreign exchange
o Applies as soon as the local bank opens the LOC
o marginal deposit to cut off excess currency liquidity
Deducted from principal obligation under LOC
TRUST RECEIPT issued as security of the loan
o To aid importers and dealers who do not have sufficient resources, and
may not acquire credit except through using merchandise as collateral
o Obligation to keep the goods in trust
And to sell/dispose goods and turn over proceeds
Or return if unsold
Distinguish commercial credits from standby credits:
o CC: payment of money under contract of sale, upon compliance
Documents certify performance
o SC: credit payable upon certification of partys non-performance
Beneficiary must certify obligors non-performance
o

Das könnte Ihnen auch gefallen