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NOTES in Negotiable Instruments


Acceptance of a bill of exchange by the drawee must be in writing and signed by

Signature of the maker or drawer may be located anywhere on the face of the
acknowledgment of a debt without a promise renders the instrument nonnegotiable. The words: Payable and to be paid signify an intention to pay
If a promise or order is subject to a condition, the instrument is not negotiable and
the happening of the condition does not cure the defect.
The sum payable must be certain and in money only.
A note becomes payable on demand if it is issued, accepted or indorsed after
maturity of the same.
An instrument becomes payable to bearer if it is payable to order of a fictitious
person and if the last indorsement is indorsement in blank.
A bill of exchange may be addressed to 2 or more drawees JOINTLY but not
alternatively or in succession.
even if there is stipulation or penalty cost in case of nonpayment at maturity, the
instrument is still negotiable because the sum at maturity is the one required to be
certain not the sum after maturity.
The test in determining the negotiability of the instrument is whether or not on the
face of the instrument involves 2 steps: (1) The drawee pays out of his own fund
(2) he reimburse himself from the particular account indicated to be debited. This
process guarantees the payment to the payee because the payment will come from
the funds of the bank.
If the holder of the instrument is given the option between money and nonmonetary, the instrument is still negotiable because it is the creditor who is given
the option not the debtor.
The holder in due course can still proceed against the maker in case of insertion of
wrong date (as to him the date so inserted is the time date).
In a mechanically incomplete but delivered instrument, holder in due course can
enforce the instrument against the maker. If the instrument is delivered without
authority from the maker,holder in due cannot enforce payment of the instrument
if it is incomplete before delivery . If it is complete, holder in due course can
enforce payment against the maker (valid delivery is conclusively presumed).
Where the instrument is not dated, it will be dated as of the time it was issued.
When a drawee destroys a bill or refuses within 24hrs to return the bill accepted or
not, he is liable thereon.

It is incumbent upon the person dealing with an agent to inquire into the agent's
authority since the principal is liable only if the agent acted within the scope of his
Lack of capacity such as being a minor/insane/deaf-mute is a real defense
forgery of an indorsement cuts off the indorser whose signature is forged and prior
parties from the claim of parties subsequent to the forgery, if the instrument is
payable to order. If the instrument is payable to bearer but nevertheless indorsed,
the holder can enforce the instrument against the indorser whose signature is
forged and against the prior parties
The liability of a person negotiating by mere delivery is only to the immediate
The accommodation party is considered as solidary co-debtor. Any payment by
him shall be reimbursed by the party accommodated (principal) since he is the
In negotiation, presentment and notice of dishonor is required to make an indorser
liable. This is not needed in assignment.
Indorsement of an instrument must be in whole. Thus, it would not be a valid
indorsement if the transfer is for only a part of the amount payable.
Splitting the amount payable to 2 or more person is not a valid indorsement.
The indorser cannot add or include words inconsistent with the contract unless
authorized by maker.
Restrictive indorsement can either (1) prohibit the further negotiation of the
instrument, (2) constitutes the indorsee the agent of the indorser (3) make the
indorsee in trust for.
Even if qualified indorsement has without recourse, the indorser is still liable on
his warrranties.
The maker cannot be burdened with conditions which were not part of his
contract. Thus, he can pay the indorsee anytime he wishes even if the condition
imposed by the indorser is not yet fulfilled.
A person indorsing specially is liable only to holders who acquired title through
indorsement. If a person negotiates by mere delivery, he is only liable to the
immediate transferee.
Intervening parties enjoy a temporary defense while a prior party to the
instrument is the holder. If the prior party negotiates the instrument to a holder in
due course, the latter can go after intervening parties.
A holder in due course is similar to an assignee because he is subject to every
available defense.
Discharge of the instrument before maturity is a personal defense while discharge
at or after maturity is a real defense.

Unlawful, absence or failure of consideration is a personal defense.

A holder not in due course shall have all rights of a holder in due course if he
derives his title through a holder in due course, provided that he is not a party to
any fraud, though he is aware of the defect.
The liability of a person negotiating by delivery, qualified indorser and general
indorser differs in that, the first two are not liable if they are not aware that the
maker was insolvent or did not receive any valuable consideration or that the
consideration for issuance or negotiation was illegal.
Joint payees or indorsees are liable solidarily under the instrument.
Presentment for payment requires personal face to face demand at the proper
place. It is not required to those primarily liable on the instrument (drawee and
maker ).
Drawers and indorsers are liable even without presentment for payment when a
bill is dishonored by non-acceptance.
Notice of dishonor may only be given by a party to those party whom he can hold
liable (prior parties, not subsequent). The party who was not given notice of
dishonor is discharged
Estafa and violation of bouncing checks law differ in that, the former involves
deceit or fraud because the payee is induced to enter into a transaction by reason of
check payable at the same time with transaction. Basically, they differ in the
timing of check issuance ( i.e., estafa involves issuance of check at the transaction
date while bouncing check is after the sale transaction ).
Payment made before maturity is not payment in due course or it wont discharge
the instrument because the payor may negotiate the instrument. It should be the
party primarily liable on the instrument who can discharge the instrument.
If payment is made by the accommodation party, he is not discharged because he
still can go after the party accommodated for reimbursement.
In acceptance for honor, it must be a stranger accepting the instrument before it is
due for the honor of the drawer or any indorser. This is done to save the credit of
somebody else.
One of the purposes of crossing the check is to obtain assurance that the check will
be paid only to the rightful person.
A check with the word memorandum written on its face would mean that the
drawer engages to pay the bonafide holder absolutely without the need of
presentment for payment.
Treasury warrant is a check drawn by an officer of the Philippines. It is an
obligation or security of the Philippines. It is not negotiable because it is payable
from a specific appropriation.