NEGOTIABLE INSTRUMENTS APRIL 21, 2018 (SATURDAY)

There is always that danger when negotiating a NI that there may or may not be a c

Lets say, A is obligated to pay you 20K, and ask you agreed to cheque. You went to a bank but cheque
is dishonored. Therefore, there are people who have credit and those who don’t. People who can be
trusted and those who don’t.
Hence, if a dishonest or not trustworthy person would give you BoC or PN, you will not accept it.
Accommodation part comes in.
ACCOMMODATION

April 21, 2018

To: Dwight Lopez

Pay Frank Lim or order of P100,000.00 on his demand.

(Sgd.) Alberto Lim

Kind of Instrument? BoC because of an unconditional order to pay a sum certain in money.
Negotiable? Yes
How is it payable? To order hence it is negotiated by indorsement and delivery
Scenario:
Frank Lim owes Sandra 100k. Dwight Lopez is a Secretary of Frank. Being so, Dwight is in charge to
all affairs and dollar account or custodian of Frank’s money. Now, Sandra is demanding payment of
100k from Frank which was due 3 months ago but Frank has no cash as of yet. So Frank instead
offered a cheque. Si Sandra walang tiwala kay Frank.
Sandra: Wait, 3 months ago yung utang mo, if you have the capacity to pay me you should have paid
me 3 months ago. Now you’re offering me a cheque. May laman ba yan?
Frank: Bakit, wala ka bang tiwala saken?
Sandra: Wala!! If you want me to take that cheque, get someone who does not come from you.
IF you were Frank, to whom would you ask for help? Perhaps someone who has a better reputation
than you. You need someone to lend a “good name” to you.
Now Frank approach a friend who is a manager of Metro Bank. Would you look now at him as a person
having credibility or who is trustworthy? Yes.
Frank: Hindi ka tatanggap ng bill mula sakin pero tatanggap ka ba ng bill mula kay Alberto Lim?
Sandra: Bakit siya ba ang manager ng Metro Bank?
Frank: Yes.
Sandra: Well then, if you can get Alberto Lim to draw a BoC in my favor, I will accept that.
Hence, it’s no longer Frank who will sign but Alberto Lim.
What happened? Alberto accommodated Frank as an accommodation drawer.
Who will sign as drawer? Alberto Lim
To whom will he delivery the instrument? Sandra
To whom will Sandra present the instrument for acceptance and payment? Dwight
Where does that leave Frank? What if Frank run away, went into hiding or travel to Abra (haha).
Will Sandra still get paid? Yes.
Why? The drawee, the drawer in the event that Dwight dishonors, Alberto will be required to pay
because he undertook the responsibility of a drawer even by accommodating it to someone else?
How do we make Frank liable?

April 21, 2018

To: Dwight Lopez

(something is
missing here: Pay to Sandra or order of P100,000.00 on his demand.
Alberto )
(Sgd.) Frank

Who drew the instrument? Alberto Lim

Does Alberto have the credibility to draw the instrument? Yes
To whom it is payable? Frank
If Frank indorse or negotiated the instrument to Sandra, Sandra now being the holder, can she claim
payment? Yes
Case: You have a person who accommodated another person as drawer, that person may also
accommodate the accommodated party as acceptor or indorser.
What we’re after here is how do you make a party to the instrument credible. And how do you make
the accommodated party a party to the instrument. There is only one way by which you can have a
person sign an accommodation party (accommodation drawer in the case).
You can have Alberto sign as an accommodation drawee. Why? Because if the instrument is pre-
accepted, you already have an understanding that the instrument will be paid, hence there will be no
excuse for non-payment since it already accepted.
If you make Alberto as an accommodation indorser, same thing. Ibig sabihin meron kang pwedeng
habulin na credible.
The idea in accommodation primarily is to lend your good name.
But note the effects. If the accommodation party signs as maker, drawer, acceptor or as an indorser,
he incurs ALL the liabilities of those persons. Note: It is ABSOLUTE.
Assume: Instrument (above) as PN.
Alberto Lim signed as an accommodation maker. Who did he accommodate? Frank. Pag tinakot ni
Sandra si Alberto demanding payment of the PN, can Alberto make as a defense that he already
accommodated Frank, hence, should go after Frank. Is Alberto correct? No
If a person signs as an accommodation party, he incurs ALL the liabilities of the parties by which he
accommodated. If he accommodate as maker, drawer, acceptor or drawer, then he incurs all liabilities
of those persons.
What about Sandra, the payee. Does the payee have to know that a person is an accommodation
party? It doesn’t matter whether she knows it or not. The accommodation is still liable in any case.
REMEMBER: The accommodation party is NOT ALLOWED TO REFUSE on the sole ground that he
is an accommodation party even if such fact is known to the person to whom the instrument is payable.
Principle of estoppel apply kasi pumirma siya.
If made liable, will the accommodation party pay? Yes. If payment then is made, the remedy is
reimbursement from the party accommodated. Protect the payee!

SECTION 60: Liability of the Maker. – The maker of a negotiable instrument by making it
engages that he will pay it according to its tenor, and admits the existence of the payee and his
then capacity to indorse.
Note: SECTION 60. The maker is going to incur all the liabilities in Sec. 60 just by MAKING the
instrument. Hindi ne pwedeng sabihin na hindi nea alam, that he should have been informed or advised
that such are his liabilities.
SECTION 60: Refers to a Promissory Note:
1st Liability: By making the instrument, he admits the existence of the payee. As far as payee is
concerned, the maker admits:
a. his identity;
b. his legal personality as a natural person
Meaning, I prepared the PN and make it payable to you. Kapag inabot ko yan sa you, it is as if I’m
telling you that I’m promising to pay you 100k on your demand. I’m giving it to you because I know who
you are and that you exist (legally).
If later on, you come back to me 2 months from issuance and demanding 100k, will you have a legal
ground to say “Who are you?” No. Because of the admission of existence and that you are not a
fictitious person.
2nd Liability: The payee’s capacity to indorse. It talks about the payee’s civil capacity to negotiate the
instrument (Supposing of course the instrument is payable to order which is necessarily indorsed)
Example. V issues to U a PN worth 500k, 2 days after receipt, U negotiated the instrument to W, a
third person. W now went to V demanding payment of instrument. Can V question the W’s identity?
Yes. V can ask who is W since W is not named in the instrument and V can question as to why W is
holding the instrument. V can reason out that W(?) has no right to negotiate it because it is clear that
U is the named payee, not W. It is U who admitted the capacity to negotiate.
EVEN IF it turned out later that U had never had the capacity or that he is a minor, or insane or at the
time is intoxicated, IT DOESN’T MATTER because it is the admission of the maker and not the actual
circumstance of the payee that is in controversy.
3rd Liability: The maker will pay the instrument according to its tenor. (The engagement to pay the
instrument according to its tenor)
“Tenor” – refers to the terms of the instrument. What the instrument is saying.

April 21, 2018

To: Dwight Lopez

Pay to Frank or on demand of P50,000.00 on his demand.

(Sgd.) Alberto

The tenor of the instrument states 50K, hence payee cannot demand 100k (or greater or lesser
amount) due to the interest since there is stipulation as to the tenor of the instrument. It is 50k, no
more, no less.

SECTION 61: Liability of the Drawer. – The drawer by drawing the instrument admits that the
existence of the payee and his then capacity to indorse; and engages that on due presentment
the instrument will be accepted or paid, or both, according to its tenor, and that if it be
dishonored, and the necessary proceeding on the on dishonor be duly taken, he will pay the
amount thereof to the holder, or to any subsequent indorser who may be compelled to pay it.
But the drawer may insert in the instrument an express stipulation negativing or limiting his
own liability to the holder.
What is required for the instrument to be accepted or paid, or both? PRESENTMENT
Remember the rules (on the previous discussion) as to whom, when and where. All factors should
come together to decide if presentment is properly made.
REMEMBER: The commitment of the drawer that the instrument will be accepted or paid, or both, only
applies if there was due presentment.

April 21, 2018

To: Dwight Lopez

Pay to Frank or on demand of P100,000.00 on his demand.

(Sgd.) Alberto Lim

If there is no place indicated, presentment can be made at Dwight’s residence or wherever he may be
found. Frank saw Dwight in his home at 3am and presented the check: “Presentment of ”; syempre,
pinagsarhan siya ng pinto - such can be treated as dishonor. If Frank goes to Alberto, gives a notice
of dishonor and demands payment of Alberto Lim on account of his secondary liability.

Alberto being the drawer, may Frank claim a breach of liability? NO, presentment was not properly
done because 3am is not a reasonable hour. However, if Frank goes to Dwight’s office on Moday at
10am (Business day and reasonable hour), presenting the instrument to Dwight but Dwight rejected
the instrument. Frank now go to Alberto complaining instrument was dishonored. Is Alberto guilty of
breach of liability? YES

If the instrument was dishonored, what is the requirement before the drawer will pay the instrument to
the drawer?
. . . the necessary proceeding on the on dishonor be duly taken . . . note: DULY DULY JULIE!
(kapatid ni JULIO)

How do you duly take the necessary proceeding for dishonor? ISSUE A NOTICE OF DISHONOR
What happens if the holder does not issue a notice of dishonor to a person who is secondarily liable?
DISCHARGED FROM LIABILITY. YOURE SAFE. HE CANNOT RUN AFTER YOU!

NOTE: Before the drawer will pay, notice of dishonor ????????? (-12:51)

(see previous example) Frank goes to Dwight’s office on Moday at 10am (Business day and
reasonable hour), presenting the instrument to Dwight but Dwight rejected the instrument. Frank
immediately filed a suit against Alberto in violation of BP 22, will the suit prosper? NO, for failure to
comply of the condition precedent which is the notice of dishonor. Hence, Alberto can properly refuse
payment.

PROBLEMA: What if notice of dishonor issued to Frank. Frank texted Alberto of such dishonor and
demand payment in cash. Will Alberto be compelled to pay? YES, because this time the notice of
dishonor were already taken.

PROBLEMA: What if the instrument was negotiated? So we have payee and 4 indorssers

SEC 61: x x x Drawer will pay to the holder x x x

Alberto: If you (Frank) present this instrument to Dwight, Dwight may accept it or pay it, or both, and if
she does not, I will pay you provided that you notify me of the fact of dishonor. Otherwise, I wont be
able to pay you.
(see same previous example) Frank presented instrument to Dwight but was rejected without justifiable
reason, may Frank proceed againt Alberto? YES, but Frank must have notice of dishonor so that once
issued, Alberto can pay under section 61.
Problem solved? YES
Assuming, Dwight accepted the instrument, who is primary liable? DWIGHT
Who is the primary debtor? ALBERTO kasi siya ang nagbabayad talaga.

REVIEW: In BoC, Primary debtor is the drawer primary liable is none! (Primary liable if DIFFERENT
from primary debtor)
(see same previous example) Frank presented instrument to Dwight but was rejected without justifiable
reason, Frank issued Notice of Dishonor to Alberto. If Alberto pays 100k to Frank on account of his
secondasry liability, has the problem been solved? YES. CASE CLOSED. MOVE ON. Because Alberto
already complied with SEC 61 by paying the payee who undertook the necessary proceedings for
dishonor.
PROBLEMA: Dwight rejected the instrument without justifiable reason, what is now the obligation of
Frank? Issue Notice of Dishonor (to those who will be secondary liable)
PROBLEMA: The instrument was negotiated 4 times (1st, 2nd, 3rd, and 4th indorser). Whenever the
payee, who may not be Frank anymore, payee must issue Notice of Dishonor to 1st, 2nd, 3rd, and 4th
indorser including the DRAWER to enforce secondary liability.
Nature of Liability? SOLIDARY because all of them are liable. Hence, if 1 pays, the rest are discharge.
If NO Notice of Dishonor is issued, they are discharge and he is deemed to have waive his claim
against the 2nd (or subsequent) indorsers.
The paying indorser already settled his obligation to the payee (or whoever is in possession of the
instrument), as far as the payee is concerned, PAYEE IS OKAY AND OUT OF THE PICTURE.
ISSUE NOW: Between INDORSER and DRAWER
SEC 61: The drawer committed to pay the subsequent indorser who was compelled to pay the
instrument. Hence, irereimburse ni Alberto sa indorser. Kasi kasalanan mo kung bakit na dishonor.

Sec. 62. Liability of acceptor. - The acceptor, by accepting the instrument, engages that he will
pay it according to the tenor of his acceptance and admits:
(a) The existence of the drawer, the genuineness of his signature, and his capacity and
authority to draw the instrument; and

(b) The existence of the payee and his then capacity to indorse.

SIMILARITIES OF Sec 60, 61 and 62: xxx existence of the payee and his then capacity to indorse;
xxx
When the maker draw the instrument, U automatically admits U’r identity as payee or capacity to
indorse. Same thing goes with the drawer.
Sec. 62. Liability of acceptor. Why not drawee? Drawee has no liability UNTIL AFTER he accepts.
Drawee- Dwight Lopez who accept the instrument, stamping acceptance to 1 instrument on 1 part of
the bill. Sec. 62 applies. All of it at the moment of acceptance.