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Negotiable Instruments – written Negotiable

contracts for the payment of money; by its Negotiable Documents of
form, intended as a substitute for money and Instruments Title
intended to pass from hand to hand, to give
does not contain
the holder in due course the right to hold the Have requisites of requisites of Sec.
same and collect the sum due. Sec. 1 of the NIL 1 of NIL
2. Characteristics of Negotiable
Have right of
recourse against no secondary
a. negotiability – right of transferee to
intermediate liability of
parties who are intermediate
hold the instrument and collect the sum due
secondarily liable parties
b. accumulation of secondary contracts – Holder in due transferee merely
instrument is negotiated from person to course may have steps into the
person rights better than shoes of the
transferor transferor
3. Difference between Negotiable
Subject is money subject is goods
Instruments from Non-Negotiable
Instruments: instrument is
merely evidence
Negotiable Non-negotiable of title; thing of
Instruments Instruments Instrument itself value are the
is property of goods mentioned
does not contain value in the document
Contains all the all the requisites
requisites of Sec. of Sec. 1 of the
1 of the NIL NIL 5. Promissory Note – unconditional
promise to pay in writing made by one person
Transferred by transferred by to anther, signed by the maker, engaging to
negotiation assignment pay on demand or a fixed determinable
Holder in due transferee future time a sum certain in money to order
course may have acquires rights or bearer. When the note is drawn to
better rights than only of his maker’s own order, it is not complete until
transferor transferor indorse by him. (Sec. 184 NIL)
prior parties
Prior parties merely warrant
warrant payment legality of title
1. maker
Transferee has 2. payee
right of recourse 6. Bill of Exchange – unconditional order
against in writing addressed by one person to
intermediate transferee has no another, signed by the person giving it,
parties right of recourse
requiring the person to whom it is addressed
4. Difference between Negotiable to pay on demand or at a fixed or
Instruments and Negotiable Documents of determinable future time a sum certain in
Title money to order or to bearer. (Sec. 126 NIL)
Parties: check, with ordinary bill of
knowledge by exchange does not
1. drawer the banks,
2. payee revokes the
3. drawee/ acceptor authority of the
banker pay
7. Check – bill of exchange drawn on a
– must be – may be
bank and payable on demand. (Sec. 185 NIL)
presented for presented for
8. Difference between Promissory Note payment within a payment within a
and Bill of Exchange reasonable time reasonable time
after its issue (6 after its last
Promissory Note Bill of Exchange months) negotiation.
Unconditional unconditional 10. Distinctions between a Promissory
promise order Note and Check
Involves 2 parties involves 3 parties
Maker primarily drawer only
– there are three
liable secondarily liable
(3) parties, the
generally 2 – there are two (2) drawer, the
only 1 presentments – parties, the maker drawee bank and
presentment – for for acceptance and the payee the payee
payment and for payment
– may be drawn
9. Distinctions between a Check and against any person,
Bill of Exchange not necessarily a – always drawn
bank against a bank
– may be payable
– always drawn – may or may not on demand or at a
upon a bank or be drawn against a fixed or
banker bank determinable future -always payable
time on demand
– may be payable
on demand or at a – a promise to pay – an order to pay
fixed or 11. Other Forms of Negotiable
– always payable determinable
on demand future time
– not necessary a. certificates of deposits
that it be – necessary that it
presented for be presented for b. trade acceptances
acceptance acceptance
c. bonds in the nature of promissory
– drawn on a – not drawn on a notes
deposit deposit
– the death of a – the death of the d. drafts which are bills of exchange
drawer of a drawer of the drawn by 1 bank to another

e. letters of credit – It must be signed by the maker or
drawer. It may consist of mere initials or
12. Trust Receipt – a security transaction even numbers, but the holder must prove
intended to aid in the financing of importers that what is written is intended as a
and retailers who do not have sufficient signature of the person sought to be charged.
funds to finance their transaction and
acquire credit except to use as collateral the – The Bill must contain an order,
merchandise imported something more than the mere asking of a
13. Requisites of a Negotiable Note (PN): favor.
– Sum payable must be in money only.
It must: It cannot be made payable in goods, wares,
or merchandise or in property.
a. be in writing signed by the drawer
b. contains an unconditional promise or – A drawee’s name may be filled in
order to pay a sum certain in money under Section 14 of the NIL
c. be payable on demand or at a fixed
determinable future time 15. Determination of negotiability
d. be payable to order or to bearer (Sec. 1. by the provisions of the Negotiable
Instrument Law, particularly Section 1
1 NIL)
14. Requisites of a Negotiable Bill (BOE):
2. by considering the whole instrument
3. by what appears on the face of the
instrument and not elsewhere
It must:

*In determining is the instrument is

1. be in writing signed by the drawer
2. contains an unconditional promise or negotiable, only the instrument itself and no
order to pay a sum certain in money other, must be examined and compared with
3. be payable on demand or at a fixed the requirements stated in Sec. 1. If it
determinable future time appears on the instrument that it lacks one
4. be payable to order or to bearer of the requirements, it is not negotiable and
5. the drawee must be named or otherwise the provisions of the NIL do not govern the
indicated with reasonable certainty (Sec. instrument. The requirement lacking cannot
1 NIL) be supplied by using a separate instrument in
Notes on Section 1: which that requirement which is lacking
– In order to be negotiable, there must
be a writing of some kind, else there would 16. Sum is certain even if it is to be paid
be nothing to be negotiated or passed from with:
hand to hand. The writing may be in ink,
print or pencil. It may be upon parchment, a. interest
cloth, leather or any other substitute of
paper. b. in installments

c. in installments with acceleration c. on or at a fixed date after the
clause occurrence of an event certain to happen
though the exact date is not certain (Sec. 4
d. with exchange NIL)

e. costs of collection or attorney’s fees Notes on Section 4

(Sec. 2 NIL)
– If the instrument is payable upon a
17. General Rule: The promise or order contingency, the happening of the event
should not depend on a contingent event. If does not cure the defect (still non-
it is conditional, it is non-negotiable. negotiable)

Exceptions: 19. General Rule: If some other act is

required other than the payment of
a. indication of particular fund from
money, it is non-negotiable.
which the acceptor disburses himself after
payment Exceptions:

b. statement of the transaction which a. sale of collateral securities

gives rise to the instrument. (Sec. 3 NIL)
b. confession of judgment
But an order or promise to pay out of a
particular fund is not unconditional c. waives benefit of law

Notes on Section 3 d. gives option to the holder to require

something to be done in lieu of money (Sec.
– The particular fund indicated should 5 NIL)
not be the direct source of payment, else it
becomes unconditional and therefore non- Notes of Section 5
negotiable. The fund should only be the
source of reimbursement. – Limitation on the provision, it cannot
require something illegal.
– A statement of the transaction does
not destroy the negotiability of the – There are two kinds of judgements by
instrument. Exception: Where the promise to confession: a) cognovit actionem b) relicta
pay or order is made subject to the terms verificatione
and conditions of the transaction stated.
– Confessions of judgement in the
18. Instrument is payable upon a Philippines are void as against public policy.
determinable future time if:
– If the choice lies with the debtor, the
a. there is a fixed period after sight/date instrument is rendered non-negotiable.

b. on or before a specified date/fixed 20. The validity and negotiability of an

determinable future time instrument is not affected by the fact that:
1. it is not dated

2. does not specify the value given or that 5. one or some of several payees
any had been given 6. the holder of an office for the time
3. does not specify the place where it is being (Sec. 8 NIL)
drawn or payable Notes on Section 8
4. bears a seal
5. designates the kind of current money in – The payee must be named or
which payment is to be made (Sec. 6 otherwise indicated therein with reasonable
NIL) certainty.
21. Instrument is payable upon demand if:
– If there is no payee, there would be
a. it is expressed to be so payable on no one to indorse the instrument payable to
sight or upon presentation order. Therefore useless to be considered
b. no period of payment is stipulated
– Joint payees in indicated by the
c. issued, accepted, or endorsed after
conjunction “and”. To negotiate, all must
maturity (Sec. 7 NIL)

Where an instrument is issued, accepted or

– Being several payees is indicated by
indorsed when overdue, it is, as regards to
the conjunction “or”.
the person so issuing, accepting, or indorsing
it, payable on demand. 23. Instrument is payable to bearer :

Notes on Section 7 a. when it is expressed to be so payable

– if the time for payment is left blank (as b. when payable to the person named or
opposed to being omitted), it may properly bearer
be considered as an incomplete instrument
and fall under the provisions of Sec. 14, 15, c. payable to order of fictitious or non-
or 16 depending on how the instrument is existent person and this fact was known to
delivered. drawer

22. Instrument is payable to order: d. name of payee not name of any person

– where it is drawn payable to the e. only and last indorsement is an

order of a specified person or indorsement in blank (Sec. 9 NIL)

– to a specified person or his order Notes on Section 9

It may be drawn payable to the order of: – “fictitious person” is not limited to
persons having no legal existence. An existing
1. a payee who is not a maker, drawer, or person may be considered fictitious
drawee depending on the intention of the maker or
2. the drawer or maker the drawer.
3. the drawee
4. two or more payees jointly

– “fictitious person” means a person c. complete and delivered issued without
who has no right to the instrument because consideration or a consideration consisting of
the maker or drawer of it so intended. He a promise which was not fulfilled (Sec 28 NIL)
was not intended to be the payee.
26. Holder in Due Course Affected by
– where the instrument is drawn, made Abnormality/Deficiency:
or prepared by an agent, the knowledge or
intent of the signer of the instrument is a. incomplete and undelivered
controlling. instrument (Sec. 15 NIL)

– Where the agent has no authority to b. maker/drawer’s signature forged (Sec.

execute the instrument, the intent of the 23 NIL)
principal is controlling
27. Incomplete but Delivered Instrument:
24. The date may be inserted in an
1. Where an instrument is wanting in any
instrument when:
material particular:
1. an instrument expressed to be payable
at a fixed period after date is issued
a. Holder has prima facie authority to fill
up the blanks therein.
2. where acceptance of an instrument
payable at a fixed period after sight is
b. It must be filled up strictly in
undated (Sec. 13 NIL)
accordance with the authority given and
Effects: within a reasonable time.

– any holder may insert the true date c. If negotiated to a holder in due
of issuance or acceptance course, it is valid and effectual for all
purpose as though it was filled up strictly in
– the insertion of a wrong date does accordance with the authority given and
not avoid the instrument in the hands of a within reasonable time. (Sec. 14 NIL)
subsequent holder in due course
2. Where only a signature on a blank paper
– as to the holder in due course, the was delivered:
date inserted (even if it be the wrong date)
1. It was delivered by the person making it
is regarded as the true date.
in order that it may be converted into a
25. Subsequent Holder in Due Course not negotiable instrument
2. The holder has prima facie authority to
affected by the following deficiencies:
fill it up as such for any amount. (Sec. 14
a. incomplete but delivered instrument NIL)
(Sec. 14 NIL) Notes on Section 14

b. complete but undelivered (Sec. 16 – if the instrument is wanting in

NIL) material particular, mere possession of the
instrument is enough to presume prima facie
authority to fill it up.
– material particular may be an shown to be conditional or for a special
omission which will render the instrument purpose only
non-negotiable (e.g. name of payee), an
omission which will not render the b. If the holder is a holder in due course,
instrument non-negotiable (e.g. date) all prior deliveries conclusively presumed
– in the case of the signature in blank,
delivery with intent to convert it into a c. If instrument not in hands of
negotiable instrument is required. Mere drawer/maker, valid and intentional delivery
possession is not enough. is presumed until the contrary is proven (Sec.
16 NIL)
28. Incomplete and Undelivered
Instrument: Rules on delivery of negotiable
General Rule: Where an incomplete
instrument has not been delivered, it will 1) delivery is essential to the validity of
not, if completed and negotiated without any negotiable instrument
authority, be a valid contract in the hands of
2) as between immediate parties or those
any holder against any person who signed
is like cases, delivery must be with intention
before delivery. (Sec. 15 NIL)
of passing title
Notes on Section 15
3) an instrument signed but not completed
– it is a real defense. It can be by the drawer or maker and retained by him
interposed against a holder in due course. is invalid as to him for want of delivery even
in the hands of a holder in due course
– delivery is not conclusively presumed
where the instrument is incomplete 4) but there is prima facie presumption of
delivery of an instrument signed but not
– defense of the maker is to prove non- completed by the drawer or maker and
delivery of the incomplete instrument. retained by him if it is in the hands of a
holder in due course. This may be rebutted
29. Complete but Undelivered: by proof of non-delivery.

General Rule: Every contract on a negotiable 5) an instrument entrusted to another who

instrument is incomplete and revocable until wrongfully completes it and negotiates it to a
delivery for the purpose of giving effect holder in due course, delivery to the agent or
thereto. custodian is sufficient delivery to bind the
maker or drawer.
a. If between immediate parties and
remote parties not holder in due course, to 6) If an instrument is completed and is
be effectual there must be authorized found in the possession of another, there is
delivery by the party making, drawing, prima facie evidence of delivery and if it be
accepting or indorsing. Delivery may be a holder in due course, there is conclusive
presumption of delivery.
7) delivery may be conditional or for a – the person who takes the instrument
special purpose but such do not affect the is bound to inquire into the extent and
rights of a holder in due course. nature of the authority given. (Sec. 21 NIL)

30. General rule: a person whose

signature does not appear on the
instrument in not liable. 33. General rule: Infants and corporations
incur no liability by their indorsement or
Exception: assignment of an instrument. (Sec. 22 NIL)

1. one who signs in a trade or assumed Effects:

name (Sec. 18)
2. a duly authorized agent (Sec. 19) – no liability attached to the infant or
3. a forger (Sec. 23) the corporation

– the instrument is still valid and the

indorsee acquires title
31. General rule: an agent is not liable on
the instrument if he were duly authorized to
sign for or on behalf of a principal.
34. General rule: a signature which is
Requisites: forged or made without authority is wholly
1. he must be duly authorized
2. he must add words to his signature Effects:
indicating that he signs as an agent
3. he must disclose his principal (Sec. 20 1. no right to retain
NIL) 2. no right to give a discharge
Notes on Section 20 3. no right to enforce payment can be
acquired. (Sec. 23 NIL)
– if an agent does not disclose his
principal, the agent is personally liable on Exception:
the instrument.
– the party against whom it is sought to
32. Per Procuration – operates as notice be enforced is precluded from setting up the
that the agent has a limited authority to forgery or want of authority.
Notes on Section 23
– Section 23 applies only to forged
– the principal in only bound if the signatures or signatures made without
agent acted within the limits of the authority authority
– Alterations such as to amounts or like
fall under section 124

– Forms of forgery are a) fraud in Rules on liabilities of parties on a forged
factum b) duress amounting to fraud c) instrument
fraudulent impersonation In a PN

– Only the signature forged or made – a party whose indorsement is forged

without authority is inoperative, the on a note payable to order and all parties
instrument or other signatures which are prior to him including the maker cannot be
genuine are affected held liable by any holder

– The instrument can be enforced by – a party whose indorsement is forged

holders to whose title the forged signature is on a note originally payable to bearer and all
not necessary parties prior to him including the maker may
be held liable by a holder in due course
– Persons who are precluded from provided that it was mechanically complete
setting up the forgery are a) those who before the forgery
warrant or admit the genuineness of the
signature b) those who are estopped. – a maker whose signature was forged
cannot be held liable by any holder
– Persons who are precluded by
warranting are a) indorsers b) persons
negotiating by delivery c) acceptors.
In a BOE
– drawee bank is conclusively presumed
to know the signature of its drawer – the drawer’s account cannot be
charged by the drawee where the drawee
– if endorser’s signature is forged, loss paid
will be borne by the forger and parties
subsequent thereto – the drawer has no right to recover
from the collecting bank
– drawee bank is not conclusively
presumed to know the signature of the – the drawee bank can recover from
indorser. The responsibility falls on the bank the collecting bank
which last guaranteed the indorsement and
– the payee can recover from the
not the drawee bank.
– Where the payee’s signature is
– the payee can recover from the
forged, payments made by the drawee bank
recipient of the payment, such as the
to collecting bank is ineffective. No
collecting bank
debtor/creditor relationship is created. An
agency to collect is created between the – the payee cannot collect from the
person depositing and the collecting bank. drawee bank
Drawee bank may recover from collecting
bank who may in turn recover from the – the collecting bank bears the loss but
person depositing. can recover from the person to whom it paid

– if payable to bearer, the rules are the Notes on Section 28
same as in PN.
– absence of consideration is where no
– if the drawee has accepted the bill, consideration was intended to pass.
the drawee bears the loss and his remedy is
to go after the forger – failure of consideration implies that
consideration was intended by that it failed
– if the drawee has not accepted the to pass
bill but has paid it, the drawee cannot
recover from the drawer or the recipient of – the defense of want of consideration
the proceeds, absence any act of negligence is ineffective against a holder in due course
on their part.
– a drawee who accepts the bill cannot
allege want of consideration against the
35. Every negotiable instrument is deemed
prima facie to have been issued for a
valuable consideration. (Sec. 24 NIL)
38. An accommodation party is one who
Effects: signs the instrument as maker, drawer,
acceptor, or indorser without receiving value
– every person whose signature appears therefor and for the purpose of lending his
thereon is a party for value name to some other person.

– presumption is disputable Effects:

– an accommodation party is liable to

the holder for value notwithstanding that
36. Where value has at any time been given such holder knew that of the
for the instrument, the holder is deemed a accommodation. (Sec. 28 NIL)
holder for value in respect to all parties who
become such prior to that time. (Sec. 26 NIL)

37. Effect of want of consideration: Notes on Section 28

1. Absence or failure of consideration may – the accommodated party cannot

be set up against a holder not a holder in recover from the accommodation party
due course (personal defense)
2. Partial failure of consideration is a – want of consideration cannot be
defense pro tanto (Sec 28 NIL) interposed by the accommodation party

– an accommodation maker may seek

reimbursement from a co-maker even in the

absence of any provision in the NIL; the 42. Effects of indorsing an instrument
deficiency is supplied by the New Civil Code. originally payable to bearer:

– he may do this even without first – it may further be negotiated by

proceeding against the debtor provided: delivery

a. he paid by virtue of judicial demand – the person indorsing is liable as

indorser to such persons as to make title
b. principal debtor is insolvent through his indorsement (Sec. 40 NIL)

Notes on Section 40

39. An instrument is negotiated when: – Section 40 applies only to instruments

originally payable to bearer
1. it is transferred from one person to
– It cannot apply where the instrument
2. that the transfer must be in a manner as
is payable to bearer because the only or last
to constitute the transferee a holder
indorsement is in blank.
For a bearer instrument – by delivery
43. A holder may strike out any
For payable to order – by indorsement and indorsement which is not necessary to his
delivery (Sec. 30 NIL) title.


40. Indorsement to be must be: – An indorser whose indorsement is

struck out is discharged
1. written
2. on the instrument itself or upon a piece – All indorsers subsequent to such
of paper attached (Sec. 31 NIL) indorser who has been discharged are
Notes on Section 31 likewise relieved. (Sec. 48 NIL)

– the paper attached with the 44. Effects of a transfer without

indorsement is an allonge endorsement:

– an allonge must be attached so that it – the transferee acquires such title as

becomes a part of the instrument, it cannot the transferor had
be simply pinned or clipped to it.
– the transferee acquires the right to
41. Kinds of Indorsements: have the indorsement of the transferor
1. Special (Sec. 34)
2. Blank (Sec. 35) – negotiation takes effect as of the
3. Restrictive (Sec. 36) time the indorsement is actually made (Sec.
4. Qualified (Sec. 38) 49 NIL)
5. Conditional (Sec. 39 NIL)

45. Rights of a holder: – an instrument is overdue after the
date of maturity.
– a holder may sue in his own name
– on the date of maturity, the
– a holder may receive payment. instrument is not overdue and the holder is a
– acquisition of the transferee or
– if in due course it discharges the
indorsee must be in good faith
instrument (Sec. 51 NIL)
– good faith means lack of knowledge
46. Requisites for a Holder in Due Course
or notice of defect or infirmity

a. receives the instrument complete and

regular on its face 47. A holder is not a HDC where an
instrument payable on demand is negotiated
b. became a holder before it was
at an unreasonable length of time after its
overdue and had no notice that it had been
issue (Sec. 53 NIL)
previously dishonored if such was the fact
48. Rights of a HDC:
c. takes the instrument for value and in
good faith – holds the instrument free from any
defect of title of prior parties
d. at time he took the instrument, no
notice of infirmity in instrument or defect in – free from defenses available to prior
the title of the person negotiating it (Sec. 52 parties among themselves (personal/
NIL) equitable defenses)

Notes on Section 52 – may enforce payment of the

instrument for the full amount against all
– every holder is presumed to be a HDC
parties liable(Sec. 57 NIL)
(Sec. 59)
Notes on Section 57
– the person who questions such has
the burden of proof to prove otherwise – Personal or equitable defenses are
those which grow out of the agreement or
– if one of the requisites are lacking,
conduct of a particular person in regard to
the holder is not HDC
the instrument which renders it inequitable
– an instrument is considered complete for him through legal title to enforce it. Can
and regular on its face if a) the omission is be set up against holders not HDC
immaterial b) the alteration on the
– Legal or real defenses are those
instrument was not apparent on its face
which attach to the instrument itself and can
be set up against the whole world, including
a HDC.
Personal instrument for charter or by statue,
Defenses Real Defenses an illegal it is prohibited from
consideration issuing commercial
1. absence or paper
failure of
consideration Alteration 9. negotiation
in breach of Want of authority of
2. want of faith agent
delivery of Want of delivery of
complete incomplete 10. negotiation
instrument instrument under
circumstances Execution of
3. insertion of amounting to instrument between
wrong date fraud public enemies
where payable
at a fixed Illegality of contract
period after 1. Mistake made by statue
date and
issued 12.
undated; or at intoxication Forgery
a fixed period 13. ultra vires
after sight and acts of
acceptance is Duress amounting to corporations
undated forgery
14. want of
4. filling up authority of
the blanks the agent
contrary to where he has
authority given apparent
or not within authority
reasonable Fraud in factum or in
time esse contractus 15. illegality
of contract
5. fraud in where form or
inducement Minority consideration
6. acquisition is illegal
of the 16. insanity
instrument by where there is
force, duress Marriage in case of a no notice of
or fear wife insanity
7. acquisition
of the Insanity where the
instrument by insane person has a
unlawful guardian appointed 49. A instrument not in the hands of a HDC
means by the court is subject to the same defenses as if it were
8. acquisition Ultra vires acts of a non-negotiable.
of the corporation where its

– a holder who derives his title through Notes on Section 60
a HDC and is not a party to any fraud or
illegality affecting the instrument, has all – a maker’s liability is primarily and
the rights of such HDC in respect to all unconditional
parties prior. (Sec. 58 NIL)
– one who has signed as such is
Rights of a holder not a HDC presumed to have acted with care and to
have signed with full knowledge of its
– may sue in his own name contents, unless fraud is proved

– may receive payment and if it is in – the payee’s interest is only to see to

due course, the instrument is discharged it that the note is paid according to its terms

– holds the instrument subject to the – when two or more makers sign
same defenses as if it were non-negotiable jointly, each is individually liable for the full
amount even if one did not receive the value
– if he derives his title through a HDC given
and is not a party to any fraud or illegality
thereto, has all the rights of such HDC – the maker is precluded from setting
up the defense of a) the payee is fictional, b)
that the payee was insane, a minor or a
corporation acting ultra vires
50. General rule: every holder is deemed
prima facie to be a holder in due course.

Exception: 52. A drawer is secondarily liable

– where it is shown that the title of any Effects of drawing the instrument, the
person who has negotiated the instrument is drawer:
defective, the burden is on the holder to
prove that he is a HDC or that a person under 1. admits the existence of the payee,
whom he claims is a HDC (Sec. 59 NIL) 2. the capacity of such payee to indorse
3. engages that on due presentment, the
instrument will be accepted or paid or
both according to its tenor.
51. A maker is primarily liable:
If the instrument is dishonored, and the
Effects of making the instrument, the maker: necessary proceedings on dishonor duly taken

a. engages to pay according to tenor of 1. the drawer will pay the amount thereof
instrument to the holder
2. will pay to any subsequent indorser who
b. admits existence of payee and his may be compelled to pay it. (Sec. 61
capacity to indorse (Sec. 60 NIL) NIL)

Notes on Section 61 -if by delivery – extends only to immediate
– a drawer may insert an express
stipulation to negative or limit his liability -warranty of capacity to contract does not
apply to persons negotiating public or
53. An acceptor is primarily liable corporate securities (Sec. 65 NIL)

By accepting the instrument, an acceptor: Notes on Section 65

– engages that he will pay according to – a qualified indorser is one who

the tenor of his acceptance indorses without recourse or sans recourse

– admits the existence of the drawer, – recourse – resort to a person

the genuineness of his signature and his secondarily liable after default of person
capacity and authority to draw the primarily liable
– a qualified indorser cannot raise the
– the existence of the payee and his defense of a) forgery b) defect of his title or
then capacity indorse that it is void c) the incapacity of the maker,
drawer or previous indorsers.
54. Irregular Indorser – a person not
otherwise a party to an instrument places his – a qualified Indorsement makes the
signature in blank before delivery is liable as indorser mere assignor of title of instrument,
an indorser in the following manner: relieves him of general obligation to pay if
1. if payable to order of a third person – instrument is dishonored, but he is still liable
liable to the payee and to all subsequent
for the warranties arising from instrument
only up to warranties of general indorser
2. if payable to order of the maker or
drawer – liable to all parties subsequent
– the warranty is to the capacity of
to the maker or drawer
prior parties at the time the instrument was
3. if payable to bearer – liable to all parties
negotiated. Subsequent incapacity does not
subsequent to the maker or drawer
breach the warranty.
4. if signs for an accommodation party –
liable to all parties subsequent to the
– lack of knowledge of the indorser as
payee (Sec. 64 NIL)
to any fact that would impair the validity or
55. Warranties where negotiating by
the value of the instrument must be
delivery or qualified endorsement:
subsisting all throughout.
1. the instrument is genuine and in all
respect what it purports to be
– a person Negotiating by Delivery
2. the indorser has good title to it
warrants same as those of qualified indorser
3. all prior parties had the capacity to
and extends to immediate transferees only
4. indorser has no knowledge of any fact
56. Warranties of a general indorser:
that would impair the validity or the
1. the instrument is genuine and in all
value of the instrument.
respect what it purports to be
Limitations of warranties:
2. the he has good title to it Notes on Section 70
3. all prior parties had the capacity to
contract – presentation for payment –
4. that the instrument at the time of his production of a BOE to the drawee for his
indorsement was valid and subsisting acceptance, or to a drawee or acceptor for
(Sec. 66 NIL) payment. Also presentment of a PN to the
party liable for payment of the same.

In addition: – consists of a) a personal demand for

payment at a proper place b) the bill or note
– engages that the instrument will be
must be ready to be exhibited if required and
accepted or paid or both according to its
surrendered upon payment.
tenor on due presentment
– parties primarily liable – persons by
– engages to pay the amount thereof if
the terms of the instrument are absolutely
it be dishonored and the necessary
required to pay the same. E.g maker and
proceedings on dishonor are taken
acceptors. They can be sued directly.
Notes on Section 66
– if payable at the special place, and
– the indorser under Section 66 the person liable is willing to pay there at
warrants the solvency of a prior party maturity, such willingness and ability is
equivalent to tender of payment.
– the indorser warrants that the
instrument is valid and subsisting regardless – presentment is necessary to charge
of whether he is ignorant of that fact or not. persons secondarily liable otherwise they are
– warranties extend in favor of a) a
HDC b) persons who derive their title from – Acts needed to charge persons
HDC c) immediate transferees even if not secondarily liable: a) presentment for
HDC payment/acceptance b) dishonor by non-
payment/non-acceptance c) notice of
– the indorser does not warrant the dishonor to secondary parties
genuineness of the drawer’s signature
– Acts needed to charge persons
– general indorser is only secondarily secondarily liable in other cases: a) Protest
liable for non-payment by the drawee b) protest
for non-payment by the acceptor for honor
57. General rule: Presentment for payment
is not necessary to charge persons primarily 58. Proper presentment:
liable on the instrument. Presentment for 1. by the holder or an authorized person
payment is necessary to charge the drawer 2. at a reasonable hour on a business day
and indorsers. (Sec 70 NIL) 3. at a proper place
4. to the person primarily liable or if
absent to any person found at the place
where presentment is made (sec. 72 NIL)

Notes on Section 72 Notes on Section 79 and 80

– only the holder or one authorized by – only the drawer or indorser are not
him has the right to make presentment for discharged. All other parties secondarily
payment liable are discharged.

– presentment cannot be made on a 62. Presentment for payment excused if:

Sunday or holiday
a. after due diligence, presentment
– presentment for payment is made to cannot be made
the maker, or acceptor. Not to the person
secondarily liable. b. presentment is waived

– if the instrument is payable on c. the drawee is a fictitious person (Sec

demand – a) if it is a note – presentment 82 NIL)
must be made within reasonable time after
issue b) if it is a bill – presentment must be
made within reasonable time after last Notes on Section 82
– what is excused is the failure to make
59. Presentment not required to charge presentment. There is no need to make any
the drawer: presentment versus under section 81 (delay
1. he has no right to expect
in presentment) presentment for payment is
2. he has no right to require
still required after the cause of delay has
that the drawee or acceptor will pay (Sec 79

60. Presentment not required to charge

63. Summary of rules as to presentment for
the indorser where:
1. the instrument was made or accepted
for his accommodation 1. presentment not necessary to charge
2. he has no reason to expect that the persons primarily liable
instrument will be paid if presented 2. necessary to charge persons secondarily
(Sec. 80 NIL) liable except:

– the drawer under Sec. 79

61. General rule: Presentment for payment – the indorser under Sec. 80
necessary to charge persons secondarily
liable otherwise they are discharged: – when excused under Sec. 82

Exception: – when the instrument has been

dishonored by non-acceptance under Sec. 83
– Section 79 and 80

64. How dishonored by non-acceptance: – is a party to the instrument and might
be compelled to pay the instrument
– the instrument was duly presented
but payment is refused or cannot be – to a holder who having taken it up
obtained would have a right of reimbursement from
the party to whom notice is given. (Sec. 90
– presentment is excused and the NIL)
instrument is overdue and unpaid (Sec. 83
NIL) 68. Notice:
1. may be written or oral (Sec. 96)
2. written notice need not be signed or
may be supplemented by verbal
65. Effects of dishonor by non-payment: communication (Sec. 95)
3. may be by personal delivery or by mail
– an immediate right of recourse to all (Sec. 96)
parties secondarily liable accrues to the 69. Notice may be waived either
holder. (Sec. 84 NIL) expressly or implied:
1. before the time of giving notice has
Notes on Section 84
2. after the omission to give due notice
– parties cease to be secondarily liable
(Sec. 109 NIL)
and become principal debtors.
70. Protest may be waived:
– Liability becomes the same as that of
the original obligors.
– deemed a waiver of presentment and
66. Requisites for payment in due course:
notice of dishonor as well (Sec. 111 NIL)
1. made at or after the maturity of the
Notes on Section 111
2. to the holder
3. in good faith – Where notice is waived, presentment
4. without notice of any defect in the
is not waived
holder’s title (sec. 88 NIL)
Notes on Section 88 – Where presentment is waived, notice
is also waived
– payment must be made to the
possessor of the instrument – Where protest is waived, notice and
presentment is waived
– possession of the note by the maker is
presumptive evidence that it has been paid 71. Notice of Dishonor – given by the
holder to the parties secondarily liable,
67. Notice of Dishonor may be given:
drawer and each indorser, that the
1. by or on behalf or the holder
instrument was dishonored by non-
2. by or on behalf of any party who:
acceptance or non-payment by the

General rule: Any drawer or indorser to 75. Protest only necessary for a foreign bill
whom such notice is not given is discharged. of exchange. Protest for other negotiable
instruments is optional. (Sec. 118 NIL)
76. Causes of Discharge of the Instrument
1. Waiver (Sec. 109)
2. Notice is dispensed (Sec. 112) a. payment by the debtor
3. Not necessary to Drawer (Sec. 114)
4. Not necessary to Indorser (Sec. 115) b. payment by accommodated party

– if notice is delayed, delay may be excused c. intentional cancellation by holder of

(Sec. 113) instrument

72. Instances when Notice of Dishonor Not d. any other act discharging a simple
Necessary to Drawer monetary obligation

a. drawer and drawee same person e. debtor becomes holder of the

instrument at/after maturity in his own right
b. drawee is a fictitious/incapacitated ( Sec 119 NIL)
Notes on Section 119
c. drawer is the person to whom
presentment for payment is made – discharge of the instrument
discharges all the parties thereto
d. drawer has no right to expect that the
drawee will accept/pay the instrument (Sec. – payment must be in due course, and
114 NIL) by the principal debtor or on his behalf

73. Instances when Notice Not Required – if payment is not made by the
to Indorser principal debtor, payment only cancels the
liability of the payor and those obligated
a. drawee was a fictitious/incapacitated after him but does not discharge the
person and the indorser was aware of such at instrument.
the time of indorsement
– payment by an accommodation party
b. indorser is the person to whom does not discharge the instrument.
instrument was presented for payment
77. Discharge of Secondary Parties:
c. instrument made/accepted for his
accommodation (Sec. 115 NIL) a. any act discharging the instrument

74. Omission to give notice of dishonor by b. cancellation of indorser’s signature by

non-acceptance doe not prejudice a HDC indorsers
(Sec. 117 NIL)
c. discharge of prior party

d. tender of payment by prior party Notes on Section 122

e. release of principal debtor – if renounced in favor of a party

secondarily liable, only he is exonerated
f. extension of payment by the from liability and all parties subsequent to
holder/postponement of right to enforce him
without assent of secondary parties and
without reservation of right of recourse – discharge by novation is allowed
against secondary parties (Sec 120 NIL)
79. General rule: When materially altered,
78. Rights of a party secondarily liable without the consent of all parties liable, the
who pays: instrument is avoided except as against:

– the instrument is not discharge 1. the party who has made the alteration
2. the party who authorized or assented to
– the party is remitted to his former the alteration.
rights as to all prior parties 3. subsequent indorsers

– the party may strike out his own and Exception:

all subsequent indorsements
– if in the hands of a HDC, may be
– the party may negotiate the enforced according to its original tenor
instrument again
Notes on Section 124
– there is no distinction between
– an instrument cannot be renegotiated fraudulent and innocent alteration
where it is payable to order of a 3rd person
and has been paid by the drawer 80. Material Alteration – an alternation is
said to be material if it alters the effect of
– and instrument cannot be the instrument.
renegotiated where is was made or accepted
for accommodation and it has been paid by Under Section 125 the following changes are
the party accommodated. considered material alterations:

1. dates
78. Renunciation by a holder discharges an
2. the sum payable
instrument when:
3. time and place of payment
1. it is absolute and unconditional
4. number or relations of the parties
2. made in favor of a person primarily
5. medium or currency for payment
6. adding a place of payment where no
3. made at or after maturity of the
place is specified
7. any other which alters the affect of the
4. in writing or the instrument is delivered
up to the person primarily liable (Sec.
122 NIL)

81. Instances where a BOE may be treated 1. where the drawee to whom the bill has
as a PN: been delivered destroys it
1. where the drawer and the drawee are 2. the drawee refuses within 24 hrs after
one and the same such delivery or within such time as is
2. where the drawee is a fictitious person given, to return the bill accepted or
3. where the drawee has no capacity to not. (Sec. 137 NIL)
contract (Sec. 130 NIL) Notes on Section 137

The holder has the option to treat it as a BOE – drawee becomes primarily liable as
or a PN an acceptor.

– mere retention is equivalent to

82. Acceptance is the signification by the
drawee of his assent to the order of the 9. When presentment for acceptance is
drawer. It is an act by which a person on necessary:
whom the BOE is drawn assents to the 1. if necessary to fix the maturity of the
request of the drawer to pay it. (Sec. 132
2. if it is expressly stipulated that it shall
be presented for acceptance
Acceptance may be: 3. if the bill is drawn payable elsewhere
than the residence or place of business
1. actual
of the drawee (Sec. 143 NIL)
2. constructive
3. general (Sec. 140) Notes on Section 143
4. qualified (Sec. 141)
– Presentment is the production of a
Requisites of actual acceptance:
BOE to the drawee for his acceptance
– in writing
– in on order case is presentment
– signed by the drawee necessary to make parties liable.

– must not express the drawee will 90. Summary on presentment for
perform his promise by any other means than acceptance of Bills of Exchange:
payment of money
a. to make the drawee primarily liable
– communicated or delivered to the and for the accrual of secondary liability
holder (Sec. 144)

7. A holder has the right: b. necessary to fix maturity date, where

1. require that acceptance be written on bill expressly stipulates presentment, bill
the bill and if refused, treat it as if payable other than place of drawee (Sec.
dishonored (Sec. 133) 143)
2. refuse to accept a qualified acceptance
and may treat it as dishonored (Sec. 142) c. when presentment is excused: drawee
8. Constructive Acceptance: is dead, hides, is fictitious, incapacitated
person, after due diligence presentment
cannot be made, presentment is refused on 1. Acceptance for Honor (Sec. 161 NIL)–
another ground although presentment is an acceptance of a bill made by a
irregular (Sec. 148) stranger to it before maturirty, where
the drawee of the bill has:
1. General rule: Protest is required only for 1. refused to accept it
foreign bills 2. and the bill has been protested for non-
Exception: 3. or where the bill has been protested for
better security
– inland bills and notes may also be Requisites for acceptance for honor:
protested if desired
– the bill must have been previously
Protest is required: protested a) for non-acceptance b) or for
1. where the foreign bill is dishonored by better security
non acceptance
2. where the foreign bill is dishonored by – the bill is not overdue at the time of
non-payment the acceptance for honor
3. where the bill has been accepted for
honor, it must be protested for non- – the acceptor for honor must be a
payment before it is presented for stranger to the bill
payment to the acceptor for honor
4. where the bill contains a referee in case – the holder must give his consent
of need, it must be protested for non
payment before presentment for Notes on Acceptance for Honor
payment to the referee in case of need
(Sec. 152) – Purpose: to save the credit of the
Notes on Section 152 parties to the instrument or some party to it
as the drawer, drawee, or indorser or
– Protest – formal statement in writing somebody else.
made by a notary under his seal of office at
the request of the holder, in which it is – Acceptor for honor is liable to the
declare that the some was presented for holder and to all the parties to the bill
payment or acceptance (as the case may be) subsequent to the party for whose honor he
and such was refused. has accepted (Sec. 164)

– it means all steps or acts 2. How acceptance for honor is made:

accompanying the dishonor of a bill or note 1. in writing and indicated that it is an
necessary to charge an indorser acceptance for honor
2. signed by the person making the
– required when the instrument is a acceptance (Sec. 162 NIL)
foreign bill of exchange.

– it must be made on the same date of

3. Payment for Honor – payment made
dishonor, by a notary/respectable citizen of
through a notarial act of honor of a party
the place in the presence of 2 credible
liable/stranger to the bill after bill has
witnesses so recourse to secondary parties
been dishonored by non-payment by the  holder may expressly renounce his rights
acceptor and protested for non-payment vs. any party to the instrument, before
by the holder or after its maturity
 absolute and unconditional renunciation
Requisites: of his rights vs. principal debtor made at
or after maturity discharges the
a. protest for non-payment instrument
 renunciation does not affect rights of
b. any person may pay supra protest HDC w/o notice.
 Renunciation must be in writing unless
Form for payment of honor:
instrument delivered up to person
1. payment must be attested by notarial
primarily liable thereon
act appended to the protest, or form an
1. material alteration (sec. 124: material
extension to it.
alteration w/o assent of all parties liable
2. notarial act of honor must be based on a
avoids instrument except as against
declaration by the payer for honor
party to alteration and subsequent
1. Of secondary parties
4. Bills in Set – bill of exchange drawn in 2. any act which discharges the instrument
several parts, each part of the set being 3. intentional cancellation of signature by
numbered and containing a reference to holder
the other parts, the whole of the parts 4. discharge of prior party
just constituting one bill (Sec 178 NIL) 5. valid tender of payment made by prior
6. release of principal debtor, unless
1. Of the Instrument
holder’s right of recourse vs. 2ndary
2. payment in due course by or on behalf of
party reserved
principal debtor
7. any agreement binding upon holder to
 Payment in due course:
extend time of payment, or to postpone
1. made at or after maturity
holder’s right to enforce instrument,
2. to the holder thereof
unless made with assent of party
3. in good faith and without notice that his
secondarily liable, or unless right of
title is defective
recourse reserved.
4. payment in due course by party
8. Failure to make due presentment (sec.
accommodated where party is made/
70, 144)
accepted for accommodation
9. failure to give notice of dishonor
5. intentional cancellation by holder
10. certification of check at instance of
 if unintentional or under mistake or
without authority of holder, inoperative.
11. reacquisition by prior party
Burden of proof on party which alleges
 where instrument negotiated back to a
it was unintentional, etc.
prior party, such party may reissue and
1. any other act which discharges a simple
further negotiate, but not entitled to
enforce payment vs. any intervening
2. principal debtor becomes holder of
party to whom he was personally liable
instrument at or after maturity in his
own right
3. renunciation of holder:
 where instrument is paid by party 3. his capacity and authority to draw the
secondarily liable, it’s not discharged, instrument
but 4. existence of payee and his then capacity
1. the party so paying it is remitted to his to endorse
former rights as regard to all prior  sec. 191, 132, 133, 138 — formal
parties requisites of acceptance
2. and he may strike out his own and all  sec. 136, 137, 150 — constructive
subsequent indorsements, and again acceptance
negotiate instrument, except  sec. 134, 135 — acceptance on a
 where it’s payable to order of 3rd party separate instrument
and has been paid by drawer  Kinds of Acceptance:
 where it’s made/accepted for 1. general
accommodation and has been paid by 2. qualified
party accommodated. 1. conditional
2. partial
3. local
4. qualified as to time
LIABILITIES OF PARTIES 5. not all drawees
 Person primarily liable: person who by
the terms of the instrument is absolutely
required to pay the same. * sec. 142 (rights of parties as to qualified
 Sec. 70 (effect of want of demand on acceptance)
principal debtor)
 Certification: Principles
1. when check certified by bank on which
it’s drawn, equivalent to acceptance
1. Liability of Maker 2. where holder of check procures it to be
2. Promises to pay it according to its tenor accepted/certified, drawer and all
3. admits existence of payee and his then indorsers discharged from al liability
capacity to indorse 3. check not operate as assignment of any
part of funds to credit of drawer with
bank, and bank is not liable to holder,
unless and until it accepts or certifies
1. Status of drawee prior to acceptance or
4. certification obtained at request of
 sec. 127 (bill not an assignment of funds
drawer: secondary parties not released
in hands of drawee)
5. bank which certifies liable as an
 sec. 189 (when check operates as
6. checks cannot be certified before
1. Liability of Acceptor
 Promises to pay inst according to its
 Admits the following: 1. SECONDARY PARTIES
1. existence of drawer 2. Liability of Drawer
2. genuineness of his signature
3. Admits existence of payee and his then  Order of Liability among Indorsers
capacity to endorse 1. among themselves: liable prima facie in
4. Engages that on due presentment the order they indorse, but proof of
instrument will be accepted, or paid, or another agreement admissible
both, according to its tenor and that 2. but holder may sue any of the indorsers,
5. If it be dishonored, and the necessary regardless of order of indorsement
proceedings on dishonor be duly taken, 3. joint payees/indorsees deemed to
he will pay the amount thereof to the indorse jointly and severally
holder or to an subsequent indorser who
may be compelled to pay it

1. Liability of Accomodation Party

 Definition: one who signed instrument as
 drawer may insert in the instrument an maker/drawer/acceptor/ indorser w/o
express stipulation negativing / limiting receiving value thereof, for the purpose
his own liability to holder of lending his name to some other
1. Liability of Indorsers: person
 Qualified Indorser and one Negotiating  AP liable on the instrument to holder for
by Delivery value even if holder, at time of taking
1. Instrument genuine, in all respects what instrument, knew he was only an AP
it purports to be  Liability of Irregular Indorser
2. good title  Where a person not otherwise a
3. all prior parties had capacity to contract party to an instrument, places
4. he had no knowledge of any fact w/c thereon his signature in blank
would impair validity of instrument or before delivery, he’s liable as an
render it valueless indorser, in accordance w/ these
 in case of negotiation by delivery only, rules:
warranty only extends in favor of 1. Instrument payable to order of
immediate transferee 3rd person: liable to payee and to all
subsequent parties
2. Instrument payable to the order of
maker/drawer, or payable to bearer:
 Liability of a General or Unqualified liable to all parties subsequent to
Indorser maker/drawer
1. instrument genuine, good title, capacity 3. Signs for accommodation of payee, liable
of prior parties to all parties subsequent to payee
2. instrument is at time of indorsement  Sadaya v Sevilla Rules:
valid and subsisting 1. a joint and several accommodation
3. on due presentment, it shall be accepted maker of a negotiable promissory note
or paid, or both, according to tenor may demand from the principal debtor
4. if it be dishonored, and necessary reimbursement for the amt. That he paid
proceedings on dishonor be duly taken, to the payee
he will pay the amt. To holder, or to any 2. a joint and several accommodation
subsequent indorser who may be maker who pays on the said promissory
compelled to pay it note may directly demand
reimbursement from his co-

accommodation maker without first 3. where bill is drawn payable elsewhere
directing his action vs. the principal than at residence / place of business of
debtor provided: drawee
1. he made the payment by virtue of
a judicial demand When failure to present releases
2. or the principal debtor is insolvent drawer/indorser

Failure to present for acceptance of

negotiate bill of exchange within reasonable
1. Liability of an Agent time
 Signature of any party may be made by
duly authorized agent, establish as in Reasonable Time
ordinary agency
 Where instrument contains or a person Must consider
adds to his signature words indicating
that he signs for or on behalf of a 1. nature of instrument
principal, he is not liable on the 2. usage of trade or business with respect
instrument if he was duly authorized, to instrument
but the mere addition of words 3. facts of each case
describing him as an agent without
disclosing his principal, does not exempt How and When Made Sec. 145, 146, 147
from personal liability.
 Signature per procuration operates as When Excused Sec. 148
notice that the agent has but a limited
Dishonor and Effects
authority to sign, and the principal is
 sec. 149 (when dishonored by non-
bound on ly in case the agent in so
signing acted within the actual limits of
 sec. 150 (duty of holder where bill not
his authority
 Where a broker or agent negotiates an
 sec. 151 (rights of holder where bill not
instrument without indorsement, he
incurs all liabilities in Sec. 65, unless he
 sec. 89 (to whom notice of dishonor
discloses name of principal and fact that
must be given)
he’s only acting as agent
 sec. 117 (effect of omission to give
I. Presentment For Acceptance notice of non-acceptance)
II. For Payment
When presentment for acceptance must be
made Where necessary Sec. 70

1. bill payable after sight, or in other cases Where not necessary Sec. 79, 80, 82, 151,
where presentment for acceptance 111
necessary to fix maturity
2. where bill expressly stipulates that it Date and time of presentment of instrument
shall be presented for acceptance bearing fixed maturity Sec. 71, 85, 86, 194

By Whom Given
 By or on behalf of the holder or any
Date of presentment party to the instrument who may be
 Where instrument not payable on compelled to pay it to the holder, and
demand: presentment must be made on who, upon taking it up, would have a
date it falls due right to reimbursement from the party to
 Where payable on demand: presentment whom the notice is given
must be made within reasonable time  Notice of dishonor may be given by an
after issue, except that in case of a bill agent either in his own name or in the
of exchange, presentment for payment name of any party entitled to give
will be sufficient if made within a notice, whether that party be his
reasonable time after last negotiation principal or not
(but note: though reasonable time from  Where instrument has been
last negotiation, it may be unreasonable dishonored in hands of agent, he
time from issuance thus holder may not may either himself give notice to
be HDC under sec. 71) the parties liable thereon, or he
 Check must be presented for payment may give notice to his principal
within reasonable time after its issue or (as if agent an independent
drawer will be discharged from liability holder)
thereon to extent of loss caused by delay

In whose favor notice operates

Delay excused Sec. 81 1. when given by/on behalf of holder:
insures to benefit of
Manner Sec. 74, 72, 75 1. all subsequent holders and
2. all prior parties who have a right
Place Sec. 73 of recourse vs. the party to whom
it’s given
To Whom Sec. 72, 76, 77, 78
2. where notice given by/on behalf of a
party entitled to give notice: insures for
Dishonor by nonpayment Sec. 83, 84
benefit of a. holder , and

b. all parties subsequent to party to whom

Notice of Dishonor notice given

General rule: to drawer and to each indorser,

and any drawer or indorser to whom such
Waiver Sec. 109, 110
notice is not given is discharged
Where not necessary to charge drawer
1. drawer/drawee same person
2. drawee fictitious, incapacitated
Form, Contents, Time Sec. 95, 96, 102, 103,
104, 105, 106, 108, 113
3. drawer is person to whom instrument is Sec. 161, 131, 171
presented for payment
4. drawer has no right to expect/require
that drawee/acceptor will honor
instrument Bills in Set: 178-183
5. drawer countermanded payment
1. real defense – attaches to instrument; on
the principle that the right sought to be
enforced never existed/there was no
Where not necessary to charge indorser contract at all
1. drawee fictitious, incapacitated, and 2. personal defense – growing out of
indorser aware of the fact at time of agreement; renders it inequitable to be
indorsement enforced vs. defendant
2. indorser is person to whom instrument DEFENSES
presented for paymt 1. INCAPACITY: real; indorsement/assign
3. instrument made/accepted for his by corp/infant: passes property but
accommodation corp/infant no liability
1. ILLEGALITY: personal, even if no K
because void under CC 1409
1. FORGERY: real (lack of consent):
1. forged
Definition: testimony of some proper person
2. made without authority of person
that the regular legal steps to fix the liability whose signature it purports to be.
of drawer and indorsers have been taken General Rule:
1. wholly inoperative
2. no right to retain instrument, or give
discharge, or enforce payment vs. any
When necessary: sec. 152,
party, can be acquired through or under
such signature (unless forged signature
Form and contents: sec. 153
unnecessary to holder’s title)
By whom made: sec. 154 Exception:

Time and Place: sec. 155, 156 unless the party against whom it is sought to
enforce such right is precluded from setting
For better security: sec. 158 up forgery/want of authority

Excused: sec. 159 precluded:

Waiver: sec. 111 1. parties who make certain warranties,

like a general indorser or acceptor
2. estopped/negligent parties
* note rules on Acceptance/Payment Under
Acceptance for Honor Mistake as applied to:
1. 1. overdraft
2. 2. stop payment order  If holder is HDC, delivery conclusively
3. 3. forged indorsements presumed
 Where NI materially altered w/o assent  Real defense (sec. 15)
of all parties liable thereon, avoided,  Instrument will not, if completed and
except as vs. a negotiated without authority, be a valid
1. party who has himself made, authorized contract in the hands of any holder, as
or assented to alteration against any person whose signature was
2. and subsequent indorsers. placed thereon before delivery
 But when an instrument has been 10. INCOMPLETE, DELIVERED
materially altered and is in the hands of  Personal defense (sec. 14)
a HDC not a party to the alteration, HDC  2 Kinds of Writings:
may enforce payment thereof according 1. Where instrument is wanting in any
to orig. tenor material particular: person in possession
 Material Alteration has prima facie authority to complete it
1. change date by filing up blanks therein
2. sum payable, either for principal or 2. Signature on blank paper delivered by
interest person making the signature in order
3. time of payment that the paper may be converted into a
4. number/relations of parties NI: prima facie authority to fill up as
5. medium/currency of payment, adds such for any amount
place of payment where none specified,  In order that any such instrument, when
other change/addition altering effect of completed, ma be enforced vs. any
instrument in any respect. person who became a party thereto prior
*material alteration a personal defense to its completion:
when used to deny liability according to org. 1. must be filled up strictly in accordance
tenor of instrument, but real defense when w/ authority given
relied on to deny liability according to 2. within a reasonable time
 but if any such instrument after
altered terms.
completion is negotiated to HDC, it’s
valid for all purposes in his hands, he
2. fraud in execution: real defense (didn’t
may enforce it as if it had been filled up
know it was NI)
3. fraud in inducement: personal defense
(knows it’s NI but deceived as to
 Personal, unless so serious as to give rise HOLDER IN DUE COURSE
to a real defense for lack of contractual HOLDER
 Personal defense (sec. 16)
 If instrument not in poss. Of party who RIGHTS OF HOLDER
signed, delivery prima facie presumed 1. sue thereon in his own name
2. payment to him in due course discharges
* if in the hand of any holder (note definition
of holder) other than a HDC, vulnerable to
HOLDER IN DUE COURSE: REQUISITIES same defenses as if non-negotiable
1. complete and regular upon its face
 sec. 124 (effect of alteration)
 sec. 125 (what constitute material
1. holder became such before it was DUE COURSE:
overdue, without notice of any previous General Rule: in the hands of any holder
dishonor other than a HDC, NI is subject to same
 sec. 53 (demand inst. nego after defenses as if it were non-negotiable.
unreasonable length of time: not HDC)
Exception: holder who derives title through
 sec. 12 (effect antedating/postdating)
HDC and who is not himself a party to any
1. taken in good faith and for value
fraud or illegality has all rights of such
 sec. 24 (presumption of consideration)
 sec 25 (definition. of value)
former holder in respect to all parties prior
 sec. 26 (definition. holder for value) to the latter.
 sec. 27 (lien as value)
1. at time negotiated to him, he had no
notice (sec. 56-def; 54-notice before
full amt. paid) of —
 prima facie presumption in favor of
1. infirmity in instrument
2. defect in title of person
 but when shown that title of any person
who has negotiated instrument was
1. instrument/signature
defective (sec. 55—when title
obtained through fraud,
defective): burden reversed (now with
etc., illegal
consideration/means, or
 but no reversal if party being made
2. instrument negotiated in
liable became bound prior to acquisition
breach of faith, or
of defective title (i.e., where defense is
fraudulent circumstances
not his own)
RIGHTS OF HOLDER IN DUE COURSE:  NI incomplete and revocable until
1. holds instrument free of any defect of delivery for the purpose of giving effect
title of prior parties thereto
2. free from defenses available to prior  as between
parties among themselves 1. immediate parties
3. may enforce payment of instrument for 2. a remote party other than holder in due
full amount, against all parties liable course

delivery, to be effectual, must be made by

or under the authority of the party

 in such case delivery may be shown to 1. as to manner of future method of
have been conditional, or for a special negotiation
purpose only, and not for the purpose of 2. special – specifies the person to
transferring the property in the whom/to whose order the instrument is
instrument. to be payable; indorsement of such
PRESUMPTION OF DELIVERY indorsee is necessary to further
Where the instrument is no longer in the negotiation.
possession of a party whose signature 3. Blank – specifies no indorsee, instrument
appears thereon, a valid and intentional so indorsed is payable to bearer, and
may be negotiated by delivery
delivery by him is presumed until the
 the holder may convert a blank
contrary is proved (*if in the hands of a HDC,
indorsement into a special
presumption conclusive)
indorsement by writing over the
signature of the indorser in blank any
 When an instrument is transferred from
contract consistent with the character of
one person to another as to constitute
the indorsement
the transferee the holder thereof.
 If payable to BEARER, negotiated by
delivery; if payable to ORDER,
negotiated by indorsement of holder + 1. as to kind of title transferred
delivery 2. restrictive
INDORSEMENT  prohibits further negotiation of
 Indorser generally enters into two instrument,
contracts:  constitutes indorsee as agent of
1. sale or assignment of instrument indorser, or
2. to pay instrument in case of default of  vests title in indorsee in trust for
maker another
 Sec. 31 (how indorsement made)  rights of indorsee in restrictive ind.:
 Sec. 41 (where payable to two or more)  receive payment of inst.
 Sec. 43 (indorsement where name  Bring any action thereon that
misspelled) indorser could bring
 Sec. 48 (cancellation of indorsement)  Transfer his rights as such
 Sec. 45, 46 (presumptions) indorsee, but all subsequent
 Indorsement must be of entire indorsees acquire only title of
instrument. (can’t be indorsement of first indorsee under restrictive
only part of amount payable, nor can it indorsement
be to two or more indorsees severally. 1. non-restrictive
But okay to indorse residue of partially
paid instrument)
 Sec. 67 (liability of indorser where paper
negotiable by delivery) 1. as to kind of liability assumed by
 Sec. 63 (when person deemed indorser) indorser
2. qualified-constitutes indorser as mere

assignor of title (eg. “without recourse”)

3. unqualified

1. as to presence/absence of express  one who signs in a trade or assumed
limitations put by indorser upon primary name liable to the same extent as if he
obligor’s privileges of paying the holder had signed in his own name
2. conditional – additional condition  signature of any party may be made by a
annexed to indorser’s liability. duly authorized agent, no particular
 Where an indorsement is conditional, a form of appt. necessary
party required to pay the instrument
may disregard the condition, and make 1. unconditional promise or order to pay
payment to the indorsee or his  unqualified order or promise to pay is
transferee, whether condition has been unconditional though coupled with
fulfilled or not 1. an indication of a particular fund out of
 Any person to whom an instrument so which reimbursement to be made, or a
indorsed is negotiated will hold the particular account to be debited with
same/proceeds subject to rights of amount, or
person indorsing conditionally 1. a statement of the transaction
1. unconditional which gives rise to the instrument
 an order or promise to pay out of a
particular fund is not unconditional
a sum certain in money
 even if stipulated to be paid—
 Where an instrument payable to bearer
1. with interest, or
is indorsed specially, it may nevertheless
2. by stated installments, or
be further negotiated by delivery
3. by stated installments with a provision
 Person indorsing specially liable as
that upon default in payment of any
indorser to only such holders as make
installment/interest, the whole shall
title through his indorsement
become due, or
UNINDORSED INSTRUMENTS 4. with exchange, whether at a fixed rate
 Where holder of instrument payable to or at the current rate, or
his order transfers it for value without 5. with costs of collection or an attorney’s
indorsing, transfer vests in transferee fee, in case payment not made at
1. such title as transferor had therein maturity
2. right of tranferee to have indorsement
of transferor
1. 3. payable on demand,
 for purposes of determining HDC
 when expressed to be payable on
negotiation effective upon actual
demand, or at sight, or on presentation;
 when no time for payment expressed, or
 where an instrument is issued, accepted
or indorsed when overdue, it is, as
REQUISITES regards the person so issuing, accepting,
1. 1. in writing and signed by maker or or indorsing it, payable on demand
 no person liable on the instrument
whose signature does not appear thereon or at a fixed or determinable future time
( subject to exceptions)
 when it’s expressed to be payable at a
fixed period after date or sight, or
 on or before a fixed or determinable  bill may be addressed to two or more
future time fixed therein, or drawees jointly, whether partners or
 on or at a fixed period after the not, but not to two or more drawees in
occurrence of a specified event which is the alternative or in succession
certain to happen, though the time of  bill may be treated as a PN, at option of
happening be uncertain holder, where
 an instrument payable upon a 1. drawer and drawee are same person
contingency not negotiable, and 2. drawee is fictitious/incapacitated
happening of event doesn’t cure it EFFECT OF ADDITIONAL PROVISIONS
* relate to sec. 11 ( presumption as to date)
and sec. 17 (construction where instrument Gen. Rule: order/promise to do any act in
ambiguous) addition to the payment of money renders
* note effect of acceleration provisions, p. instrument non-negotiable.
30 Campos
Exception: negotiability not affected by
* note effect of provisions extending time of
provisions w/c
payment, p. 40 Campos
1. authorize sale of collateral security if
1. 4. payable to order instrument not paid at maturity
 where it is drawn payable to the order of 2. authorize confession of judgment…
a specified person or to him or his order. 3. waives benefit of any law intended for
May be drawn payable to order of — advantage/protection of obligor
 when the instrument is payable to order 4. give holder election to require
the payee must be named or otherwise something to be done in lieu of money
indicated therein with reasonable
1. a payee not the maker/drawer/drawee,
2. drawer or maker, or
4. two or more payees jointly, or CHARACTER
5. holder of an office for time being
or bearer,
 when expressed to be so payable
1. restrictively indorsed
 when payable to person named therein
2. discharged by payment or otherwise
or bearer
 when payable to order or fictitious/non- DEFINITIONS
existent person, and such fact known to NEGOTIABLE INSTRUMENT
the person making it so payable, or  Written contract for the payment of
 when name of payee doesn’t purport to money, by its form intended as
be the name of any person, or substitute for money and intended to
 when the only/last indorsement is in pass from hand to hand to give the
blank holder in due course the right to hold
1. 5. where addressed to drawee: the same and collect the sum due
such drawee named/ indicated therein
with reasonable certainty

PROMISSORY NOTE 2. special (name of bank appearing
between parallel lines)
 unconditional promise in writing made
by one person to another signed by the
 engaging to pay on demand, or at a fixed
or determinable future time a sum
certain in money to order or to bearer Person in possession of a bill/note payable to
 where a note is drawn to the maker’s
own order, it is not complete until
indorsed by him HOLDER

Payee or indorsee of a bill or note who is in

possession of it, or the bearer thereof.
 unconditional order in writing addressed
by one person to another signed by the
 requiring the person to whom it’s 1. issue
addressed to pay on demand or at a 2. negotiation
fixed or determinable future time a sum 3. presentment for acceptance in certain
certain in money to order or to bearer bills
 check: bill of exchange drawn on a bank 4. acceptance
payable on demand. Kinds of checks: 5. dishonor by on acceptance
1. personal check 6. presentment for payment
2. manager’s/cashier’s check – drawn by a 7. dishonor by nonpayment
bank on itself. Issuance has the effect of 8. notice of dishonor
acceptance 9. protest in certain cases
3. memorandum check – “memo” is written 10. discharge
across its face, signifying that drawer
will pay holder absolutely without need
of presentment
4. crossed check –
 effects:
1. check may not be encashed but only
deposited in bank
2. may be negotiated only once, to one
who has an acct. with a bank
3. warning to holder that check has been
issued for a definite purpose so that he
must inquire if he received check
pursuant to such purpose, otherwise not
 kinds:
1. general (no word between lines, or “co”
between lines)