Negotiable Instruments Law (Aquino and Agbayani Notes) 1 Abad.Avila.Cancino.Concepcion.Chu.Layno.Mercado.Prinsipe.Reyes H. (2S A.Y. 2010 2011! CHAPTER 1: GENERAL CONSIDERATIONS WHAT IS A NEGOTIABLE INSTRUMENT? It is a written contract for the payment of money which is intended as a substitute for money and passes from one person to another as money, in such a manner as to give the holder in due course the right to hold the instrument free from defenses available to prior parties. The instrument must comply with Section 1 of the negotiable Instruments Law. Governing Law: ct !"#1 $%egotiable Instruments Law& Impliedly repealed the 'ode of 'ommerce e(cept on provisions that are not inconsistent with the %IL )e.g. rule on crossed chec*s+ APPLICABILITY OF THE NIL The provisions of the %IL are only applicable if the instrument involved is negotiable. ,therwise, the %IL can only be applied by analogy. FUNCTIONS OF NEGOTIABLE INSTRUMENTS: (SEC-PF) 1. 2. 3. 4. 5. Subst tut! for -oney -edium of E"#$%&'! 'redit instrument which increases #(!) t # (#u*%t +& Increases the ,u(#$%s &' ,+-!( in circulation P(++. of transactions N+t!s +& L!'%* T!&)!(: .efinition: offered payment that, by law, cannot be refused in settlement of a debt, and have the debt remain in force. %egotiable instruments are not legal tender. ,nly notes and coins issued by the /S0 are considered legal tender. 'hec*s are declared by law not to be legal tender and creditors cannot be compelled to accept chec*s in payment of obligations Exceptions: 1. !. The obligation is deemed paid if the chec* has been cleared and credited to his account. Impairment due to the fault of the creditor. MAIN FEATURES OF NEGOTIABLE INSTRUMENTS: . %egotiability 1 llows negotiable instruments to be transferred from one person to another so as to constitute the transferor a holder )a holder in due course+. 1 Such feature gives the negotiable instrument freedom as substitute for money. /. 1 ccumulation of Secondary 'ontracts 2hen negotiable instruments are transferred through negotiation, secondary contracts are accumulated because the indorsers become secondarily liable not only to their immediate transferees but also to any holder. It thus provides for greater security in dealing with such instruments. Negotiable Instruments Law (Aquino and Agbayani Notes) 2 Abad.Avila.Cancino.Concepcion.Chu.Layno.Mercado.Prinsipe.Reyes H. (2S A.Y. 2010 2011! /INDS OF NEGOTIABLE INSTRUMENTS B ** +. E"#$%&'!: an unconditional order in writing, addressed by one person to another, signed by the person giving it, re3uiring the person to whom it is addressed to pay on demand or at a fi(ed or determinable future time a sum certain in money to order or to bearer. 'ommonly termed a draft. It is used to designate bills of e(change that are used in trade of goods. -ay be an inland bill or a foreign bill. 1. Inland /ill: drawn and payable in the 0hilippines. !. 4oreign /ill either drawn or payable abroad. 'hec*s: a bill of e(change drawn on a ban* and payable on demand. ORDINARY BILL OF E0CHANGE %ot drawn on deposit. It is not necessary that the drawer of a /,5 should have funds in the hands of the drawee. .eath of the drawer of a /,5 with the *nowledge of the ban*, does not revo*e the authority of the ban*er to pay. -ay be presented for payment within a reasonable time after its last negotiation. CHEC/ It is necessary that a chec* is drawn on a deposit. ,therwise, there would be fraud. .eath of *nowledge the ban*er -ust be reasonable the drawer of a chec*, with the by the ban*, revo*es the authority of to pay. presented for payment within a time after its issue. P(+1 ss+(2 N+t!s: negotiable promissory note is an unconditional promise in writing made by one person to another, signed by the ma*er, engaging to pay on demand or at a fi(ed determinable future time, a sum certain in money to order or to bearer. 2here a note is drawn to the ma*er6s own order, it is not complete until it is indorsed by him. .ean Sundiang: when the situation contemplated in the last sentence occurs, the person who signs assumes to personalities 7 both as a ma*er and as an indorser. In what capacity is he then liable8 In such case, he becomes liable as a ma*er. The re3uirement of having to indorse does not deviate his very capacity as the ma*er of the instrument. 4urthermore, the ma*er has a more onerous liability compared to that of an indorser. B **s t(!%t!) %s N+t!s (S!#3 145) 1. 2hen the drawer and the drawee are the same person. !. The drawee is a fictitious person. #. The drawee has no capacity to contract. /ills vs. %otes PROMISSORY NOTE 'ontains an unconditional promise. There are ! parties on its face The person who signs it is the - 95:. The person who signs it is 0:I- :IL; LI /L5 The person primarily liable is the ma*er There is only one presentment: for payment. BILL OF E0CHANGE 'ontains an unconditional order. There are # parties on its face. The person who signs it is the .: 25: The person who signs it is S5',%. :IL; LI /L5 The person primarily liable is the .: 2551 ''50T,: There are ! presentments: 1. 4or acceptance !. 4or payment Negotiable Instruments Law (Aquino and Agbayani Notes) 3 Abad.Avila.Cancino.Concepcion.Chu.Layno.Mercado.Prinsipe.Reyes H. (2S A.Y. 2010 2011! PARTIES TO NEGOTIABLE INSTRUMENTS 0arties to a 0romissory %ote 1. !. -a*er: 0erson who promises to pay according to the tenor of the note. 0ayee: 0erson who is to receive payment from the ma*er. 0arties to a bill of e(change 1. !. .rawer: 0erson who draws the bill and orders the drawee to pay a sum certain in money. .rawee: the one being commanded to pay the bill. %,T5 <,25=5:, the drawee only becomes party to the transaction upon acceptance of the /,5. ,therwise, he is not liable at all. ,ther 0arties to a %egotiable Instrument: 1. !. #. Indorser: 0ersons who transfer the instrument through indorsement and completed by delivery. <older: 0ayee or indorsee of a bill or note who is in possession of it or the bearer thereof. /earer: person in possession of bill or note which is payable to bearer. NEGOTIABLE INSTRUMENTS 6S3 NON-NEGOTIABLE INSTRUMENTS: DISTINCTIONS AND NOTES ,nly negotiable instruments are governed by the %IL. The application of %IL to non1negotiable instruments is only by analogy. %egotiable instruments can be transferred by negotiation or assignment. %on1negotiable instruments can only be transferred through assignment. The transferee of a non1negotiable instrument can never be a holder in due course> only an assignee. ll defenses available may be raised against the last transferee. INCIDENTS OR STAGES IN THE LIFE OF A NEGOTIABLE INSTRUMENT 1. P(!,%(%t +& %&) s '& &' complete with all the re3uisites provided for in Section 1 of %IL. 2. Issu%&#!: first delivery of the instrument to the payee )from ma*er to payee?bearer or from drawer to the payee?bearer+. 3. N!'+t %t +&: transfer from one person to another so as to constitute the transferee a holder. 4. P(!s!&t1!&t .+( %##!,t%&#! for certain *inds of /,5 7 the bill of e(change shall be presented to the drawee so that the latter will signify his agreement to the order of the drawer to pay. 5. A##!,t%&#!: written assent of the drawee to the order )act which ma*es the drawee a party to the instrument, thus ma*ing him primarily liable 1 Sundiang+. 6. D s$+&+( b2 &+&-%##!,t%&#!: refusal to accept by the drawee. . P(!s!&t1!&t .+( ,%21!&t: the instrument is shown to the ma*er or drawee?acceptor so that the ma*er or drawee?acceptor will pay. !. D s$+&+( b2 &+&-,%21!&t: refusal to pay by the ma*er or drawee?acceptor ". N+t #! +. D s$+&+(: notice to the persons secondarily liable that the ma*er or the drawee?acceptor refused to pay or to accept the instrument. 153 P(+t!st3 113 D s#$%('!3 CHAPTER 7: N!'+t %b * t2 :e3uisites of %egotiability )Section 1, %IL+ Keyword: WUPOA statement of the transaction which gives rise to the instrument.%2%b*! on demand. and it may be written in any material that substitutes paper li*e cloth. in in* or in pencil. EFFECT OF ESTOPPEL RE8UISITE OF NEGOTIABILITY Requisite #1: IN WRITING AN !IGNE "# T$E %AKER OR T$E RAWER It must be in writing.nly what appears on the face in the instrument shall be considered> The provisions of %IL. !. (2S A. 4. n un3ualified order or promise to pay is unconditional within the meaning of %IL although it is coupled with )Sec. or parchment. he must be named or otherwise indicated therein with reasonable certainty. !. cceptance cceptance of an instrument is not important in the determination of its negotiability. 4und for :eimbursement . payment shall be subAect to the availability or sufficiency of funds. #. The order in a bill is a command made by the drawer addressed to the drawee ordering the latter to pay the payee or the holder a sum certain in money. 2010 2011! 1. Signed: mar*ed by any means as long as they are adopted as the signature of the signer. especially Section 1 thereof shall be applied.Layno. or at a fi(ed or determinable future time> It must be payable to +()!( +( b!%(!(> 2here the instrument is %))(!ss!) to a drawee. HOW NEGOTIABILITY IS DETERMINED: 1. %IL+: 1. n indication of a particular fund out of which reimbursement is to be made or a particular account to be debited with the amount.Mercado.Cancino. n instrument payable upon a contingency.Reyes H. The promise or order must be unconditional. The nature of acceptance is important only in the determination of the liabilities of the parties involved. 2. The whole instrument shall be considered> . 5. It may be printed.Chu. n order or promise to pay out of a particular fund 7 in this case.Prinsipe. Requisite #&: IT %U!T 'ONTAIN AN UN'ON ITIONA( PRO%I!E OR OR ER TO PA# A !U% 'ERTAIN IN %ONE# @nconditional 0ayment?. 3. It must be in -( t &' and signed by the ma*er?drawer> It must contain an u&#+&) t +&%* promise or order to pay a sum certain in money> It must be .Negotiable Instruments Law (Aquino and Agbayani Notes) 4 Abad. The word $promise& or $order& need not appear to satisfy the re3uirements of Section 1)b+ of %IL. #.rder The promise in a promissory note is the underta*ing made by the ma*er to pay a sum certain in money to the payee or the holder. !. leather. Indication of a 0articular 4und for 0ayment vs.Concepcion.Avila.Y. Indorsement The negotiability of an instrument is not affected by the indorsement placed therein. 'onditional )therefore not negotiable+: 1. Sum 'ertain in -oney -oney need not be legal tender. or on presentation> !.%5. 2hen it is e(pressed so to be payable on demand.Cancino. t a fi(ed period after date or sight> !. cceleration clauses: %. E%AN OR AT A *I+E OR ETER%INA"(E *UTURE TI%E Fu&) . In which no time for payment is e(pressed. so long as it is e(pressed in -.+( P%21!&t There is only one act: the drawee pays directly from the particular fund indicated.n $at sight&+: what if the drawee is blind8 It should not be ta*en literally. whether at a fi(ed rate or at a current rate> or e+ with costs of collection or an attorney6s fee. 2010 2011! Fu&) F+( R! 1bu(s!1!&t The drawee pays the payee from his own funds> afterwards. then the instrument is not negotiable.emand )Section B+: 1. or at sight. .emand 2hen an instrument is payable on demand. the drawee pays himself from the particular fund indicated 0articular fund indicated is not the direct source of payment.Mercado.'5:T I%: If the amount that is to be unconditionally paid by the ma*er or drawee can be determined from the face of the instrument even if it re3uires mathematical computation.. Requisite #): PA#A"(E ON 3uino: an instrument is not negotiable if the maturity date of an instrument is not certain.Negotiable Instruments Law (Aquino and Agbayani Notes) 5 Abad.Reyes H. though the time of the happening be uncertain 'lauses that affect maturity of the instrument 1.Avila. 0ayable on .n or at a fi(ed period after the occurrence of a specified event which is certain to happen. 0articular fund indicated is the direct source of payment.Y. n instrument is still negotiable although the amount to be paid is e(pressed in currency that is not legal tender. the instrument is still negotiable. (2S A.Prinsipe.Chu.TI-5 before . with a provision that upon default in payment of any installment or of interest.Layno. the persons liable may be re3uired to pay at the holder may so re3uest. Section !: sum is certain although it is to be paid a+ with interest> or b+ by stated installments> or c+ by stated installments. If the obligor li*e the ma*er is given the option to deliver something in lieu of money. 2hen 0ayable on . S@. . Stated Installments: the dates of each installment must be fi(ed or at least determinable and the amount to be paid for each installment must be stated. 0ayable at a determinable future Section C: n instrument is payable at a determinable future time if it is e(pressed to be payable 1.Concepcion. Sundiang ). If the instrument gives the holder an election to re3uire something to be done in lieu of payment in money. the whole obligation shall become due> or d+ with e(change. in payment shall not be made upon maturity.n or before a fi(ed or determinable future time specified therein> #. the drawer of the chec* will bear the loss. and such fact was *nown to the person ma*ing it so payable> or d+ 2hen the name of the payee does not purport to be the name of any person e+ 2hen the only last indorsement is an indorsement in blan*.Negotiable Instruments Law (Aquino and Agbayani Notes) 6 Abad. )Duery: can such instruments be considered instruments payable on demand. thus. or any transferee of the chec* for that matter.Concepcion.e. The burden of proving that the instrument is payable to a fictitious payee rests on the person ma*ing such allegation. The rule has always been that the instrument in order to be considered negotiable must contain the so called $words of negotiability& 7 i. In a fictitious payee situation. 2hen faced with a chec* payable to a fictitious payee. the drawee ban* is absolved from liability and the drawer bears the loss.Prinsipe. There is a commercial bad . !. the whole shall become due. not affecting the negotiability of the instrument8+ 5(tenion 'lauses n instrument is payable at a definite time if by its terms it is payable at a definite time subAect to e(tension at the option of the holder. (2S A. in case of controversy.& The instrument rendered is not negotiable. the rule against uncertainty of maturity is not violated. it is treated as a bearer instrument that can be negotiated by delivery. or to e(tension to a further definite time at the option of the ma*er or acceptor or automatically upon or after a specified act or event.Y. Insecurity 'lauses: 0rovisions in the contract which allow the holder to accelerate payment if $he deems himself insecure. he must have intended for the instrument to be negotiated by mere delivery. Thus.Chu. with a provision that upon the default in payment of any installment or of interest. The underlying theory is that one cannot e(pect a fictitious payee to negotiate the chec* by placing his indorsement thereon.Layno.: PA#A"(E TO OR ER TO "EARER %otes n instrument that is payable to a specified person or entity is not negotiable because the %IL re3uires that the instrument must be payable to order or to bearer. the person in possession can demand payment from the person who are liable thereon. uthorities seem 3uite uniform in holding that if the acceleration clause is dependent upon some act or default of the ma*er.Cancino. 2010 2011! The negotiability of the instrument is not affected even if it is to be paid by stated installments. Requisite #. 4ictitious 0ayee :ule: n instrument is a bearer instrument if it is payable to the order of a fictitious or non1e(isting person and such fact is *nown t the person ma*ing it so payable.Mercado. These words serve as an e(pression of consent that the instrument may be transferred by negotiation.Reyes H. /earer Instruments 2here the instrument is a bearer instrument.Avila. #. Section E: n instrument is payable to bearer 7 a+ 2hen it is e(pressed to be so payable> or b+ 2hen it is payable to a person named therein or bearer> or c+ 2hen it is payable to the order of a fictitious or non1e(isting person. 5(ception to 4ictitious 0ayee :ule: showing of commercial bad faith on the part of the drawee1ban*. it must be payable to order or to bearer. will wor* to strip it of this defense. nd since the ma*er *new this limitation. The instrument is not negotiable because it is dependent upon the holder6s whims and caprice without the fault of the ma*er. or that any value had been given therefor> or does not specify the place where it is drawn or the place where it is payable> or bears a seal> or designates a particular *ind of current money in which payment is to be made. otherwise.en d/te 0/y 1e inserted2 1 2here an instrument e(pressed to be payable at a fi(ed period after date is issued undated. however. or where the acceptance of an instrument payable at a fi(ed period after sight is undated.Negotiable Instruments Law (Aquino and Agbayani Notes) Abad.Prinsipe. The instrument is payable to order where it is drawn payable to the order of a specified person or to him or his order. that there are cases where the date of the instrument is necessary and in the absence thereof can be inserted in the instrument.missions> seal> particular money.ne or some of several payees> or f+ The holder of an office for the time being. he must be named or otherwise indicated therein with reasonable certainty.Concepcion. It should be noted. Section 1#. whether they are partners or not> but not to two or more drawees in the alternative or in succession. bill may be addressed to more than one drawee Aointly.ther additional provisions that do not affect the negotiability of an instrument: Sec.Chu. . /ut the negotiable character of an instrument otherwise negotiable is not affected by a provision which: a+ authoriIes the sale of collateral securities in case the instrument be not paid at maturity> or b+ authoriIes a confession of Audgment if the instrument be not paid at maturity> or c+ waives the benefit of any law intended for the advantage or protection of the obligor> or d+ gives the holder an election to re3uire something to be done in lieu of payment of money.Reyes H. . 1!F+. . or drawee> or b+ The drawer or ma*er> or c+ The drawee> or d+ Two or more payees Aointly> or e+ . and the instrument shall be payable accordingly. Requisite #-: I ENTI*I'ATION O* T$E RAWEE 2here the instrument is addressed to a drawee. the date so inserted is to be regarded as the true date. drawer. The instrument is still negotiable if it is not dated. .Cancino. dditional provisions not affecting negotiability. any holder may insert therein the true date of issue or acceptance. /ut nothing in this section shall validate any provision or stipulation otherwise illegal.Y.Avila. the purpose of negotiable instrument as a tool in commercial dealings will be greatly hampered.Mercado. thus itself becoming a participant to the fraudulent scheme. H. The holder must *now to whom he should present it for acceptance and?or for payment. 2010 2011! faith applicable when the transferee acts dishonestly 7 where it has actual *nowledge of the facts and circumstances that amount to bad faith. It may be drawn payable to the order of: a+ payee who is not ma*er. 1 The validity and negotiable character of an instrument are not affected by the fact that: it is not dated> or a+ b+ c+ d+ does not specify the value given. (2S A.Layno. The insertion of a wrong date does not avoid the instrument in the hands of a subse3uent holder in due course> but as to him. )Sec. W.rder Instruments Section F. OMISSIONS AND PRO6ISIONS THAT DO NOT AFFECT NEGOTIABILITY Section G. 1 n instrument which contains an order or promise to do any act in addition to the payment of money is not negotiable. Cancino. (2S A. rt.Avila. stamped. B ** +.%2%b*! 1ust b! )!. &!'+t %b*! &st(u1!&ts3 . & t! %&) #!(t% & • mount of money to be paid must be determinable by inspection and must be stated plainly in the face of the instrument. P(+1 ss+(2 &+t! • • The promise to pay must be in the instrument itself although it is not necessary to use the word promise. 2010 2011! RELATED PRO6ISIONS: (AGBAYANI COMMENTARY) S!#t +& 13 F+(1 +. print or pencil on a parchment. will pay. • • • • • . engraved.(+1 s! +( +()!( t+ .Prinsipe.(+1 s! +( +()!( t+ . any words e3uivalent may suffice to ma*e an instrument a bill of e(change.+**+. cloth leather or any substitute of paper. It must be signed by the ma*er or drawer> full name may be indicated but the surname is enough It may also consist of initials and numbers.Mercado.+(1 t+ t$! . mere re3uest to pay is not a negotiable instrument.Layno. photographed or lithographed> but in every case there must be a showing that the party have adopted and used such signature. • There must be a writing of some *ind for if the instrument were not in writing there would nothing to be negotiated or to pass from hand to hand. 2ords e3uivalent to promise: agree.Y. It may be in in*.%2 % su1 #!(t% & & 1+&!2.Concepcion.Negotiable Instruments Law (Aquino and Agbayani Notes) ! Abad.&' (!9u (!1!&ts: (%) It 1ust b! & -( t &' %&) s '&!) b2 t$! 1%:!( +( )(%-!(.Chu. Li*e the denomination of money it must be stated in the body of the instrument. -ere authoriIation to pay is not a negotiable instrument. a bill is an instrument demanding a right. It is enough that )1+ words of e3uivalent meaning are used or )!+ the promise is implied from promissory words contained in the instrument. The word order may not necessarily be used. typewritten.%2 • • 0romise or order must not be subAect to any condition. 2here signature found: location of signature is not material what is important is that it appears therefrom that the person intended to ma*e it his own.A& &st(u1!&t t+ b! &!'+t %b*! 1ust #+&. 11BE a condition is a 1+ a future event that may or may not happen !+ a past event un*nown to the parties. %ote: the promise to pay cannot be implied from the e(istence of a debt.Reyes H. !"#$%&'! • • bill must contain an order to pay. Su1 . shall pay and the li*e. U&#+&) t +&%* . Signature may be printed. • • • • • • (b) Must #+&t% & %& u&#+&) t +&%* . 2here the name is not signed the holder must prove that what is written is intended as a signatureof the person sought to be charged. Reyes H. "!) +( )!t!(1 &%b*! .Cancino. <ow negotiability determined: 1+ %IL sec 1 !+ considering the whole of the instrument #+ what appears on the face of the instrument and not elsewhere.utu(! t 1!. . :eason why %I should be in money: money is the one standard of value in actual business. @nder section 1C drawee6s name may be omitted and be filled in under implied authority li*e any other blan*. (b) b2 st%t!) &st%**1!&ts.% ): (%) .%2%b*! t+ +()!( +( t+ b!%(!(. N+t!s • The formalities re3uired by the %I are essential for the security of mercantile transactions. ll other commodities may rise and fall in value but in theory. /onds. 2here interest is stipulated but not specified the rate is determined to be the legal rate.Avila. • • • S!#3 73 W$%t #+&st tut!s #!(t% &t2 %s t+ su13 . state paper.Concepcion. +( • • %I with stated instalment does not readily render it non1negotiable.t$ (!%s+&%b*! #!(t% &t23 • • This re3uierement refers only to a bill of e(chang. stoc*s. 2010 2011! • • • ll that is re3uired is that the principal should be certain. They distinguish the negotiable from non1negotiable.T$! su1 . at least. assignees or holder. the provision of the %IL will not govern.Y. 2here the instrument does not comply with the re3uirement of section 1 of the negotiable instruments law.%2%b*! s % su1 #!(t% & .t$ &t!(!st. Instalments must conform to the ff : 1+ must be stated !+ maturity of each instalment must be fi(ed and determinable. money measures this rise and fall and remains the same. The sum is certain when the principal sum is certain. t$ s A#t< %*t$+u'$ t s t+ b! .Layno. foreign bills are not negotiable. The re3uirement lac*ing may not be supplied by using a separate instrument containing that re3uirement which is lac*ing. scrip. nd an acceptance may supply the omission of a designation. +( • • • • The fact that the sum payable is to be paid with interest does not render the sum uncertain.Mercado. n instrument is not negotiable unless made payable to a person or his order or to bearer unless words of similar import is used such as assigns. %&) • • the words order or bearer are usually referred as words of negotiability.s! &) #%t!) t$!(! & .Prinsipe. Interest shall earn interest from the time it is Audicially demanded.%2%b*! +& )!1%&)< +( %t % . (2S A. (#) Must b! .t$ & t$! 1!%& &' +. (!) W$!(! t$! &st(u1!&t s %))(!ss!) t+ % )(%-!!< $! 1ust b! &%1!) +( +t$!(.Negotiable Instruments Law (Aquino and Agbayani Notes) " Abad. ()) Must b! . chec*s.Chu. Sum payable must be in money only. %21!&t +.(!ss!) t+ b! . But %& +()!( +( . • • (b) A st%t!1!&t +. +( (!) . custom or practice whereby drafts should be paid at the rate e(isting on the date of its maturity. 0%/: held: although the plaintiff6s application provides for payment at maturity of the draft this refers merely to the time when the plaintiff was bound to pay . tty. % .%2 +ut +.t$ !"#$%&'!< -$!t$!( %t % . #+**!#t +& +( %& %tt+(&!2>s . +( ()) .utu(! t 1!. n order or promise to pay out of a particular fund is not unconditional but if the order or promise is coupled only by a source where reimbursement in case of non1payment it is still unconditional.(+= s +& t$%t< u. 2here the promise or order is made subAect to the terms and conditions of the transaction stated the instrument is rendered non1negotiable.%(t #u*%( .A& &st(u1!&t s .%(t #u*%( %##+u&t t+ b! )!b t!) . % . The transferee will not be considered a holder in due course and hold the instrument subAect to the defences as if it was non1negotiable. 4ee must be reasonable.Y.Concepcion.%u*t & . Gregorio araneta I%'. The sum payable is a sum certain within the meaning of this act. !) +()!( +( . the same is clearly immaterial for they have an e(press contract between the parties defining their rights andobligation.%2%b*!: .Avila.(+1 s! s u&#+&) t +&%*3 . +( • The problem which is sought to be solved by this section is whether or not the indication of a particular fund or particular account or the statement of the transactions which gives rise to the instrument would ma*e promise or order conditional. although it is to be paid with e(change whether at a fi(ed rate or at a current rate.%2 s u&#+&) t +&%* .Prinsipe. the payment is subAect to the condition that the funds indicated is sufficient. S!#3 43W$!& . with the provision that upon default in payment of instalment or of interest the whole shall be due. %&2 &st%**1!&t +( +. #1 1ECE((((.Reyes H.u&) s &+t u&#+&) t +&%*3 S!#3 ?3 D!t!(1 &%b*! .t$: (%) A& &) #%t +& +. 4ees non recoverable subAect to some e(ceptions provided by law. -$ #$ (! 1bu(s!1!&t s t+ b! 1%)! +( % .Cancino.t$ & t$! 1!%& &' +. The written amount shall govern unless the court founds it unreasonable and unconscionable. &t!(!st< t$! -$+*! s$%** b!#+1! )u!.!!< & #%s! . 0laintiff1appellant invo*es an alleged ban*ing practice. t$! t(%&s%#t +& -$ #$ ' =!s ( s! t+ t$! &st(u1!&t3 • • Instruments are not issuede without any transactions which they are based. 2here the payment is out from the funds indicated. t$ s A#t< -$ #$ s !".(+1 s! t+ .%21!&t s$%** &+t b! 1%)! %t 1%tu( t23 N+t!: after the date of maturity the instrument will no longer be negotiable in the full commercial sense that is in the sense that any transferee ac3uiring it would ac3uire the instrument after it is overdue.%2%b*! %t % )!t!(1 &%b*! .(+1 s! t+ . v.Negotiable Instruments Law (Aquino and Agbayani Notes) 1# Abad.u&) +ut +.Mercado.%(t #u*%( . or at least easily ascertained by any one so that the parties can always without difficulty ascertain the e(act amount necessary to discharge the paper.Layno. -$%t #+&st tut!s3 . 5(change between two places at a particular date is a matter of common commercial *nowledge.t$ % . 2010 2011! • The sum payable is a sum certain within the meaning of this act although it is to be paid by instalments. (2S A.utu(! t 1!< .Chu. "!) (%t! +( %t t$! #u((!&t (%t!.t$ #+sts +. and not to the rate of e(change at which the draft should be paid by the plaintiff swince the latter6s obligation is determined by the rate of e(change von the date the drafts was drawn and presented or negotiated which was not later than ug.t$ t$! %1+u&t.A& u&9u%* . t$ s A#t t$+u'$ #+u. tty.t$ & t$! 1!%& &' +. • • • (#) b2 st%t!) &st%**1!&ts< . 5ven assuming the e(istence of this practice.*!) .+& )!. (b) %ut$+( A!s % #+&.utu(! t 1! s. / &)s: 1+ that which contain acceleration clauses on the ma*er6s default in payment of instalments or of interest or on the happening of the e(trinsic event> !+ or contain in notes secured by collateral a provision that the ma*er shall supply additional collateral in case of depreciation in the value of the original deposits with the holder6s right to declare the note due immediately on failure to ma*e good the depreciation or #+ contain provisions for acceleration where holder deems himself insecure.Cancino. which is e(pressed to be payable at a fi(ed period after date or after sight.(+1 s! t+ )+ %&2 %#t & %)) t +& t+ t$! .* #t &' +. 1+&!2 s &+t &!'+t %b*!3 But t$! &!'+t %b*! #$%(%#t!( +. This view is from the standpoint of e(pediency as encouraging circulation and of business custom on account of their common acceptance by the commercial world such clauses should be interpreted as not affecting negotiability.t!( t$! +##u((!&#! +.(+= s +& -$ #$: (%) %ut$+( A!s t$! s%*! +.%2%b*! b!..*% & 1!%& &' +. "!) . +( • n instrument is payable at a determinable future time within the meaning of this act. . If the holder is not satisfied with the additional security the note matures at once and thus the time at which it may mature would depend upon the time at which the holder declared himself dissatisfied with the security delivered by the ma*er3 7) Those who maintain that the stipulation in 3uestion does not render the instrument non1negotiable. +( • • A##!*!(%t +& #*%us!: these provisions ma*e it possible for the ma*er to pay the instrument at an earlier date or ma*e it possible for the holder to re3uire payment of the instrument at an earlier date.!#t!) b2 % ..%2!! +( $+*)!( &+&-&!'+t %b*! %(! ) (!#t*2 #+&t(%(2 t+ t$! .t$ %& +.!( +) %. but not sealed and irrevocably authoriIing any attorney of any court of record to confess Audgement and issue e(ecution usually for sum named 'onfession relicta verification1 confession of Audgement after plea has been entered.!#t &' &!'+t %b * t23 .!& &' b! u&#!(t% &3 A& &st(u1!&t . C+&.!#t3 S!#3 @3 A)) t +&%* .!# .Y.% ) %t 1%tu( t2. +. Bu)'1!&t . +( • a promise of the ma*er to furnishadditional collateral will render the note non1negotiable.Reyes H. subscribed.s! &!'+t %b*! s &+t %. +( • 'lasses of confession of Audgement: cognovits actionem1 a written confession of an action by a defendant.Layno. (2S A..!( +) %.!ss +& +. & +& %s t+ t$ (): 1) t $%s b!!& $!*) t$%t % &+t! s (!&)!(!) &+&-&!'+t %b*! -$!(! t s . $%.+& % #+&t &'! s &+t &!'+t %b*!< %&) t$! $%. t$! . "!) +( )!t!(1 &%b*! . "!) t 1! but %##!*!(%b*! %t t$! +.Prinsipe.(+= s +&s &+t %. If the ma*er fails when demanded to furnish additional security to the satisfaction of the holder.% ) %t 1%tu( t2. %& &st(u1!&t +t$!(.utu(! t 1!< but .!&< t$+u'$ t$! t 1! +.%2%b*! %t % . t$ s s!#t +&3 • • (#) O& +( %t % .!# .Chu.t +& +. & +& %s t+ t$! s!#+&): 1) those who maintained that such stipulation renders the instrument non1negotiable argue that the time for payment becomes uncertain and indefinite. t$! &st(u1!&t b! &+t . C+&.t +& +& t$! . as that would be an additional act to promise to pay money. !) !=!&t -$ #$ s #!(t% & t+ $%.Concepcion. t$! !=!&t )+!s &+t #u(! t$! )!. !) t$!(! &. #+**%t!(%* s!#u( t !s & #%s! t$! &st(u1!&t b! &+t .%2%b*! %t % . t$! $+*)!( t+ )!#*%(! t )u! %&) . fter sight means after the drawee has seen the instrument upon presentment for acceptance. the note matures at once.!& &' +. % s..Mercado. "!) .%21!&t +.Avila. "!) .A& &st(u1!&t -$ #$ #+&t% &s %& +()!( +( ..+(! 1%tu( t2 -$!&!=!( $! )!!1s t &s!#u(!. 7) t s sub1 tt!) t$%t t$!s! #%s!s & $+*) &' %& &st(u1!&t .%(t +.* #t +.t!( )%t! +( s '$t. 2010 2011! (%) At % .%2%b*! u. • (b) O& +( b!.+(! % .Negotiable Instruments Law (Aquino and Agbayani Notes) 11 Abad. !# . +( (b) I& -$ #$ &+ t 1! .(!ss!) t+ b! . t +.(!su1!) (#) )+!s &+t s. +( ()) b!%(s % s!%*.&t!&)!) .+( t$! %)=%&t%'! +( .t &'< +( &)+(s &' t< . whether due or not is not negotiable.!#t NI. % s.T$! &st(u1!&t s .+(.(!s!&t%t +&.%21!&t s !". authoriIing them generally to appear in court or in some specified court on behalf of the person giving it. +( ()) ' =!s t$! $+*)!( %& !*!#t +& t+ (!9u (! s+1!t$ &' t+ b! )+&! & * !u +.%2%b*! +& )!1%&)< +( %t s '$t< +( +& .2 t$! . +( (!) )!s '&%t!s % .Negotiable Instruments Law (Aquino and Agbayani Notes) 12 Abad.!# .2 t$! =%*u! ' =!&< +( t$%t %&2 =%*u! $%) b!!& ' =!& t$!(!.Prinsipe. %& &st(u1!&t %(! &+t %. R!%s+&: =%*u! s . t$! +b* '+(.s! **!'%*3 S!#3 C3O1 ss +&s. +( (b) T$! )(%-!( +( 1%:!(.%2%b*! +& )!1%&): (%) W$!& t s s+ !".(!ss!)3 W$!(! %& &st(u1!&t s ssu!)< %##!.Layno.T$! =%* ) t2 %&) &!'+t %b*! #$%(%#t!( +.+( .Avila.%2%b*! +& )!1%&)3 .(+= s +& +( st .%21!&t +.A& &st(u1!&t s . 'onfession of Audgement before maturity1 a note which contain a provision authoriIoing confession of Audgement at any time thereafter.!(s+& s+ ssu &'< %##!.!(s+& +( t+ $ 1 +( $ s +()!(3 It 1%2 b! )(%-& . %ote: confession of Audgement is void in the 0hilippines because: 1+ enlarge the field of fraud> !+ under this instrument the promissor bargains away hi right to a day in court> #+ effect is to stri*e down the right of appeal. +( (#) T$! )(%-!!. +( ()) T-+ +( 1+(! .Mercado.t!)< +( &)+(s!) -$!& +=!()u!< t s< %s (!'%()s t$! .*%#! -$!(! t s )(%-& +( t$! .*%#! -$!(! t s . +( ...Cancino. #u((!&t 1+&!2 & -$ #$ . 1+&!23 But &+t$ &' & t$ s s!#t +& s$%** =%* )%t! %&2 . (#) -% =!s t$! b!&!. 2010 2011! 2arrant of attorney 7 an instrument in writing addressed to one or more attorneys named therein.%(t #u*%( 1+&!23 .u*%t +& +t$!(.%2!!s B+ &t*2.: (%) A .Chu. (2S A.%2%b*! t+ t$! +()!( +.Y. %&2 *%.%21!&t s t+ b! 1%)!3 But &+t$ &' & t$ s s!#t +& s$%** %*t!( +( (!.%2%b*! t+ +()!( -$!(! t s )(%-& .%(t #u*%( : &) +. t$! #+&s )!(%t +& t+ b! st%t!) & t$! &st(u1!&t3 S!#3 D3W$!& .%2%b*! +& )!1%&)3 S!#3 E3W$!& . !) .!%* %&2 st%tut! (!9u ( &' & #!(t% & #%s!s t$! &%tu(! +.%2%b*! t+ +()!(3 . +( • • gen rule: omission of date does not render the instrument non1negotiable e(p: when date is necessary to fi( date of maturity (b) )+!s &+t s. +( • '!& (u*!: &+ =%*u! s.(+t!#t +& +.%#t t$%t: (%) t s &+t )%t!).Concepcion.Reyes H.%2%b*!.%2!! -$+ s &+t 1%:!(< )(%-!(< +( )(%-!!. . and to confess Audgement in favor of some particular person therein named in action debt. !) )+!s &+t %.%2%b*! t+ t$! +()!( +. s!%*.!# .!#t!) b2 t$! .!# . . .+( t$! t 1! b! &'3 W$!(! t$! &st(u1!&t s . (2S A.t%&#! s )%t!).T$! &st(u1!&t &!!) &+t .!(s+&< %&) su#$ . it is useless to consider it negotiable.&'< %##!. #t t +us +( &+&-!" st &' . • • • • ()) W$!& t$! &%1! +.Avila.Prinsipe.!(s+& 1%: &' t s+ .%2!!s.%2%b*! t+ % .%2%b*!.%2%b*! t+ t$! +()!( +.Chu. t$ s A#t< but %&2 t!(1s %(! su.Layno.Concepcion. # !&t3 .(!ss!) t+ b! s+ .Negotiable Instruments Law (Aquino and Agbayani Notes) 13 Abad.. +( (..Cancino.+**+.%2 &' t$! .%#t -%s :&+-& t+ t$! .%# ! t+ b! t$! t(u! )%t! +.t%&#!< +( &)+(s!1!&t< %s t$! #%s! 1%2 b!3 • T$ s . 4) &)+(s!1!&t s )%t!) . 'onse3uently. s!=!(%* .) T$! $+*)!( +.u(. 2010 2011! (!) O&! +( s+1! +.t%&#! +( %&2 &)+(s!1!&t t$!(!+& s )%t!)< su#$ )%t! s )!!1!) .Y.s! &) #%t!) t$!(! & .%2%b*!.3 S!#3 113D%t!< .+(1 t+ t$! (!9u (!1!&ts $!(!+.+(t t+ b! t$! &%1! +.(+= s +& %. +( • !"3 0ay to bearer 01 (b) W$!& t s .Mercado. % .%2!!: reason: if there is no payee where the instrument is to be payable to his order no one could indorse the instrument. If principal has no *nowledge the instrument will not apply as to the principal..!(s+& &%1!) t$!(! & +( b!%(!(.T$! &st(u1!&t s .%2%b*! t+ b!%(!(3 . 7) %##!. The name is fictitious when it is feigned or pretended and a non1e(isting person one who does not e(ist in the sense that he was not intended to be the payee by the drawer %ote: if the agent has no authority to e(ecute the instrument himself the *nowledge of the principal is controlling.%2!! )+!s &+t . +( (!) W$!& t$! +&*2 +( *%st &)+(s!1!&t s %& &)+(s!1!&t & b*%&:3 S!#3 153T!(1s< -$!& su. t$! .(!su1.t$ (!%s+&%b*! #!(t% &t23 • • N+t!: payable to order means that a person promises to pay to the order of a specific person or to the duly authoriIed agent of that person. %& +.%2!! 1ust b! &%1!) +( +t$!(.%2%b*! t+ +()!(< t$! . S!#3 F3W$!& . 5lements: 1+ the payee named must be fictitious or non e(isting> !+ it must be *nown to the person ma*ing it so payable.!(s+&. t$! ssu!. #! . +( • 2hen it is payable to the order of a fictitious person or non1e(isting person it is payable to bearer if such fact was *nown to the person ma*ing it so payable. # !&t -$ #$ #*!%(*2 &) #%t! %& &t!&t +& t+ #+&.( 1% . ngTe*Lian v. %&2 .* !s t+ t$(!! #%s!s: 1)t$! &st(u1!&t #+&t% &s t$! )%t! +. ' : <eld: under the %IL a chec* drawn payable to cash is payable to bearer and the ban* masy pay to the person presenting it for payment. T$!(! s % &!#!ss t2 +.W$!(! t$! &st(u1!&t +( %& %##!.t$! *%&'u%'! +.Reyes H. +( • E"3 P%2 t+ $%&s!*1+(%&% +( b!%(!( (#) W$!& t s ..t +& %s t+3 .%2%b*! t+ b!%(!(: (%) W$!& t s !". t$! 1%: &'< )(%. 1B. %& &st(u1!&t .T$! &st(u1!&t s &+t &=%* ) . and if the instrument is undated. Insertion of the wrong date does not avoid the instrument in the hands of a holder in due course CHAPTER 4: I&t!(. 2010 2011! S!#3 173A&t!-)%t!) %&) .Prinsipe. . without specifying the date from which interest is to run.+ or the /ill of 5(change ct of 1FF! can be applied. % -(+&' )%t! )+!s &+t %=+ ) t$! &st(u1!&t & t$! $%&)s +.Mercado. from the issue thereof> c+ 2here the instrument is not dated. (2S A. I&st(u1!&ts EFFECTS OF BEING AN ADOPTED STATUTE 1.Reyes H.%2%b*! %##+() &'*23 T$! &s!(t +& +. they are deemed to be Aointly and severally liable thereon. he is to be deemed an indorser> g+ 2here an instrument containing the word JI promise to payJ is signed by two or more persons.+( t$! (!%s+& +&*2 t$%t t s %&t!-)%t!) +( .Negotiable Instruments Law (Aquino and Agbayani Notes) 14 Abad. % subs!9u!&t $+*)!( & )u! #+u(s!.ate is not necessary for the negotiability of the instrument. o o • . RULES THAT APPLY IN CASES OF AMBIGUITY Sec. #.+( %& **!'%* +( . If there is no provision of the %IL or the 'ode of 'ommerce.+s!3 T$! . .+st-)%t!)< .Concepcion. !.S. 5ffects of inserting a wrong date: *nowingly inserting the wrong date in an undated instrument will avoid the instrument as to the party inserting the wrong date. ssu! +( %##!. "!) .Avila.!( +) %. crossed chec*s. 1 2here the language of the instrument is ambiguous or there are omissions therein.!( +) %.g.ate is important to determine when interest is to run .!(s+& t+ -$+1 %& &st(u1!&t s+ )%t!) s )!* =!(!) %#9u (!s t$! t t*! t$!(!t+ %s +.t%&#! +. the holder may treat it as either at his election> f+ 2here a signature is so placed upon the instrument that it is not clear in what capacity the person ma*ing the same intended to sign. 'onstruction where instrument is ambiguous.t%&#!< %&) t$! &st(u1!&t s$%** b! .%2%b*! %t % . EFFECT OF IMPLIED REPEALS ON THE CODE OF COMMERCE The %IL impliedly repealed the provisions of the code of commerce on promissory notes and bills but there are provisions in the 'ode of 'ommerce involving %egotiable Instruments e.%2%b*! %t % . the written provisions prevail> e+ 2here the instrument is so ambiguous that there is doubt whether it is a bill or note.W$!(! %& &st(u1!&t !".u(.Y. S!#3 143W$!& )%t! 1%2 b! &s!(t!)3 . the provisions of the the %egotiable Instruments Law )@. the following rules of construction apply: a+ 2here the sum payable is e(pressed in words and also in figures and there is a discrepancy between the two.(!ss!) t+ b! . the sum denoted by the words is the sum payable> but if the words are ambiguous or uncertain. Interpretation of 'ourts of the @nited States of the provisions of %IL can be applied in this Aurisdiction.Cancino.Chu.(+= )!) t$ s s &+t )+&! .t!( )%t! s ssu!) u&)%t!)< +( -$!(! t$! %##!.(%u)u*!&t . <owever date may be necessary to determine the date of maturity but not for negotiability.+st-)%t!)3 . the interest runs from the date of the instrument. it will be considered to be dated as of the time it was issued> d+ 2here there is a conflict between the written and printed provisions of the instrument. )!* =!(23 • Limitation on ante dating or post1dating: when it is done for fraudulent and illegal purposes. reference may be had to the figures to fi( the amount> b+ 2here the instrument provides for the payment of interest.(!t%t +& +.pinions and comments of authorities or legal writers on the provisions of the @niform %egotiable Instruments Law or the /5 1FF! may also be applied in this Aurisdiction. "!) .t!( s '$t s u&)%t!)< %&2 $+*)!( 1%2 &s!(t t$!(! & t$! t(u! )%t! +. t$! )%t! +.ate is necessary to determine whether a party has acted within reasonable time. but %s t+ $ 1< t$! )%t! s+ &s!(t!) s t+ b! (!'%()!) %s t$! t(u! )%t!3 • .Layno. * #%b*!3 1 it shall not be availed of if the terms of the instrument in 3uestion are clear and admit of no doubt.Chu. 'u(!s3 1 sum payable in words must prevail.. RELATED PRO6ISIONS: (AGBAYANI COMMENTARY) SECTION 1D: W$!& s!#t +& %. T-+ +( 1+(! .Cancino. 1 proof may be adduced to show a different fate as to the true date of the issue.Avila. I&st(u1!&t &+t )%t!)3 1 if the instrument is date.Layno.+ and /J 1 and / are deemed to be Aointly and severally liable.""" )Sgd. 1 only when the instrument in 3uestion is ambiguous. 1 will earn interest from the date of the note or the date of its issue. . (2S A.* #t b!t-!!& -( tt!& %&) . the ambiguity shall be construed against the party who caused the vagueness. 1 :easons: )1+ the figures in the margin do not form part of the instrument and are simply for convenience or reference> and )!+ it is easier to change the figures or to commit a mista*e in regards to them than when the sum is written out in words. doubtful or obscure.Negotiable Instruments Law (Aquino and Agbayani Notes) 15 Abad.%# t2 +.!(s+&s s '& &'3 1 JI promise to pay to ' or order 01. &t!(!st3 1 applies when interest is stipulated but the date when interest begins to be paid is not specified. The holder of the instrument can collect the whole amount of the instrument from either one of them. reference may be had to the figures to fi( the amount. W$!& -+()s %1b 'u+us3 1 when the words are ambiguous or uncertain.%2%b*! !".Concepcion. acceptance.%(t2 s '& &' &+t #*!%(3 1 deemed to be an endorser. 1 written words are deemed to e(press the true intention of the ma*er because they are written by himself and printed forms are printed without any particular contract in view. 1 it was held that an undated acceptance of an undated bill of e(change is payable on demand and will be considered to be dated as of the time it is e(ecuted. will be presumed to be its true date.(+= s +&3 1 the handwritten words will prevail.(!ss!) & -+()s %&) . not merely Aointly liable. . or endorsement. the date of its issue will considered its date. 1 the payee or the holder may treat it wither as a bill or note. or rebuttable between the parties. Su1 . C%. C+&.( &t!) . 1 if the instrument is not dated. or when there are omissions therein that the rules stated in this section apply.Y. 1 the presumption is prima facie. I&st(u1!&t & %1b 'u+us3 1 there is a drawee and acceptor.Reyes H.Mercado.Prinsipe. at the legal rate. 2010 2011! OTHER RULES In case of ambiguity. P%21!&t +. NEGOTIATION %egotiable Instruments Law %egotiable Instruments only <older course ./t constitutes ne5oti/tion2 1 n instrument is negotiated when it is transferred from one person to another in such manner as to constitute the transferee the holder thereof. S@/S5D@5%T %5G. !. a+ If payable to bearer.Layno. 2010 2011! 1 inclusion of the other co1signer in the complaint as co1defendant is unnecessary.Chu. Indorsement of /earer Instrument . -ere assignee %5=5: App3ic/13e (/w Type o4 tr/ns/ction N/ture o4 tr/ns4eree Possi1i3ity to 1eco0e / .Concepcion.!( %&) N!'+t %t +& MODES OF TRANSFER 1. W.TI TI.o3der in due course Ri5.Reyes H. HOW NEGOTIATION TA/ES PLACE . /.Avila.Mercado.Prinsipe. %egotiation: The Transfer of the instrument from one person to another as to constitute the transferee a holder thereof.% Section #".Y.Negotiable Instruments Law (Aquino and Agbayani Notes) 16 Abad.ts /cquired A6/i3/1i3ity o4 person/3 de4enses The transferee holder may ac3uire rights more than that of the transferor if he is a holder in due course The transferee1 holder may be free from personal defenses if he is a holder in due course Transferee merely steps in to the shoes of the transferor Transferee is always subAect to personal defenses.5S in due ASSIGNMENT 'ivil 'ode 'ontracts in general or other assignable rights. Issue: the delivery is the final act essential to the consummation of the instrument as an obligation. 1 J2e promiseJ 1 Aoint liability CHAPTER ?: T(%&s. it is negotiated by delivery> b+ if payable to order. ssignment: The transferee is an assignee who merely steps into the shoes of the transferor. (2S A.Cancino. ISS@ %'5 Issuance is the first delivery of the instrument complete in form to a person who ta*es it as a holder )Sec. 1E1+. it is negotiated by the indorsement of the holder and completed by delivery. (2S A. #H+.ther rules on indorsement: Indorsement must be of the entire instrument e(cept when there was a previous partial payment )Sec. :estrictive indorsement )Sec. pay to $(&+ %ote: the holder may convert a blan* indorsement into a special indorsement by writing over the signature of the indorser in blan* any contract consistent with the character of the indorsement )Sec. !. The transaction is an e3uitable assignment and the transferee ac3uires the instrument subAect to the defenses and e3uities available among prior parties. is indorsed specially. In addition.& Such an indorsement does not impair the negotiable character of the instrument. Indorse0ent7 .esignates the indorsee. #E+: the party re3uired to pay the instrument may disregard the condition and ma*e payment to the indorsee or his transferee whether the condition has been fulfilled or not.4 . I%'. #G+: n indorsement is restrictive which either: a. !.Cancino.Reyes H. )e.Avila. it may nevertheless be further negotiated by delivery> but the person indorsing specially is liable as indorser to only such holders as ma*e title through his indorsement. 'onstitutes the indorsee the agent of the indorser> or c.n a separate piece of paper attached to the instrument called $allonge&. without additional words. '.Mercado.:.g. Indorse0ent o4 instru0ent p/y/13e to 1e/rer2 1 2here an instrument. :ights of a :estrictive indorsee )Sec. payable to bearer. Sec #! further disallows negotiation of two or more indorsees severally. 9inds of Indorsement 1. the right to have the indorsement of the transferor.TI TI. Special Indorsement: . the transfer vests in the transferee such title as transferor had therein.Concepcion. #B+: . The signature of the indorser. 2here indorsement should be placed: 1. . CE. Dualified Indorsement: constitutes the indorser a mere assignor of the title to the instrument.Negotiable Instruments Law (Aquino and Agbayani Notes) 1 Abad.Chu. is a sufficient indorsement. =ests the title in the indorsee in trust for or to the use of some other persons. #!+. and the transferee ac3uires in addition. #.Layno. .. 2here the holder of the instrument payable to his order transfers is for value without indorsing it.Y.-0L5T5 %5G. It may be made by adding to the indorser6s signature the words $without recourse.. !. 2010 2011! Section C". C. /lan* Indorsement: no indorsee is specified and it is done by affi(ing the indorser6s signature. the presumption of sufficiency of consideration and title that is enAoyed by the holders will not be enAoyed by the transferee contemplated under Sec. 'onditional Indorsement )Sec.:S5-5%T Section #1. H. 4or the purpose of determining whether the transferee is a holder in due course.% .5: I%ST:@-5%T Two :ules under Section CE: 1.n the instrument itself> .ow 0/de2 1 The indorsement must be written on the instrument itself or upon a paper attached thereto. the negotiation ta*es effect as of the time the indorsement is actually made. I%.Prinsipe. 0rohibits the further negotiation of the instrument> or b. . & RULES ON WHAT CONSTITUTES 6ALUABLE CONSIDERATION FOR PURPOSES OF ISSUANCE AND NEGOTIATION OF NEGOTIABLE INSTRUMENTS: Section !H. ' . such party may reissue and further renegotiate the same. interest.o3der 4or 6/3ue2 L 2here the holder has a lien on the instrument arising either from contract or by implication of law. or labor. 2010 2011! 1.o3der 4or 6/3ue2 1 2here value has at any time been given for the instrument. . 1#G!"!. or some responsibility to act. where the form of the indorsement authoriIes him to do so. rt 1#H" 'ivil 'ode: In onerous contracts the cause is understood to be.Chu.Concepcion. n antecedent or pre1e(isting debt constitutes value> and is deemed such whether the instrument is payable on demand or at a future time. he may stri*e out the intervening indorsements because they are not necessary for his title and he is liable to them because of his initial indorsement )Sec. !""B+. Therefore it is up to the party who alleges that there was absence of consideration to prove such fact. the mere liberality of the benefactor.Negotiable Instruments Law (Aquino and Agbayani Notes) 1! Abad. In case of transfer. suffered or underta*en by the other party. <owever.Mercado. (2S A. lien is also valuable consideration )please see Sec. W. loss. the instrument is negotiated to another because the transferee will pay the amount of the instrument.Y. detriment. It is enough that the oblige foregoes some right or privilege or suffers some detriment. !B+. Section !B. %o. or service given. /ut he is not entitled to enforce payment thereof against any intervening party to whom he was personally liable )Sec. !. profit or benefit accruing to the party who ma*es the contract or some forbearance. <owever. Ty vs. 8/3ue9 w. There is valuable consideration if the parties resort to what is *nown as discounting. Section !F provides that $absence or failure of consideration is a matter of defense as against any person not a holder in due course> and partial failure of consideration is a defense pro tanto. To receive payment of the instrument> To bring any action thereon that the indorser could bring> To transfer his rights as such indorsee. the prestation or promise of a thing or service by the other> in remuneratory ones.:./t constitutes . <owever.en 3ien on instru0ent constitutes . $Love and affection& do not constitute valuable consideration. he is deemed a holder for value to the e(tent of his lien. Section !G. for each contracting party. 0eople )C#E S': !!"+: =aluable consideration consists in either rights.Avila. #. W. Kanuary !H. The presumption will operate if there was negotiation. 'onsideration is not presumed if there was transfer without indorsement )/0I vs. G. 2hat 'onstitutes =alue: The simple contract referred to Section !H refers to onerous contracts. the service or benefit which is remunerated> and in contracts of pure beneficence. the holder is deemed a holder for value in respect to all parties who become such prior to that time.Cancino. H"+.Layno. the transferee charges or deducts a certain percentage from the principal as its compensation. CF+. whether the failure is an ascertained and li3uidated amount or otherwise. I% discounting. 'onsideration for issuance and subse3uent transfer 5very negotiable instrument is deemed prima facie to have been issued for a valuable consideration> and every person whose signature appears thereon to have become a party thereto for value )Section !C+.Reyes H. %egotiation by 0rior 0arty 2here an instrument is negotiated bac* to a prior party./t constitutes2 L =alue is any consideration sufficient to support a simple contract.Prinsipe. all subse3uent indorsees ac3uire only the title of the firs indorsee under the restrictive indorsement. 1 if the defenses are real. such as the ma*er or indorser. price or impelling influence which induces a contracting party to enter into a contract.Y. whether the failure is an ascertained and li3uidated amount or otherwise. (2S A. C+&s )!(%t +& s D s.. L+=! +( %. or some forbearance. drawer. E.. to do or not to do.t +& +. (i/1i3ity o4 /cco00od/tion p/rty2 1 n accommodation party is one who has signed the instrument as ma*er. 1 an obligation to give. C+&s )!(%t +& &!!) &+t b! %**!'!) +( .Prinsipe.* #%t +& +. *%#: +.!(s 1 sufficient consideration. RELATED PRO6ISIONS: (AGBAYANI COMMENTARY) S!#t +& 7?3 P(!su1.!(s+&>s . #+&s )!(%t +&. holder in due course can collect nothing because ma*er can interpose those defense against the holder in due course as to the whole amount of the instrument. even a holder in due course can collect from ma*er only the e(tent of the lien. such as absence of consideration.ut%b*!3 1 negotiable instrument was given or endorsed for a sufficient consideration. profit or benefit accruing to the party who ma*es the contract. S!#3 7E3 E44ect o4 w/nt o4 consider/tion2 : bsence or failure of consideration is a matter of defense as against any person not a holder in due course> and partial failure of consideration is a defense pro tanto. &st(u1!&t s su. M!(! &t(+)u#t +& +. interest. $+*)!( . 1 the person claiming that a payee or an indorsee did not give valuable consideration given. !G of the %IL. as between the parties. 2here defenses are real. acceptor. &!'+t %b*! . suffered or underta*en by the other side.Cancino. 1 the instrument is without effect and the payment of said note is not demandable. P(!-!" st &' )!bt< T$ () . or service given. 1 it is disputable in the sense that the said presumption is satisfactory if not contradicted.+( =%*u!3 1 one who gives valuable consideration for an instrument issued or negotiated. S!#3 7F. or indorser.(!-!" st &' )!bt< B%&: #(!) ts< E"#$%&'! +.Concepcion.. or labor.. # !&t3 1 prima facie entitles the plaintiff of a recovery and unless such prima facie case is overcome by evidence produced by the defendant the plaintiff is entitled to recover. notwithstanding the failure to allege specifically the amount and nature of the consideration which was in fact paid to the endorser. 1 any allegation which sets forth the e(istence of valuable consideration for the transfer of an instrument by endorsement is sufficient. for consideration is imported and presumed from the fact that it is a negotiable instrument.+( t$! (u*!3 1 holder in due course is only a holder in due course for that amount only.!#t +.Layno. S!#t +& 7D3 1 if ma*er has defenses against endorser.Negotiable Instruments Law (Aquino and Agbayani Notes) 1" Abad.%. non1e(istent. 1 any holder of an instrument for which value has been given at any time S!#t +& 7D3 A. loss or some responsibility to act. S!#t +& 7@3 6%*u%b*! #+&s )!(%t +& & '!&!(%*3 1 consideration: inducement to a contract that is. 1 not limited to one who is *nown to have given valuable consideration for the instrument he holds.(+=!)3 1 it is unnecessary to aver or prove consideration.Avila.!#t +&3 1 is good consideration. detriment.Chu.Reyes H. but does not constitute such valuable consideration as is sufficient itself to support the obligation of a bill or note..Mercado. R!%s+& . and for the purpose of lending his name to some other . C+&s )!(%t +& %s t+ su(!t2 +( 'u%(%&t+(3 1 it is unnecessary to prove consideration between the surety and the creditor. 2010 2011! 5ffect if value was previously given n e(ceptional case where a transferee who did not give valuable consideration for the instrument may nevertheless be considered a holder for value is contemplated under Sec. 1 consist either in some right. in favor of the party who ma*e the contract. S!#t +& 7C3 M!%& &' +. the cause. motive. without receiving value therefor. or )#+ upon the death of a Aoint payee or indorsee. the instrument is incomplete. where the title vests in his assignee or trustee. notwithstanding such holder. it cannot be considered as allonge. *new him to be only an accommodation party. The assignee is substituted in place of the assignor.Y. or which . and where the separate paper is only temporary attached. %ss '&1!&t3 lthough some sort of written assignment is customarily employed.Cancino. or )!+ by the ban*ruptcy of the holder. which may either be by indorsement completed by delivery or by mere delivery.Negotiable Instruments Law (Aquino and Agbayani Notes) 2# Abad.Layno. /ut the allonge must be tac*ed or pasted on the instrument so as to become a part of it. and where the separate paper is only temporarily attached. 1 The indorsement must be written on the instrument itself or upon a paper attached thereto. The assignee and every subse3uent person to whom the instrument comes by assignment may be considered as the person who made the instrument in the first instance and as having said and done everything in ma*ing the instrument which the original assignor said or did. &!'+t %b*! &st(u1!&ts3 person ta*ing a negotiable instrument by assignment in a separate paper ta*es it subAect to the rules applying to assignment. e(actly similar to that which is implied by drawing a bill e(cept that. &+&-&!'+t %b*! &st(u1!&ts3 The party holding the right drops out of the contract and another ta*es his place.!#t +. nd where the hold of a bill payable to order transfers it without indorsement. by operation of law: )1+ by the death of the holder. T(%&s. T(%&s. &)+(s!1!&t3 n indorsement is not only a mode of transfer. 2010 2011! person. N!'+t %t +&3 @sually. the stipulation with respect to the drawer6s responsibility and underta*ing do not apply. 1 n instrument is negotiated when it is transferred from one person to another in such manner as to constitute the transferee the holder thereof. it is negotiated by the indorsement of the holder and completed by delivery. The indorsement of a bill or note implies an underta*ing from the indorser to the person in whose favor it is made and to every other person to whom the bill or note may afterwards be transferred. M!t$+) +. it is negotiated by delivery> if payable to order. where the title vests in his personal representative. where the instrument is payable to order.!( b2 +. E. This seems to be the better view. in the case of drawing a bill. at the time of ta*ing the instrument. n indorsement which purports to transfer to the indorsee a part only of the amount payable. that is. The signature of the indorser. *%-3 The full title to a bill or note may pass without either assignment. It must be shown that the means was intended as an indorsement.Concepcion. before delivery to the payee. by mere delivery.%2!! &!'+t %t +&? The 4irst 6iew is that the issuance or delivery to the payee is not negotiation because negotiation refers to an e(isting negotiable instrument and. %ss '&1!&t +. which is called an $allonge&. or delivery.Avila.Mercado. is a sufficient indorsement.Chu. 1 The indorsement must be an indorsement of the entire instrument. Ass '&1!&t +. (2S A.Reyes H. in which case the general is that the title vests at once in the surviving payee or indorsee. The assignee ta*es the contract subAect to e3uities.&)+(s!1!&t s -( tt!&3 Indorsement does not prove itself. If payable to bearer. to defenses to the contract which would avail in favor of the original party up to the time the notice of the assignment is given to the person against whom the contract is sought to be enforced. as delivery to the payee of the instrument constitutes him the holder thereof. S!#3 453 2hat constitutes negotiation. an instrument is negotiated when it is delivered to the payee or to an indorsee> negotiation is not confined to transfer after delivery to the payee. it is negotiated by the indorsement of the holder completed by deliver.!(%t +& +. M+)! +. N%tu(! +. S!#3 473 Indorsement must be of entire instrument. indorsement. it operates as an e3uitable assignment. Ass '&1!&t3 It is the method of transferring a non1negotiable instrument whereby the assignee is merely placed in the position of the assignor and ac3uires the instrument subAect to all defences that might have been set up against the original payee. without additional words. that is. it may be written either on the instrument itself or on a separate piece of paper. H+. The second 6iew is that $under this section and Section 1E1.Prinsipe. and where it is payable to bearer. Such a person is liable on the instrument to a holder for value.. W$!(! &)+(s!1!&t -( tt!&3 The indorsement may be written )1+ on the instrument itself. S!#3 413 Indorsement> how made. or )!+ upon a paper attached thereto.!(3 # methods of transfer: )1+ by assignment> )!+ by operation of law> )#+ by negotiation. it is also a contract. Is )!* =!(2 t+ . )!+ in blan*. ccordingly. &!'+t %b * t23 @nder the law. 1 special indorsement specifies the person to whom. and an instrument so indorsed is payable to bearer. /ut while the omission of words of negotiability in the indorsement does not affect the negotiability of the instrument. b*%&: &)+(s!1!&t3 The holder must not write any contract not consistent with the indorsement.!( +. t$! &)+(s!(3 This is *nown as the $agency type& of restrictive indorsement. )F+ successive. S!#3 4@ /lan* indorsement> how changed to special indorsement. such omission in the body thereof will render the instrument non1negotiable. )#+ absolute. )B+ Aoint. and may be negotiated by delivery.u(t$!( &!'+t %t!)3 )1+ 2here the instrument is originally payable to order and it is negotiated by the payee by special indorsement. even if the original bearer negotiated it by special indorsement. 2010 2011! purports to transfer the instrument to two or more indorsees severally.Concepcion..Y.Prinsipe. n indorsement may be either special or in blan*> and it may also be either restrictive / &)s +. )H+ restrictive.Layno. the instrument is to be payable. S!#3 44 9inds of indorsement. but it may constitute a valid assignment binding between the parties. E. an indorsement of a part of the instrument does not E. -+()s +. +1 ss +& +. S!#3 4D 5ffect of restrictive indorsement> rights of indorsee. n indorsement in blan* specifies no indorsee. H+.+& #+&=!(s +& +.%(t %* &)+(s!1!&t -$!& u&%ut$+( A!)3 It does not operate as an indorsement.Reyes H. )1"+ facultative. the contract so written must not change the contract of the blan* indorser. /ut the mere absence of words implying power to negotiate does not ma*e an indorsement restrictive. T(%&s. E"#!. does not operate as a negotiation of the instrument. 1 right: restrictive indorsement confers upon the indorsee the .!#t +. I&)+(s!1!&t 1ust b! +. it can be further negotiated by mere delivery. I&)+(s!! %'!&t +.t +&3 /ut where the instrument has been paid in part. 1 The holder may convert a blan* indorsement into a special indorsement by writing over the signature of the indorser in blan* any contract consistent with the character of the indorsement. S!#3 4? Special indorsement> indorsement in blan*.. (2S A.. that is. L 1 t%t +& u. it may be indorsed as to the residue.Negotiable Instruments Law (Aquino and Agbayani Notes) 21 Abad. )G+ 3ualified. 1 or 3ualified or conditional. )C+ conditional. t-+ +( 1+(! &)+(s!!s s!=!(%**23 n indorsement which purports to transfer the instrument to two or more indorsees severally does not operate as a negotiation of the instrument. it can be further negotiated by the indorsee by indorse0ent co0p3eted 1y de3i6ery> )!+ 2here the instrument is originally payable to order and it is negotiated by the payee by blan* indorsement. )E+ irregular. and the indorsement of such indorsee is necessary to the further negotiation of the instrument.!#t +. 1 n indorsement is restrictive which either: )a+ 0rohibits the further negotiation of the instrument> or )b+ 'onstitutes the indorsee the agent of the indorser> or )c+ =ests the title in the indorsee in trust for or to the use of some other persons. or to whose order. The person to whom the instrument is indorsed would not be considered an indorsee but merely as assignee and would therefore ta*e the instrument subAect to the defenses available between the original parties.Avila. /ut where the instrument has been paid in part.Chu. it can be further negotiated by the holder by 0ere de3i6ery> )#+ 2here the instrument is originally payable to bearer. t$! !&t (! &st(u1!&t3 operate as negotiation thereof. &)+(s!1!&t3 )1+ special.Mercado. .Cancino. S!#3 4C 2hen indorsement restrictive. mere absence of words implying power to negotiate does not ma*e an indorsement restrictive. it may be indorsed as to the residue. <owever. even when they become payable to bearer because the only or last indorsement is in blan*.Reyes H. or a past event un*nown to the parties. /ut if the condition is on the face of the instrument. the condition renders it non1negotiable as the promise or order therein would not be unconditional. It may be made by adding to the indorserMs signature the words Jwithout recourseJ or any words of similar import.. Such payment will discharge him from liability on the instrument. $sans recours&.Concepcion.T apply to instruments originally payable to order. The indorsee must hold it in trust while the condition is not fulfilled. ma*ing the order or promise to pay conditional. that is. <ence. Such an indorsement does not impair the negotiable character of the instrument. :estrictive indorsee may transfer his rights. $with intent to transfer title only. 1 3ualified indorsement constitutes the indorser a mere assignor of the title to the instrument. subAect to the rights of the person indorsing conditionally. • • • :estrictive indorsee may receive payment. #+&) t +&%* &)+(s!!3 The ma*er .Y. #+&) t +&%* &)+(s!1!&t +& &!'+t %b * t23 conditional indorsement does not render an instrument non1 negotiable. is indorsed specially. at the time of the indorsement. where the form of the indorsement authoriIes him to do so. 9u%* . /ut any person to whom an instrument so indorsed is negotiated will hold the same. upon no other condition than the failure of prior parties to do so and upon due notice to him of such failure. (2S A. 3ualified indorsement does %.T impair the negotiable character S!#3 4F 'onditional indorsement.!#t +.Avila. E. 1 2here an instrument. $indorser not holden&. !) &)+(s!1!&t s 1%)!3 3ualified indorsement is made by adding to the indorser6s signature the words $without recourse&. N!'+t %t +& +. it can be negotiated by mere delivery.!#t +. !) &)+(s!1!&t +& &!'+t %b * t23 of the instrument. S!#3 ?5 Indorsement of instrument payable to bearer.Negotiable Instruments Law (Aquino and Agbayani Notes) 22 Abad. It does %.out recourse< means without resort to a person who is secondarily liable after the default of the person who is primarily liable.Prinsipe. 2010 2011! )a+ to receive payment of the instrument> )b+ to bring any action thereon that the indorser could bring> )c+ to transfer his rights as such indorsee. S!#3 4E Dualified indorsement.9u%* .Chu. 1 2here an indorsement is conditional. H+.Layno. . . E.!#t +. E. R '$t t+ ) s(!'%() #+&) t +&s G Ob* '%t +&s +. C+&) t +&%* &)+(s!1!&t3 n indorsement subAect to the happening of a contingent event. /ut all subse3uent indorsees ac3uire only the title of the first indorsee under the restrictive indorsement. the party re3uired to pay the instrument may disregard the condition and ma*e payment to the indorsee or his transferee whether the condition has been fulfilled or not.Cancino. or $at the indorsee6s own ris*&.Wit. the instrument was valueless or not valid and he *new of that fact. A.%2%b*! t+ b!%(!( but s.. 9u%* .Mercado.!# %**2 &)+(s!)3 n instrument which is originally payable to bearer is always payable to bearer. 8u%* . an event that may or may not happen. even when specially indorsed. that is. it may nevertheless be further negotiated by delivery> but the person indorsing specially is liable as indorser to only such holders as ma*e title through his indorsement. disregard the condition and pay the indorsee even if the condition has not been fulfilled. or the proceeds thereof. and not to incur liability as indorser&. the indorsee does not immediately ac3uire ownership over the sum. :estrictive indorsee may bring any action.ne by which the indorser binds himself to pay. !) &)+(s!( $%s * 1 t!) s!#+&)%(2 * %b * t23 <e is secondarily liable on his warranties as an indorser under Section GH. payable to bearer. It is only upon the fulfilment of the condition that such ownership over the proceeds of the note is absolutely ac3uired by the conditional indorsee. Abs+*ut! &)+(s!1!&t3 . !) &)+(s!1!&t3 It constitutes the indorser a mere assignor of the title to the instrument.* #%t +&3 This section applies only to instruments which are originally payable to bearer. &st(u1!&t . the 3ualified indorser is liable if the instrument is dishonoured by non1acceptance or non1payment due to )1+ forgery> )!+ lac* of good title on the part of the indorser> )#+ lac* of capacity to indorse on the part of the prior parties> )C+ the fact that.... Negotiable Instruments Law (Aquino and Agbayani Notes) 23 Abad.Avila.Cancino.Concepcion.Chu.Layno.Mercado.Prinsipe.Reyes H. (2S A.Y. 2010 2011! S!#3 ?1 Indorsement where payable to two or more persons. 1 2here an instrument is payable to the order of two or more payees or indorsees who are not partners, all must indorse unless the one indorsing has authority to indorse for the others. A,,* #%t +&3 This section applies only to instruments payable to two or more payees Aointly )and+. It does %,T apply to instruments payable to two or more payees severally?solidary )or+. H+- &)+(s!1!&t +. B+ &t ,%2!!s 1%)!3 2here the instrument is payable to two or more payees, all payees must each indorse in order to negotiate the instrument. If only one indorses, he passes only his part of the instrument. Such an indorsement would not operate as such because it would not be an indorsement of the entire instrument. 5N'50TI,%S: )1+ where the payee or indorsee indorsing has authority to indorse for the others, and )!+ where the payees or indorsees are partners. S!#3 ?7 5ffect of instrument drawn or indorsed to a person as cashier. 1 2here an instrument is drawn or indorsed to a person as JcashierJ or other fiscal officer of a ban* or corporation, it is deemed prima facie to be payable to the ban* or corporation of which he is such officer, and may be negotiated by either the indorsement of the ban* or corporation or the indorsement of the officer. P(!su1,t +& s ) s,ut%b*!3 0roof may be adduced to show that the bill is payable to the cashier personally as real creditor to the ma*er. <owever, as to public corporations, a town treasurer has no authority to indorse the said instrument since $corporation& in this section does not include cities and towns. S!#3 ?4 Indorsement where name is misspelled, and so forth. 1 2here the name of a payee or indorsee is wrongly designated or misspelled, he may indorse the instrument as therein described adding, if he thin*s fit, his proper signature. S!#3 ?? Indorsement in representative capacity. 1 2here any person is under obligation to indorse in a representative capacity, he may indorse in such terms as to negative personal liability. H+- %'!&t 1ust &)+(s!3 <e must indorse in the same manner as an agent of the ma*er, drawer or acceptor should in order to escape personal liability as re3uired under Section !". <e must )1+ add the words describing himself as an agent> )!+ disclose his principal> and )#+ must be duly authoriIed. S!#3 ?@ Time of indorsement> presumption. 1 5(cept where an indorsement bears date after the maturity of the instrument, every negotiation is deemed prima facie to have been effected before the instrument was overdue. I1,+(t%&#!3 In order that one may be a holder in due course, the instrument must be negotiated to him before it becomes overdue. The indorsement without date establishes pri0/ 4/cie presumption that the instrument was negotiated before maturity. S!#3 ?C 0lace of indorsement> presumption. 1 5(cept where the contrary appears, every indorsement is presumed prima facie to have been made at the place where the instrument is dated. I1,+(t%&#!3 The place of indorsement sometimes is material because an indorsement is governed by the laws of the place where it is indorsed, although the instrument is drawn or made in a different place. S!#3 ?D 'ontinuation of negotiable character. 1 n instrument negotiable in its origin continues to be negotiable until it has been restrictively indorsed or discharged by payment or otherwise. W$!& &!'+t %b*! &st(u1!&t (!&)!(!) &+&-&!'+t %b*!3 @nder this section, an instrument originally negotiable can be rendered negotiable only by: )1+ restrictive indorsement> or )!+ by a discharge thereof by payment or otherwise. R '$t +. $+*)!( &+t & )u! #+u(s!3 The only disadvantage of a holder who is not a holder in due course is that the negotiable instrument is subAect to defenses as if it were non1negotiable. S!#3 ?E Stri*ing out indorsement. 1 The holder may at any time stri*e out any indorsement which is not necessary to his title. The indorser whose indorsement is struc* out, and all indorsers subse3uent to him, are thereby relieved from liability on the instrument. W$!& $+*)!( 1%2 +( 1%2 &+t st( :! +ut &)+(s!1!&t3 holder may stri*e out any indorsement which is not necessary to his title. /ut where an instrument is transferred by a special indorsement, the holder has no right to stri*e out the name of the person mentioned in such indorsement and insert his own name in place thereof. The holder who ac3uires title subse3uent to the succeeding special indorsement must trace his title not only through the blan* indorsement but through the special indorsement as well. Negotiable Instruments Law (Aquino and Agbayani Notes) 24 Abad.Avila.Cancino.Concepcion.Chu.Layno.Mercado.Prinsipe.Reyes H. (2S A.Y. 2010 2011! E..!#ts +. st( : &' +ut3 )1+ The indorser whose indorsement is struc* out is relieved from his liability on the instrument, and )!+ all subse3uent indorsers are also relieved from their liability on the instrument. S!#3 ?F Transfer without indorsement> effect of. 1 2here the holder of an instrument payable to his order transfers it for value without indorsing it, the transfer vests in the transferee such title as the transferor had therein, and the transferee ac3uires in addition, the right to have the indorsement of the transferor. /ut for the purpose of determining whether the transferee is a holder in due course, the negotiation ta*es effect as of the time when the indorsement is actually made. A,,* #%t +&3 This section applies only to instruments payable to order. This contemplates a case where there is delivery and payment of value but no indorsement. This operates as an e3uitable assignment. R '$ts +. t(%&s.!(!! .+( =%*u!3 )1+ The transferee ac3uires only the rights of the transferor. )!+ The transferee has also the right to re3uire the transferor to indorse the instrument. W$!& t(%&s.!(!! b!#+1!s $+*)!( & )u! #+u(s!3 The time for determining whether the transferee is a holder in due course is as of the time of actual indorsement, not at the time of the delivery. S!#3 @5 2hen prior party may negotiate instrument. 1 2here an instrument is negotiated bac* to a prior party, such party may, subAect to the provisions of this ct, reissue and further negotiable the same. /ut he is not entitled to enforce payment thereof against any intervening party to whom he was personally liable. CHAPTER @: H+*)!(s .efinition: holder means the payee or indorsee of a bill or note who is in possession of it or the bearer thereof. 1. <older of an order instrument: 0 ;55 or I%.,:S55> !. <older of a bearer instrument: /5 :5: RIGHTS OF HOLDERS IN GENERAL Sec H1: 5very holder of a negotiable instrument may sue thereon in his own name> and payment to him in due course discharges the instrument. It is not necessary that the holder is a holder in due course before he can enforce payment especially if there are no defenses available to the parties. The only disadvantage of a holder not in due course is that the instrument is subAect to defenses as if it were non1negotiable. RE8UISITES OF A HOLDER IN DUE COURSE (SEC @7): holder is a holder in due course if he has ta*en the instrument under the following conditions: 1. That it is complete and regular upon its face> !. That he became the holder of it before it was overdue and without notice that it has been previously dishonoured, if such was the fact> #. That he too* it in good faith and for value> C. That at the time it was negotiated to him, he had no notice of any infirmity in the instrument or defect in the title of the person negotiating it. $o3der It is actually the first re3uirement under Section H! 7 to be a $holder.& If a possessor of a negotiable instrument is not a holder, he can never be a holder in due course. 'o0p3ete /nd Re5u3/r Negotiable Instruments Law (Aquino and Agbayani Notes) 25 Abad.Avila.Cancino.Concepcion.Chu.Layno.Mercado.Prinsipe.Reyes H. (2S A.Y. 2010 2011! n instrument is complete and regular upon its face if it contains no material or substantial alteration. If the alteration is not apparent, the firs re3uirement is still present because the instrument is still complete and regular $upon its face.& T/=in5 1e4ore O6erdue holder who ta*es an overdue instrument is put on in3uiry although he is not actually aware of any e(isting defense of a prior party. . Installment Instruments 2ith respect to instruments that are payable in installment, it is a general proposition under the @niform %egotiable Instruments Law in the @nited States and 'ommon Law that t$! t(%&s.!(!! +. %& &st%**1!&t &+t % $+*)!( & )u! #+u(s! %s t+ %&2 ,%(t +. t$! &+t! -$!& t$! t(%&s.!( $%s b!!& 1%)! %.t!( t$! 1%tu( t2 +. +&! +( 1+(! t$+u'$ *!ss t$%& %** +. t$! &st%**1!&t3 /. ,verdue Interest 0ayments The mere fact that interest on a note was overdue does not, in the absence of a stipulation ma*ing the principal due upon failure to pay interest, affect an indorsee with notice of dishonour or put him on in3uiry. /ut it is a material circumstance bearing on the 3uestion whether the indorsee ac3uired the note in good faith and without notice of defects of title. '. .emand Instruments Sec. H#: 2here an instrument payable on demand is negotiated on an unreasonable length of time after its issue, the holder is not deemed a holder in due course. @nreasonable: regard has to be had in the nature of the instrument, the usage of trade or business )if any+ with respect to such instruments, and the facts of the particular case )Sec. 1E#+. Notice o4 In4ir0ity /nd e4ect 5ffect of %otice: destroy the due course holding of the instrument Sec. H#: To constitute notice of an infirmity in the instrument or defect in the title of the person negotiating the same, the person to whom it is negotiated must have had actual *nowledge of the infirmity or defect, or *nowledge of such facts that his action in ta*ing the instrument amounted to bad faith. I&. (1 t2: any irregularity in the instrument. D!.!#t =! T t*!: when the party obtained the instrument, or any signature thereto by fraud, duress, or force and fear, or other unlawful means, or for an illegal consideration, or when he negotiates it in breach of faith, or under such circumstances as to amount to a fraud. )Sec. HB+ Good */it. ,campo vs. Gatchalian: lthough good faith on the part of the holder is presumed, such presumption is destroyed if the payee or indorsee ac3uired possession of the instrument under circumstances that should have put it to in3uiry as to the title of the holder who negotiated the instrument. 'rossed 'hec*s: as to crossed chec*s, a person who ta*es a crossed chec* without ma*ing further in3uiries is not a holder in due course. The act of crossing a chec* serves as a warning to the holder that the chec* has been issued .+( % )!. & t! ,u(,+s! so that he must in3uire if he has received the chec* pursuant to that purpose. ):ule does not apply if the payee deposited the chec*+. $o3der 4or 8/3ue =alue is a consideration sufficient to support a simple contract. holder in due course holds the instrument free from any defect of title of prior parties.Y. The conclusion is further reinforced if the same person cannot e(plain how he ac3uired the instrument and there is no showing that he ac3uired it before it was dishonoured. 0resumptions The prima facie presumption is that every holder is a holder in due course and it is up to the person who is resisting the claim to prove that the holder is not a holder in due course. that is. HE+ The presumption does not operate if a demand instrument is negotiated for an unreasonable length of time. a. !. ccommodation 0arties holder for value under Sec. RIGHTS OF A HOLDER IN DUE COURSE 1. b.Avila. )0lease see Sec. Gross negligence may amount to legal absence of good faith ).Mercado. the law does not impose on a holder the obligation to in3uire into the infirmity in the instrument or defect of the title of the person negotiating it to him. H! may be replaced by the definition in Sec. H! of the same law e(cept notice of want of consideration.Concepcion. 2ith respect to holders. holder cannot li*ewise be presumed a holder in due course if there is no proof whatsoever how the person who is claiming the rights of a holder in due course. #. The concept of value under the %IL is different from the concept of cause or consideration under the 'ivil 'ode.Negotiable Instruments Law (Aquino and Agbayani Notes) 26 Abad. # S': HEG+. delivered. <owever. the holder is a holder for value only to the e(tent that the consideration agreed upon has been paid. he is subAect to the same defenses as if it were non1negotiable. ac3uired the instrument. . failure to ma*e in3uiry. 2010 2011! holder is a holder for value if the instrument was indorsed to him by his immediate transferor to pay for a loan that was e(tended to the latter. renders the holder not a holder in due course. 5(ception: a holder who is not a holder in due course but he derived from his title from a holder in due course. (2S A. the inapplicability of the fourth re3uisite is limited to notice of absence of consideration. he will be deemed a holder in due course only to the e(tent of the amount paid therefor by him. !E of the %IL is one who must meet all the re3uirements of the holder in due course under Sec. The word $holder& in Sec. or performed.Layno. <owever. holder in due course is no free from real defenses holder no in due course is subAect to personal and real defenses. HC: 2here the transferee receives notice of any infirmity in the instrument or defect in the title of the person negotiating the same before he has paid the full amount agreed to be paid therefor. Lac* of notice of any infirmity in the instrument or defect in title of the person negotiating it has no application. notice of the fact that the party is a mere accommodation party who did not receive any consideration on the instrument. 1E1.Reyes H. 0ayee as a <older in . and may enforce payment of the instrument for the full amount thereof against all parties liable thereon. Gatchalian. when circumstances indicate defect. holder in due course is free from personal defenses. H! of the %IL. SHELTER RULE General :ule: if a holder is not a holder in due course. Sec.Cancino.campo vs.ue 'ourse It is possible for a payee to be a holder in due course under any circumstance in which he meets the re3uirements of Sec.Chu. and free from defenses available to prior parties among themselves.Prinsipe.e . he is liable on every such part. accepts or pays the parts first presented to him. Sec.Chu. /ut nothing in this section affects the right of a person who. the Supreme 'ourt appears to be inconsistent in their rulings regarding these transactions. The rule is not applicable: 1.Layno. 1BF: where a bill is drawn in a set. 1F": 2here the holder of a set indorses two or more parts to different persons. and who is not himself a party to any fraud or illegality affecting the instrument.i3ippine >urisprudence 'onsolidated 0lywood Industries vs. Sec.ts /6/i3/13e: Sec. Ri5. 1F1: The acceptance may be written on any part and it must be written on one part only. the true owner of the bill.Prinsipe. problem arises if different parts of the set are negotiated to separate persons who are holders in due course.Mercado. ' ! : finance companies are still holders in due course. Protection under P. 2010 2011! Sec. as between such holders. HF: ( ( ( /ut a holder who derives his title through a holder in due course. they cannot refuse payment of such instruments primarily due to the fact that such finance companies are holders in due course. If the drawee accepts more than one part of such accepted parts negotiated to different holders in due course. :eac3uisition of the instrument. when consumers find defect in the products they buy.Reyes H.+ Protection under 'onsu0er Act 1 2 :I 1CE S': 1F1 S': CCF. !EG .Cancino. the holder whose title first accrues is. Thus. he is liable on every such part as if it was a separate bill. transact such instruments to finance companies who are deemed holders in due course.Avila.Concepcion. !. They are also in a better position to protect their interests against unscrupulous and insolvent dealers. Kuanita Salas vs. I4' Leasing and cceptance 'orporation1: finance companies are better able to bear the ris* of the dealer6s insolvency than the buyer. and every indorser subse3uent to him is liable on the part he has himself indorsed. If he was a previous holder not in due course who repurchased the instrument either personally or through an agent. has all the rights of such former holder in respect of all parties prior to the latter. as if such parts were separate bills. 1BE: 2here two or more parts of a set are negotiated to different holders in due course. :ights of <older in /ills in Set /ill in set: one bill that is drawn in set. (2S A. CONSUMER TRANSACTIONS "/c=5round 0rotection must be granted to consumers who transact with negotiable instruments to sellers who in turn.Y.Negotiable Instruments Law (Aquino and Agbayani Notes) 2 Abad. in due course. each part of the set being numbered and containing a reference to the other parts. )Thus. the whole of the parts constitutes one bill. Sec. . O If he accepts both parts. and they are negotiated to holders in due course.""".Prinsipe.Reyes H.%(ts t+ ) .%(t $! $%s $ 1s!*.""". /ut he can as* reimbursement from . /ut .Cancino.!(!&t . t$! s!t b! &' &u1b!(!) %&) #+&t% & &' % (!. ' is liable to 5 for the part he indorsed to 5 and . if . on the first to ' and on the second to . &)+(s!)< %s .%(ts3 (C+&t &u%t +& +.. (2S A. RIGHTS OF A HOLDER IN BILLS IN SET S!#3 1DE3 B **s & s!t #+&st tut! +&! b **3 . 1 The acceptance may be written on any part and it must be written on one part only. 0!. $+*)!(s -$!(! ) . and f.""" unless the drawee accepts both parts.""". the drawee. % .!(!&t $+*)!(s & )u! #+u(s!< t$! $+*)!( -$+s! t t*! . su#$ . % s!t &)+(s!s t-+ +( 1+(! . wants to raise 0C.!(!&t . 1EH" and to . the drawer. D(%-!! 1ust %##!. % s!t %(! &!'+t %t!) t+ ) . cceptance of bill drawn in sets. 1EH". Pu(.!(!&t .%(ts #+&st tut!s +&! b **3 B ** & s!t< )!. O Suppose that ' and . 2ho is the true owner of the bill8 If / negotiates to ' on Kanuary #. that is for a total of 0C.!(s+& -$+< & )u! #+u(s!< %##!. $+*)!( -$+ &)+(s!s t-+ +( 1+(! . If the drawee accepts more than one part and such accepted parts negotiated to different holders in due course. as '6s title accrues first.%(ts +. (st %##(u!s s< %s b!t-!!& su#$ $+*)!(s< t$! t(u! +-&!( +.%2s t$! .Mercado.(!s!&t!) t+ $ 13 Suppose /. payee.Avila.Concepcion.%(ts -!(! s!.!(s+&s $! s * %b*! +& !=!(2 su#$ . that is. each part being numbered.%(t.Negotiable Instruments Law (Aquino and Agbayani Notes) 2! Abad. Sec. 2010 2011! rt. &!)3 O . both of whom are holders in due course. S!#3 1DF3 R '$t +. he negotiates the first part of the bill to ' and the second part to .. is liable only on one part or for 0!. . because the order of the drawer to him is to pay only one part. respectively negotiate the parts they have to 5. /@T.. drawer only on one part. % s!t t+ ) . and containing a reference to other parts. he is liable on every such part as if it were a separate bill.+s!3 O To increase the probability of the bill reaching its destination. succeeds in presenting his part of the bill for acceptance or payment. / is liable for a total of 0C.%(ts ..ts +( .%(ts< t$! -$+*! +.!(!&#! t+ t$! +t$!( .Chu. t$! . or N.W$!(! t-+ +( 1+(! . N is protected and N can refuse to accept '6s part of the bill."""..W$!(! % b ** s )(%-& & % s!t< !%#$ .Layno. and N. all of which parts constitute but one bill. accepts or pays the second part in due course.ne composed of various parts.!#ts t$! ( '$t +. on Kanuary H. he is liable on evey such part as if it were a separate bill.Y.%(ts %(! &!'+t %t!)3 . as a result of his negotiation of the two parts. is liable to 4 for the part he indorsed to 4. $+*)!( -$+ &)+(s!s t-+ +( 1+(! . the drawee. In other words.t +&*2 +&! ..%(ts +. 1CG of : B#EC effectively abolished the distinction between a holder in due course and one who is not with respect to transfer to ban*s and financing companies of instruments that cover consumer credit sales.%(t +. 1F1.%(t< %&) !=!(2 &)+(s!( subs!9u!&t t+ $ 1 s * %b*! +& t$! . ' is the true owner. t$! b **3 But &+t$ &' & t$ s s!#t +& %. S!#3 1E53 L %b * t2 +.%(%t! b **s3 L %b * t2 +. the second part.!(s+&s3 W$!(! t$! $+*)!( +. In violation of his rights. the first part. (st . **ust(%t +& u&)!( &+t! 11DE) O / is liable on both parts as if there are two bills. he had no notice of any infirmity in the instrument or defect in the title of the person negotiating it. .!#t +. if one part is discharged.*!t! %&) (!'u*%(3 )1+ 2here the omission is immaterial )!+ 2here there is alteration in the instrument but the court.Mercado.Concepcion.s! .%(t %t 1%tu( t2 s +utst%&) &' & t$! $%&)s +.%(t b!%( &' $ s %##!. acceptor. E.!#t +. 2010 2011! not both parts. t$! $+*)!( & '!&!(%*3 )1+ <e may sue on the instrument in his own name. 1 The holder of a negotiable instrument may to sue thereon in his own name> and payment to him in due course discharges the instrument.n the date of maturity. 1 under the following conditions: )a+ That it is complete and regular upon its face> holder in due course is a holder who has ta*en the instrument )b+ That he became the holder of it before it was overdue. pays the first part of which he accepted. he pays the second part without re3uiring the first part to be surrendered to him. 1F1.Reyes H. s to acceleration clause 7 2hen the instrument contains an acceleration clause. :eason: The bill constitutes only one bill. *nowledge of the holder at the time of ac3uisition thereof of that one instalment or interest is unpaid. . and 1F!. S!#3 1E43 E. is notice that the instrument is overdue. The second and third parts are also discharged.Chu. S!#3 @7 2hat constitutes a holder in due course. the instrument is discharged. t+ $ 1< %&) t$! .Layno. found that the alteration was not apparent )#+ lthough a printed name of a payee was stric*en out.Cancino.Avila. S!#3 1E73 P%21!&t b2 %##!. upon inspection. +&! .%21!&t +( +t$!(. N would still be liable to the holder of the first part on which appears his acceptance..%2s t . or as a pledge of the instrument. % b ** )(%-& & % s!t . . ) s#$%(' &' +&! +. % $+*)!( & )u! #+u(s!< $! s * %b*! t+ t$! $+*)!( t$!(!+&3 I**ust(%t +&3 Suppose that N accepts only the first part.%21!&t t+ t$! $+*)!(3 The payment in due course to the holder of an instrument discharges the instrument. RELATED PRO6ISIONS: (AGBAYANI COMMENTARY) S!#3 @1 :ight of holder to sue> payment. % s!t3 .Y. % b ** )(%-& & % s!t s ) s#$%('!) b2 ..t+( +.s!< t$! -$+*! b ** s ) s#$%('!)3 E.t %s $!(! & +t$!(.Prinsipe. W$!& &st(u1!&t s +=!()u!3 n instrument is overdue after the date of maturity. 5(ample: Suppose that N.!#t +.t+( +. R '$ts +.t$+ut (!9u ( &' t$! . and another payee6s name inserted in writing.(+= )!)< -$!(! %&2 +&! .t%&#! t+ b! )!* =!(!) u. and without notice that it has been previously dishonored.E"#!. if such was the fact> )c+ That he too* it in good faith and for value> )d+ That at the time it was negotiated to him. the whole bill is discharged. even if he be a holder only for collection. W$!(! &st(u1!&ts $!*) #+1. b **s )(%-& & s!ts3 . Then. ) s#$%('! +.W$!& t$! %##!. but the same is a common practice by the holder ban*..Negotiable Instruments Law (Aquino and Agbayani Notes) 2" Abad.%(t3 O SubAect to the e(ceptions in Sections 1F". )!+ <e may receive payment and if the payment is in due course.%(t +. (2S A. 1 2here an instrument payable on demand is negotiated on an unreasonable length of time after its issue. 1 To constitutes notice of an infirmity in the instrument or defect in the title of the person negotiating the same. S!#3 @? %otice before full amount is paid. M%2 t$! )(%-!! b! % $+*)!( & )u! #+u(s!? The $holder& refers to one who has ta*en the instrument as it passes along in the course of negotiation towards the drawee and not the drawee. or force and fear. % $+*)!( & )u! #+u(s!3 (1) <e may sue on the instrument in his own name> . (2S A. without notice of e3uities. or )!+ in the negotiation thereof. N+t #! +. M%2 % . R '$ts +. absence and failure of consideration. thereby strips it of all negotiability and reduces it to a mere voucher or proof of payment. <e must %.Negotiable Instruments Law (Aquino and Agbayani Notes) 3# Abad. The test for determining whether a holder ac3uires an instrument in good faith is not whether he was negligent.Layno. yet it may be shown as evidence of fraud. or any signature thereto.Avila.!#ts +. or under such circumstances as amount to a fraud. or )!+ of such facts that his action in ta*ing the instrument amounts to bad faith.% t$3 Good faith refers to the indorsee or transferee. 1 2here the transferee receives notice of any infirmity in the instrument or defect in the title of the person negotiating the same before he has paid the full amount agreed to be paid therefor. A#9u s t +& & '++) . t t*! & '!&!(%*3 To constitute notice of defect or infirmity. the person to whom it is negotiated must have had actual *nowledge of the infirmity or defect. not an obAective test of due care. by fraud. unless there has been fraud. the title becomes defective when he obtains the instrument or any signature thereto by: )1+ fraud. is a holder in due course.* #%t +&3 This section applies to instruments which are payable on demand. t t*!3 e4ects are those defined by Section HH to cover all those *nown as e3uitable defenses. or )!+ under such circumstances amounting to fraud.Concepcion. S!#3 @@ 2hen title defective. the transferee must have actual *nowledge. etc.T have *nowledge or notice of e3uities of any sort which could be set up against a prior holder of the instrument. A.Prinsipe.+( =%*u!3 2here the holder gave no valuable consideration for the transfer of the instrument to him. or )C+ for an illegal consideration. S!#3 @4 2hen person not deemed holder in due course. mista*e or undue influence.Cancino. or when he negotiates it in breach of faith. duress. or *nowledge of such facts that his action in ta*ing the instrument amounted to bad faith.Reyes H. he cannot be a holder in due course.!#t +. 5ven gross negligence does not establish bad faith. 2010 2011! s to interest 7 .. not to the seller of the paper. the holder is not deemed a holder in due course. or other unlawful means. he will be deemed a holder in due course only to the e(tent of the amount therefore paid by him. In ac3uisition.& /ut while inade3uacy of consideration is not of itself a sufficient ground for either legal or e3uitable relief. lac* of authority. minority and other forms of incapacity. subAective test of honesty. In4ir0ities must include things that are wrong with the instrument itself. e4enses include those which are not covered by Section HH such as mista*e.Y. who. the title of a person becomes defective when he negotiates it: )1+ with breach of faith.ne who purchases in good faith an instrument upon which the interest is overdue is a holder in due course. A#9u s t +& . In negotiation. )!+ duress or force and fear. and free from defenses available to prior parties among themselves. on the acceptance an payment of the instrument.Chu. 1 The title of a person who negotiates an instrument is defective within the meaning of this ct when he obtained the instrument. either: )1+ of the defect or infirmity. rticle 1##H of the 'ivil 'ode: $e(cept in cases specified by law. )!. )#+ other unlawful means.!#t =! t t*! & '!&!(%*3 The title of a person in an instrument becomes defective either: )1+ in the ac3uisition. or for an illegal consideration. D!. and may enforce payment of the instrument for the full amount thereof against all parties liable thereon. but whether his purpose was dishonest. 1 holder in due course holds the instrument free from any defect of title of prior parties. lesion or inade3uacy of cause shall not invalidate a contract. D!.Mercado.*!)'!! b! % $+*)!( & )u! #+u(s!? The pledgee for value in good faith of a complete unmatured note. S!#3 @C 2hat constitutes notice of defect. S!#3 @D :ights of holder in due course. Chu.+(1!( $+*)!( & (!s. su#$ )!.Cancino. or notice of maturity of a negotiable certificate of deposit. a payee or indorsee who is in possession of the draft. In order to be a holder. # +us3 s holder6s title was defective or suspicious.+( t$! (u*!3 The guilty ma*er or holder of an instrument vitiated by fraud or illegality will naturally see* to put it in the hands of some other person in order to cut off the defense to which the instrument is subAect.Negotiable Instruments Law (Aquino and Agbayani Notes) 31 Abad.!#t =!< t$! bu()!& s +& t$! $+*)!( t+ . when the instrument is not payable to the holder thereof or to bearer. it cannot be stated that the payee ac3uired the chec* without *nowledge of said defect in holder6s title.( +( t+ t$! *%tt!(3 R '$ts +.!&#!s3 H I& t$! $%&)s +. $+*)!( &+t & )u! #+u(s! 1. P(!su1. that is.Concepcion. the paper again becomes subAect in the payee6s hands to the same defences to which it would have been subAect as if the paper had never passed through the hands of a holder in due course.%(t2 -$+ b!#%1! b+u&) +& t$! &st(u1!&t .%(t !s . the instrument is discharged> <e holds the instrument free from any defect of title of prior parties and free from defenses available to prior parties among themselves> and <e may enforce payment of the instrument for the full amount thereof against all parties liable thereon.. H+*)!( %#9u ( &' . and a presumption arise against the bona fide of the transfer . That he derived his title from a holder in due course> and )!+ that he was not himself a party to any fraud or illegality affecting the instrument • purchaser from a holder in due course is entitled to recover against prior parties even though he has notice of the defences.* #%b*! -$!& t$! $+*)!(Is t t*! -%s )!.!#t +. The same is true where the instrument is retransferred to an agent of the payee.!#t =! +( sus.Avila. one must be in possession of the note or the bearer thereof. %&2 $+*)!( +t$!( t$%& % $+*)!( & )u! #+u(s!< % &!'+t %b*! &st(u1!&t s subB!#t t+ t$! s%1! )!. or the bearer thereof. 2010 2011! (2) (3) (4) <e may receive payment. • R!%s+& .!#t &' t$! &st(u1!&t< $%s %** t$! ( '$ts +. %&2 .Layno. it is incumbent upon him to show that the person through whom he derives his title was a holder in due course As t+ +&! &+t % $+*)!( & )u! #+u(s! (!%#9u ( &' . )#+ <e holds the instrument subAect to the same defences as if it were non1negotiable> )C+ /ut a holder not in due course who derives his title through a holder in due course and who is not a party to any fraud or illegality affecting the instrument. <e may sue on the instrument in his own name> )!+ <e may receive payment. S!#t +& @E3 W$!& subB!#t t+ +( ' &%* )!.(+1 $+*)!( & )u! #+u(s! R!9u s t!s: 1.%(t2 t+ %&2 . <owever.(+=! t$%t $! +( s+1! .Reyes H.*2 & . and if payment is in due course. the presumption that he is a holder in due course or that it ac3uired the instrument in good faith does not e(ist.Prinsipe.!&#!s %s .t +& &+t %. % .%=+( +. has all the rights of such former holder in respect of all parties prior to the latter. or with *nowledge of the e3uities In order that a holder who derives his title form a holder in due course may recover on the instrument.Y. but -$!& t s s$+-& t$%t t$! t t*! +..(+1 $+*)!( & )u! #+u(s!3 If the original payee of a note unenforceable for lac* of consideration repurchases the instrument after transferring it to a holder in due course.!(s+& -$+ $%s &!'+t %t!) t$! &st(u1!&t -%s )!.(!su1.. % . the instrument is discharged.( +( t+ t$! %#9u s t +& +. and if the payment is in due course. • • S!#t +& @F3 W$+ s )!!1!) $+*)!( & )u! #+u(s!3 H E=!(2 $+*)!( s )!!1!) .Mercado. t -!(! &+&-&!'+t %b*!3 But % $+*)!( -$+ )!( =!s $ s t t*! t$(+u'$ % $+*)!( & )u! #+u(s!< %&) -$+ s &+t $ 1s!*.( 1% .!#t =! t t*!3 I& -$+s! .%# ! t+ b! % $+*)!( & )u! #+u(s!. (2S A.t +& %( s!s3 The presumption e(pressed in this section arises only in favor of a person who is a holder in the sense defined in Section 1E1. %** .(%u) +( **!'%* t2 %. su#$ .!(s+& u&)!( -$+1 $! #*% 1s %#9u (!) t$! t t*! %s $+*)!( & )u! #+u(s!3 But t$! *%st-1!&t +&!) (u*! )+!s &+t %. and for this reason.%=+( . there is said to be a defect in the title of the holder and the rule that a possessor of the instrument is prima facie a holder in due course does not apply. : The acceptor does not become liable until he accepts the bill or unless he certifies the chec*. 4urthermore.+ !econd/ry (i/1i3ity . on due presentment. 1. G! 7 as to the warranties+ 1. )%. is absolutely re3uired to pay the same. The passive subAect )obligor?debtor+ against whom the holder can enforce the right represented in the instrument are the persons who are primarily liable and the persons secondarily liable. and that if it be dishonoured and the necessary proceedings on dishonour are duly ta*en. the person secondarily liable promises to pay if the person primarily liable refuses or fails to pay. the instrument shall be accepted or paid. 2arranty Liability: the primary or secondary liability of the parties ma*es them liable to pay the sum certain in money stated in the instrument. Secondarily liable: if he engages that. the action on the special contract cannot be brought until the maturity of the instrument while the action for breach of warranty. 0rimarily liable: the person. he will pay the amount thereof to the holder. ACCEPTOR )Sec. dmits the e(istence of the payee and his capacity to indorse. that is.Layno.Mercado. !. may be brought at any time. who. In other words. 5ngages to pay according to the tenor of the instrument> !. dmits the e(istence of the drawer. dmits the e(istence of the payee and his capacity to indorse.Concepcion. 2ho is Liable for 2hat8 Pri0/ry (i/1i3ities MA/ER 1. and notice of dishonour> his liability for breach of warranty is not so conditioned. (2S A. the obligation to pay a sum certain in money.Negotiable Instruments Law (Aquino and Agbayani Notes) 32 Abad. and his capacity and authority to draw the instrument> #.Reyes H. 2arranty: affirmations of fact on the part of the parties that impose no direct obligation to pay in the absence of breach thereof. or to any subse3uent indorser who may be compelled to pay it.Y. or both as the case may be. occurring as it does at the time of the transfer.Chu.Cancino./. according to its tenor. n action on the indorser6s special contract of indorsement is conditioned on presentment. by the terms of the instrument. 2010 2011! CHAPTER C: P%(t !s -$+ %(! L %b*! NATURE OF LIABILITY 0rimary and Secondary Liability The holder is the person or entity who is given the right to demand the performance of the obligation reflected in the negotiable instrument. 5ngages to pay according to the tenor of his acceptance> !. Liability vs.Avila. the genuineness of his signature.Prinsipe. or indorser may act through an agent. a compliance with such obligation. <owever. the cycle of negotiation is terminated and it is illogical therafter to spea* of subse3uent holders who can invo*e the warranty provided in Sec.Layno. %ational 'ity /an* of %ew . ctual payment by the drawee is greater than his acceptance. at the time of the indorsement. he will pay to the party entitled to be paid. G! against the drawee. dmits the e(istence of payee and his capacity to indorse> !. G!8 0%/ vs. drawer. drawer. WARRANTIES OF INDORSERS G!&!(%* I&)+(s!( Sec. That he has a good title to it> #. That he has no *nowledge of any fact which would impair the validity of the instrument or render it valueless.Avila. or to any subse3uent indorser who may be compelled to pay it. (2S A. G! of the %IL apply to the drawee who paid without prior acceptance. acceptor. valid and subsisting. for the former is a promise to perform the act.Cancino.Negotiable Instruments Law (Aquino and Agbayani Notes) 33 Abad. G! applies to the drawee that paid without accepting the chec*. 'onse3uently.Prinsipe. or indorser $unless he discloses the name of his principal and the fact that he is acting only as an agent. That the instrument is genuine and in all respects what it purports to be> !. Thus. he will pay the amount thereof to the holder. 5ngages that if the instrument is dishonoured ad proper proceedings are brought. Gold 0alace Kewellery 'ompany: 0ayment of the negotiable instrument includes acceptance. 8u%* . under this view.& . essentially different things. That the instrument is genuine and in all respects what it purports to be> !. as the case may be. an agent incurs all the liabilities as such ma*er. it shall be accepted or paid. Sec. within the purview of the law. The actual payment of the amount of chec* implies not only an assent to said order of the drawer and recognition of the drawer6s obligation to pay the aforementioned sum.Reyes H. according to its tenor> and if it be dishonored and the necessary proceedings on dishonour be duly ta*en. :ule on the Liabilities of gents General %ote: am ma*er.Mercado. 2010 2011! DRAWER 1. Duestion: 2hether or not the drawee ban* that pays the value of the chec* but does not accept the same is still liable for the warranties of an acceptor under Sec.Concepcion. %ote: the warranty of persons negotiating by mere delivery e(tends to the immediate transferee only. 0ayment without cceptance Instruments that are payable on demand: acceptance is an unnecessary step.Chu. which is merely a promise in writing to pay.or*: the drawee does not warrant if it does not accept the chec*s. GG: 5very indorser who endorses without 3ualification. ' : P cceptance6 and Ppayment6 are. That the instrument is. That all prior parties had capacity to contract> C. 45/T' vs. the warranties of an acceptor under Sec.Y. !) I&)+(s!( Sec. while the latter is the actual performance thereof. but also. 5ngages that the instrument will be accepted or paid by the party primarily liable> #. That he has a good title to it> #. The general indorser also engages that on due presentment. acceptor. or both. GH: 5very person negotiating an instrument by delivery or by a 3ualified indorsement warrants: 1. This is especially true in the case of chec*s. 0%/ vs. warrants to all subse3uent holders in due course: 1. The warranty is in favor of the holders of the instrument after acceptance and when the drawee ban* cashes or pays the chec*. or refuses within !C hours after such delivery. Incapacitated persons who sign through their legal guardian> C.Y. e(cept as otherwise e(pressly provided. 1F: %o person is liable on the instrument whose signature does not appear thereon. A Person w. 1#B+> Sec. Sec.Prinsipe. !#+> H. or as filling a representative character. B. If the agent signs in the manner prescribed by the %IL.Negotiable Instruments Law (Aquino and Agbayani Notes) 34 Abad.Concepcion. %o particular form of appointment is necessary for his purpose> and the authority of the agent may be established as in other cases of agency. Tr/den/0e or Assu0ed N/0e If a person uses a trade name or an assumed name and he signs using such. two things must be present: 1. LIABILITIES OF ACCOMODATION PARTIES . without disclosing his principal. the agent is not personally liable and the only person who is liable is the principal. <e must indicate that he is signing as a mere agent> and !. Per Procur/tion signature by procuration operates as notice that the agent has but a limited authority to sign and the principal is bound only in case the agent in so signing acted within the actual limits of his authority. F. They are liable for breach of warranty although they did not sign.Cancino. Sec. or within such other period as the hodler may allow. !#+> G.& %ecessarily. and the principal is bound only in case the agent in so signing acted within the actual limits of his authority. does not e(empt him from personal liability. 1F+> !.Avila. !1: signature by $procuration& operates as notice that the agent has but a limited authority to sign. !": 2here the instrument contains or a person adds to his signature words indicating that he signs for or on behalf of a principal or in a representative capacity.ne who signs in a trade or assumed name )Sec.Mercado. 2010 2011! (i/1i3ities o4 A5ents: Sec. 1E+> #. 1#B: 2here a drawee to whom a bill is delivered for acceptance destroys the same. AGENT 2hen a person signs through his authoriIed agent.ou3d si5n t.Chu. he is not liable on the instrument if he was duly authoriIed> but the mere addition of words describing him as an agent. . (2S A. <e must indicate the name of the principal. he will be deemed to have accepted the same. In case of constructive acceptance )Sec. /ut one who signs in a trade or assumed name will be liable to the same e(tent as if he had signed in his own name. This is consistent with Sec.e instru0ent General %ote: a person must sign the instrument before he can be made liable under the same instrument. Indorsers who sign on a separate piece of paper *nown as an allonge> 0ersons who negotiate by mere delivery. 4orgers of signatures )Sec. Sec. he is liable as if he signed using his real name.Layno. 1E: the signature of any party may be made by a duly authoriIed agent. to return the bill accepted or non1accepted to the holder. 0ersons whose signatures were forged but who are precluded from setting up the defense of forgery )Sec.ne who signs through an agent or an authoriIed representative )Sec. the party must sign in his own name. <owever.Reyes H.o s. . 5(ceptions: the following person who did not sign on their own names are still liable: 1. the effect is that the same as the situation where he personally signed the instrument. 1F of %IL which provides that $no person is liable on the instrument whose signature does not appear thereon. Such a person is liable on the instrument to a holder for value. !E of the %IL does not apply to corporations. Requisites under !ec &?: 1. or indorser. 2010 2011! Sec !E: an accommodation party is one who signed the instrument as ma*er.Mercado. acceptor.Reyes H. *new him to be only an accommodation party.Concepcion. (i/1i3ity /0on5 t. If the instrument is payable to the order of the ma*er or drawer. !urety o4 Acco00od/ted P/rty /y lending his name. the accommodation party. he is secondarily liable as an accommodation indorser and he cannot ma*e the holder recover directly from the accommodated party. If he signs for accommodation of the payee.%(t23 Thus. (2S A. 0rof. at the time of ta*ing the instrument. It is not a valid defense that the accommodation party did not receive any valuable consideration when he e(ecuted the instrument. <is only recourse is to see* reimbursement from the accommodated party. t$! %##+11+)%t!) .Y. a su(!t2 +. If the instrument is payable to the order of a third person.Chu. they are usually accommodation parties. drawer. . !.Avila. signing as a ma*er. and for the purpose of lending his name to some other person. .Cancino. . acceptor. <e made payment by virtue of a Audicial demand. singular or peculiar manner> it is irregular and an anomaly in the law. who placed thereon his signature in blan* before delivery. <e receives no part of the consideration for the instrument but assumes liability to the other parties thereto. drawer. not otherwise a party to an instrument.Negotiable Instruments Law (Aquino and Agbayani Notes) 35 Abad. without receiving the value therefor. #.gden: the irregular or anomalous indorser is one who indorses the instrument in an unusual. Liabilities of an irregular indorser: 1. Irre5u3/r Indorser lthough the law does not state that all irregular indorsers are accommodation parties. <e must be a party to the instrument. !. notwithstanding such holder.efinition of an Irregular Indorser: person. he is liable to all parties subse3uent to the payee. if he is an accommodation indorser.e0se36es solidary accommodation party may see* reimbursement from the accommodated party or other accommodation parties subAect to the following rules: 1. principal debtor is insolvent. he is liable to the payee and to all subse3uent parties. is liable to all parties subse3uent to the payee. <e lends his name to enable the accommodated party to obtain credit or to raise money. or is payable to bearer. !. #. The accommodation party lends his name to the accommodated party. is in effect. Aoint and several accommodation party such as an accommodation ma*er may demand from the principal debtor reimbursement for the amount that he had paid to the payee> Aoint and several accommodation ma*er who pays on the said promissory note may directly demand reimbursement from his co1accommodation ma*er without first directing his action against the principal debtor provided that: a. or indorser> <e must not receive value therefor> and <e must sign for the purpose of lending his name or credit to some other person.Layno. or b.Prinsipe. Liabilities of 'orporations The rule on the liability of an accommodation party under Sec. 0ersonal liability of the officers and directors may attach in the following instances: 1. he admits the then capacity of the payee to indorse.&' t$! &st(u1!&t %)1 ts t$! !" st!&#! +.%2!! %&) $ s t$!& #%. % &!'+t %b*! &st(u1!&t< b2 1%: &' t< !&'%'!s t$%t $! .** .(!s!&t1!&t< t$! &st(u1!&t . The issue or indorsement of a negotiable paper by a corporation without consideration and for the accommodation of another is u3tr/ 6ires2 /y way of e(ception.Negotiable Instruments Law (Aquino and Agbayani Notes) 36 Abad. <e is made by a specific provision of law. t-+ +( 1+(! 1%:!(s3 2hen two or more ma*ers sign Aointly and severally.Prinsipe.t%&#! %&) %)1 ts: (%) T$! !" st!&#! +.%2 t$! %1+u&t t$!(!+. (2S A. the drawer is not liable T+ -$+1 )(%-!( s!#+&)%(2 * %b*!3 The secondary liability of the drawer is in favor of: )1+ the holder. A##!. or )!+ if any of the indorsers intervening between the holder and the drawer is compelled to pay by the holder. • S!#t +& C13 L %b * t2 +. 4or bad faith or gross negligence in directing its affairs. RELATED PRO6ISIONS: (AGBAYANI COMMENTARY) S!#t +& C53 L %b * t2 +. a he would be considered an accommodation party.** b! %##!. t$! . P%2!!Is !" st!&#! !t#3 side from engaging to pay the instrument according to its tenor. )(%-!(3 T$! )(%-!( b2 )(%.Chu.%2 t %##+() &' t+ t$! t!&+( +.t+(3 H T$! %##!. t$! . does not forthwith file with the corporate secretary his written obAection thereto> #. the drawer will be liable to that indorser so compelled to pay • The law allows the drawer to negative or limit his liability by e(press stipulation.Reyes H. the ma*er also admits the e(istence of the payee and his then capacity to indorse.Mercado. %&) !&'%'!s t$%t< +& )u! .(+#!!) &'s +& ) s$+&+u( b! )u*2 t%:!&3 H! . its stoc*holders or other persons !.t!) +( .%# t2 t+ &)+(s!. nd one who has signed as ma*er is presumed to have acted with care and to have signed the document in 3uestion with full *nowledge of its contents unless. an officer or agent of a corporation shall have the power to e(ecute or indorse a negotiable paper in the name of the corporation for the accommodation of a third person only if specifically authoriIed to do so. of course.Concepcion. t b! ) s$+&+(!) %&) t$! &!#!ss%(2 . $ s %##!.%# t2 t+ &)+(s!3 M%:!( .% )< +( b+t$< %##+() &' t+ ts t!&+(< %&) t$%t . • In the absence of due presentment. .Avila.%2 t %##+() &' t+ ts t!&+(< %&) %)1 ts t$! !" st!&#! +. To a patently unlawful act of the corporation. each of them is individually liable for the payment of the full amount of their obligation even if one of them did not receive part of the value given therefor. he admits that the payee e(ists> and )!+ that the payee as insane. resulting in damages to the corporation. or b.(!ss st . 4or conflict of interest. 1%:!(3 H T$! 1%:!( +.Cancino.( 1%( *2 * %b*!3 The engagement of the ma*er is to pay absolutely the note according to its tenor. The ma*er conse3uently is precluded from setting up the following defences: )1+ that the payee is a fictitious person because. t$! )(%-!(< t$! '!&u &!&!ss +. The ma*er6s liability is primary and unconditional. fraud is proved • L %b * t2 +.Y.** . <e engages merely that the bill will be accepted or paid or both. having *nowledge thereof. by ma*ing the note. t+ t$! $+*)!( +( t+ %&2 subs!9u!&t &)+(s!( -$+ 1%2 b! #+1. <e consents to the issuance of watered down stoc*s or who.u*%t +& &!'%t = &' +( * 1 t &' $ s +-& * %b * t2 t+ t$! $+*)!( D(%-!( s!#+&)%( *2 * %b*!3 The drawer does not engage to pay the bill absolutely. the holder may turn to its officers for relief.** . If a corporation is not liable. <e assents: a. <e agrees to hold himself personally and solidarily liable with the corporation> or C. according to its tenor.Layno. to personally answer for his corporate action.t &' t$! &st(u1!&t< !&'%'!s t$%t $! . or a corporation acting ultra vires because. S!#t +& C73 L %b * t2 +. and that he will pay only when: )1+ it is dishonored> and )!+ the necessary proceedings of dishonour are duly ta*en. or c. by ma*ing the note. 2010 2011! corporation cannot act as an accommodation party.%2 t3 But t$! )(%-!( 1%2 &s!(t & t$! &st(u1!&t %& !".%2!! %&) $ s t$!& #%.!**!) t+ . a minor.t+(< b2 %##!. • E.t$%t +( ' &%* t!&+( s t!&+( +.%# t2 t+ &)+(s! A##!. %##!. E.!(s+& )!!1!) &)+(s!(3 In the absence of any indication in what capacity a person whose signature is written on the instrument intends to be bound. %##!.t%&#!3 Section G! should be paraphrased to state that the liability of the acceptor depends upon the terms of his acceptance. <e also admits the e(istence of the payee and his then capacity to indorse.Negotiable Instruments Law (Aquino and Agbayani Notes) 3 Abad. /efore the drawee N accepts it. one who indorses in blan* cannot show by parol that he signed merely as agent for a prior party and was not individually liable. engages that he will pay it not according to the tenor of the bill since this would deny him the right to 3ualify the acceptance or to accept for honor but according to the tenor of his accecptance.Prinsipe.Concepcion.+(! %##!. lso the intent to be bound in some other capacity than as an indorser must be indicated in the indorsement or on the face of the instrument and cannot be shown by parol. will not be deemed an indorser if he indicates by appropriate words his intention to be bound in some other capacity. The reason is that the of N6s acceptance is for pC""".t+( . admits: )1+ the drawer6s e(istence. %##!.%# t23 W$!& .t$%t %*t!(!) t!&+( s t!&+( +.s!3 nd one who signs otherwise than as ma*er. that is. <is liability is not subAect to any condition. It is to be noted that while the ma*er of a note engages to pay according to the tenor of the note. drawer.t+(< s )!!1!) t+ b! &)+(s!( u&*!ss $! #*!%(*2 &) #%t!s b2 %. %&) (b) T$! !" st!&#! +.Layno.+& %& &st(u1!&t +t$!(.!#t +.t%&#!3 ccording to one view. A)1 ss b * t2 +.Chu. Then N accepts it. by accepting the instrument.Reyes H.( %t! -+()s $ s &t!&t +& t+ b! b+u&) & s+1! +t$!( #%. <ow much N is liable to a holder in due course8 • 6 !.s! t$%& %s % 1%:!(< )(%-!(< +( %##!. he would be a party who has himself assented to the alteration. under this section.*%# &' $ s s '&%tu(! u. by his acceptance.Mercado.t$! &st(u1!&t..!(s+& . • • /efore acceptance. S!#t +& C43 W$!& . • • A)1 ss +& +.Avila.%# t2 %&) %ut$+( t2 t+ )(%. /ut one ma*ing a note payable to his own order does not. . n author suggests that all three of these acceptance contracts are within the purview of Section G! that the acceptor.Cancino. it is altered by the payee to 0C""". he shall be deemed an indorser. The e(ecution of mortgage does not constitute any novation of the obligation represented by said accepted bills unless it is so e(pressly stated in said mortgage. whether it is a general or a 3ualified acceptance or an acceptance for honor.( 1%( *2 * %b*!3 The acceptor engages to pay absolutely according to the tenor of his acceptance.t+(Is %)1 ss +&s3 )1+ precluded from setting up the defense that the drawer is non1e(istent or fictitious because of his admission of the drawer6s e(istence> )!+ %either can he claim that the drawer6s signature is a forgery since he admits its genuineness> )#+ %either can the drawee escape liability by alleging want of consideration between him and the drawer. assume liability as indorser I&) #%t +& t+ b! b+u&) +t$!(.!(s+& )!!1!) &)+(s!(3 H A . )!+ the genuineness of the drawer6s signature> and )#+ the capacity and authority of the drawer to draw the instrument. for the tenor of the acceptor6s acceptance may be different from the tenor of the bill. 6 !. (2S A.t%&#!3 Suppose the bill is originally for 01""". This is an important distinction. N is laible for 0C""".%(+* != )!&#!3 Secition G# is a statutory command that the legal effect of a blan* indorsement cannot be changed by parol proof or by evidence from other source. <e is an indorser. not of the bill he accepts. So that. S!#t +& 17?3 It seems that this refer to the original tenor of the instrument ta*en from the standpoint of the person principally liable. t$! . )(%-!(Is !" st!&#!< !t#3 The acceptor. -oreover. as the acceptor may accept the bill with 3ualifications • W$!(! +( ' &%* t!&+( s %*t!(!) b!. . an acceptor engages to pay according to the tenor of his acceptance.%2!! %&) $ s t$!& #%.. the drawee is not liable on the bill. /ut he does not admit the genuine of the indorsers. or acceptor. 2010 2011! $ s s '&%tu(!< %&) $ s #%. by indorsement thereof.(+.Y.!#t +.. R!%s+& . The second refers to instrument payable to order.*%#!s t$!(!+& $ s s '&%tu(! & b*%&: b!. The first refers to instrument payable to bearer.+( us! +. he would be liable because he warrants that he is ignorant of any fact that would render the instrument valueless.%# t2 t+ #+&t(%#t. !) &)+(s!1!&t -%((%&ts: (%) T$%t t$! &st(u1!&t s '!&u &! %&) & %** (!s.%(t !s $%) #%. ()) T$%t $! $%s &+ :&+-*!)'! +.+( t$! %##+11+)%t +& +. %&2 . The fact renders the instrument valueless.&' (u*!s: (%) I. and it turns out that he *new it. t$! .% ( t$! =%* ) t2 +. W%((%&t2 %s t+ '&+(%&#! +.Mercado. the following re3uisites must be present: )1+ he must not otherwise be a party to the instrument.+**+.%(t !s subs!9u!&t t+ t$! .*2 t+ % .+(%t +& s!#u( t !s +t$!( t$%& b **s %&) &+t!s3 A. 2010 2011! S!#t +& C?3 L %b* t 2 +. % t$ () .!#ts -$%t t . t$! 1%:!( +( )(%-!(< +( s . drawer. as he negotiates by indorsement completed by delivery.!(s+& &!'+t %t &' %& &st(u1!&t b2 )!* =!(2 +( b2 % 9u%* .+(! )!* =!(2< $! s * %b*! %s &)+(s!(< & %##+()%&#! . (2S A. &+ $+*)!( +t$!( t$%& t$! 11!) %t! t(%&s.%(t !s3 (b) I.Chu. if he *new but concealed that the instrument is not valid for want of consideration.Prinsipe. the holder cannot collect on the instrument against the insolvent ma*er. A.Y.!(!!3 T$! .%2!!< $! s * %b*! t+ %** . that is.* #%t +& +.%# t2 t+ #+&t(%#t3 The party negotiating by delivery is also liable to the holder if the ma*er is a minor or an incompent. (#) t$%t %** .Cancino.%=+( +. .s! % . T+ -$+1 -%((%&t !s !"t!&)3 In favor of no holder other than the immediate transferee.+(t$3 H E=!(2 .%(t !s subs!9u!&t t+ t$! 1%:!( +( )(%-!(3 (#) . #!(t% & . M!%& &' +.* #%t +& +.+(! )!* =!(2K3 . sub) = s +& (#) +. S!#t +& C@3 This section treats of the warranties of: )1+ a person negotiating by mere delivery.t$ t$! .!(s+& &!'+t %t &' . )1+ If the party negotiating by delivery *new that the ma*er was insolvent. (b) T$%t $! $%s '++) t t*! t+ t. singular or peculiar manner. this section does not apply.. t!(13 Such a party so signing is called an irregular or anomalous indorser because he indorses in an unsual. t$! &st(u1!&t +( (!&)!( t =%*u!*!ss3 But -$!& &!'+t %t +& s b2 )!* =!(2 +&*2< t$! -%((%&t2 !"t!&)s & . W%((%&t2 %s t+ #%. acceptor.(+= s +&s +.. and for this reason. ((!'u*%( &)+(s!(3 H W$!(! % .+(ts t+ b!.ub* # +( #+(. It is Section 1B)f+ and Section G# which will apply.!(s+&< $! s * %b*! t+ t$! . S!#t +& C@3 W%((%&t2 -$!(! &!'+t %t +& b2 )!* =!(2 %&) s+ .Concepcion.( +( .Avila. /ut one indorsing in blan* is not referred to here. )!+ the party negotiating by delivery would also be liable.. not only by delivery.u(. t$ s s!#t +& )+ &+t %.%2!!3 I((!'u*%( &)+(s!(3 In order that a person may be considered an irregular indorser. Jb!.%2!! %&) %** subs!9u!&t . he must not be a ma*er.Negotiable Instruments Law (Aquino and Agbayani Notes) 3! Abad. t$! &st(u1!&t s .%#t -$ #$ -+u*) 1. • person negotiating by mere delivery becomes liable to the holder only when the holder cannot obtain payment from the person primarily liable by reason of the fact that any of the warranties of the person negotiating by delivery is or becomes false.Reyes H..elivery seems to include not only the original delivery to the payee but also every delivery from the party accommodated to a subse3uent party.!(s+&< &+t +t$!(. $! s '&s . This section deals only with the liability of the irregular indorser to the payee but does not fi( the rights if various irregular indorsers as between themselves. and he concealed that fact.%2%b*! t+ b!%(!(< $! s * %b*! t+ %** . t$! &st(u1!&t s . S!#t +& C?3 2here a person puts his signature after delivery.%(t2 t+ %& &st(u1!&t< . W%((%&t2 %s t+ '++) t t*!3 The party negotiating by delivery is also liable to the holder if his title is defective as he ac3uired the instrument by means of fraud for which reason the holder cannot collect from the ma*er or acceptor. or regular indorsee thereon> )!+ he must sign the instrument in blan*> and )#+ he must sign before delivery. and )!+ a person negotiating by 3ualified indorsement.%#ts3 Suppose that the ma*er was insolvent at the time of the negotiation of the instrument. either originally or when the only or last indorsement is in blan*.Layno.%2%b*! t+ t$! +()!( +.%2%b*! t+ t$! +()!( +.Q W%((%&t2 %s t+ '!&u &!&!ss3 The party negotiating by mere delivery is liable to the holder when the latter cannot collect from the ma*er because the instrument is altered or the ma*er6s signature is forged. %&) (b) t$%t t$! &st(u1!&t s< %t t$! t 1! +.(+#!!) &'s +& ) s$+&+u( b! )u*2 t%:!&< $! . and that their secondary liability is limited. Ot$!( * %b * t2 +. . T+ -$+1 -%((%&t !s !"t!&)3 )1+ subse3uent holders in due course. unli*e a 3ualified indorser and a person negotiating by delivery. In other words. The fourth warranty of a general indorser is that the instrument is. been held that any prior or contemporaneous conversation in connection with a note or its indorsement may be proven by parol evidence. an assignor is not responsible for the insolvency of the principal debtor. valid and subsisting. &)+(s!(s3 It has.. namely.Y.t$+ut 9u%* .*%#!s $ s &)+(s!1!&t +& %& &st(u1!&t &!'+t %b*! b2 )!* =!(2< $! &#u(s %** t$! * %b * t2 +. )!+ 0ersons who derive their title from holders in due course.%2 t3 A.** . L %b * t23 3ualified indorser or a person negotiating by mere delivery are secondarily liable.!(s+& . nd it has been held that the law does not re3uire that the reason for the dishonour be established. the person negotiating by 3ualified indorsement is liable to all parties who derive their title through hi indorsement.Prinsipe. S!#t +& CC3 This section deals with the liability or warranties of one negotiating by general indorsement. 8u%* . t+ t$! $+*)!(< +( t+ %&2 subs!9u!&t &)+(s!( -$+ 1%2 b! #+1. !) &)+(s!(< ) st &'u s$!)3 2hile the 3ualified indorser or person negotiating by mere delivery warrants that he is ignorant of any fact that will render the instrument valueless or impair its validity. S!#t +& CC3 L %b * t2 +.%. )#+ Immediate transferees. even if they are not holders in due course. '!&!(%* &)+(s!(3 It will be noted that the first three warranties of a general indorser are the same as those of 3ualified indorser or of a person negotiating by mere delivery. (2S A. to their warranties. %& &)+(s!( . the general indorser warrants that the instrument he is indorsing is valid and subsisting regardless of whether he is ignorant of that fact or not. the assignor warrants the e(istence and legality of the credit assigned and will. the transferee of a 3ualified indorser would have greater rights than the transferee of a general indorser W%((%&t !s )+ &+t !"t!&) t+ )(%-!!3 The indorser of a chec* does not warrant the genuineness of the drawer6s signature to the drawee who pays it since the drawer is not a holder in due course under section H! nor a holder under section 1E1. #%t +&< -%((%&ts t+ %** subs!9u!&t $+*)!(s & )u! #+u(s!: (%) T$! 1%tt!(s %&) t$ &'s 1!&t +&!) & sub) = s +&s (%)< (b)< %&) (#) +. W$!& . however. but not li*e the general indorser.therwise. L %b * t2 +.Layno.!( &!'+t %b*! b2 )!* =!(23 H -$!(! % . N%tu(! +. A&) & %)) t +& $! !&'%'!s t$%t< +& )u! . alter or destroy the obligations attached by law to the indorsement. be liable to the assignee in case the assignee cannot collect from the principal debtor where the credit assigned is illegal or non1e(istent. F+u(t$ -%((%&t2 +. L %b * t2 +.n the other hand. . &)+(s!( %&) %ss '&+( #+1.* #%t +& +.%2 t$! %1+u&t t$!(!+. therefore. but li*e the general indorser. '!&!(%* &)+(s!( %&) 9u%* . This is to say that the general indorser is liable if the instrument is dishonored. It has been held that this section includes an indorser for collection. t b! ) s$+&+(!) %&) t$! &!#!ss%(2 . !) I&)+(s!(3 The only difference is that while the person negotiating by mere delivery is liable only to his immediate transferee. t$! &!"t .Concepcion. '!&!(%* &)+(s!(3 H E=!(2 &)+(s!( -$+ &)+(s!s .Reyes H. 2010 2011! W%((%&t !s &+t !"#*us =!3 The four warranties e(pressed in this section are not e(clusive but may be e(tended by analogy to li*e situations L %b * t2 +. &)+(s!( -$!(! . S!#t +& CD3 L %b * t2 +. they are secondarily liable only when the person primarily liable cannot pay because of a violation of any of the four warranties but they will not be liable if the person primarily liable cannot pay for any other reason than the violation of the four warranties.Mercado.% )< +( b+t$< %s t$! #%s! 1%2 b!< %##+() &' t+ ts t!&+(< %&) t$%t .(!#!) &' s!#t +&.Cancino..Negotiable Instruments Law (Aquino and Agbayani Notes) 3" Abad.Chu.t!) +( .%(!)3 Li*e the 3ualified indorser and a person negotiating by delivery. at the time of his indorsement.Avila.(!s!&t1!&t< t s$%** b! %##!.%(+* != )!&#! %)1 ss b*! %s t+ !"t( &s # %'(!!1!&t +. t$! '!&!(%* &)+(s!(3 Same as the secondary liability of a drawer. $ s &)+(s!1!&t< =%* ) %&) subs st &'. /ut the fourth warranty of a general indorser does not run in favor of holders who are parties to the illegal transaction.!**!) t+ . and that an e(trinsic agreement between indorsers and indorsee which cannot be embodied in the instrument without impairing its credit is provable by parol provided that such e(trinsic agreement should not vary. Concepcion.efenses REAL DEFENSES -inority )available only to the minor+.* #%t +& +. B+ &t . t$ s %#t< u&*!ss $! ) s#*+s!s t$! &%1! +. mista*e. s to the holder they are liable in any order. (2S A.Avila.s!3 L+ &t .!#ts +&! %&+t$!(< &)+(s!(s %(! * %b*! . CHAPTER D: D!.%# ! & t$! +()!( & -$ #$ t$!2 &)+(s!. the second indorser will be discharged..%* %&) t$! .Cancino. %& %'!&t +( b(+:!(3 W$!(! % b(+:!( +( +t$!( %'!&t &!'+t %t!s %& &st(u1!&t .t$%t< %s b!t-!!& +( %1+&' t$!1s!*=!s< t$!2 $%=! %'(!!) +t$!(.( &# . 4orgery %on1delivery of complete instrument -aterial lteration act of PERSONAL DEFENSES 4ailure or bsence of 'onsideration Illegal consideration %on1delivery of complete instrument 'onditional delivery complete instrument 4raud in inducement 4illing up blan* not within authority .(!s#( b!) b2 S!#t +& C@ +.%#t t$%t $! s %#t &' +&*2 %s %'!&t3 A.t$+ut &)+(s!1!&t< $! &#u(s %** t$! * %b * t !s . but != )!&#! s %)1 ss b*! t+ s$+.Negotiable Instruments Law (Aquino and Agbayani Notes) 4# Abad. S!#t +& CE3 This rule applies only with respect to an indorser or as against another but not as against a holder in due course. ) s$+&+u( !t#3 . 0ersonal defenses: those wherein the facts present a true contract but where. $ s .%2!!s +( B+ &t &)+(s!!s -$+ &)+(s! %(! )!!1!) t+ &)+(s! B+ &t*2 %&) s!=!(%**23 A. L %b * t2 %s %'% &st $+*)!(3 The rule that indorsers are liable in the order they indorse is only as between or among themselves but not as against the holder. *%#: +.Layno. L+ &t %&) s!=!(%* * %b * t2 +. for various reasons. prior breach of contract by the holder. such as fraud.* #%t +&3 This section seems to refer to instruments which are payable to bearer. 'onse3uently.!#t +.Prinsipe.Chu. &+t #! +.ne of the Aoint indorsers cannot escape liability because proper notice of dishonour was not given to his Aoint indorser..Reyes H.%2!!s3 Koint payees or Aoint indorsees are deemed to indorse Aointly and severally. every indorser is liable to all indorsers subse3uent to him but not those prior to him whom he in turn ma*es liable. The liability and warranties of the agent are those stated in Section GH.!&s!s REAL DEFENSES 6S3 PERSONAL DEFENSES: 1. when the holder e(pressly releases the first indorser. !. @nder this rule. Types of :eal and 0ersonal . the defendant is e(cused from his obligation to perform. or where the admitted contract is vitiated for all purposes for reasons of public policy. duress. E. S!#t +& CF3 * %b * t2 +.Mercado. 2010 2011! S!#t +& CE3 O()!(s & -$ #$ &)+(s!(s %(! * %b*!3 H As (!s. :eal defenses: those wherein the facts disclose an absence of one or more of the essential elements of a contract. discharge before maturity.Y.. and the li*e.uress or Intimidation 4illing up blan* beyond of U3tr/ 8ires 'orporation 4raud in */ctu0 or Esse 'ontr/ctus Illegality 7 if declared void for any purpose .( 1% . %ote: In section 1C of the %IL. or estoppels n illegal act is void and cannot be validated. ' = &' !. it is valid and effectual for all purposes in his hands. . (2S A.Cancino.Reyes H.Layno.+s! +. 1 2here the instrument is wanting in any material particular.Chu.+( t$! . 1C. 1H. it will not. there is prima facie authority to fill up the incomplete instrument because there was delivery.Prinsipe. NON-DELI6ERY AND CONDITIONAL DELI6ERY Non e3i6ery o4 Inco0p3ete Instru0ent Sec..efinition: an ultra vires act is one committed outside the obAect for which a corporation is created as defined by the law of its organiIation and therefore beyond the power conferred upon it by law.elivery> when effectual> when presumed. %inority %egotiation by a minor passes title to the instrument. 2010 2011! =icious force or violence 2ant of authority 0rescription . !!: the indorsement or assignment of the instrument b corporation or by an infant passes the property therein.!#t t$!(!t+3 s between immediate parties and as regards a remote party other than a holder in due course. MINORITY AND OTHER CAUSES OF INCAPACITY Sec. if completed and negotiated without authority. 1 5very contract on a negotiable instrument is &#+1. /ut if any such instrument. n ultra vires act is merely voidable which may be enforced by performance. be a valid contract in the hands of any holder. U3tr/ 8ires 6s2 I33e5/3 Act 1.*!t! %&) (!=+#%b*! u&t * )!* =!(2 +. however. 1 2here an incomplete instrument has not been delivered. that any such instrument when completed may be enforced against any person who became a party thereto prior to its completion. /lan*s> when may be filled. notwithstanding that from want of capacity. and he may enforce it as if it had been filled up strictly in accordance with the authority given and within a reasonable time. the person in possession thereof has a prima facie authority to complete it by filling up the blan*s therein. ratification. it must be filled up strictly in accordance with the authority given and within a reasonable time. Incomplete instrument not delivered.ischarge in Insolvency reasonable time Transfer in breach of faith -ista*e Insertion of wrong date nte1dating or post dating for illegal or fraudulent purpose. The minor himself is not liable and the defense is available only to the minor himself. In Section 1H. !. as against any person whose signature was placed thereon before delivery.Negotiable Instruments Law (Aquino and Agbayani Notes) 41 Abad. t$! &st(u1!&t . U3tr/ 8ires Acts .Mercado. Unde3i6ered /nd e3i6ered 'o0p3ete Instru0ents Sec. Sec. .Avila. is negotiated to a holder in due course.Concepcion. 1G.Y. after completion. In order. nd a signature on a blan* paper delivered by the person ma*ing the signature in order that the paper may be converted into a negotiable instrument operates as a prima facie authority to fill it up as such for any amount. no such authority is presumed because there was no delivery.u(. the corporation or infant may incur no liability thereon. the contract concerning the instrument is incomplete and revocable. and not for the purpose of transferring the property in the instrument. accepting. The delivery of the negotiable instrument for purposes of issuance or negotiation position of the parties in the chain of negotiation may be made personally by the person who is supposed to transfer li*e the ma*er. s to holders in due course. (2S A.%(t !s . there must be delivery whenever the instrument is issued or negotiated.Chu. it cannot be established that there was no delivery. • 2ithout delivery. !. !.Negotiable Instruments Law (Aquino and Agbayani Notes) 42 Abad.Cancino. G. negotiation of the instrument and in other forms of transfer. C.e Ru3es under !ec2 1@ 1. or indorser or to his authoriIed agent?representative. in order to be effectual. This is involved in the issuance of the instrument. s between immediate parties and remote parties who are not holders in due course.Mercado. as the case may be> and. he is presumed to he is presumed to have delivered the same for purposes of transferring title. If the instrument is no longer in the hands of the ma*er or the drawer.elivery means transfer of possession of the negotiable instrument by one person to another with the intention to transfer title to the instrument. #.Prinsipe. drawer. or for a special purpose only. delivery is conclusively presumed to be unconditional and for the purpose of transferring title without any reservation or condition. in such case.Avila.Reyes H. drawing. The fact that the party is an immediate party or a remote party is important under Sec. Out3ine o4 Ru3es under !ec2 1. it cannot be established that the delivery was conditional or for a special purpose. The defense available to parties primarily liable against the holders is classified as a personal defense which is available against the holder who is not a holder in due course. % $+*)!( & )u! #+u(s!< % =%* ) )!* =!(2 t$!(!+. they must be authoriIed.elivery must be either by or under the authority of the party ma*ing. #. or indorsing. must be made either by or under the authority of the party ma*ing. • Transferee ac3uires no right if the instrument was not delivered to him. s to him. 2010 2011! the delivery. 1C+ 7 applies to an incomplete but delivered instrument. C. FILLING UP BLAN/S BEYOND AUTHORITY )See Sec.(!su1!)3 nd where the instrument is no longer in the possession of a party whose signature appears thereon. he is presumed to have already delivered the instrument to another )payee+ for the purpose of issuing the same s between immediate parties and remote parties who are not holders in due course. negotiable instrument must be delivered. But -$!(! t$! &st(u1!&t s & t$! $%&)s +. . If the instrument has not been delivered. . )as to agents?representatives.er Notes 1. the delivery of a complete instrument may be established to be conditional or for a special purpose and not for the purpose of transferring title.Y.: . he is presumed to have already delivered the instrument to another )payee+ for the purpose of issuing the same. Immediate parties do not refer to the position of the parties in the chain of negotiation but Pimmediate6 refers to persons who are familiar with the circumstances regarding the transfer. Thus. drawing.Concepcion.elivery is conclusive as to the holder in due course if he is in possession of a complete instrument. the most important thing to consider is whether or not the holder who is trying to collect based on the instrument is a holder in due course or not. Ot. B.+ If the instrument is no longer in the hands of the ma*er or the drawer. it may be established that there was no delivery at all of the complete instrument. . b2 %** . transfer is incomplete. a valid and intentional delivery by him is presumed until the contrary is proved. the delivery may be shown to have been conditional. accepting. Out3ine o4 t. If the instrument is no longer in the hands of the indorser. 2ith respect to the holder. H.Layno. H. 1G in order to determine if it can be established as against them if the delivery was conditional or for a special purpose.( +( t+ $ 1 s+ %s t+ 1%:! t$!1 * %b*! t+ $ 1 s #+&#*us =!*2 . s to holders in due course. or indorsing the instrument. There must be delivery of a paper to another person> ii. 1!H. The number or the relations of the parties> e.r which adds a place of payment where no place of payment is specified. the payee is deemed to have pri0/ 4/cie authority to fill it up. %ot limited to the matters mentioned as re3uisites under Sec. If the holder of the instrument.Prinsipe. Sec. It may include any detail that affects the tenor of the instrument or the rights of the parties. then the last sentence of Sec.Layno. MATERIAL PARTICULAR 5(ample: an instrument that does not state the amount to be paid is not a complete instrument and a material particular is missing.Mercado. 4raud *r/ud in Induce0ent 6s2 *r/ud in execution FRAUD IN INDUCEMENT FRAUD IN E0ECUTION . 1 of the %IL. 1C also presumes that the instrument was completed in accordance with the authority that it was given. Pri0/ */cie Aut. The paper that was delivered was a blan* paper containing the signature of the person who will deliver> iii. either for principal or interest> c. !. or any other change or addition which alters the effect of the instrument in any respect. person in possession of an instrument that is wanting in a material particular has pri0/ 4/cie authority to complete it by filling up the blan*s therein strictly in accordance with the authority given and within reasonable time. The date> b.ority Incomplete Instrument • If the ma*er or drawer delivers an instrument to the payee although it is wanting in material particular. 1!H: any alteration which changes: a. (2S A.'. • Sec. is a holder in due course.ue 'ourse • If the holder is an <. The sum payable. . the person to whom the instrument is delivered has pri0/ 4/cie authority to fill it up for any amount. #. the holder may enforce the instrument as if it has been filled up strictly in accordance with the authority given and within a reasonable time. #. :e3uisites for presumption to operate: i. The time or place of payment> d. 1C still applies even if what was delivered was a blan* piece of paper signed by the person delivering the same but without authority to convert it into a negotiable instrument. The delivery was for the purpose of converting the paper into a negotiable instrument. • • 1.Avila. If a person delivers a blan* paper to another person containing his signature for the purpose of converting it into a negotiable instrument. The medium or currency in which payment is to be made> f.Y. is a material alteration. the presumption is that the instrument was completed with prior authority from the ma*er or the drawer and that the person who completed the instrument did not e(ceed in his authority. 2.Negotiable Instruments Law (Aquino and Agbayani Notes) 43 Abad.Reyes H.Concepcion. 2010 2011! 1. <older in .Cancino. Signed ban* piece of paper If a person delivers a blan* piece of paper containing his signature to another person for the purpose of converting it into a negotiable instrument the person to whom the instrument is delivered has prima facie authority to fill it up with any amount.Chu. after it was filled up. • The moment the instrument is completed. It also includes matters mentioned in Sec. 'oncept o4 A3ter/tion 0%/ vs. it is avoided. In addition.therwise.Layno. . ' )!HG S': CE1+: n alteration is said to be material if it alters the effect of the instrument. a material alteration is one which changes the items which are re3uired to be stated in Sec. Ot. C. or any other information> The apparent necessity or lac* of it. but the holder may enforce it only according to its original tenor.Y. he may enforce payment thereof according to its original tenor. e(cept as against a party who has himself made. .Chu. authoriIed. 1!C and 1!H for application of rules on application+ Sec.Avila. an innocent alteration and spoliation will not avoid the instrument. (2S A. !. real defense.er Notes: n alteration that totally prevents recovery constitutes a material alteration 7 it cannot be enforced by the holder in due course according to its original tenor. #. )according to Kustice =itug. */ctors to 1e considered in deter0inin5 presence o4 re/son/13e opportunity: 1.nly a personal defense Notes If fraud is committed in the performance of a collateral obligation. the nature of fraud is similar to fraud in inducement and the defense is li*ewise a personal defense. H.Concepcion. )See Secs.Mercado. 1!C.Reyes H.Prinsipe. or assented to the alteration and subse3uent indorsers. 2010 2011! The person who signs the instrument intends to sign the same as a negotiable instrument but was induced to do so only through fraud 'onsent is vitiated by fraud . ge and se( of the obligor> Intelligence. MATERIAL ALTERATION lteration must be material before it can be considered a defense. for acting without delay. it is not a defense at all. 1 of the %egotiable Instruments Law. and business e(perience> bility to read and understand the language used> The representations made to him and his reason to rely on them or to have confidence in the person ma*ing them> him.Cancino. education. 1 2here a negotiable instrument is materially altered without the assent of all parties liable thereon. lteration of instrument> effect of. 2hen a person is induced to sign an instrument not *nowing its character as a note or a bill. there is no alteration if only serial numbers were altered. It means an unauthoriIed change in an instrument that purports to modify in any respect the obligation of any party or an unauthoriIed addition of words or numbers or other change to an incomplete instrument relating to the obligation of a party. <owever. The person who signs the instrument does not *now that he is signing a negotiable instrument. /ut when an instrument has been materially altered and is in the hands of a holder in due course not a party to the alteration. The defense is not available if the party involved had reasonable opportunity to obtain such *nowledge. In the defense of fraud in 4/ctu09 the person who signs the instrument lac*s the *nowledge of the character or essential terms of the instrument. G.Negotiable Instruments Law (Aquino and Agbayani Notes) 44 Abad. In other words. a material alteration is only a Ppartial6 real defense because the holder in due course can enforce it according to its original tenor. #. G. B. )Tim 3 agrees with this view+ nte1dating or 0ost1dating Sec. In other words. 0resence or absence of any third person who might read or e(plain the instrument to The payment of a chec* by the drawee includes its acceptance contemplated under Sec. provided this is not done for an illegal or fraudulent purpose.Cancino. the drawee is liable on its payment of the chec* according to the tenor of the chec* at the time of payment. If the collecting ban* cannot be considered to have acted as the representative of the drawee ban* when it debited respondent6s account. :easons by the Supreme 'ourt:# B. . 1 The instrument is not invalid for the reason only that it is ante1 dated or post1dated. who relied on the drawee ban*6s clearance and payment of the draft and not being negligent.Y. is a restrictive indorsement. 1. the collecting ban* will suffer the loss in case of material alteration because the warranties of the collecting ban* are that of a general indorser. . the drawee. /y paying the collecting ban*. 1!. The preferential treatment given to the paying ban* by common law Aurisdictions cannot be applied in this Aurisdiction. ugust !".Negotiable Instruments Law (Aquino and Agbayani Notes) 45 Abad. G!.Chu. %*t!(%t +& +& .. %o. The person to whom an instrument so dated is delivered ac3uires the title thereto as of the date of delivery.Avila. A&+t$!( = !. !. 0ayee is thus protected in Sec.t$ (!s. (!#+=!(2 +.%2!! %&) #+**!#t &' b%&:: it also should be pointed out that the obligation to return the amount of the altered chec* is an obligation that is fi(ed by Aurisprudence and statutory provisions. because the drawee ban* had no right to recover what it had paid. (2S A. O. under Section #G. ctual payment is greater than acceptance.Concepcion. nte1dated and post1dated.Layno. There is also Aurisprudence to the effect that the collecting ban*6s right of recourse is against the depositor1payee> that the payee will shoulder the loss because he has the same warranties of a general indorser when he signs the chec* for deposit. E. It further reasserts the usefulness.%2!! -$+ s % $+*)!( & )u! #+u(s!: the collecting ban* cannot debit the account of a payee who is a holder in due course if the collecting ban* returned the amount of the altered chec* to the drawee ban*. the payee is amply protected by Sec. the collecting ban* would only be considered as acting on its own and should be responsible for its own action. This is precisely because the said indorsement is only for purposes of collection which. which was raised the amount. 1GF!BC. The collecting ban* cannot invo*e the warranty of the payee?depositor who indorsed the instrument for collection to shift the burden it brought upon itself. stability and currency of negotiable paper without seriously endangering accepted ban*ing practices.Mercado.. G. C.(!'%() &' * %b * t2 +.!#t t+ !"t!&t +. !""F. It is not a mere voluntary act but is one dictated by law and Aurisprudence. it is the collecting ban* that shall be responsible for the loss in case of alteration. G!. 2010 2011! lteration of the amount payable is material alteration. payee who is a holder in due course.+s t! = !. If the negotiable instrument involved is a chec*. 3 45/T' vs. G!. H. The payee of the altered chec* may be a holder in due course. Gold 0alace Kewellery 'ompany.. $+*)!( & )u! #+u(s!: It is worth noting that there is a view to the effect that even if the payee in the said case is a holder in due course who is entitled to protection. 1!C of the %egotiable Instruments Law.Reyes H.!#t +. the view is that as between the drawee1ban* and the collecting ban*.Prinsipe.:. and the same was deposited by the holder in a collecting ban*. the protection should be in accordance with Sec. <ence. absent any similar provision in our law. recogniIed and complied with its obligation to pay in accordance with the tenor of his acceptance. It is the drawee ban* that should bear the loss and if the collecting ban* reimbursed the drawee ban* the amount of the altered chec*. 2010 2011! In ot.Reyes H.& )e(. PRESCRIPTION 5(tinctive prescription is considered a real defense that may be raised even against a holder in due course.egree of duress is relative depending on the circumstances of the parties and of the situation.uress is a real defense or if it is vicious or if it is what is referred to as $duress amounting to forgery. and no right to retain the instrument. a personal defense is available against the holder. . such as to deprive the ma*er of that 3uality of mind essential to the ma*ing of a contract. or where the acceptance of an instrument payable at a fi(ed period after sight is undated. and the instrument shall be payable accordingly. the date so inserted is to be regarded as the true date. FORGERY AND WANT OF AUTHORITY Gener/3 Ru3es Sec. 4orged signature> effect of. DURESS AND INTIMIDATION To constitute duress. whether the failure is li3uidated amount or otherwise. !#. ABSENCE OR FAILURE OF CONSIDERATION bsence or failure of consideration is a matter of defense as against any person not course. for the purpose of obtaining the note )or bill+. or a holder in due ascertained and is present if the failed to comply . 1 2hen a signature is forged or made without the authority of the person whose signature it purports to be.Avila.Layno.t +&: 2hen the law which declares the transaction illegal li*ewise declares that the negotiable instrument or document issued in connection thereto is void against any party. If a wrong date is inserted.Negotiable Instruments Law (Aquino and Agbayani Notes) 46 Abad.Concepcion.+ Illegality G!&!(%* Ru*!: illegality of the transaction that gave rise to a particular transaction is only a personal defense. the action of the depositor against his drawee ban* commences to run from the time he is given notice of payment. 0artial failure of consideration is a defense pro t/nto. 2ith respect to chec*s. Sec. 1#: 2here an instrument e(pressed to be payable at a fi(ed period after date is issued undated.Cancino. vailable even though there may be some consideration to support the instrument. The insertion of a wrong date does not avoid the instrument in the hands of a subse3uent holder in due course> but as to him. it is wholly inoperative. person who e(erts force is practically writing the note itself by holding the hands of another. Threats to a feeble and old person might be duress to one while it may not be so to another. any holder may insert therein the true date of issue or acceptance. The fact that the defendant did not act as a reasonable man would in resisting the coercion e(ercised upon him will not li*ewise prevent him from setting up the defense of duress. E"#!. with such promise. the holder in due course has the right to regard the wrongfully inserted date as the true date. there must be an actual or threatened e(ercise or power possessed by the party benefited thereby. INSERTION OF A WRONG DATE Insertion of a wrong date may be a personal defense. <ence.Mercado.Chu.er words: If the post1dating or the ante1dating is for an illegal or fraudulent purpose.t =! P!( +): 1" years from the time the cause of action accrued. P(!s#( . the personal defense of failure of consideration seller who received the negotiable instrument because of his promise to deliver goods. (2S A.Y.Prinsipe. . he cannot be made to pay because he never made the promise to pay.Prinsipe. Gampesaw vs. the instrument cannot be enforced against the payee and the ma*er. The indorsers after the forgery are liable because they warrant that they have good title to the instrument. (2S A. <ence. or negligence are stopped from setting up the defense of forgery. These include acts or omission that amount to ratification. silence. • 0arties who warrant or admit the genuineness of the signature in 3uestion> and Those who by their acts. The payee6s forged signature is wholly inoperative and no right to enforce payment can be obtained against any party prior to the forgery. persons negotiating by delivery and acceptors are warrantors of the genuineness of certain signatures on the instrument. unless the party against whom it is sought to enforce such right is precluded from setting up the forgery or want of authority. e(press or implied. the drawee ban* cannot charge the amount thereof against the drawer6s account because he never gave the ban* the order to pay. Ru*!: Section !# does not avoid the instrument and only the forged signature is rendered inoperative. These indorsers warrant that the instrument is genuine and in all respect what it purports to be. <owever. 2arranty Indorsers.Reyes H.Negotiable Instruments Law (Aquino and Agbayani Notes) 4 Abad. or to enforce payment thereof against any party thereto. negligence cannot be imputed to the drawer by the mere fact that the person responsible for the forgery is his employee or even an independent auditor. indorsers after the forgery are still secondarily liable to the holder. They are precluded from setting up the defense of forgery in certain cases.Avila. )e(. • Indorser6s Signature . will be deemed to have ratified the forgery if he failed to act on such information despite to do so. !. ccording to the cut1off rule.Y. ' )!1F S': GF!+: party whose signature to an instrument was forged was never a party and never gave his consent to the contract which gave rise to the instrument. the ma*er is not liable to all subse3uent parties whether the instrument is an order instrument or a bearer instrument. Cut-O.Mercado.Cancino. . G! %IL+ • %egligence drawer who can otherwise recover from the drawee may be barred from doing so because of its negligence or may have to suffer reduction of the amount.. they can no longer claim that the instrument is not genuine. Included therein is one6s failure to comply with the rules or agreement or on the return of chec*s.Concepcion. . !#+ <owever. can be ac3uired through or under such signature. 2010 2011! to give a discharge therefor. the parties prior to the forged signature are cut1off from the parties after the forgery in the same sense that prior parties cannot be held liable and can raise the defense of forgery.Chu. The only instance when prior parties are liable is if they are precluded from setting up the defense of forgery either because of their warranties. Persons Prec3uded 4ro0 !ettin5 up *or5ery 1. Sec. • 5stoppel 5(ample: if the drawer opportunity and :atification the drawer was already informed that a chec* bearing his forged signature is being encashed. *or5ery in Notes • -a*er6s Signature 2here the ma*er6s signature is forged.r where a person6s signature as a drawer of the chec* is forged. representations or their negligence. )See Sec.n .rder Instruments: 2here the indorsement of the payee is forged in a note payable to order.Layno. If a person6s signature is forged as a ma*er of a promissory note. Cancino.Mercado./n5e • . the ma*er may still be liable to a holder in due course even if an indorsement was forged after the issuance of the note.rawee: It can be further e(plained that the liability of the drawee in case the drawer6s signature was forged can also be traced to the drawee6s negligence. The payee can claim against the collecting ban*. indorsers after the forgery may still be secondarily liable to the holder but indorsers prior to the said forgery are not liable. There is no right to enforce payment against the drawer under the forged signature.1E1+ • • P(+1 ss+(2 &+t! 1 ma*er B ** +. in turn has the right of recourse against the collecting ban*. he warrants all those mentioned in Sec. the drawer6s account cannot be debited if his signature in a chec* was forged. <ence. !. the drawee cannot charge the account of the drawer if the payee6s or any indorser6s signature is forged. The $tenor& of the instrument is that he engages to pay any bearer of the instrument. In addition.Y. <ence.rawer6s Signature 2here the drawer6s signature is forged. The holder of a bearer instrument can still recover from the drawer if a special indorsement was forged because the forged signature is unnecessary for his title. O& B!%(!( I&st(u1!&ts: the same rule that is applicable to forged indorsement in a bearer promissory note applies to forged indorsement in a bearer bill of e(change. 2hen the collecting ban* is made liable. or the payee.n /earer Instruments: In bearer instruments. #. There is no privity of contract between the drawer and the collecting ban*. 0arties prior to the forgery can raise the defense of forgery. The rule is consistent with Sec. the signature of the payee or holder is unnecessary to pass title to the instrument.Prinsipe. the drawer is not liable whether or not the instrument is payable to bearer or payable order. the subse3uent holder cannot enforce payment thereof against the drawee.acceptor .rawee1 cceptor6s 2arranties: drawee ban* cannot recover the amount because by accepting the instrument. G" which provides that the underta*ing of the ma*er is to pay the instrument $according to its tenor&. 2010 2011! .ther notes: 1.Reyes H.( 1%( *2 * %b*! persons who are absolutely re3uired to pay the instrument )Sec. (2S A. This is true even if the instrument is a bearer instrument because the drawer was never a party to the instrument 7 he did not promise to pay anybody. The last indorser will be liable for the amount indicated in the negotiable instrument even if a previous indorsment was forged. C. *or5ery in "i33s o4 Exc. The drawee. . the collecting ban* may recover from its depositor who had not given value for the money paid to him has no right to retain the money he received.Concepcion.Chu.Avila. !"#$%&'! .Negotiable Instruments Law (Aquino and Agbayani Notes) 4! Abad.Layno. 0arties after the forgery are cut1off from the parties prior to the forgery. • Indorser6s Signature O& O()!( I&st(u1!&ts: 2here the instrument of the payee in a bill of e(change was forged after delivery of the instrument by the drawer to the said payee. . G#. If the instrument involved is a chec*. %egligence of . The drawer cannot opt to recover from the collecting ban*. the drawer. CHAPTER E ENFORCEMENT OF LIABILITY STEPS TO CHARGE THE PARTIES LIABLE P!(s+&s . To e(hibit the bill or note is re3uired and to receive payment and surrender it if the debtor is willing to pay R!9u s t!s: Who: by the holder. or both. #.s & E&. If the said steps are not complied with.ow 3i/1i3ity is en4orced: by presenting the instrument for payment P!(s+&s s!#+&)%( *2 * %b*! those who promise to pay if the person primarily liable refuses or fails to pay> those who $engage that. 0ersonal demand for payment at the proper place b. If the bill is a foreign bill. !. 2010 2011! • The liability of persons primarily liable automatically attaches the moment they ma*e or accept the instrument as the case may be.Layno. protest for dishonor by non1acceptance must be made PRESENTMENT FOR PAYMENT (S!#s3 D5-EE) P(!s!&t1!&t H production of a bill of e(change to the drawee for his acceptance or to the drawee or acceptor for payment or the production of a promissory note to the party liable for payment of the same P(!s!&t1!&t . !"#$%&'!: ()(%-!( %&) &)+(s!() 1.Negotiable Instruments Law (Aquino and Agbayani Notes) 4" Abad.Mercado. to any person found at the place where the presentment is made . as the case may be.Cancino. the instrument shall be accepted or paid.Y.s & E&.+(# &' L %b * t2 +& b ** +.Chu. there must be protest for dishonor by non1acceptance If the bill is accepted: 0resentment for payment to the acceptor should be made If the bill is dishonored upon presentment for payment i. 0resentment for acceptance If dishonored by non1acceptance: %otice of dishonor should be given to the indorsers and drawers If the bill is a foreign bill. a.Concepcion.+(# &' L %b * t2 +& .Reyes H.Avila. b. !. 0resentment for payment must be made within the re3uired period to the ma*er %otice of dishonor should be given St!. There are necessary steps to be ta*en.%21!&t 7 consists of: a. • . b. on due presentment.rawer • Indorsers • The liability of persons secondarily liable cannot be enforced immediately. St!. a.+( . they are discharged from the instrument or their obligation is e(tinguished.(+1 ss+(2 &+t!: ( &)+(s!() 1. of if he is absent or inaccessible. or by some person authoriIed to receive payment on his behalf When: at a reasonable hour on a business day Where: at a proper place as herein defined To Whom: to the person primarily liable on the instrument. e44ect: no further act is necessary in order that liability may accrue . he will pay the amount thereof to the holder. %otice of dishonor must be given to person secondarily liable ii. (2S A. and that if it be dishonored and the necessary proceedings on dishonor be duly ta*en. according to its tenor. or to any subse3uent indorser who may be compelled to pay it.Prinsipe. Reyes H.Negotiable Instruments Law (Aquino and Agbayani Notes) 5# Abad.e . b. Instrument payable at a fi(ed or determinate future time 7 ne(t succeeding business day ii.(!s!&t1!&t s 1%)! a.ay of maturity falls on a Saturday or instrument becomes payable on a Saturday i.Concepcion.t +&: person to ma*e payment has no funds there to meet it at any time during the day> said person may present at any hour before the ban* is closed b.Y. before 1!noon or -onday at the option of the holder N+t!: .ate of presentment • Instrument %.Chu. requisites /re not co0p3ied wit.: as if no presentment for payment was done persons secondarily liable are discharged13 W$+ 1%:!s .+( .T payable on demand on the day it falls due or on the maturity date fi(ed • Instrument payable on demand 0romissory note 7 within a reasonable time after its issue /ill of e(change 7 within a reasonable time after last negotiation $reasonable time& so much time as is necessary under the circumstances for a reasonable prudent and diligent man to do conveniently what the contract or duty re3uires should be done. .ay of maturity of instrument falls on a Sunday or a holiday payable on -onday or succeeding business day • . having a regard for the rights and possibility of loss. (2S A.Prinsipe.+( P%21!&t s M%)! D%t! I&st(u1!&t &+t . if any.Mercado.%21!&t a.e ti0e co0puted e(cluding the day from which the time is to begin to run and by including the date of payment Instrument is payable at a fi(ed time payable at the time fi(ed therein without grace .Avila.Layno.%2%b*! +& . the party liable is entitled to the whole of that day within which to ma*e payment Su11%(2 W$!& P(!s!&t1!&t . Time of presentment • $ow is t.Instrument is payable on demand 7 Saturday.(!s!&t1!&t .n the day instrument falls due T 1! t the time fi(ed without • • . 2010 2011! E44ect i4 t.n the day of payment. <older Some person authoriIed to receive payment on his behalf )e(amples: )1+ collecting ban*> )!+ agent> )#+ heirs> )C+ successors1in1interest+ 73 W$!& .Cancino. to the other party $last negotiation& last transfer for value N+t!: Subse3uent transfers between ban*s for purposes of collection are not negotiations contemplated herein $stale chec*& one which has not been presented for payment within a reasonable time after its issue )after 1F" days or G months+> valueless • Instrument payable at a ban* must be presented during ban*ing hours E"#!. B#+ a. and the instrument is presented at the usual place of business or residence of the person to ma*e payment . b. (2S A.ay of maturity falls on a Saturday or instrument becomes payable on a Saturday Saturday.Avila. 2here a place of payment is specified in the instrument.Prinsipe.Y.Chu.Concepcion. c.Reyes H.Layno.o3id/y payable on -onday or succeeding business day I4 d/y o4 0/turity 4/33s on / !/turd/y or instru0ent 1eco0es p/y/13e on / !/turd/y ne(t succeeding business day I&st(u1!&t . 2010 2011! )!1%&) grace I4 d/y o4 0/turity 4/33s on / !und/y or / .Mercado. and it is thee presented 2here no place of payment is specified but the address of the person to ma*e payment is given in the instrument and it is there presented 2here no place of payment is specified and no address is given.Negotiable Instruments Law (Aquino and Agbayani Notes) 51 Abad.Cancino.%2%b*! +& )!1%&) 0romissory note 2ithin a reasonable time after its last issue 2ithin a reasonable time after last negotiation . before 1!nn or -onday at the option of the holder /ill of e(change 43 W$!(! .(!s!&t1!&t s 1%)! 0lace of presentment: )Sec. presentment must be made to them all N+t!s: • Letters b1d are not applicable if place is specified.Avila.T possible. 2010 2011! d. and notice of protest and non1payment in the note N+t!: . and where a legal offer to pay can be made ?3 T+ -$+1 .T necessary e44ect: if holder will not present the instrument at the special place. ban*.BC+ $ The instrument must be e(hibited to the person from whom payment is demanded. 2hen the instrument is lost or destroyed $ W. t$! &st(u1!&t )Sec. 5(press waiver of demand.Cancino.mission to contest it b. and when it is paid. (2S A.T sufficient because e(hibition of the instrument is %. payable at a special place. store or place of business. To determine the genuineness of the instrument and the right of the holder to receive payment b. There are several persons primarily liable and are not partners and no place of payment is specified. D s$+&+( b2 &+&-.%21!&t s !"#us!): ) rt. 0ersons primarily liable are partners and no place of payment is specified. protest. dmission of the authenticity of the note implicit from the averment that substantial payments were made thereon c. presentment.*%#! )Sec. .Reyes H. presentment for payment is still necessary. he can be found c.Negotiable Instruments Law (Aquino and Agbayani Notes) 52 Abad. 2hen the debtor does not demand to see the instrument but refuses payment on some other grounds b. E"$ b t +& +. presentment must be made to any person found in the specified place. To enable him to reclaim possession upon payment $ W.Layno.Y. presentment may be made to any one of them d. or if presented at his last *nown place of business or residence P%2%b*! %t % s.Prinsipe.%21!&t s 1%)!: a. must be delivered up to the party paying it.Chu. counting room.+( . 0erson primarily liable is dead and no place of payment is specified: personal representative. $ %ote: 2hen the cause of delay ceases to operate.%21!&t +. where the holder can present a note. • lthough the indorser himself be the personal representative of the deceased person primarily liable. $ Purpose: a. . In any other case if presented to the person to ma*e payment wherever he can be found.en excused: a.+( . presentment must be made with reasonable diligence.emand by telephone is %.!# %* . and he is able and willing to pay it there at maturity. he loses his right to the payment of interest $place of payment& a house.(!s!&t1!&t .en unnecess/ry: a. In such case. by its terms.(!s!&t1!&t .B"+ $Rif the instrument is. F1+ $ 2hen delay is caused by circumstances beyond the control of the holder and not imputable to his default. misconduct or negligence. such ability and willingness are e3uivalent to a tender of payment& ma*er?acceptor is still liable to pay presentment for payment for person primarily liable is %. &st(u1!&t: . W$!& )!*%2 +.Concepcion. To the person primarily liable on the instrument or if he is absent or inaccessible to any person found at the place where presentment is made b. where the ma*er can deposit or provide funds to meet it. if such there be and if with the e(ercise of due diligence.Mercado. %21!&t: n immediate right of recourse to all parties secondarily liable thereon accrues to the holder )necessary condition: notice of dishonor was given to them+ Su11%(2 +.(!s!&t1!&t . 2hen presentment for payment is e(cused )Sec. c. presentment cannot be made • 2here drawee is a fictitious person • /y waiver of presentment. 2hen drawer need not be given notice )Sec.!#t +.Concepcion.Prinsipe. purpose: to charge persons secondarily liable 1urden o4 proo4: holder must prove notice was given to drawer or indorser as the case may be F+(1 +. Ru*!s %s t+ . It is duly presented for payment and payment is refused or cannot be obtained 0resentment is e(cused and the instrument is overdue and unpaid E.t +&s: a. (2S A.Layno. has not been accepted or has not been paid.rawer ordered stop payment of a chec* • . NOTICE OF DISHONOR bringing either verbally or by writing to the *nowledge of the drawer or indorser of an instrument.+( P%21!&t G!&!(%* Ru*!s: 1. ) s$+&+( b2 &+&-.B"+ E"#!. the fact that a specified negotiable instrument upon proper proceedings ta*en..Negotiable Instruments Law (Aquino and Agbayani Notes) 53 Abad.T necessary to charge persons primarily liable.Y. EHSEG+ may be verbal or in writing contents: a. !.Reyes H. e(press or implied 2hen the instrument has been dishonored by non1acceptance )Sec.F"+ where the instrument was made or accepted for his accommodation and he has no reason to e(pect that the instrument will be paid if presented c.Avila. N+t #! )Secs. 2010 2011! 1. N+t!s: Sufficient description of the bill or note Statement that the instrument has been dishonored upon presentment for acceptance for payment Statement that the instrument has been protested if protest is re3uired n announcement of the intention to loo* to the party addressed for payment . and that the party notified is e(pected to pay it. d.Chu. 2hen indorser need not be given notice )Sec. 0resentment for payment is necessary in order to charge the drawer and indorsers )Sec.BE+ where drawer has %.Cancino.F!+ • 2here after the e(ercise of reasonable diligence. b.rawer6s balance is less than the amount of the chec* b. right to e(pect or re3uire that the drawee or acceptor will pay the instrument e(amples: • . !.1H1+ d. 0resentment for payment is %.Mercado. it must be deposited in the post office in ti0e to re/c.ere p/rties reside in di44erent p3/ces 2ithin the time that notice would have been received in due course of mail.1"F+ 4 %&sual 'ours o( rest) any o( t'e 'ours w'en t'e member o( t'e 'ouse'old are attending t'eir ordinary a((airs .onor or if there be no mail at a convenient hour on last day. . 2010 2011! • If the written notice lac*s any of the aforementioned matters that should be stipulated in the contents.Layno.Y.e d/y o4 dis. it can be delivered personally to the person to whom notice should be given or it may be sent to him by mail.e d/y 4o33owin5 t. the person given notice may orally state that there was dishonor to complete or validate the notice of dishonor.Reyes H. 0rincipal b. If sent by mail. it must be deposited in the post office in ti0e to 5o 1y 0/i3 t. ) s$+&+( ' =!& Ru3e: %otice may be given S S. by the ne(t mail thereafter 43 W$!(! &+t #! +. ) s$+&+( s ' =!& Ru*!s: )Sec.EG+ 13 W$+ ' =!s &+t #! +.Cancino.Concepcion.Mercado. ) s$+&+( a. either in his own name or in the name of any party entitled to give notice. it must be given before the close of business hours on the day following If given at his residence.Prinsipe. If sent by mail.Negotiable Instruments Law (Aquino and Agbayani Notes) 54 Abad. notice of dishonor must be in writing> verbal notice is not enough..% S the instrument is dishonored W.ere p/rties Aperson 5i6in5 /nd person to recei6e noticeB reside in s/0e p3/ce A!ec21C)B If given at the place of business of the person to receive notice. if it had been deposited in the post office within the time specified in the last subdivision.e d/y 4o33owin5 W. • If there is misdescription. • 4or purposes of /0 !!.i0 in usu/3 course on t.Avila.Chu. it must be given before the usual hours of restC on the day following. 73 W$!& s &+t #! +. whether that party be his principal or not. (2S A. )Sec. gent. the notice is still valid and effective e(cept if a party was in fact misled. • If notice of dishonor is in writing. T be given to persons primarily liable !. ) s$+&+(: G!&!(%* Ru*!s: 1. 2hen dispensed with . d. c. )Sec.t +&s: a.11"+ Su11%(2 +. it is binding upon all parties. b. %otice of dishonor need %. but where it is written above the signature of an indorser. notice should be given to those who are duly authoriIed by the board to bind the corporation. notice of dishonor must be sent to that address If no address.Layno.Mercado. The indorsers or drawers themselves> or b. c. 2ith respect to corporations.Y.Prinsipe. either to the post office nearest to his place of residence or to the post1office where he is accustomed to receive his letters If he lives in one place and has his place of business in another. Ru*!s %s t+ &+t #! +.1"E+ To w.o0 1indin5: 2here the waiver is embodied in the instrument itself. notice may be sent to either place If he is soAourning in another place.Chu. 2here a party has added an address to his signature. (2S A.Negotiable Instruments Law (Aquino and Agbayani Notes) 55 Abad. b. %otice to ban*rupt Ru3e: %otice may be given either to the party himself or to his trustee or assignee W% =!( +. %otice of dishonor is necessary to charge drawers or indorsers E"#!. ) s$+&+( s ' =!& a. 1"E: %otice of dishonor may be waived either before the time of giving notice has arrived or after the omission to give due notice and the waiver may be e(press or implied.Cancino.Concepcion. notice may be sent to the place where he is so soAourning ?3 T+ -$+1 &+t #! +.Reyes H. it binds him only.en done: either before the time of giving notice has arrived or after the omission to give due notice )Sec. 2010 2011! a. N+t #! +.!# %* # (#u1st%&#!s: a. gent of the indorsers or drawer c. 2here party )drawer?indorser+ is dead Ru3e: %otice should be given to the party6s personal representative Requisites: $ 0erson who should give notice *nows that the person to receive notice is dead $ 0erson who is supposed to receive notice has a personal representative $ 0ersonal representative could be found after the e(ercise of reasonable diligence %otice to partners Ru3e: %otice to one partner will bind the partnership b. 2hen notice is waived Sec. D s$+&+( 2aiver means the person who is ma*ing the waiver renounces the benefit of the act or matter in his favor W. %otice to persons Aointly liable Ru3e: %otice should be given to each of them unless one has authority to receive such notice for the others d. S.Avila. Reyes H. s to a holder in due course without notice Sec. 2010 2011! Sec.T necessary in order to render any party to the bill liable.Concepcion. 73 a.Cancino. f.Y. !.t%&#! s 1%)! t a reasonable hour on a business day> and /efore the bill is overdue . 2here the bill is payable after sight or in any other case where presentment for acceptance is necessary in order to fi( maturity of the instrument !.Negotiable Instruments Law (Aquino and Agbayani Notes) 56 Abad. 2here the bill is drawn payable elsewhere than at the residence or place of business of the drawee.1%)! 13 a. 2hen notice need not be given to indorser Sec.Mercado.11!: %otice of dishonor is dispensed with when after the e(ercise of reasonable diligence. 2here the bill e(pressly stipulates that it shall be presented for acceptance #.t +&s: )Sec.T re3uired to be given to the drawer in either of the following cases: • 2here the drawer and drawee are the same person • 2hen the drawee is a fictitious person or a person not having capacity contract • 2hen the drawer is the person to whom the instrument for payment is made • 2here the drawer has no right to e(pect or re3uire that the drawee or acceptor will honor the instrument • 2here the drawer has countermanded payment d. 11G: 2here due notice of dishonor by non1acceptance has been given. the following are the re3uisites to charge persons secondarily liable: 1.(!s!&t1!&t . it cannot be given to or does not reach the parties sought to be charged. E"#!. W$+ 1%:!s .Prinsipe. b. PRESENTMENT FOR ACCEPTANCE production of a bill of e(change to the drawee for his acceptance G!&!(%* Ru*!: 0resentment for acceptance is %.Layno. 11B: n omission to give notice of dishonor by non1acceptance does not preAudice the rights of a holder in due course subse3uent to the omission.+( %##!. (2S A.+( %##!.t%&#!< $+.T re3uired to be given to an indorser in either of the following cases: • 2hen the drawee is a fictitious person or person not having capacity to contract and the indorser was aware of that fact at the time he indorsed the instrument • 2here the indorser is the person to whom the instrument is presented for payment • 2here the instrument was made or accepted for his accommodation e.Avila. c. notice of a subse3uent dishonor by non1payment is not necessary unless in the meantime the instrument has been accepted.Chu.(!s!&t1!&t .t%&#! <older ny person in his behalf W$!& . 2here due notice of dishonor by non1acceptance has been given Sec. 11C: %otice of dishonor is %. 2hen notice need not be given to drawer Sec.+( %##!. -a*e presentment for acceptance %egotiate the bill within a reasonable time P(!s!&t1!&t . In the above # circumstances where presentment for acceptance is necessary.1C#+ 1.11H: %otice of dishonor is %. b. ACCEPTANCE signification by the drawee of his assent to the order of the drawer )Sec. #. )Sec. !.Chu.rawee or some person authoriIed to accept or refuse in his behalf b.(!s!&t1!&t . )Sec. insolvent or made an assignment for the benefit of his creditors drawee himself or his trustee or assignee W$!(! .Mercado.therwise. presentment for payment is necessary to charge acceptor for honor.Reyes H. drawers and indorsers are discharged. 1H1+ /ut if after previous non1acceptance.Y. • If bill is accepted for honor.+( %##!. -ust be communicated or delivered to holder N+t!s: • • n oral acceptance is not binding on the drawee. D s$+&+( b2 &+&-%##!. presentment cannot be made 2here although presentment has been irregular.t%&#! s 1%)! a. 2010 2011! /ys present0ent 0/y 1e 0/de: • • • 0ayable at a fi(ed date on the day of maturity . . bill is subse3uently accepted.+( %##!. or has absconded or is a fictitious person or a person not having capacity to contract by bill 2here after the e(ercise of reasonable diligence.1CF+ 1. (2S A. . not partners all of them unless one has authority to accept or refuse for all *.1H"+ • If bill is dishonored by non1acceptance.ay of maturity is Sunday ne(t succeeding business day . presentment for payment is necessary.t%&#! )Sec.Prinsipe. cceptance by telegram has been held sufficient.ay of maturity is Saturday or payable at Saturday before 1!nn provided it is not holiday 43 W$!(! . .t%&#! s !"#us!): )Sec.t%&#! :e3uisites: a. 2hen it is duly presented for acceptance and such an acceptance is refused or cannot be obtained !. %##!.Avila.rawee is dead personal representative d. . c.(!s!&t1!&t . b.+( %##!.t%&#! s 1%)! ?3 T+ -$+1 . 2hen presentment for acceptance is e(cused and bill is not accepted N+t!s: • If bill is dishonored by non1acceptance. no presentment for payment is necessary to hold drawers and indorsers liable.Negotiable Instruments Law (Aquino and Agbayani Notes) 5 Abad. ! or more drawees.Layno. 2here the drawee is dead.(!s!&t1!&t .Concepcion. holder must give: )1+ notice of dishonor by non1 acceptance> and )!+ protest )in case of foreign bill+.1#!+ / &)s +.Cancino.rawee is ban*rupt. acceptance has been refused on some other ground )e(ample: presentment is made on a Sunday but acceptance is refused on the ground that drawer has no funds in the hands of the drawee+ 1. In writing Signed by the drawee -ust not e(press that drawee will perform his promise by any other means than the payment of money d.1CE+ .t%&#!: 13 A#tu%* %##!. ./efore the bill has been signed by the drawer b.& cceptance of some. • -ere failure to return the bill within !C hours is an acceptance. cceptance as to an e(isting bill ii.& Dualified as to time 5(ample: /ill is payable #" days after sight. which ma*es payment by the acceptor dependent on the fulfillment of a condition stated therein 5(ample: $ ccepted.t%&#!? %. one or more of the drawees but not all b.Chu. 5ven when the bill is overdue d. Sgd. may revo*e an acceptance before delivery and cancel the written acceptance. C+&st(u#t =! %##!.t%&#! 1%2 b! 1%)!: a. !) %##!. an acceptance to pay part only of the amount for which the bill is drawn 5(ample: /ill is for 01""".Layno.1#E+ acceptance to pay at a particular place 4.%21!&t !9u =%*!&t t+ %##!. e.5ven when the bill is otherwise incomplete c. 8u%* . • 2ithout signature of drawee.Concepcion. • cceptance is incomplete until delivery or notification.t%&#! one that assents without 3ualification to the order of the drawer )Sec.t%&#! )Sec.Negotiable Instruments Law (Aquino and Agbayani Notes) 5! Abad. cceptance as to a non1e(isting bill re3uisites: • • • The contemplated drawee shall describe the bill to be drawn and promise to accept it /ill shall be drawn within a reasonable time after such promise is written <older shall ta*e the bill upon the credit of the promise 2. or within such time as is given him.Cancino. 0ayable at 0%/ only. if . 2010 2011! • cceptance is not re3uired for chec*s for they are payable on demand. $ ccepted for 0H"" only. N& 0artial> that is to say. W$!& %##!. an acceptance to pay only at a particular place 5(ample: $ ccepted.n a separate paper i. /ccept/nce a promise to perform an act p/y0ent actual performance W$!(! %##!.5ven after it has been dishonored by non1acceptance or non1payment 43 G!&!(%* %##!.Avila. • The acceptor or drawee who has not communicated his acceptance or transmitted the accepted bill to the holder.t%&#! 1%2 b! -( tt!& a. payable G" days after sight. Is . • cceptance must be e(pressed to be payable in money only.Prinsipe... he would not be bound. c.1#B+ a. d. fter such delivery.Y.Reyes H. 2here the drawee to whom the bill is delivered destroys it b. within !C hours c.& Local> that is to say..Mercado. 2here the drawee refuses. to return the bill accepted or not accepted N+t!s: • The bill is at all times the property of the holder and he is entitled to have it when he wants it.n the bill itself b. $ ccepted. marries T. 'onditional> that is to say. (2S A.1C1+ a.t%&#! )Sec. whereupon the notary protests against all parties to such instrument and declares that they will be held responsible for all loss or damage arising from its dishonor. or the fact that the drawee or acceptor could not be found 73 W$+ 1%:!s . may e(perience difficulty in verifying the matter and may be forced to rely on the representation of the holder.Negotiable Instruments Law (Aquino and Agbayani Notes) 5" Abad. and it is accepted only by N. /ut. -ain purpose of protest: to furnish to the holder legal testimony of presentment.Mercado.!#t +. 4or uniformity in international transactions because most countries re3uire it !. all the steps or acts accompanying the dishonor of a bill or note necessary to charge an indorser. and notice of dishonor to be used in an action against the drawer and indorsers.Chu.T necessary in inland bills. P(+#!)u(! . The protest must be anne(ed to the bill or must contain a copy thereof. E. 2here the foreign bill is dishonored by non1acceptance !. 2here the bill contains a referee in case of need. it must be protested for non1payment before it is protested for payment to the referee in case of need H. if any.Prinsipe. PROTEST a formal statement in writing made by a notary under his seal of office at the re3uest of a holder of a bill or note. d. and a 3ualified acceptance would vary their contract without their consent.Y. 1HC: 0rotest may be made by: . demand. F+(! '& b ** 7 a bill of e(change that is not drawn and?or payable in the 0hilippines W$!& . who from his residence abroad. and notice of dishonor. in which it is addressed that the same was on a certain day presented for payment )or acceptance+.Avila. !) %##!. 2hen the bill is dishonored by acceptor for honor P(+t!st & #%s! +. 2here the bill has been accepted for honor.Reyes H. and must be under the hand and seal of the notary ma*ing it and must specify: a. b. demand.. (2S A. &*%&) b **s $ 0rotest is %. which are set forth in the certificate. and such payment )or acceptance+ was refused.(+t!st s (!9u (!): 1.(+t!st s 1%)! Sec.+( .(+t!st 13 H+.t%&#! drawer and indorsers are discharged 2hy8 . c.. it must be protested for non1payment before it is presented for payment to the acceptor for honor C. Exception: If the drawers and indorsers e(pressly or impliedly gave their consent to the 3ualified acceptance.(+t!st Sec.Concepcion. 2010 2011! 5(ample: The drawees of a bill are N and . or as indorsed by them. it is not prohibited and is discretionary on the part of the holder. necessary only for foreign bills.Layno. $ dvantage of protest in inland bills: The certificate of the notary public is generally made prima facie evidence of the facts relating to presentment.Cancino. 2here the foreign bill is dishonored by non1payment #. In order to furnish authentic and satisfactory evidence of the dishonor to the drawer. t%: &' % 9u%* . The time and place of presentment The fact that presentment was made and the manner thereof The cause or reason for protesting the bill The demand made and the answer given. 1H#. :easons for re3uiring protest: 1. non1payment.rawers and indorsers warrant tht the bill would be paid as drawn. the noting must be made on the day of dishonor but it may be e(tended into a formal protest afterwards. such protest must be made on the day of its dishonor unless delay is e(cused as herein provided.(+t!st s 1%)! Sec.Negotiable Instruments Law (Aquino and Agbayani Notes) 6# Abad. the protest may be subse3uently e(tended as of the date of the noting. P(+t!st .Avila. 1HH: 2hen a bill is protested. $duly noted& 7 notary public Aots down a note on the bill. fter acceptance /efore the date of maturity 2hen the acceptor has been adAudged ban*rupt or insolvent or has made an assignment for the benefit of creditors purpose: to inform drawer and indorsers of the fact that acceptor is insolvent and may not pay the bill. (2S A. INSTRUMENT< HOW DISCHARGED3 . merely optional on the part of the holder when made: a. and to enable them to ma*e necessary arrangements so that they will not be held liable thereon and prevent loss of re1e(change.Mercado.Concepcion.Cancino. or in his registry boo*.Chu. or a paper attached thereto.1H#. N+t!: 2here a bill has already been protested for non1acceptance. 2hen a bill has been duly noted.e p/rties: . %otary public> or ny respectable resident of the place where the bill is dishonored in the presence of two or more credible witnesses 43 W$!& . c. protest for non1payment is merely optional. it must be protested for non1payment at the place where it is e(pressed to be payable.perates as a release of some or all of them from further obligation and liability under the instrument.Prinsipe.Reyes H. and no further presentment for payment to ro demand on the drawee is necessary. 2010 2011! a.(+t!st s 1%)! Sec.+( b!tt!( s!#u( t2 one made by the holder against the drawer and indorsers where the acceptor has been adAudged a ban*rupt or insolvent or has made an assignment for the benefit of creditors before the bill matures. 1HG: General :ule: bill must be protested at the place where it is dishonored 5(ception: e(cept that when a bill drawn payable at the place of business or residence of some person other than the drawee has been dishonored by non1acceptance. b. b. CHAPTER F DISCHARGE OF NEGOTIABLE INSTRUMENTS CONCEPT D s#$%('! release from further liability. consisting of his initials or signature and those matters re3uired to be stated in Sec.Y. obligation or from the binding effect of the negotiable instrument As to p/per: puts an end to it as a contractual obligation As to t.Layno. ?3 W$!(! . b.88: . #. !.T discharged.Negotiable Instruments Law (Aquino and Agbayani Notes) 61 Abad. /y any other act which will discharge a simple contract for the payment of money rt. 2010 2011! S!#3 11F: negotiable instrument is discharged: 1. 'ondonation or remission of the debt d. /y the intentional cancellation by the holder thereof how made: a. nnulment?rescission h. 'ompensation f. Bu()!& +.Mercado. $#%&#!**%t +&K signifies not only the drawing of criss1cross lines but also tearing. /y payment in due course by or on behalf of the principal debtor J. payor is %. Tearing the instrument /urning the instrument 2riting across the instrument the word $cancelled& • If cancellation is unintentional. or without the authority of holder. hence a principal debtor. N+t!: If a person paid the holder with the intention of ac3uiring title over the instrument. erasures or burning.(++.!(s+& General :ule: Instrument is %. made under a mista*e. Loss of the thing due c.( &# -ust be made by or on behalf of the principal debtor?accommodated party 0ayment must be made to the holder 0ayor must be in good faith and without notice that holder6s title is defective 0ayment is made at or after the maturity date of the instrument .T discharged+. J.%21!&t & )u! #+u(s!K@ re3uisites: a. C.Avila. 0ayment b. %ovation g. 0rescription H. d. b. or without authority.Reyes H. 'onfusion or merger of rights e.T a third person. /y payment in due course by the party accommodated where the instrument is made or accepted for his accommodation s between the accommodation party and the accommodated party.Chu.Cancino.Layno. cancellation is inoperative )instrument is %. c. (2S A. under a mista*e. the latter is the one ultimately liable.: lies on the party who alleges that the cancellation was made unintentionally. 1!#1: 5(tinguishment of obligations a. 2hen the principal debtor becomes the holder of the instrument at or after maturity in his own right re3uisites: a. .Concepcion. 5 :eac3uisition must be made by principal debtor Sec.Y. 4ulfillment of resolutory condition i. 5(ception: 0ayment for honor. obliterations.%* )!bt+(K person ultimately bound to pay the debt P%21!&t b2 % t$ () . c.Prinsipe. In his own right c.Reyes H.Concepcion. J=%* ) t!&)!( +. t or after the date of maturity $in his own right& not in a representative capacity )e. (2S A.H"+ P!(s+&s s!#+&)%( *2 * %b*! +& t$! &st(u1!&t< $+. N+t!s: /y any act which discharges the instrument /y the intentional cancellation of his signature by the holder /y the discharge of a prior party /y a valid tender of payment made by a prior party /y a release of the principal debtor unless the holder6s right of recourse against the party secondarily liable is e(pressly reserved /y any agreement binding upon the holder to e(tend the time of payment or to postpone the holder6s right to enforce the instrument unless made with the assent of the party secondarily liable or unless the right of recourse against such party is e(pressly reserved. • .Negotiable Instruments Law (Aquino and Agbayani Notes) 62 Abad. not by operation of law and is for value.g.%* )!bt+(K G!&!(%* Ru*!: . e.Chu. . :eason: the effect of such reservation is the implied reservation of their right of recourse against person primarily liable N+t!: The release must be a voluntary act of holder. J(!*!%s! +. c. • %o consideration is necessary to support a discharge by intentional cancellation of an indorser6s signature by the holder. application: discharge of prior party must arise from the acts of holder> it does %. ma*er is agent or ma*er is holder as e(ecutor or administrator+ 2hen instrument is reac3uired before maturity Instrument is %.Mercado. 2010 2011! b.T discharged -erely constitutes a negotiation bac* to principal debtor who may in turn renegotiate the instrument )Sec.Layno.ischarges the instrument and parties secondarily liable are deprives of their right of recourse 5(ception: 2hen the holder6s right of recourse against party secondarily liable is e(pressly reserved.Avila. discharge by statute of limitations.T cover discharge by operation of law li*e discharge by reason of ban*ruptcy. .T discharged by the release of the principal debtor E"t!&s +& +. f.Prinsipe. reason: subse3uent parties cannot e(ercise their right of recourse against discharged prior party. d.) s#$%('!) S!#3 175: person secondarily liable on the instrument is discharged: a. discharge of party not given due notice of dishonor.( &# .Y.%21!&tK act by which one produces and offers to a person holding a claim or demand against him the amount of money which he considers and admits to be due in satisfaction of such claim or demand without any stipulation or condition. t 1! G!&!(%* Ru*!: 0ersons secondarily liable are discharged . s to effect of release to accommodation ma*er?acceptor: :ule: <e is %.ischarge of prior party discharges party subse3uent thereto.Cancino. b. where it is payable to the order of a #rd person and has been paid by the drawer when it is made or accepted for accommodation and has been paid by the party accommodated R!&u&# %t +& b2 $+*)!( )Sec. !. CHAPTER 15 CHEC/S C$!#: a bill of e(change payable on demand drawn on a ban* )Sec.Negotiable Instruments Law (Aquino and Agbayani Notes) 63 Abad. it must be a binding contract. F+(1: 1. ssurance of drawer and indorsers is payment according to the tenor of the instruments. 2010 2011! reason: an agreement to e(tend time of payment varies the original underta*ing of the parties secondarily liable.Avila.Reyes H.Layno. supported by valuable consideration and for a definite period must be made with the principal debtor not with a third party E.Cancino.t +&s: 1. (2S A.1!!+ J(!&u&# %t +&K act of surrendering a right or claim without recompense but it can be applied with e3ual propriety to the relin3uishing of a demand upon an agreement supported by consideration. C. In writing T 1! +. -ust be e(press !.Prinsipe. where holder e(pressly reserves his right of recourse against person secondarily liable R!9u s t!s: 1. fter maturity W$!& t ) s#$%('!s &st(u1!&t: 1. 2hen it is made at or after maturity b. t maturity #. !.Chu. 2hen it is absolute and unconditional 2hen it is made in favor of the person primarily liable #.Concepcion. E"#!..Y. 1%: &' (!&u&# %t +& b2 $+*)!(: 1.T necessary for his title indorser can renegotiate the instrument !"#!. e(tension is consented to the by the party secondarily liable !. /efore maturity !.t +&s: 1.%21!&t b2 &)+(s!( )Sec. . !. #.Mercado.1FH+ essence: payable on demand )because the contract between the ban*er and the customer is that the money is needed on demand+ /INDS OF CHEC/S: 13 C%s$ !(Is #$!#: one drawn by the cashier of a ban* in the name of the ban* against the ban* itself payable to a third person or order .T discharged but indorser who paid is discharged Indorser is remitted to his former rights against parties prior to him Indorser can stri*e out his indorement and all subse3uent indorsements rationale: indorsement of paying party subse3uent indorsements are %.!#ts +. a.1!1+ Instrument is %. in various denominations which can be used li*e cash upon second signature by the purchaser has the characteristics of a cashier6s chec* of the issuer re3uires the signature of the purchaser at the time he buys it and also at the time he uses it @3 C!(t .Chu. ' + 73 M%&%'!(Is #$!#: a chec* drawn by the manager of a ban* in the name of the ban* against the ban* itself payable to a third person similar to cashier6s chec* as to effect and use 43 M!1+(%&)u1 #$!#: a chec* on which is written the word $memorandum&. and $mem& signifying that the drawer engages to pay the bona fide holder absolutely and not upon a condition to pay upon presentment and non1payment a chec* given by a borrower to a lender for the amount of a shot loan with the understanding that it is not to be presented at the ban* but will be redeemed by the ma*er himself when the loan falls due and which understanding is evidence by writing the word $memorandum&. (2S A. cashier6s chec* by its peculiar character and general use in the commercial world is regarded substantially to be as good as the money which it represents )Tan vs. e(press companies.Cancino. $memo& or $mem& on the chec* given by the drawer to the payee more in the nature of a memorandum of indebtedness than as payment drawer may be sued the same as upon a promissory note ?3 T(%=!*!(Is #$!#: instrument purchased from ban*s.Layno. 2010 2011! e0/nd dr/4t does not operate as an assignment of funds in the hands of the drawee who is not liable on the instrument until he accepts it.Reyes H. a cashier6s chec* is the ban*6s order to pay drawn upon itself.ec= is a primary obligation of the ban* which issues it and constitutes its written promise to pay upon demand a bill of e(change drawn by a ban* on itself and accepted in advance by the act of its issuance N/ture /nd use: /y its very nature. #%t +& almost similar to acceptance discharges at the instance of the holder an agreement whereby the ban* against whom a chec* is drawn. $memo&.Concepcion.Prinsipe.Mercado. underta*es to pay it at any future time when presented for payment ban* debits the drawer6s account at the time of certification and sets aside funds out of the drawer6s control effect: same as though the money had been paid by the ban* to the holder and redeposited by him in his own credit )payee?holder becomes the depositor of the ban*+ . integrity and honor behind the chec*. '/s. committing in effect its total resources.Negotiable Instruments Law (Aquino and Agbayani Notes) 64 Abad. or the li*e.Avila.ierDs c. !) #$!#: one drawn by a depositor upon funds to his credit in a ban* which a proper officer of the ban* certifies will be paid when duly presented for payment C!(t .Y. e princip/3 de1tor U I. even if good when offered. the payment must be a p/y0ent in due course. whatever his position in the paper.+(! t$! )%t! +.t +&: where an instrument has been protested and someone voluntarily ma*es payment supra protest or for honor. #%t +& s !9u =%*!&t t+ %##!.Chu.( 1%(2 +b* '+( +( %& %##+11+)%t +& . how discharged2 1 negotiable instrument is discharged: )a+ /y payment in due course by or on behalf of the principal debtor> )b+ /y payment in due course by the party accommodated.Cancino.%(t2< his payment only conceals his own liability and those who are obligated after him.Mercado.Negotiable Instruments Law (Aquino and Agbayani Notes) 65 Abad. the instrument is not discharged because payment is not made by the person principally liable U %ot any one who desires may pay the instrument and then recover of the ma*er. . they have been impaired U creditor isn6t bound to accept a chec* in satisfaction of his demand because a chec*. 2hen they actually have been cashed or !. SUMMARY OF DISCHARGE BY PAYMENT 1.5/T. U E"#!. where the instrument is made or accepted for his accommodation> )c+ /y the intentional cancellation thereof by the holder> )d+ /y any other act which will discharge a simple contract for the payment of money> )e+ 2hen the principal debtor becomes the holder of the instrument at or after maturity in his own right.t%&#!K drawee ban* is bound on the instrument upon certification drawee ban* incurs liabilities under Sec. nd if the instrument was to give money in payment. a p/y0ent 0/de 1y t. is a discharge of the instrument !.Concepcion.Avila.Reyes H. the instrument is discharged. (2S A. doesn6t meet the re3uirements of legal tender WAI6ER OF OBLECTION TO TENDER OF PAYMENT BY CHEC/ .%(t2 -$+ s &+t % . and second. PAYMENT BY PRINCIPAL DEBTOR U I& +()!( t+ ) s#$%('! t$! &st(u1!&t.Prinsipe.rawee is not liable to the holder for the refusal of the ban* to certify a chec* The refusal of a ban* does not dispense with the re3uirement of presentment for payment since a chec* is of right presentable only for payment at the ban* on which it is drawn J#!(t . 0ayment by a person ultimately liable.%21!&t s 1%)! b2 % . <e must be a person who has in some way made himself liable for the payment of the instrument. 2hen. 0ayment by the drawer or indorser is not a discharge of the instrument VV0:I%'I0 L .Y. .%21!&t s 1%)! b!.: U 0erson ultimately bound to pay the debt PAYMENT BY CHEC/ OR OTHER NEGOTIABLE PAPER 1. are liable to such a payer. 2010 2011! N+t!s: • • • /an* is not obligated to the depositor to certify chec*s.Layno. 0ayment by an accommodation party isn6t a discharge of the instrument. 1%tu( t2< the instrument is not discharged as the payment is not in due course M W$!(! . G! )liability of acceptor+ RELATED PRO6ISIONS: (AGBAYANI COMMENTARY) S!#3 11F3 Instrument. through the fault of the creditor. and the payer may cancel indorsements subse3uent to his own and reissue the paper. and it will be valid as against the prior parties PAYMENT BY THIRD PERSONS U If payment is made by a third person. whatever his position thereon and whether the indorsement be regular or anomalous #. ll prior parties primarily or secondarily liable on the bill. e 3/w prescri1es shall be accepted in payment of debts PAYMENT BY ACCOMMODATED PARTY U The one ultimately liable on the accommodation instrument is the latter U <ence.Chu. INTENTIONAL CANCELLATION U The cancellation must be intentional and made by the holder U There must be an intention to cancel a negotiable instrument by the holder thereof as such intention is an essential element of discharge on a negotiable instrument and a negotiable note in a torn condition is presumed cancelled by the holder thereof WILL AN E0TENSION OF TIME GRANTED BY THE HOLDER TO THE DEBTOR DISCHARGE THE INSTRUMENT? U %o.Concepcion.Avila. his payment in due course discharges the instrument as if payment was made by the principal debtor under paragraph )a+.Mercado.Y.Negotiable Instruments Law (Aquino and Agbayani Notes) 66 Abad.ec= /s tender p/y0ent is regarded as a waiver of the right to demand payment in money U :eason for the ruleLto afford the debtor the opportunity to secure t. it is omitted in Section 11E U Shows the legislative intent to that an e(tension of time by the holder will not discharge the instrument PRINCIPAL DEBTOR AC8UIRES INSTRUMENT U :eac3uisition must be by the principal debtor and in his own right at or after the date of maturity U In his own rightLnot in a representative capacity WHEN INSTRUMENT REAC8UIRED BEFORE MATURITY U reac3uisition by the principal debtor in his own right but before maturity will not discharge the instrument U It will merely be a negotiation bac* to the principal debtor DISCHAGE BY OPERATION OF LAW U If a Audgment is obtained on a bill or note.Reyes H. t. (2S A. U /ut the Audgment alone.Prinsipe. releases a ban*rupt from all his provable debts. be made in good time and that the grounds for obAection must be specified> and that an obAection to tender on one ground is a waiver of all other obAections which could have been made at that time U It is ordinarily re3uired of one to whom payment is offered in the form of a chec*. is not e(tinguishment as between plaintiff and other parties not Aointly liable with the original defendant. : the instrument is discharged: )a+ /y any act which discharges the instrument> )b+ /y the intentional cancellation of his signature by the holder> )c+ /y the discharge of a prior party> )d+ /y a valid tender or payment made by a prior party> )e+ /y a release of the principal debtor unless the holderMs right of recourse against the party secondarily liable is e(pressly reserved> )f+ /y any agreement binding upon the holder to e(tend the time of payment or to postpone the holderMs right to enforce the instrument unless made with the assent of the party secondarily liable or unless the right of recourse against such party is e(pressly reserved.Layno. whether those parties be prior or subse3uent to the defendant U discharge in ban*ruptcy. without actual satisfaction.Cancino. according to the maAority view U /ecause while it isn6t omitted in Section 1!". the bill or note is thereby e(tinguished and merged in the Audgment. that he ma*es his obAection at the time of the offer of by chec* instead of an offer of payment in money U 0ayment by chec* has become so generally recogniIed as acceptable in business transactions that it has been held that o0ission to 0/=e o1Eection to / c. to be available to the creditor. 2010 2011! U It is the general rule that an obAect to a tender must.ic.e speci4ic 0oney w. and therefore will discharge the ban*rupt on all bills accepted. or notes made by him but will not discharge the other parties S!#3 1753 When persons secondarily liable on the instrument are discharged. unless otherwise provided by statute. EFFECT OF SECTION 175 IS A SURETYSHIP person secondarily liable on . RE8UISITES OF AGREEMENT FOR E0TENSION OF TIME 1. pplies only to renunciation by the unilateral act of the holder without consideration and in cases where the instrument is not delivered up to the person intended to be released . or after its maturity.Avila.Concepcion.Reyes H. is discharged U Tender of payment: act by which one produces and offers to a person holding a claim or demand against him the amount of money which he considers and admits to be due. It must be a binding contract.ischarge by the statute of limitations 6ALID TENDER OF PAYMENT U If .Cancino. . S!#3 1773 Renunciation by holder.Y. . DISCHARGE BY OPERATION OF LAW IS NOT INCLUDED 1.Mercado. E0CEPTION TO THE RIGHT TO RENEGOTIATE U 2here a drawer of a certified chec* was re3uired to ta*e up the chec* because of the failure of the drawee ban*.Prinsipe.The holder may e(pressly renounce his rights against any party to the instrument before. the latter is not discharged.)1+ where the e(tension of time is consented to by the party secondarily liable. in satisfaction of such claim or demand without any stipulation or condition VV:5L5 S5 -@ST /5 'T .L. It must be made with the principal debtor and not with a third par S!#3 1713 Right of party who discharges instrument.4 <.ischarge of a party not given due notice of dishonor #. at.Negotiable Instruments Law (Aquino and Agbayani Notes) 6 Abad.: = L@5 EFFECT OF RELEASE ON ACCOMMODATION MA/ER OR ACCEPTOR U General rule is that he is not discharged by the holder6s release of the principal debtor even if the release be made with *nowledge of the true relation of the parties and. /ut a renunciation does not affect the rights of a holder in due course without notice. an indorser validly tenders payment and 4 unAustifiably refuses to do accept. 2010 2011! U Generally the courts regard this provision as e(clusive. he is not discharged> )!+ where the holder e(pressly reserves his right of recourse against the party secondarily liable. . . 1 2here the instrument is paid by a party secondarily liable thereon.ischarge by reason of ban*ruptcy !.5: VV:5L5 S5 -@ST /5 4. t. such as payment in due course by the ma*er. it is not discharged> but the party so paying it is remitted to his former rights as regard all prior parties. supported by valuable consideration and for a definite period !. conversely. the release of the accommodation ma*er or acceptor does not discharge the principal debtor through the latter occupies the position of a party secondarily liable on the instrument E0TENSION OF TIME U If the holder agrees to e(tend the time of payment./r5ed U E"#!.e indorsers /re disc. . and he may stri*e out his own and all subse3uent indorsements and against negotiate the instrument. the instrument is not discharged and he is subrogated to the rights of the payee. This will discharge the indorsers in the note.Chu. e(cept: )a+ 2here it is payable to the order of a third person and has been paid by the drawer> and )b+ 2here it was made or accepted for accommodation and has been paid by the party accommodated. APPLICATION OF SECTION 177 1.Layno. n absolute and unconditional renunciation of his rights against the principal debtor made at or after the maturity of the instrument discharges the instrument. as a complete codification of the law of discharge of secondary parties by the si( methods therein set forth ACTS THAT DISCHARGE INSTRUMENT U ny of the acts that will discharge an instrument under Section 11E will discharge a party secondarily liable thereon. renunciation must be in writing unless the instrument is delivered up to the person primarily liable thereon.t +&s. (2S A. Layno. it is avoided. 'L I-S T< T T<5 ' %'5LL TI. 2hen it is absolute and unconditional !. ..5% .% /5T255% 4: @. party who has authoriIed the material alteration #.cancellation made unintentionally or under a mista*e or without the authority of the holder. /ut when an instrument has been materially altered and is in the hands of a holder in due course not a party to the alteration. if the instrument is delivered to the person primarily liable. . e(cept as against a party who has himself made. :enunciationLact of surrendering a right or claim without recompense but it can be applied with e3ual propriety to the relin3uishing of a demand upon an agreement supported by a consideration FORM OF RENUNCIATION U It must be in writing and must be e(press U <owever. he may enforce payment thereof according to its original tenor.Reyes H.% 2<.Cancino. 2010 2011! !. party who has assented to the material alteration C. or any subse3uent indorser of the instrument VV%. I%%. /efore maturity !.% IS I%.ISTI%'TI.4 0:.Concepcion.Chu. the renunciation may be . burden of proof. authoriIed or assented the alteration.Avila.05: TI=5 S!#3 17?3 Alteration of instrument. (2S A. effect of2 1 2here a negotiable instrument is materially altered without the assent of all parties liable thereon.: L. fter maturity WHEN RENUNCIATION DISCHARGES INSTRUMENT 1. -ade at or after maturity S!#3 1743 Cancellation.% T<5 05:S.Y. 2hen made under mista*e #.'5%T LT5: TI. party who has made the material alteration !. RIGHTS OF ONE NOT HOLDER IN DUE COURSE U 2here an instrument has been materially altered. t maturity #.Prinsipe. erasures or burning It may be made by any other means by which the intention to cancel the instrument may be evident WHEN CANCELLATION IS INOPERATI6E 1.4 IS @0.Negotiable Instruments Law (Aquino and Agbayani Notes) 6! Abad. is inoperative but where an instrument or any signature thereon appears to have been cancelled. 2hen it is made in favor of the person primarily liable #.@L5%T %. obliterations. U U MEANING OF CANCELLATION Signifies not only the drawing of criss1cross lines but also tearing. ny subse3uent indorsers RIGHTS OF HOLDER IN DUE COURSE NOT A PARTY TO THE ALTERATION U <e may enforce the instrument in its original tenor U <e could recover the altered tenor to any party who has made. it is avoided in the hands of one who is not a holder in due course as against a prior party who has not assented to the alteration WHERE INSTRUMENT NOT A6OIDED AS TO HOLDER NOT IN DUE COURSE 1.Mercado. authoriIed.% RIGHT TO COLLECT ORIGINAL CONSIDERATION . or assented to the alteration and subse3uent indorsers. the burden of proof lies on the party who alleges that the cancellation was made unintentionally or under a mista*e or without authority. 2hen made unintentionally !. unintentional. TIME FOR MA/ING RENUNCIATION 1. 2hen made without the authority of the holder VV/@:. whether the time for payment is thereby curtailed or e(tended> )G+ n instrument is payable to $0%/&. .&> )H+ where there is a blan* for the place of payment. T<5 '.@%T .%: )1 +changing $I promise to pay& to $we promise to pay& where there are two ma*ers> )!+ adding the word $annual& after the interest clause> )#+ adding the date of maturity as a marginal notation> )C+filling in the date of actual delivery where the ma*ers of a note gave it with the date in blan*.Avila.LL5'TI%G / %9S S!#3 17@3 What constitutes a material alteration.5/IT5.Y. or any other change or addition which alters the effect of the instrument in any respect. /.%: )1+ substituting the words $or bearer& for $order&> )!+ writing $protest waived& above blan* indorsements> )#+ a change in the date from which interest is to run> )C+ adding the words $with interest& with or without a fi(ed rate> )H+an alteration in the maturity of a note. the plaintiff added the word $-arion&> )B+ stri*ing out the name of the payee and substituting that of the person who actually discounted the note U 5(amples of I-.Prinsipe.Layno.@%T.Mercado.r which adds a place of payment where no place of payment is specified. 2IT< '.Concepcion. VV/ %9S :5 /.4 LT5: TI.@%. the ban* itself being free from negligence. WHEN ALTERATION IS MATERIAL U If it alters the effect of the instrument U 5(amples of . : )a+ The date> )b+ The sum payable. (2S A.S LT5:5. the holder may recover the original consideration NN2<5:5 .%L. $AulyR.: 255 / %9 0 .% .Negotiable Instruments Law (Aquino and Agbayani Notes) 6" Abad.@: 'L5 :I%G <.T5:I L LT5: TI. < =5 <IS ''.Chu.T5:I L LT5: TI.@:S .@%T . the payment of forged or altered chec*s by it is made at its peril and cannot be charged against the depositors account @%L5SS some negligent act or misconduct of his has contributed to induce such payment. -@ST %. T<5 !C1<.: 25: < S T<5 :IG<T T.TI4.::5'T -. -. 2010 2011! U 2hen the alteration wasnMt fraudulently done.@S5 :@L5 2IT<I% !C <.Reyes H. is a material alteration. filling in the blan* with the place desired . U s between the ban* and its depositors.Cancino. either for principal or interest> )c+ The time or place of payment: )d+ The number or the relations of the parties> ny alteration which changes: )e+ The medium or currency in which payment is to be made> )f+ .4 '<5'9S %. o /re 0erc. Gener/3 Ru3e: -inors may not engage in commerce Exceptions: 1. C+11!(# %* t(%&s%#t +&s 7 those entered into by merchants to pursue activities as merchants M!(#$%&ts H one whose business is buying and selling goods for profit> a person or entity that holds itself out as having e(pertise peculiar to the goods in which it deals. 2hen the minor continues the business of his parents or predecessors through a guardian !.Concepcion.Layno. -ust be at least 1F years old ): GF"E+ C. Abs+*ut!*2 D s9u%* . with intent to gain. habitually devote themselves to it !. B3 1. 2ith legal capacity to engage in commerce C. #.Reyes H.Prinsipe. 2010 2011! # CHAPTER 17 LETTERS OF CREDIT AND TRUST RECEIPTS LETTER OF CREDIT C+11!(#! H branch of human activity the purpose of which is to bring products to the consumer by means of e(changes or operations which tend to supply and e(tend them to him. !) 0ersons suffering the penalty of civil interdiction 0ersons declared as ban*rupt 0ersons dis3ualified by special laws or provisions R!*%t =!*2 D s9u%* .Chu./ntsF AArt219 'ode o4 'o00erceB 1.Avila. -ust have free disposition of his property Filipino association 1. % 1!(#$%&t: Filipino indi idual Legal capacity to engage in commerce <abitually engages himself therein • single act of a party or person may be considered a habitual act. !) & !&'%' &' & #+11!(# %* t(%&s%#t +&s A3 1. habitually. and officials of the department of public prosecutors in actual service . and in good 3uality and 3uantity. Those who having capacity to engage in commerce. !. <abitually engaged therein Ru*! +& M &+(s 1. !. and is therefore held by the law to a higher standard than a consumer or other non1merchant is held W.Negotiable Instruments Law (Aquino and Agbayani Notes) Abad. 'reated in accordance with e(isting legislations #. !) Kustices of the S'. 'ommercial or industrial companies which may be created in accordance with e(isting legislation Ess!&t %* (!9u s t!s +. Investment in stoc*s of a corporation • minor at least B years old may open a ban* savings account or time deposit and withdraw the same without assistance of his parent or guardian )0. 'ommercial or industrial company !. at the proper time and place. B#C+ P!(s+&s ) s9u%* . (2S A.Y. #.Mercado. Audges.Cancino. . G.Concepcion.Cancino.Y. whether compatible or not with those of the new sovereign are automatically abrogated. appointed by the government Stoc* or bro*ers of any class Those who by virtue of laws or special provisions. =ice10resident. dis3ualification should be considered to have since lost its legal and binding force on Audges. F.Layno.Avila. dministrative. suncion. Serrano+ one wherein the ban* merely substitutes its own promise to pay for the promise to pay of one of its customers who in return promises to pay the ban* the amount of funds mentioned in the letter of credit plus credit or commitment fees mutually agreed upon 6 Not favored by Dean Sundiang . H. 1C of the 'ode of 'ommerce )a Spanish law+ providing for the relative dis3ualification of Audges is political in nature as it regulates the relationship between the government and certain public officers and employees li*e Austices and Audges. This is so since while Sec. economic or military heads of districts. Supreme 'ourt and the 'onstitutional 'ommission. @pon the transfer of sovereignty from Spain to @S and later on @S to 0hilippines. 1C of the 'ode of 'ommerce had already been abrogated as ruled in -acariola v.Mercado. the 'ode of Kudicial 'onduct which too* effect on . 1EFE. political laws of the former sovereign. B. C(!) t a letter issued by one merchant to another for purpose of attending to a commercial transaction ) rt. said provision must be deemed abrogated because where there is change of sovereignty. There being no e(plicit re1enactment by the new sovereign. 2010 2011! !.Prinsipe. C. refrained Audges from entering into financial and business dealings that tend to reflect adversity o the court6s impartiality. HGB.mbudsman with respect to any loan. L!tt!( +.Chu. E.ctober !". 'ongress. members of the 'abinet. 'ode of 'ommerce+G !odern concepts: an engagement by a ban* or other person made at the re3uest of a customer that the issuer will honor drafts or other demands for payment upon compliance with th conditions specified in the credit )0rudential /an* v. provinces or posts 5mployees engaged in the collection and administration of public funds of the State. L+s! B!( & =3 Lu)'! F!* "b!(t+ B%(t!: The 'ourt ruled that /arte committed an impropriety in acting as a bro*er in the sale of a real estate. (2S A.Negotiable Instruments Law (Aquino and Agbayani Notes) Abad.Reyes H. guaranty or other form of financial accommodation for any business purpose by any government1owned or controlled ban* to them 1 C+11!(# %* #+&t(%#t H an agreement between two or more merchants or non1 merchants binding themselves to give or to do something in commercial transactions M%#%( +*% =3 Asu&# +&: rt. the 'ourt ruled in the said case that there was no violation of the said rule when suncion associated himself with a company as a stoc*holder while being concurrently a '4I Audge. I '> /an* of 'ommerce v. may engage in commerce in a determinate territory -embers of 'ongress 0resident. =ice10resident. #. members of 'abinet and their deputies or assistants -embers of 'onstitutional 'ommission 0resident. <ence. /an* )issuing?opening+ 7 underta*es to pay the seller upon receipt of the draft and proper documents of title and to surrender the documents to buyer upon reimbursement #.Y. 'ontract between buyer and seller governed by the contract of sale e(ecuted by them 'ontract between issuing ban* and buyer governed by the terms of application and agreement for the issuance of letter of credit 7 8 Definition of Dean Relationship bet een notifiying ban! and issuing ban!: agency .Reyes H. but within a ma(imum the limits of which has to be stated e(actly W$!& )+!s t$! *!tt!( +. wit. /uyer 7 procures the letter of credit and obliges himself to reimburse the issuing ban* upon receipt of the documents of title !. 'ode of 'ommerce+ if the bearer of a letter of credit does not ma*e use of it within the period agreed upon with the drawer • If there is no period stipulated.Concepcion. !. #(!) t: ) rt. 'ode of 'ommerce+ 1. 2010 2011! one issued by a ban* in order to aid a person who may not have a capital for the importation of goods and merchandiseB a re3uest by one ban* )addressed usually to another ban*+ to advance money or credit to a third person.s G outside the 0hilippines B%s # .Mercado.%(t !s t+ % *!tt!( +. upon fulfillment of certain conditions.Layno. to be issued in favor of a definite person and not to order to be limited to a fi(ed and specified amount or to one or more undetermined amounts. #(!) t 1.Negotiable Instruments Law (Aquino and Agbayani Notes) Abad.Cancino. Seller )payee?beneficiary+ 7 who in compliance with the contract of sale ships the goods to the buyer and delivers the documents of title and draft to the issuing ban* to recover payment "ther parties: • 0aying ban* 7 ban* on which the drafts are to be drawn • 'onfirming ban* 7 notifies the beneficiary.in 1& 0ont. usually by the latter on the promise of the issuer ban* to repay the same> issuer in turn loo* for the person applying for the same for satisfaction 2 C+&) t +&s +.s counted from the date 7 in any point in the 0hilippines wit.Chu. #(!) t b!#+1! =+ ) ) rt. #(!) t 1. HGF.Avila. !.Prinsipe.in six 0ont. HB!. (2S A. assumes no liability e(cept to notify and?or transmit to the beneficiary the e(istence of a letter of credit. chec* authenticity of creditF • %egotiating ban* 7 correspondent ban* which buys or discounts a draft under the letter of credit> liability is dependent upon the stage of negotiation "e4ore ne5oti/tion 7 no liability to seller A4ter ne5oti/tion G has contractual relationship with seller T$(!! #+&t(%#ts & % *!tt!( +. assumes the direct obligation to the seller> has primary liability • %otifying ban* 7 correspondent ban* of the issuing ban*. % *!tt!( +. Cancino. L!tt!( +. !.e. in determining compliance with the terms of a letter of credit is re3uired to e(amine only the shipping documents presented by the seller and is precluded from determining whether the main contract is actually accomplished or not assures the seller of prompt payment independent of any breach of the main sales contract the contract of sale between buyer and seller is independent from the letter of credit itself> the issuing ban* need only to determine the tender documents presented by seller and has the obligation to pay upon compliance with the terms of the letter of credit wor*s to the benefit of both issuing ban* and beneficiary?seller Ru*! +.Negotiable Instruments Law (Aquino and Agbayani Notes) Abad.Avila.Prinsipe.t +&: e(ists when the beneficiary for the purpose of drawing on the credit.*! a ban*. There is clear proof of fraud 4raud constitutes fraudulent abuse of the independent purpose of the letter of credit and not only fraud under the main agreement Irreparable inAury might follow if inAunction is not granted or recovery of damages would seriously be damaged 3 / &)s +. (2S A. 'onfirmed letter of credit 7 whenever beneficiary stipulates that the obligation of the opening ban* shall also be made the obligation of a ban* to himself @nconfirmed letter of credit 7 obligation only of the issuing ban* Irrevocable letter of credit 7 obligates the issuing ban* to honor drafts drawn in compliance with the credit and can neither be cancelled nor modified without the consent of all parties including in particular the beneficiary?e(porter :evocable letter of credit 7 can be cancelled at anytime before payment> intended to serve as a means of arranging payment but not as a guarantee of payment :evolving letter of credit 7 valid for several transactions over a given period of time such as a wee* or month %on1revolving letter of credit 7 one that is valid for one transaction only TRUST RECEIPTS LAW . G. H.!&)!&#! P( &# . fraudulently presents to the confirming ban* documents that contain e(pressly or by implication material representations of fact that to his *nowledge are untrue e44ect: court may issue inAunction to bar payment by the issuing ban* require0ents o4 inEunction: a.Concepcion. 'ontract between issuing ban* and seller Governed by the terms of the letter of credit itself I&)!. c.Chu. 2010 2011! #. C(!) t 1. #.* %&#! the documents tendered by the seller or beneficiary must strictly conform to the terms of the letter of credit. b. they must include all documents re3uired by the letter of credit F(%u) !"#!.Mercado.Layno.Y. C.Reyes H. st( #t #+1. i. documents. To cancel the trust in case the entrustee defaults. releases the same to the possession of the entrustee upon the latter6s e(ecution and delivery to the entruster of a trust receipt wherein the entrustee binds himself to hold the specified goods. P%(t !s t+ % t(ust (!#! . 4 Purposes: A!ection &B 1. !. /uyer as entruster is obligated to sell the goods and to apply the proceeds thereof to the payment of the loan e(tended by the entruster1ban*. #. To receive the proceeds of the sale of the goods. (2S A. ta*e possession of the goods.t t(%&s%#t +& transaction between an entruster and entrustee whereby the entruster. documents or instruments and sell the same at public or private sale Ob* '%t +&s +. buyer will only get the balance of the proceeds of the sale after ma*ing such application.Negotiable Instruments Law (Aquino and Agbayani Notes) Abad. To encourage and promote the use of trust receipts as an additional and convenient aid to commerce and trade To regulate trust receipt transactions in order to assure the protection of rights and the enforcement of the obligations of the parties involved therein To declare the misuse and?or misappropriation of goods or the proceeds realiIed from the sale of goods. To the return of the said goods. documents or instruments released under trust receipts as a criminal offense punishable under rt.Y.Cancino.B+ 1. 2010 2011! T(ust R!#! . t$! !&t(ust!! A!ec2?B 1. documents. who owns or holds absolute title or security interests over certain specified goods.Concepcion. documents or instruments in case they could not be sold #. The goods will in effect be released by the ban* to the buyer by the delivery of the documents of title or bill of lading covering the goods.t t(%&s%#t +&: A!ec2)9 P 1.ts L%. t$! !&t(ust!(: )Sec. 11-B 5ntrustee 7 person having or ta*ing possession of goods.Avila. instruments under a trust receipt transaction and any successor1in1interest of such person 5ntruster 7 person holding title over the goods.#1H of the :0' T(ust (!#! . documents or instruments. documents. documents or instruments in trust for the entruster and to dispose of them strictly in accordance with the terms of the trust receipt . !. documents.Reyes H. To $+*) the goods. or instruments subAect of a trust receipt transaction and any successor1in1interest of such person R '$ts +. documents or instruments released under a trust receipt to the entrustee to the e(tent of the amount owing to the entruster !.Chu. or instruments with the obligation to turn over to the entruster the proceeds thereof to the e(tent of the amount owing to the entruster or the goods. or instruments themselves if they are unsold and not otherwise disposed of.(PD 11@) /an* becomes entruster of the goods while the buyer1importer is the entrustee.Prinsipe.Mercado.Layno. documents or instruments in trust 3.Reyes H.Avila.Layno. documents. (2S A.Negotiable Instruments Law (Aquino and Agbayani Notes) Abad. the goods.Y. theft.Prinsipe.Chu. or instruments to the entruster in case they could not be sold or upon demand of the entruster To +bs!(=! all other terms and conditions of the trust receipt 5 . pilferage or other casualties To :!!. for the entruster and to turn over the same to the entruster to the e(tent of the amount owing to the entruster To i&su(! the goods for their total value against loss from fire.Concepcion. 4. To (!#! =! the proceeds of the sale of the goods. 5. 2010 2011! 2. separate and capable of identification as property of the entruster To (!tu(& the goods.Cancino. documents or instruments or the proceeds thereof whether in money or whatever form.Mercado. 6.