Nego Reviewer.pdf

8/14/2019 Nego Reviewer.pdf

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Negotiable Instruments Law (Aquino and Agbayani Notes)Abad.Avila.Cancino.Concepcion.Chu.Layno.Mercado.Prinsipe.Reyes H. (2S A.Y.

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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 passesfrom one person to another as money, in such a manner as to give the holder in due course the right tohold the instrument free from defenses available to prior parties. The instrument must comply withSection 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Impliedly repealed the 'ode of 'ommerce e(cept on provisions that are not inconsistent with the%IL )e.g. rule on crossed chec*s+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. Subst tut! for -oney2. -edium of E"#$%&'!3. 'redit instrument which increases # ! t # #u*%t +&4. Increases the ,u #$%s &' ,+ ! in circulation5. 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 debtremain in force.

%egotiable instruments are not legal tender. nly notes and coins issued by the /S0 are considered legaltender.

'hec*s are declared by law not to be legal tender and creditors cannot be compelled to accept chec*s inpayment 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:

. %egotiabilityllows negotiable instruments to be transferred from one person to another so as to constitute the

transferor a holder )a holder in due course+.Such feature gives the negotiable instrument freedom as substitute for money.

/. ccumulation of Secondary 'ontracts

2hen negotiable instruments are transferred through negotiation, secondary contracts areaccumulated because the indorsers become secondarily liable not only to their immediatetransferees but also to any holder. It thus provides for greater security in dealing with suchinstruments.


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/INDS OF NEGOTIABLE INSTRUMENTS

B ** +. E"#$%&'! : an unconditional order in writing, addressed by one person to another, signed by theperson giving it, re3uiring the person to whom it is addressed to pay on demand or at a fi(ed ordeterminable 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 ofgoods.-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 CHEC/%ot drawn on deposit. It is not necessary that thedrawer of a / 5 should have funds in the hands ofthe drawee.

It is necessary that a chec* is drawn on a deposit.therwise, there would be fraud.

eath of the drawer of a / 5 with the *nowledge ofthe ban*, does not revo*e the authority of the

ban*er to pay.

eath of the drawer of a chec*, with the*nowledge by the ban*, revo*es the authority of

the ban*er to pay.-ay be presented for payment within a reasonabletime after its last negotiation.

-ust be presented for payment within areasonable time after its issue.

P + ss+ 2 N+t!s: negotiable promissory note is an unconditional promise in writing made by oneperson to another, signed by the ma*er, engaging to pay on demand or at a fi(ed determinable futuretime, a sum certain in money to order or to bearer. 2here a note is drawn to the ma*er6s own order, it isnot complete until it is indorsed by him.

ean Sundiang: when the situation contemplated in the last sentence occurs, the person who signsassumes to personalities 7 both as a ma*er and as an indorser. In what capacity is he then liable8 In suchcase, he becomes liable as a ma*er. The re3uirement of having to indorse does not deviate his verycapacity as the ma*er of the instrument. 4urthermore, the ma*er has a more onerous liability comparedto 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 BILL OF E0CHANGE'ontains an unconditionalpromise.

'ontains an unconditionalorder.

There are ! parties on itsface

There are # parties on itsface.

The person who signs it isthe - 95 .

The person who signs it isthe 25

The person who signs it is0 I- IL; LI /L5

The person who signs it isS5' % IL; LI /L5

The person primarilyliable is the ma*er

The person primarily liableis the 255 ''50T

There is only onepresentment: forpayment.

There are !presentments:

1. 4or acceptance!. 4or payment


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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.!. only an assignee. lldefenses 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 fromdrawer 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!&t !&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 Sundiang+.6. D s$+&+ b2 &+&-%##!,t%! : refusal to accept by the drawee.

. P !s!&t !&t .+ ,%2 !&t : the instrument is shown to the ma*er or drawee?acceptor so thatthe ma*er or drawee?acceptor will pay.

!. D s$+&+ b2 &+&-,%2 !&t: refusal to pay by the ma*er or drawee?acceptor". N+t #! +. D s$+&+ : 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!st3113 D s#$% '!3

CHAPTER 7: N!'+t %b * t2

e3uisites of %egotiability )Section 1, %IL+

Keyword: WUPOA


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1. It must be in t &' and signed by the ma*er?drawer>2. It must contain an u+& t +&%* promise or order to pay a sum certain in money>3. It must be ,%2%b*! on demand, or at a fi(ed or determinable future time>4. It must be payable to + ! + b!% ! >5. 2here the instrument is % !ss! to a drawee, he must be named or otherwise indicated

therein with reasonable certainty.

HOW NEGOTIABILITY IS DETERMINED:

1. The whole instrument shall be considered>!. nly what appears on the face in the instrument shall be considered>#. The provisions of %IL, especially Section 1 thereof shall be applied.

cceptance

cceptance of an instrument is not important in the determination of its negotiability. The nature ofacceptance is important only in the determination of the liabilities of the parties involved.

Indorsement

The negotiability of an instrument is not affected by the indorsement placed therein.

EFFECT OF ESTOPPEL

RE8UISITE OF NEGOTIABILITY

Requisite #1: IN WRITING AN !IGNE " T$E %AKER OR T$E RAWER

It must be in writing. It may be printed, in in* or in pencil, and it may be written in any materialthat substitutes paper li*e cloth, leather, or parchment.Signed: mar*ed by any means as long as they are adopted as the signature of the signer.

Requisite #&: IT %U!T 'ONTAIN AN UN'ON ITIONA( PRO%I!E OR OR ER TO PA A !U% 'ERTAIN IN%ONE

@nconditional 0ayment? rder

The promise in a promissory note is the underta*ing made by the ma*er to pay a sum certain in money tothe payee or the holder. The order in a bill is a command made by the drawer addressed to the draweeordering the latter to pay the payee or the holder a sum certain in money.

The word $promise& or $order& need not appear to satisfy the re3uirements of Section 1)b+ of %IL.The promise or order must be unconditional. n un3ualified order or promise to pay isunconditional within the meaning of %IL although it is coupled with )Sec. #, %IL+:

1. n indication of a particular fund out of which reimbursement is to be made or a particularaccount to be debited with the amount.

!. statement of the transaction which gives rise to the instrument.'onditional )therefore not negotiable+:

1. n order or promise to pay out of a particular fund 7 in this case, payment shall be subAectto the availability or sufficiency of funds.

!. n instrument payable upon a contingency.

Indication of a 0articular 4und for 0ayment vs. 4und for eimbursement


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Fu& F+R! bu s! !&t

Fu& .+ P%2 !&t

The drawee pays thepayee from his own

funds> afterwards, thedrawee pays himself fromthe particular fundindicated

There is only one act: thedrawee pays directly from

the particular fundindicated.

0articular fund indicated isnot the direct source ofpayment.

0articular fund indicated isthe direct source ofpayment.

Sum 'ertain in -oney

-oney need not be legal tender. n instrument is still negotiable although the amount to be paidis e(pressed in currency that is not legal tender, so long as it is e(pressed in - %5;.If the obligor li*e the ma*er is given the option to deliver something in lieu of money, then theinstrument is not negotiable.

If the instrument gives the holder an election to re3uire something to be done in lieu of paymentin money, the instrument is still negotiable.

S@- '5 T I%: If the amount that is to be unconditionally paid by the ma*er or drawee can bedetermined from the face of the instrument even if it re3uires mathematical computation.Section !: sum is certain although it is to be paid

a+ with interest> orb+ by stated installments> orc+ by stated installments, with a provision that upon default in payment of any installment or

of interest, the whole obligation shall become due> ord+ with e(change, whether at a fi(ed rate or at a current rate> ore+ with costs of collection or an attorney6s fee, in payment shall not be made upon maturity.

Stated Installments: the dates of each installment must be fi(ed or at least determinable and theamount to be paid for each installment must be stated.

Requisite #): PA A"(E ON E%AN OR AT A *I+E OR ETER%INA"(E *UTURE TI%E

3uino: an instrument is not negotiable if the maturity date of an instrument is not certain.

0ayable on emand

2hen an instrument is payable on demand, the persons liable may be re3uired to pay at %;TI-5 beforethe holder may so re3uest.

2hen 0ayable on emand )Section B+:1. 2hen it is e(pressed so to be payable on demand, or at sight, or on presentation>!. In which no time for payment is e(pressed.

Sundiang ) n $at sight&+: what if the drawee is blind8 It should not be ta*en literally.

0ayable at a determinable future

Section C: n instrument is payable at a determinable future time if it is e(pressed to be payable1. t a fi(ed period after date or sight>!. n or before a fi(ed or determinable future time specified therein>#. n or at a fi(ed period after the occurrence of a specified event which is certain to happen, though

the time of the happening be uncertain

'lauses that affect maturity of the instrument

1. cceleration clauses:


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The negotiability of the instrument is not affected even if it is to be paid by statedinstallments, with a provision that upon the default in payment of any installment or ofinterest, the whole shall become due.

uthorities seem 3uite uniform in holding that if the acceleration clause is dependent uponsome act or default of the ma*er, the rule against uncertainty of maturity is not violated.

!. Insecurity 'lauses:0rovisions in the contract which allow the holder to accelerate payment if $he deems himself insecure.&The instrument rendered is not negotiable.

The instrument is not negotiable because it is dependent upon the holder6s whims andcaprice without the fault of the ma*er. )Duery: can such instruments be consideredinstruments payable on demand, thus, not affecting the negotiability of the instrument8+

#. 5(tenion 'lausesn 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, or to e(tension to a further definite timeat the option of the ma*er or acceptor or automatically upon or after a specified act orevent.

Requisite #,: 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 re3uiresthat the instrument must be payable to order or to bearer.

The rule has always been that the instrument in order to be considered negotiable must contain the socalled $words of negotiability& 7 i.e. it must be payable to order or to bearer. These words serve as ane(pression of consent that the instrument may be transferred by negotiation.

/earer Instruments

2here the instrument is a bearer instrument, the person in possession can demand payment from the

person who are liable thereon.

Section E: n instrument is payable to bearer 7a+ 2hen it is e(pressed to be so payable> orb+ 2hen it is payable to a person named therein or bearer> orc+ 2hen it is payable to the order of a fictitious or non e(isting person, and such fact was *nown to

the person ma*ing it so payable> ord+ 2hen the name of the payee does not purport to be the name of any persone+ 2hen the only last indorsement is an indorsement in blan*.

4ictitious 0ayee ule :

n instrument is a bearer instrument if it is payable to the order of a fictitious or non e(isting person andsuch fact is *nown t the person ma*ing it so payable.

In a fictitious payee situation, the drawee ban* is absolved from liability and the drawer bears the loss.2hen faced with a chec* payable to a fictitious payee, it is treated as a bearer instrument that can benegotiated by delivery. The underlying theory is that one cannot e(pect a fictitious payee to negotiate thechec* by placing his indorsement thereon. nd since the ma*er *new this limitation, he must haveintended for the instrument to be negotiated by mere delivery. Thus, in case of controversy, the drawer ofthe chec* will bear the loss.

The burden of proving that the instrument is payable to a fictitious payee rests on the person ma*ing suchallegation.

5(ception to 4ictitious 0ayee ule: showing of commercial bad faith on the part of the drawee ban*, orany transferee of the chec* for that matter, will wor* to strip it of this defense. There is a commercial bad


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faith applicable when the transferee acts dishonestly 7 where it has actual *nowledge of the facts andcircumstances that amount to bad faith, thus itself becoming a participant to the fraudulent scheme.

rder Instruments

Section F. The instrument is payable to order where it is drawn payable to the order of a specified personor to him or his order. It may be drawn payable to the order of:

a+ payee who is not ma*er, drawer, or drawee> orb+ The drawer or ma*er> orc+ The drawee> ord+ Two or more payees Aointly> ore+ ne or some of several payees> orf+ The holder of an office for the time being.

Requisite #-: I ENTI*I'ATION O* T$E RAWEE

2here the instrument is addressed to a drawee, he must be named or otherwise indicated therein withreasonable certainty. The holder must *now to whom he should present it for acceptance and?or forpayment, otherwise, the purpose of negotiable instrument as a tool in commercial dealings will be greatlyhampered.

bill may be addressed to more than one drawee Aointly, whether they are partners or not> but not to twoor more drawees in the alternative or in succession, )Sec. 1!F+.

OMISSIONS AND PRO6ISIONS THAT DO NOT AFFECT NEGOTIABILITY

Section . missions> seal> particular money. The validity and negotiable character of an instrument arenot affected by the fact that:it is not dated> or

a+ does not specify the value given, or that any value had been given therefor> orb+ does not specify the place where it is drawn or the place where it is payable> orc+ bears a seal> ord+ designates a particular *ind of current money in which payment is to be made.

The instrument is still negotiable if it is not dated. It should be noted, however, that there are cases wherethe date of the instrument is necessary and in the absence thereof can be inserted in the instrument.

Section 1#. W.en d/te 0/y e inserted2 2here an instrument e(pressed to be payable at a fi(ed periodafter date is issued undated, or where the acceptance of an instrument payable at a fi(ed period aftersight is undated, any holder may insert therein the true date of issue or acceptance, and the instrumentshall be payable accordingly. The insertion of a wrong date does not avoid the instrument in the hands ofa subse3uent holder in due course> but as to him, the date so inserted is to be regarded as the true date.

ther additional provisions that do not affect the negotiability of an instrument:

Sec. H. dditional provisions not affecting negotiability. n instrument which contains an order orpromise to do any act in addition to the payment of money is not negotiable. /ut the negotiable characterof an instrument otherwise negotiable is not affected by a provision which:

a+ authori es the sale of collateral securities in case the instrument be not paid at maturity> orb+ authori es a confession of Audgment if the instrument be not paid at maturity> orc+ waives the benefit of any law intended for the advantage or protection of the obligor> ord+ gives the holder an election to re3uire something to be done in lieu of payment of money.

/ut nothing in this section shall validate any provision or stipulation otherwise illegal.


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RELATED PRO6ISIONS: (AGBAYANI COMMENTARY)

S!#t +& 13 F+ +. &!'+t %b*! &st u !&ts3 - A& &st u !&t t+ b! &!'+t %b*! ust #+&.+ t+ t$! .+**+ &'!9u ! !&ts:

(%) It ust b! & t &' %& s '&! b2 t$! % ! + % ! ;

There must be a writing of some *ind for if the instrument were not in writing there would nothing to benegotiated or to pass from hand to hand.

It may be in in*, print or pencil on a parchment, 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.

2here the name is not signed the holder must prove that what is written is intended as a signatureof theperson sought to be charged.

Signature may be printed, typewritten, stamped, engraved, photographed or lithographed> but in every casethere must be a showing that the party have adopted and used such signature.

2here signature found: location of signature is not material what is important is that it appears therefrom thatthe person intended to ma*e it his own.

(b) Must #+&t% & %& u+& t +&%* , + s! + + ! t+ ,%2 % su #! t% & & +&!2;

B ** +. !"#$%&'!

bill must contain an order to pay, a bill is an instrument demanding a right.

The word order may not necessarily be used, any words e3uivalent may suffice to ma*e an instrument a bill ofe(change.

-ere authori ation to pay is not a negotiable instrument.

mere re3uest to pay is not a negotiable instrument.

P + ss+ 2 &+t!

The promise to pay must be in the instrument itself although it is not necessary to use the word promise.

It is enough that )1+ words of e3uivalent meaning are used or )!+ the promise is implied from promissorywords contained in the instrument.

%ote: the promise to pay cannot be implied from the e(istence of a debt.

2ords e3uivalent to promise: agree, will pay, shall pay and the li*e.

U+& t +&%* , + s! + + ! t+ ,%2

0romise or order must not be subAect to any condition.

rt. 11BE a condition is a 1+ a future event that may or may not happen !+ a past event un*nown to theparties.

Su ,%2%b*! ust b! !. & t! %& #! t% &

mount of money to be paid must be determinable by inspection and must be stated plainly in the face of theinstrument.

Li*e the denomination of money it must be stated in the body of the instrument.


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ll that is re3uired is that the principal should be certain.

Sum payable must be in money only. /onds, stoc*s, state paper, scrip, chec*s, foreign bills are not negotiable.

eason why %I should be in money: money is the one standard of value in actual business. ll othercommodities may rise and fall in value but in theory, at least, money measures this rise and fall and remainsthe same.

(#) Must b! ,%2%b*! +& ! %& < + %t % . "! + !t! &%b*! .utu ! t !;

( ) Must b! ,%2%b*! t+ + ! + t+ b!% ! ; %&

the words order or bearer are usually referred as words of negotiability.

n instrument is not negotiable unless made payable to a person or his order or to bearer unless words ofsimilar import is used such as assigns, assignees or holder.

(!) W$! ! t$! &st u !&t s % !ss! t+ % % !!< $! ust b! &% ! + +t$! s! & #%t! t$! ! & t$!%s+&%b*! #! t% &t23

This re3uierement refers only to a bill of e(chang.

@nder section 1C drawee6s name may be omitted and be filled in under implied authority li*e any other blan*.nd an acceptance may supply the omission of a designation.

N+t!s

The formalities re3uired by the %I are essential for the security of mercantile transactions. They distinguish thenegotiable from non negotiable.

2here the instrument does not comply with the re3uirement of section 1 of the negotiable instruments law,the provision of the %IL will not govern.


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The sum payable is a sum certain within the meaning of this act although it is to be paid by instalments, withthe provision that upon default in payment of instalment or of interest the whole shall be due.

The sum payable is a sum certain within the meaning of this act, although it is to be paid with e(changewhether at a fi(ed rate or at a current rate.

5(change between two places at a particular date is a matter of common commercial *nowledge, or at leasteasily ascertained by any one so that the parties can always without difficulty ascertain the e(act amountnecessary to discharge the paper.

Gregorio araneta I%'. v. 0%/: held: although the plaintiff6s application provides for payment at maturity of thedraft this refers merely to the time when the plaintiff was bound to pay , and not to the rate of e(change atwhich the draft should be paid by the plaintiff swince the latter6s obligation is determined by the rate ofe(change von the date the drafts was drawn and presented or negotiated which was not later than ug. #11ECE((((. 0laintiff appellant invo*es an alleged ban*ing practice, custom or practice whereby drafts should bepaid at the rate e(isting on the date of its maturity. 5ven assuming the e(istence of this practice, the same isclearly immaterial for they have an e(press contract between the parties defining their rights andobligation.

(#) b2 st%t! &st%** !&ts< t$ % , += s +& t$%t< u,+& !.%u*t & ,%2 !&t +. %&2 &st%** !&t + +. &t! !sts .!!< & #%s! ,%2 !&t s$%** &+t b! % ! %t %tu t23

N+t!: after the date of maturity the instrument will no longer be negotiable in the full commercial sense that is in thesense that any transferee ac3uiring it would ac3uire the instrument after it is overdue. The transferee will not beconsidered a holder in due course and hold the instrument subAect to the defences as if it was non negotiable.

tty. 4ee must be reasonable. The written amount shall govern unless the court founds it unreasonable andunconscionable.

tty. 4ees non recoverable subAect to some e(ceptions provided by law.

S!#3 43W$!& , + s! s u+& t +&%*3 - A& u&9u%* . ! + ! + , + s! t+ ,%2 s u+& t +&%* t$ & t$!!%& &' +. t$ s A#t t$+u'$ #+u,*! t$:

(%) A& & #%t +& +. % ,% t #u*% .u& +ut +. $ #$ ! bu s! !&t s t+ b! % ! + % ,% t #u*% %##+u&t t+b! !b t! t$ t$! % +u&t; +

The problem which is sought to be solved by this section is whether or not the indication of a particular fund orparticular account or the statement of the transactions which gives rise to the instrument would ma*e promiseor order conditional.

n order or promise to pay out of a particular fund is not unconditional but if the order or promise is coupledonly by a source where reimbursement in case of non payment it is still unconditional.

2here the payment is out from the funds indicated, the payment is subAect to the condition that the fundsindicated is sufficient.

(b) A st%t! !&t +. t$! t %&s%#t +& $ #$ ' =!s s! t+ t$! &st u !&t3

Instruments are not issuede without any transactions which they are based.

2here the promise or order is made subAect to the terms and conditions of the transaction stated theinstrument is rendered non negotiable.

But %& + ! + , + s! t+ ,%2 +ut +. % ,% t #u*% .u& s &+t u+& t +&%*3

S!#3 3 D!t! &%b*! .utu ! t !; $%t #+&st tut!s3 - A& &st u !&t s ,%2%b*! %t % !t! &%b*! .utu !t !< t$ & t$! !%& &' +. t$ s A#t< $ #$ s !", !ss! t+ b! ,%2%b*!:


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(%) At % . "! ,! + %.t! %t! + s '$t; +

n instrument is payable at a determinable future time within the meaning of this act, which is e(pressed tobe payable at a fi(ed period after date or after sight.

fter sight means after the drawee has seen the instrument upon presentment for acceptance.

(b) O& + b!.+ ! % . "! + !t! &%b*! .utu ! t ! s,!# . ! t$! ! &; +

A##!*! %t +& #*%us!: these provisions ma*e it possible for the ma*er to pay the instrument at an earlier dateor ma*e it possible for the holder to re3uire payment of the instrument at an earlier date.

/ & s: 1+ that which contain acceleration clauses on the ma*er6s default in payment of instalments or ofinterest or on the happening of the e(trinsic event> !+ or contain in notes secured by collateral a provisionthat the ma*er shall supply additional collateral in case of depreciation in the value of the original depositswith 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.

C+&.* #t &' +, & +& %s t+ t$! s!#+& : 1) those who maintained that such stipulation renders theinstrument non negotiable argue that the time for payment becomes uncertain and indefinite. If the ma*erfails when demanded to furnish additional security to the satisfaction of the holder, the note matures at once.If the holder is not satisfied with the additional security the note matures at once and thus the time at whichit may mature would depend upon the time at which the holder declared himself dissatisfied with the securitydelivered by the ma*er 3 7) Those who maintain that the stipulation in 3uestion does not render theinstrument non negotiable. This view is from the standpoint of e(pediency as encouraging circulation and ofbusiness custom on account of their common acceptance by the commercial world such clauses should beinterpreted as not affecting negotiability.

C+&.* #t +. +, & +& %s t+ t$ : 1) t $%s b!!& $!* t$%t % &+t! s !& ! ! &+&-&!'+t %b*! $! ! t s,%2%b*! %t % . "! .utu ! t !< but t$ %& +,t +& +& t$! ,% t +. t$! $+* ! t+ !#*% ! t u! %&,%2%b*! b!.+ ! %tu t2 $!&!=! $! !! s t &s!#u !; 7) t s sub tt! t$%t t$!s! #%s!s &$+* &' %& &st u !&t ,%2%b*! %t % . "! t ! but %##!*! %b*! %t t$! +,t +& +. t$! ,%2!! + $+* !&+&-&!'+t %b*! % ! !#t*2 #+&t % 2 t+ t$! ,*% & !%& &' +. t$ s s!#t +&3

(#) O& + %t % . "! ,! + %.t! t$! +##u !! +. % s,!# . ! !=!&t $ #$ s #! t% & t+ $%,,!&< t$+u'$ t$!t ! +. $%,,!& &' b! u! t% &3

A& &st u !&t ,%2%b*! u,+& % #+&t &'! s &+t &!'+t %b*!< %& t$! $%,,!& &' +. t$! !=!&t +!s &+t #u !t$! !.!#t3

S!#3 @3 A t +&%* , += s +&s &+t %..!#t &' &!'+t %b * t23 - A& &st u !&t $ #$ #+&t% &s %& + ! + , + s!t+ + %&2 %#t & % t +& t+ t$! ,%2 !&t +. +&!2 s &+t &!'+t %b*!3 But t$! &!'+t %b*! #$% %#t! +. %&

&st u !&t +t$! s! &!'+t %b*! s &+t %..!#t! b2 % , += s +& $ #$:

(%) %ut$+ !s t$! s%*! +. #+**%t! %* s!#u t !s & #%s! t$! &st u !&t b! &+t ,% %t %tu t2; +

a promise of the ma*er to furnishadditional collateral will render the note non negotiable, as that would be anadditional act to promise to pay money.

(b) %ut$+ !s % #+&.!ss +& +. u ' !&t . t$! &st u !&t b! &+t ,% %t %tu t2; +

'lasses of confession of Audgement: cognovits actionem a written confession of an action by a defendant,subscribed, but not sealed and irrevocably authori ing any attorney of any court of record to confess

Audgement and issue e(ecution usually for sum named

'onfession relicta verification confession of Audgement after plea has been entered.


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2arrant of attorney 7 an instrument in writing addressed to one or more attorneys named therein,authori ing them generally to appear in court or in some specified court on behalf of the person giving it, andto confess Audgement in favor of some particular person therein named in action debt.

'onfession of Audgement before maturity a note which contain a provision authori oing confession of Audgement at any time thereafter, whether due or not is not negotiable.

%ote: confession of Audgement is void in the 0hilippines because: 1+ enlarge the field of fraud> !+ under thisinstrument the promissor bargains away hi right to a day in court> #+ effect is to stri*e down the right ofappeal.

(#) % =!s t$! b!&!. t +. %&2 *% &t!& ! .+ t$! % =%&t%'! + , +t!#t +& +. t$! +b* '+ ; +

( ) ' =!s t$! $+* ! %& !*!#t +& t+ !9u ! s+ !t$ &' t+ b! +&! & * !u +. ,%2 !&t +. +&!23

But &+t$ &' & t$ s s!#t +& s$%** =%* %t! %&2 , += s +& + st ,u*%t +& +t$! s! **!'%*3

S!#3 3O ss +&s; s!%*; ,% t #u*% +&!23 - T$! =%* t2 %& &!'+t %b*! #$% %#t! +. %& &st u !&t % ! &+t%..!#t! b2 t$! .%#t t$%t:

(%) t s &+t %t! ; +

gen rule: omission of date does not render the instrument non negotiable

e(p: when date is necessary to fi( date of maturity

(b) +!s &+t s,!# .2 t$! =%*u! ' =!&< + t$%t %&2 =%*u! $% b!!& ' =!& t$! !.+ ; +

'!& u*!: &+ =%*u! s,!# . ! +!s &+t %..!#t NI; R!%s+&: =%*u! s , !su !

(#) +!s &+t s,!# .2 t$! ,*%#! $! ! t s % & + t$! ,*%#! $! ! t s ,%2%b*!; +

( ) b!% s % s!%*; +

(!) !s '&%t!s % ,% t #u*% & +. #u !&t +&!2 & $ #$ ,%2 !&t s t+ b! % !3

But &+t$ &' & t$ s s!#t +& s$%** %*t! + !,!%* %&2 st%tut! !9u &' & #! t% & #%s!s t$! &%tu ! +. t$!#+&s ! %t +& t+ b! st%t! & t$! &st u !&t3

S!#3 3W$!& ,%2%b*! +& ! %& 3 - A& &st u !&t s ,%2%b*! +&

! %& :

(%) W$!& t s s+ !", !ss! t+ b! ,%2%b*! +& ! %& < + %t s '$t< + +& , !s!&t%t +&; +

(b) I& $ #$ &+ t ! .+ ,%2 !&t s !", !ss! 3

W$! ! %& &st u !&t s ssu! < %##!,t! < + & + s! $!& +=! u!< t s< %s !'% s t$! ,! s+& s+ ssu &' and )!+ it is easier to change the figures or to commit a mista*e in regards to them than when the sum iswritten out in words.

W$!& + s % b 'u+us3

when the words are ambiguous or uncertain, reference may be had to the figures to fi( the amount.

P%2 !&t +. &t! !st3

applies when interest is stipulated but the date when interest begins to be paid is not specified.

will earn interest from the date of the note or the date of its issue, at the legal rate.

I&st u !&t &+t %t! 3

if the instrument is date, will be presumed to be its true date.

the presumption is prima facie, or rebuttable between the parties.

proof may be adduced to show a different fate as to the true date of the issue, acceptance, or endorsement.

if the instrument is not dated, the date of its issue will considered its date.

it was held that an undated acceptance of an undated bill of e(change is payable on demand and will be considered tobe dated as of the time it is e(ecuted.

C+&.* #t b!t !!& tt!& %& , &t! , += s +&3

the handwritten words will prevail.

written words are deemed to e(press the true intention of the ma*er because they are written by himself and printedforms are printed without any particular contract in view.

I&st u !&t & % b 'u+us3

there is a drawee and acceptor.

the payee or the holder may treat it wither as a bill or note.

C%,%# t2 +. ,% t2 s '& &' &+t #*!% 3

deemed to be an endorser.

T + + + ! ,! s+&s s '& &'3

JI promise to pay to ' or order 01,""" )Sgd.+ and /J and / are deemed to be Aointly and severally liable, notmerely Aointly liable. The holder of the instrument can collect the whole amount of the instrument from either one ofthem.


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inclusion of the other co signer in the complaint as co defendant is unnecessary.

J2e promiseJ Aoint liability

CHAPTER : T %&s.! %& N!'+t %t +&MODES OF TRANSFER

1. %egotiation: The Transfer of the instrument from one person to another as to constitute thetransferee a holder thereof.

!. ssignment: The transferee is an assignee who merely steps into the shoes of the transferor.

NEGOTIATION ASSIGNMENT App3ic/ 3e(/w

%egotiableInstruments Law

'ivil 'ode

Type o4tr/ns/ction

%egotiableInstruments only

'ontracts ingeneral or other

assignable rights.N/ture o4tr/ns4eree


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Section C". Indorse0ent o4 instru0ent p/y/ 3e to e/rer2 2here an instrument, payable to bearer, isindorsed specially, it may nevertheless be further negotiated by delivery> but the person indorsingspecially is liable as indorser to only such holders as ma*e title through his indorsement.

'. I%' -0L5T5 %5G TI TI % 4 5 I%ST @-5%T

Two ules under Section CE:

1. 2here the holder of the instrument payable to his order transfers is for value without indorsing it,the transfer vests in the transferee such title as transferor had therein, and the transfereeac3uires in addition, the right to have the indorsement of the transferor.

!. 4or the purpose of determining whether the transferee is a holder in due course, the negotiationta*es effect as of the time the indorsement is actually made.

The transaction is an e3uitable assignment and the transferee ac3uires the instrument subAect to thedefenses and e3uities available among prior parties.

In addition, the presumption of sufficiency of consideration and title that is enAoyed by the holders will notbe enAoyed by the transferee contemplated under Sec. CE.

. I% S5-5%T

Section #1. Indorse0ent7 .ow 0/de2 The indorsement must be written on the instrument itself or upona paper attached thereto. The signature of the indorser, without additional words, is a sufficientindorsement.

2here indorsement should be placed:

1. n the instrument itself>!. n a separate piece of paper attached to the instrument called $allonge&.

ther rules on indorsement:

Indorsement must be of the entire instrument e(cept when there was a previous partial payment )Sec.#!+.

Sec #! further disallows negotiation of two or more indorsees severally.

9inds of Indorsement

1. /lan* Indorsement: no indorsee is specified and it is done by affi(ing the indorser6s signature.!. Special Indorsement: esignates the indorsee. )e.g. pay to $(&+

%ote: the holder may convert a blan* indorsement into a special indorsement by writing over thesignature of the indorser in blan* any contract consistent with the character of the indorsement )Sec.#H+.

#. Dualified Indorsement: constitutes the indorser a mere assignor of the title to the instrument. Itmay be made by adding to the indorser6s signature the words $without recourse.& Such anindorsement does not impair the negotiable character of the instrument.

C. 'onditional Indorsement )Sec. #E+: the party re3uired to pay the instrument may disregard thecondition and ma*e payment to the indorsee or his transferee whether the condition has beenfulfilled or not.

H. estrictive indorsement )Sec. # +: n indorsement is restrictive which either:a. 0rohibits the further negotiation of the instrument> orb. 'onstitutes the indorsee the agent of the indorser> orc. =ests the title in the indorsee in trust for or to the use of some other persons.

ights of a estrictive indorsee )Sec. #B+:


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1. To receive payment of the instrument>!. To bring any action thereon that the indorser could bring>#. To transfer his rights as such indorsee, where the form of the indorsement authori es him to do

so. In case of transfer, all subse3uent indorsees ac3uire only the title of the firs indorsee underthe restrictive indorsement.

%egotiation by 0rior 0arty

2here an instrument is negotiated bac* to a prior party, such party may reissue and further renegotiatethe same. /ut he is not entitled to enforce payment thereof against any intervening party to whom he waspersonally liable )Sec. H"+.


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5ffect if value was previously given

n e(ceptional case where a transferee who did not give valuable consideration for the instrument maynevertheless be considered a holder for value is contemplated under Sec. ! of the %IL.

RELATED PRO6ISIONS: (AGBAYANI COMMENTARY)

S!#t +& 7 3P !su ,t +& +. C+&s ! %t +& s D s,ut%b*!3

negotiable instrument was given or endorsed for a sufficient consideration. it is disputable in the sense that the said presumption is satisfactory if not contradicted.

C+&s ! %t +& &!! &+t b! %**!'! + , +=! 3 it is unnecessary to aver or prove consideration, for consideration is imported and presumed from the fact that it is a

negotiable instrument. any allegation which sets forth the e(istence of valuable consideration for the transfer of an instrument by

endorsement is sufficient, notwithstanding the failure to allege specifically the amount and nature of the considerationwhich was in fact paid to the endorser.M! ! &t + u#t +& +. &st u !&t s su.. # !&t3

prima facie entitles the plaintiff of a recovery and unless such prima facie case is overcome by evidence produced bythe defendant the plaintiff is entitled to recover.

the person claiming that a payee or an indorsee did not give valuable consideration given.E..!#t +. *%# +. #+&s ! %t +& .

the instrument is without effect and the payment of said note is not demandable.

S!#t +& 7@36%*u%b*! #+&s ! %t +& & '!&! %*3

consideration: inducement to a contract that is, the cause, motive, price or impelling influence which induces acontracting party to enter into a contract.

consist either in some right, interest, profit or benefit accruing to the party who ma*es the contract, or someforbearance, detriment., loss or some responsibility to act, or labor, or service given, suffered or underta*en by theother side.

an obligation to give, to do or not to do, in favor of the party who ma*e the contract, such as the ma*er or indorser.P !-!" st &' !bt< T$ ,! s+&>s , !-!" st &' !bt< B%& # ! ts< E"#$%&'! +. &!'+t %b*! ,%,! s

sufficient consideration.C+&s ! %t +& %s t+ su !t2 + 'u% %&t+ 3

it is unnecessary to prove consideration between the surety and the creditor.L+=! + %..!#t +&3

is good consideration, but does not constitute such valuable consideration as is sufficient itself to support theobligation of a bill or note, as between the parties.

S!#t +& 7 3M!%& &' +. $+* ! .+ =%*u!3

one who gives valuable consideration for an instrument issued or negotiated. not limited to one who is *nown to have given valuable consideration for the instrument he holds. any holder of an instrument for which value has been given at any time

S!#t +& 7 3A,,* #%t +& +. S!#t +& 7 3

if ma*er has defenses against endorser, such as absence of consideration, even a holder in due course can collectfrom ma*er only the e(tent of the lien.R!%s+& .+ t$! u*!3

holder in due course is only a holder in due course for that amount only.2here defenses are real, non e(istent. if the defenses are real, 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.

S!#3 7 3 E44ect o4 w/nt o4 consider/tion2 bsence or failure of consideration is a matter of defense as against anyperson not a holder in due course> and partial failure of consideration is a defense pro tanto, whether the failure is anascertained and li3uidated amount or otherwise.

S!#3 7 . (i/ i3ity o4 /cco00od/tion p/rty2 n accommodation party is one who has signed the instrument as ma*er,drawer, acceptor, or indorser, without receiving value therefor, and for the purpose of lending his name to some other


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person. Such a person is liable on the instrument to a holder for value, notwithstanding such holder, at the time ofta*ing the instrument, *new him to be only an accommodation party.

S!#3 453 2hat constitutes negotiation. n instrument is negotiated when it is transferred from one person to anotherin such manner as to constitute the transferee the holder thereof. If payable to bearer, it is negotiated by delivery> ifpayable to order, it is negotiated by the indorsement of the holder and completed by delivery.

M!t$+ +. T %&s.! 3 # methods of transfer: )1+ by assignment> )!+ by operation of law> )#+ by negotiation, whichmay either be by indorsement completed by delivery or by mere delivery.

Ass '& !&t3 It is the method of transferring a non negotiable instrument whereby the assignee is merely placed inthe position of the assignor and ac3uires the instrument subAect to all defences that might have been set up against theoriginal payee.

M+ ! +. %ss '& !&t3 lthough some sort of written assignment is customarily employed, it may be written either onthe instrument itself or on a separate piece of paper.

E..!#t +. %ss '& !&t +. &+&-&!'+t %b*! &st u !&ts3 The party holding the right drops out of the contract andanother ta*es his place. The assignee is substituted in place of the assignor. The assignee and every subse3uent personto 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. Theassignee ta*es the contract subAect to e3uities, that is, to defenses to the contract which would avail in favor of theoriginal party up to the time the notice of the assignment is given to the person against whom the contract is sought tobe enforced.

Ass '& !&t +. &!'+t %b*! &st u !&ts3 person ta*ing a negotiable instrument by assignment in a separate paperta*es it subAect to the rules applying to assignment. nd where the hold of a bill payable to order transfers it withoutindorsement, it operates as an e3uitable assignment.

T %&s.! b2 +,! %t +& +. *% 3 The full title to a bill or note may pass without either assignment, indorsement, ordelivery, that is, by operation of law: )1+ by the death of the holder, where the title vests in his personalrepresentative, or )!+ by the ban*ruptcy of the holder, where the title vests in his assignee or trustee, or )#+ upon thedeath of a Aoint payee or indorsee, in which case the general is that the title vests at once in the surviving payee orindorsee.

N!'+t %t +&3 @sually, where the instrument is payable to order, it is negotiated by the indorsement of the holdercompleted by deliver, and where it is payable to bearer, by mere delivery.

Is !* =! 2 t+ ,%2!! &!'+t %t +&? The 4irst 6iew is that the issuance or delivery to the payee is not negotiationbecause negotiation refers to an e(isting negotiable instrument and, before delivery to the payee, the instrument isincomplete. The second 6iew is that $under this section and Section 1E1, an instrument is negotiated when it isdelivered to the payee or to an indorsee> negotiation is not confined to transfer after delivery to the payee. This seemsto be the better view, as delivery to the payee of the instrument constitutes him the holder thereof.

S!#3 413 Indorsement> how made. The indorsement must be written on the instrument itself or upon a paperattached thereto. The signature of the indorser, without additional words, is a sufficient indorsement.

N%tu ! +. & + s! !&t3 n indorsement is not only a mode of transfer, it is also a contract. The indorsement of a billor note implies an underta*ing from the indorser to the person in whose favor it is made and to every other person towhom the bill or note may afterwards be transferred, e(actly similar to that which is implied by drawing a bill e(ceptthat, in the case of drawing a bill, the stipulation with respect to the drawer6s responsibility and underta*ing do notapply.

W$! ! & + s! !&t tt!&3 The indorsement may be written )1+ on the instrument itself, or )!+ upon a paperattached thereto, which is called an $allonge&. /ut the allonge must be tac*ed or pasted on the instrument so as tobecome a part of it, and where the separate paper is only temporary attached, and where the separate paper is onlytemporarily attached, it cannot be considered as allonge.

H+ & + s! !&t s tt!&3 Indorsement does not prove itself. It must be shown that the means was intended asan indorsement.

S!#3 473 Indorsement must be of entire instrument. The indorsement must be an indorsement of the entireinstrument. n indorsement which purports to transfer to the indorsee a part only of the amount payable, or which


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purports to transfer the instrument to two or more indorsees severally, does not operate as a negotiation of theinstrument. /ut where the instrument has been paid in part, it may be indorsed as to the residue.

I& + s! !&t ust b! +. t$! !&t ! &st u !&t3 ccordingly, an indorsement of a part of the instrument does notoperate as negotiation thereof.

E..!#t +. ,% t %* & + s! !&t $!& u&%ut$+ ! 3 It does not operate as an indorsement, but it may constitute avalid assignment binding between the parties. The person to whom the instrument is indorsed would not be consideredan indorsee but merely as assignee and would therefore ta*e the instrument subAect to the defenses available betweenthe original parties.

E"#!,t +&3 /ut where the instrument has been paid in part, it may be indorsed as to the residue.

T %&s.! +. t + + + ! & + s!!s s!=! %**23 n indorsement which purports to transfer the instrument to two ormore indorsees severally does not operate as a negotiation of the instrument.

S!#3 44 9inds of indorsement. n indorsement may be either special or in blan*> and it may also be either restrictiveor 3ualified or conditional.

/ & s +. & + s! !&t3 )1+ special, )!+ in blan*, )#+ absolute, )C+ conditional, )H+ restrictive, ) + 3ualified, )B+ Aoint,

)F+ successive, )E+ irregular, )1"+ facultative.

S!#3 4 Special indorsement> indorsement in blan*. special indorsement specifies the person to whom, or to whoseorder, the instrument is to be payable, and the indorsement of such indorsee is necessary to the further negotiation ofthe instrument. n indorsement in blan* specifies no indorsee, and an instrument so indorsed is payable to bearer, andmay be negotiated by delivery.

H+ .u t$! &!'+t %t! 3)1+ 2here the instrument is originally payable to order and it is negotiated by the payee by special indorsement, it canbe further negotiated by the indorsee by indorse0ent co0p3eted y de3i6ery >

)!+ 2here the instrument is originally payable to order and it is negotiated by the payee by blan* indorsement, it canbe further negotiated by the holder by 0ere de3i6ery >

)#+ 2here the instrument is originally payable to bearer, it can be further negotiated by mere delivery, even if theoriginal bearer negotiated it by special indorsement.

S!#3 4@ /lan* indorsement> how changed to special indorsement. The holder may convert a blan* indorsement into aspecial indorsement by writing over the signature of the indorser in blan* any contract consistent with the character ofthe indorsement.

L t%t +& u,+& #+&=! s +& +. b*%& & + s! !&t3 The holder must not write any contract not consistent with theindorsement, that is, the contract so written must not change the contract of the blan* indorser.

S!#3 4 2hen indorsement restrictive. 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.

/ut the mere absence of words implying power to negotiate does not ma*e an indorsement restrictive.

I& + s!! %'!&t +. t$! & + s! 3 This is *nown as the $agency type& of restrictive indorsement.

E..!#t +. + ss +& +. + s +. &!'+t %b * t23 @nder the law, mere absence of words implying power to negotiatedoes not ma*e an indorsement restrictive. /ut while the omission of words of negotiability in the indorsement does notaffect the negotiability of the instrument, such omission in the body thereof will render the instrument non negotiable.

S!#3 4 5ffect of restrictive indorsement> rights of indorsee. restrictive indorsement confers upon the indorsee theright:


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)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, where the form of the indorsement authori es him to do so.

/ut all subse3uent indorsees ac3uire only the title of the first indorsee under the restrictive indorsement.

estrictive indorsee may receive payment. estrictive indorsee may bring any action. estrictive indorsee may transfer his rights.

S!#3 4 Dualified indorsement. 3ualified indorsement constitutes the indorser a mere assignor of the title to theinstrument. It may be made by adding to the indorserMs signature the words Jwithout recourseJ or any words of similarimport. Such an indorsement does not impair the negotiable character of the instrument.

H+ 9u%* . ! & + s! !&t s % !3 3ualified indorsement is made by adding to the indorser6s signature thewords $without recourse&, $sans recours&, $indorser not holden&, $with intent to transfer title only, and not to incurliability as indorser&, or $at the indorsee6s own ris*&.

E..!#t +. 9u%* . ! & + s! !&t3 It constitutes the indorser a mere assignor of the title to the instrument. ;Wit.outrecourse< means without resort to a person who is secondarily liable after the default of the person who is primarilyliable.

8u%* . ! & + s! $%s * t! s!#+& % 2 * %b * t23 )!+ lac* of good title on the part of the indorser> )#+ lac* of capacity to indorse on the part of theprior parties> )C+ the fact that, at the time of the indorsement, the instrument was valueless or not valid and he *newof that fact.

E..!#t +. 9u%* . ! & + s! !&t +& &!'+t %b * t23 3ualified indorsement does % T impair the negotiable characterof the instrument.

S!#3 4 'onditional indorsement. 2here an indorsement is conditional, the party re3uired to pay the instrument maydisregard the condition and ma*e payment to the indorsee or his transferee whether the condition has been fulfilled or

not. /ut any person to whom an instrument so indorsed is negotiated will hold the same, or the proceeds thereof,subAect to the rights of the person indorsing conditionally.

Abs+*ut! & + s! !&t3 ne by which the indorser binds himself to pay, upon no other condition than the failure ofprior parties to do so and upon due notice to him of such failure.

C+& t +&%* & + s! !&t3 n indorsement subAect to the happening of a contingent event, that is, an event that mayor may not happen, or a past event un*nown to the parties.

R '$t t+ s !'% #+& t +&s Ob* '%t +&s +. #+& t +&%* & + s!!3 The ma*er - ; disregard the condition andpay the indorsee even if the condition has not been fulfilled. Such payment will discharge him from liability on theinstrument.


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S!#3 1 Indorsement where payable to two or more persons. 2here an instrument is payable to the order of two ormore payees or indorsees who are not partners, all must indorse unless the one indorsing has authority to indorse forthe others.

A,,* #%t +&3 This section applies only to instruments payable to two or more payees Aointly )and+. It does % T apply toinstruments payable to two or more payees severally?solidary )or+.

H+ & + s! !&t +. + &t ,%2!!s % !3 2here the instrument is payable to two or more payees, all payees musteach indorse in order to negotiate the instrument. If only one indorses, he passes only his part of the instrument. Suchan 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 thepayees or indorsees are partners.

S!#3 7 5ffect of instrument drawn or indorsed to a person as cashier. 2here an instrument is drawn or indorsed to aperson as JcashierJ or other fiscal officer of a ban* or corporation, it is deemed prima facie to be payable to the ban* orcorporation of which he is such officer, and may be negotiated by either the indorsement of the ban* or corporation orthe indorsement of the officer.

P !su ,t +& s s,ut%b*!3 0roof may be adduced to show that the bill is payable to the cashier personally as realcreditor to the ma*er.

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 thenegotiable instrument is subAect to defenses as if it were non negotiable.

S!#3 Stri*ing out indorsement. The holder may at any time stri*e out any indorsement which is not necessary tohis title. The indorser whose indorsement is struc* out, and all indorsers subse3uent to him, are thereby relieved fromliability on the instrument.

W$!& $+* ! %2 + %2 &+t st ! +ut & + s! !&t3 holder may stri*e out any indorsement which is notnecessary to his title. /ut where an instrument is transferred by a special indorsement, the holder has no right to stri*eout the name of the person mentioned in such indorsement and insert his own name in place thereof. The holder whoac3uires title subse3uent to the succeeding special indorsement must trace his title not only through the blan*indorsement but through the special indorsement as well.


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E..!#ts +. st &' +ut3 )1+ The indorser whose indorsement is struc* out is relieved from his liability on theinstrument, and )!+ all subse3uent indorsers are also relieved from their liability on the instrument.

S!#3 Transfer without indorsement> effect of. 2here the holder of an instrument payable to his order transfers itfor 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 determiningwhether the transferee is a holder in due course, the negotiation ta*es effect as of the time when the indorsement isactually made.

A,,* #%t +&3 This section applies only to instruments payable to order. This contemplates a case where there isdelivery 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!#+ !s $+* ! & u! #+u s!3 The time for determining whether the transferee is a holder indue 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. 2here an instrument is negotiated bac* to a prior party, suchparty may, subAect to the provisions of this ct, reissue and further negotiable the same. /ut he is not entitled toenforce 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 bearerthereof.

1. !. and payment to him indue course discharges the instrument.

It is not necessary that the holder is a holder in due course before he can enforce payment especially ifthere 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 itwere non negotiable.

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 negotiableinstrument is not a holder, he can never be a holder in due course.

'o0p3ete /nd Re5u3/r


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n instrument is complete and regular upon its face if it contains no material or substantial alteration. Ifthe alteration is not apparent, the firs re3uirement is still present because the instrument is still completeand regular $upon its face.& T/=in5 e4ore O6erdue

holder who ta*es an overdue instrument is put on in3uiry although he is not actually aware of anye(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%** !&t &+t % $+* ! & u! #+u s! %s t+ %&2 ,% t +. t$! &+t! $!& t$! t %&s.! $%s b!!&% ! %.t! t$! %tu t2 +. +&! + + ! t$+u'$ *!ss t$%& %** +. t$! &st%** !&t3

/. verdue Interest 0ayments

The mere fact that interest on a note was overdue does not, in the absence of a stipulation ma*ing theprincipal 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 notein 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 afterits 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 )ifany+ 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 personnegotiating the same, the person to whom it is negotiated must have had actual *nowledge of theinfirmity or defect, or *nowledge of such facts that his action in ta*ing the instrument amounted to badfaith.

I&. t2: any irregularity in the instrument.D!.!#t =! T t*!: when the party obtained the instrument, or any signature thereto by fraud, duress, orforce 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 isdestroyed if the payee or indorsee ac3uired possession of the instrument under circumstances that shouldhave 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 furtherin3uiries is not a holder in due course. The act of crossing a chec* serves as a warning to the holder thatthe 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.


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holder is a holder for value if the instrument was indorsed to him by his immediate transferor to pay fora loan that was e(tended to the latter.

The concept of value under the %IL is different from the concept of cause or consideration under the 'ivil'ode. 2ith respect to holders, the holder is a holder for value only to the e(tent that the considerationagreed upon has been paid, delivered, or performed.

Sec. HC: 2here the transferee receives notice of any infirmity in the instrument or defect in the title of theperson negotiating the same before he has paid the full amount agreed to be paid therefor, he will bedeemed a holder in due course only to the e(tent of the amount paid therefor by him.

ccommodation 0arties

holder for value under Sec. !E of the %IL is one who must meet all the re3uirements of the holder indue course under Sec. H! of the same law e(cept notice of want of consideration. Lac* of notice of anyinfirmity in the instrument or defect in title of the person negotiating it has no application.


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Sec. HF: ( ( ( /ut a holder who derives his title through a holder in due course, and who is not himself aparty to any fraud or illegality affecting the instrument, has all the rights of such former holder in respectof all parties prior to the latter.

The rule is not applicable:

1. If he was a previous holder not in due course who repurchased the instrument either personally orthrough an agent.

!. eac3uisition of the instrument.

ights of urisprudence

'onsolidated 0lywood Industries vs. I4' Leasing and cceptance 'orporation 1: finance companies are

better able to bear the ris* of the dealer6s insolvency than the buyer. They are also in a better position toprotect their interests against unscrupulous and insolvent dealers.

Kuanita Salas vs. ' ! : finance companies are still holders in due course.

)Thus, the Supreme 'ourt appears to be inconsistent in their rulings regarding these transactions.+

Protection under 'onsu0er Act

1I 1CE S' CCF.

2 1F1 S' !E


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rt. 1C of B#EC effectively abolished the distinction between a holder in due course and one who isnot with respect to transfer to ban*s and financing companies of instruments that cover consumer creditsales.

RIGHTS OF A HOLDER IN BILLS IN SET

S!#3 1 3 B **s & s!t #+&st tut! +&! b **3 - W$! ! % b ** s % & & % s!t< !%#$ ,% t +. t$! s!tb! &' &u b! ! %& #+&t% & &' % !.! !! t+ t$! +t$! ,% ts< t$! $+*! +. t$! ,% ts#+&st tut!s +&! b **3

B ** & s!t< !. &! 3O ne composed of various parts, each part being numbered, and containing a reference to otherparts, all of which parts constitute but one bill.

Pu ,+s!3

O To increase the probability of the bill reaching its destination.

S!#3 1 3 R '$t +. $+* ! s $! ! ..! !&t ,% ts % ! &!'+t %t! 3 - W$! ! t + + + ! ,% ts +. %s!t % ! &!'+t %t! t+ ..! !&t $+* ! s & u! #+u s!< t$! $+* ! $+s! t t*! . st %## u!s s< %sb!t !!& su#$ $+* ! s< t$! t u! + &! +. t$! b **3 But &+t$ &' & t$ s s!#t +& %..!#ts t$! '$t +.% ,! s+& $+< & u! #+u s!< %##!,ts + ,%2s t$! ,% ts . st , !s!&t! t+ $ 3

Suppose /, payee, wants to raise 0C,""". In violation of his rights, he negotiates the first partof the bill to ' and the second part to , both of whom are holders in due course.

2ho is the true owner of the bill8

If / negotiates to ' on Kanuary #, 1EH" and to on Kanuary H, 1EH", ' is the true owner, as '6s titleaccrues first.

/@T, if succeeds in presenting his part of the bill for acceptance or payment, and N, the drawee, acceptsor pays the second part in due course, N is protected and N can refuse to accept '6s part of the bill.

S!#3 1 53 L %b * t2 +. $+* ! $+ & + s!s t + + + ! ,% ts +. % s!t t+ ..! !&t ,! s+&s3 -W$! ! t$! $+* ! +. % s!t & + s!s t + + + ! ,% ts t+ ..! !&t ,! s+&s $! s * %b*! +& !=! 2su#$ ,% t< %& !=! 2 & + s! subs!9u!&t t+ $ s * %b*! +& t$! ,% t $! $%s $ s!*. & + s! payment. The holder of a negotiable instrument may to sue thereon in his own name>and payment to him in due course discharges the instrument.

R '$ts +. t$! $+* ! & '!&! %*3)1+

)c+ That he too* it in good faith and for value>

)d+ That at the time it was negotiated to him, he had no notice of any infirmity in the instrument or defect in the title ofthe person negotiating it.

W$! ! &st u !&ts $!* #+ ,*!t! %& !'u*% 3)1+ 2here the omission is immaterial)!+ 2here there is alteration in the instrument but the court, upon inspection, found that the alteration was not

apparent)#+ lthough a printed name of a payee was stric*en out, and another payee6s name inserted in writing, but the

same is a common practice by the holder ban*.

W$!& &st u !&t s +=! u!3 n instrument is overdue after the date of maturity.

s to acceleration clause 7 2hen the instrument contains an acceleration clause, *nowledge of the holder at the time ofac3uisition thereof of that one instalment or interest is unpaid, is notice that the instrument is overdue.


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s to interest 7 ne who purchases in good faith an instrument upon which the interest is overdue is a holder in duecourse.

A#9u s t +& & '++ .% t$3 Good faith refers to the indorsee or transferee, not to the seller of the paper.


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(2) (3) and(4)


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CHAPTER : 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 obligationreflected in the negotiable instrument, that is, the obligation to pay a sum certain in money.

The passive subAect )obligor?debtor+ against whom the holder can enforce the right represented in theinstrument are the persons who are primarily liable and the persons secondarily liable.

1. 0rimarily liable: the person, who, by the terms of the instrument, is absolutely re3uired to pay thesame.

!. Secondarily liable: if he engages that, on due presentment, the instrument shall be accepted orpaid, or both as the case may be, according to its tenor, and that if it be dishonoured and thenecessary proceedings on dishonour are duly ta*en, he will pay the amount thereof to the holder,or to any subse3uent indorser who may be compelled to pay it. In other words, the personsecondarily liable promises to pay if the person primarily liable refuses or fails to pay.

Liability vs. 2arranty

Liability: the primary or secondary liability of the parties ma*es them liable to pay the sum certain inmoney stated in the instrument.

2arranty: affirmations of fact on the part of the parties that impose no direct obligation to pay in theabsence of breach thereof.

n action on the indorser6s special contract of indorsement is conditioned on presentment, and notice ofdishonour> his liability for breach of warranty is not so conditioned. 4urthermore, the action on the specialcontract cannot be brought until the maturity of the instrument while the action for breach of warranty,occurring as it does at the time of the transfer, may be brought at any time.

2ho is Liable for 2hat8

Pri0/ry (i/ i3ities

MA/ER 1. 5ngages to pay according to the tenor of the instrument>

!. dmits the e(istence of the payee and his capacity to indorse.

ACCEPTOR )Sec. ! 7 as to the warranties+1. 5ngages to pay according to the tenor of his acceptance>!. dmits the e(istence of the drawer, the genuineness of his signature, and his capacity and

authority to draw the instrument>#. dmits the e(istence of the payee and his capacity to indorse.

)%./.: The acceptor does not become liable until he accepts the bill or unless he certifies thechec*.+

!econd/ry (i/ i3ity


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DRAWER 1. dmits the e(istence of payee and his capacity to indorse>!. 5ngages that the instrument will be accepted or paid by the party primarily liable>#. 5ngages that if the instrument is dishonoured ad proper proceedings are brought, he will pay to

the party entitled to be paid.

0ayment without cceptance

Instruments that are payable on demand: acceptance is an unnecessary step. This is especially true in thecase of chec*s.

Duestion: 2hether or not the drawee ban* that pays the value of the chec* but does not accept the sameis still liable for the warranties of an acceptor under Sec. !8

0%/ vs. %ational 'ity /an* of %ew ;or*: the drawee does not warrant if it does not accept the chec*s. Thewarranty is in favor of the holders of the instrument after acceptance and when the drawee ban* cashesor pays the chec*, the cycle of negotiation is terminated and it is illogical therafter to spea* of subse3uentholders who can invo*e the warranty provided in Sec. ! against the drawee.

0%/ vs. ' : P cceptance6 and Ppayment6 are, within the purview of the law, essentially different things, forthe former is a promise to perform the act, while the latter is the actual performance thereof. The actualpayment of the amount of chec* implies not only an assent to said order of the drawer and recognition ofthe drawer6s obligation to pay the aforementioned sum, but also, a compliance with such obligation. Thus,the warranties of an acceptor under Sec. ! of the %IL apply to the drawee who paid without prioracceptance.

45/T' vs. Gold 0alace Kewellery 'ompany: 0ayment of the negotiable instrument includes acceptance.ctual payment by the drawee is greater than his acceptance, which is merely a promise in writing to pay.

'onse3uently, under this view, Sec. ! applies to the drawee that paid without accepting the chec*.

WARRANTIES OF INDORSERS

G!&! %* I& + s!

Sec. : 5very indorser who endorses without 3ualification, warrants to all subse3uent holders in duecourse:

1. That the instrument is genuine and in all respects what it purports to be>!. That he has a good title to it>#. That all prior parties had capacity to contract>C. That the instrument is, at the time of the indorsement, valid and subsisting.

The general indorser also engages that on due presentment, it shall be accepted or paid, or both, as thecase may be, according to its tenor> and if it be dishonored and the necessary proceedings on dishonourbe duly ta*en, he will pay the amount thereof to the holder, or to any subse3uent indorser who may becompelled to pay it.

8u%* . ! I& + s!

Sec. H: 5very person negotiating an instrument by delivery or by a 3ualified indorsement warrants:1. That the instrument is genuine and in all respects what it purports to be>!. 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.

%ote: the warranty of persons negotiating by mere delivery e(tends to the immediate transferee only.ule on the Liabilities of gents

General %ote: am ma*er, drawer, acceptor, or indorser may act through an agent.


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(i/ i3ities o4 A5ents:

Sec. 1F: %o person is liable on the instrument whose signature does not appear thereon, e(cept asotherwise e(pressly provided. /ut one who signs in a trade or assumed name will be liable to the samee(tent as if he had signed in his own name.

Sec. 1E: the signature of any party may be made by a duly authori ed agent. %o particular form ofappointment is necessary for his purpose> and the authority of the agent may be established as in othercases of agency.

Sec. !": 2here the instrument contains or a person adds to his signature words indicating that he signsfor or on behalf of a principal or in a representative capacity, he is not liable on the instrument if he wasduly authori ed> but the mere addition of words describing him as an agent, or as filling a representativecharacter, without disclosing his principal, does not e(empt him from personal liability.

Sec. !1: 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 hisauthority.

A Person w.o s.ou3d si5n t.e instru0ent

General %ote: a person must sign the instrument before he can be made liable under the sameinstrument. This is consistent with Sec. 1F of %IL which provides that $no person is liable on theinstrument whose signature does not appear thereon.& %ecessarily, the party must sign in his own name.

5(ceptions: the following person who did not sign on their own names are still liable:1. ne who signs in a trade or assumed name )Sec. 1F+>!. ne who signs through an agent or an authori ed representative )Sec. 1E+>#. Incapacitated persons who sign through their legal guardian>C. 4orgers of signatures )Sec. !#+>H. 0ersons whose signatures were forged but who are precluded from setting up the defense of

forgery )Sec. !#+>. In case of constructive acceptance )Sec. 1#B+>

Sec. 1#B: 2here a drawee to whom a bill is delivered for acceptance destroys the same, or refuses within!C hours after such delivery, or within such other period as the hodler may allow, to return the billaccepted or non accepted to the holder, he will be deemed to have accepted the same.

B. Indorsers who sign on a separate piece of paper *nown as an allonge>F. 0ersons who negotiate by mere delivery. They are liable for breach of warranty although they did

not sign.

Tr/den/0e or Assu0ed N/0e

If a person uses a trade name or an assumed name and he signs using such, he is liable as if he signedusing his real name.

AGENT2hen a person signs through his authori ed agent, the effect is that the same as the situation where hepersonally signed the instrument. If the agent signs in the manner prescribed by the %IL, the agent is notpersonally liable and the only person who is liable is the principal.


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Sec !E: an accommodation party is one who signed the instrument as ma*er, drawer, acceptor, orindorser, without receiving the value therefor, and for the purpose of lending his name to some otherperson. Such a person is liable on the instrument to a holder for value, notwithstanding such holder, atthe time of ta*ing the instrument, *new him to be only an accommodation party.

Requisites under !ec &?:

1. !. and#.


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corporation cannot act as an accommodation party. The issue or indorsement of a negotiable paper by acorporation without consideration and for the accommodation of another is u3tr/ 6ires2

/y way of e(ception, an officer or agent of a corporation shall have the power to e(ecute or indorse anegotiable paper in the name of the corporation for the accommodation of a third person only ifspecifically authori ed to do so.If a corporation is not liable, the holder may turn to its officers for relief. 0ersonal liability of the officersand directors may attach in the following instances:

1.


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$ s s '&%tu !< %& $ s #%,%# t2 %& %ut$+ t2 t+ % t$! &st u !&t; %& (b) T$! !" st!! +. t$! ,%2!!%& $ s t$!& #%,%# t2 t+ & + s!

A##!,t+ , % *2 * %b*!3 The acceptor engages to pay absolutely according to the tenor of his acceptance.


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S!#t +& 3 L %b* t 2 +. !'u*% & + s! 3 W$! ! % ,! s+&< &+t +t$! s! % ,% t2 t+ %& &st u !&t< ,*%#!st$! !+& $ s s '&%tu ! & b*%& b!.+ ! !* =! 2< $! s * %b*! %s & + s! < & %##+ %! t$ t$! .+**+ &'

u*!s: (%) I. t$! &st u !&t s ,%2%b*! t+ t$! + ! +. % t$ ,! s+&< $! s * %b*! t+ t$! ,%2!! %& %**subs!9u!&t ,% t !s3 (b) I. t$! &st u !&t s ,%2%b*! t+ t$! + ! +. t$! % ! + % ! < + s ,%2%b*! t+b!% ! < $! s * %b*! t+ %** ,% t !s subs!9u!&t t+ t$! % ! + % ! 3 (#) . $! s '&s .+ t$! %##+ + %t +&+. t$! ,%2!!< $! s * %b*! t+ %** ,% t !s subs!9u!&t t+ t$! ,%2!!3

I !'u*% & + s! 3 In order that a person may be considered an irregular indorser, the following re3uisites must bepresent: )1+ he must not otherwise be a party to the instrument, that is, he must not be a ma*er, drawer, acceptor, orregular indorsee thereon> )!+ he must sign the instrument in blan*> and )#+ he must sign before delivery.

R!%s+& .+ us! +. t! 3 Such a party so signing is called an irregular or anomalous indorser because he indorses inan unsual, singular or peculiar manner.

M!%& &' +. Jb!.+ ! !* =! 2K3 elivery seems to include not only the original delivery to the payee but also everydelivery from the party accommodated to a subse3uent party.

A,,* #%t +& +. S!#t +& 3 2here a person puts his signature after delivery, this section does not apply. It is Section1B)f+ and Section # which will apply. This section deals only with the liability of the irregular indorser to the payee butdoes not fi( the rights if various irregular indorsers as between themselves.

S!#t +& @3 W% %&t2 $! ! &!'+t %t +& b2 !* =! 2 %& s+ .+ t$3 E=! 2 ,! s+& &!'+t %t &' %& &st u !&tb2 !* =! 2 + b2 % 9u%* . ! & + s! !&t % %&ts: (%) T$%t t$! &st u !&t s '!&u &! %& & %** !s,!#ts

$%t t ,u ,+ ts t+ b!; (b) T$%t $! $%s '++ t t*! t+ t; (#) t$%t %** , + ,% t !s $% #%,%# t2 t+ #+&t %#t; ( )T$%t $! $%s &+ &+ *! '! +. %&2 .%# t $ #$ +u* ,% t$! =%* t2 +. t$! &st u !&t + !& ! t=%*u!*!ss3

But $!& &!'+t %t +& s b2 !* =! 2 +&*2< t$! % %&t2 !"t!& s & .%=+ +. &+ $+* ! +t$! t$%& t$!! %t! t %&s.! !!3

T$! , += s +&s +. sub = s +& (#) +. t$ s s!#t +& + &+t %,,*2 t+ % ,! s+& &!'+t %t &' ,ub* # +#+ ,+ %t +& s!#u t !s +t$! t$%& b **s %& &+t!s3

A,,* #%t +& +. S!#t +& @3 This section treats of the warranties of: )1+ a person negotiating by mere delivery, and )!+a person negotiating by 3ualified indorsement. The first refers to instrument payable t

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