Download - Nil Reviewer -Final

Act No. 2031February 03, 1911

THE NEGOTIABLE INSTRUMENTS LAW

SECTION. 184. Promissory note, defined. - A negotiable promissory note within the meaning of this Act is an unconditional promise in writing made by one person to another, signed by the maker, engaging to pay on demand, or at a fixed or determinable future time, a sum certain in money to order or to bearer. Where a note is drawn to the maker's own order, it is not complete until indorsed by him.

NEGOTIABLE INSTRUMENTS LAW USA - LAW

INTRODUCTION

Negotiable Contracts - written contracts for the payment of money; by its form, intended as a substitute for money and intended to pass from hand to hand, to give the holder in due course the right to hold the same and collect the sum due.

Characteristics negotiability - right of transferee to hold the instrument and collect the

sum due accumulation of secondary contracts - instrument is negotiated from

person to person

Difference between Negotiable Instruments from Non-Negotiable Instruments: Negotiable Instruments Non-negotiable Instruments

Contains all the requisites of Sec. 1 of the NIL

does not contain all the requisites of Sec. 1 of the NIL

Transferred by negotiation transferred by assignment

Holder in due course may have better rights than transferor

transferee acquires rights only of his transferor

Prior parties warrant payment prior parties merely warrant legality of title

Transferee has right of recourse against intermediate parties

transferee has no right of recourse

Difference between Negotiable Instruments and Negotiable Documents of Title

Negotiable Instruments Negotiable Documents of Title

Have requisites of Sec. 1 of the NIL does not contain requisites of Sec. 1 of NIL

Have right of recourse against intermediate parties who are secondarily liable

no secondary liability of intermediate parties

Holder in due course may have rights better than transferor

transferee merely steps into the shoes of the transferor

Subject is money subject is goods

Instrument itself is property of value

instrument is merely evidence of title; thing of value are the goods mentioned in the document

Promissory Note - unconditional promise to pay in writing made by one person to anther, signed by the maker, engaging to pay on demand or a fixed determinable future time a sum certain in money to order or bearer. When the note is drawn to maker’s own order, it is not complete until indorse by him.

Parties: 1. maker2. payee

1

http://www.chanrobles.com/actno2031.htm#ACT%20NO.%202031

Bill of Exchange - unconditional order in writing addressed by one person to another, signed by the person giving it, requiring the person to whom it is addressed to pay on demand or at a fixed or determinable future time a sum certain in money to order or to bearer.

Parties:1. drawer2. payee3. drawee/ acceptor

Check - bill of exchange drawn on a bank and payable on demand.

Difference between Promissory Note and Bill of Exchange

Promissory Note Bill of Exchange

Unconditional promise unconditional order

Involves 2 parties involves 3 parties

Maker primarily liable drawer only secondarily liable

only 1 presentment - for payment generally 2 presentments - for acceptance and for payment

Distinctions between a Check and Bill of Exchange

CHECK BOE- always drawn upon a bank or banker

- may or may not be drawn against a bank

- always payable on demand - may be payable on demand or at a fixed or determinable future time

- not necessary that it be presented for acceptance

- necessary that it be presented for acceptance

- drawn on a deposit - not drawn on a deposit- the death of a drawer of a check, with knowledge by the banks, revokes the authority of the banker pay

- the death of the drawer of the ordinary bill of exchange does not

- must be presented for payment within a reasonable time after its issue (6 months)

- may be presented for payment within a reasonable time after its last negotiation.

Distinctions between a Promissory Note and Check

PN CHECK- there are two (2) parties, the maker and the payee

- there are three (3) parties, the drawer, the drawee bank and the payee

- may be drawn against any person, not necessarily a bank

- always drawn against a bank

- may be payable on demand or at a fixed or determinable future time

-always payable on demand

- a promise to pay - an order to pay

Other Forms of Negotiable Instruments:a. certificates of depositsb. trade acceptancesc. bonds in the nature of promissory notesd. drafts which are bills of exchange drawn by 1 bank to anothere. letters of credit

2

SECTION 126. Bill of exchange, defined. - A bill of exchange is an unconditional order in writing addressed by one person to another, signed by the person giving it, requiring the person to whom it is addressed to pay on demand or at a fixed or determinable future time a sum certain in money to order or to bearer.

SECTION 185. Check, defined. - A check is a bill of exchange drawn on a bank payable on demand. Except as herein otherwise provided, the provisions of this Act applicable to a bill of exchange payable on demand apply to a check.


Trust Receipt - a security transaction intended to aid in the financing of importers and retailers who do not have sufficient funds to finance their transaction and acquire credit except to use as collateral the merchandise imported

NEGOTIABILITY

Requisites of a Negotiable Note (PN): It must:

1. be in writing signed by the drawer2. contains an unconditional promise or order to pay a sum certain in

money3. be payable on demand or at a fixed determinable future time4. be payable to order or to bearer

Requisites of a Negotiable Bill (BOE): It must:

1. be in writing signed by the drawer2. contains an unconditional promise or order to pay a sum certain in

money3. be payable on demand or at a fixed determinable future time4. be payable to order or to bearer5. the drawee must be named or otherwise indicated with reasonable

certainty

Section 1 Requirements

1. Must be in writing and signed by the maker or drawer

In order to be negotiable, there must be a writing of some kind, else there would be nothing to be negotiated or passed from hand to hand. The writing may be in ink, print or pencil. It may be upon parchment, cloth, leather or any other substitute of paper.

It must be signed by the maker or drawer. It may consist of mere initials or even numbers, but the holder must prove that what is written is intended as a signature of the person sought to be charged.

The Bill must contain an order, something more than the mere asking of a favor.

Sum payable must be in money only. It cannot be made payable in goods, wares, or merchandise or in property.

A drawee’s name may be filled in under Section 14 of the NIL

2. Must contain an unconditional promise or order to pay a sum certain in money

Sum is certain even if it is to be paid with:1. interest2. in installments3. in installments with acceleration clause4. with exchange5. costs of collection or attorney’s fees

General Rule: The promise or order should not depend on a contingent event. If it is conditional, it is non-negotiable.

Exceptions:1. indication of particular fund from which the acceptor disburses

himself after payment2. statement of the transaction which gives rise to the

instrument. But an order or promise to pay out of a particular fund is not

unconditional

3

SECTION 1. Form of negotiable instruments. - An instrument to be negotiable must conform to the following requirements: (a) It must be in writing and signed by the maker or drawer; (b) Must contain an unconditional promise or order to pay a sum certain in money; (c) Must be payable on demand, or at a fixed or determinable future time; (d) Must be payable to order or to bearer; and (e) Where the instrument is addressed to a drawee, he must be named or otherwise indicated therein with reasonable certainty.

SECTION 2. What constitutes certainty as to sum. - The sum payable is a sum certain within the meaning of this Act, although it is to be paid: (a) with interest; or (b) by stated installments; or (c) by stated installments, with a provision that, upon default in payment of any installment or of interest, the whole shall become due; or (d) with exchange, whether at a fixed rate or at the current rate; or (e) with costs of collection or an attorney's fee, in case payment shall not be made at maturity. SECTION 3. When promise is unconditional. - An unqualified order or promise to pay is unconditional within the meaning of this Act though coupled with: (a) An indication of a particular fund out of which reimbursement is to be made or a particular account to be debited with the amount; or (b) A statement of the transaction which gives rise to the instrument. But an order or promise to pay out of a particular fund is not unconditional.


The particular fund indicated should not be the direct source of payment, else it becomes unconditional and therefore non-negotiable. The fund should only be the source of reimbursement.

A statement of the transaction does not destroy the negotiability of the instrument. Exception: Where the promise to pay or order is made subject to the terms and conditions of the transaction stated.

General Rule: If some other act is required other than the payment of money, it is non-negotiable.

Exceptions:

1. sale of collateral securities2. confession of judgment3. waives benefit of law4. gives option to the holder to require something to be done in

lieu of money

Limitation on the provision, it cannot require something illegal. There are two kinds of judgements by confession: a) cognovit

actionem b) relicta verificatione Confessions of judgement in the Philippines are void as against

public policy. If the choice lies with the debtor, the instrument is rendered non-

negotiable.

3. Must be payable on demand or at a fixed or determinable future time

Instrument is payable upon a determinable future time if:1. there is a fixed period after sight/date2. on or before a specified date/fixed determinable future time3. on or at a fixed date after the occurrence of an event certain to

happen though the exact date is not certain

If the instrument is payable upon a contingency, the happening of the event does not cure the defect (still non-negotiable)

Instrument is payable upon demand if:1. it is expressed to be so payable on sight or upon presentation2. no period of payment is stipulated3. issued, accepted, or endorsed after maturity

Where an instrument is issued, accepted or indorsed when overdue, it is, as regards to the person so issuing, accepting, or indorsing it, payable on demand.

if the time for payment is left blank (as opposed to being omitted), it may properly be considered as an incomplete instrument and fall under the provisions of Sec. 14, 15, or 16 depending on how the instrument is delivered.

4. Must be payable to order or bearer

Instrument is payable to order:1. where it is drawn payable to the order of a specified person or2. to a specified person or his order

It may be drawn payable to the order of:

1. a payee who is not a maker, drawer, or drawee2. the drawer or maker3. the drawee4. two or more payees jointly5. one or some of several payees6. the holder of an office for the time being

4

SECTION 5. Additional provisions not affecting negotiability. - An instrument which contains an order or promise to do any act in addition to the payment of money is not negotiable. But the negotiable character of an instrument otherwise negotiable is not affected by a provision which: (a) authorizes the sale of collateral securities in case the instrument be not paid at maturity; or (b) authorizes a confession of judgment 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 require something to be done in lieu of payment of money. But nothing in this section shall validate any provision or stipulation otherwise illegal.

SECTION 4. Determinable future time; what constitutes. - An instrument is payable at a determinable future time, within the meaning of this Act, which is expressed to be payable: (a) At a fixed period after date or sight; or (b) On or before a fixed or determinable future time specified therein; or (c) On or at a fixed period after the occurrence of a specified event which is certain to happen, though the time of happening be uncertain. An instrument payable upon a contingency is not negotiable, and the happening of the event does not cure the defect. SECTION 7. When payable on demand. - An instrument is payable on demand: (a) When it is so expressed to be payable on demand, or at sight, or on presentation; or (b) In which no time for payment is expressed. Where an instrument is issued, accepted, or indorsed when overdue, it is, as regards the person so issuing, accepting, or indorsing it, payable on demand.

SECTION. 8. When payable to order. - The instrument is payable to order where it is drawn payable to the order of a specified person or to him or his order. It may be drawn payable to the order of: (a) A payee who is not maker, drawer, or drawee; or (b) The drawer or maker; or (c) The drawee; or (d) Two or more payees jointly; or (e) One or some of several payees; or (f) The holder of an office for the time being. Where the instrument is payable to order, the payee must be named or otherwise indicated therein with reasonable certainty.


The payee must be named or otherwise indicated therein with reasonable certainty.

If there is no payee, there would be no one to indorse the instrument payable to order. Therefore useless to be considered negotiable.

Joint payees in indicated by the conjunction “and”. To negotiate, all must indorse.

Being several payees is indicated by the conjunction “or”.

Instrument is payable to bearer :1. when it is expressed to be so payable2. when payable to the person named or bearer3. payable to order of fictitious or non-existent person and this

fact was known to drawer4. name of payee not name of any person5. only and last indorsement is an indorsement in blank

“fictitious person” is not limited to persons having no legal existence. An existing person may be considered fictitious depending on the intention of the maker or the drawer.

“fictitious person” means a person who has no right to the instrument because the maker or drawer of it so intended. He was not intended to be the payee.

where the instrument is drawn, made or prepared by an agent, the knowledge or intent of the signer of the instrument is controlling.

Where the agent has no authority to execute the instrument, the intent of the principal is controlling

5. Where the instrument is addressed to a drawee, he must be named or otherwise indicated therein with reasonable certainty

A bill may be addressed to two or more drawees, whether they are partners or not; but it cannot be addressed to two or more drawees in the alternative.

Determination of negotiabilitya. by the provisions of the Negotiable Instrument Law, particularly

Section 1 thereofb. by considering the whole instrumentc. by what appears on the face of the instrument and not elsewhere

In determining if the instrument is negotiable, only the instrument itself and no other, must be examined and compared with the requirements stated in Sec. 1. If it appears on the instrument that it lacks one of the requirements, it is not negotiable and the provisions of the NIL do not govern the instrument. The requirement lacking cannot be supplied by using a separate instrument in which that requirement which is lacking appears.

The substance of the transaction rather than its form is the criterion of negotiability. Mere defect in language or grammatical error does not render an instrument non-negotiable.

Generally, a date is not essential to make an instrument negotiable.

Exceptions:1. When the instrument is payable at a fixed period after date2. When the instrument is payable at a fixed period after sight or

presentation

If the instrument bears a date, it is presumed that said date is the date when it was made by the maker, drawn by the drawer, accepted by the drawee, or indorsed by the payee or holder.

5

SECTION 9. When payable to bearer. - The instrument is payable to bearer: (a) When it is expressed to be so payable; or (b) When it is payable to a person named therein or bearer; or (c) When it is payable to the order of a fictitious or non-existing person, and such fact was known to the person making it so payable; or (d) When the name of the payee does not purport to be the name of any person; or (e) When the only or last indorsement is an indorsement in blank.

SECTION 14. Blanks; when may be filled. - Where the instrument is wanting in any material particular, the person in possession thereof has a prima facie authority to complete it by filling up the blanks therein. And a signature on a blank paper delivered by the person making 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. In order, however, that any such instrument when completed may be enforced against any person who became a party thereto prior to its completion, it must be filled up strictly in accordance with the authority given and within a reasonable time. But if any such instrument, after completion, is negotiated to a holder in due course, it is valid and effectual for all purposes in his hands, and he may enforce it as if it had been filled up strictly in accordance with the authority given and within a reasonable time.

SECTION 10. Terms when sufficient – The instrument need not follow the language of this Act, but any terms sufficient which clearly indicate an intention to conform to the requirements thereof.

SECTION 11. Date, presumption to – Where the instrument or an acceptance or any indorsement thereon is dated, such date is deemed prima facie to be the true date of the making, drawing, acceptance or indorsement, as the case may be.

SECTION 12. Ante-dated and post-dated – The instrument is not invalid for the reason only that it is ante-dated or post-dated, provided this is not done for an illegal or fraudulent purpose. The person to whom an instrument so dated is delivered acquires the title thereto as of the date of delivery.


Ante-dating or post-dating an instrument does not render it invalid or non-negotiable by that fact alone provided this is not done for an illegal or fraudulent purpose. It may be negotiated before or after the date given as long as it is not negotiated after its maturity.

An instrument is ante-dated when it contains a date earlier than the true date of issuance. An instrument is post-dated when it contains a date later than the true date of issuance.

A date may be inserted when:1. An instrument is payable at a fixed period after date but is issued

undated2. An instrument is payable at a fixed period after sight but the

acceptance is undated.

Any holder may insert therein the true date of issue or acceptance and the instrument shall be payable accordingly.

The insertion of a wrong date in an undated instrument by one having knowledge of the true date of issue or acceptance will avoid the instrument as to him but not to a subsequent holder in due course who may enforce the same notwithstanding the improper date. In the hands of a holder in due course, the date inserted, even if wrong, is to be regarded as the true date.

The insertion of a wrong date constitutes a MATERIAL ALTERATION.

Incomplete and undelivered

General Rule: Where an incomplete instrument has not been delivered, it will not, if completed and negotiated without authority, be a valid contract in the hands of any holder against any person who signed before delivery.

it is a real defense. It can be interposed against a holder in due course.

delivery is not conclusively presumed where the instrument is incomplete

defense of the maker is to prove non-delivery of the incomplete instrument.

Complete but undelivered

General Rule: Every contract on a negotiable instrument is incomplete and revocable until delivery for the purpose of giving effect thereto.

a. If between immediate parties and remote parties not holder in due course, to be effectual there must be authorized delivery by the party making, drawing, accepting or indorsing. Delivery may be shown to be conditional or for a special purpose only

b. If the holder is a holder in due course, all prior deliveries conclusively presumed valid

c. If instrument not in hands of drawer/maker, valid and intentional delivery is presumed until the contrary is proven

Construction of ambiguity

The rule in section 17 is applicable only when the instrument is ambiguous or uncertain or when there is an omission therein.

RULES:

Sum expressed in words and in figures are different – the sum in figures is controlling.

6

SECTION 13. When date may be inserted – Where an instrument expressed to be payable at a fixed period after date is issued undated, or where the acceptance of an instrument payable at a fixed period after sight is undated, any holder may insert therein the true date of issue or acceptance, and the instrument shall be payable accordingly. The insertion of a wrong date does not avoid the instrument in the hands of a subsequent holder in due course; but as to him the date so inserted is to be regarded as true date.

SECTION. 15. Incomplete instrument not delivered. - Where an incomplete instrument has not been delivered, it will not, if completed and negotiated without authority, be a valid contract in the hands of any holder, as against any person whose signature was placed thereon before delivery. SECTION 16. Delivery; when effectual; when presumed. - Every contract on a negotiable instrument is incomplete and revocable until delivery of the instrument for the purpose of giving effect thereto. As between immediate parties and as regards a remote party other than a holder in due course, the delivery, in order to be effectual, must be made either by or under the authority of the party making, drawing, accepting, or indorsing, as the case may be; and, in such case, the delivery may be shown to have been conditional, or for a special purpose only, and not for the purpose of transferring the property in the instrument. But where the instrument is in the hands of a holder in due course, a valid delivery thereof by all parties prior to him so as to make them liable to him is conclusively presumed. And where the instrument is no longer in the possession of a party whose signature appears thereon, a valid and intentional delivery by him is presumed until the contrary is proved. SECTION 17. Construction where instrument is ambiguous. - Where the language of the instrument is ambiguous or there are omissions therein, the following rules of construction apply: (a) Where the sum payable is expressed in words and also in figures and there is a discrepancy between the two, the sum denoted by the words is the sum payable; but if the words are ambiguous or uncertain, reference may be had to the figures to fix the amount; (b) Where the instrument provides for the payment of interest, without specifying the date from which interest is to run, the interest runs from the date of the instrument, and if the instrument is undated, from the issue thereof; (c) Where the instrument is not dated, it will be considered to be dated as of the time it was issued; (d) Where there is a conflict between the written and printed provisions of the instrument, the written provisions prevail; (e) Where the instrument is so ambiguous that there is doubt whether it is a bill or note, the holder may treat it as either at his election; (f) Where a signature is so placed upon the instrument that it is not clear in what capacity the person making the same intended to sign, he is to be deemed an indorser; (g) Where an instrument containing the word "I promise to pay" is signed by two or more persons, they are deemed to be jointly and severally liable thereon.


Words are ambiguous or uncertain – reference may be had to the figures to determine the true amount.

Instrument is undated – consider to be dated as of the date of issue.o ISSUE – first delivery of the instrument complete in form, to a

person who takes it as a holder. Written and printed words in conflict – written provisions prevail When in doubt whether an instrument is a bill or note – holder may

treat either at his election. Capacity in which the person signed in doubt – he is deemed indorser

Rules on delivery of negotiable instruments1. delivery is essential to the validity of any negotiable instrument2. as between immediate parties or those is like cases, delivery must be

with intention of passing title3. an instrument signed but not completed by the drawer or maker and

retained by him is invalid as to him for want of delivery even in the hands of a holder in due course

4. but there is prima facie presumption of delivery of an instrument signed but not completed by the drawer or maker and retained by him if it is in the hands of a holder in due course. This may be rebutted by proof of non-delivery.

5. an instrument entrusted to another who wrongfully completes it and negotiates it to a holder in due course, delivery to the agent or custodian is sufficient delivery to bind the maker or drawer.

6. If an instrument is completed and is found in the possession of another, there is prima facie evidence of delivery and if it be a holder in due course, there is conclusive presumption of delivery.

7. delivery may be conditional or for a special purpose but such do not affect the rights of a holder in due course.

Liability of person signing

General rule: a person whose signature does not appear on the instrument in not liable. Exception:

a. one who signs in a trade or assumed name b. a duly authorized agent c. a forger

Liability of person signing as agent

General rule: an agent is not liable on the instrument if he were duly authorized to sign for or on behalf of a principal.

Requisites:1. he must be duly authorized2. he must add words to his signature indicating that he signs as an

agent3. he must disclose his principal

if an agent does not disclose his principal, the agent is personally liable on the instrument.

Signature by procuration

Per Procuration - operates as notice that the agent has a limited authority to sign.

Effects: the principal in only bound if the agent acted within the limits of the

authority given

7

SECTION 18. Liability of person signing in trade or assumed name. - No person is liable on the instrument whose signature does not appear thereon, except as herein otherwise expressly provided. But one who signs in a trade or assumed name will be liable to the same extent as if he had signed in his own name. SECTION 19. Signature by agent; authority; how shown. - The signature of any party may be made by a duly authorized agent. No particular form of appointment is necessary for this purpose; and the authority of the agent may be established as in other cases of agency. SECTION 23. Forged signature; effect of. - When a signature is forged or made without the authority of the person whose signature it purports to be, it is wholly inoperative, and no right to retain the instrument, or to give a discharge therefor, or to enforce payment thereof against any party thereto, can be acquired through or under such signature, unless the party against whom it is sought to enforce such right is precluded from setting up the forgery or want of authority.

SECTION 20. Liability of person signing as agent, and so forth. - Where 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, he is not liable on the instrument if he was duly authorized; but the mere addition of words describing him as an agent, or as filling a representative character, without disclosing his principal, does not exempt him from personal liability.

SECTION 21. Signature by procuration; effect of. - A 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.

SECTION 22. Effect of indorsement by infant or corporation.- The indorsement or assignment of the instrument by a corporation or by an infant passes the property therein, notwithstanding that from want of capacity, the corporation or infant may incur no liability thereon.


the person who takes the instrument is bound to inquire into the extent and nature of the authority given.

Indorsement by infant or corporation

General rule: Infants and corporations incur no liability by their indorsement or assignment of an instrument.

Effects: no liability attached to the infant or the corporation the instrument is still valid and the indorsee acquires title

Forged signatureGeneral rule: a signature which is forged or made without authority is wholly inoperative.

Exception: the party against whom it is sought to be enforced is precluded from setting up the forgery or want of authority.

Effects: a. no right to retainb. no right to give a dischargec. no right to enforce payment can be acquired.

Section 23 applies only to forged signatures or signatures made without authority

Alterations such as to amounts or like fall under section 124 Forms of forgery are a) fraud in factum b) duress amounting to fraud c)

fraudulent impersonation Only the signature forged or made without authority is inoperative , the

instrument or other signatures which are genuine are affected The instrument can be enforced by holders to whose title the forged

signature is not necessary Persons who are precluded from setting up the forgery are a) those

who warrant or admit the genuineness of the signature b) those who are estopped.

Persons who are precluded by warranting are a) indorsers b) persons negotiating by delivery c) acceptors.

Drawee bank is conclusively presumed to know the signature of its drawer

If endorser’s signature is forged, loss will be borne by the forger and parties subsequent thereto

Drawee bank is not conclusively presumed to know the signature of the indorser. The responsibility falls on the bank which last guaranteed the indorsement and not the drawee bank.

Where the payee’s signature is forged, payments made by the drawee bank to collecting bank is ineffective. No debtor/creditor relationship is created. An agency to collect is created between the person depositing and the collecting bank. Drawee bank may recover from collecting bank who may in turn recover from the person depositing.

Rules on liabilities of parties on a forged instrumentIn a PN

a party whose indorsement is forged on a note payable to order and all parties prior to him including the maker cannot be held liable by any holder

a party whose indorsement is forged on a note originally payable to bearer and all parties prior to him including the maker may be held

8

SECTION 23. Forged signature; effect of. - When a signature is forged or made without the authority of the person whose signature it purports to be, it is wholly inoperative, and no right to retain the instrument, or to give a discharge therefor, or to enforce payment thereof against any party thereto, can be acquired through or under such signature, unless the party against whom it is sought to enforce such right is precluded from setting up the forgery or want of authority.

SECTION 124. Alteration of instrument; effect of. - Where a negotiable instrument is materially altered without the assent of all parties liable thereon, it is avoided, except as against a party who has himself made, authorized, or assented to the alteration and subsequent indorsers. But when an instrument has been materially altered and is in the hands of a holder in due course not a party to the alteration, he may enforce payment thereof according to its original tenor.


liable by a holder in due course provided that it was mechanically complete before the forgery

a maker whose signature was forged cannot be held liable by any holder

In a BOE the drawer’s account cannot be charged by the drawee where the

drawee paid the drawer has no right to recover from the collecting bank the drawee bank can recover from the collecting bank the payee can recover from the drawer the payee can recover from the recipient of the payment, such as the

collecting bank the payee cannot collect from the drawee bank the collecting bank bears the loss but can recover from the person to

whom it paid if payable to bearer, the rules are the same as in PN. if the drawee has accepted the bill, the drawee bears the loss and his

remedy is to go after the forger

if the drawee has not accepted the bill but has paid it, the drawee cannot recover from the drawer or the recipient of the proceeds, absence any act of negligence on their part.

Accommodation party Accommodation party - one who signs the instrument as maker, drawer, acceptor, or indorser without receiving value therefor and for the purpose of lending his name to some other person.

Accommodated party – one in whose favor a person, without receiving value therefore, signs an instrument for the purpose of lending his credit and enabling said party to raise money upon it.

Accommodation bill or note – one to which the accommodation party has put his name, without consideration, for the purpose of accommodating some other party who is to use it, and is expected to pay it.

Effects: an accommodation party is liable to the holder for value

notwithstanding that such holder knew that of the accommodation.

the accommodated party cannot recover from the accommodation party

want of consideration cannot be interposed by the accommodation party

an accommodation maker may seek reimbursement from a co-maker even in the absence of any provision in the NIL; the deficiency is supplied by the New Civil Code.

he may do this even without first proceeding against the debtor provided: a. he paid by virtue of judicial demandb. principal debtor is insolvent

CONSIDERATIONPresumption of considerationEvery negotiable instrument is deemed prima facie to have been issued for a valuable consideration. (Sec. 24 NIL)Effects:

every person whose signature appears thereon is a party for value presumption is disputable

VALUE – any consideration sufficient to support a simple contract.

A valuable consideration need not be adequate. It is sufficient if it is a valuable one.

9

SECTION 29. Liability of accommodation party. - An accommodation party is one who has signed the instrument as maker, drawer, acceptor, or indorser, without receiving value therefor, and for the purpose of lending his name to some other person. Such a person is liable on the instrument to a holder for value, notwithstanding such holder, at the time of taking the instrument, knew him to be only an accommodation party.

SECTION 24. Presumption of consideration. -

Every 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 25. Value, what constitutes. — Value is any consideration sufficient to support a simple contract. An antecedent or pre-existing debt constitutes value; and is deemed such whether the instrument is payable on demand or at a future time.

SECTION 26. What constitutes holder for value. - Where value has at any time been given for the instrument, the holder is deemed a holder for value in respect to all parties who become such prior to that time.


Example:Where P sells and delivers to M a piano worth P9,000.00 and M issues

to P a promissory note for P10,000.00, there is a valuable consideration for the note, which is the piano.

In an action on the note, M cannot allege as a defense that the value of the piano is not adequate for the amount of the note. The law presumes that M is capable of managing his affairs and the mere inadequacy of the consideration is not a sufficient ground for relief unless there is fraud, mistake, or undue influence.

An antecedent or pre-existing debt is a valuable consideration. The debt may be that of a third person and the discharge of such debt is a valuable consideration for a negotiable instrument.

HOLDER FOR VALUE – one who has given a valuable consideration for the instrument issued or negotiated to him.

A holder of a negotiable instrument is presumed to be a holder for value until the contrary be shown by any party who claims otherwise.

The holder is deemed as such not only as regards the party to whom value has been given by him but also in respect to all those who became parties prior to the time when the value is given.

Lien on instrument constitutes holder for value

One who has taken a negotiable instrument as collateral security for a debt has a lien on the instrument:

1. If the amount of the instrument is more than the debt secured by such instrument, the pledge is a holder for value to the extent of his lien. He can collect the full value of the instrument, and apply the same to the payment of the debt but he must deliver the surplus to the pledgor.

Example:M makes a promissory note for P1,000.00 to the order of P who

pledges it to A to secure the payment of P’s debt of P800.00. The note is indorsed and delivered by P to A.

In this case, A is a holder for value to the extent of P800.00 which is also the extent of his lien. On the maturity of the note, even if the debt of P800.00 is not yet due, A nay recover the full amount of P1,000.00, holding the surplus for P, the pledgor.

2. If, between the pledgor and the party liable on the instrument, there are existing defenses, then the pledgee can collect on the instrument only to the extent of the amount of the debt.

Example:Referring to the problem above, if M has defenses against P,

indorser, such as absence or failure of consideration, A can collect only P800.00 on the note even if he is a holder in due course. As the note in the hands of M is void, all that ought to be recovered by A is the amount due on the loan.

3. If the amount of the instrument is less than or the same as the debt secured by such instrument, the pledgee is a holder for value for the full amount and may, therefore, recover all.

Example:Supposing on the above problem, the amount of the

instrument is P700.00, then A is a holder for value for the full amount of P700.00 and is entitled to recover to that extent.

10

SECTION 27. When lien on instrument constitutes holder for value. — Where the holder has a lien on the instrument arising either from contract or by implication of law, he is deemed a holder for value to the extent of his lien.

SECTION 28. Effect of want of consideration. - 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, whether the failure is an ascertained and liquidated amount or otherwise.


4. If the defenses of the party liable on the instrument are real defenses, then the pledge can recover nothing upon the instrument.

Example:In the example above, if the signature of M is a forgery, A can

collect nothing from M because M’s signature is inoperative. As against M, A acquired no right to enforce payment of the note. Forgery is a real defense.

Want of consideration

Effect of want of consideration:a. Absence or failure of consideration may be set up against a holder not

a holder in due course (personal defense)b. Partial failure of consideration is a defense pro tanto

absence of consideration is where no consideration was intended to pass.

failure of consideration implies that consideration was intended by that it failed to pass

the defense of want of consideration is ineffective against a holder in due course

a drawee who accepts the bill cannot allege want of consideration against the drawer

NEGOTIATION

NEGOTIATION – the transfer of a negotiable instrument from one person to another made in such a manner as to constitute the transferee the holder thereof.

No negotiation if the transfer does not make the transferee the holder of the instrument.

By delivery if payable to bearer By indorsement and delivery if payable to order

3 Methods of Transfer:1. Issue – 1st delivery of complete instrument to a payee who takes it as a

holder2. Negotiation – operates to make the transferee of a negotiable

instrument the holder thereof3. Assignment – transfer of a negotiable instrument payable to order

without indorsement by the payee or indorsee or where the indorsement is not made properly.

BEARER – person in possession of a bill or note payable to bearer

HOLDER – payee or indorsee of a bill or note who is in possession or the bearer thereof* Transferee is not a holder not being a payee or indorsee nor the bearer.

Note:1. Payment of check by drawee is not a negotiation.2. Writing of holder’s name at the back of the check before presentment

for payment is not an indorsement.3. Upon payment, check becomes merely a voucher. The instrument is

discharged.

Distinctions:Negotiation Assignment

1. Transferee a holder 1. Transferee not a holder but an assignee

11

SECTION 30. What constitutes negotiation. - An instrument is negotiated when it is transferred from one person to another in such manner as to constitute the transferee the holder thereof. If payable to bearer, it is negotiated by delivery; if payable to order, it is negotiated by the indorsement of the holder and completed by delivery.

SECTION 31. Indorsement; how made. - The indorsement must be written on the instrument itself or upon a paper attached thereto. The signature of the indorser, without additional words, is a sufficient indorsement.

SECTION 32. Indorsement must be of entire instrument. - The indorsement must be an indorsement of the entire instrument. An indorsement which purports to transfer to the indorsee a part only of the amount payable, or which purports to transfer the instrument to two or more indorsees severally, does not operate as a negotiation of the instrument. But where the instrument has been paid in part, it may be indorsed as to the residue.


2. Negotiable instrument

3. Holder in due course subject only to real defenses

4. Holder in due course may acquire a better title than prior party

5. General indorser warrants solvency of prior parties

6. Indorser not liable unless there is presentment and notice of dishonor

7. Governed by NIL

2. Non-negotiable

3.Assignee subject to both real and personal defenses

4. Assignee merely steps into the shoes of assignor

5. Assignor does not warrant solvency of prior parties unless stipulated and the insolvency is known to him

6. Assignor is liable even without notice of dishonor

7. Governed by Arts. 1624-1635 of the Civil Code

IndorsementINDORSEMENT – the writing of the name of the indorser on the instrument with intent either to transfer title to the same, or strengthen the security of the holder by assuming a contingent liability for its future payment or both.

Written on the instrument (usually at the back) or on allonge if name is misspelled

Indorsement must be of entire instrument, Exceptions:1. Part of the amount has been paid2. Discounted

Kinds of Indorsements:1. As to the methods of negotiation:

a. special; or b. blank

2. As to the kind of title transferred:a. restrictive - b. non-restrictive

3. As to the scope of the liability of indorser:a. qualified; orb. unqualified or general

4. As to presence or absence of limitations:a. conditional; orb. unconditional

5. Other kinds of indorsements:a. joint;b. successivec. irregular or anomalous; andd. facultative.

Special or Blank Indorsement has to do with the method of negotiation in the future

IF SPECIAL, by indorsement and delivery IF BLANK, by delivery alone Special indorsement specifies name of payee Blank indorsement specifies no indorsee

If originally payable to ORDER and negotiated by special indorsement , indorsee needs to indorse.

If originally payable to BEARER and indorsed specially, it may be further negotiated by mere delivery.

The person who specially indorses an instrument originally payable to bearer is liable only to those who take title through his indorsement

A person who negotiated by mere delivery is liable only to his immediate transferee.

12

SECTION 33. Kinds of indorsement. - An indorsement may be either special or in blank; and it may also be either restrictive or qualified or conditional.

SECTION 34. Special indorsement; indorsement in blank. - A special indorsement specifies the person to whom, or to whose order, the instrument is to be payable, and the indorsement of such indorsee is necessary to the further negotiation of the instrument. An indorsement in blank specifies no indorsee, and an instrument so indorsed is payable to bearer, and may be negotiated by delivery.

SECTION 40. Indorsement of instrument payable to bearer. - Where an instrument, payable to bearer, is indorsed specially, it may nevertheless be further negotiated by delivery; but the person indorsing specially is liable as indorser to only such holders as make title through his indorsement.

SECTION 35. Blank indorsement; how changed to special indorsement. - The holder may convert a blank indorsement into a special indorsement by writing over the signature of the indorser in blank any contract consistent with the character of the indorsement.


Example:

Anne to bearer BoyBoy delivers to Cay without indorsing

Pay to DianaCay

Pay to Edna Diana

(no indorsement to Felix)

Edna

1. Boy is liable only to Cay

2. Cay is liable only to Diana and Edna

3. Cay and Diana are not liable to Felix

4. Diana is liable to Edna

5. Only Edna is liable to Felix

Blank Indorsement- may be converted into a special indorsement by writing over the

signature in blank any contract consistent with the character of indorsement

-

Pay to AnaPete

Ana

Pay to AnaPete

Pay to BoyAna

Restrictive Indorsement

Prohibits further negotiation Constitutes indorsee the agent of the indorser Vests title in the indorsee in trust for or to the use of some other

person.

Effects

Confers upon the indorsee the ff. rights:1. To receive payment2. To bring any action that indorser could bring3. To transfer right as indorsee if the indorsement authorizes him to do

so.

Effects: 1. Restricts the right of the indorsee to further negotiate. Ex:

Pay to Xinia for collection

Yvette

2. Reserves beneficial interest in the indorser or in a third person. Ex.

Pay Alexis for my use

Benedict

13

SECTION 36. When indorsement restrictive. - An indorsement is restrictive which either: (a) Prohibits the further negotiation of the instrument; or (b) Constitutes the indorsee the agent of the indorser; or (c) Vests the title in the indorsee in trust for or to the use of some other persons. But the mere absence of words implying power to negotiate does not make an indorsement restrictive. SECTION 37. Effect of restrictive indorsement; rights of indorsee. - A restrictive indorsement confers upon the indorsee the right: (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 authorizes him to do so. But all subsequent indorsees acquire only the title of the first indorsee under the restrictive indorsement.

SECTION 38. Qualified indorsement. - A qualified indorsement constitutes the indorser a mere assignor of the title to the instrument. It may be made by adding to the indorser's signature the words "without recourse" or any words of similar import. Such an indorsement does not impair the negotiable character of the instrument. SECTION 65. Warranty where negotiation by delivery and so forth. — Every person negotiating an instrument by delivery or by a qualified indorsement warrants: (a) That the instrument is genuine and in all respects what it purports to be; (b) That he has a good title to it; (c) That all prior parties had capacity to contract; (d) That he has no knowledge of any fact which would impair the validity of the instrument or render it valueless. But when the negotiation is by delivery only, the warranty extends in favor of no holder other than the immediate transferee.

The provisions of subdivision (c) of this section do not apply to a person negotiating public or corporation securities other than bills and notes.

SECTION 39. Conditional indorsement. - Where an indorsement is conditional, the party required to pay the instrument may disregard the condition and make payment to the indorsee or his transferee whether the condition has been fulfilled or not. But any person to whom an instrument so indorsed is negotiated will hold the same, or the proceeds thereof, subject to the rights of the person indorsing conditionally.


Qualified Indorsement

2 Contracts entered into by an Indorser:1. Contract of sale or assignment of the instrument2. Contract to pay the instrument if the maker is unable to pay at

maturity

*Adding the words “without recourse” relieves the indorser of the 2nd contract

Effects:1. Transfer still a negotiation2. Transferee still a holder3. Instrument still negotiable4. Instrument mere assignor5. Limited liability

Exceptions – Sec. 65Indorser is till liable for the ff:

1. Forgery-warrants that instrument is genuine2. Lack of good title – warrants that he has good title to it3. Lack of capacity by prior parties to contract – warrants that all

prior parties had capacity4. Knowledge that instruments was valueless or not valid –

warrants that he has no knowledge of any fact which would impair validity of the instrument or render it valueless.

Conditional Indorsement

Unconditional or absolute indorsement - indorser impliedly binds himself to pay upon failure of prior parties to

do so and notice to him of such failure

Conditional indorsement- indorser adds some other conditions

No effect on further negotiation Does not destroy negotiability

Indorsement to a collecting bank- is restrictive indorsement. the bank is only a collecting agent, usually

stated in the deposit slip

Joint Indorsement

indorsement by joint or alternative payees or indorsees indorsement payable to 2 or more persons IF JOINT, both must indorseExeptions:

1. If they are partners, indorsement of one is valid, authority to sign is presumed

2. One has authority to indorse for the others

Different Combinations of Indorsements

Special and Restrictive:

Pay to Ana only

Blank and Restrictive:

For collection onlyAlexandra

Special and Qualified:

Pay to Ana without recourse

Patrick

Blank and Qualified:

Without Recourse

Amalia

14

SECTION 39. Conditional indorsement. - Where an indorsement is conditional, the party required to pay the instrument may disregard the condition and make payment to the indorsee or his transferee whether the condition has been fulfilled or not. But any person to whom an instrument so indorsed is negotiated will hold the same, or the proceeds thereof, subject to the rights of the person indorsing conditionally.

SECTION 41. Indorsement where payable to two or more persons. - Where 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.

SECTION 42. Effect of instrument drawn or indorsed to a person as cashier. - Where an instrument is drawn or indorsed to a person as "cashier" or other fiscal officer of a bank or corporation, it is deemed prima facie to be payable to the bank or corporation of which he is such officer, and may be negotiated by either the indorsement of the bank or corporation or the indorsement of the officer.

SECTION 44. Indorsement in representative capacity. - Where any person is under obligation to indorse in a representative capacity, he may indorse in such terms as to negative personal liability. robles virtual law library

SECTION 45. Time of indorsement; presumption. - Except 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.


Special and Conditional

Pay to Ana if she marries before she reaches the age of 21

Paolo

Blank and Conditional:

Payable upon completion of my office in Bacolod. City

Ana

Indorsement to Cashier Indorsement drawn or indorsed to a cashier or other fiscal officer of a

bank or corporation presumed to be payable to the bank or corporation

Indorsement by Agent Authority of agent need not be in writing

Roxanne Ramirez

by Jeniffer Javellana, agent

Presumption as to indorsement

GENERAL RULE: Negotiation is deemed prima facie to have been effected before the instrument is overdue.EXCEPTION: If the indorsement bears a date after the maturity of the instrument

Place of indorsement

- presumed to have been made where the instrument is dated If instrument is dated, presumed to be true date Holder in due course must have taken the instrument before it

was overdue If undated, presumed to be negotiated before maturity Place of indorsement becomes relevant when laws in different

countries vary The law of the state where instrument was made shall govern

Continuation of negotiability

General Rule: Continues to be negotiable until restrictively indorsed or discharged by payment or otherwise

Cancellation of indorsements

- Any indorsement not necessary to holder’s title may be struck out- All indorsers subsequent to him are relieved

Bearer instrument All indorsements not necessary to his title may be stricken out

Ex. Mylene makes a note payable to Pierre, bearer, and it is indorsed in succession. Cathy, the present holder may strike out all indorsements made

Pay to AlanaPierre

Pay to Bione

Alana

15

SECTION 46. Place of indorsement; presumption. - Except where the contrary appears, every indorsement is presumed prima facie to have been made at the place where the instrument is dated.

SECTION 47. Continuation of negotiable

character. - An instrument negotiable in its origin continues to be negotiable until it has been restrictively indorsed or discharged by payment or otherwise.

SECTION 48. Striking out indorsement. - The holder may at any time strike out any indorsement which is not necessary to his title. The indorser whose indorsement is struck out, and all indorsers subsequent to him, are thereby relieved from liability on the instrument.

SECTION 49. Transfer without indorsement; effect of. - Where 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 acquires in addition, the right to have the indorsement of the transferor. But for the purpose of determining whether the transferee is a holder in due course, the negotiation takes effect as of the time when the indorsement is actually made.

SECTION 50. When prior party may negotiate instrument. - Where an instrument is negotiated back to a prior party, such party may, subject to the provisions of this Act, reissue and further negotiable the same. But he is not entitled to enforce payment thereof against any intervening party to whom he was personally liable.


Pay to Cathy

Bione

Instrument originally payable to order Cancellation is proper when, after several negotiations, instrument is

indorsed back to previous indorser

Effect of transfer for value without indorsement

- vests in the transferee such title as the transferor had- transferee acquires the right to have the indorsement of the transferor

Other effects: Indorsee has a right to sue in his own name He is not a holder, payee, indorsee nor a bearer Operates as an equitable assignment Subject to defenses and equities available among prior parties

To determine whether he is a holder in due course, negotiation takes effect at the time the indorsement is actually made

Renegotiation to Prior Parties

When prior party reacquires the instrument before maturity, he may renegotiate or reissue the same.

RIGHTS OF HOLDERS IN DUE COURSEClasses of Holders:1. Holders in General (Sec. 51)

a. May sue on the instrument in his own nameb. May receive payment

Payment in due course (made at or after maturity) will discharge the instrument

2. Holders for Value (Sec. 26)- prima facie presumption of valuable consideration

3. Holders in Due Course (Sec. 52 & 57)

Importance of Classification:Each class of holders has defenses which are available to one class and

which may not be available to other classes

Holder in Due CourseHolder who has taken the instrument under the ff. conditions:

1. It is complete and regular upon its face2. He became the holder before it was overdue and without notice of

previous dishonor if ever3. He took it in good faith and for value4. He had no notice of any infirmity in the document or defect in the

title of the indorser

All 4 conditions must concur

1. Complete and regular on its face Not wanting in any material particular If incomplete, holder must inquire No visible alteration, tampering or erasure

2. Not overdue, without notice of dishonor If with fixed maturity

16

SECTION 51. Right of holder to sue; 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.

SECTION 26. What constitutes holder for value. - Where value has at any time been given for the instrument, the holder is deemed a holder for value in respect to all parties who become such prior to that time.

SECTION 52. What constitutes a holder in due course. - A holder in due course is a holder who has taken the instrument under the following conditions: (a) That it is complete and regular upon its face; (b) That he became the holder of it before it was overdue, and without notice that it has been previously dishonored, if such was the fact; (c) That he took 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 of the person negotiating it.

SECTION 57. Rights of holder in due course. - A holder in due course holds the instrument free from any defect of title of prior parties, and free from defenses available to prior parties among themselves, and may enforce payment of the instrument for the full amount thereof against all parties liable thereon

SECTION 53. When person not deemed holder in due course. - Where 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.


= overdue day after maturity If payable on demand

= Sec. 53

bills of exchange – beyond reasonable time after last negotiation

promissory note – beyond reasonable time after its issue

In cases of instrument payable in installments: Installments partly overdue upon transfer

- transferee not a holder in due course as to such installments, with or without notice of non-payment

Installments to mature in the future- If without notice of non-payment of previous installments,

transferee is deemed a holder in due course as to future installments

Since installment notes have several maturities, each maturity is treated differently unless there is an acceleration clause

Based on jurisprudence, a holder with notice or knowledge that one or more installments were not paid when due cannot be a holder in due course

Overdue or dishonored instrument is still negotiable

3. Holder in Good Faith Refers to the good faith of the indorsee or transferee Bad faith is when he has knowledge of facts which render it dishonest for

him to receive the instrument Need not be knowledge of exact truth. Facts which tend to show that

something is wrong is sufficient.

4. Notice of infirmity or defect of title Actual knowledge of infirmity or defect or knowledge of facts that would

make his action of taking the instrument in bad faith (Sec. 56) Knowledge of an agent is constructive knowledge of the principal Notice before full amount is paid (Sec. 54) deemed a holder in due

course for amount paid before notice. He has no obligation to pay the balance.

When NOT a holder in due course:

When an instrument payable on demand is negotiated an unreasonable length of time after its issue, the holder is not deemed a holder in due course.

Reasonable time depends upon the circumstances of the case such as the nature of the instrument, usage of trade

Defect of title

Acquisition – Obtaining the instrument or any signature by the following means:

1. Fraud2. Duress or force and fear3. Other unlawful means4. For an illegal consideration

Negotiation – negotiated in breach of faith or under circumstances tantamount to fraud

Rights of a Holder in Due Course:

1. Sue on the instrument in his name (Sec. 51)2. Receive payment and if in due course instrument will be discharged

(Sec. 51)3. Holds instrument

17

SECTION 56. What constitutes notice of defect. - To constitutes 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 knowledge of the infirmity or defect, or knowledge of such facts that his action in taking the instrument amounted to bad faith.SECTION 54. Notice before full amount is paid. - Where 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, he will be deemed a holder in due course only to the extent of the amount therefore paid by him.

SECTION 53. When person not deemed holder in due course. - Where 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. SECTION 55. When title defective. - The title of a person who negotiates an instrument is defective within the meaning of this Act when he 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 amount to a fraud.

SECTION 57. Rights of holder in due course. - A holder in due course holds the instrument free from any defect of title of prior parties, and free from defenses available to prior parties among themselves, and may enforce payment of the instrument for the full amount thereof against all parties liable thereon. SECTION 51. Right of holder to sue; 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.

SECTION 58. When subject to original defense. - In the hands of any holder other than a holder in due course, a negotiable instrument is subject to the same defenses as if it were non-negotiable. But a holder who derives his title through a holder in due course, and who is not himself a party to any fraud or illegality affecting the instrument, has all the rights of such former holder in respect of all parties prior to the latter.

SECTION 60. Liability of maker. - The maker of a negotiable instrument, by making it, engages that he will pay it according to its tenor, and admits the existence of the payee and his then capacity to indorse.


free from any defect of title of prior parties free from defenses available to prior parties among themselves may enforce payment for the full amount against parties liable.

Original Defenses

Holder not a holder in due course – subject to both real and personal defenses

Holder not in due course deriving his title from one has all the rights of the former

Provided, he is not a party to any fraud or illegally affecting the instrument

LIABILITIES OF PARTIES

The parties to a negotiable instrument may be classified according to their liability as follows:1) Primarily liable:

a. the maker of a promissory noteb. the acceptor of a bill of exchange; andc. the certifier of a check.

2) Secondarily (conditionally) liable:a. the drawer of a bill; andb. the indorser of a note or a bill.

3) Not liable:a. the drawee until he accepts the instrument in which case he

becomes an acceptor.

Liability of maker

The term “maker” applies only to the promissory note. The maker is primarily liable as:

he engages to pay the note according to its term, subject to no condition whatsoever

he promises to pay the payee and any subsequent holder who is legally entitled to the instrument

he “admits the existence of the payee and his then capacity to indorse” at the time of the making of the note

he places his name on the face of a note he is presumed to have acted with care and to have signed the

instrument in question with full knowledge of its contents (Tan Sia vs. Yu Biao Sontua, 56 PHIL 707)

This rule operates to prevent the maker from escaping liability by showing the non-existence

and incapacity of the payee.

Liability of drawer

issues a bill of exchange he is secondarily liable to the holder, or to any subsequent indorser he is liable by merely signing his name on the bill as drawer, admits

the existence of the payee and his then capacity to indorse the instrument at the time it was executed

he makes no warranties his liabilities are conditional – he engages to pay after certain

conditions are complied with, to wit:1. The bill is presented for acceptance or for payment, as the

case may be, to the drawee;2. The bill is dishonored by non-acceptance or non-payment, as

the case may be; and

18

SECTION 61. Liability of drawer. - The drawer by drawing the instrument admits the existence of the payee and his then capacity to indorse; and engages that, on due presentment, the instrument will be accepted or paid, or both, according to its tenor, and that if it be dishonored and the necessary proceedings on dishonor be duly taken, he will pay the amount thereof to the holder or to any subsequent indorser who may be compelled to pay it. But the drawer may insert in the instrument an express stipulation negativing or limiting his own liability to the holder.

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


3. The necessary proceedings of dishonor are duly taken.Such proceedings are:

notice of dishonor is given to the drawer subject to certain exceptions; and

in case of foreign bills, protest is made followed by a notice of protest

drawer may, by express stipulation, negative or limit his own liability to the holder

Liability of acceptor

the drawee who accepts becomes an acceptor the same liability as the maker of a promissory note and drawer of a

bill with respect to the existence of the payee and his capacity to indorse

primarily bound on the instrument for by his acceptance, he engages to pay it according to the terms or tenor of his acceptance (also the tenor of the bill itself), subject to no condition whatsoever

his acceptance is a promise to pay the drawee who has accepted cannot retract this admission as against

a holder for value, since he has already obtained a suspension of the holder’s remedies against the drawer and an extension of credit

a drawee –bank who accepts or pays a check despite a stop payment order from the drawer, it cannot refuse to pay the holder or recover what has been paid; neither may it debit the drawer’s account unless the acceptance nor payment was made prior to the receipt of the order

General rule: No one but the drawee may accept; a stranger or volunteer is not bound byacceptance.

Exception: When a bill is accepted for honor supra protest.

The nature of acceptance is important only in the determination of the kind of liabilities of the parties involved, but not in the determination of whether a commercial paper is a bill of exchange or not.

Suppose a bill is altered without authority by the payee before acceptance, and is subsequently accepted by the acceptor as altered, is the latter liable to an innocent holder according to the original tenor of the bill or according to its altered tenor. -

The acceptor, by signing the bill as such, warrants the existence of the payee and his then capacity to indorse. He also admits the existence of the drawer, the genuineness of his signature, and his capacity and authority to draw the bill.

Defenses precluded. – The acceptor is consequently precluded from asserting as a defense that the drawer is fictitious or non-existent, or that the drawer’s signature is a forgery, or that he has no funds in his hands belonging to the drawer with which to pay the bill, or that the drawer has overdrawn his account, or that the drawer has no capacity to contract or has no authority to draw a bill. By accepting unconditionally a bill, the drawee becomes liable to a holder, and he cannot allege want or failure of consideration between him and the drawer. The holder is stranger as regards the transaction between the drawer and the drawee.

Matters not admitted. – The acceptor does not admit the genuineness of the indorser’s signature because it is only the signature of the drawer that he warrants, although the purported indorsement was on the bill at the time it was accepted. An acceptor is only held to a knowledge of the signature of the drawer. By accepting a bill, he only admits the genuineness of such signature and cannot be charged with

19

SECTION 63. When a person deemed indorser. - A person placing his signature upon an instrument otherwise than as maker, drawer, or acceptor, is deemed to be indorser unless he clearly indicates by appropriate words his intention to be bound in some other capacity.


knowledge of the want of genuineness of any other part of the instrument or of the title of the holder.

Payment by the drawee may not be considered as equivalent of acceptance. “The acceptance of a bill is a signification by the drawee of his assent to the order of the drawer.” But acceptance is not required for checks, for the same are payable on demand. Acceptance by the drawee may be implied.

Person deemed indorser

General indorser – a person signing his name on the back of an instrument, thus liable as such. He is liable only after presentment and notice of dishonor. The law requires that an indorser indicates by appropriate words his intention to be bound in some other capacity on the instrument itself.

Liability as guarantor – a person who writes on the back of an instrument and indicates his intention to be bound as a guarantor is not discharged from liability merely because of the lack of due presentment or due notice of dishonor. He is liable subsidiarily after the assets of the principal debtor have been exhausted.

Liability as surety - a person who writes on the back of an instrument followed by the words “a surety” shows by such added words his intention to be bound as surety rather than as an indorser. He is primarily and absolutely liable with the principal debtor without benefit of exhaustion of the properties of the latter and without also the necessity of presentment or notice of dishonor.

Signature made for identification only – liable only as a guarantor and not as indorser

Liability of agent bank for collection – not bound to know the genuineness of prior indorsements

Liability of irregular indorser

indorsement for some purpose other than to transfer the instrument, or an indorsement by astranger to the instrument or by one not in the actual or apparent chain of title, especially made prior to the delivery of the instrument to the payee

deals with the liability of an irregular indorser to the payee and subsequent parties

it has no application to a case where the signature was placed on the instrument after delivery to the payeeAn “irregular of anomalous” indorser is a person who:

not otherwise a party to an instrument places thereon his signature in blank before delivery

the irregular or anomalous indorser indorses the instrument in an unusual, singular or peculiar manner

usually an accommodation indorser his warranties are the same as those of a general indorser, an

indorsement without classification

Warranty

20

SECTION 64. Liability of irregular indorser. - Where a person, not otherwise a party to an instrument, places thereon his signature in blank before delivery, he is liable as indorser, in accordance with the following rules: (a) If the instrument is payable to the order of a third person, he is liable to the payee and to all subsequent parties. (b) If the instrument is payable to the order of the maker or drawer, or is payable to bearer, he is liable to all parties subsequent to the maker or drawer. (c) If he signs for the accommodation of the payee, he is liable to all parties subsequent to the payee.

SECTION 65. Warranty where negotiation by delivery and so forth. — Every person negotiating an instrument by delivery or by a qualified indorsement warrants: (a) That the instrument is genuine and in all respects what it purports to be; (b) That he has a good title to it; (c) That all prior parties had capacity to contract; (d) That he has no knowledge of any fact which would impair the validity of the instrument or render it valueless. But when the negotiation is by delivery only, the warranty extends in favor of no holder other than the immediate transferee. The provisions of subdivision (c) of this section do not apply to a person negotiating public or corporation securities other than bills and notes.

SECTION 66. Liability of general indorser. - Every indorser who indorses without qualification, warrants to all subsequent holders in due course: (a) The matters and things mentioned in subdivisions (a), (b), and (c) of the next preceding section; and (b) That the instrument is, at the time of his indorsement, valid and subsisting; And, in addition, he engages that, on due presentment, it shall be accepted or paid, or both, as the case may be, according to its tenor, and that if it be dishonored and the necessary proceedings on dishonor be duly taken, he will pay the amount thereof to the holder, or to any subsequent indorser who may be compelled to pay it.

SECTION 63. When a person deemed indorser. - A person placing his signature upon an instrument otherwise than as maker, drawer, or acceptor, is deemed to be indorser unless he clearly indicates by appropriate words his intention to be bound in some other capacity.


means that indorsement is not necessary because the instrument is payable to bearer

the words “by delivery” refer to a holder who negotiates the instrument in the same condition in which he received it, making no indorsement at all

The liability of a person negotiating a bearer instrument by mere delivery is the same as the

person who negotiates by qualified indorsement. The liability of the one who negotiates by mere delivery extends in

favor only if his immediate transferee.

Liability of general indorser

The drawer and general guarantee payment of the instrument, provided certain steps are taken to charge them with liability.

It has similar to the liability of the qualified indorser and a person negotiating by delivery

It warranties that the instrument will be honored, thus engaging to pay it if it is dishonored

The following are the differences of a general indorser and irregular indorser:

A general indorser makes either a blank or special indorsement, while an irregular indorser always makes a blank indorsement;

A general indorser indorses the instrument after its delivery to the payee, while an irregular indorser indorses before its delivery to the payee; and

A general indorser is liable only to the parties subsequenrt to him, while an irregular indorser is liable to the payee and subsequent parties unless he signs for the accommodation of the payee in which case he is liable only to all parties subsequent to the payee.

Liability of indorser if negotiable by delivery

Negotiation by delivery – An instrument payable to bearer is negotiable by delivery and the transferor is liable to the immediate transferee. It is, therefore, not necessary for the holder to indorse the instrument if his purpose is just to negotiate the same.

Negotiation by indorsement – There is nothing, however, to prevent the holder from indorsing the instrument if he wants to.

If he indorses specially, he is liable only to holders who make title through his indorsement.

If he indorses without qualification, he incurs the liability of a general indorser.

Order in which indorsers are liable

Among themselves – It establishes a disputable presumption that every indorser is liable to all indorsers subsequent to him.

To the holder – As to him, indorsers are liable in any order and none of them can interpose as a defense against him an agreement among themselves that they are not liable in the order of their indorsements.

21

SECTION 67. Liability of indorser where paper negotiable by delivery. — Where a person places his indorsement on an instrument negotiable by delivery, he incurs all the liability of an indorser.

SECTION 68. Order in which indorsers are liable. - As respect one another, indorsers are liable prima facie in the order in which they indorse; but evidence is admissible to show that, as between or among themselves, they have agreed otherwise. Joint payees or joint indorsees who indorse are deemed to indorse jointly and severally.

SECTION 69. Liability of an agent or broker. - Where a broker or other agent negotiates an instrument without indorsement, he incurs all the liabilities prescribed by Section Sixty-five of this Act, unless he discloses the name of his principal and the fact that he is acting only as agent.

SECTION 70. Effect of want of demand on principal debtor. - Presentment for payment is not necessary in order to charge the person primarily liable on the instrument; but if the instrument is, by its terms, payable at a special place, and he is able and willing to pay it there at maturity, such ability and willingness are equivalent to a tender of payment upon his part. But except as herein otherwise provided, presentment for payment is necessary in order to charge the drawer and indorsers.


Liability of agent or broker

Personal Liability – refers to instruments which are payable to bearer and are, negotiable by

Delivery. The agent or broker who negotiates by mere delivery incurs

the liabilities prescribed in Section 65 If he negotiates the instrument by qualified indorsement, his

warranties are also stated in Section 65 and if by general indorsement, those stated in Section 66.

Exemption from liability – To escape personal liability, he must disclose his principal and the

fact that he is acting only as agent.

PRESENTMENT FOR PAYMENT

Want of demand on principal debtor

Presentment for payment= the presentment of an instrument to the person primarily liable for the purpose of demanding and receiving payment.

When Presentment for payment to person primarily liable not necessary:1) Liability absolute on date for payment –The holder can sue the maker

or acceptor although no demand has been made on him, as soon as the date for payment has passed without the instrument being paid.

2) Where instrument payable at a special place –this is true whether the instrument is payable on time or on demand, and even if the instrument is payable at a special place. In this case, the ability and willingness on the part of the primary party to pay there at maturity are equivalent to a tender or offer of payment on his part so that so that if the instrument is not paid and is overdue, he cannot be considered in delay and, therefore, not being in fault, he is not liable for costs and interests subsequently accruing although he is not relieved from making payment of the amount due.

3) Where presentment required by the terms of instrument – Neither is presentment for payment necessary to change the maker or acceptor even if it is required according to the terms of the instrument. At worse, the failure to make the presentment would not put him in default notwithstanding that the instrument is overdue and unpaid.

4) Rule applicable to notes payable on demand – It has been held that the rule that presentment for payment is not necessary to charge the person primarily liable is applicable to notes payable on demand and suit thereon may be maintained though no demand has been made.

5) Risk assumed by holder in case presentment not made – Neglect to present a check does not affect the debt for which it was given. Risk assumed by the holder of a check in case presentment was not made within a reasonable time, so far the rights against the drawers are concerned, is the insolvency of the drawee.

When Presentment for payment to persons secondarily liable necessary:1) Presentment first to primary party required – The persons secondarily

liable, that is the drawer and the indorsers, stand on a different footing. Since they undertake to pay only if the instrument Is dishonored, it is obvious that demand first must be made upon the person primarily liable (although the only purpose of the demand is to charge the indorsers with liability). The demand is effected by presenting the instrument to him for payment.

2) Effect where presentment not made – If the instrument is not presented to the person primarily liable, the drawer and the indorsees

22

SECTION 71. Presentment where instrument is not payable on demand and where payable on demand. - Where the instrument is not payable on demand, presentment must be made on the day it falls due. Where it is payable on demand, presentment must be made within a reasonable time after its issue, except that in the case of a bill of exchange, presentment for payment will be sufficient if made within a reasonable time after the last negotiation thereof.


are discharged from their secondary liability unless such presentment is excused (sec 79, 80) or dispensed with. In the event of non-acceptance or non-payment, notice of dishonor must be given to the drawer and each indorser, otherwise, the party to whom notice is not given will be released from liability. (Sec. 89).

Presentment where instrument is not payable on demand and where payable on demand

*Date of presentment of instrument depends on whether the instrument is payable at a fixed or determinable future time on or demand.

*Payable at a fixed or determinable future time: made on the date it falls due without period of grace, otherwise the drawer and indorsers will be discharged from liability.

*Presentment made before maturity is not effective and a notice to the makers before maturity reminding them of the date when the note would fall due is not a proper presentment.

*If the instrument is payable on demand, the law makes a distinction as to presentment for payment between promissory notes and ordinary bills of exchange.

a) Promissory notes: presentment must be made to the maker within a reasonable time after its issue or delivery. Just what constitutes a reasonable time is a question of fact or actually, it is a question of law upon the facts proved in each case.

Rulings:*a demand made after 60 days was held to be unreasonable (Plymouth Country Trust Co. v. Scarlan, 118 N.W. 468.);

*a delay of 7 months was held to be unreasonable. (Buckner v. Horowitz, 144 N.Y.S. 161.)

*The burden is on the holder of a note, when seeking to hold an indorser, to prove due and timely presentment. (Commercial National Bank v. Zimmerman, 185 N.Y. 218.)

b) bill of exchange- presentment for payment to the drawee or acceptor must be made within a reasonable time after the last negotiation thereof. The time from the issuance up to the last negotiation is not considered. Under Section 71, therefore, the liability of the drawer and indorser of a bill could continue for an indefinite time limit only by the statute of limitations so long as each negotiation takes place promptly after each indorser acquires title.

“last negotiation” = the last transfer for value.

Constitutes sufficient presentment

Requisites for a sufficient presentment for payment.1. By whom – the holder as owner of the instrument has the right to make the presentment. However, any person authorized by him is a proper party to present the instrument and the authorization need not be in writing.2. When – the term “reasonable are on a business day” means during business hour. What constitute business hour depends upon the general custom of the place of the particular transaction.

a.) Payable at the bank – during banking hours.b.) Place of business during the usual business hours of that

place.c.) Residence of the person liable to pay must be made between the

usual hours of rising and retiring.3. Where – refer to Section 734. To whom – made to the primary party. If person primarily liable is absent or inaccessible, the presentment must be made to any person of sufficient discretion ate the proper place of presentment.

23

SECTION 72. What constitutes a sufficient presentment. - Presentment for payment, to be sufficient, must be made: (a) By the holder, or by some person authorized to receive payment on his behalf; (b) At a reasonable hour on a business day; (c) At a proper place as herein defined; (d) To the person primarily liable on the instrument, or if he is absent or inaccessible, to any person found at the place where the presentment is made.

SECTION 73. Place of presentment. - Presentment for payment is made at the proper place: (a) Where a place of payment is specified in the instrument and it is there presented; (b) Where no place of payment is specified but the address of the person to make payment is given in the instrument and it is there presented; (c) Where no place of payment is specified and no address is given and the instrument is presented at the usual place of business or residence of the person to make payment; (d) In any other case if presented to the person to make payment wherever he can be found, or if presented at his last known place of business or residence.

SECTION 74. Instrument must be exhibited. - The instrument must be exhibited to the person from whom payment is demanded, and when it is paid, must be delivered up to the party paying it.


*Non-compliance with any of the requisites = the person secondary liable is discharged, as if no presentment is made.

Place of presentment

The proper place of presentment is the place specified in the order of enumeration from Subsection A to Subsection B of the codal provision

Instrument must be exhibited

Mode of presentment

*Presentment = refers to act of to holder of a negotiable instrument of exhibiting a note to the maker and demanding payment, or showing a bill to the drawee and requesting its acceptance or payment

*Valid presentment for payment = consists of something more than a mere demand. It requires personal or face-to-face demand at the proper place, exhibiting the instrument to the maker or acceptor from whom payment is demanded.

*Exhibition of the instrument = If the instrument is not exhibited, the presentment would be ineffectual as the debtor is entitled to see the instrument and demand its surrender upon payment. Demand by telephone is not sufficient because exhibition of the instrument is not possible.

*An informal demand for the payment of a demand note not accompanied by presentment of it and not intended as a formal presentment and demand, not sufficient to put the note in dishonor as to charge and indorser. Such informal demand, however, may have an important bearing on the question of whether the note was actually presented for payment within a reasonable time.*But the instrument need not actually be exhibited unless such exhibition is demanded. Thus the maker’s right on exhibition of a note is waved when he does not demand to see the note and he refuses payment on some other grounds.Purpose of exhibition is to enable the debtor:

1) To determine the genuineness of the instrument and the indorsements and the right of the holder to receive payment; and

2) To enable him, upon payment to take possession of it to guard against a lawsuit by a subsequent holder. In the case of the acceptor who pays the bill, he has the right to have it delivered to him for use as a voucher in settlements of accounts with a drawer.

Presentment where instrument payable at bank

Presentment where an instrument payable at the bank, it is equivalent to an order to the bank to make payment, for the account of the principal debtor (Sec. 87)

1) During banking hours – If the instrument is payable at a bank, and the person to make payment has funds in the bank to meet it on the date of maturity; presentment must be made during banking hours. Presentment made outside banking hours is not sufficient in as much as banks do not make payment outside of banking hours.Person secondarily liable will be discharged.

2) Any time during the day – If the person to make payment has no funds in the bank to make payment any time during the day, presentment at any hour before the bank is closed, is sufficient to hold person secondarily liable. The reason is that even if presentment is made during banking hours, the instrument could not have been paid just the same.

24

SECTION 75. Presentment where instrument payable at bank. - Where the instrument is payable at a bank, presentment for payment must be made during banking hours, unless the person to make payment has no funds there to meet it at any time during the day, in which case presentment at any hour before the bank is closed on that day is sufficient.

SECTION 76. Presentment where principal debtor is dead. - Where the person primarily liable on the instrument is dead and no place of payment is specified, presentment for payment must be made to his personal representative, if such there be, and if, with the exercise of reasonable diligence, he can be found. SECTION 77. Presentment to persons liable as partners. - Where the persons primarily liable on the instrument are liable as partners and no place of payment is specified, presentment for payment may be made to any one of them, even though there has been a dissolution of the firm.

SECTION 78. Presentment to joint debtors. - Where there are several persons, not partners, primarily liable on the instrument and no place of payment is specified, presentment must be made to them all.

SECTION 79. When presentment not required to charge the drawer. - Presentment for payment is not required in order to charge the drawer where he has no right to expect or require that the drawee or acceptor will pay the instrument.

SECTION 80. When presentment not required to charge the indorser. - Presentment is not required in order to charge an indorser where the instrument was made or accepted for his accommodation and he has no reason to expect that the instrument will be paid if presented.

SECTION 81. When delay in making presentment is excused. - Delay in making presentment for payment is excused when the delay is caused by circumstances beyond the control of the holder and not imputable to his default, misconduct, or negligence. When the cause of delay ceases to operate, presentment must be made with reasonable diligence.


3) Before close of banking hours – The person to make payment has until the close of banking hours of the bank where the instrument is made payable in which to pay it, and if before the close of such hours he deposits funds there enough to pay it, a demand earlier in the day is premature. Hence, the instrument is not considered dishonored through payment has been refused earlier in the day.

Presentment when principal debtor is dead

Presentment where principal debtor is dead. *When applicable: only if no place of payment is specified. If there is a place specified in the instrument, presentment should be made at such place.

Presentment to persons liable as partners

Presentment to persons liable as partners. Each partner is an agent of the partnership or his co-partners. Hence, presentment may be made to any one of them.

Presentment to joint debtorsPresentment to join debtors.If the parties primarily liable are not partners, their liability is only joint. In a joint obligation, there are as many debts as there are debtors, each debt being considered distinct and separate from each other. Hence, presentment must be made to all of them to hold the drawer and indorsers on their secondary liability.

Presentment not required to charge drawer/indorser*When presentment not required to charge drawer*This section refers only to the drawer. All other parties secondarily liable will be discharged unless presentment for payment is made to fasten their liability.

*When presentment not required to charge indorser:*This section refers only to an indorser for whose accommodation an instrument is made or accepted. As far as all other parties secondarily liable are concerned, presentment is still necessary to charge them.

Reason for the rule: accommodated-payee indorser is the real debtor and not the maker or acceptor. Hence, he is not discharged even if no presentment for payment is made to the maker or acceptor, who in substance, is a surety for the debt.

Delay in presentment excused

When delay in making presentment excused*only the delay in the presentment is excused and not the making of the presentment itself.*In Sec 79, 80 and 82, presentment of payment itself is excused.

Presentment may be dispensed with

When presentment may be dispensed with:1) Where reasonable diligence has been exercised – reasonable diligence implies active search. If practicable, the holder should make inquiries of the payee when neither the maker or residence could be found2) Where drawee is fictitious – If the drawee is fictitious, there is no one to whom presentment is to be made, and therefore, it is dispensed with3) Where there is waiver – The waiver may be before or after maturity; express or impliedEXPRESS WAIVER= “Presentment waived” /”waiving demand and protest”/written before the signature of the drawer or indorser IMPLIED WAIVER = manifested by the act or conduct of a party calculated to lead the

25

SECTION 82. When presentment for payment is excused. - Presentment for payment is excused: (a) Where, after the exercise of reasonable diligence, presentment, as required by this Act, cannot be made; (b) Where the drawee is a fictitious person; (c) By waiver of presentment, express or implied.

SECTION 83. When instrument dishonored by non-payment. - The instrument is dishonored by non-payment when: (a) It is duly presented for payment and payment is refused or cannot be obtained; or (b) Presentment is excused and the instrument is overdue and unpaid.

SECTION 84. Liability of person secondarily liable, when instrument dishonored. - Subject to the provisions of this Act, when the instrument is dishonored by non-payment, an immediate right of recourse to all parties secondarily liable thereon accrues to the holder.

SECTION 85. Time of maturity. - Every negotiable instrument is payable at the time fixed therein without grace. When the day of maturity falls upon Sunday or a holiday, the instruments falling due or becoming payable on Saturday are to be presented for payment on the next succeeding business day except that instruments payable on demand may, at the option of the holder, be presented for payment before twelve o'clock noon on Saturday when that entire day is not a holiday.


holder to believe that presentment is waived or to prevent or mislead him from treating the instrument as he would otherwise like.

Summary of rules to presentment for payment*Presentment for payment is not necessary to charge persons primarily liable but is necessary to charge persons secondarily liable. (Sec 70)*In the following cases, presentment for payment is not necessary to charge persons secondarily liable:

As to drawer, under section 79As to indorser, under section 80When presentment is dispensed with under section 82; andWhen the bill has been dishonored by non-acceptance as provided in

section 151

Instrument dishonored by non payment

When instrument dishonored by non-payment1) Non-payment upon due presentation

a) That the instrument is duly presented for payment to the party primarily liable thereon; and

b) That payment is either refused or cannot be obtained

2) Non-payment without presentation – under subsection b) it is necessary that: (1) presentment is excused (sections 79, 80 and 82); (2) the instrument is overdue; and it is unpaid.

Liability of secondarily liable

Effect of dishonor by non-paymentAs to the holder= the persons secondarily liable become the principal debtors and he need not proceed against the person primarily liable before suing them.

Time of maturity

Time of maturity of instrumentAs the law expressly says that the instrument is payable at the time

fixed therein without grace, it is not permitted to show a custom or usage fixing a date of maturity different from that clearly indicated on the face of the instrument, the instrument is payable on the last date of grace.

1)On a Sunday or holiday – Presentment for payment cannot be made on Sunday or a holiday on which case it falls on the said day, it will have to be presented on the next succeeding business day.

2)On a Saturday – If the instrument falls due on a Saturday, and it is a time instrument, it should be presented for payment on the next succeeding business day, i.e. Monday or next succeeding business day if Monday is a holiday.

3) On demand – if the instrument is payable on demand, it may be presented for payment before 12:00 o’clock noon on Saturday, or on Monday, at the option of the holder.*Instruments falling due or becoming payable on SaturdayAn instrument “falls due” on Saturday if it is payable on Saturday; “becomes payable on Saturday” when it falls due another day like Friday which happens to be a holiday and, the instrument shall instead be payable on Saturday which is the next day.

Time, computed

Computation of time of maturity:Count from the day following the date from which the time is to run (even if the said date is a holiday), and include the last day of the period. i.e. 1) date of instrument: April 5, 2004 , payable three months after the date, the due date is July 5, 2004

26

SECTION 86. Time; how computed. - When the instrument is payable at a fixed period after date, after sight, or after that happening of a specified event, the time of payment is determined by excluding the day from which the time is to begin to run, and by including the date of payment.

SECTION 87. Rule where instrument payable at bank. - Where the instrument is made payable at a bank, it is equivalent to an order to the bank to pay the same for the account of the principal debtor thereon.

SECTION 88. What constitutes payment in due course. - Payment is made in due course when it is made at or after the maturity of the payment to the holder thereof in good faith and without notice that his title is defective.

SECTION 89. To whom notice of dishonor must be given. - Except as herein otherwise provided, when a negotiable instrument has been dishonored by non-acceptance or non-payment, notice of dishonor must be given to the drawer and to each indorser, and any drawer or indorser to whom such notice is not given is discharged.

SECTION 90. By whom given. - The notice may be given by or on behalf of the holder, or by or on behalf of any party to the instrument who might be compelled to pay it to the holder, and who, upon taking it up, would have a right to reimbursement from the party to whom the notice is given.

SECTION 91. Notice given by agent. - Notice of dishonor may be given by any agent either in his own name or in the name of any party entitled to given notice, whether that party be his principal or not.

SECTION 94. When agent may give notice. - Where the instrument has been dishonored in the hands of an agent, he may either himself give notice to the parties liable thereon, or he may give notice to his principal. If he gives notice to his principal, he must do so within the same time as if he were the holder, and the principal, upon the receipt of such notice, has himself the same time for giving notice as if the agent had been an independent holder.


2) instrument dated: November 8, 2004, payable after twelve months, due date is November 8, 20093) instrument dated January 31, payable one month after date will mature on February 28, or February 2009 if it is a leap yearInstrument payable ten days after October 11, 2004, date of maturity is October 21, 2004, by counting ten days from October 12, 2004.

When instrument is payable at bank

Rule where instrument payable at a bankThis section applies only where the instrument is payable at a particular named bank.

Payment in due course

Requisites of payment in due course1. Payment must be made at or after the date of maturity2. Payment before maturity = does not discharge instrument3. Payment must be made to the holder4. Payment must be made in good faith and without notice that the

holder’s title is defective

NOTICE OF DISHONOR

When instrument considered to be dishonored:1. If it is not accepted when presented for acceptance2. If it is not paid when presented for payment at maturity3. If presentment is excused or waived and the instrument is past due

and unpaid

NOTICE OF DISHONOR – bringing, either verbally or by writing, to the knowledge of the drawer or indorser of an instrument, the fact that a specified negotiable instrument, upon proper proceedings taken, has not been accepted or has been paid and that the party notified is expected to pay it.

Effect of failure to give notice of dishonor

Any such person to whom notice is not given is discharged. However, the holder is not required to notify the drawer and all the

indorsers. He may select to hold only one or some indorsers. Although the indorser to whom notice is not given is discharged, he is liable for breach of warranties pertaining to the instrument.

Notice of Dishonor may be given:a. by or on behalf or the holderb. by or on behalf of any party who:- is a party to the instrument and might be compelled to pay the

instrument- to a holder who having taken it up would have a right of

reimbursement from the party to whom notice is given. (Sec. 90 NIL)

Notice given by agent agent need not be authorized by the principal to give notice.

When and to whom agent may be given:The agent, in case the instrument is dishonored on his hands, may give

notice either to his principal or directly to the parties secondarily liable thereon without notifying his principal.

Notice to parties secondarily liable

Agent must notify parties secondarily liable within the time fixed by Sections 102, 103, 104 and 107, otherwise they are discharged unless, the principal himself notifies them within the same time.

Notice to principal

27

SECTION 102. Time within which notice must be given. - Notice may be given as soon as the instrument is dishonored and, unless delay is excused as hereinafter provided, must be given within the time fixed by this Act. SECTION 103. Where parties reside in same place. - Where the person giving and the person to receive notice reside in the same place, notice must be given within the following times: (a) If given at the place of business of the person to receive notice, it must be given before the close of business hours on the day following. (b) If given at his residence, it must be given before the usual hours of rest on the day following. (c) If sent by mail, it must be deposited in the post office in time to reach him in usual course on the day following. SECTION 104. Where parties reside in different places. - Where the person giving and the person to receive notice reside in different places, the notice must be given within the following times: (a) If sent by mail, it must be deposited in the post office in time to go by mail the day following the day of dishonor, or if there be no mail at a convenient hour on last day, by the next mail thereafter. (b) If given otherwise than through the post office, then within the time that notice would have been received in due course of mail, if it had been deposited in the post office within the time specified in the last subdivision. SECTION 107. Notice to subsequent party; time of. - Where a party receives notice of dishonor, he has, after the receipt of such notice, the same time for giving notice to antecedent parties that the holder has after the dishonor. SECTION 92. Effect of notice on behalf of holder. - Where notice is given by or on behalf of the holder, it inures to the benefit of all subsequent holders and all prior parties who have a right of recourse against the party to whom it is given. SECTION 93. Effect where notice is given by party entitled thereto. - Where notice is given by or on behalf of a party entitled to give notice, it inures to the benefit of the holder and all parties subsequent to the party to whom notice is given. SECTION 95. When notice sufficient. - A written notice need not be signed and an insufficient written notice may be supplemented and validated by verbal communication. A misdescription of the instrument does not vitiate the notice unless the party to whom the notice is given is in fact misled thereby. SECTION 96. Form of notice. - The notice may be in writing or merely oral and may be given in any terms which sufficiently identify the instrument, and indicate that it has been dishonored by non-acceptance or non-payment. It may in all cases be given by delivering it personally or through the mails. SECTION 109. Waiver of notice. - Notice 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 expressed or implied.SECTION 97. To whom notice may be given. - Notice of dishonor may be given either to the party himself or to his agent in that behalf. SECTION 98. Notice where party is dead. - When any party is dead and his death is known to the party giving notice, the notice must be given to a personal representative, if there be one, and if with reasonable diligence, he can be found. If there be no personal representative, notice may be sent to the last residence or last place of business of the deceased.SECTION 99. Notice to partners. - Where the parties to be notified are partners, notice to any one partner is notice to the firm, even though there has been a dissolution. SECTION 100. Notice to persons jointly liable. - Notice to joint persons who are not partners must be given to each of them unless one of them has authority to receive such notice for the others.


Agent must notify principal within the same time referred to as if he were a holder. The principal, upon receiving such notice, has also the same time for giving notice to the parties secondarily liable as if the instrument was dishonored on the day he received the notice.

Effect of notice given by holder

inures to the benefit of:1. all holders subsequent to the holder who has given notice2. all parties prior to the holder but subsequent to the party to whom

notice has been given and against whom they have a right of recourse.

Effect of notice given by party entitled thereto

inures to the benefit of:1. the holder2. all parties subsequent to the party to whom notice is given,

including parties subsequent to the holder who gave notice

Notice:a. may be written or oral (Sec. 96)b. written notice need not be signed or may be supplemented by verbal

communication (Sec. 95)c. may be by personal delivery or by mail (Sec. 96)

Notice may be waived either expressly or implied: a. before the time of giving notice has arrived b. after the omission to give due notice (Sec. 109 NIL)

To whom notice may be given (Sec. 97):1. to the party himself2. to his agent having authority to do so

Notice where party is dead (SEC.98)

When the party sought to be charged is dead, the notice must be given to his personal representative provided that:

1. His death is known to the party giving notice2. There is a personal representative3. If with reasonable diligence the said personal

representative could be found

Notice to partners Notice to partners is notice to partnership although notice was

fraudulently suppressed by the partners receiving it. But the fraudulent partner is liable to his co-partners

Sec.100Notice to joint parties

Joint payees or joint indorsees who indorse an instrument are deemed to indorse jointly and severally.

Their liability is solidary so that if one of them is notified, that one is not discharged by reason of failure to give notice to the other joint indorsees.

Notice to bankrupt

Notice may be given to the party himself or to his trustee or assignee.

Notice where parties reside in same place

Notice of dishonor may be given:

28

SECTION 101. Notice to bankrupt. - Where a party has been adjudged a bankrupt or an insolvent, or has made an assignment for the benefit of creditors, notice may be given either to the party himself or to his trustee or assignee.

SECTION 103. Where parties reside in same place. - Where the person giving and the person to receive notice reside in the same place, notice must be given within the following times: (a) If given at the place of business of the person to receive notice, it must be given before the close of business hours on the day following. (b) If given at his residence, it must be given before the usual hours of rest on the day following. (c) If sent by mail, it must be deposited in the post office in time to reach him in usual course on the day following.

SECTION 104. Where parties reside in different places. - Where the person giving and the person to receive notice reside in different places, the notice must be given within the following times: (a) If sent by mail, it must be deposited in the post office in time to go by mail the day following the day of dishonor, or if there be no mail at a convenient hour on last day, by the next mail thereafter. (b) If given otherwise than through the post office, then within the time that notice would have been received in due course of mail, if it had been deposited in the post office within the time specified in the last subdivision.

SECTION 105. When sender deemed to have given due notice. - Where notice of dishonor is duly addressed and deposited in the post office, the sender is deemed to have given due notice, notwithstanding any miscarriage in the mails.

SECTION 106. Deposit in post office; what constitutes. - Notice is deemed to have been deposited in the post-office when deposited in any branch post office or in any letter box under the control of the post-office department.

SECTION 107. Notice to subsequent party; time of. - Where a party receives notice of dishonor, he has, after the receipt of such notice, the same time for giving notice to antecedent parties that the holder has after the dishonor. SECTION 108. Where notice must be sent. - Where a party has added an address to his signature, notice of dishonor must be sent to that address; but if he has not given such address, then the notice must be sent as follows: (a) Either to the post-office nearest to his place of residence or to the post-office where he is accustomed to receive his letters; or (b) If he lives in one place and has his place of business in another, notice may be sent to either place; or (c) If he is sojourning in another place, notice may be sent to the place where he is so sojourning. But where the notice is actually received by the party within the time specified in this Act, it will be sufficient, though not sent in accordance with the requirement of this section.


1. Personally2. By mail

The place where notice may be given is either the place of business or the residence of the party to receive the notice, at the option of the party giving notice.

If given at the place of business, it must be given before the close of business hours on the day following

If given as his residence, it must given before the usual hours of rest on the day following

If sent by mail, it must be deposited in the post office in time to reach him in usual course on the day following.

Notice where parties reside in different places

Notice may be given:1. By mail2. Otherwise than by mail

If sent by mail, it must be deposited in the post office in time to go by mail the day following the day of dishonor, or if there be no mail at a convenient hour on that day, by the next mail thereafter

If given otherwise than through the post-office, then within the time that notice would have been received in due course of mail, if it has been deposited in the post-office within the time specified.

When sender deemed to have given due notice

Notice by mail is deemed to have been properly made where:1. The notice of dishonor is duly addressed2. Deposited in the post-office

When notice deemed to have been deposited

Notice may be deposited in1. Post-office2. Any branch post-office3. Any letter box under the control of the post-office

Time of notice to subsequent party

Same time for giving notice to antecedent parties that the holder has after the dishonor

Place where notice must be given

General rule:Where a party has added an address to his name, the notice must be sent to that address and it will be sufficient even though the address is an incorrect one

Exceptions:1. Either to the post-office nearest to his place of residence or to the

post-office where he is accustomed to receive his letters2. If he lives in one place, and has his place of business in another,

notice may be sent to either place3. If he is sojourning in another place, notice may be sent to the palce

where he is sojourning

General rule: Any drawer or indorser to whom such notice is not given is discharged.Exceptions:

a. Waiver (Sec. 109) b. Notice is dispensed (Sec. 112)c. Not necessary to Drawer (Sec. 114) d. Not necessary to Indorser (Sec. 115)

29

SECTION 109. Waiver of notice. - Notice 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 expressed or implied. SECTION 110. Whom affected by waiver. - Where the waiver is embodied in the instrument itself, it is binding upon all parties; but, where it is written above the signature of an indorser, it binds him only. SECTION 112. When notice is dispensed with. - Notice of dishonor is dispensed with when, after the exercise of reasonable diligence, it cannot be given to or does not reach the parties sought to be charged. SECTION 113. Delay in giving notice; how excused. - Delay in giving notice of dishonor is excused when the delay is caused by circumstances beyond the control of the holder and not imputable to his default, misconduct, or negligence. When the cause of delay ceases to operate, notice must be given with reasonable diligence. SECTION 114. When notice need not be given to drawer. - Notice of dishonor is not required to be given to the drawer in either of the following cases: (a) Where the drawer and drawee are the same person; (b) When the drawee is fictitious person or a person not having capacity to contract; (c) When the drawer is the person to whom the instrument is presented for payment; (d) Where the drawer has no right to expect or require that the drawee or acceptor will honor the instrument; (e) Where the drawer has countermanded payment.

SECTION 115. When notice need not be given to indorser. — Notice of dishonor is not required to be given to an indorser in either of the following cases: (a) When 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; (b) Where the indorser is the person to whom the instrument is presented for payment; (c) Where the instrument was made or accepted for his accommodation.

SECTION 116. Notice of non-payment where acceptance refused. - Where due notice of dishonor by non-acceptance has been given, notice of a subsequent dishonor by non-payment is not necessary unless in the meantime the instrument has been accepted.

SECTION 117. Effect of omission to give notice of non-acceptance. - An omission to give notice of dishonor by non-acceptance does not prejudice the rights of a holder in due course subsequent to the omission.

SECTION 111. Waiver of protest. - A waiver of protest, whether in the case of a foreign bill of exchange or other negotiable instrument, is deemed to be a waiver not only of a formal protest but also of presentment and notice of dishonor.

SECTION 118. When protest need not be made; when must be made. - Where any negotiable instrument has been dishonored, it may be protested for non-acceptance or non-payment, as the case may be; but protest is not required except in the case of foreign bills of exchange.


if notice is delayed, delay may be excused (Sec. 113)

Waiver – the intentional abandonment of a known right.

May be made before the time of giving notice or after omission to give due notice.

May be express or in wriutung. The burden of proof is on the holder to show waiver of notice.

Person affected by waiver If the waiver is embodied in the instrument itself, it binds all parties If it is written above the signature of an indorser, it binds only him

When notice dispensed with: When, after reasonable diligence, it cannot be given to or does not

reach the parties sought to be charged.

Delay in giving noticed excused Dispenses with the duty to give notice but excuses merely the delay in

giving it. Delay is excused when is caused by circumstances beyond the control

of the holder and not imputable to his default, misconduct or negligence.

Instances when Notice of Dishonor Not Necessary to Drawera. Drawere and drawee same personb. drawee is a fictitious/incapacitated personc. drawer is the person to whom presentment for payment is maded. drawer has no right to expect that the drawee will accept/pay the

instrument

Instances when Notice Not Required to Indorsera. drawee was a fictitious/incapacitated person and the indorser was

aware of such at the time of indorsementb. indorser is the person to whom instrument was presented for paymentc. instrument made/accepted for his accommodation

Effect where notice of non-acceptance already given Notice of subsequent dishonor by non- payment is not necessary,

unless In the meantime the instrument has been accepted

Effect of omission to give notice of non-acceptance It does not prejudice the rights of a holder in due course subsequent to

the omission.

Protest – formal instrument executed usually by a notary public certifying that the legal steps necessary to fix the liability of the drawee and the indorsers have been taken. Protest may be waived:Effects:

deemed a waiver of presentment and notice of dishonor as well

Where notice is waived, presentment is not waived Where presentment is waived, notice is also waived Where protest is waived, notice and presentment is waived

When protest required and not required

Protest only necessary for a foreign bill of exchange. Protest for other negotiable instruments is optional.

DISCHARGE

DISCHARGE OF INSTRUMENT – a release of all the parties, whether primary or secondary, from the obligations arising under the instrument rendering it without force and effect and, consequently, no longer negotiable.

30

SECTION119. Instrument; how discharged. - A negotiable instrument is discharged: (a) By payment in due course by or on behalf of the principal debtor; (b) By payment in due course by the party accommodated, where the instrument is made or accepted for his accommodation; (c) By the intentional cancellation thereof by the holder; (d) By any other act which will discharge a simple contract for the payment of money; (e) When the principal debtor becomes the holder of the instrument at or after maturity in his own right.

SECTION 120. When persons secondarily liable on the instrument are discharged. - A person secondarily liable on the instrument is discharged: (a) By any act which discharges the instrument; (b) By the intentional cancellation of his signature by the holder; (c) By the discharge of a prior party; (d) By a valid tender or payment made by a prior party; (e) By a release of the principal debtor unless the holder's right of recourse against the party secondarily liable is expressly reserved; (f) By any agreement binding upon the holder to extend the time of payment or to postpone the holder's 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 expressly reserved.

SECTION 121. Right of party who discharges instrument. - Where the instrument is paid by a party secondarily liable thereon, it is not discharged; but the party so paying it is remitted to his former rights as regard all prior parties, and he may strike out his own and all subsequent indorsements and against negotiate the instrument, except: (a) Where it is payable to the order of a third person and has been paid by the drawer; and (b) Where it was made or accepted for accommodation and has been paid by the party accommodated.

SECTION 122. Renunciation by holder. - The holder may expressly renounce his rights against any party to the instrument before, at, or after its maturity. An absolute and unconditional renunciation of his rights against the principal debtor made at or after the maturity of the instrument discharges the instrument. But a renunciation does not affect the rights of a holder in due course without notice. A renunciation must be in writing unless the instrument is delivered up to the person primarily liable thereon.

SECTION 123. Cancellation; unintentional; burden of proof. - A cancellation made unintentionally or under a mistake or without the authority of the holder, is inoperative but where an instrument or any signature thereon appears to have been cancelled, the burden of proof lies on the party who alleges that the cancellation was made unintentionally or under a mistake or without authority.


Causes of Discharge of the Instrumenta. payment by the debtorb. payment by accommodated partyc. intentional cancellation by holder of instrumentd. any other act discharging a simple monetary obligatione. debtor becomes holder of the instrument at/after maturity in his own

right ( Sec 119 NIL)

discharge of the instrument discharges all the parties thereto payment must be in due course, and by the principal debtor or on his

behalf if payment is not made by the principal debtor, payment only cancels

the liability of the payor and those obligated after him but does not discharge the instrument.

payment by an accommodation party does not discharge the instrument.

Discharge of Secondary Parties:a. any act discharging the instrumentb. cancellation of indorser’s signature by indorsersc. discharge of prior partyd. tender of payment by prior partye. release of principal debtorf. extension of payment by the holder/postponement of right to enforce

without assent of secondary parties and without reservation of right of recourse against secondary parties

Rights of a party secondarily liable who pays: the instrument is not discharge the party is remitted to his former rights as to all prior parties the party may strike out his own and all subsequent indorsements the party may negotiate the instrument again

Exception: an instrument cannot be renegotiated where it is payable to order

of a 3rd person and has been paid by the drawer and instrument cannot be renegotiated where is was made or

accepted for accommodation and it has been paid by the party accommodated.

Renunciation by a holder discharges an instrument when:a. it is absolute and unconditionalb. made in favor of a person primarily liablec. made at or after maturity of the instrumentd. in writing or the instrument is delivered up to the person primarily

liable

if renounced in favor of a party secondarily liable, only he is exonerated from liability and all parties subsequent to him

discharge by novation is allowed

Cancellation not limited to the writing of the writing of the word “cancelled” or

“paid” or the drawing of crisscross line across the instrument. It includes tearing, erasure, obliteration or burning.

Cancellation is inoperative if made:1. Unintentionally2. By mistake or through fraud3. Without authority

The burden of proof is on the holder claiming its ineffectiveness.

ALTERATION

General rule: When materially altered, without the consent of all parties liable, the instrument is avoided except as against:

31

SECTION 124. Alteration of instrument; effect of. - Where a negotiable instrument is materially altered without the assent of all parties liable thereon, it is avoided, except as against a party who has himself made, authorized, or assented to the alteration and subsequent indorsers. But when an instrument has been materially altered and is in the hands of a holder in due course not a party to the alteration, he may enforce payment thereof according to its original tenor. SECTION 125. What constitutes a material alteration. - Any alteration which changes: (a) The date; (b) The sum payable, either for principal or interest; (c) The time or place of payment: (d) The number or the relations of the parties; (e) The medium or currency in which payment is to be made; (f) Or which adds a place of payment where no place of payment is specified, or any other change or addition which alters the effect of the instrument in any respect, is a material alteration.

SECTION 130. When bill may be treated as promissory note. - Where in a bill the drawer and drawee are the same person or where the drawee is a fictitious person or a person not having capacity to contract, the holder may treat the instrument at his option either as a bill of exchange or as a promissory note. SECTION 132. Acceptance; how made, by and so forth. - The acceptance of a bill is the signification by the drawee of his assent to the order of the drawer. The acceptance must be in writing and signed by the drawee. It must not express that the drawee will perform his promise by any other means than the payment of money.SECTION 140. What constitutes a general acceptance. - An acceptance to pay at a particular place is a general acceptance unless it expressly states that the bill is to be paid there only and not elsewhere. SECTION 141. Qualified acceptance. - An acceptance is qualified which is: (a) Conditional; that is to say, which makes payment by the acceptor dependent on the fulfillment of a condition therein stated; (b) Partial; that is to say, an acceptance to pay part only of the amount for which the bill is drawn; (c) Local; that is to say, an acceptance to pay only at a particular place; (d) Qualified as to time; (e) The acceptance of some, one or more of the drawees but not of all. SECTION 133. Holder entitled to acceptance on face of bill. - The holder of a bill presenting the same for acceptance may require that the acceptance be written on the bill, and, if such request is refused, may treat the bill as dishonored. SECTION 142. Rights of parties as to qualified acceptance. - The holder may refuse to take a qualified acceptance and if he does not obtain an unqualified acceptance, he may treat the bill as dishonored by non-acceptance. Where a qualified acceptance is taken, the drawer and indorsers are discharged from liability on the bill unless they have expressly or impliedly authorized the holder to take a qualified acceptance, or subsequently assent thereto. When the drawer or an indorser receives notice of a qualified acceptance, he must, within a reasonable time, express his dissent to the holder or he will be deemed to have assented thereto.

SECTION 134. Acceptance by separate instrument. - Where an acceptance is written on a paper other than the bill itself, it does not bind the acceptor except in favor of a person to whom it is shown and who, on the faith thereof, receives the bill for value.


a. the party who has made the alterationb. the party who authorized or assented to the alteration. c. subsequent indorsers

Exception:- if in the hands of a HDC, may be enforced according to its original

tenor

there is no distinction between fraudulent and innocent alteration

Material Alteration – an alternation is said to be material if it alters the effect of the instrument. Under Section 125 the following changes are considered material alterations:

a. datesb. the sum payablec. time and place of paymentd. number or relations of the partiese. medium or currency for paymentf. adding a place of payment where no place is specifiedg. any other which alters the affect of the instrument

BILLS OF EXCHANGE

Instances where a BOE may be treated as a PN:a. where the drawer and the drawee are one and the sameb. where the drawee is a fictitious personc. where the drawee has no capacity to contract (Sec. 130 NIL)

The holder has the option to treat it as a BOE or a PN

ACCEPTANCE

Acceptance is the signification by the drawee of his assent to the order of the drawer. It is an act by which a person on whom the BOE is drawn assents to the request of the drawer to pay it. (Sec. 132 NIL)

Acceptance may be:a. actualb. constructivec. general (Sec. 140)d. qualified (Sec. 141)

Requisites of actual acceptance:1. in writing2. signed by the drawee3. must not express the drawee will perform his promise by any other

means than payment of money4. communicated or delivered to the holder

A holder has the right:a. require that acceptance be written on the bill and if refused, treat it as

if dishonored (Sec. 133)b. refuse to accept a qualified acceptance and may treat it as dishonored

(Sec. 142)c.

Acceptance by a separate instrument1. Acceptance must be shown to the person to whom the instrument

is negotiated2. Such person must take the bill for value in the faith of such

acceptance

Promise to accept equivalent to acceptance

Promise to accept is good to any person who “upon the faith thereof receives the bill for value”

32

SECTION 135. Promise to accept; when equivalent to acceptance. - An unconditional promise in writing to accept a bill before it is drawn is deemed an actual acceptance in favor of every person who, upon the faith thereof, receives the bill for value. SECTION 136. Time allowed drawee to accept. - The drawee is allowed twenty-four hours after presentment in which to decide whether or not he will accept the bill; the acceptance, if given, dates as of the day of presentation.

SECTION 137. Liability of drawee returning or destroying bill. - Where a drawee to whom a bill is delivered for acceptance destroys the same, or refuses within twenty-four hours after such delivery or within such other period as the holder may allow, to return the bill accepted or non-accepted to the holder, he will be deemed to have accepted the same. SECTION 143. When presentment for acceptance must be made. - Presentment for acceptance must be made: (a) Where the bill is payable after sight, or in any other case, where presentment for acceptance is necessary in order to fix the maturity of the instrument; or (b) Where the bill expressly stipulates that it shall be presented for acceptance; or (c) Where the bill is drawn payable elsewhere than at the residence or place of business of the drawee. In no other case is presentment for acceptance necessary in order to render any party to the bill liable.

SECTION 145. Presentment; how made. - Presentment for acceptance must be made by or on behalf of the holder at a reasonable hour, on a business day and before the bill is overdue, to the drawee or some person authorized to accept or refuse acceptance on his behalf; and (a) Where a bill is addressed to two or more drawees who are not partners, presentment must be made to them all unless one has authority to accept or refuse acceptance for all, in which case presentment may be made to him only; (b) Where the drawee is dead, presentment may be made to his personal representative; (c) Where the drawee has been adjudged a bankrupt or an insolvent or has made an assignment for the benefit of creditors, presentment may be made to him or to his trustee or assignee. SECTION 144. When failure to present releases drawer and indorser. - Except as herein otherwise provided, the holder of a bill which is required by the next preceding section to be presented for acceptance must either present it for acceptance or negotiate it within a reasonable time. If he fails to do so, the drawer and all indorsers are discharged.

SECTION 148. Where presentment is excused. - Presentment for acceptance is excused and a bill may be treated as dishonored by non-acceptance in either of the following cases: (a) Where the drawee is dead, or has absconded, or is a fictitious person or a person not having capacity to contract by bill. (b) Where, after the exercise of reasonable diligence, presentment can not be made. (c) Where, although presentment has been irregular, acceptance has been refused on some other ground.


The promise to accept a future non-existing bill must be unconditional and in writing.

Time allowed drawee to accept

The drawee has twenty-four hours after presentment for acceptance within which to act upon the bill.

The acceptance shall be dated as of the day of presentation or the date when he first saw the bill

Constructive Acceptance:

a. where the drawee to whom the bill has been delivered destroys itb. the drawee refuses within 24 hrs after such delivery or within such

time as is given, to return the bill accepted or not. (Sec. 137 NIL)

drawee becomes primarily liable as an acceptor. mere retention is equivalent to acceptance

Presentment for acceptance – the production or exhibition of a bill of exchange to the drawee for his acceptance or payment.

When presentment for acceptance is necessary:a. if necessary to fix the maturity of the billb. if it is expressly stipulated that it shall be presented for acceptancec. if the bill is drawn payable elsewhere than the residence or place of

business of the drawee (Sec. 143 NIL)

Presentment is the production of a BOE to the drawee for his acceptance

in on order case is presentment necessary to make parties liable.

How presentment for acceptance is made

In order that presentment for acceptance may be proper, it is necessary that it:1. Must be made by or on behalf of the holder2. At a reasonable hour3. On a business day4. Before the bill is overdue and within a reasonable time5. To the drawee or some person authorized to accept or refuse

acceptance on his behalf. When a bill is addressed to two or more drawees who are not partners,

presentment must be made to them all unless one has authority to accept or refuse acceptance for all, in which case presentment may be made to him only

Where the drawee is dead, presentment may be made to his personal representative

Where the drawee has been adjudged a bankrupt or an insolvent or has made an assignment for the benefit of creditors, presentment may be made to him or to his trustee or assignee.

Summary on presentment for acceptance of Bills of Exchange:a. to make the drawee primarily liable and for the accrual of secondary

liability (Sec. 144)b. necessary to fix maturity date, where bill expressly stipulates

presentment, bill payable other than place of drawee (Sec. 143)c. when presentment is excused: drawee is dead, hides, is fictitious,

incapacitated person, after due diligence presentment cannot be made, presentment is refused on another ground although presentment is irregular (Sec. 148)

PROTEST

General rule: Protest is required only for foreign bills

33

SECTION 152. In what cases protest necessary. - Where a foreign bill appearing on its face to be such is dishonored by nonacceptance, it must be duly protested for nonacceptance, by nonacceptance is dishonored and where such a bill which has not previously been dishonored by nonpayment, it must be duly protested for nonpayment. If it is not so protested, the drawer and indorsers are discharged. Where a bill does not appear on its face to be a foreign bill, protest thereof in case of dishonor is unnecessary. SECTION 153. Protest; how made. - The protest must be annexed to the bill or must contain a copy thereof, and must be under the hand and seal of the notary making it and must specify: (a) The time and place of presentment; (b) The fact that presentment was made and the manner thereof; (c) The cause or reason for protesting the bill; (d) The demand made and the answer given, if any, or the fact that the drawee or acceptor could not be found.

SECTION 154. Protest, by whom made. - Protest may be made by: (a) A notary public; or (b) By any respectable resident of the place where the bill is dishonored, in the presence of two or more credible witnesses.

SECTION 155. Protest; when to be made. - When a bill is protested, such protest must be made on the day of its dishonor unless delay is excused as herein provided. When a bill has been duly noted, the protest may be subsequently extended as of the date of the noting. SECTION 156. Protest; where made. - A bill must be protested at the place where it is dishonored, except that when a bill drawn payable at the place of business or residence of some person other than the drawee has been dishonored by nonacceptance, it must be protested for non-payment at the place where it is expressed to be payable, and no further presentment for payment to, or demand on, the drawee is necessary. SECTION 157. Protest both for non-acceptance and non-payment. - A bill which has been protested for non-acceptance may be subsequently protested for non-payment. SECTION 158. Protest before maturity where acceptor insolvent. - Where the acceptor has been adjudged a bankrupt or an insolvent or has made an assignment for the benefit of creditors before the bill matures, the holder may cause the bill to be protested for better security against the drawer and indorsers.SECTION 159. When protest dispensed with. - Protest is dispensed with by any circumstances which would dispense with notice of dishonor. Delay in noting or protesting is excused when delay is caused by circumstances beyond the control of the holder and not imputable to his default, misconduct, or negligence. When the cause of delay ceases to operate, the bill must be noted or protested with reasonable diligence.

SECTION 160. Protest where bill is lost and so forth. - When a bill is lost or destroyed or is wrongly detained from the person entitled to hold it, protest may be made on a copy or written particulars thereof.


Exception:- inland bills and notes may also be protested if desired

Protest is required:a. where the foreign bill is dishonored by non acceptanceb. where the foreign bill is dishonored by non-paymentc. where the bill has been accepted for honor, it must be protested for

non-payment before it is presented for payment to the acceptor for honor

d. where the bill contains a referee in case of need, it must be protested for non payment before presentment for payment to the referee in case of need (Sec. 152)

Protest - formal statement in writing made by a notary under his seal of office at the request of the holder, in which it is declare that the some was presented for payment or acceptance (as the case may be) and such was refused.

it means all steps or acts accompanying the dishonor of a bill or note necessary to charge an indorser

required when the instrument is a foreign bill of exchange.

Form and contents of certificate of protest

The protest:1. must be annexed to the bill or must contain a copy thereof2. must be under the hand and seal of the notary making it3. must specify the time and place of presentment, the fact that

presentment was made and the manner thereof, the cause and reason for protesting the bill and the demand made and the answer given, if any, or the fact that the drawee or acceptor could not be found

a foreign bill must be protested by:1. notary public2. any respectable resident of the place where the bill is dishonored,

in the presence of two or more credible witnesses.

Protest must be made on the day of its dishonor, unless delay is excused

General rule: a bill must be protested at the place where it has been dishonoredException: a bill dishonored by non-acceptance must be protested for non-payment at the place where it is expressed to be payable if that place is the place of business or residence of some other person other than the drawee.

Where a bill has been protested for non-acceptance, protest for non-payment is discretionary on the part of the holder.

Protest for better security- one made by the holder of a bill after it has been accepted but before it matures, against the drawer and indorsers, where the acceptor has been adjudged bankrupt or an insolvent, or has made an assignment for the benefit of the creditors.

Protest is dispensed with by any circumstances which would dispense with notice of dishonor

Loss or destruction or wrong detention of a bill will not excuse protest

ACCEPTANCE FOR HONOR

34

SECTION 161. When bill may be accepted for honor. - When a bill of exchange has been protested for dishonor by non-acceptance or protested for better security and is not overdue, any person not being a party already liable thereon may, with the consent of the holder, intervene and accept the bill supra protest for the honor of any party liable thereon or for the honor of the person for whose account the bill is drawn. The acceptance for honor may be for part only of the sum for which the bill is drawn; and where there has been an acceptance for honor for one party, there may be a further acceptance by a different person for the honor of another party. SECTION 162. Acceptance for honor; how made. - An acceptance for honor supra protest must be in writing and indicate that it is an acceptance for honor and must be signed by the acceptor for honor. SECTION 163. When deemed to be an acceptance for honor of the drawer. - Where an acceptance for honor does not expressly state for whose honor it is made, it is deemed to be an acceptance for the honor of the drawer. SECTION 164. Liability of the acceptor for honor. - The acceptor for honor is liable to the holder and to all parties to the bill subsequent to the party for whose honor he has accepted. SECTION 165. Agreement of acceptor for honor. - The acceptor for honor, by such acceptance, engages that he will, on due presentment, pay the bill according to the terms of his acceptance provided it shall not have been paid by the drawee and provided also that is shall have been duly presented for payment and protested for non-payment and notice of dishonor given to him. SECTION 166. Maturity of bill payable after sight; accepted for honor. - Where a bill payable after sight is accepted for honor, its maturity is calculated from the date of the noting for non-acceptance and not from the date of the acceptance for honor.

SECTION 171. Who may make payment for honor. - Where a bill has been protested for non-payment, any person may intervene and pay it supra protest for the honor of any person liable thereon or for the honor of the person for whose account it was drawn. SECTION 172. Payment for honor; how made. - The payment for honor supra protest, in order to operate as such and not as a mere voluntary payment, must be attested by a notarial act of honor which may be appended to the protest or form an extension to it. SECTION 173. Declaration before payment for honor. - The notarial act of honor must be founded on a declaration made by the payer for honor or by his agent in that behalf declaring his intention to pay the bill for honor and for whose honor he pays. SECTION 174. Preference of parties offering to pay for honor. - Where two or more persons offer to pay a bill for the honor of different parties, the person whose payment will discharge most parties to the bill is to be given the preference. SECTION 175. Effect on subsequent parties where bill is paid for honor. - Where a bill has been paid for honor, all parties subsequent to the party for whose honor it is paid are discharged but the payer for honor is subrogated for, and succeeds to, both the rights and duties of the holder as regards the party for whose honor he pays and all parties liable to the latter.


Acceptance for Honor – an acceptance of a bill made by a stranger to it before maturity, where the drawee of the bill has:

a. refused to accept it b. and the bill has been protested for non-acceptancec. or where the bill has been protested for better security

Requisites for acceptance for honor:1. the bill must have been previously protested a) for non-acceptance b)

or for better security2. the bill is not overdue at the time of the acceptance for honor3. the acceptor for honor must be a stranger to the bill4. the holder must give his consent

Purpose: to save the credit of the parties to the instrument or some party to it as the drawer, drawee, or indorser or somebody else.

How acceptance for honor is made:a. in writing and indicated that it is an acceptance for honorb. signed by the person making the acceptance

when an acceptance for honor does not expressly state for whose honor it is made, it is deemed to be an acceptance for the honor of the drawer.

the acceptor for honor takes the place of the person for whose honor he accepts, thus, he is liable to the holder and all subsequent parties who have right of recourse against the person for whose honor he accepts.

Acceptor for honor is liable secondarily. He binds himself to pay according to the terms of his acceptance, provided:1. The bill shall have been duly presented for payment2. It shall not have been paid by the drawer3. It shall have been protested for non-payment4. Notice of dishonor is given to him supra protest

The date of maturity, where a bill is payable after sight, is calculated from the date of noting for non-acceptance and not from the date of the acceptance for honor.

PAYMENT FOR HONORPayment for Honor - payment made through a notarial act of honor of a party liable/stranger to the bill after bill has been dishonored by non-payment by the acceptor and protested for non-payment by the holder

Requisites:a. protest for non-paymentb. dishonored by non-paymentc. any person may pay supra protest

Form for payment of honor:a. payment must be attested by notarial act appended to the protest, or

form an extension to it.b. notarial act of honor must be based on a declaration by the payer for

honor

The person whose payment will discharge the greatest number of parties to the bill is given preference.

Effects of a payment for honor:1. All parties subsequent to the party for whose honor it is paid are

discharged2. The payer for honor is subrogated for, and succeeds to, both the right

and dutied of the holder as regards the party whose honor he pays and all parties liable to the latter.

35

SECTION 176. Where holder refuses to receive payment supra protest. - Where the holder of a bill refuses to receive payment supra protest, he loses his right of recourse against any party who would have been discharged by such payment. SECTION 177. Rights of payer for honor. - The payer for honor, on paying to the holder the amount of the bill and the notarial expenses incidental to its dishonor, is entitled to receive both the bill itself and the protest.

SECTION 178. Bills in set constitute one bill. - Where a bill is drawn in a set, each part of the set being numbered and containing a reference to the other parts, the whole of the parts constitutes one bill. SECTION 179. Right of holders where different parts are negotiated. - Where two or more parts of a set are negotiated to different holders in due course, the holder whose title first accrues is, as between such holders, the true owner of the bill. But nothing in this section affects the right of a person who, in due course, accepts or pays the parts first presented to him. SECTION 180. Liability of holder who indorses two or more parts of a set to different persons. - Where the holder of a set indorses two or more parts to different persons he is liable on every such part, and every indorser subsequent to him is liable on the part he has himself indorsed, as if such parts were separate bills. SECTION 181. Acceptance of bill drawn in sets. - The acceptance may be written on any part and it must be written on one part only. If the drawee accepts more than one part and such accepted parts negotiated to different holders in due course, he is liable on every such part as if it were a separate bill. SECTION 182. Payment by acceptor of bills drawn in sets. - When the acceptor of a bill drawn in a set pays it without requiring the part bearing his acceptance to be delivered up to him, and the part at maturity is outstanding in the hands of a holder in due course, he is liable to the holder thereon. SECTION 183. Effect of discharging one of a set. - Except as herein otherwise provided, where any one part of a bill drawn in a set is discharged by payment or otherwise, the whole bill is discharged.

SECTION 191. Definition and meaning of terms. - In this Act, unless the contract otherwise requires: "Acceptance" means an acceptance completed by delivery or notification; "Action" includes counterclaim and set-off; "Bank" includes any person or association of persons carrying on the business of banking, whether incorporated or not; "Bearer" means the person in possession of a bill or note which is payable to bearer; "Bill" means bill of exchange, and "note" means negotiable promissory note; "Delivery" means transfer of possession, actual or constructive, from one person to another; "Holder" means the payee or indorsee of a bill or note who is in possession of it, or the bearer thereof; "Indorsement" means an indorsement completed by delivery; "Instrument" means negotiable instrument; "Issue" means the first delivery of the instrument, complete in form, to a person who takes it as a holder; "Person" includes a body of persons, whether incorporated or not; "Value" means valuable consideration; "Written" includes printed, and "writing" includes print.


In payment for honor, if the holder refuses, he cannot recover from the parties who would have been discharged had he accepted the same.

In acceptance for honor, the holder’s consent is necessary The payer for honor is given the right to receive both the bill and the

protest.

BILLS IN SETBills in Set - bill of exchange drawn in several parts, each part of the set being numbered and containing a reference to the other parts, the whole of the parts just constituting one bill (Sec 178 NIL)

Bills in set are availed of in cases where a bill had to be sent to a distant place through some conveyance.

The purpose is to avoid the difficulties which would arise in case of loss or miscarriage on the way of the bill.

Rights of holders where different parts of a set are negotiated As between holders in due course, the owner of the bill is the holder

whose title first accrues, that is, the holder to whom a part is first negotiated.

If the drawee in good faith accepts or pays the part first presented to him, he is protected and he can rightfully refuse to accept or pay the bill presented by the holder in due course who first became the owner.

Liability of indorser who indorses two or more parts of a set to different persons

Each shall be liable on the part he has indorsed, such part being considered as a separate bill itself.

The drawee is not liable for more than one part since his order is to accept or pay only one part.

Liability of acceptor of different parts of a set The drawee is required to accept only one part of a bill drawn in set;

and the acceptance may be written on any part. But should the drawee accept more than one part and they are negotiated to holders in due course, he is liable to every holder of different parts as if such parts were separate bills.

If all the parts are in the hands of the same holder, the drawee is liable only for one part.

Liability of acceptor who pays part of a set Upon paying the bill, the acceptor should require surrender of the part

bearing his acceptance. Should he fail to do so, he would still be liable to a holder in due course of such part.

Effect of discharging a part of the set As far as the drawer is concerned, the entire bill is discharged by

payment or otherwise because a bill in a set constitutes only one bill.

GENERAL PROVISIONS

Definitions – See SECTION 191 Persons primarily liable on instrument. - The person "primarily" liable

on an instrument is the person who, by the terms of the instrument, is absolutely required to pay the same. All other parties are "secondarily" liable. (Sec 192, NIL)

Reasonable time, what constitutes. - In determining what is a "reasonable time" regard is to be had to the nature of the instrument, the usage of trade or business with respect to such instruments, and the facts of the particular case. (Sec 193, NIL)

Time, how computed; when last day falls on holiday. - Where the day, or the last day for doing any act herein required or permitted to be done falls on a Sunday or on a holiday, the act may be done on the next succeeding secular or business day. (Sec 194, NIL)

Application of Act. - The provisions of this Act do not apply to negotiable instruments made and delivered prior to the taking effect hereof. (Sec 195, NIL)

36

Download - Nil Reviewer -Final

Top Related