Section 44 Indorsement in representative capacity An instrument may be indorsed by a person either personally or through an agent. The authority of the agent need not be in writing. Section 45 Presumption as to time of indorsement 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. If the indorsement bears a date, the presumption is that it is the true date. If the indorsement is without a date, the presumption is that it was negotiated before maturity. The one who alleges that the instrument was effected after maturity has the burden of proof. Section 46 Presumption as to place of indorsement Except where the contrary appears, every indorsement is presumed prima facie to have been made at the place where the instrument is dated. The presumption is rebuttable. Section 47 Continuation of negotiable character of originally negotiable instrument (1) General Rule - An instrument negotiable in its origin continues to be negotiable (2) Exceptions: (a) When the instrument has been restrictively indorsed; or (b) When it has been discharged by payment or otherwise Section 48 Striking out indorsements 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 Effect of transfer without indorsement 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 Right of prior party to negotiate Section 50 refers to a reacquirer or a holder who negotiates an instrument and then subsequently reacquires it If a prior party reacquires an instrument before maturity, he may renegotiate the same further. But after paying the holder, he may not claim payment from any of the intervening parties in order to avoid multiplicity of suits. Limitations on renegotiation In the following cases, a prior party cannot further negotiate the instrument: (1) Where it is payable to the order of a third person and has been paid by the drawer; (2) Where it was made or accepted for accommodation and has been paid by the party accommodated; and (3) In other cases, where the instrument is discharged when acquired by a prior party IV. RIGHTS OF THE HOLDER Section 51 Classes of holder (1) Holders simply (Sec. 51) (2) Holders for value (Sec. 26) (3) Holders in due course (Sec, 52, 57) Rights of Holder in general (1) He may sue on the instrument in his name; and (2) He may receive payment and if payment is in due course (Sec. 88), the instrument is discharged. (Sec. 119) Right of transferee of unendorsed instrument to sue A transferee of unendorsed instrument is certainly not a “holder” as defined by Sec. 191. He may do so if: “the transfer vests in the transferee such title as the transferor had” (Sec. 49) The transferor had legal title, this must pass by transfer although subject to defences
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: (1) That it is complete and regular upon its face; (2) 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; (3) That he took it in good faith and for value; (4) 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. Conditions to qualify one holder in due course All the four conditions must concur in order to qualify a person as a holder in due course. The holder of a non-negotiable instrument is a mere assignee subject to defenses, acquiring no better rights under the contract than those possessed by the assignor. A holder who is not a holder in due course has all the rights of the latter except that the instrument is subject to every available defense as if it were non-negotiable. Payee as holder in due course A payee may be a holder in due course under any of the circumstances in which he meets the requirements of Section 52. Drawee as holder in due course While payee may be a holder in due course, a drawee does not, by paying a bill becomes a holder in due course under this section. Instrument complete and regular upon its face An instrument is incomplete when it is wanting in any material particular. The instrument must also be regular upon its face. The most common type of irregularity is an alteration in the instrument. It must be visible or apparent on the face of the instrument. Holder before instrument is overdue An instrument is overdue after the date of maturity (a) the date of maturity is the time fixed therein (b) if the instrument is payable on demand, the date of maturity is determined by the date of presentment (c) if payable on the occurrence of a specified event which is certain to happen, the date of maturity is fixed by the happening of the event One taking an instrument on the date of maturity takes before maturity because the principal debtor has the whole day to pay.
Holder without notice of dishonor (1) Ways and time of dishonor DISHONOR BY NON-ACCEPTANCE may occur before the date of its maturity
DISHONOR BY NON-PAYMENT can only take place at the time of maturity
(2) Negotiation after maturity or dishonor An overdue or dishonored instrument may still be negotiated either by indorsement or by delivery to the same extent as before maturity. NEGOTIATION AFTER MATURITY NEGOTIATION AFTER DISHONOR the holder cannot be a holder in due course the holder without notice can be a holder in due course Holder in good faith “in good faith” means “honesty in fact in the transaction concerned” The negative test is that the holder acted in good faith if bad faith is not present. “bad faith” means that the holder must have knowledge of facts which render it dishonest for him to take particular piece of negotiable paper. It is sufficient that such knowledge tends to show that there was something wrong with the transaction. Holder for value * Value – any consideration sufficient to support a simple contract It is not necessary that the consideration us adequate. Love and affection do not constitute value within the meaning of the law. Holder without notice of infirmity in instrument or defect of title The absence of knowledge and lack of bad faith is the essential basis that renders one a holder in due course. Bad faith of agent – knowledge of an agent acting within the scope of his authority is a construction knowledge of the principal 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 54 Effect of notice before full payment (1) No amount has yet been paid The transferee is relieved from the obligation to make payment. He is not entitled to the same protection as a holder in due course.
(2) An amount has been paid The transferee has under no legal obligation to pay the balance of the amount he has agreed to pay on discovering the infirmity or defect. If he does, he can be considered a holder in due course only to the extent of the amount theretofore paid by him. Section 55 When title of a person defective The title of a person who negotiates an instrument is defective in two ways, namely: (1) in the acquisition; when he obtained the instrument or any signature by: (a) fraud (b) duress, or force and fear – include all acts which overcome the signer’s will (c) other lawful means (d) illegal consideration (2) in the negotiation when he negotiates the instrument: (a) in breach of faith or (b) under circumstances as amount to a fraud Section 56 What constitutes notice of defect (1) the person to whom the instrument is negotiated must have had actual knowledge of the infirmity or defect, (2) or knowledge of such facts that his action in taking the instrument amounted to bad faith.
Mere negligence to make inquiries is not sufficient to constitute notice. If the holder had actual knowledge of suspicious circumstances, coupled with the means of readily informing himself of the facts and he wilfully abstained from making inquiries, his intentional ignorance may amount to bad faith. Effect of notice of defect – destroys the status of a holder in due course
Section 57 Rights of a holder in due course (1) He may sue on the instrument in his own name; (2) He may receive payment and if the payment is in due course, the instrument is discharged; (3) He holds the instrument free from any defect of title of prior parties; (4) He holds the instrument free from defenses available to prior parties among themselves; and (5) He may enforce payment of the instrument for the full amount therof against all parties liable thereon.
Section 58 *Immediate parties – in direct contractual relation with each other *Remote parties – not in direct contractual relation to each other *Defenses – the grounds or reasons pleaded or offered by the defendant in a case, showing why the plaintiff, as a matter of law or fact, should not be given the relief he seeks. Two kinds of defenses: REAL, ABSOLUTE OR UNIVERSAL DEFENSE those that are assertable against all parties, both immediate and remote, including holders in due course or holders through the latter
PERSONAL, LIMITED OR EQUITABLE DEFENSE those available to prior parties among themselves but which are not good against a holder in due course
affects only the validity of the agreement for which the instrument was issued
they are called real because they attach to the res, that is, the instrument itself regardless of the merits or demerits of the holder Examples: (a) filing of wrong date (Sec. 13); (b) filing up of blanks not in accordance they challenge the validity of the with the authority given and within instrument itself reasonable time (Sec. 14); (c) want of delivery of complete Examples: instrument (Sec. 16); (a) Incapacity as far as the incapacitated (d) absence or failure of consideration (Sec. person is concerned; 28); (b) Illegality of contract under law, except (e) simple fraud or fraud in inducement where the maker or drawer is himself a (Sec. 55); party to its illegality (Sec. 55); (f) acquisition of instrument by duress, or (c) Want of delivery of incomplete force and fear; instrument (Sec. 15); (g) acquisition of instrument by unlawful (d) Forgery (Sec. 23); means; (e) Want of authority, apparent and real (h) acquisition of instrument for an illegal (f) Duress amounting to forgery consideration; (g) Fraud in factum or fraud in esse (i) negotiation in breach of faith; contractus (Sec. 14) (j) negotiation under circumstances that (h) Fraudulent alteration by holder amount to fraud; (i) Prescription (k) innocent alteration or spoliation; (j) Other infirmities appearing on the face (l) set-off between immediate parties (Sec. of the instrument; and (Sec. 52) 58); (k) Discharge at or after maturity (Secs. 88, (m) discharge by payment or renunciation 118, 121) or release before maturity; (n) discharge of party secondarily liable by
discharge of prior party (Sec. 20[c].); (o) want of authority of the agent who has apparent authority, but if the principal can show that the agent had no express, implied, or apparent authority to sign, the defense is real. Two kinds of fraud relating to negotiable instruments: FRAUD IN EXECUTION OR FRAUD IN FACTUM FRAUD IN INDUCEMENT OR SIMPLE FRAUD exist in those cases in which a person, that which relates to the quality, without negligence, has signed an quantity, value or character of the instrument which was, in fact, a negotiable consideration of the instrument instrument and was deceived as to the implies that the signer knew what he was character of the instrument and without doing but that he was induced by fraud knowledge of it to sign it is a real defense because there is no it is a personal defense because it does contract not prevent a contract
Rights of holder not in due course (1) He may sue on the instrument in his own name; (2) He may receive payment and if the payment is in due course, the instrument is discharged; (3) He is entitled to the instrument but holds it subject to the same defences as if it were non-negotiable; and (4) He has all the rights of the holder in due course from whom he derives his title in respect of all parties prior to such holder, provided he is not himself a party to any fraud or illegality affecting the instrument. Section 59 Who is deemed holder in due course Every holder is deemed prima facie to be a holder in due course; When it is shown that the title of any person who has negotiated the instrument was defective, the burden is on the holder to prove that he or some person under whom he claims acquired the title as holder in due course. But the last-mentioned rule does not apply in favor of a party who became bound on the instrument prior to the acquisition of such defective title.
V. LIABILITIES OF PARTIES *Primary party and secondary party distinguished PRIMARY PARTY unconditionally bound absolutely required to pay the instrument (1) the maker of a promissory note; (2) the acceptor of a bill of exchange; and (3) the certifier of a check
*Drawer distinguished from maker DRAWER issues a bill of exchange only secondarily liable can negative or limit his liability *Indorser and drawer distinguished INDORSER a party to either a note or a bill does not make any admission regarding the existence of the payee and his then capacity to indorse has warranties
SECONDARY PARTY conditionally bound undertakes to pay the instrument only after certain conditions have been fulfilled presentment for payment or acceptance to the primary party, dishonor by such party, and the taking of proceedings required by law after dishonor face only potential secondary liability on the instrument (1) drawer of a bill; and (2) the indorser of a note or a bill
MAKER issues a promissory note primarily liable may not negative or limit his liability
DRAWER a party only to a bill the drawer makes such admission
*General indorser and irregular indorser distinguished GENERAL INDORSER makes either a blank indorsement or special indorsement indorses the instrument after its delivery to payee liable only to parties subsequent to him
makes no warranties but engages to pay after certain conditions are compiled with
IRREGULAR INDORSER always makes a blank indorsement indorses the instrument before its delivery to payee liable to payee and subsequent parties unless he signs for accom. of the payee
1. PERSONS PRIMARILY LIABLE (Section 60 and Section 62) MAKER ACCEPTOR a person who issues a promissory when the drawee accepts a bill of note exchange, he then becomes an acceptor the one to whom the holder will look first for payment the one who is expected to pay the one who is expected to pay the drawee is not liable until and unless he accepts the bill of exchange Obligation Obligation engages to pay the note according to engages to pay according to the tenor its terms, subject to no condition of his acceptance, subject to no whatsoever condition whatsoever Warranties and Admissions Warranties and Admissions (1) Engages to pay according to the tenor (1) Admits the existence of the drawer, of the instrument; and the genuineness of his signature and (2) Admits the existence of the payee and his capacity and authority to draw the his capacity to indorse. instrument; and (2) Admits the existence of the payee and his capacity to indorse.
2. PERSONS SECONDARILY LIABLE (Section 61, Section 66 and Section 64) DRAWER GENERAL INDORSER IRREGULAR INDORSER a person who issues a unqualified indorser anomalous indorser bill of exchange a person who is: he does not promise to Liabilities or Warranties (1) not otherwise a Warrants all subsequent pay the bill absolutely party to an HDC : instrument, he secondarily liable to (1) That the instrument (2) places his the holder, or to any is genuine and in all signature thereon subsequent indorser, respect what it in blank who may be compelled purports to be; (3) before delivery to pay it (2) He has good title to indorses the he may, by express it; instrument in an stipulation, inserted in (3) All prior parties had unusual, singular or the instrument, capacity to contract; peculiar manner negative or limit his (4) The instrument is, at own liability to the the time of holder endorsement, valid and subsisting;
Warranties and Admissions (1) Admits the existence of the payee and his capacity to indorse; (2) Engages that the instrument will be accepted or paid by the party primarily liable; and (3) Engages that if the instrument is dishonored and proper proceedings are brought, he will pay to the party entitled to be paid. the drawer makes no warranties but engages to pay after certain conditions are complied with
(5) Engages that the Rules as to liability instrument will be (1) If instrument payable accepted or paid, or to the order of a 3rd both, as the case person, he is liable to may be, according to the payee and its tenor; and subsequent parties. (6) If the instrument is (2) If instrument payable dishonored and to order of maker or necessary drawer or to bearer, proceedings on he is liable to all dishonor be duly parties subsequent to taken, he will pay to the maker or drawer. the party entitled to (3) If he signs for be paid. accommodation of the payee, he is liable to all parties subsequent to the payee. Liabilities or Warranties - same as those of a general indorser under Section 66 inasmuch as his indorsement is in blank which is an indorsement without qualification
Section 63 When a person deemed indorser (1) Signature on back of instrument a person signing his name on the back of the instrument is a general indorser he is chargeable only after presentment and notice of dishonour (2) Evidence of intention to be bound in some other capacity 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. When a person liable as guarantor or surety (1) Liability as guarantor “payment guaranteed” or other equivalent words are written on the back of an instrument liable only subsidiarily after the assets of the principal debtor have been exhausted not discharged from liability merely because of the lack of due presentment or due notice of dishonor
a party is liable as a guarantor if his indorsement is made for identification only (2) Liability as surety “as surety” or any equivalent words are written on the back of an instrument primarily and absolutely liable with the principal debtor without benefit of exhaustion of properties of the latter liable without the necessity of presentment or notice of dishonor 3. PERSONS WITH LIMITED LIABILITY (Section 65) QUALIFIED INDORSER PERSON NEGOTIATING BY DELIVERY No secondary liability, but is liable for breach of warranty Warrants that he has no knowledge of any fact which would impair the validity of the instrument or render it valueless Every person negotiating instrument by a Every person negotiating instrument by qualified endorsement warrants that: delivery warrants that: (1) Instrument is genuine and in all (1) Instrument is genuine and in all respects what it purports to be; respects what it purports to be; (2) He has good title to it; (2) He has good title to it; (3) All prior parties had capacity to (3) All prior parties had capacity to contract; contract; (4) He has no knowledge of any fact (4) He has no knowledge of any fact which would impair the validity of the which would impair the validity of the instrument or render it valueless. instrument or render it valueless.
Warranties extend transferee only.
to immediate
Sale of public or corporate securities Brokers and other persons “negotiating public or corporation securities, other than bills and notes” do not warrant the capacity of prior parties. 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 of liability among indorsers There is no order of liability among the indorsers as against the holder. He is free to choose to recover from any indorser in case of dishonor of the instrument. As respect one another, indorsers are liable prima facie in the order in which they indorse unless the contrary is proven
Joint payees or joint indorsers who indorsed are deemed to indorse jointly and severally.
GENERAL RULE: One whose signature does not appear on the instrument shall not be liable thereon. EXCEPTIONS: (1) The principal who signs through an agent is liable; (2) The forger is liable; (3) One who indorses in a separate instrument (allonge) or where an acceptance is written on a separate paper is liable; (4) One who signs his assumed or trade name is liable; and (5) A person negotiating by delivery (as in the case of a bearer instrument) is liable to his immediate indorsee. Section 69 Liability of an agent or broker (1) Personal liability – this section refers to instruments which are payable to bearer and are, therefore, negotiable by delivery. (a) The agent or broker who negotiates the instrument by mere delivery incurs the liabilities prescribed in Section 65. (b) If he negotiates the instrument by qualified indorsement, his warranties are also stated in Section 65. (c) If he negotiates it by general indorsement, then his warranties are those stated in Section 66. (2) Exceptions from liability – the agent or broker must disclose his principal and the fact that he is acting only as an agent. (Sec. 20) VI. PRESENTATION FOR PAYMENT Section 70 Presentment for payment - the presentation of an instrument to the person primarily liable for the purpose of demanding and receiving payment It is not necessary to person primarily liable since his liability is absolute; 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. It is necessary in order to charge the drawer and indorsers. Presentment for payment to persons secondarily liable (1) Presentment first to primary party required (2) If the instrument is not presented to the person primarily liable, the drawer and the indorsers are discharged from their secondary liability unless: such presentment is excused (Secs. 79, 80) or dispensed with. (Secs. 82, 151)
Section 71 Date of presentment of instrument (1) If the instrument is payable at a fixed or determinable future time: on the date it falls due without period of grace (2) If the instrument is payable on demand (a) Promissory note: within reasonable time after its issue (b) Bill of exchange: within reasonable time after its last negotiation Section 72 What constitutes a sufficient presentment Presentment for payment, to be sufficient, must be made: (1) By the holder, or by some person authorized to receive payment on his behalf; (2) At a reasonable hour on a business day; (3) At a proper place as herein defined; (4) 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: (1) Place specified; (2) Address of the person to make payment is given, in case no place is specified; (3) Usual place of business or residence of the person to make payment, in case no place is specified and no address is given; (4) In any other case, wherever the person to make payment can be found, or at his last known place of business or residence. (Sec. 73) 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. 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. If not exhibited, the presentment would be ineffectual. Demand by telephone is not sufficient. Exhibition Purposes: (1) To enable the debtor to determine the genuineness of the instrument and the right of the holder to receive payment; and (2) To enable him to reclaim possession upon payment. When excused:
(1) When debtor does not demand to see the instrument but refuses payment on some other grounds, and (2) When the instrument is lost or destroyed. Section 75 Presentment where instrument payable at bank (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 (2) Any time during the day before the bank is closed - If the person to make payment has no funds in the bank (3) Before close of banking - 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. - If before the close of such hours he deposits funds to the bank enough to pay the instrument, the instrument is not considered dishonoured though payment has been refused earlier in the day. Section 76 Presentment where principal debtor is dead If there is a place specified in the instrument - presentment should be made at such place If no place of presentment is specied - 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 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.
