Nego San Beda Mem Aid

San Beda College of Law 6 MEMORY AID IN COMMERCIAL LAW

NEGOTIABLE INSTRUMENTS LA- (NIL) (Act No. 2031, effective June 2, 1911) \ I. GENERAL CONCEPTS NEGOTIABLE INSTRUMENT (NI)  A written contract for the payment of money which complies with the requirements of Sec. 1 of the NIL, which by its form and on its face, is intended as a subs substi titu tute te for for mone money y and and pass passes es from hand to hand as money, so as to give the holder in due course !"#$ the right to hold the instrument free from defen defense sess avai availa lable ble to prio priorr part partie ies. s. (Reviewer on Commercial Law, Professors Sundiang and Aquino) Functions ons:: (Bar Review Materials in  Functi Commercial Commercial Law, Jorge Miravite, Miravite, !! ed") 1. %o supp supple leme ment nt the the curr curren ency cy of the government. &. %o substitute for money and increase the purchasing medium.  Legal Legal tender tender ' %hat %hat (ind (ind of money which the law compels a creditor to accept in payment of his debt when tend tender ered ed by the the debt debtor or in the the righ rightt amount. Note) A NI although intended to be a substitute for money, is not legal tender. !owever, !owever, a chec( that has been cleared cleared and and cred credit ited ed to the the acco accoun untt of the the creditor shall be equivalent to delivery to the creditor of cash (Sec" #!, $CBA) Featues: (Reviewer on Commercial Law, Professors Sundiang and Aquino) 1. Nego egotiab tiabil ilit ity y ' %hat attribute or property whereby a bill or note or chec( may pass from hand to hand similar to money, so as to give the holder in due course the right to hold the instrument and to collec collectt the sum payabl payable e for himself free from defenses.  %he essence of negotiability which charac character teri*e i*ess a negoti negotiabl able e paper as a credit credit instrument instrument lies in its freedom to circulate freely as a substitute for money. +ires +ireston tone e %ire %ire vs. #A, - S#A /01$ &. Accumulation of Secondary #ontracts ' Secondary contracts are pic(ed up and carried along .

with NI as they are negotiated from one person to another or in the course of negotiation of negotiable instruments, a series of 2uri 2uridi dica call ties ties betwe between en the the partie partiess theret thereto o arise arise either either by law or by privity. A!!"ica#i"it$:



%enera %enerall Rule& %he provisions of the NIL are not applicable if the instrument involved is not negotiable.  'cet 'cetion ion&& In the the cas case of Borromeo vs" Amancio Sun, *+ SCRA +#, +# , the S# applied applied Section 13 of the NIL by analogy analogy in a case involving a "eed of Assignment of shares which was signed in blan( to facilitate future assignment of the same shar shares es.. %he %he S# obs observ erved that hat the situation is similar to Section 13 where the blan(s in an instrument may be filled up by the holder, the signing in blan( being with the assumed authority to do so.  %he NIL was enacted for the purpose of facilitating, not hindering or hampering hampering transacti transactions ons in commercial commercial paper. %hus, the statute should not be tamper tampered ed with with hapha* hapha*ard ardly ly or lightl lightly. y. Nor should it be brushed aside in order to meet the necessities in a single case. 4ichael 5sme6a vs. #itiban(, 7.. No. 131&89, 4arch &, &003 #alle2o :.$ %in&s

o' NI . PROMISSOR NOTE (PN)  An unconditional promise in writing by one one perso person n to anot anothe herr sign signed ed by the the ma(er engaging to pay on demand or at a fi;ed or determinable future time, a sum sum cert certai ain n in mone money y to order order or to bearer. Sec. 193$ *. BILL OF E+C,ANGE (BE)  An unco uncond ndit itio iona nall orde orderr in writ writin ing g addr addres esse sed d by one one pers person on to anot anothe her, r, signed by the person giving it, requiring the person to whom it is addressed to pay on demand or at a fi;ed or determinable future time a sum certain in money to order or to bearer. Sec. 1&/$

COMMERCIAL LAW COMMITTEE CHAIRPERSON : Garny Luisa Alegre A SST. CHAIRPERSON Jayson : Jayson O’S Ramos EDP: ea!ri" I. Ramos S #JECT HEADS : $ari%&elle De 'era (Nego!ia)le Ins!rumen!s La*+, Jose -ernano Lla/e (Insuran%e+, Alri%& Del Rosario (Trans0or!a!ion (Trans0or!a!ion La*s+, S&irley $ae Ta)ang%ura1 on 'in%en! Agus!in (Cor0ora!ion La*+, 2arl S!e/en Co (S0e%ial La*s+, Jo&n Lemuel Ga!ula (an3ing La*s+, Ro)es0ierre C # (La* on In!elle%!ual Pro0er!y+


C,EC%

< A bill of e;change drawn on a ban( payable on demand. Sec. 19-$. It is the the most most comm common on form form of bill bill of e;change.

OT,ER FORMS OF NI 1. #er #ertificate ate of dep deposit issued by ban(s, payable to the depositor or his order, or to bearer &. %rad %rade e acc accep epta tanc nce e . =ond =onds, s, whic which h are in the the natur nature e of promissory notes 3. "raf "rafts ts,, which which are are bills bills of e;cha e;chang nge e drawn by one ban( upon another -. "ebenture  All of these must comply with Sec. 1, NIL. Note: Letters of credit are not negotiable because they are issued to a specified person. Instances /en a BE 0a$ #e teate& as a PN a. %he %he draw drawer er and the drawe drawee e are are the same person or b. "rawee "rawee is a fictitio fictitious us person person or c. "rawee does not have the capacity to contract. Sec. 10$ d. >here the bil bill is drawn on a person who is legally absent e. >here >here the the bill bill is is ambi ambiguo guous us Sec Sec.. 18?e@$ Paties to a NI . Po0 Po0is isso so$ $ No Note te a. 4a(er ' one who ma(es promise and signs the instrument b. ayee ' party to whom the promise is made or the instrument is payable. *. Bi"" Bi"" o' E1c/ E1c/an an2e 2e a. "rawer ' on one wh who gi gives the the orde orderr to pay pay mone money y to a third party b. "rawee ' person to whom the bill is addressed and who is ordere ered to pay pay. !e become becomess an accept acceptor or wh when en he indicates indicates his willingnes willingnesss to pay the bill c. ayee ' pa p arty in in wh whose fav favor the the bill bill is draw drawn n or is payable.

DISTINCTIONS PROMISSOR NOTE

BILL OF E+C,ANGE

Bnconditional promise Involves & parties 4a(er is primarily liable 5nly one presentment) for payment

Bnconditional order Involves  parties "rawer is only secondarily liable %wo presentments) for acceptance and for payment

NEGOTIABLE INSTRUMENTS

NON3NEGOTIABLE INSTRUMENTS

5nly NI are gov govern erned by the the NIL. %ran %ranssfera ferabl ble e by nego negoti tiat atio ion n or by assignment. assignment. A transferee can be a !"# if all the requ requir irem emen ents ts are are complied with A holder in due course ta(es the NI free free from from person personal al defenses

Appli Applica cati tion on of the the NIL is only by analogy. %ransferable only by assignment

equires c"ean tit"e4 one one that that is free from any infi infirm rmit itie iess in the the instrument and defe defects cts of titl title e of prio priorr tran transf sfer eror ors. s. ($otes and Cases on Ban-s, Ban-s, $egoti $egotia.l a.le e /nst /nstrrume uments and and ot0er ot0er Commer Commercia ciall 1ocuments, 2imoteo B" Aquino) Solvency of debtor is in the sense guara guarant ntee eed d by the the indo indors rser erss beca becaus use e they engage that the inst instru rumen mentt will will be acce accept pted ed,, paid paid or both both and and that that they they will pay if the instrument is dishonored. ($otes and Cases on Ban-s, $egotia.le /nstrumen ments and ot0e ot0err Comm Commer erci cial al 1ocuments, 1ocuments, 2imoteo 2imoteo B" Aquino)

A transferee remains to be an assi assign gnee ee and can never be a !"# All defenses avai availa labl ble e to prio priorr parties may be rais raised ed agai agains nstt the the last transferee %ransfere %ransferee e acquires acquires a &ei5a &ei5ati5 ti5e e tit"e tit"e only. ($ot ($otes es and and Cases on Ban-s, $egotia.le /nst /nstrrumen umentts and and ot0e ot0err Comm Commer erci cial al 1ocuments, 2imoteo B" Aquino)

Solvency of debtor is not guaranteed under Art. 1/&9 of the N## unless e;pressly stipulated. ($otes and Cases Cases on Ban-s, $egotia.le /nstruments and ot0e ot0err Comm Commer erci cial al 1ocuments, 1ocuments, 2imoteo 2imoteo B" Aquino)

COMMERCIAL LAW COMMITTEE CHAIRPERSON : Garny Luisa Alegre A SST. CHAIRPERSON Jayson : Jayson O’S Ramos EDP: ea!ri" I. Ramos S #JECT HEADS : $ari%&elle De 'era (Nego!ia)le Ins!rumen!s La*+, Jose -ernano Lla/e (Insuran%e+, Alri%& Del Rosario (Trans0or!a!ion (Trans0or!a!ion La*s+, S&irley $ae Ta)ang%ura1 on 'in%en! Agus!in (Cor0ora!ion La*+, 2arl S!e/en Co (S0e%ial La*s+, Jo&n Lemuel Ga!ula (an3ing La*s+, Ro)es0ierre C # (La* on In!elle%!ual Pro0er!y+


NEGOTIABLE INSTRUMENT

NEGOTIABLE 6OCUMENT TITLE

Sub2ect is money Is itself the property with value

Sub2ect is goods %he document is a mere evidence of title ' the things of value being the goods mentioned in the document

!as all the requisites of Sec. 1 of NIL A holder of NI may run after the secondary parties for payment if dishonored by the party primarily liable. A holder, if a holder in due course, may acquire rights over the instrument better than his predecessors.

"oes not have these requisites

OF

Intermediate parties are not secondarily liable if the document is dishonored.

A holder can never acquire rights to the document better than his predecessors.

BILLOF E+C,ANGE

C,EC%

Not necessarily drawn on a deposit. %he drawee need not be a ban(

It is necessary that a chec( be drawn on a ban( deposit. 5therwise, there would be fraud.

"eath of a drawer of a =5C, with the (nowledge of the ban(, does not revo(e the authority of the drawee to pay. 4ay be presented for payment within reasonable time after its last negotiation.

"eath of the drawer of a chec(, with the (nowledge of the ban(, revo(es the authority of the ban(er to pay. 4ust be presented for payment within a reasonable time after its issue.

4ay be payable on demand or at a fi;ed or determinable future time

Always payable on demand

manner of indorsement. A holder in due course may obtain title better than that of the one who negotiated the instrument to him.

ASSIGNMENT ertains to contracts in general !older ta(es the instrument sub2ect to the defenses obtaining among the original parties 7overned by the #ivil #ode

to order, if indorsed specially. %he indorsee, even if holder in due course, obtains only such title as the person who caused the deposit had over the goods.

NEGOTIATION ertains to NI !older in due course ta(es it free from personal defenses available among the parties 7overned by the NIL

II. NEGOTIABILIT Fo0 o' NI: Sec. 1$ %e$: -UPOA 1. 4ust be in >riting and signed by the ma(er or drawer &. 4ust contain an Bnconditional promise or order to pay a sum certain in money . 4ust be ayable on demand, or at a fi;ed or determinable future time 3. 4ust be payable to 5rder or to bearer and -. >hen the instrument is addressed to a drawee, he must be named or otherwise indicated therein with reasonable certainty. 6ete0ination

o' ne2otia#i"it$: a. >hole instrument b. >hat appears on the face of the instrument c. equisites enumerated in Sec.1 of the NIL d. Should contain words or terms of negotiability. (%oenco, Commercial Law Bar Reviewer, cited in Aquino, " *) In

NEGOTIABLE INSTRUMENT

NEGOTIABLE -ARE,OUSE RECEIPT

If originally payable to bearer, it will always remain so payable regardless of

If payable to bearer, it will be converted into a receipt deliverable

determining the negotiability of an instrument, the instrument in its entirety and by what appears on its face must be considered. It must comply with the requirements of Sec. 1 of the NIL. #alte; hils. v. #A, &1& S#A 339$  %he

acceptance of a bill of e;change is not important in the determination of

COMMERCIAL LAW COMMITTEE CHAIRPERSON : Garny Luisa Alegre A SST. CHAIRPERSON : Jayson O’S Ramos EDP: ea!ri" I. Ramos S #JECT HEADS : $ari%&elle De 'era (Nego!ia)le Ins!rumen!s La*+, Jose -ernano Lla/e (Insuran%e+, Alri%& Del Rosario (Trans0or!a!ion La*s+, S&irley $ae Ta)ang%ura1 on 'in%en! Agus!in (Cor0ora!ion La*+, 2arl S!e/en Co (S0e%ial La*s+, Jo&n Lemuel Ga!ula (an3ing La*s+, Ro)es0ierre C # (La* on In!elle%!ual Pro0er!y+


its negotiability. %he nature of acceptance is important only on the determination of the (ind of liabilities of the parties involved =#54 vs. Aruego, 10& S#A -0$

RE7UISITES OF NEGOTIABILIT a. It 0ust #e itin2 an& si2ne& #$ t/e 0a8e o &ae Any (ind of material that substitutes paper is sufficient. >ith respect to the signature, it is enough that what the ma(er or drawer affi;ed shows his intent to authenticate the writing. ($otes and Cases on Ban-s, $egotia.le /nstruments and ot0er Commercial 1ocuments, 2imoteo B" Aquino) #. Uncon&itiona" Po0ise o O&e to !a$ a su0 cetain in 0one$ Bnconditional promise or order  >here the promise or order is made to depend on a contingent event, it is conditional, and the instrument involved is nonhere the promise or order is sub2ect to the terms and conditions of the transaction stated, the instrument is rendered non
PARTICULAR FUN6 FOR PAMENT

"rawee pays the payee from his own funds afterwards, the drawee pays himself from the particular fund indicated.

%here is only one act< the drawee pays directly from the particular fund indicated. ayment is sub2ect to the condition that the fund is sufficient.

articular fund indicated is N5% the direct source of payment but only the source of reimbursement.

articular fund indicated is the direct source of payment.

ostal

money orders are not negotiable instruments. Some of the restrictions imposed by postal laws and regulations are inconsistent with the character of negotiable instruments. hil. Cducation #o. vs. Soriano, D S#A -98$  %reasury

warrants are nonith interest or b. =y stated installments or c. =y stated installments with an acceleration clause d. >ith e;change or e. >ith cost of collection or attorneyFs fees. Sec. &$  %he

dates of each installment must be fi;ed or at least determinable and the amount to be paid for each installment.  A sum is certain if the amount to be unconditionally paid by the ma(er or drawee can be determined on the face of the instrument and is not affected by the fact that the e;act amount is arrived at only after a mathematical computation. ($otes and Cases on Ban-s, $egotia.le /nstruments and ot0er Commercial 1ocuments, 2imoteo B" Aquino) ACCELERATION CLAUSE A clause that renders whole debt due and demandable

INSECURIT CLAUSE rovisions in the contract which allows the

E+TENSION CLAUSE #lauses in the face of the instrument



upon failure of obligor to comply with certain conditions.

holder to accelerate payment if he deems himself insecure.

Instrument is still negotiable

Instrument is rendered non< negotiable because the holderFs whim and caprice prevail without the fault and control of the ma(er

E+TENSION CLAUSE Stated on the face of the instrument

arties are bound because they too( the instrument (nowing that there is an e;tension clause

that e;tend the maturity dates a. At the option of the holder b. C;tension to a further definite time at the option of the ma(er or acceptor c. Automa ' tically upon or after a specified act or event. Instrument is still negotiable ($otes and Cases on Ban-s, $egotia.le /nstruments and ot0er Commercial 1ocuments, 2imoteo B" Aquino)

E+TENSION UN6ER SEC. *9(') Agreement binding the holder a. %o e;tend the time of payment or b. ostpone the holderFs right to enforce the instrument =inds the person secondarily liable and therefore cannot be discharged from liabilities if) a. !e consents or b. ight of recourse is e;pressly reserved. ($otes and Cases on Ban-s, $egotia.le /nstruments and ot0er Commercial 1ocuments, 2imoteo B" Aquino)

c. Pa$a#"e on 6e0an& o at 'i1e& o &ete0ina#"e 'utue ti0e PAABLE ON PAABLE AT A 6EMAN6 FI+E6 OR

6ETERMINABLE FUTURE TIME a. >here e;pressed to be payable on demand, at sight or on presentation b. >here no period of payment is stated c. >here issued, accepted, or indorsed after maturity only as between immediate parties$. Sec. 8$

a. At a fi;ed period after date or sight b. 5n or before a fi;ed or determinable future time specified therein or c. 5n or at a fi;ed period after the occurrence of a specified event, which is certain to happen, though the time of happening is uncertain. Sec. 3$

 If

the day and the month, but not the year of payment is given, it is not negotiable due to its uncertainty. (Pandect of Commercial Law and Jurisrudence, Justice Jose 3itug, +55 ed")

&. Pa$a#"e to O&e o to Beae ayable to 5rder  %he instrument is payable to order where it is drawn payable to the order of a specified person, or to him or his order. Sec. 9$  %he payee must be named or otherwise indicated therein with reasonable certainty.  %he instrument may be made payable to the order of) a. A payee who is not the ma(er, drawer or drawee b. %he drawer or ma(er c. %he drawee d. & or more payees 2ointly e. 5ne or some of several payees f. %he holder of an office for a time being ayable to =earer  %he instrument is payable to bearer) a. >hen it is e;pressed to be so payable or b. >hen it is payable to a person named therein or to bearer or c. >hen it is payable to the order of a fictitious or nonhen the name of the payee does not purport to be the name of any person or



e. >hen the only or last indorsement is an indorsement in blan(. Sec. D$

Note: An instrument originally payable to bearer can be negotiated by mere delivery even if it is indorsed especially. /f it is originall6 a B'AR'R instrument, it will alwa6s .e a B'AR'R instrument" As opposed to an original order instrument becoming payable to bearer, if the same is indorsed specially, it can N5 L5N7C be negotiated further by mere delivery, it has to be indorsed.

where it is payable d. It bears a seal e. It designates a particular (ind of current money in which payment is to be made. Sec. /$

d.

chec( that is payable to the order of cash is payable to bearer. Reason& %he name of the payee does not purport to be the name of any person. Ang %e( Lian vs. #A, 98 hil. 9$

OMISSIONS  PRO;ISIONS T,AT 6O NOT AFFECT

NEGOTIABILIT

A66ITONAL PRO;ISONS NOT AFFECTING NEGOTIABILIT

a.

b.

d.

e.

f.

g. a. It is not dated b. It does not specify the value given or that any

 %'$'RAL

value has been given c. It does not specify the place where it is drawn or

payment of money, the instrument is not negotiable. Sec. -$  '8C'P2/9$S&

R7L'& If some other act is required other than or in addition to

Authori*es the sale of collateral securities on default Authori*es confession of 2udgment on default >aives the benefit of law intended to protect the debtor or Allows the creditor the option to require something in lieu of money.

III. INTERPRETATION OF NEGOTIABLE INSTRUMENTS (Sec. <)

c.

e. I&enti'ication o' 6aee  Applicable only to a bill of e;change  A bill may be addressed to & or more drawees 2ointly whether they are partners or not but not to & or more drawees in the alternative or in succession. Sec. 1&9$

b.

c.

 A

FICTITIOUS PAEE RULE  It is not necessary that the person referred to in the instrument is really non
a.

"iscrepancy between the amount in figures and that in words ' the words prevail, but if the words are ambiguous, reference will be made to the figures to fi; the amount. ayment for interest is provided for ' interest runs from the date of the instrument, if undated, from issue thereof. Instrument undated ' consider date of issue. #onflict between written and printed provisions ' written provisions prevail. >hen 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 If one signs without indicating in what capacity he has affi;ed his signature, he is considered an indorser. If two or more persons sign :;e romise to a6,< their liability is 2oint each liable for his part$ but if they sign :/ romise to a6,< the liability is solidary each can be compelled to comply with the entire obligation$. Sec. 18$



I;. TRANSFER AN6 NEGOTIATION INCI6ENTS IN T,E LIFE OF A NI (+ Ag.a6ani, +55 ed") a. Issue b. Negotiation c. resentment for acceptance, certain (inds of =ills of C;change d. Acceptance h. "ishonor by non
in

MO6ES OF TRANSFER a. Negotiation ' the transfer of the instrument from one person to another so as to constitute the transferee as holder thereof. Sec.0$ b. Assignment ' %he transferee does not become a holder and he merely steps into the shoes of the transferor. Any defense available against the transferor is available against the transferee. ($otes and Cases on Ban-s, $egotia.le /nstruments and ot0er Commercial 1ocuments, 2imoteo B" Aquino)  Assignment may be effected whether the instrument is negotiable or non< negotiable. Sesbre6o vs. #A, &&& S#A 3//$ ,O- NEGOTIATION TA%ES PLACE a. Issuance ' first delivery of the instrument complete in form to a person who ta(es it as a holder. Sec. 1D1$ Steps)

4echanical act of writing the instrument completely and in accordance with the requirements of Section 1 and 2. %he delivery of the complete instrument by the ma(er or drawer to the payee or holder with the intention of giving effect to it. (20e Law on $egotia.le /nstruments wit0 1ocuments of 2itle, =ector de Leon, !!! ed") #. Su#se=uent Ne2otiation 1. If payable to bearer, a negotiable instrument may 1.

be negotiated by mere delivery. &. If payable to order, a NI may be negotiated by indorsement completed by delivery Note: In both cases, delivery must be intended to give effect to the transfer of instrument. "evelopment =an( vs. Sima >ei, &1D S#A 8/$ c. Inco0!"ete ne2otiation o' o&e instu0ent >here 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 he also acquires the right to have the indorsement of the transferor. =ut for the purpose of determining whether the transferee is a holder in due course, the negotiation ta(es effect as of the time when the indorsement is made. Sec. 3D$ &. In&ose0ent  Legal transaction effected by the affi;ing oneGs signature at the) a. =ac( of the instrument or b. Bpon a paper allonge$ attached thereto with or without additional words specifying the person to whom or to whose order the instrument is to be payable whereby one not only transfers legal title to the paper transferred but li(ewise enters into an implied guaranty that the instrument will be duly paid Sec. 1$  %'$'RAL R7L'& Indorsement must be of the entire instrument.  '8C'P2/9$& >here instrument has been paid in part, it may be indorsed as to the residue. Sec. &$  Hinds

of Indorsement) A. SPECIAL ' Specifies the person to whom or to whose order , the instrument is to be payable Sec. 3$ =. BLAN% ' Specifies no indorsee) 1. Instrument becomes payable to bearer and may be negotiated by delivery Sec. 3$ &. 4ay be converted to special indorsement by writing over the signature of indorser in blan( any contract consistent with



character of indorsement Sec. -$ #. ABSOLUTE ' 5ne by which indorser binds himself to pay) 1. Bpon no other condition than failure of prior parties to do so &. Bpon due notice to him of such failure. ". CON6ITIONAL ' ight of the indorsee is made to depend on the happening of a contingent event. arty required to pay may disregard the conditions. Sec. D$ C. RESTRICTI;E > An indorsement is restrictive, when it either) a. rohibits further negotiation of the instrument or b. #onstitutes the indorsee the agent of the indorser or c. ests the title in the indorsee in trust for or to the use of some other persons. =ut mere absence of words implying power to negotiate does not ma(e an indorsement restrictive. Sec. /$ +. 7UALIFIE6 ' #onstitutes the indorser a mere assignor of the title to the instrument. Sec. 9$  It is made by adding to the indoserGs signature words li(e Jsans recourse,K without recourseJ, Jindorser not holderJ, Jat the indorserGs own ris(J, etc. 7. ?OINT ' Indorsement payable to & or more persons Sec. 31$ !. IRREGULAR > A person who, not otherwise a party to an instrument, places thereon his signature in blan( before delivery Sec. /3$  5ther

rules on indorsement 1. Negotiation is deemed prima facie to have been effected before the instrument is overdue e;cept if the indorsement bears a date after the maturity of the instrument. Sec. 3-$ &. resumed to have been made at the place where the instrument is dated e;cept when the place is specified. Sec. 3/$ . >here an instrument is payable to the order of & or more payees who are not partners, all must indorse unless authority is given to one. Sec. 31$ 3. >here a person is under obligation to indorse in a representative capacity, he

may indorse in such terms as to negative personal liability. Sec. 33$

RENEGOTIATION TO PRIOR PARTIES (Sec. @9)  >here an instrument is negotiated bac( to a prior party, such party may reissue and further negotiate the same. =ut he is not entitled to enforce payment thereof against any intervening party to whom he was personally liable. Reason& %o avoid circuitousness of suits. STRI%ING OUT IN6ORSEMENT  %he holder may at any time stri(e out any indorsement which is not necessary to his title. %he indorser whose indorsement is struc( out, and all indorsers subsequent to him, are thereby relieved from liability on the instrument. Sec. 39$ CONSI6ERATION FOR T,E ISSUANCE AN6 SUBSE7UENT TRANSFER  Cvery NI is deemed prima facie to have been issued for a valuable consideration. Cvery person whose signature appears thereon is presumed to have become a party thereto for value. Sec. &3$  >hat constitutes value) a. An antecedent or preim, +!5 P0il" !#) ,o"&e In 6ue Couse (,6C)



 A

holder who has ta(en the instrument under the following conditions) %E: C O ;I 1. Instrument is complete and regular upon its face &. =ecame a holder before it was overdue and without notice that it had been previously dishonored . +or 5alue and in good faith and 3. At the time he too( it, he had no notice of any infirmity in the instrument or defect in the title of the person negotiating it. Sec. -&$  Ri2/ts

1. &.

.

3.

o' a ,6C: 4ay sue on the instrument in his own name 4ay receive payment and if payment is in due course, the instrument is discharged !olds the instrument free from any defect of title of prior parties and free from defenses available to parties among themselves and 4ay enforce payment of the instrument for the full amount thereof against all parties liable thereon. Secs. -1 and -8$



Cvery holder of a negotiable instrument is deemed prima facie a holder in due course. !owever, this presumption arises only in favor of a person who is a holder as defined in Section 1D1 of the NIL. %he weight of authority sustains the view that a payee may be a holder in due course. !ence, the presumption that he is a prima facie holder in due course applies in his favor. #ely Mang vs. #ourt of Appeals, 7.. No. 19083, August 1-, &00$

,o"&e Not In 6ue Couse  5ne who became a holder of an instrument without any, some or all of the requisites under Sec. -& of t he NIL.  >ith respect to demand instruments, if it is negotiated an unreasonable length of time after its issue, the holder is deemed not a holder in due course. Sec.-$  % '$'RAL R7L'& +ailure to ma(e inquiry is not evidence of bad faith.  '8C'P2/9$S&

1. >here a holderFs title is defective or suspicious that would compel a reasonable man to investigate, it cannot be stated that the payee acquired the chec( without the (nowledge of said defect in the holderFs title and for this reason the presumption that it is a holder in due course or that it acquired the instrument in good faith does not e;ist. "e 5campo vs. 7atchalian,  S#A -D/$ &. !older to whom cashierFs chec( is not indorsed in due course and negotiated for value is not a holder in due course. 4esina v. IA#$  ights of a holder not in due course) 1. It can enforce the instrument and sue under it in his own name. &. rior parties can avail against him any defense among these prior parties and prevent the said holder from collecting in whole or in part the amount stated in the instrument Note: If there are no defenses, the distinction between a !"# and one who is not a !"# is immaterial. ($otes and Cases on Ban-s, $egotia.le /nstruments and ot0er Commercial 1ocuments, 2imoteo B" Aquino)

S,ELTER RULE  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 prior parties to the latter. Sec. -9$ ACCOMMO6ATION  A legal arrangement under which a person called the accommodation party, lends his name and credit to another acco00o&ate& !at$, called the without any consideration. Acco00o&ation Pat$ (AP)  equisites) 1. %he accommodation party must sign as ma(er, drawer, acceptor, or indorser &. !e must not receive value therefor and . %he purpose is to lend his name or credit. Sec. &D$ Note: :wit0out receiving value t0erefor,< means without receiving



value by virtue of the instrument. #lar( vs. Sellner, 3& hil. 93$  Cffects) %he person to whom the instrument thus e;ecuted is subsequently negotiated has a right of recourse against the accommodation party in spite of the formerFs (nowledge that no consideration passed between the accommodation and accommodated parties. Sec. &D$  ights  Legal osition) 1. A is generally regarded as a suret6 for the party accommodated &. >hen A ma(es payment to holder of the note, he has the right to sue the accommodated party for reimbursement. Agro #onglomerates, Inc. vs. #A, 39 S#A 3-0$  Liability) Liable on the instrument to a holder for value notwithstanding such holder at the time of the ta(ing of the instrument (new him to be only an accommodation party. !ence, As th regards, an A, the 3 condition, i"e", lac( of notice of infirmity in the instrument or defect in the title of the persons negotiating it, has no application. Stelco 4ar(eting #orp. vs. #ourt of Appeals, &10 S#A -1$  ights of As as against each other) 4ay demand contribution from his co< accommodation party without first directing his action against the principal debtor provided) a. !e made the payment by virtue of 2udicial demand or b. %he principal debtor is insolvent.  %he relation between an accommodation party is, in effect, one of principal and surety ' the accommodation party being the surety. It is a settled rule that a surety is bound equally and absolutely with the principal and is deemed an original promissory and debtor from the beginning. %he liability is immediate and direct. omeo 7arcia vs. "ionisio Llamas, 7.. No. 1-31&8, "ecember 9, &00$  >ell
alone being sufficient. Spouses Cduardo Cvangelista vs. 4ercator +inance #orp, 7.. No. 1399/3, August &1, &00$

;I. PARTIES -,O ARE LIABLE PRIMAR AN6 -ARRANTIES OF SECON6AR PARTIES LIABILIT OF PARTIES 4a(es the parties liable to pay the sum certain in money stated in the instrument.

#onditioned on presentment and notice of dishonor (Camos and Loe?@ Camos, $egotia.le /nstruments Law, +554 ed")

Impose no direct obligation to pay in the absence of breach thereof. In case of breach, the person who breached the same may either be liable or barred from asserting a particular defense. "oes not require presentment and notice of dishonor. (Camos and Loe?@Camos, $egotia.le /nstruments Law, +554 ed")

. Pi0ai"$ Lia#"e (Sec. 9 an& *4 NIL) MA%ER ACCEPTOR OR 6RA-EE A. Cngages to pay according to the tenor of the instrument and =. Admits the e;istence of the payee and his capacity to indorse.

A. Cngages to pay according to the tenor of his acceptance =. Admits the e;istence of the drawer, the genuineness of his signature and his capacity and authority to draw the instrument and #. Admits the e;istence of the payee and his capacity to indorse. 

A bill of itself does not operate as an assignment of funds in the hands of the drawee available for the payment thereof and the drawee is



not liable unless and until he accepts the same Sec.1&8$

*. Secon&ai"$ Lia#"e (Sec. 4  an& 4 NIL) IRREGULAR 6RA-ER GENERAL IN6ORSER IN6ORSER A. Admits the e;istence of the payee and his capacity to indorse =. Cngages that the instrument will be accepted or paid by the party primarily liable and #. Cngages that if the instrument is dishonored and proper proceedings are brought, he will pay to the party entitled to be paid.

A. >arrants all subsequent !"# < a. %hat the instrument is genuine and in all respect what it purports to be b. !e has good title to it c. All prior parties had capacity to contract d. %he instrument is, at the time of endorse< ment, valid and subsisting. =. Cngages that the instrument will be accepted or paid, or both, as the case may be, according to its tenor and #. If the instrument is dishonored and necessary proceedings on dishonor be duly ta(en, he will pay to the party entitled to be paid.

A person, not otherwise a party to an instrument, places his signature thereon in blan( before delivery. Sec. /3$ A. If instrument payable to the order of a rd person, he is liable to the payee and subsequent parties. =. If instrument payable to order of ma(er or drawer or to bearer, he is liable to all parties subsequent to the ma(er or drawer. #. If he signs for accommo< dation of the payee, he is liable to all parties subsequent to the payee.

. Li0ite& Lia#i"it$ (Sec. @D Meto!o" Financin2 5. Sa0#o84 *9 SCRA ) 7UALIFIE6 IN6ORSER

PERSON NEGOTIATING B 6ELI;ER

Cvery person negotiating instrument by delivery or by a qualified endorsement warrants that) A. Instrument is genuine and in all respects what it purports to be =. !e has good title to it #. All prior parties had capacity to contract ". !e has no (nowledge of any fact which would impair the validity of the instrument or render it valueless.

A. >arranties same as those of qualified indorsers and =. >arranties e;tend to immediate transferee only.

PERSON NEGOTIATING B MERE 6ELI;ER OR B 7UALIFIE6 IN6ORSEMENT

GENERAL IN6ORSER

No secondary liability but is liable for breach of warranty >arrants that he has no (nowledge of any fact which would impair the validity of the instrument or render it valueless

%here is secondary liability, and warranties >arrants that the instrument is, at the time of his indorsement, valid and subsisting

OR6ER OF LIABILIT  %here is no order of liability among the indorsers as against the holder. !e is free to choose to recover from any indorser in case of dishonor of the instrument. ($otes and Cases on Ban-s, $egotia.le /nstruments and ot0er



Commercial 1ocuments, 2imoteo B" Aquino)  As respect one another, indorsers are liable prima facie in the order in which they indorse unless the contrary is proven Sec./9$  %'$'RAL R7L'& 5ne whose signature does not appear on the instrument shall not be liable thereon.  '8C'P2/9$S& 1. %he principal who signs through an agent is liable &. %he forger is liable . 5ne who indorses in a separate instrument allonge$ or where an acceptance is written on a separate paper is liable 3. 5ne who signs his assumed or trade name is liable and -. A person negotiating by delivery as in the case of a bearer instrument$ is liable to his immediate indorsee.

;II. 6EFENSES REAL 6EFENSES %hose that attach to the instrument itself and are available against all holders, whether in due course or not, but only by the parties entitled to raise them. a.(.a absolute defenses$ 1. 4aterial Alteration &. >ant of delivery of incomplete instrument . "uress amounting to forgery 3. +raud in factum or fraud in esse contractus -. 4inority available to the minor only$ /. 4arriage in the case of a wife 8. Insanity where the insane person has a guardian appointed by the court

PERSONAL 6EFENSES %hose which are available only against a person not a holder in due course or a subsequent holder who stands in privity with him. a.(.a. equitable defenses$

1. Absence or failure of consideration, partial or total &. >ant of delivery of complete instrument . Insertion of wrong date in an instrument 3. +illing up of blan( contrary to authority given or not within reasonable time -. +raud in inducement /. Acquisition of instrument by force, duress, or fear 8. Acquisition of the instrument by unlawful means 9. Acquisition of the instrument for an illegal consideration

9. Bltra vires acts of a corporation D. >ant of authority of agent 10. C;ecution of instrument between public enemies 11. Illegality ' if declared void for any purpose 1&. +orgery.

D. Negotiation in breach of faith 10. Negotiation under circumstances that amount to fraud 11. 4ista(e 1&. Into;ication according to better authority$ 1. Bltra vires acts of corporations where the corporation has the power to issue negotiable paper but the issuance was not authori*ed for the particular purpose for which it was issued 13. >ant of authority of agent where he has apparent authority 1-. Insanity where there is no notice of insanity on the part of the one contracting with the insane person and 1/. Illegality of contract where the form or consideration is illegal.

EFFECTS OF CERTAIN 6EFENSES A. MINORIT  Negotiation by a minor passes title to the instrument. Sec.&&$. =ut the minor is not liable and the defense is personal to him B. ULTRA ;IRES ACTS  A real defense but the negotiation passes title to the instrument. Sec. &&$ Note: A cororation cannot act as an accommodation party. %he issuance or indorsement of negotiable instrument by a corporation without consideration and for the accommodation of another is ultra vires. #risologo<:ose v. #A, 118 S#A -D3$ C. INCOMPLETE AN6 UN6ELI;ERE6 NI (Sec. @)  If completed and negotiated without authority, not a valid contract against a person who has signed before delivery of the contract even in the hands of !"# but subsequent indorsers are liable. %his is a real defense.



6. INCOMPLETE BUT 6ELI;ERE6 NI (Sec. ) 1. !older has prima facie authority to fill up the instrument. &. %he instrument must be filled up strictly in accordance with the authority given and within reasonable time . !"# may enforce the instrument as if filled up according to no. &. E. COMPLETE BUT UN6ELI;ERE6 NI (Sec. ) 1. =etween immediate parties and those who are similarly situated, delivery must be coupled with the intention of transferring title to the instrument. &. As to !"#, it is conclusively presumed that there was valid delivery and . As against an immediate party and remote party who is not a !"#, presumption of a valid and intentional delivery is rebuttable. F. FRAU6 FRAU6 IN FACTUM OR FRAU6 IN IN6UCEMENT

%he person who signs the instrument intends to sign the same as a NI but was induced by fraud

FRAU6 IN ESSES CONTRACTUS OR FRAU6 IN E+ECUTION %he person is induced to sign an instrument not (nowing its character as a bill or note

G. ABSENCE OR FAILURE OF CONSI6ERATION (Sec. *)  ersonal defense to the pre2udiced party and available against any person not !"#. ,. PRESCRIPTION  efers to e;tinctive prescription and may be raised even against a !"#. Bnder the #ivil #ode, the prescriptive period of an action based on a written contract is 10 years from accrual of cause of action.

 Cffects)

1. Alteration by a party ' Avoids the instrument ecet as against the party who made, authori*ed, or assented to the alteration and subsequent indorsers.  !owever, if an altered instrument is negotiated to a !"#, he may enforce payment thereof according to its original tenor regardless of whether the alteration was innocent or fraudulent.

Note: Since no distinction is made, it does not matter whether it is favorable or unfavorable to the party ma(ing the alteration. %he intent of the law is to preserve the integrity of the negotiable instruments. &. Alteration by a stranger soliation$< the effect is the same as where the alteration is made by a party which a !"# can recover on the original tenor of the instrument. Sec. 1&3$ #hanges in the following constitute material alterations) a. "ate b. Sum payable, either for principal or interest c. %ime or place of payment d. Number or relations of the parties e. 4edium or currency in which payment is to be made f. %hat which adds a place of payment where no place of payment is specified and g. Any other change or addition which alters the effect of the instrument in any respect. Sec. 1&-$ 

 A

serial number is an item which is not an essential requisite for negotiability under Sec. 1, NIL, and which does not affect the rights of the parties, hence its alteration is not material. N= vs. #A, &-/ S#A 3D1$

I. MATERIAL ALTERATION  Any change in the instrument which affects or changes the lia.ilit6 of t0e arties in any way. COMMERCIAL LAW COMMITTEE CHAIRPERSON : Garny Luisa Alegre A SST. CHAIRPERSON : Jayson O’S Ramos EDP: ea!ri" I. Ramos S #JECT HEADS : $ari%&elle De 'era (Nego!ia)le Ins!rumen!s La*+, Jose -ernano Lla/e (Insuran%e+, Alri%& Del Rosario (Trans0or!a!ion La*s+, S&irley $ae Ta)ang%ura1 on 'in%en! Agus!in (Cor0ora!ion La*+, 2arl S!e/en Co (S0e%ial La*s+, Jo&n Lemuel Ga!ula (an3ing La*s+, Ro)es0ierre C # (La* on In!elle%!ual Pro0er!y+

Co0!aison o' sections 4 @ an&  o' t/e ne2otia#"e instu0ents "a Section 14

Section 15

"elivery

"elivered

Bndelivered

# om pl et eness

1 . > ant ing i n a ny m at er ial particular

1 . = la n( signature

Authority of person in possession

1. rima facie authority to complete it by filling up the blan(s therein

1.Signature operates as a prima facie authority to fill it up as such for any amount

>hen enforceable

4echanically incomplete

4echanically complete

No authority to complete andOor negotiate instrument

4ay negotiate if delivered to him by or under the authority of the party ma(ing, indorsing, drawing or accepting, as the case may be.

If filled up strictly in accordance with authority given and within a reasonable time

Not enforceable

>hen delivery is made by or under authority of the party ma(ing, indorsing, drawing or accepting, as the case may be.

Hind of defense

ersonal

eal

ights of holder

1.

None in the hands of any holder. !owever, the invalidity of the instrument is only with reference to parties whose signatures appear on the instrument after delivery, the instrument is valid.

ersonal #an enforce the instrument. Note) >here the instrument is in the hands of a !"#, a valid delivery thereof by all parties prior to him so as to ma(e them liable to him is conclusively presumed. >here the instrument is no longer in the possession of a party whose signature appears thereon, a valid and intentional delivery to him is presumed until the contrary is proved.

&.

p ap er

w it h

Section 16 Bndelivered Note) "elivery may be made for a conditional or for a special purpose only and not for the purpose of transferring the property in the instrument

If !"#, he can enforce t he instrument as completed against parties prior or subsequent to the completion If not a !"#, he can enforce the instrument as completed only against parties subsequent to the completion but not against those prior t hereto.

?. FORGER  #ounterfeit ma(ing or fraudulent alteration of any writing, which may consist of) 1. Signing of anotherFs name with intent to defraud or &. Alteration of an instrument in the name, amount, name of payee, etc. with intent to defraud. (+ Ag.a6ani4 +55 ed")  %'$'RAL R7L'& >hen a signature is forged or made without the authority of the person, the signature not instrument itself and the genuine signatures$ is wholly inoperative  Legal Cffects) 1. No right to retain the instrument &. %o give a discharge therefore . %o enforce payment thereof against any party thereto, can be acquired through or under such signature '8C'P2/9$& Bnless the party against whom it is sought to enforce such right is precluded from setting up the forgery or want of authority. Sec. &$

Pa$ees si2natue 'o2e&

In&oses

si2natue 'o2e&

liable. a. 4a(er and payee not liable. b. Indorsers subsequent to forgery are liable. c. arty who made the forgery is liable. a. 4a(er, payee and indorser whose signature was forged is not liable. b. Indorsers subsequent to forgery are liable. =ecause of their warranties$ c. arty who made the forgery is liable.

a. 4a(er is liable. Indorsement is not necessary to title and the ma(er engages to pay holder$ b. arty who made the forgery is liable a. 4a(er is liable. indorsement is not necessary to title and the ma(er engages to pay the holder$ b. Indorser whose signature was forged not liable to one who is not a !"# provided the instrument is

?. FORGER  #ounterfeit ma(ing or fraudulent alteration of any writing, which may consist of) 1. Signing of anotherFs name with intent to defraud or &. Alteration of an instrument in the name, amount, name of payee, etc. with intent to defraud. (+ Ag.a6ani4 +55 ed")  %'$'RAL R7L'& >hen a signature is forged or made without the authority of the person, the signature not instrument itself and the genuine signatures$ is wholly inoperative  Legal Cffects) 1. No right to retain the instrument &. %o give a discharge therefore . %o enforce payment thereof against any party thereto, can be acquired through or under such signature '8C'P2/9$& Bnless the party against whom it is sought to enforce such right is precluded from setting up the forgery or want of authority. Sec. &$


In&oses


liable. a. 4a(er and payee not liable. b. Indorsers subsequent to forgery are liable. c. arty who made the forgery is liable. a. 4a(er, payee and indorser whose signature was forged is not liable. b. Indorsers subsequent to forgery are liable. =ecause of their warranties$ c. arty who made the forgery is liable.

Pesons !ec"u&e& 'o0 settin2 u! &e'ense o' 'o2e$ 1. %hose who warrant or admit the genuineness of the signature in question. %his includes indorsers, persons negotiating by delivery and acceptors. 2. %hose who, by their acts, silence, or negligence, are estopped from setting up the defense of forgery. B. Bi""s o' E1c/an2e O&e Instu0ent

RULES ON FORGER A. Promissory Notes

Ma8es si2natue 'o2e&

O&e Instu0ent

Beae Instu0ent

a. 4a(er is not liable because he never became a party to the instrument. b. Indorsers subsequent to forgery are liable because of their warranties. c. arty who the made the forgery is

a. 4a(er is not liable. b. arty who made the forgery is liable. c. Indorsers may be made liable to those persons who obtain title through their indorsements.

6aes si2natue 'o2e&

a. "rawer is not liable because he was never a party to the instrument. b. "rawee is liable if it paid no recourse to drawer$ because he admitted the genuiness of the drawerFs signature. "rawee cannot recover from

a. 4a(er is liable. Indorsement is not necessary to title and the ma(er engages to pay holder$ b. arty who made the forgery is liable a. 4a(er is liable. indorsement is not necessary to title and the ma(er engages to pay the holder$ b. Indorser whose signature was forged not liable to one who is not a !"# provided the instrument is mechanically complete before the forgery. c. arty who made the forgery is liable.

Beae Instu0ent a. "rawer is not liable. b. "rawee is liable if it paid. "rawee cannot recover from the collecting ban(. c. arty who made the forgery is liable.


In&oses


the collecting ban( because there is no privity between the collecting ban( and the drawer. %he latter does not give any warranty regarding the signature of the drawer. Associated =an( vs. #A$ c. Indorsers subsequent to forgery liable such as collecting ban( or last endorser$ d. arty who made the forgery is liable a. "rawer, drawee and payee not liable. b. Indorsers subsequent to forgery are liable. such as collecting ban($ c. arty who made the forgery is liable a. "rawer, payee and indorser whose signature was forged not liable. b. "rawee is liable if it paid. c. Indorsers subsequent to forgery are liable. such as collecting ban($ d. arty who made the forgery is liable.

a. "rawer is liable b. "rawee is liable c. ayee is not liable d. #ollecting ban( is liable because of warranty e. arty who made the forgery is liable a. "rawer is liable. indorsement not necessary to title$ b. "rawee is liable. c. Indorser whose signature was forged is liable because indorsement is not necessary to title. d. arty who made the forgery is liable.

;III. ENFORCEMENT OF LIABILIT

A. STEPS TO C,ARGE T,E PARTIES LIABLE a. Pi0a$ Lia#i"it$ %he unconditional promise attaches the moment the ma(er ma(es the instrument while the acceptorFs assent to the unconditional order attaches the moment he accepts the instrument. No further act is necessary in order for the liability to accrue. resentment for payment is all that is necessary. ($otes and Cases on Ban-s, $egotia.le /nstruments and ot0er Commercial 1ocuments, 2imoteo B" Aquino) #. Secon&a$ Lia#i"it$ 1. Steps in promissory note indorsers$ a. resentment for payment to the ma(er. b. Notice of dishonor should be given, if dishonored by nonhere the bill is payable after sight, or when it is necessary in order to fi; the maturity of the instrument b. >here the bill e;pressly stipulates that it shall be presented for acceptance c. >here the bill is drawn payable elsewhere than at the residence or place of business of the drawee. Sec. 13$ Note: In all the above cases, the holder must either present the bill for acceptance or negotiate it within a reasonable time otherwise, the drawer and all indorsers are discharged. Sec. 133$ &. If dishonored by non
b. rotest for dishonor by non< payment in case of foreign bill.

B. PRESENTMENT  %he production of a =C to the drawee for his acceptance, or to the drawee or acceptor for payment or the production of a N to the party liable for the payment of the same. Sec. 80$ PRESENTMENT FOR PAMENT  #onsists of) 1. Personal demand for a6ment at the proper place and &. Readiness to e0i.it the instrument if required, and to receive payment and to surrender the instrument if the debtor is willing to pay.  equisites) 1. 4ade by the holder or any person authori*ed to receive payment on his behalf &. At a reasonable hour on a business day . At a proper place 3. %o the person primarily liable or if he is absent or inaccessible, to any person found at the place where the presentment is made. Sec. 8&$  >hen should be made) 1. N payable on demand) within reasonable time after its issue &. =C payable on demand) within reasonable time after its last negotiation . Instrument payable on a specified date) on the date it falls due. Sec. 81$  roper place) 1. lace specified &. Address of the person to ma(e payment is given, in case no place is specified . Bsual place of business or residence of the person to ma(e payment, in case no place is specified and no address is given 3. In any other case, wherever the person to ma(e payment can be found, or at his last (nown place of business or residence. Sec. 8$  >hen not required) 1. In order to charge the drawer where he has no right to e;pect or require

that the drawee or acceptor will pay the instrumentSec. 8D$ &. In order to charge an indorser when the instrument was made or accepted for his accommodation and he has no reason to e;pect that the instrument will be paid if presented. Sec. 90$  >hen delay in ma(ing presentment or of giving notice is e;cused) 1. >hen caused by circumstances beyond the control of the holder and &. Not imputable to his default, misconduct, or negligence. Sec. 91$  >hen presentment for payment is e;cused) 1. After e;ercise of reasonable diligence, it cannot be made &. "rawee is a fictitious person . C;press or implied waiver. Sec. 9&$

E1/i#ition  urposes) 1. %o enable the debtor to determine the genuineness of the instrument and the right of the holder to receive payment and &. %o enable him to reclaim possession upon payment.  >hen e;cused) 1. >hen debtor does not demand to see the instrument but refuses payment on some other grounds, and &. >hen the instrument is lost or destroyed. S!ecia" cases 1. /nstrument a6a.le at a .an- ' 4ust be made during ban(ing hours unless there are no funds to meet it at any time during the day, presentment at any hour before the ban( is closed on that day is sufficient. Sec. 8-$ &. Person lia.le is dead ' 4ay be made to his personal representative, if there be one, and if he can be found. Sec. 8/$ C. PRESENTMENT FOR ACCEPTANCE >hen required) a. >here the bill is payable after sight, or when it is necessary in order to fi; the maturity of the instrument b. >here the bill e;pressly stipulates that it shall be presented for acceptance

c. >here the bill is drawn payable elsewhere than at the residence or place of business of the drawee. Sec. 13$  !ow made) a. >here a bill is addressed to & or more drawees who are not partners, presentment must be made to all b. >here drawee is dead, presentment may be made to his personal representative c. >here the drawee is ad2udged a ban(rupt, insolvent or made an assignment to his creditors, presentment may be made to him or his trustee or assignee  >hen e;cused) 1. >here the drawee is dead, or has absconded, or is a fictitious person or a person not having capacity to contract by bill &. After e;ercise of reasonable diligence, presentment cannot be made . Although presentment has been irregular, acceptance has been refused on some other ground. Sec. 139$  If bill is duly presented for acceptance and it is not accepted within the prescribed time, the person presenting it must treat the bill as dishonored by non
6. ACCEPTANCE  %he signification by the drawee of his assent to the order of the drawer.  It is the act by which the drawee manifests his consent to comply with the request contained in the bill of e;change directed to him.  Fo0: 4ust be in writing and signed by the drawee and must not e;press that the drawee will perform his promise by any other means than the payment of money. Sec. 1&$  %he holder of the 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. Sec. 1$  %in&s:

1. %'$'RAL < assents without qualification to the order of the drawer. &. 7AL//'1 < which in e;press terms varies the effect of the bill as drawn. a. #onditional < ma(es payment by the acceptor dependent on the fulfillment of a condition therein stated. b. artial < an acceptance to pay part only of the amount for which the bill is drawn. a. Local < an acceptance to pay only at a particular place. b. Pualified as to time c. %he acceptance of some one or more of the drawees but not of all. Sec. 131$  +orm) 1. 4ust be made by or on behalf of the holder &. At a reasonable hour on a business day . =efore the bill is overdue and 3. %o the drawee or some person authori*ed to accept or refuse to accept on his behalf.

I0!"ie& Acce!tance  If after &3 hours, the drawee fails to return the instrument. !e is also deemed to have accepted the instrument when he destroys the same. E. NOTICE OF 6IS,ONOR  Notice given by holder or his agent to party or parties secondarily liable that the instrument was dishonored by non< acceptance by the drawee of a bill or by nonhen dispensed with)

1. >hen party to be notified (nows about the dishonor, actually or constructively Secs. 113<118$ &. If waived Sec. 10D$ and . >hen after due diligence, it cannot be given Sec. 11&$.  !ow given) 1. =y bringing verbally or &. =y writing to the (nowledge of the person liable the fact that a specified instrument, upon proper proceedings ta(en, has not been accepted or has not been paid, and that the party notified is e;pected to pay it.  %o whom given) 1. Non
6IS,ONOR B NON3PAMENT 1. ayment is refused or cannot be obtained after due presentment for payment &. resentment is e;cused and the instrument is overdue and unpaid. Sec. 9$  Cffect)

%here is an immediate right of recourse by the holder against persons secondarily liable. !owever, notice of dishonor is generally required. Sec. 93$

6IS,ONOR B NON3ACCEPTANCE  Instances: 1. >hen it is duly presented for acceptance and such an acceptance is refused or cannot be obtained or

&. >hen presentment for acceptance is e;cused, and the bill is not accepted. Sec. 13D$  Cffect) Immediate right of recourse against the drawer and indorsers accrues to the holder and no presentment for payment is necessary. Sec. 1-1$

E''ect o' "ac8 o' notice o' &is/ono on NI /ic/ ae !a$a#"e in insta""0ents 1. $o acceleration clause ' failure to give notice of dishonor on a previous installment does not discharge drawers and indorsers as to succeeding installments. &. ;it0 acceleration clause ' failure to give notice of dishonor as to previous installment will discharge the persons secondarily liable as to the succeeding installments. To /ose #ene'it &oes a notice o' &is/ono inue 1. >hen given #$ o on #e/a"' o' a /o"&e) a. All parties prior to the holder, who have a right of recourse against the party to whom the notice is given and b. All holders subsequent to the holder giving notice. Sec. D&$ &. >hen given #$ o on #e/a"' o' a !at$ entit"e& to 2i5e notice ) a. %he holder and b. All parties subsequent to the party to whom notice is given. Sec. D$ 6is/ono in t/e /an&s o' an A2ent  Agent can do either of the following) 1. "irectly give notice to persons secondarily liable thereon or &. 7ive notice to his principal. In such case, he must give notice within the time allowed by law as if he were a holder. Sec. D3$ A !at$ 2i5in2 notice is &ee0e& to /a5e 2i5en &ue notice /ee: 1. %he notice of dishonor is duly addressed, and &. "eposited in the post


>here 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. Sec. 108$

-ai5e o' Notice o' 6is/ono  Cither before the time of giving notice, or after the omission to give due notice. >aiver may be e;pressed or implied. Sec. 10D$  As to who are affected by an e1!ess ai5e depends on where the waiver is written) 1. If it appears in the body or on the face of the instrument, it binds all parties but &. If it is written above the signature of an indorser, it binds him only. Sec. 110$ Notice of dishonor is not required to be given to the &ae in any of the ff. cases) 1. "rawer and drawee are the same &. "rawee is a fictitious person or not having the capacity to contract . "rawer is the person to whom the instrument is presented for payment 3. %he drawer has no right to e;pect or require that the drawee or acceptor will honor the instrument -. >here the drawer has countermanded payment. Sec. 113$ Notice of dishonor is not required to be given to an in&ose in the ff. cases) 1. "rawee is a fictitious person or does not have the capacity to contract, and indorser was aware of that fact at the time he indorsed the instrument &. Indorser is the person to whom the instrument is presented for payment . Instrument was made or accepted for his accommodation. Sec. 11-$  If

an instrument is not accepted by the drawee, there is no sense presenting

it again for payment, and notice of dishonor must at once be given. If there was acceptance, presentment for payment is still required and if payment is refused, there is a need for notice of dishonor. Sec. 11/$  An

omission to give notice of dishonor by non
F. FOREIGN BILL OF E+C,ANGE 1. "rawn in the hilippines but payable outside the hilippines. &. ayable in the hilippines but drawn outside the hilippines. INLAN6 BE

FOREIGN BE

A bill which or on its face purports to be both drawn and payable within the hilippines.

5ne which is or on its face purports to be drawn or payable outside the hilippines.

NOTICE OF 6IS,ONOR

PROTEST

equired in inland bill

equired in foreign bill

4ay be oral or written 4ay be made by a party or agent

Always written

4ade in residence of parties

4ade by a notary public or a respectable resident in the presence of witness 4ade in the place of dishonor

PROTEST  %he formal instrument e;ecuted usually by a notary public certifying that the legal steps necessary to fi; the liability of the drawee and the indorsers have been ta(en.  >ho ma(es) 1. A notary public or &. Any respectable resident of the place where the bill is dishonored, in the presence of & or more credible witnesses. Sec. 1-3$ 

Potest 'o #ette secuit$ ' 5ne 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 adudged a ban(rupt or an insolvent, or has made an assignment for the benefit of the creditors. Sec. 1-9$  rotest is necessary only in case of foreign bills of e;change, which have been dishonored by non
ACCEPTANCE FOR ,ONOR  An underta(ing by a stranger to a bill after protest for the benefit of any party liable thereon or for the honor of the person for whose account the bill is drawn which acceptance inures also to the benefit of all parties subsequent to the person for whose honor it is accepted, and conditioned to pay the bill when it becomes due if the original drawee does not pay it. Secs. 1/1<180$  Re=uisites: 1. %he bill must have been protested for dishonor by non
ACCEPTANCE FOR ,ONOR

No previous protest is required #onsent of holder is implied "rawee is acceptor Acceptor primarily liable

is

revious protest is required #onsent of holder is required Acceptor must be stranger to the bill Acceptor is secondarily liable

PAMENT FOR ,ONOR  ayment made by a person, whether a party to the bill or not, after it has been protested for non
In payment for honor, the payee cannot refuse payment. If he refuses, he cannot recover from the parties who would have been discharged had he accepted the same. In acceptance for honor, the holderFs consent is necessary.  %he payor for honor is given the right to receive both the bill and the protest obviously to enable him to enforce his rights against the parties who are liable to him.

BILLS IN SET  5ne composed of several parts, each part being numbered and containing a reference to the other parts, the whole of the parts constituting but one bill.  urpose) It is usually availed of in cases where a bill had to be sent to a distant place through some conveyance.

If each part is sent by different means of conveyances, the chance that at least one part of the set would reach its destination would be greater.

Ri2/ts o' /o"&es /ee !ats ae ne2otiate& se!aate"$ 1.If both are !"#, the holder whose title first accrues is considered the true owner of the bill. &.=ut the person who accepts or pays in due course shall not be pre2udiced. Sec. 18D$ O#"i2ations o' /o"&e /o in&oses * o 0oe !ats o' t/e #i"" in set 1.%he person shall be liable on every such part &.Cvery indorser subsequent to him is liable on the part he has himself indorsed, as if such parts were separate bills. Sec. 190$ I+. 6ISC,ARGE 6ISC,ARGE OF NI  A release of all parties, whether primary or secondary, from the obligations arising thereunder. It renders the instrument without force and effect and, consequently, it can no longer be negotiated. (20e Law on $egotia.le /nstruments wit0 1ocuments of 2itle, =ector de Leon, !!! ed")  Instances) 1. =y payment in due course by or on behalf of the principal debtor &. ayment by accommodated party . Intentional cancellation by the holder 3. =y any act which will discharge a simple contract for the payment of money Sec. 11D$ -. >hen the principal debtor becomes the holder of the instrument at or after maturity in his own right. PAMENT IN 6UE COURSE  equisites) 1. ayment must be made at or after maturity. &. ayment must be made to the holder. . ayment must be made in good faith and without notice that the holderFs title is defective. Sec. 99$

 =y

whom made) a. =y ma(er or acceptor or b. Surety if a primary party or c. =y an agent on behalf of the principal

RENUNCIATION (Sec. **)  %he act of surrendering a right or claim without recompense, but it can be applied with equal propriety to the relinquishing of a demand upon an agreement supported by a consideration. (+ Ag.a6ani +55 ed")  Cffects) 1. A renunciation in favor of a secondary party may be made by the holder before, at or after maturity of the instrument. %he effect is to discharge only such secondary party and all parties subsequent to him but the instrument itself remains in force. &. A renunciation in favor of the principal debtor may be effected at or after maturity. %he effect is to discharge the instrument and all parties thereto provided the renunciation is made unconditionally and absolutely. Note: In either case, renunciation does not affect the rights of a holder in due course without notice. CANCELLATION  It includes the act of tearing, erasing, obliterating, or burning. It is not limited to writing of the word QcancelledK, or paidK, or drawing of criss
recourse against the party secondarily liable is e;pressly reserved /. =y any agreement binding upon the holder to e;tend the time of payment or to postpone the holderFs right to enforce the instrument. Sec. 1&0$  /n t0e following cases, t0e agreement to etend t0e time of a6ment does not disc0arge a art6 secondaril6 lia.le& a$ where the e;tension of time is consented to by such party b$ where the holder e;pressly reserves his right of recourse against such party.  ayment at or after maturity by a party secondarily liable does not discharge the instrument. It only cancels his own liability and that of the parties subsequent to him. Sec. 1&1$

+. C,EC%S  A bill of e;change drawn on a ban( payable on demand Sec. 19-$ CONCEPTS: 1. #ertification of #hec(s  An agreement whereby the ban( against whom a chec( is drawn, underta(es to pay it at any future time when presented for payment.  Cffects) a. Cquivalent to acceptance Sec. 198$ and is the operative act that ma(es ban(s liable b. Assignment of the funds of the drawer in the hands of the drawee Sec. 19D$ c. If obtained by the holder, discharges the persons secondarily liable thereon Sec. 199$ &. A chec( of itself does not operate as an assignment of any part of the funds to the credit of the drawer with the ban(. %he ban( is not liable to the holder, unless and until it accepts or certifies the chec(. Sec. 19D$ . A chec( must be presented for payment within reasonable time after its issue or the drawer will be discharged from liability thereon to the e;tent of the loss caused by the delay. Sec. 19/$

 easonable

time) Sec. 1D, NIL$ a. Nature of the instrument b. Bsage of business or trade c. %he facts of the particular case 3. >here the holder of a chec( procures it to be accepted or certified, the drawer and all indorsers are discharged from liability thereon. Sec. 19/$ -. efusal of drawee ban( to certify  %he holder has no action against the ban( but he has a right of action against the drawer. %he drawer in turn has right of action against the ban( based on the original contact of deposit between them.

Cosse& C/ec8  A chec( which in addition to the usual contents of an ordinary chec( contains also the name of a certain ban(er or business entity through whom it must be presented for payment.  Cffects) a$ %hat the chec( may not be encashed it may only be deposited with the ban( b$ %hat the chec( may be negotiated only once to a person who has an account with the ban( and c$ %hat it serves as a warning to the holder that the chec( has been issued for a definite purpose. =ataan #igar vs. #A, &0 S#A /3$ 

%he NIL is silent with respect to crossed chec(s, although the #ode of #ommerce ma(es reference to such instrument. Nonetheless, this #ourt has ta(en 2udicial cogni*ance of the practice that a chec( with & parallel lines in the upper left hand corner means that it could only be deposited and not converted into cash. 20e effects of crossing a c0ec- t0us, relates to t0e mode of a6ment, meaning that the drawer had intended the chec( for deposit only by the rightful person, i"e", the payee named therein. #ely Mang vs. #ourt of Appeals, 7.. No. 19083, August 1-, &00$

IRON CLA6 RULE  rohibits the countermanding of payment of certified chec(s. epublic of the hilippines vs. N=$

Note: %he holder must be a holder in due course before the stop payment order may not be successfully invo(ed against him. 4esina vs. IA#, 13/ S#A 3D8, -0-$ TPES OF C,EC%S (Cesar 3illanueva, Commercial Law Review, !!4 ed") a. Cas/ies C/ec8  5ne drawn by the cashier of a ban(, in the name of the ban( against the ban( itself payable to a third person. It is a primary obligation of the issuing ban( and accepted in advance upon issuance. %an vs. #A, &D S#A 10$ b. Mana2es C/ec8  A chec( drawn by the manager of a ban( in the name of the ban( itself payable to a third person. It is similar to the cashierFs chec( as to the effect and use.

c. Me0oan&u0 C/ec8  A chec( given by a borrower to a lender for the amount of a short loan, with the understanding that it is not to be presented at the ban(, but will be redeemed by the ma(er himself when the loan falls due and which understanding is evidenced by writing the word memorandumK, memoK or memK on the chec(. d. Ceti'ie& C/ec8  An agreement whereby the ban( against whom a chec( is drawn underta(es to pay it at any future time when presented for payment. Sec. 198$

Nego San Beda Mem Aid

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