Promissory Note (PN) = promise to pay Bill of Exchange (BE) = order to pay PN Parties
BE (1) Creditor: Payee Party to whom the maker has unconditionally promised to pay the sum certain in money (2) Debtor: Maker The party who signs the instrument and makes the unconditional promise to pay a sum certain in money on demand or at a f ixed or determinable future time.
Features Liability
There is always a promise (1) Maker: Primarily Liable (2) Payee and subsequent indorsers: Secondarily Liable
Presentment for Acceptance
No presentment necessary.
When Payable on Demand
Presentment for
must be made within a
(1) Debtor: Drawer The one giving the order The person ordering someone to pay (2) Drawee The party to whom the bill is addressed and is being ordered by the Drawer to pay the Payee (3) Payee – the person in whose favor the bill is drawn and to whom the drawee will pay the bill There is always an order (1) Drawee: No Liability RATIO: Not obliged to pay, unless the drawee becomes the drawee-acceptor who binds himself to pay, thus, for accepting the order to pay, becomes primarily liable (2) Drawee-acceptor: Primarily Liable (3) Drawer, Payee, subsequent indorsers: Secondarily Liable Necessary ONLY in three circumstances: (1) When the BE is payable at a fixed period or after sight RATIO: The maturity date is counted from the date of the made by the holder to the drawee (2) When the place of payment of BE Is different from the domicile of the drawee (3) When presentment for acceptance is expressly required on the BE (e.g. “ Pay to the order of B P5,000 on Dec 31. 1991. Presentment for Acceptance is required.” Presentment for must be made within a
: Because there is no relationship between the drawee and the drawer. The drawee is actually paying from his own funds, with or without a previous agreement between them. There is payment from the drawee’s pockets subject to reimbursement later on. Whether or not the following are negotiable: (1) Bill of lading – not negotiable; it represents rather than money. A bill of lading is a f orm of document of title issued by the carrier whereby receipt of goods is acknowledged and the carrier promises to deliver the goods to whoever is validly holding it and who can present the bill of lading. It may be considered a negotiable instrument of title under the Civil Code, but it is not a negotiable instrument under the NIL. (Aquino, 2009) (2) Pawn ticket – not negotiable; no unconditional promise to or order to pay a sum certain in money and is not payable to order or to bearer. (3) Trust receipt – not negotiable; represents rather than money. It is a security transaction intended intended to aid in financing importers or dealers in merchandise by allowing them to obtain delivery of the goods under certain covenants. (4) Warehouse receipt – not negotiable; document of title that represents title to and possession of . (Aquino, 2009) (5) Trade acceptance – negotiable; a bill of exchange of which the acceptor is a bank or banker engaged generally in the business of granting banker’s acceptance credit (a special type of BE). (Bonifacio, 1978) (6) Bill of Lading – not negotiable; represents rather than money. (7) Letter of Credit – not negotiable; because they do not contain an unconditional order or promise to pay. (Aquino, 2009)
Negotiability is merely a matter of form. If the instrument fulfils all the above requisites, it becomes
negotiable even though it may be void, voidable, unenforceable or uncollectible. Suppose a person gives a promissory note in payment of a gambling debt to another person. If the promissory note has all the above requisites, it becomes a negotiable promissory note even though the consideration is contrary to law, gambling debts being illegal. No matter what consideration, whether or not for illegal or illicit purposes, confine yourself to Section 1, if it is valid on its face and can be considered a negotiable instrument.
(1)In (1)In writing and signed by the maker or drawer Pursuant to Section 1, it is a negotiable instrument, even if it be
written on a person ’s forehead or on the wall as long as it is in writing. The signature may be in any form, but preferably in his regularly accepted signature, as long as he intends to be bound (even if it is just “X” or your favourite number)
(2)Unconditional (2)Unconditional promise or order to pay a sum certain in money
while a period, also known as a day certain, is a future and certain event which is sure to happen, although when it will happen is not known.
RATIO: No person would trust negotiable instruments if it subject
to a contingency
, the term “pursuant to the contract” simply mentions the contract which gave rise to the instrument, there is no condition obtaining in the case at bar.
Yes. There will be a difference because it is no longer simply stating the transaction which gave rise to the instrument but making it subject to the terms and conditions of another contract.
, subject to the condition that the sale will push through and amount will be sufficient
, the order is still unconditional because what is reflected is an absolute obligation to pay P10,000. The specified account is only the after payment. If the funds in the account are insufficient, there would still be an obligation to pay the payee although the drawee may not be fully reimbursed.
Condition is a future and uncertain event, or a past event unknown to the parties, the happening (positive) or non-happening (negative) of which may either give rise to an obligation or may extinguish existing ones
If there is a condition, the instrument is non-negotiable. If there is merely a term, the negotiability of the instrument will not be affected.
Even if the clause “as soon as my means permit me to do so” is considered as one with a period pursuant to the Civil Code, it is subject to Article 1197 which says it is the court that will fix the duration of the period. And because going to court for the fixing of the period imposes an additional obligation, the instrument is rendered non-negotiable.
The following do not affect the negotiability of the instrument and
the sum payable is still considered certain, pursuant to Section 2 of the NIL: (1) With interest;
From the date expressly stipulated on the instrument from which the interest will start to run. If there is no such date, from the . If the instrument is undated, interest shall start to run from the of the instrument.
(1) payment of interest must be clearly stated on the instrument; otherwise interest shall not be chargeable; and (2) if interest is payable but the rate is not specified, interest shall be charged at the current legal rate of interest (which has been reverted back to 6% through Monetary Board Circular No. 799 effective July 1, 2013) (2) By stated installments;
Yes. An instrument, whether payable “at a fixed exch ange rate or at the current rate” is deemed by the law to meet the “sum certain” requirement. (De Leon, 2009)
, in order for stated installments to be valid and consequently, render negotiability, the stated installments must state the (1) maturity date of each installment and (2) exact amount to be paid for each installment. (3) By stated installments. With a provision that, upon default in payment of any instalment or of interest, the whole shall become due
The parties may stipulate on any rate (whether at a fixed exchange rate or at the current rate). In the absence of stipulation, it will be the prevailing rate of exchange at the time the obligation was constituted. (5) With costs of collection or an attorney’s fee, in case payment shall not be made at maturity.
not negotiable
Insecurity clauses are provisions in the contract which allow the holder to accelerate payment “if he deems himself insecure.” In other words, he can demand payment whenever he feels that there is a danger that make will not be able to pay on the due date of t he instrument. (Aquino, 2009) While escalation clauses or acceleration clauses are provisions which state that the whole indebtedness automatically becomes due and demandable upon default of one or two successive installments or of the interest. (Pasimio, 1992)
An instrument with an escalation clause does not affect negotiability because the certainty of the amount to be paid is not affected. However, an instrument with an insecurity clause is non-negotiable. Because the holder’s whim and caprice pr evail without the fault or control of the maker. (Aquino, 2009)
Yes, a stipulation in the instrument to pay all costs of collection and attorney’s fee in case of the filing of a suit for collection will not render the instrument non-negotiable as the total costs of collection are merely added to the principal obligation and does not alter the amount of the sum certain payable. The costs and attorney’s fees are merely incidentals in the collection of the principal obligation. (Pasimio, 1992)
Non-negotiable because the choice belongs to the maker, thus he is not absolutely required to deliver money because he can satisfy his obligation by delivering one sack of sugar.
(4) With exchange, whether at a fixed rate or at the current rate; or Yes because the option to choose belongs to the holder, there is still an absolute obligation to pay in money.
This situation is similar to an alternative obligation where the right of choice ALWAYS belongs to the debtor that is why it is important to add “at the holder’s option”, otherwise, the Civil Code provisions on alternative obligations will apply and it is the debtor who will choose.
(3)Must be payable on demand or at a fixed or determinable future time
(FOR A BILL OF EXCHANGE – “after sight is usually used” ) It will not be counted from the date of the bill, nor from the date of issue, but rather from the date of the first Presentment for Acceptance to be made by the holder to the Drawee.
The instrument is payable on demand if there is no maturity date.
The date of the instrument is important (1) to determine the
of the instrument if it is ; or (2) to determine when the interest, if provided in the instrument, will start to run.
(1) On demand, (2) Fixed calendar date, (3) Determinable future time
Payment can be demanded within a reasonable time. In determining reasonable time, Section 193 states that regard is to be had as: (1) To the nature of the instrument; (2) To usage of trade and business, if any, with respect to such instruments, and (3) The facts of the particular case. If a bill of exchange, reasonable time from last endorsement. If a promissory note, reasonable time from date of issuance.
An instrument is payable on demand, pursuant to Section 7 of the NIL: (1) When it is so expressed to be payable (2) In which no time for payment is expressed. (3) Where an instrument is issued, accepted, or indorsed when overdue, it is, as regards the person so issuing, accepting, or indorsing it, payable on demand.
Fixed time is the definite calendar date expressed in the
instrument E.g. “I promise to pay to the order of B P500 on June 30, 1991.”
The instrument is payable at a determinable future if, though no
(FOR A PROMISSORY NOTE – “after date is usually used” ) If there is no time for payment, the maturity date is counted from the date of the instrument. If the instrument is undated, the maturity date is counted from the date of issue.
date is fixed, the exact date of maturity is capable of being determined. Section 4 of the NIL enumerates the instruments that are considered payable at a determinable future time: (1) At a fixed period after date or sight; or e.g. “I promise to pay to the order of B P500 30 days afterdate.
The fixed period is 30 days after date which is generally used only
in
. The 30 days will be . If the PN is dated March 1, 1991, then the maturity date will be March 31, 1991. However , the rule says that the will be the date of the instrument, from which the 30 days will be counted. Example, Maker A made the PN on March 4, 1991 but left it undated. Then 30 days will be counted from March 4, thus making the maturity date April 3, 1991. e.g. “I promise to pay to the order of B P500 30 days aftersight . . The Fixed period after sight is generally used in a maturity date of a BE payable at a fixed period after sight is . Rather the fixed period (30 days) will be counted from the is made by the Payee or Holder to the Drawee. Example, if the holder makes a presentment for acceptance to the drawee on March 1, 1991, whether or not the drawee accepts it, the maturity date is already established on March 31, 1991.
(2) On or before a fixed or determinable future time specified therein; or e.g. “I promise to pay to the order of B P500 on or before June 30, 1991.” This refers to “on or before a fixed time” and the holder can collect from the maker or or at any time before June 30, 1991. “I promise to pay to the order of B P500 on or before X’mas this year.” The Holder can collect from the party primarily liable on or before December 25, 1991, which is “X’mas this year,” the determinable future time specified in the instrument
(3) On or at a fixed period after the occurrence of a specified event which is certain to happen, though the time of happening be uncertain.
Non-negotiable as it violates Section 1(c). The instrument is subject to a condition and not just a term. Birthdays are not certain to happen.
(4)Must be payable to order or to bearer Bearer instruments are negotiated by mere delivery while order instruments are negotiated by indorsement coupled with delivery.
Yes, a bill of exchange may be addressed to two or more drawees .
Non-negotiable. A bill of exchange may not be addressed to two or more drawees in the .
Also non-negotiable. A bill of exchange may not be addressed to two or more drawees in .
Section 9 of the NIL provides that an instrument is payable to bearer in the following instances: (1) When it is expressed to be so payable; or (2) When it is payable to a person named therein or bearer; or
(3) When it is payable to the order of a fictitious or non-existing person, and such fact was known to the person making it so payable; or
Yes, bearer.
Yes, it is called the commercial bad faith XPN. Such XPN would cause the drawee bank to bear the loss instead of the drawer of the checks.
A showing of commercial bad faith on the part of the drawee bank, or any transferee of the check for that matter, will work to strip it of this defense. The exception will cause the drawee bank to bear the loss. Commercial bad faith is present if the transferee of the check acts dishonestly, and is a party to the fraudulent scheme.
(1) The payee is a fictitious or non-existing person; and (2) such fact is known to the Maker who makes the promissory note payable to such fictitious or non-existing person.
An instrument is a bearer instrument if it is payable to the order of a fictitious or non-existing person and such fact is known to the person making it so payable.
Yes, but the instrument is still deemed payable to bearer if the maker or drawer has to make the instrument payable to such existing person. The fictitious payee rule does not only contemplate fictitious persons but also when the named payees do now know and without intending the named payees to receive the proceeds of the check.
Because a fictitious person cannot indorse, so the drawer/maker must have intended that the instrument is a bearer instrument which can be negotiated by mere delivery.
As a rule, it is the drawer of the check who bears the loss.
The bad faith of PNB consists in the actuat ions of its teller in accepting the checks even without indorsement when they knew that the payees named therein are living and existing. (4) When the name of the payee does not purport to be the name of any person; or e.g. “Pay to cash” or “Pay to payroll”
(5) When the only or last indorsement is an indorsement in blank. Indorsement can be done in two ways: (1) special – indorser’s signature and name (2) blank – indorser’s signature and name but
The order instrument is be negotiated by delivery alone.
Remains as is.
into a bearer instrument which c an
No valid negotiation but just
or
.
It will revert to being an order instrument which can be negotiated again through indorsement and delivery. No. The rights of a holder are only acquired when the instrument is indorsed, there is no retroactivity. It will remain a bearer instrument as to the nature of the instrument, but a person who indorses specially a bearer instrument becomes a special indorser who becomes liable for all the warranties of a special indorser. It is a redundancy to indorse a bearer instrument because it can be negotiated by mere delivery, indorsement is not necessa ry.
An order instrument specially indorsed remains an order instrument but if indorsed in blank, it is converted into a bearer instrument. If the bearer instrument is indorsed specially, it reverts back to being an order instrument. If the bearer instrument is indorsed in blank, it remains a bearer instrument. section 8
Section 9 of the NIL provides that an instrument is payable to order in the following instances: (1) When it is drawn payable to the order of a specified person or to him or to his order; or (2) When it may be drawn payable to the order of: (a) A payee who is not maker, drawer, or drawee; or (b) The drawer or maker; or (c) The drawee; or (d) Two or more payees jointly; or (e) One or some of several payees; or (f) The holder of an office for the time being.
(1) Collateral securities – the giving of a collateral is not an additional undertaking but merely as a pledge to secure the debt. If the debtor fails to pay, the collateral will be sold and from the proceeds of the sale, the principal debt will be paid. (2) Confession of judgment – tantamount to a voluntary admiss ion of his indebtedness, a provision to this effect in the instrument will not affect its negotiability. However, such warrant of attorney is void for being contrary to public policy as the promissor bargains away his right to a day in court. ( Only the stipulation is void, the whole instrument is not affected and is still negotiable) (3) Waiver or benefit – An indorser may waive the benefit of the provision of the NIL that is designed for his benefit such as presentment for payment, notices of dishonor, protest and demand. Notwithstanding, the instrument remains to be negotiable. (4) At the Holder’s option – discussed in supra § (2.3).
To determine (1) the maturity date of the instrument if it is payable at a fixed period after date; or (2) when the interest, if provided in the instrument, will start to run.
It is still negotiable. In a PN (date is only material for PN not for BE because for BE it is sight and not date which matters), the maturity date will simply be counted from the date of issue.
It is still negotiable because it is presumed that the contract between the maker or drawer and the payee is for a consideration.
Such omission will not affect negotiability because the law presumes that payment shall be made at the domicile of the maker.
Reference may be had to the figures to fix the amount.
Reference may be had to the figures to fix the amount.
(2) Payment of Interest:
From the date specified in the instrument. If there is no date, interest shall run from the date of the instrument. And if the instrument be undated, interest shall be computed from the date of issue of the instrument.
: The rate shall be the rate stipulated in the instrument. If there no rate, the interest chargeable will be the legal rate of interest.
(3) When Instrument is undated:
(1) Sum payable expressed in words or figures:
The date of issue shall be considered the date of the instrument. This is important in the (1) computation of interest as stated above and in the (2) determination of the maturity date of the in case it is payable at a .
The instrument shall be construed in favour of the written amount in
RATIO: The figures are easier to alter than the words. Interest of 10% p.a. will start to run from May 1 st, 1991 and the maturity date of the note will be May 31st, 1991, the 30 days counted from the date of issue.
It shall be that which is written in words, pursuant to the foregoing rule, or P10,000.
(4) Written and printed provisions:
The written provisions will prevail. represents the intent of the drawer
Their liability will be joint and the holder must sue both of them for the full amount, otherwise, the person sued will only be liable for his respective share.
Their liability will be solidary or jointly and severally. The holder of the Note can sue either X or Y for the full amount.
Based on the rule, the handwritten 8% interest will prevail over the printed rate of 10% p.a.
(5) Ambiguity as to the form of the Instrument: 1. A person who orges the signature of another The holder may, at his option, consider the instrument as either a PN or a BE.
(6) When it is not clear in what capacity the signature is intended:
The person will be deemed an indorser. However, this rule will apply only when a person affixes his signature in any part of the instrument other than the place generally recognized and intended for a maker or a drawer or an acceptor. RATIO for the rule: Because an indorser is least liable.
(7) When Two or More persons promise and sign the instrument
The liability of X and Y will be solidary or jointly and severally. The holder of the Note can sue either X or Y for the full amount.
2. If an authorized gent signs for and on behalf of his principal, the latter will be liable. 3. A person who signs a rade or assumed name will be liable 4. A person who sings on an llonge 5. A person who negotiates by mere delivery an instrument payable to earer 6. onstructive Acceptance1. destroys the instrument 2. refuses to accept within 24hrs
(1) He is duly authorized by his principal and acts within the scope of his authority; (2) He is disclosing his principal. (3) He is disclosing that he is an agent.
Good faith means that the person taking the instrument has acted with due honesty in regard to the rights of the parties liable on the instrument, that at the time he took the instrument, the holder has no knowledge of any defect or infirmity of the instrument.
Value is any consideration sufficient to support a simple contract. The instrument is complete when it is not wanting in any material particular. And it is regular if there are no visible and apparent alterations on the face of the instrument.
The instrument is deemed overdue in any of the following cases: 1) When an instrument is payable at a fixed date – the day after such fixed date, it is already overdue. A promissory note “payable on June 15, 1991,” is considered overdue beginning June 16, 1991. 2) A Promissory Note dated March 1, 1991 and “payable 30 days after date” becomes overdue on April 1 st, 1991 because the maturity date is March 31st, 1991. 3) An instrument “is payable on March 31, 1991” and the last indorsement is dated April 1, 1991. The instrument has been indorsed when it is already overdue and the indorsee is not a holder in due course. 4) A Bill of Exchange “payable 30 days after sight” and accepted by drawee/acceptor on March 1, 1991 is considered overdue when it was last indorsed on April 1, 1991. Indorsee is not a holder in due course. 5) As to an instrument payable by installment, a person who takes the instrument with notice that the first installment has not been paid, is not a holder in due course. However, if he takes the instrument without knowledge that the first installment has not been paid, he is deemed a holder in due course, as to the rest of the other installments. 6) If the instrument is “payable on or before March 31, 1991,” it is not considered overdue until after March 31, 1991. However, if the person taking the instrument knows that the party primarily liable has dishonored the instrument when presented to him for payment before March 31, 1991, then the party taking the instrument is not deemed a holder in due course.
No. Value is presumed. section 24
Infirmity connotes a thing or things that are wrong with the instrument itself. E.g. A PN is “Payable 30 days after date” and bears no date. In this case, the maturity date cannot be computed because there is no date of the instrument, although under Sec. 17, paragraph (c) the rule states that “where the instrument is not dated, it wi ll be considered to be dated as of the time it was issued.” So maturity date will be counted from the date of issue. But suppose the payee inserts a wrong date for fraudulent purposes, then the instrument will be avoided as to the . A holder in due course can collect from the party primarily liable on the maturity date based on the fraudulent date inserted, because as to him, the date so inserted is to be regarded as the true date, from which the 30 days will be counted, that is, if such holder had no notice of the infirmity.
Defect can be had in two ways. Defect in the acquisition which means the person obtained the instrument or any signature thereto by fraud, duress, or force and fear or other unlawful means, or for an illegal consideration. Defect in the negotiation means the person negotiated the instrument in breach of faith, or under such circumstances as amount to fraud.
No he cannot be considered a Holder in due course because he has knowledge of the defective title of B.
(1) The holder must have received the instrument from a holder in due course; (2) Such holder may have knowledge of the defect or infirmity; (3) But such holder must not be party to the illegal transaction.
There must be actual knowledge of the defect or infirmity; or knowledge of such facts (which do not appear on the face of the instrument) that his action in taking the instrument amounts to bad faith.
(1) Right to sue and (2) Right to receive payment
The rights are the following: (1) To sue on the instrument on his own name; (2) To receive payment (payment in due course discharges the instrument); (3) Hold the instrument free from any defect of title of prior parties; (4) Acquire the instrument free from defenses available to prior parties among themselves; (5) May enforce payment for the full amount of the instrument against all parties liable thereon.
Holder in due course by subrogation because he can still collect despite defenses.
It is the exception to the general rule that a holder who is not a holder in due course is subject to the same defenses as if it were non-negotiable. This rule provides that holder who is not a holder in due course but nonetheless derived title from a holder in due course is free from defenses, real or personal. Section 58: “xxx But a holder who derives his title through a holder in due course, and who is not himself a party to any fraud or illegality affecting the instrument, has all the rights of such former holder in respect of all parties prior to the latter.
(a) Yes, X cannot raise the defense of illegality of consideration because E acquires the rights of D who is a holder in due course. (b) No, one of the requisites is not present because F did not receive the instrument from a holder in due course.
No, the subsequent purchase of the note from a holder in due course will not cure the defect in his title.
Yes, Section 191 defines “holder” as the payee or indorsee of a bill or note, who is in possession of it, or the bearer thereof. Hence, the word “holder” in the first clause of Section 52 and in the second subsection thereof “may be replaced by the definition in Section 191 so as to read ‘a holder in due course is a payee or an indorsee in possession’ etc.”
(a) the check may not be encashed but only deposited in the bank; (b) the check may be negotiated onlyonce— to one who has an account with a bank; (c) and the act of crossing the check serves as warning to the holder that the check has been issuedforadefinitepurpose so that he must inquire if he has received the check pursuant to that purpose, otherwise, he is notaholderin duecourse . In other words, the holder is not a holder in due course if he receives the check other than for the purpose it was issued. Two parallel lines on the uppermost left corner of the instrument
The holder of a crossed check can never become a holder in due course if he receives the check other than for the purpose it was issued. FORGERY(Indorsement) Available to MAKER/DRAWER/Prior Indorsers (Order Instrument) NOT Available to BEARER Instrument (HIDC): Maker, Indorser XPN: (NOT HIDC) Prior Parties Not liable
1. Minority (available only to the minor) 2. Forgery 3. Non-delivery of Incomplete 15 want of delivery of incomplete Instrument Section instrument 4. Material Alteration section 125 5. Ultra Vires act of Corporation 6. Fraud in Factum or Esse Contractus 7. Illegality – if declared void for any purpose 8. Vicious Force or Violence 9. Want of authority 10. Prescription 11. Discharge in Insolvency
1. Failure or Absence of Consideration consideration is PRESUMED 2. Illegal Consideration 3. Non-delivery of Complete 16 want of delivery of Instrument section complete instrument 5. Fraud in inducement 6. Filling up blank not within authority 7. Duress or Intimidation 8. Filling up blank beyond reasonable time 9. Transfer in breach of faith 10. Mistake 11. Insertion of wrong date 12. Ante-dating or Post-dating for illegal or fraudulent purpose
Fraud in factum exists in those cases in which a person, without negligence, has signed an instrument which was, in fact, a negotiable instrument, but was deceived as to the character of the instrument and without knowledge of it, as where a note was signed by one under the belief that he was signing as a witness to a deed or where the signature was procured by fraudulent use of carbon paper. While fraud in inducement is that which relates to the quality, quantity, value, or character of the consideration of the instrument. It implies that the signer knew what he was signing but that he was induced by fraud to sign. A clear illustration of this fraud exists where a person is induced to sign a note for the price of a worthless stock which was fraudulently represented by the payee as to its value. (De Leon, 2009)
Fraud in factum is a real defense because there is no contract. It implies that a person did not know what he was signing. Fraud in inducement is a personal defense because it does not prevent a contract. (De Leon, 2009)
(2) Incapacity
Minority is a real defense personal to the minor. Only the minor can raise the defense of minority. Real defenses are available against all holders of a negotiable instrument, including a holder in due course and are defenses which go into the validity of the contract and the capacity of the parties to such contract. On the other hand, personal defenses are available against holders not in due course, but not valid against a holder in due course and are defenses available to parties among themselves which do not go into the validity of the instrument as a contract or into the capacity of the contracting parties, but only to the relation of the parties to the contract. The latter is also referred to as Equitable defenses.
(1) Fraud
Despite minority, there will be a valid transfer of title from the minor to another only that liability will not attach to the minor.
It is an act committed outside the object for which a corporation is created as defined by the law of its organization and therefore beyond the power conferred upon it by law. (Aquino, 2009)
As a rule, the corporation is not liable. If the corporation’s acts were authorized through a board resolution.
(3) Delivery of Incomplete Instrument
If D is a holder in due course, he can collect from A, B, and C, due to their warranties as an indorser. D Can likewise collect from the maker, X, because his personal defense of non-delivery of complete instrument will not lie against a holder in due course. If D is not a holder in due course, he can likewise collect from A, B, and C due to the same reasons but he cannot collect from X, as X has a personal defense against one who is not a holder in due course.
No, they are still liable because of their warranties. The personal defense of Section 16 are available only to parties prior to the unauthorized delivery.
(5) Non-delivery of Incomplete Instrument Section 15
(a) The maker can be held liable to a holder in due course. However, in order for the maker to be liable against a holder not in due course, it must be shown that the instrument was filled up strictly in accordance with the authority given and within a reasonable time. (b) Y, A, B, and C are liable to D for their warranties (as an indorser, warrant that the instrument is genuine and what it purports to be). X is likewise liable to D if D is a holder in due course.
It should be signed. It should have missing particulars. It is a personal defense. It cannot be invoked against a holder in due course. Prior parties (prior to completion) are liable against a HDC. Parties after completion are ALWAYS liable because their warranties will be taken into consideration.
(4) Non-delivery of Complete Instrument Section 16
The housekeeper, A, B, and C are liable to D because of their warranties as a general indorser, they warrant the genuineness of the instrument.
No, he was a party prior to delivery and against parties prior to delivery, the instrument is not a valid contract pursuant to Section 16 of the NIL. 15
No, it will be the same as the defense under Section 16 is a real defense and 15 may be invoked against a holder in due course.
(6) Forgery
No, it is only the forged signature which is rendered inoperative or ineffectual. Those who warrant or admit the genuineness of the signature in question:
(1) Drawee/Acceptor – shall be liable to the holder of the instrument even if the drawer’s signature is really forged, because at the time of making his acceptance, he warrants that the drawer’s signature is genuine, etc. (Order instrument where the drawer’s signature is forged) (2) Indorser – an indorser shall be liable because he warrants among other things the genuineness of the signature of all prior parties at the time of his indorsement. (3) Person negotiating by mere delivery – A person negotiating an instrument “payable to bearer” shall be liable because h e warrants that the instrument is genuine and the forged signature is not necessary to the title of the holder.
(1) When an indorsement is forged and the instrument is payabletoorder , the party whose indorsement is forged and all the parties prior to him, including the maker, shall not be liable even to a holder in due course. An instrument, payable to order, can only be negotiated by proper indorsement plus delivery, and since an indorsement is forged, it is inoperative as to parties prior to the forged indorsement because valid title is not transferred by the forged indorsement. However, all indorsers subsequent to the forged indorsement whose signatures are genuine, will be liable to the holder of the instrument because as regular indorsers, they warrant that the instrument is genuine at the time of their indorsement. (2) If the note if originally payable to bearer, the party whose indorsement is forged and prior to him, including the maker, may be held liable by a holder in due course only, provided the instrument is mechanically complete before the forgery. The reason is that the forged indorsement is not necessary to the title of the holder since an instrument “payable to bearer” can be negotiated by mere delivery .
D can collect primarily from the forger A. D can also collect from B and C because of their warranties as a general indorser, as such, they are precluded
from setting up the defense of forgery. X and Y cannot be liable because they can be brought under the scope of the cut-off rule, which means that parties prior to the forgery are cut-off from liability.
The cut-off rule can be invoked in case of order instruments. We cut them off because their signature is need in order to acquire title. And since they did not affix their signature, they did not transfer title to the instrument, consequently, they cannot be held liable on an instrument which they did not transfer title to. It cannot be invoked in case of bearer instruments because signature is not necessary to convey title.
D can collect primarily from A because he is the forger. D can also collect from A, B, and C because of their warranties. If D is a holder in due course, he can collect from Y notwithstanding the forgery. D can likewise collect from the maker, X.
D can collect from Y because even if it was Y’s signature which was forged, in bearer instruments, signature of the payee or holder is unnecessary to pass title to the instrument as the instrument may be negotiated by mere delivery.
Y can set up the defense of non-delivery of complete instrument against a holder not in due course. But since such defense is only personal, said defense cannot be invoked against a holder in due course.
Forgery of a drawer’s signature, drawer is not liable, drawee bank is liable because the bank is in a superior position to detect the forgery. (PNB v. Quimpo) Negligence on the drawer’s part (Please see Ilusorio v. CA)
As a rule, the drawer is not liable because the drawee bank owes the duty to pay only to the order of the drawer. The drawer, in effect, said “Pay to Y”. Why then, did the drawee pay to A? Drawee bank violated its contractual duty therefore, the drawee bank must credit back the amount it debited from the drawer’s account. When drawer is negligent
In case the holder did not encash the check but instead, deposited it to its own bank (otherwise known as the collecting bank), in effect, the collecting bank asks the drawee bank as an indorser. To illustrate, the drawer issued a check to Y, the payee addressed to BDO. Y’s signature was forged by by A and deposited it to Metrobank. In this case, BDO is the drawee bank while Metrobank is the collecting bank. In this scenario, the check will go through a clearing process. The collecting bank will ask the drawee bank as an indorser, and an indorser is precluded from setting up the defense of forgery, which is likewise the case of a collecting bank. Another reason for the collecting bank’s liability is because it can go after the forger since the forger is the collecting bank’s client. The collecting bank can seek reimbursement from the forger who is his client. However, the drawee bank may be held liable if it did not immediately inform the collecting bank of the forgery.
A: No, it will not change the nature of the instrument. A bearer instrument is always a bearer instrument.
A: It is a defense which changes the liability of the parties or the effect of the instrument.
A: No. As to Y, A and B, he can c ollect from Y because he is the one who authorized, made or assented to the m aterial alteration and from A and B because as subsequent indorsers they are liable for their warranties.
A: Once the instrument is paid by the party primarily liable, the instrument is discharged.
A: No.
A:
A: Real defense. Some authors would say it is a partial real d efense because a holder in due course may still be able to collect according to the original tenor of the instrument. In real defense there is usually no collection.
A:
A:
A: Not material alteration but a case of Section 14, delivery of incomplete instrument. The amount is left blank, there is a missing particular.
A: No. But because of the glaringly obvious irregularities, what was applied was material alteration. (Atty. Escalante’s comment: WRONG! Irregularities are not material alteration)
A: Yes because there was no blanks, there was really an amount stated. Changing it from P100,000 to P500,000 constitutes material alteration which changes the liability of the parties.
A: C, presumed as a holder in due course, can collect primarily from Y because he is the one authorized, made or assented to the material alteration. C can likewise collect from A and B because of their liabilities as an indorser. And lastly, C can collect from X but only for the original amount prior to the alteration.
A: C should be a holder in due course before he can collect from the party who did not assent to the alteration but only according to its original tenor.
A: If an instrument is issued for value given for the benefit of a party to the instrument ("accommodated party") and another party to the instrument ("accommodation party") signs the instrument for the purpose of incurring liability on the instrument without consideration therefor, the instrument is signed by the accommodation party "for accommodation." His liability depends on the capacity in which he signs the instrument. He may sign as a maker, drawer, indorser, or acceptor.
A: The party in whose favour the credit is lent.
(2) That he admits the existence of the payee and his then capacity to indorse. A: The accommodation party has a right of recourse from the accommodated party.
A: No, not yet because the accommodation party still has a right to be reimbursed. There is still a pending obligation, a right to be paid by the accommodated party.
Warranties of Acceptor: (EGC-EC) (1) (a) the existence of the drawer (b) the genuineness of the drawer’s signature (c) drawer’s capacity and authority to draw the instrument (2) (a) the existence of the payee (b) the payee’s capacity to indorse.
A: No, it is an ultravires act of the corporation. It is the officer who is liable in his personal capacity. There should a board resolution authorizing such act. Otherwise, officers will be liable.
A: Yes.
A: Where a person, not otherwise a party to an instrument, places thereon his signature in blank before delivery, he is liable as indorser, in accordance with the following rules: (a) If the instrument is payable to the order of a third person, he is liable to the payee and to all subsequent parties. (b) If the instrument is payable to the order of the maker or drawer, or is payable to bearer, he is liable to all parties subsequent to the maker or drawer. (c) If he signs for the acc ommodation of the payee, he is liable to all parties subsequent to the payee.
A: A general indorser is liable even to holders in due course or not in due course while an irregular indorser’s liability extends only to those enumerated. In Sec. 66, do not be deceived by “to all subsequent holders in due course” because even if the holder is not a holder in due course, he is liable, not only holders in due course.
A: Warranties of Maker: (O-EC) (1) That he will pay the note according to its original tenor to the payee, or to the holder, or to any subsequent indorser who may be called upon to pay the holder thereof.
A: For acceptance, it can be partial, not according to the tenor of the instrument but tenor of the acceptance. For the maker, it is according to what is written in the instrument.
A: Always a bank. Certification is equivalent to acceptance.
A: In a promissory note, the parties secondarily liable are the indorsers. In a bill of exchange, the parties secondarily liable are the drawer and the indorsers. The PSL must be furnished a notice of dishonor first, either by non-acceptance or non-payment, before they can be held liable.
A: Warranties of Drawer: (1) That he admits the existence of the payee and his then capacity to indorse. (2) (a) That when the bill is presented for acceptance to the drawee, it will be accepted, or when it is presented for payment, it will be paid, or both, according to its tenor. (b) That if the drawee does not accept the bill, then the drawer undertakes to pay the instrument to the holder himself or to any subsequent indorser who may be compelled to pay the holder thereof. (c) Or if the drawee/acceptor has accepted the bill, he subsequently refuses to pay the bill on maturity date, the drawer will be liable on the instrument, together with the other indorsers (d) Failure on the part of the Holder to give Notice of Dishonor by nonacceptance or non-payment to the drawer and other indorsers, who are all
considered parties secondarily liable, will discharge them from liability on the instrument.
A: Yes. The effect of such signature by the drawee means that he does not have any liability, even secondarily, and even if he is presented with a notice of dishonor. E.g. (Sgd.) B, without recourse or sansrecourse
A: Yes.
A: NO.
A: A: No. RATIO: Because the law abhors the splitting of causes of action or to avoid multiplicity of suits.
A: The presumption is that he is an indorser. RATIO: An indorser is least liable.
A:
A: Yes. It is a special indorsement.
A:
A: No. There is no need to put words of negotiability in AN INDORSEMENT.
A: Yes. (1) they are partners. (2) One is authorized by the other to indorse.
A: Negotiability will not cease when the instrument is indorsed.
A: No. The instrument must be indorsed according to its entirety.
A: A restrictive indorsement (a) Prohibits the further negotiation of the instrument; or e.g.
Pay to A, only.
(b) Constitutes the indorsee the agent of the indorser; or e.g.
Pay to A, for deposit. Pay to A, for collection.
A: Yes, E can collect from C because at the time C signs the instrument, he warrants that the instrument is genuine and in all respects what it purports to be.
A: Yes, E can collect from C because at the time C signs the instrument, he warrants that prior parties have the capacity to enter into contracts.
(c) Vests the title in the indorsee in trust for or to the use of some other persons. The foregoing warranty includes insanity and any person who loses the capacity to validly enter into contracts. A: A special indorser is one who is so named by the indorsee in the latter ’s indorsement, coupled with the latter ’s signature. A blank indorser is one who is not so named by the indorsee in the latter ’s indorsement, there is only the latter ’s signature.
A: A qualified indorsement is one by which an indorser may negate or limit his liability on the instrument by adding the words “without recourse ” or “sans recourse” to his indorsement.
A: Warranties of a party who negotiates by mere delivery and a qualified indorser: (PTCK) (1) That the instrument is genuine and in every respect what it purports to be; (2) That he has a good title to it; (3) That all prior parties had capacity to contract; (4) That he has no knowledge of any fact which would impair the validity of the instrument or render it valueless.
A: Yes, C can insist that he has no liability. As a corollary, E cannot collect from C because insolvency is not one of the w arranties of a qualified indorser.
A: Yes, E can collect from C because at the time C signs the instrument, he warrants that he has no knowledge of any fact which would impair the validity of the instrument or render it valueless.
A: These warranties extend to the subsequent holder in the case of a qualified indorser and they extend to the immediate transferee in the case of a person negotiating by mere delivery.
A: A person who negotiates without any conditions or qualifications, the opposite of a qualified indorser.
A: Warranties of a general indorser: (PTCVP) (1) That the instrument is genuine and in all respects what it purports to be; (2) That he has a good title to it; (3) That all prior parties had capacity to contract; (4) That the instrument is at the time of his indorsement valid and subsisting. (5) He engages that on due presentment, it shall be accepted or paid, or both, as the case may be according to its tenor, and that if it be dishonored, and the necessary proceedings on dishonor be duly taken, he will pay the amount thereof to the holder, or to any subsequent indorser who may be compelled to pay it.
A: Yes because C is a general indorser.
A: E can still collect from C because it is not the general indorser’s warranty but the qualified indorser’s warranty. Also, it would be in conflict with his Section 66 (d) warranty that the instrument is valid and subsisting at the time of his indorsement. RATIO: The law deleted Section 65 (d) in Section 66 because the law wants to make it a point that even if the general indorser has or has no knowledge, he is still liable. If the general indorser would be allowed to argue that he had no knowledge, then the general indorser would no longer have any liability. It would be in conflict with his other warranties.
Examples of Section 65 (Qualified Indorser): (a) Forgery (b) Instrument was stolen (c) Minority, Insanity (d) Fraud, knowledge of any defense, this can encompass any defense that the indorser can disown knowledge of except those which are glaring such as material alteration or incomplete but delivered (there are blanks, you can see it) General indorser has so many liabilities. Section 66 (d) is our basis for attaching secondarily liability, he cannot disown knowledge, he cannot say there is forgery or prior parties are minors, insane, etc. Other indorsements: Joint – two or more indorsees Facultative – waiver of presentment, notice or protest (holder need not give you notice of dishonor for secondary liability)
A: Where the name of a payee or indorsee is wrongly designated or misspelled, he may indorse the instrument as therein described adding, if he thinks fit, his proper signature.
A: An order instrument is negotiated by indorsement plus delivery. If an order instrument is not indorsed, there is no valid negotiation but just a mere equitable assignment. There is transfer but lesser rights. Transferee merely steps into the shoes of the transferor.
A: Yes, that is one of the rights of a transferee, to demand indorsement, if what is assigned to him is an order instrument which needs to be indorsed but is merely delivered.
A: Yes, he may be a holder in due course provided all the requisites under Sec. 52 are present. If there are circumstances which happened before indorsement was made which constitute a violation of Section 52, he will not become a holder in due course.
A: Those which the holder thinks is not material to his title.
A: Yes.
A: The indorsements in blank of B to C coupled with delivery converted the instrument into a bearer instrument, thus, the indorsement of C in blank coupled with delivery to D is no longer needed because the instrument may be negotiated by mere delivery, thus, it may be stricken out. The indorser whose indorsement is stricken out will be relieved from liability and all subsequent indorsers, C, as the person whose indorsement was stricken out, and D, as a subsequent indorser, will be relieved from liability. E is not relieved from liability because he did not indorse, he merely delivered. Otherwise stated, the indorsement from C to D is no longer needed because at the time B negotiated the instrument to C, the instrument became a bearer instrument which may be negotiated by mere delivery, the blank indorsement of C to D is not necessary.
You need to indorse and deliver an order instrument. If you strike out the indorsement of A, only delivery will be left. There will be no proper negotiation because the instrument is originally an order instrument and you cannot negotiate an order instrument without negotiatio n and delivery, A’s indorsement cannot be stricken out. However, if it was a bearer instrument, there is no problem in striking out those who indorsed specially or generally (e.g. A) because the instrument may be negotiated by mere delivery. The problem with striking out indorsements, you will be lessening the parties from whom you can demand payment.
A: A, B and E.
A: From B to C it was converted into a bearer instrument, the indorsement of C to D may be stricken out because the instrument can be negotiated by mere delivery. From D to E it was converted into an order instrument. From E to F it was converted into a bearer instrument. And from F to G it was negotiated by mere delivery, thus there was proper negotiation.
A: C, the person whose indorsement was struck out, and D and E as subsequent indorsers.
A: A, B, and F.
a. b. c.
Where the bill is payable after ight; or in any case where presentment for acceptance is necessary in order to fix the maturity of the instrument Where the bill xpressly stipulates that it shall be presented for ac ceptance; or Where the bill is drawn payable lsewhere than at the residence of place of business of the drawee.
The holder of a bill which is required to be presented for ac ceptance to the drawee must within a reasonable time – 1) Present the bill for acceptance; or 2) Negotiate it. Failure to do any of the above within a reasonable time will discharge the parties secondarily liable from liability.
: the holder himself, or by his authorized representative. : (a) The drawee himself or to any person authorized to accept or refuse acceptance on his behalf; or (b) If there are two or more drawees who are not partners, presentment must be made to all of them, unless (i) One drawee has the authority to accept or refuse acceptance for all; or (ii) The drawees are partners, in which case presentment may be made to any one of the partners. (c) If the drawee is dead, presentment may be made to: (i) His personal representative, if there is one; or (ii) Presentment may be excused under Sec. 148. (d) If the drawee is insolvent, presentment may be made to: The insolvent drawee himself; or the drawee’s trustee or assignee. (i) : within a reasonable hour on a regular business day and before the bill is overdue. Presentment for Acceptance of a bill may be made on a Saturday under the following rules: a) If the Saturday is a holiday – presentment for acceptance may be made on the following business day. b) If Saturday is not a holiday – presentment for acceptance may be made before 12 o’clock on that day. : i) At the place of business or residence of the drawee, if known, or ii) If the residence is different from place of business, presentment may be made at either place; or
iii)
If place of payment is designated on the bill, and drawee’s residence or place of business is unknown, presentment may be made at the place of payment.
a. b.
This section refers to an instance where the bill is drawn payable elsewhere that at the residence or place of business of the drawee. : Failure to make presentment for acceptance by the holder will discharge the drawer from liability. : If the holder has insufficient time to make the presentment for acceptance before the maturity date of the bill, the delay caused between presenting the bill for acceptance and presenting it for payment on maturity is excused. Effect: Parties secondarily liable will not be discharged from liability
The holder may treat a bill of exchange as dishonored by non-acceptance: a. When the drawee is – i) Dead, or ii) Has absconded, or iii) Fictitious, or iv) Not capacitated to enter into contracts b. i) ii)
c. i)
When with reasonable diligence, presentment cannot be made, such as: When drawee cannot be found at his residence or place of business, or When drawee’s residence or place of busine ss cannot be ascertained or has been vacated. When, although presentment has been irregular, acceptance has been refused on some other ground, such as: When presentment for acceptance is made after 12 o’clock noon on a Saturday, or on a Sunday or on a holiday which is considered irregular, but the drawee refused to accept for some other reason.
It is still necessary that the proper Notice of Dishonor by non-acceptance be given to the parties secondarily liable
When it is duly presented for acceptance, and such an acceptance as prescribed by this Act is refused or cannot be obtained; or When presentment for acceptance is excused, and the bill is not accepted.
Duty – the holder must, within the reglamentary period (24 hours), give notice of dishonor by non-acceptance to all perties secondarily liable Right – A right of recourse against the parties secondarily liable accrues to the holder, after giving Notice of Dishonor by non-acceptance to PSL, presentment for payment is no longer necessary to hold the PSL liable, the holder may proceed against any one of the PSL to collect at random
The rule in this section is only true if the holder who fails to give notice of dishonor by non-acceptance to PSL, later negotiates the bill to a holder in due course. In this case, the holder in due course may give the required Notice of Dishonor by non-acceptance to the PSL as to hold them liable on the instrument.
It is the signification by the drawee of his assent to the order of the drawer.
1. 2. 3. 4. 5.
Acceptance must be in riting. XPN: Constructive acceptance It must be duly igned by the drawee, in which case he becomes the acceptor. The drawee/acceptor becomes iable on the instrument (i) retroactive from the date of the first P/A; and (ii) according to the tenor of his acceptance. It must not express that the drawee will erform his promise by any other means than payment of money. The Acceptance is incomplete and not valid unless delivered or ommunicated to the holder. If the acceptance is not communicated, it will be deemed a constructive acceptance.
If you have not communicated your acceptance, it can be withdrawn as long as the holder has not yet attained knowledge of your acceptance.
Effect: they become liable to the holder if the drawee/acceptor dishonors the bill by non-payment ii)
i. ii. iii.
1) 2) 3) 4)
On the face of the bill by writing the word “accepted” and signed by the drawee On a separate paper other than the b ill itself Separately even before the bill itself is drawn.
Actual acceptance Constructive Acceptance General Acceptance Qualified Acceptance i) Conditional ii) Partial iii) Local iv) Qualified as to time v) Acceptance by one or more of the drawees, but not all
If the instrument is qualified as to time, or qualified conditionally, locally, partially, etc. the holder may treat the instrument as dishonored because acceptance, as a rule, must be unconditional. However, the holder must communicate his dissent within a reasonable time.
a)
b)
c)
The – he may or may not accept the bill drawn against him, but if he accepts it, he may impose any condition on his acceptance and he becomes liable according to the tenor of his acceptance. The , and – has the right to demand a if the drawee insists in making a qualified acceptance, the holder: i) May treat the bill as dishonored and then give a Notice of Dishonor by nonacceptance to PSL; or ii) May accept the qualified acceptance, but MUST immediately the PSL of such qualified acceptance. The (as – mentioned in the foregoing) i) Expressly give their to the qualified acceptance
to the qualified acceptance and MUST the holder of their dissent within a reasonable time , otherwise they will be deemed to have given their assent.
Failure of the holder to give notice by the holder of the acceptance of drawee’s qualified acceptance to the PSL will discharge the PSL from their liability.
Presentment for payment is necessary in order to charge the drawer and indorsers. It is not necessary to charge the persons primarily liable on the instrument. Presentment for payment is needed in order for the holder to preserve his right of recourse against the party secondarily liable.
: The holder or his authorized representative. : a) the party primarily liable on the instrument, or b) if he is absent or inaccessible, to any person found at the place where the presentment is made. : the date of maturity. If the instrument is , presentment for payment must be made – a) Within a reasonable time after issue in the case of Promissory Note, and b) Within a reasonable time after the last indorsement or negotiation, if it is a Bill of Exchange. According to usual banking practice, If the instrument is a check, presentment for payment must be made six months from the date of the issuance of the check or 180 days, otherwise, it will be deemed a stale check. : At a reasonable hour on a business day. If maturity date falls on a Saturday, Sunday or holiday, presentment must be made within a reasonable hour on the next following business day. If the instrument is payable on demand, presentment may be made until 12:00 noon Saturday, at the option of the holder.
the personal representative cannot be found, presentment for payment is excused. Or if there is no such personal representative, to the estate of the deceased.
If place of payment is a bank, presentment for payment must be made within regular banking hours. If payor has no funds in the bank, presentment before the bank closes is sufficient. RATIO: to give the person making payment the opportunity to make his deposit 2. : Where a place of payment is specified in the instrument and it is there presented, or (specified) b) Where no place of payment is specified, but the address of the person to make payment is given in the instrument and it is there presented; (no place) c) Where no place of payment is specified and no address is given, then at the usual place of business or residence of the person to make payment; (no place nor address) d) Wherever the person to make payment can be found or at his last known place of business or residence (wherever payor found) If PPL expresses his ability and willingness to pay the instrument at the special place specified in the instrument, such is deemed a tender of payment. a)
: Includes the presentation or to the PPL for verification purposes.
of the
If the PPL pays the sum payable, the instrument is discharged and must be to the PPL. of the foregoing: The holder need not make a presentment for payment to charge the party primarily liable because he can sue the latter directly in case of non-payment. However, the effect of such non-presentment for payment will discharge all the parties secondarily liable inasmuch as their liability is premised on the dishonor of the instrument by nonpayment and the corresponding Notice of Dishonor given to them.
1.
Presentment where principal debtor is dead
If PPL is dead before maturity of the instrument and a place of payment is specified, holder must make presentment at the specified place. If no place of payment specified, presentment must be made to the personal representative of the deceased PPL. If after reasonable diligence to locate him,
Presentment to persons liable as partners
Presentment must be made: a) To anyone of the partners; b) If there is a dissolution of the partnership before maturity date of the instrument, presentment may still be made to any one of the partners; c) If one of the partners dies before maturity date, presentment must be made to the surviving partner; d) If a place of payment is specified, presentment must be made at such specified place to any one of the partners present thereat. 3.
Presentment to joint debtors
Presentment must be made: a) b) c)
To ALL of the joint debtors; If one joint debtor dies before maturity, presentment must be made to the surviving joint debtors; If there is a place of payment specified, presentment must be made to ALL joint debtors at such specified place of payment XPN: One of the joint debtors is duly authorized to accept the presentment for all of them
1.
For both PN and BE:
a) b) c)
Where after the exercise of reasonable diligence presentment as required by this Act cannot be made; Where the drawee is a fictitious person; Waiver of presentment, express or implied.
2.
For PN:
Presentment for payment is not required in order to charge an where the instrument was made or accepted for his accommodation and he has no reason to
expect that the instrument will be paid if presented. Presentment for payment need no longer be made to the accommodation maker.
3.
For BE:
a)
– The drawer, through some acts of his, does not expect or To charge require the drawee or acceptor to pay the instrument, in which case, the drawer becomes primarily liable on the instrument. Presentment for payment need not be made to the drawee in order to charge the drawer. Examples: when the drawer stops payment of the check he issued, when the drawer’s bank balance is less than the amount of the check he issued, when the drawer commits fraud by issuing a check knowing that he has no funds in the bank to meet it Waiver of protest – A waiver of protest, whether in the case of a foreign bill of exchange or other negotiable instrument, is deemed to be a waiver not only of a formal protest, but also of presentment and notice of dishonor. Once the drawee dishonors the B/E by non-acceptance, presentment for payment is no longer necessary to hold the PSL liable.
b)
c)
: Presentment for payment must be made on maturity date without a grace period or extension. If the holder grants the payor an extension of time for payment without notice and consent of the parties secondarily liable, the latter are deemed discharged. If the maturity date falls on: Sundays or Holidays – presentment for payment must be made on the following business day. Saturdays – : presentment for payment must be made on the following business day. : When the instrument is payable on demand – holder may, at his option, present for payment before 12 o’clock noon on Saturday when the entire day is not a holiday. Maturity date is arrived at by excluding the first day and including the last of the period. Where the day, or the last day for doing any act herein required or permitted to be done is a holiday, it may be done on the next succeeding secular or business day.
When due to fortuitous events or force majeure or events which are not imputable to the fault, misconduct or negligence of the holder, he cannot make a presentment for payment to the party primarily liable on maturity date, the holder is excused for his failure to make presentment on due date, but he is obliged to make presentment immediately as soon as the cause of the delay ceases. Otherwise, the PSL will be discharged.
The instrument is dishnored by non-payment when: a) It is duly presented for payment and payment is refused or cannot be obtained; or b) Presentment is excused and the instrument is overdue and unpaid. In the foregoing cases, Notice of Dishonor by non-payment to PSL is proper. The holder of a negotiable instrument acquires the right of recourse against PSL only after he has given Notice of Dishonor, either by non-acceptance or non-payment, to all of them within 24 hours after the dishonor by the PPL. Effect of failure: PSL will be automatically discharged
Payment in due course by on or behalf of the principal debtor, or by the party accommodated, where the instrument is made or accepted for accommodation, will discharge the negotiable instrument.
Elements of a payment in due course:
1.
Must be made at or after maturity of the instrument
Payment before maturity is not a payment in due course and consequently, will not discharge the instrument. Rather it is deemed a re-negotiation of the instrument to the PPL who may choose to negotiate it to new parties but not to parties subsequent to him. 2.
To the holder thereof
Payment to a person other than the holder is at the risk of the party so paying if the person was not authorized by the holder to receive payment. It is not a payment in due course.
3)
3.
It must be made in good faith and without notice that the title of the holder is defective.
Notes: a) b)
c)
It is the party making the payment who must be in good faith Payment by a maker of the note before maturity date does not constitute payment in due course as to discharge the instrument, but rather it gives the maker the right to re-negotiate it to new parties but not to subsequent parties. Payment by PPL may be made to the authorized representative of the holder as to discharge the instrument. While possession of the instrument by the maker is prima facie evidence of payment made by him, such is controvertible when the facts show that surrender of the instrument to the maker is without authority
A: The instrument is dishonored by non-payment when: a) It is duly presented for payment and payment is refused or cannot be obtained; or b) Presentment is excused and the instrument is overdue and unpaid.
By any of the Parties secondarily liable who may be compelled to pay the holder – a PSL who received NoD from the holder may, in turn, give NoD to all the PSL prior to him within 24 hours after he receives the Notice from the Holder. The NoD given by the PSL inures to the benefit of the holder. The PSL cannot give notice to subsequent parties, they are deemed discharged. 4) By any party in behalf of the PSL mentioned in #3 above.
A: E must furnish every party secondarily liable a notice of dishonor.
A: a.
In general – Notice of dishonor may be given either to the party secondarily liable himself or to his authorized agent or representative. There is sufficient service of NoD: 1) If made at the PSL’s place of business – to the secretary, or in-charge or clerk. 2) If made at the PSL’s residence or domicile – to the wife, any of the children or to any other member of his household.
b.
If given by agent – If the negotiable instrument is dishonored in the hands of an Agent, the latter may give NoD to:
The instrument is dishonored by non-acceptance when: a. When it is duly presented for acceptance, and such an acceptance as prescribed by this Act is refused or cannot be obtained; or b. When presentment for acceptance is excused, and the bill is not accepted. c. a) A: If there is a qualified acceptance, be it local, qualified as to time, and the like, the holder may treat the instrument as dishonored.
A: Parties who may give NoD: 1) The holder himself – must give notice to all PSL within 24 hours after the dishonor. 2) By another party in behalf of the holder – may be the holder’s agent or authorized representative, or a third party.
b)
d.
1) All the PSL in his own name, or on behalf of his principal, or 2) His principcal, as if the Agent had been an independent holder. The principal may, in turn, give NoD to the PSL within 24 hours after receipt of his Agent’s notice. If part is dead When the holder or the party giving notice knows that a party secondarily liable is dead, he must give notice of dishonor to: 1) The legal representative of the deceased PSL, if there is one and can be found; or 2) The last known residence or place of business of the deceased PSL, if there is no legal representative. When the holder or the party giving notice has no knowledge of the death of the PSL, NoD sent to the deceased PSL’s last know residence or place of business is sufficient. To partners
If the instrument is a partnership liability, the holder or the party giving notice of dishonor may, under the principle that partners are mutual agents of each other, give Notice to: a) Any one of the partners even though there has been a dissolution; or b) To any of the surviving partners if one partner is dead. Notice to one partner is sufficient notice to the Partnership even if the notified partners fails to inform the Partnership. e.
To joint parties
If the parties secondarily liable are joint parties, then NoD must be given to all of them unless one is authorized by the others to receive the Notice for all of them. f. To bankrupt NoD to a PSL who is judicially adjudged insolvent or who may have made an assignment for the benefit of his Creditors, may be given to: 1) The insolvent PSL himself, or 2) The trustee or assignee.
A: To preserve a holder’s right of recourse against the parties secondarily liable.
A: 1)
Waiver of Notice – NoD may be waived, either before the time of giving notice has arrived or after the omission to give due notice, and the waiver, may be expressed or implied. Waiver, defined: It is the v oluntary giving-up of a known or established right. Waiver may be either express or implied. An express waiver may be made on the instrument at the time it was made or indorsed. An implied waiver may be inferred from the acts, declarations or silence of the persons bound to receive notice. Where the waiver is embodied in the instrument itself, it is binding upon all parties; but where it is written above the signature of an indorser, it binds him only. Example: “Notice of Dishonor is hereby waived.” Sgd. A This is a general waiver which will be binding on all parties. Example: B indorsed the PN to C as follows: “Pay to C, Notice of Dishonor is hereby waved.” Sgd. A The waiver made by B is binding on him alone, and not applicable to all subsequent indorsers. Waiver of Notice may be made either: (1) before the time of giving notice, or (2) after the omission to give due notice. 2)
A: A Notice of Dishonor, either by non-acceptance or non-payment, must conform with the following requirements: 1) It may be made orally or in writing. Notice may be given in writing although unsigned by the party giving the Notice, such as a telegram, provided it contains all the necessary information. The written notice may be supplemented and validated by verbal communication. 2) The Notice must sufficiently describe and identify the instrument. 3) The Notice must state that the instrument had been presented for acceptance or payment, and was subsequently dishonored. A mere statement that the instrument was payable and due without indicating that it was presented for payment and dishonored, is not sufficient notice. 4) The Notice must state that the holder is looking forward to the PSL addressed to pay the instrument. 5) Notice of Dishonor may be delivered to all the parties secondarily liable personally or by mail. Any misdescription of the instrument, as to name of parties, maturity date, etc., will not vitiate the Notice unless it misleads the PSL addressed.
Where notice is dispensed with when, after the exercise of reasonable diligence: i)
ii)
3)
It cannot be given to the parties secondarily liable – as when it becomes impossible to contact the parties due perhaps to force majeure such as pestilence, contagious disease or any other quarantine restrictions prevailing in the area where the parties reside, or It does not reach the parties sought to be charged – as when, through miscarriage in the mails, the Notice did not reach the PSL. They are deemed bound however, if it can be proved that the Notice was properly addressed and deposited in the post office within the prescribed period.
Notice of non-payment where acceptance refused – where due notice of dishonor by non-acceptance has been given, notice of a subsequent dishonor by non-payment is necessary, unless in the meantime the instrument has been accepted.
