THE GREAT NEGO REFERENCE (to all things connected) 13 + 125 Sec 13 (When date may be inserted) vs Sec S ec 125 (Wrong date as material alteration) alter ation) Wrong date a personal defense;
23 + 125 Sec 23 (Forged signatures, effect of) vs Sec 125 (Forged instruments) 23 + 65 Sec 23 (Forged signatures) + Sec 65 (Warranty of Signature by Indorsers) Indorsers, persons negotiating by delivery as persons precluded from set ting up the defense of forgery
26 + 52 + 58 Sec 26 (What constitutes a holder for value) + Sec 52 vs Sec 58 M – no no consideration- P – no no consideration- A – with with consideration B (holder for value; M, P, A liable) If B is HIDC: sec 52 (what constitutes a holder in due course) If B is not HIDC: M may set up defense Sec 28 (Effect of want of consideration) + Sec 58 (Personal defense)
28 + 29 Want of consideration + Accomodation party Accomodation party is an exception for the need of consideration. He only lends his signature/credit The accommodated party is primarily/ultimately liable Except when the accommodation party signed as an acceptor
-What if there are 2 or 3 accomodated parties and one of them pays pa ys the accommodation party? Is this situation still covered by the negotiable instruments law? The Civil Code will be applied Quasi-contract Payment by a 3 rd party? 1236? 1237?
General Rule: Sec 32, Indorsement must be of enti re instrument Sec 36: Restrictive Indorsements – Indorsements – limited limited to purpose If the indorsement is restrictive Can the holder collect? YES Can the holder negotiate? NO Restrictive indorsement destroys the negotiabilit y of the indorsement
Sec 34 + Sec 8 Payable to order instrument + blank indorsement = pa yable to bearer instrument
38 + 65 Sec 38 (Qualified Indorsement) + Sec 65 ( Warranty of Signature by Indorsers) Limited indorsement; liable for breach of warranties (see Sec 65) but not for other reasons (insolvency, etc)
39 + 1 Sec 39 (Conditional Indorsement) + Sec 1 (Negotiable Instruments)
Conditional indorsement renders instrument non-negotiable
40 + 9+65/66 Indorsement of instrument payable to bearer + W hen payable to bearer Only for instruments originally payable to bearer M – payable to bearer P (indorses) A – mere mere delivery B B will have no right against P since B did not obtain title from P’s indorsement. But A and M liable to B M – payable to bearer P (indorses) A – indorses indorses B- mere delivery C P is liable to A and B under 65/66
INDORSEMENT GAMES Sec 40: Originally Payable to Bearer A is the maker of PN of originally payable to bearer. A to B. B to C. C indorses to D. D to E. E to F. A B C + indorsement D E F Valid negotiation to F? Yes. o Does the SI convert the bearer to an order instrument? o No. Can F go after A? o Yes, because he is the maker – the – the party primarily liable Can F go against C? indorsement o No, there is no unbroken chain of indorsement o C specially indorsed The person indorsing specially is liable only to those holders who can trace their title to the instrument by a series of unbroken indorsement from such special indorsement Ampil: In other words, you can only run after the person whom you can trace your title to o Ampil: The person negotiating by mere delivery does not sign on the instrument and, thus, you cannot trace your title to him You don’t even know who he is You don’t know where it came cam e from, so how can you run after that party? o You have to trace title back to C through an unbroken chain of special indorsements – indorsements – continuous continuous Ampil: If there is a break, break , then how do you know that your title really came from C?
General Rule: Sec 47, an instrument negotiable in origin is always negotiable Exceptions: 1. When restrictively indorsed (Sec 36) 2. When discharged by payment (Sec 119) t o C. C indorses it A maker of PN originally payable to order. B is the payee. B indorses it to to D. D to E. E to F. F holder. A B + indorsement C + indorseme i ndorsement nt D E F F collects from A upon date of maturity. A dishonors the instrument. F wants to go after C?
o
o
Mainstream: F cannot collect because Section 40 is limited to instruments that are originally bearer Ampil: But most practitioners use Section 40 by b y analogy even when the instrument is originally payable to order that was just converted
A B + indorsement C + special indorsement indorsement D + indorsement E + blank indorsement F Originally order. C specially indorses to D. D indorsed to E. E blank indorsement to F. Valid negotiation? o Yes, because the blank indorsement converted it to bearer instrument Originally order. A to B. B si C. C si s i D. D bi E. E delivers to F. F si G. G delivers to H. H bi I. I delivers to J. A B+ special indorsement C+ special indorsement D+ blank indorsement E delivery F +special indorsement G delivery H +blank indorsement I delivery J Valid negotiation to H? Or is H merel y an assignee? Order instrument not indorsed Valid negotiation to J? Or is J merely an assignee? F specially indorsed it to G. Once F specially spe cially indorsed it G, turning it back to order. o Where G merely delivered it to H – H – assignment assignment onward At that point, the negotiability stopped
-G si H. Will J have acquired the instrument via negotiation? Negotiation? When H acquired the instrument, it was indorsement in blank to I, making I holder of a bearer instrument
-What if G did not indorse it? H would then be a mere assignee G would be the last special indorsee and as such, his indorsement is necessary necess ary for a valid negotiation I and J would also be an assignee assi gnee If J is a mere assignee, can J collect from A? o He can only collect absent any personal defenses against him o It does not follow that just because the person assignee that he cannot collect colle ct – – it only means that the assignee is exposed to defenses
-How to be an assignee Instrument is not negotiable under Section 1 The negotiation is not valid He does not comply with Section 52
CONVERSIONS!!! And other kinds of indorsements and such -An originally bearer instrument will always be a bearer instrument Once originally bearer always bearer, regardless of the special indorsements It needs to be originally bearer upon issuance o
-An originally order instrument can convert to a bearer instrument through a blank instrument
Once it is a bearer instrument, it can already be just delivered without indorsement Once that converted instrument instrument is specially indorsed, i ndorsed, it turns back to an order instrument
-Restrictive indorsement Can you still negotiate? No Can you assign? Yes
48 + 120 Striking out indorsements + Discharge of Secondarily Liable Parties Payable to bearer + indorsement = still bearer instrument, negotiable by mere delivery (Sec 40) Holder of bearer instrument may strike out all intervening indorsements (superfluous) Originally bearer that had SI The assignee can strike out the special s pecial indorsement so there will be a valid negotiation by delivery to him Or he can compel the assignor to complete the t he negotiation by indorsing
All negotiable instruments can be restrictively indorsed Ampil: But if you’re the holder of an originally bearer instrument with a restrictive indorsement, then strike it out Ampil: The negotiability that was destroyed was re stored by the striking out o
50 + 58/59 + 120 Prior Party may negotiate instrument + Holder through a holder in due course + Effect of reacquisition by prior party Reacquirer (he may negotiate the same further, provided it is not due) M P A B C D B E (B may not sue C & D) B may strike out C and D B, C, D are discharged as to E
A to B (HDIC). B to C. C to D. D to B (overdue) A B (HDC) C D B (overdue) Can B strike out the other indorsements to make h im again a HDIC? o Ampil: The law is silent Can B still be a HDIC if he strikes out C and D???? Took it the first time – time – HDIC HDIC Took it the second time – time – assignee assignee There’s no reckoning point when a HDIC loses his status Ampil: I believe that he cannot because legalities must yield to realities, such that at the time he took it the 2 nd time, it was overdue and, as such, he is only an assignee o To sustain him as a HDIC would be to reward him for his cleverness or fraud o He cannot deny that he does not know that the instrument is overdue nd The 2 time it return to him, there was a forgery Ampil: He can strike out the forged signature In this case, he does not know that he subsequent si gnatures have been forged – forged – so so he can strike them out
49 + 51 Right of holder to sue + transfer without indorsement Payable to order; transfer for value without indorsement allowed (transferee not holder but assignee) but subject to defenses If you have it indorsed, holder will only become holder at the actual date of indorsement If he finds out about infirmities before he has it indorsed,
52 + (14 , 124, 83) Complete and regular upon its face vs. Blanks, alteration, Dishonored by non-payment Stuff you shouldn't have notices about to be HIDC
58 + 23 holder through a holder in due course, forged signature If HTHIDC is not aware of forgery, may still enforce payment. Personal defenses not applicable Section 58: you absorb the HIDCness of the HIDC even if you are awar e of defects
A maker. B to C. C to D. D to E. A B no delivery C thief D E C stole the note from B (no delivery from B to C) D does not know that the note is stolen (D is a HDIC) D negotiates to E and E knows that it was stolen Can E collect from A? o Yes! Because he obtained it from D, an HDC Benefit from Sec 58 What if D also knew that the note was stolen? Can E collect from A? o No, because personal defenses can be set up
A B no delivery C thief D knows E knows F knows G Does not know! -A to B. C steals the note from B. C to D. D knows that it is stolen. D to E. E knows that it stolen. E to F. F knows that it is stolen. F to G. G does not know that it is stolen . Can G collection from A? Yes, because he complies with Section 52 and he does not need Section 58! G to H. H knows that it was stolen. Can H collection from A? o Yes, because G is an HDIC from whom H acquire d his title to H can use Section 58 to his advantage H to I. I knows that it was stolen. Can I collect from A? I to J. J knows that it was stolen. Can J collect from A? J to K. K knows that it was stolen. Can J collect from A? o Ampil: No, this would be stretching the benefits of Section 58 in an unlimited way. Doing this would mean that in the chain of transfers, there needs to be only one HDIC and all those who come after him are treated as such. This is is absurd. Ampil: But the intent of the NIL is confidence, trust, circulation, a robust o economy, more trade in goods, services, and commerce So this interpretation, although absurd, is actually consistent with the goal of the NIL No one asks if cash is stolen, right?
More section 58:
Ampil: Even if you have knowledge, but you acquired it from a HDIC, then you are considered a HDIC o Ampil: But remember that he is not really a HDIC – he – he is only treated as one But the only thing a holder under Section 58 may have is knowledge of any o infirmity or defect The holder cannot be a party to any illegality or infirmi ty
-A to B. B to C. B has a personal pers onal defense against C (C was supposed to deliver a car – failure – failure of consideration). C to D. D to E. E is a HDIC (does not know) E to F. F knows about the failure of consideration? Can F collect from A? A B has personal defense against (failure of consideration) C D E (HDC) F knows about failure of consideration Yes, through Section 58 What if F was the reason why B was unable to deliver? o But, if F is a party to the fraud or illegality, he cannot enjoy Section 58.
-General indorser If the instrument is presented for payment and is dishonored and that he violates any of the three warranties, he will pay it
-Qualified indorser Does not assume secondarily liability
-Parties primarily liable: Maker Acceptor -Parties secondarily liable: Indorser Drawer -Drawee is not liable until he accepts
-Section 64: Irregular Indorsers -How do you know if the indorser is an irregular indorser? -A maker. B payee. B to C (signed B). C to D ( signed C). D to E (signed D). Routine Signature of X between B and C – C – who who the fuck is this guy? o X is not part of the sequence o A signature that is not expected Irregular indorser o o Ampil: Someone wants to make himself liable!
Payable to order third person o X is liable to C onward o B is a third person Payable to order of drawer or maker X is liable to B onward o
Signs for the accommodation of the payee o Accomodated party is B o Accomodation party is X, the regular indorser X is liable to C onward o o X cannot be held liable by B, the accommodated party
Sec 60 + 18-21 Liability of maker General rule: No person is liable lia ble on an instrument unless his signature appears thereon Sec 60 + Sec 29 Accommodation party is “maker”; debtor Sec 61 + Sec 89 x Sec 38 Qualified indorsers not liable even if dishonored; does not assume 2ndary liability
SECTION 65: General Indorsements Indorsement by delivery – delivery – liability liability to IMMEDIATE transferee Qualified indorsement – indorsement – all all subsequent indorsers who MAKE TITLE on his indorsement
What is important for there to be breach of the warranties under this section is that there must be knowledge! Ampil: So even if there is a fact, but the QI or the person negotiating by delivery does not know about, then the same will not be liable If there is a breach of any of the warranties, the QI Q I or person negotiating by delivery are liable, not under the NI, but under his contractual obligation (general contract law) A QI basically tells the whole world: If the party primarily liable does not pay or dishonors this instrument, do not come to me, because I will not pay it to you o Ampil: He “qualifies” his indorsement If the GI breaks any of his any warranties, he is liable under general contract law Because the 4 warranties are contracts – contracts – they they are a meeting of the minds
The GI also assumes secondary liability because he engages that on due presentment… A GI basically tells the whole world that in case the party primarily liable cannot pay it, come to me, I will pay to you This is not assumed by a QI or a person pers on negotiating by delivery
Sec 65 x Sec 38 Qualified indorsers liable if warranties are breached
Sec 65 + Sec 30, Sec 9 Warranty where negotiation by delivery + negotiation by delivery, instrument payable to bearer Solvency not a guaranty – guaranty – recourse recourse can’t be had against indorser
Sec 89 + Sec 65/66 Notice of dishonor makes indorsers liable bec of their guaranties If no notice of dishonor = indorsers discharged
Sec 67 x Sec 40 Indorsers of Bearer Instruments and Special Indorsements of Bearer instruments -A to B. B to C. C signs before delivering to D. D to E. For E to be able to run after C, D must also sign as a general indorser
Instrument originally payable to bearer is always bearer If someone signs, then he assumes the liability of a general indorser Under Section 40, E can only hold C liable, if he can tr ace his title to t o C through an unbroken chain of indorsements
Section 68 A to B. B to C. C to D. D to E. E to F. F holder. F presents the instrument for payment to A the maker. A does not want to pay. F goes through the necessary proceedings on dishonor. F goes after E based on E’s secondary liability E pays F. Who does E go after? As a general rule: E will go after D o
It is important to know if i f the instrument is originally bearer or converted bearer to determine a valid negotiation and to fix the liabilities of the parties
Sec 69 – 69 – Sec Sec 20 Liability of agent (Negotiation) and Liability of agent (general) PRESUMPTION: Sec 68 every indorser is liable to all indorsers subsequent to him HOLDER + Sec 89 (notice of dishonor) = enforce payment on indorsers
Sec 70 vs 79/80 (excuse for non-payment) or Sec 82 (Presentment dispense d) Presentment for payment Sec 71: Presentment for payable on demand stuff -If a BoE that is payable pa yable on demand is not presented for payment within a reasonable time from its last negotiation, what is its legal effect? Will the BoE become overdue? If it is overdue and the BoE is subsequently transferred, is the latter a HDIC? Will the party primary liable be discharged? o No Will the parties secondarily liable be discharged? o Yes Can the BoE still be transferred or negotiated to a HDIC? o No, Section 52 But can it still be transferred? o Yes, but the subsequent holder will be a mere assignee
Sec 83+Sec 89+Sec 84 Instrument dishonored by non-payment + notice of dishonor = makes secondary parties liable (drawer, indorser by delivery, qualified indorser, general indorser) -If presentment for payment is excused and presentment for payment is made, will the parties secondarily liable be discharged? Yes if primarily liable parties pay -If presentment for payment is excused and presentment for payment is not made, will the parties primarily liable be discharged? -If a NI reached you when it is overdue, then you have to wonder why it is still circulating Ampil: Chances are the maker probably rejected or dishonored it o If you acquire it, then sure, but you are not protect ed by the NIL – NIL – no no protection against personal defenses
Presentment for payment Relationship between the holder and the party primarily liable
-If you are the party primarily primaril y liable and then you make payment, what else will you do? Get the note back to get rid of any evidence of your indebtedness o PUT IT OUT OF CIRCULATION
Sec 89 + Sec 93 Notice of dishonor inures to the benefit of the HOLDER HOLDER and to all parties subsequent to the holder to whom notice is given + parties subsequent to the holder who gave notice Sec 117 + Sec 89 x Sec 52 Omission to give notice of dishonor BY NON-ACCEPTANCE does not prejudice HIDC
Sec 119 + Sec 88 Payment in due course discharges instrument Sec 119 + Art 1231 (Civil Code) Extinguishment of obligations discharges instrument Sec 120 + Sec 48 Striking out indorsements discharges indorsers secondarily liable Sec 122 + Sec 52 Renunciation does not affect the rights of HIDC H IDC without notice Condonation a personal defense for secondary parties Defense Talk… PERSONAL DEFENSES can be defeated by a holder in due course But in order for this protection to be wrapped around the HIDC, three things must be present: 1 – it it must be negotiable to The instrument must comply with Section 1 – begin with There must be a valid negotiation The holder must be a holder in due course under Section 52
-Real defenses = Absolute defenses Real defense > HDC Ampil: Basically, the debtor wins
-Personal defenses = Equitable defenses Can be defeated by a HDC Ampil: Basically, the creditor wins
