Nego Reviewer 2020-2021 | J.

Rigor

NEGOTIABLE INSTRUMENTS to be made, or a particular account to be debited with the amount;

or
(b)A statement of the transaction which gives rise to the instrument.
But an order or promise to pay out of a particular fund is not
FORM AND INTERPRETATION
unconditional.
**I don’t have notes on the first eight articles
Requisites of Negotiability (Sec.1) Determinable Future Time (Sec. 4).

SECTION 1. Form of Negotiable Instruments. — An instrument to be SECTION 4. Determinable Future Time; What Constitutes. — An
negotiable must conform to the following requirements: instrument is payable at a determinable future time, within the meaning
(a) It must be in writing and signed by the maker or drawer; of this Act, which is expressed to be payable —
(b) Must contain an unconditional promise or order to pay a sum (a)At a fixed period after date or sight; or
certain in money; (b)On or before a fixed or determinable future time specified
(c) Must be payable on demand, or at a fixed or determinable future therein; or
time; (c)On or at a fixed period after the occurrence of a specified event,
(d) Must be payable to order or to bearer; and which is certain to happen, though the time of happening be
(e) Where the instrument is addressed to a drawee, he must be uncertain.
named or otherwise indicated therein with reasonable certainty. An instrument payable upon a contingency is not negotiable, and
the happening of the event does not cure the defect.

Sum Certain in Money (Sec.2)

Act in addition to Payment of Money (Sec. 5)
SECTION 2. Certainty as to Sum; What Constitutes. — The sum payable
is a sum certain within the meaning of this Act, although it is to be paid SECTION 5. Additional Provision Not Affecting Negotiability. — An
— instrument which contains an order or promise to do any act in addition
(a) With interest; or to the payment of money is not negotiable. But the negotiable character
(b) By stated installments; or of an instrument otherwise negotiable is not affected by a provision
(c) By stated installments, with a provision that upon default in which —
payment of any installment or of interest the whole shall become (a)Authorizes the sale of collateral securities in case the instrument
due; or be not paid at maturity; or
(d) With exchange, whether at a fixed rate or at the current rate; or (b)Authorizes a confession of judgment if the instrument be not paid
(e) With costs of collection or an attorney's fee, in case payment at maturity; or
shall not be made at maturity. (c)Waives the benefit of any law intended for the advantage or
protection of the obligor; or
(d)Gives the holder an election to require something to be done in
Unconditional Promise or Order to Pay (Sec. 3) lieu of payment of money.
SECTION 3. When Promise is Unconditional. — An unqualified order or But nothing in this section shall validate any provision or stipulation
promise to pay is unconditional within the meaning of this Act, though otherwise illegal.
coupled with —
(a)An indication of a particular fund out of which reimbursement is
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Matters that may be Added or Omitted (Sec. 6)
SECTION 6. Omission; Seal; Particular Money. — The validity and
negotiable character of an instrument are not affected by the fact that
—
SECTION 9: when an instrument is payable to bearer – The instrument is payable
(a)It is not dated; or
to bearer –
(b)Does not specify the value given, or that any value has been given
a. When it is expressed to be so payable; or
therefor; or
b. When it is payable to a person named therein or bearer; or
(c)Does not specify the place where it is drawn or the place where it
c. When it is payable to the order of a fictitious or non-existing person, and
is payable; or
such fact was known to the person making it so payable; or
(d)Bears a seal; or
d. When the name of the payee does not purport to be the name of any
(e)Designates a particular kind of current money in which payment is
person; or
to be made.
e. When the only or last indorsement is an indorsement in blank.
But nothing in this section shall alter or repeal any statute requiring in
certain cases the nature of the consideration to be stated in the
instrument.
 Essential: Remember the (5) instances enumerated in Section 9 when an
Payable on Demand (Sec.7) instrument is payable to bearer, particular paragraph (c) and (f) thereof.
 Payable to bearer or holder – “Bearer” means the person in possession of a
SECTION 7. When Payable on Demand. — An instrument is payable on bill or note which is payable to bearer (Sec.161, par.4)
demand — o “Holder” means the payee or indorsee of a bill or note, who is in
(a)Where it is expressed to be payable on demand, or at sight, or on
possession of it, or the bearer thereof (Sec.191, par 7)
presentation; or
(b)In which no time for payment is expressed.  An instrument is payable to bearer when it is payable to the order of a
Where an instrument is issued, accepted, or indorsed when overdue, it fictitious or non-existing person, and such fact was known to the person
is, as regards the person so issuing, accepting, or indorsing it, payable on making it so payable (Sec. 9 c)
demand.
Who is a fictitious person or non-existing person?
a. A fictitious person need not be a non-existing person, and thus may
Payable on Order (Sec. 8) even be a living and existing one.
b. An instrument is payable to bearer under paragraph (c) only if the
SECTION 8. When Payable to Order. — The instrument is payable to fictitious or non-existent character of the payee is known or intended by
order where it is drawn payable to the order of a specified person or to
the party (MAKER, DRAWER, INDORSER) making it payable to such
him or his order. It may be drawn payable to the order of —
person.
(a)A payee who is not maker, drawer, or drawee; or
(b)The drawer or maker; or a. This is so because when an instrument is made payable to a
(c)The drawee; or fictitious or non-existing person, there will be no one to
(d)Two or more payees jointly; or endorse the instrument. Hence, the maker or drawer is
(e)One or some of several payees; or deemed to have intended it to be payable to bearer
(f)The holder of an office for the time being. c. It is the knowledge of the MAKER or DRAWER which determines
Where the instrument is payable to order the payee must be named or whether or not the instrument is payable to a fictitious or non-existent
otherwise indicated therein with reasonable certainty. payee, and therefore, payable to bearer.
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Sec. 12. Ante-dated and post-dated – The instrument is not invalid for the reason
only that it is ante-dated or post-dated, provided that is not done for an illegal or
fraudulent purpose. The person to whom an instrument so dated is delivered
 There is no one to endorse the instrument, thus it should be understood to acquires the title thereto as of the date of delivery.
be payable to bearer
 An instrument is payable to bearer when the name of the payee does not
purport to be the name of any person [Sec. 9(d)]  E.G. A check is not rendered invalid by the fact that it is ante-dated or post-
o For example, “pay to cash”, which is equivalent to “pay to dated, although it must be presented for payment within a
bearer”.  reasonable time from the date apprearing in the instrument, or before it
 So the word “cash” here is equivalent to the word becomes stale. (Sec. 186)
“bearer”  a check becomes stale in 6 months
 Difference between an order instrument and bearer instrument. Sec. 13. When date may be inserted. - Where an instrument expressed
to be payable at a fixed period after date is issued undated, or where
RELEVANT CASES
the acceptance of an instrument payable at a fixed period after sight is
PNB v Rodriguez
undated, any holder may insert therein the true date of issue or
People v Wagas
acceptance, and the instrument shall be payable accordingly. The
insertion of a wrong date does not avoid the instrument in the hands of
Sec. 10. Terms, when sufficient – The instrument need not follow the language of a subsequent holder in due course; but as to him, the date so inserted is
this Act, but any terms are sufficient which clearly indicate an intention to to be regarded as the true date.
conform to the requirements thereof.
Section 13. When date may be inserted
 A negotiable instrument need not be written in English, and can be written
 Two (2) situations contemplated in Section 13:
in any other language. What is important is that the terms of the
o a) an instrument expressed to be a payable at a fixed period after
instrument must clearly indicate the intention to conform to the
date is issued undated.
requirements of the NIL.
Example: A issued a PN which states, “I promise to pay X or order
 Instead of: a) “promise” – “bind myself”; b0 “on demand” – “on call”;
P10,000.00 thirty dats after date”, but does not bear a date.
“bearer” – “holder”.
 The holder may insert the TRUE date of issue so as to fix
the date of maturity
o The acceptance of an instrument payable, at a fixed period after
Sec. 11. Date, presumption as to – Where the instrument or an acceptance or any
indorsement thereon is dated, such date is deemed prima facie to be the true sight is undated
date of the making, drawing, acceptance or indorsement, as the case may be. Example: X issued a bill which states, “To Y: Pay to A at order
P10,000.00 sixty days after sight”. The drawee Y, accepted the bill
but did not state the date of acceptance.
 The date is presumed to be the true date of the making, drawing,  The holder may insert the true date of acceptance.
acceptance, or endorsement, as the case may be.  Effect of insertion of a wrong date – The last sentence of Section 13 states
 He who questions the date appearing on the instrument has the burden of that the insertion of a wrong date does not avoid the instrument in the
proof to show the correct date.

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hands of a holder in due course; but as to him, the fate inserted is to be Kinds of Incomplete instruments (Sec. 14-16)
regarded as the true date.
1. Mechanically incomplete but duly delivered instrument (sec. 14)
o This means the insertion of the wrong date for some fraudulent
2. Mechanically incomplete and undelivered instrument (Sec. 15)
purpose by the holder of the instrument – who knows the true
3. Mechanically complete but undelivered instrument (Sec. 16)
date – avoids the instrument as to him.
o However, if the instrument with a wrong date is negotiated to a Acts necessary to complete an instrument.
holder in due course, the instrument is not avoided as to the Two acts are necessary to complete instruments
holder in due course and the date inserted, even if wrong, is
regarded as the true date. 1. The mechanical act of writing an instrument; and
o Example: An undated PN states, “I promise to pay A or order 2. The delivery thereof for the purpose of giving effect thereto.
P100,000.00 ninety (90) days after date.”
 The note was issued on Aug 1, 2020 but A placed June 1,
Section 14 covers a situation where the instrument duly signed by the maker or
2020 as to hasten maturity of the note.
drawer is delivered by the latter to a person for the purpose of converting it into a
 A then negotiated the noted to B
negotiable instrument, who has the prima facie authority to fill up the blanks.
 If B is a holder in due course, the insertion of the wrong
fate does not avoid it and insofar as he is concerned, the  Pursuant to Section 14, of the NIL, the HOLDER of an instrument containing
maturity of the instrument is 90 fays from June 1. The a blank space has the assumed authority to fill the blanks.
wrong date inserted.
Sec.14 Blanks, when may be filled
 If B is not a holder in due course, the instrument is not
valid since the insertion of a wrong date or the 1. The extent of the authority or implied power of the holder to fill in the
antedating thereof was done for a fraudulent purpose. blanks of a duly signed instrument extends to every incomplete feature of
the instrument such as the:
Sec. 14. Blanks; when may be filled. - Where the instrument is wanting
o Date;
in any material particular, the person in possession thereof has a prima
facie authority to complete it by filling up the blanks therein. And a o Place of payment;
signature on a blank paper delivered by the person making the signature o Amount;
in order that the paper may be converted into a negotiable instrument o Name of payee.
operates as a prima facie authority to fill it up as such for any amount. 2. Section 14 also speaks of an instrument that is only a signature on a blank
In order, however, that any such instrument when completed may be piece of paper.
enforced against any person who became a party thereto prior to its o In order that the person may have prima facie authority to
completion, it must be filled up strictly in accordance with the authority convert a signature on a black paper into a negotiable instrument
given and within a reasonable time. But if any such instrument, after
and fill it up for any amount, the following requisites must be
completion, is negotiated to a holder in due course, it is valid and
present:
effectual for all purposes in his hands, and he may enforce it as if it had
been filled up strictly in accordance with the authority given and within a. The paper bears the signature of the maker or drawer;
a reasonable time. b. it was delivered by the person making the signature; and
c. it was delivered in order that the paper may be
Section 14, 15, and 16 are to be studied together. In these sections, you will find the converted into a negotiable instrument.
kinds of incomplete instruments under the negotiable instruments law.
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Liabilities of parties when a mechanically incomplete instrument has been delivered

and the blank has been filled up.
Borromeo v Sun
a. Party prior to the completion of the instrument
Pacheco v CA
Any person who becomes a party prior to its completion shall be liable to:
i. A person not a holder in due course, provided that the
instrument has been filled up – Sec. 15. Incomplete instrument not delivered. - Where an incomplete
a. Strictly in accordance with the authority given, and instrument has not been delivered, it will not, if completed and
b. Within a reasonable time negotiated without authority, be a valid contract in the hands of any
holder, as against any person whose signature was placed thereon
ii. A holder in due course as if the instrument had been filled up
before delivery.
strictly in accordance with the authority given and within a
reasonable time. (PERSONAL DEFENSE ONLY).
b. Party after completion of the instrument
Any person who becomes a party thereto after its completion shall be Section 15. Mechanically incomplete and undelivered instruments
liable to any holder in accordance with his warranties, whether as an  An INCOMPLETE and UNDELIVERED instrument, if completed and
acceptor [Sec.62], a party who negotiated the instrument by delivery negotiated without authority is inoperative.
[Sec.65], or as a general indorser [Sec.66].  The term “any holder” as used in Section 15 includes both a person who is
not a holder in due course and a holder in due course.
E.G.  Hence the defense of mechanically incomplete and undelivered instrument
X signed a PN with the amount in blank, payable to A or bearer. is a REAL DEFENSE which can be raised against any holder, whether a
X authorized A to fill in the blank up to P50,000.00 holder in due course or not.
A filled in the blank by writing P75,000.00 and negotiating the note to B.
Q: What are the liabilities of X and A to B? X as the maker of the PN E.g.
and A as the payee and indorser. A signed a PN payable to bearer with the amount in blank. He kept it in
his drawer.
X is a party prior to the completion of the note B stole it and filled up the blank by writing P100,000.00
- if B is not a holder in due course, C will not be liable to him, not B then negotiated the note to C.
even for the authorized amount, because the note was not filled up
strictly in accordance with the authority given. Q: if C was not a holder in due course, could he hold A and B liable?
- if B is a holder in due course, X is liable to him for P75,000.00 Q: if C was a holder in due course – could he hold A and B liable then?
because a holder in due course may enforce it as if it had been strictly
filled up in accordance with the authority given and within a reasonable C cannot hold A liable regardless – since the instrument was incomplete
time. and undelivered and therefore, it will not, if completed and negotiated
without authority, be a valid contract in the hands of “any holder” as
A became a party to the note after its completion and therefore he is against any person whose signature was placed thereon before delivery.
liable to B as he warrants that the instrument is genuine and in all
respects what it purports to be [Section 65 and 66]. C can hold B liable since B warrants that the instrument is genuine in all
respects what it purports to be [Sec. 65 and 66]
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a) Immediate and remote parties – refer to those who are not merely in
proximity but also know or are being held to know the conditions and
limitations placed upon the delivery of the instrument.
Sec. 16. Delivery; when effectual; when presumed. - Every contract on a
- They transferees with notice that the delivery was unauthorized,
negotiable instrument is incomplete and revocable until delivery of the
instrument for the purpose of giving effect thereto. As between Conditional or for a special purpose, and not for the purpose of
immediate parties and as regards a remote party other than a holder in transferring the property in the instrument.
due course, the delivery, in order to be effectual, must be made either by b) Holders in due course – are those who meet the requirements of section
or under the authority of the party making, drawing, accepting, or 52 of the NIL, with no notice or knowledge of the conditions or limitations
indorsing, as the case may be; and, in such case, the delivery may be of delivery.
shown to have been conditional, or for a special purpose only, and not - holders in due course are not “immediate paries”.
for the purpose of transferring the property in the instrument. But i. Holders in due course are necessarily in good faith, taking
where the instrument is in the hands of a holder in due course, a valid it with no knowledge of any sort of infirmity or defect.
delivery thereof by all parties prior to him so as to make them liable to
him is conclusively presumed. And where the instrument is no longer in
the possession of a party whose signature appears thereon, a valid and Presumption of the law whenever the instrument is no longer in the position of a
intentional delivery by him is presumed until the contrary is proved. party whose signature appears there on.
 In the hands of a Holder in due course, a valid delivery of the instrument
by all parties prior to him so as to make them liable to him is conclusively
Sec. 16. Mechanically Complete BUT Undelivered Instruments presumed;
Take note of the first sentence that states “every contract on a negotiable  While in the hands of a person who is not a holder in due course, a valid
instrument is incomplete and revocable until delivery of the instrument for the intentional delivery by the party whose signature appears thereof is
purpose of giving effect therto.” presumed until the contrary is proven.

DELIVERY – the actual constructive transfer of the possession of the instrument by

the maker or drawer with the intent to transfer title to the payee and recognize him Requisites for an effective delivery of a mechanically complete instrument:
as the holder thereof. (Sec. 191)
a. Delivery to a person who is not a holder in due course (that is,
HOLDER – the payee or indorsee of a bill or not who is in possession of it, or the immediately parties and a remote party other than a holder in due course)
bearer thereof. – in order to be effectual, must be made either by or under the authority
ISSUE – the first delivery of the instrument, complete in form, to a person who of the party making, drawing, accepting or indorsing, as the case may be.
takes it as a holder. - In such case it may be shown that:
i. There was no delivery; or
You need to know who the parties of the instrument are for purposes of delivery.
ii. Delivery was unauthorized; or
Who are they?
iii. Delivery was conditional; or
The Parties to the instrument, for purposes of delivery: iv. Delivery was for a special purpose only, and not for the
purpose of transferring the property in the instrument.

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b. Delivery to a holder in due course - A valid delivery of the instrument by is the sum payable; but if the words are ambiguous or uncertain,
all parties prior to him so as to make them liable to him is conclusively reference may be had to the figures to fix the amount;
presumed.
(b) Where the instrument provides for the payment of interest, without
Cases: specifying the date from which interest is to run, the interest runs from
De la Victoria v burgos the date of the instrument, and if the instrument is undated, from the
issue thereof;
State investment house, inc v CA and Nora Moulic
(c) Where the instrument is not dated, it will be considered to be dated
People v Yabut – The place where the bills were written, signed, or as of the time it was issued;
dated does not necessarily fix or determine the place where they were
executed. What is of decisive importance is the delivery thereof. The (d) Where there is a conflict between the written and printed provisions
delivery of the instrument is the final act essential to its consummation of the instrument, the written provisions prevail;
as an obligation. An undelivered bill or note is inoperative. Until
delivery, the contract is revocable. And the issuance as well as the (e) Where the instrument is so ambiguous that there is doubt whether it
delivery of the check must be to a person who takes it as a holder, is a bill or note, the holder may treat it as either at his election;
which means '(t)he payee or indorsee of a bill or note, who is in
possession of it, or the bearer thereof.' Delivery of the check signifies (f) Where a signature is so placed upon the instrument that it is not clear
transfer of possession, whether actual or constructive, from one person in what capacity the person making the same intended to sign, he is to
to another with intent to transfer title thereto . be deemed an indorser;

People v Gorospe (g) Where an instrument containing the word "I promise to pay" is
signed by two or more persons, they are deemed to be jointly and
Development Bank of Rizal v Wei severally liable thereon.

Lim v CA –
Section 17 of the NIL is similar to the Rules on Interpretation of Documens as
RCBC v Hi-Tri Development Corp. – the mere issuance of a manager’s provided for in the Rules of Court, namely, Sec. 10-19 of Rule 130; and the
check does not ipso facto work as an automatic transfer of funds to the equivalent Civil Code provisions, specifically Art. 1370 – 1379 of the Code.
account of the payee. In case the procurer of the manager’s or cashier’s
check retains custody of the instrument, does not tender it to the
intended payee, or fails to make an effective delivery. Incomplete. No Sec. 17 (c) Where the instrument is not dated, it will be considered to be dated as
delivery. of the time it was issued;
 This was first brought up in Sec 6
Sec. 17. Construction where instrument is ambiguous. - Where the  Sec 6(a) as you remember, states that the validity and negotiable character
language of the instrument is ambiguous or there are omissions therein,
of an instrument are not affected by the fact that it is not dated . So that
the following rules of construction apply
under Sec 17 (c), where the instrument is not dated, it will be considered
(a) Where the sum payable is expressed in words and also in figures and to be dated as of the time it was issued.
there is a discrepancy between the two, the sum denoted by the words

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Sec. 17 (e) Where the instrument is so ambiguous that there is doubt whether it is he had signed in his own name.
a bill or note, the holder may treat it as either at his election;
 This happens when the wordings of the instrument are such that it is  The general rule is that only persons whose signatures appear on an
difficult to determine whether it is a promissory note or a bill of exchange. instrument are liable theron.
 Example given in the book of De Leon: “An instrument which states I  However, take note that the person signing an instrument in agreed or
promise to pay A or order 10,000 pesos”. It sounds like a promissory note, assumed name will be liable to the same extent as if he had signed it in his
but it is also addressed to a drawee. drawing. So therefore, there is doubt own name.
as to whether it is a promissory note or a bill of exchange. In that case, the  If you don't want to use your real name and you can sign in, in a trade or
holder may treat it as his election. assumed name, so, one can sign in or as “Dolphie” or “Ramon Revilla Jr.”
or whatever. In that case a person signing in a trade or assumed name will
be liable to the same extent as if he had signed in his own name.
Sec. 17 (f) Where a signature is so placed upon the instrument that it is not clear
in what capacity the person making the same intended to sign, he is to be deemed
an indorser; Sec. 19. Signature by agent; authority; how shown. - The signature of
any party may be made by a duly authorized agent. No particular form
 This happens when the location of the signature appearing on an
of appointment is necessary for this purpose; and the authority of the
instrument is ambiguous that is, because of the location of that signature, agent may be established as in other cases of agency.
it cannot be determined whether the person who placed that signature
intended to be liable as either a maker drawer or an endorser. In that case Sec. 20. Liability of person signing as agent, and so forth. - Where the
because of the location of that signature, then the person who placed the instrument contains or a person adds to his signature words indicating
signature will be deemed to be an endorser. And as an endorser, you will that he signs for or on behalf of a principal or in a representative
have lesser liability than a maker or a drawer. capacity, he is not liable on the instrument if he was duly authorized; but
the mere addition of words describing him as an agent, or as filling a
representative character, without disclosing his principal, does not
Sec. 17 (g) Where an instrument containing the word "I promise to pay" is signed exempt him from personal liability.
by two or more persons, they are deemed to be jointly and severally liable
thereon.  Sections 19 and 20 are complementary and are to be taken together
 you will remember that this means that their liability will be solidary. because they refer to the signature by the agent and the liability of an
agent.
 This provision, read in relation to Art. 1216 of the Civil Code, means that
the payee is entitled to hold any one or two of the signers of the  In general, an agent who signs and instrument for his principal will not be
promissory note liable for the amount of the note. personally liable for a signature in an instrument.

Requisites in order that the agent will not be personally liable for his signature in an
Sec. 18. Liability of person signing in trade or assumed name. - No
person is liable on the instrument whose signature does not appear instrument.
thereon, except as herein otherwise expressly provided. But one who a. The agent is duly authorized by his principal;
signs in a trade or assumed name will be liable to the same extent as if

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b. He adds to his signature words indicating that he signs for or on behalf of Indorsement or assignment by a corporation – Section 22 applies only to ultra vires
his principal; and acts as defined in Section 44 of The Revised Corporation Code.
c. He discloses his principal (most important one)
 An ultra vires act is one not within the express, implied, and incidental
powers of the corporation.
 An ultra vires act may be ratified expressly by the board of directors of the
PROBLEM:
Agent X signed the following P.N.: corporation, or impliedly by the receipt and enjoyment of the benefits
“I promise to pay to the order of A Fifty Thousand pesos (P50,000.00) flowing from the act or contract.
(Sgd) X, Agent” If the corporation itself will not be liable for the ultra vires act, who will be liable
then for it?
X claims that he is not personally liable on the note and instead, his
principal, Y, s should be made liable. Will X be liable?  The corporate officer or the directors assenting therto, may be held
Ans: Yes. X will be liable. Here, he didn’t disclose who his principal was. personally liable therefor.
the undisclosed principal can’t be held liable, even if the agent is
authorized.
Indorsement or assignment by an infant – the indorsement or assignment of an
instrument by an infant passes the property therein.

CASES:  Minority is a type of REAL defense, available to the minor even against a
PBCom v Aruego holder in due course.
Republic Planters Bank v CA
Can a minor enter into a contract?
 minors can enter into contracts. OBLICON.
Sec. 21. Signature by procuration; effect of. - A signature by
"procuration" operates as notice that the agent has but a limited  It is a contract that is voidable if there is only one party that is a minor, but
authority to sign, and the principal is bound only in case the agent in so unenforceable if they’re both minors.
signing acted within the actual limits of his authority.  If a minor executes a N.I. and the holder wants to hold several parties
liable, the other parties cannot use the defense of minority, only the minor
can
 Recall voidable contracts: valid until annulled. it is capable of ratification by
Section 21 essentially restates what was already provided for in sections 19 and 20.
guardian or by minor when he reaches age of majority.

Sec. 22. Effect of indorsement by infant or corporation.- The

indorsement or assignment of the instrument by a corporation or by an Sec. 23. Forged signature; effect of. - When a signature is forged or
infant passes the property therein, notwithstanding that from want of made without the authority of the person whose signature it purports to
capacity, the corporation or infant may incur no liability thereon. be, it is wholly inoperative, and no right to retain the instrument, or to
give a discharge therefor, or to enforce payment thereof against any
party thereto, can be acquired through or under such signature, unless
the party against whom it is sought to enforce such right is precluded
from setting up the forgery or want of authority.

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b. No right against any party thereto, can be acquired through or under such
signature –
***“This is one of the more important sections of NIL. I encourage you to memorize
a. To retain the instrument, or
23 in its entirety. Anyway its a short section. it tells you about the effects of a forged
b. To give discharge therefor, or
signature does not apply to alterations of the instruments”
c. To enforce payment thereon.
 First thing to bear in mind when studying section 23 is that section 23 Exception: When the party against whom it is sough to enforce such right is
applies only to forgery of a signature. It is different from an alteration of precluded from setting up forgery or want of authority as a defense.
the instrument which are covered by sections 124 and 125 of the NIL .
Forgery of signature is a REAL defense which could be raised against any holder,
 Whose signature is forged? – the forged signature may be the signature of
even a holder in due course.
the drawer or maker, or that of the payee or indorser.
 No right may arise from a forged signature and no right may be asserted
against the person whose signature is forged. (1 st important principle) Persons barred from raising defense of forgery:
o REASON: A person whose signature was forged was never a party
and never consented to the contract which allegedly gave rise to a. The FORGER,
the instrument. b. The INDORSERS and persons negotiating the instrument by DELIVERY,
 Section 23 does not avoid the instrument but only the forged signature. because they warrant that the instrument is genuine and in all respects
nd
(2 important principle) what it purports to be (Sec.65 and 66)
o The existence of one forged signature in a N.I. will not render c. The ACCEPTOR with respect to the signature of the drawer as he admits
void all the other negotiations of an instrument with respect to the existence of the drawer, the genuineness of his signature, and his
the other parties whose signatures are genuine. capacity and authority to draw the instrument (sec. 62)
 In other words, a forged signature may give rise to a valid right after a d. Those who are barred by estoppel or by their own negligence from raising
series of negotiations of the instrument, in favor the indorsee who the defense of forgery.
acquires his rights from a lawful indorser, whose right is founded on a valid e. Others who admit the genuineness of the signature expressly or impliedly,
signature, and who did not know of the forgery. such as those who failed to deny specifically under oath the genuineness of
an actionable document. (Sec 8, ROC)
PROBLEM:
A forged the signature of X as maker in a promissory note payable as PROBLEM:
follows: A made a promissory note payable to B or order. B’s indorsement was
“I promise to pay to A or order One Hundred Thousand Pesos forged by C, who indorsed the note to D. D indorsed the note to E.
(P100,000.00). a. May E hold A liable?
(Forged Signature) X” b. May E hold C and D liable?
Cases
A negotiated the instrument to B.  PNB v Quimpo, et al.
A) May B hold X liable?  Gempesaw v. CA and PBCom
B) Will it matter if B is a holder in due course or not?  Associated Bank v CA
Effects of forgery of a SIGNATURE:  Francisco v CA
 Samsung Construction Company Philippines, Inc. v. Far East
a. It is wholly inoperative, and Bank and Trust Company and CA.

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CONSIDERATION  Difference between a HOLDER FOR VALUE and a HOLDER IN DUE COURSE –
a holder for value is one who meets all the requirements of a holder in due
Sec. 24. Presumption of consideration. - Every negotiable instrument is course under Section 52 of the NIL, except for the last requirement
deemed prima facie to have been issued for a valuable consideration;
thereof.
and every person whose signature appears thereon to have become a
party thereto for value.  The HOLDER FOR VALUE holds the instrument subject to the same
defenses as if it were non-negotiable. Theses are personal defenses such
as fraud or failure of consideration between the maker and the holder to
Take Section 24 in connection with Section 6(b), which provides that the validity whom the instrument was delivered.
and negotiable character of an instrument are not affected by the fact that it does
not specify the value given, or that any value has been given therefor, because E.g. of a failure of consideration – if a check had been issued in payment of shoes
consideration is presumed under Section 24. that were not made and delivered, the fact which is lack of consideration is a
defense against a holder who is not a holder in due course.
Likewise, relate Section 24 to Art. 1354 of the Civil Code:
HOLDER for VALUE HOLDER IN DUE COURSE
 Art. 1354. Although the cause is not stated in the contract, it is presumed a. that it is complete and regular a. that it is complete and regular
that it exists and is lawful, unless the debtor proves the contrary.” upon its face; upon its face;

b. That he became the holder of it b. That he became the holder of it

Sec. 25. Value, what constitutes. — Value is any consideration sufficient before it was overdue, and before it was overdue, and
to support a simple contract. An antecedent or pre-existing debt without notice that it had been without notice that it had been
constitutes value; and is deemed such whether the instrument is previously dishonored, if such was previously dishonored, if such was
payable on demand or at a future time. the fact; the fact;

c. That he took it in good faith and c. That he took it in good faith and
What constitutes value? for value; for value;
 The consideration for a bill or note must be a valuable consideration [Sec.
d. That at the time it was
191, penultimate paragraph]; as distinguished from a good consideration.
negotiated to him he had no
o A valuable consideration usually consists of money
notice of any infirmity in the
 Good consideration: natural love and affection, gratitude or other things instrument or defect in the title
commonly called good. of the person negotiating it.
o These will not alone suffice to support an undertaking in a bill or
note.
Example:
X issued a P.N. for P100,000 payable to A or order on October 31, 2020.
Sec. 26. What constitutes holder for value. - Where value has at any In the mean time, A borrowed P20,000 from B and as security for the
time been given for the instrument, the holder is deemed a holder for loan, A pledged the P.N. of X to B. Is B a holder for value?
value in respect to all parties who become such prior to that time
Ans: B is a holder for value to the extent of P20,000.00 because that is
What constitutes a holder for value? the extent of his lien on the P.N. issued by X. To be considered as a
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holder in due course, the holder must have taken the instrument in Holder in due course . a will be liable for the full amount of 100k to C as
good faith and for value [Sec. 52(c)]. the defense of partial or total failure of consideration cannot be raised.

B could be a holder in due course only to the extent of P20,000.00

because he is holder for value only to that extent.
Sec. 29. Liability of accommodation party. - An accommodation party is
one who has signed the instrument as maker, drawer, acceptor, or
Sec. 27. When lien on instrument constitutes holder for value. — Where indorser, without receiving value therefor, and for the purpose of
the holder has a lien on the instrument arising either from contract or lending his name to some other person. Such a person is liable on the
by implication of law, he is deemed a holder for value to the extent of instrument to a holder for value, notwithstanding such holder, at the
his lien. time of taking the instrument, knew him to be only an accommodation
party.
Sec. 28. Effect of want of consideration. - Absence or failure of
consideration is a matter of defense as against any person not a holder
in due course; and partial failure of consideration is a defense pro tanto,
whether the failure is an ascertained and liquidated amount or Requisites in order that a party may be considered an accommodation party:
otherwise. a. He must have signed the instrument as a maker, drawer, acceptor or
indorser.
Caltex v CA: Secu b. He signed without receiving value therefor; and
c. He signed for the purpose of lending his name to some other person.

Difference between absence of consideration and failure of consideration:

An accommodation party lends his name to enable an accommodated party to
Absence of Want of Consideration Failure of Consideration obtain credit or raise money.
 Involves transactions or  Valuable consideration was
instances where no contemplated or agreed  He receives no part of the consideration for the instrument but he assumes
consideration was intended. upon, but there was failure to liability to the other parties thereto because he wants to accommodate
 No valuable consideration was execute or give the another.
agreed upon, or it is illegal, consideration contemplated
immoral or fraudulent. by the parties.
Whether his liability is primary or secondary depends on whether he signs as a
maker, drawer, acceptor or indorser.
Want of consideration is a personal defense because it is not available against a
holder in due course.  If he signs as a maker or acceptor, he is primarily liable on the note or bill.

(EXAMPLE. I m tamad later na lang)

An Accommodation Party is liable to a HOLDER FOR VALUE notwithstanding that
Will A be liable to C? “such holder at the time of taking the instrument knew him to be only an
Depends if C is not a holder in due course. accommodation party.”
A may raise the defense of partial failure of consideration against C and
A will this be liable for 50k only PROBLEM
A wanted to borrow money from Z bank but because of his poor credit
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standing, he was asked to get a -co-maker to the note that he had to Difference between ASSIGNMENT and NEGOTIATION of an instrument:
issue upon getting the loan.
ASSIGNMENT NEGOTIATION
A thus asked B to sign with him as a co-maker of the note, to which B The Assignee acquires no better The holder of the instrument may
agreed. However, the entire proceeds of the loan were released by Z right than the Assignor and become a holder in due course, if
Bank only to A. acquires his rights subject to he has taken the instrument under
defenses which the debtor could the conditions prescribed in Sec.
Q: Can B later on claim that he was not liable on the note because he have set up against the original 52 of the NIL, who then holds the
did not receive any part of the loan? Assignor before the assignment. instrument free from prior
defenses available to prior parties.
No he is liable as an accommodation party
Through the process of negotiation, the instrument could pass to a holder in due
Q: Supposing Z Bank never released the proceeds of the loan to A, course, (Sec. 52) who acquires the instrument free from any defect of title of pripr
would B be liable on the note?
parties, and free from defenses available to prior parties (Sec. 57)
No. kasi no valuable consideration. Caltex case

Liability of Accomodation Party SECTION 31. Indorsement; How Made. — The indorsement must be
ACCOMODATION PARTY ACCOMODATED PARTY written on the instrument itself or upon a paper attached thereto. The
Surety Principal signature of the indorser, without additional words, is a sufficient
Creditor Debtor indorsement.

Xxxx
 The payee indorses the instrument by writing his name on the instrument
with the intent to transfer the title to the instrument.
a. Indorser – the payee who signs the instrument and delivers it to
another person.
NEGOTIATION b. Indorsee – the person who receives the indorsed instrument.
SECTION 30. What Constitutes Negotiation. — An instrument is  The second sentence of Section 31 describes a BLANK indorsement [Sec.
negotiated when it is transferred from one person to another in such 33]
manner as to constitute the transferee the holder thereof. If payable to  An allonge is a paper attached or annexed to the instrument on which
bearer, it is negotiated by delivery; if payable to order, it is negotiated subsequent indorsements may be written, which will have the same effect
by the indorsement of the holder completed by delivery. as if written on the instrument itself, such paper being deemed a part
thereof.

“Holder” means the payee or indorsee of a bill or note, who is in possession of it, or
the bearer thereof. [Sec. 191] SECTION 32. Indorsement Must Be of Entire Instrument. — The
indorsement must be an indorsement of the entire instrument. An
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indorsement which purports to transfer to the indorsee a part only of
the amount payable, or which purports to transfer the instrument to
two or more indorsees severally, does not operate as a negotiation of
the instrument. But where the instrument has been paid in part, it may
be indorsed as to the residue.

An indorsement may be either special or in blank; and it may also be either

restrictive or qualified or conditional.
1. Example of partial indorsements:
a. Indorsement of part of amount payable – a note payable to A or order for
P100,000.00 was indorsed by A as follows: “To B for P50,000.00 only (sgd.)
A.”
b. Indorsement to two or more indorsees severally

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Kinds of indorsment. Special, blank, restrictive, qualified, conditional

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I WAS ABSENT FOR 51 to 59 ☹

RIGHTS OF A HOLDER (SEC 51 – 59)

Sec. 51. Right of holder to sue; payment. - The holder of a negotiable
instrument may to sue thereon in his own name; and payment to him in
due course discharges the instrument.

Sec. 52. What constitutes a holder in due course. - A holder in due

course is a holder who has taken the instrument under the following
conditions:
(a) That it is complete and regular upon its face;
(b) That he became the holder of it before it was overdue, and
without notice that it has been previously dishonored, if such was
the fact;
(c) That he took it in good faith and for value;
(d) That at the time it was negotiated to him, he had no notice of
any infirmity in the instrument or defect in the title of the person
negotiating it.
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whom he claims acquired the title as holder in due course. But the last-
Sec. 53. When person not deemed holder in due course. - Where an mentioned rule does not apply in favor of a party who became bound
instrument payable on demand is negotiated on an unreasonable length on the instrument prior to the acquisition of such defective title.
of time after its issue, the holder is not deemed a holder in due course.

Sec. 54. Notice before full amount is paid. - Where the transferee LIABILITIES OF PARTIES (Sec. 60 – 69)
receives notice of any infirmity in the instrument or defect in the title of
Sec. 60. Liability of maker. - The maker of a negotiable instrument, by
the person negotiating the same before he has paid the full amount
making it, engages that he will pay it according to its tenor, and admits
agreed to be paid therefor, he will be deemed a holder in due course
the existence of the payee and his then capacity to indorse.
only to the extent of the amount therefore paid by him.

Sec. 55. When title defective. - The title of a person who negotiates an LIABILITY of the MAKER – the maker of a negotiable instrument by making it
instrument is defective within the meaning of this Act when he obtained engages that he will pay it according to its tenor.
the instrument, or any signature thereto, by fraud, duress, or force and
fear, or other unlawful means, or for an illegal consideration, or when  The maker is primarilt and unconditionally liable as his liability is not
he negotiates it in breach of faith, or under such circumstances as conditioned on the presentment of the instrument to any other party for
amount to a fraud. payment or otherwise

Sec. 56. What constitutes notice of defect. - To constitutes notice of an ADMISSIONS of the MAKER – the maker admits (1) the existence of the payee and
infirmity in the instrument or defect in the title of the person (2) his capacity to indorse.
negotiating the same, the person to whom it is negotiated must have
had actual knowledge of the infirmity or defect, or knowledge of such
facts that his action in taking the instrument amounted to bad faith. PROBLEM:
 A made a note payable to the order of B
Sec. 57. Rights of holder in due course. - A holder in due course holds  B indorsed the note to C
the instrument free from any defect of title of prior parties, and free  May A latter on refuse to pay C on the ground that B did not
from defenses available to prior parties among themselves, and may have capacity to indorse the instrument?
enforce payment of the instrument for the full amount thereof against
all parties liable thereon. ANSWER: the two admissions of the maker. The maker cannot question
the capacity of the payee. By making the p.n., he acknowledges the
Sec. 58. When subject to original defense. - In the hands of any holder existence of the payee and his capacity to indorse.
other than a holder in due course, a negotiable instrument is subject to U also know liability of drawer. How would you distinguish the two?
the same defenses as if it were non-negotiable. But a holder who
derives his title through a holder in due course, and who is not himself a
party to any fraud or illegality affecting the instrument, has all the rights Sec. 61. Liability of drawer. - The drawer by drawing the instrument
of such former holder in respect of all parties prior to the latter. admits the existence of the payee and his then capacity to indorse; and
engages that, on due presentment, the instrument will be accepted or
Sec. 59. Who is deemed holder in due course. - Every holder is deemed paid, or both, according to its tenor, and that if it be dishonored and the
prima facie to be a holder in due course; but when it is shown that the necessary proceedings on dishonor be duly taken, he will pay the
title of any person who has negotiated the instrument was defective, amount thereof to the holder or to any subsequent indorser who may
the burden is on the holder to prove that he or some person under be compelled to pay it. But the drawer may insert in the instrument an
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express stipulation negativing or limiting his own liability to the holder. acceptance and admits:
(a) The existence of the drawer, the genuineness of his signature, and
his capacity and authority to draw the instrument; and
Differences between the liabilities of the MAKER and the DRAWER: (b) The existence of the payee and his then capacity to indorse.
MAKER DRAWER
Maker is primarily and Drawer is only Secondarily liable Who is an ACCEPTOR – an acceptor is a drawee who has assented to the order of
unconditionally liable on the note. on the bill.
the drawer (Sec. 132)
Presentment for payment is not Presentment for payment is
necessary to hold the maker liable. necessary to hold the drawer LIABILITY of an ACCEPTOR- “The acceptor by accepting the instrument engages that
liable (Sec. 70) he will pay it according to the tenor of his acceptance”.
Notice of dishonor need not be Notice of dishonor must be given
given to the maker as he is the ti the drawer to hold him liable The acceptor, by his acceptance becomes the primary obligor of the bill, or a person
one who dishonored the (Sec. 89) primarily liable on the bill.
instrument PROBLEM
The maker cannot negative or The drawer may insert in the  X drew a bill addressed to Y for P100,000, payable to the order
limit his liability on the note. instrument an express stipulation of A.
negativing or limiting his own  A presented the bill to Y for acceptance.
liability to the holder (Sec.61)  Y wrote on the bill, “Accepted for P60,000.00”
How much is the liability of the acceptor?
LIABILITY of the DRAWER – the drawer is only secondarily and conditionally liable
on the instrument, as he only becomes liable for the payment of the bill: ADMISSIONS of the ACCEPTOR – the acceptor admits (1) the existence of the
a. Upon its non-payment or non-acceptance by the acceptor or drawee; and DRAWER, the genuineness of his signature, and his capacity and authority to draw
b. After notice of dishonor is given to him. the instrument; and (2) the existence of the PAYEE and his then capacity to indorse.

ADMISSIONS of the DRAWER – the drawer admits (1) the existence of the payee  Hence, the acceptor can not say, or is estopped from interposing the
and (2) his capacity to indorse. defense, that the drawer is fictitious; or that the drawer’s signature is
forged; or that the drawee or payee is a minor.
Hence, the DRAWER has the same admissions as the MAKER.
Can the acceptor allege that the signature of the payee or any subsequent indorser
The Drawer may restrict his liability on the bill – the drawer “may insert in the
are forged?
instrument an express stipulation negativing or limiting his own liability to the
holder”  Yes, because the acceptor does not admit the genuineness of the
signatures of the payee nor of any subsequent indorser.
 Therefore, the drawer’s liability may be qualified by express terms.
 Hence, the acceptor does not guarantee the indorsements on the bill.
 He may thus state in the bill that he will not be liable in case the
instrument is dishonored by the drawee or acceptor. Relevant Case: Far East Bank & Trust Company v, Gold Palace Jewellry
Co.

Sec. 62. Liability of acceptor. - The acceptor, by accepting the Sec. 63. When a person deemed indorser. - A person placing his
instrument, engages that he will pay it according to the tenor of his
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signature upon an instrument otherwise than as maker, drawer, or irregular indorser because he indorses the instrument in an unusual or peculiar
acceptor, is deemed to be indorser unless he clearly indicates by manner – his name appears where another name would be expected.
appropriate words his intention to be bound in some other capacity.
What is the purpose of an irregular indorsement??

When is a person deemed an indorser? Examples:

1. When a person other than the4 payee writes his name at the
1. Where a signature is so placed upon the instrument that it is not clear in back of the instrument.
what capacity the person making the same intended to sign, he is deemed 2. An indorsement in blank by a third person above the name of
to be an INDORSER (Sec. 17(f)) payee.
2. When a person who signed the instrument has clearly indicated by 3. When the payee does not indorse at all.
appropriate words his intention to be bound in some other capacity, he
shall not be deemed an indorser even if he did not sign as maker, drawer, Sec. 65. Warranty where negotiation by delivery and so forth. — Every
or acceptor person negotiating an instrument by delivery or by a qualified
indorsement warrants:
Examples:
(a) That the instrument is genuine and in all respects what it
1. A person who signed at the back of the instrument and wrote
purports to be;
“I hereby guarantee patment of this note” shall not be
(b) That he has a good title to it;
considered an indorses but as a guarantor.
(c) That all prior parties had capacity to contract;
2. A person who signs for the purpose of identifying a person
(d) That he has no knowledge of any fact which would impair the
only and not for the purpose of incurring any liability for the
validity of the instrument or render it valueless.
payment of a bill or note and clearly indicates that it is for the
purpose of identification only, is not an indorser.
But when the negotiation is by delivery only, the warranty extends in
3. A person who only guarantees prior indorsments does not
favor of no holder other than the immediate transferee.
become an indorser.
The provisions of subdivision (c) of this section do not apply to a person
Sec. 64. Liability of irregular indorser. - Where a person, not otherwise a negotiating public or corporation securities other than bills and notes.
party to an instrument, places thereon his signature in blank before
delivery, he is liable as indorser, in accordance with the following rules:
“(a) that the instrument is genuine and in all respects what it purports to be”
(a) If the instrument is payable to the order of a third person, he is
liable to the payee and to all subsequent parties. a. A person negotiating an instrument by delivery or by qualified indorsment
(b) If the instrument is payable to the order of the maker or drawer, warrants the genuineness of the note or bill negotiated, and that it is in all
or is payable to bearer, he is liable to all parties subsequent to the respects what it purports to be.
maker or drawer. b. The warranty of genuineness extends to all prior signatures, and if such
(c) If he signs for the accommodation of the payee, he is liable to all
signatures are forgeries, the party negotiating the instrument is liable
parties subsequent to the payee.
under his warranty.
Problem:
IRREGULAR INDORSER – An “irregular indorser” or “anomalous indorser” is one who
 A forged the signature of X as maker in a note payable to A or
indorses for some purpose other than to transfer the instrument. He is called an
order.

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 A negotiated it to B by indorsement in blank completed by Difference between the warranties of a person negotiating by delivery and those
delivery. of a person indorsing the instrument without recourse (Qualified Indorsment):
 B in turn delivered the instrument to C.
 A person negotiating by delivery and by a qualified indorsment have the
 X refused to pay C on the grounf that his signature was forged.
same warranties.
Can C hold B liable?  However, as expressly stated in Sec.65, when the negotiation is by delivery
Answer: C can hold B liable. When b negotiated the instrument, it came only, the warranties extend in favor of no holder other than the immediate
w the Warranty that the instrument is genuine and in all respects what transferee.
it purports to be.  Whereas the negotiation is by qualified indorsement, the warranties of the
person negotiating apply to all subsequent holders.
“(b) That he has a good title to it;” Warranties of a person negotiating Warranties of a person negotiating
a. This warranty is violated when the person negotiating the instrument does an instrument by delivery an instrument by qualified
indorsement
not have valid title to the instrument, for example, when the instrument
Extend only to the immediate Apply to all subsequent holders.
was merely stolen.
transferee

“(c) That all prior parties had capacity to contract;” PROBLEM

1. X made a note payable to A or bearer.
a. The person negotiating the instrument by delivery or by qualified 2. A delivered the note to B.
indorsement warrants that the antecedent parties are legally capable of 3. Instead of merely delivering the instrument, B indorsed it “to C
binding themselves in the capacities on which they have signed. or order”.
b. This the person negotiating by delivery or by qualified indorsement is liable 4. C indorsed it “To D”
if it turns out that a prior party is a corporation which has no power to 5. D delivered it without indorsement to E
execute a note or to indorse it, or that a prior party is a minor, because of
his warranty that all prior parties had capacity to contact. What are the liabilities of A, B, C, and D?
c. However, in the absence of misrepresentation or fraud, a person Answer:
negotiating by delivery or qualified indorsement does not warrant the  A will be liable only to B
solvency of the parties.  B shall be liable only to C and D
 C is also liable only to D
 D is liable to E
“(d) That he has no knowledge of any fact which would impair the validity of the  E cannot hold A liable
instrument or render it valueless.”
Answer: ????????? B will be liable to C and D but since this is a bearer
a. The person negotiating an instrument by delivery ot by qualified
instrument, B will not be liable to E under sec 40 because E didn’t get his
indorsement violates this fourth warranty if he has knowledge of any fact
title from Bs indorsement.
which would impair the validity of the instrument or renders it valueless,
and fraudulently conceals or withholds the same from the transferee.

PROBLEM

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1. X, an insolvent person, made a note payable to A or bearer. And in addition, he engages that, on due presentment, it shall be accepted
2. A indorsed the instrument without recourse to B. B also knew or paid, or both, as the case may be, according to its tenor, and that if it be
of the insolvency of X. dishonored and the necessary proceedings on dishonor be duly taken, he
3. B merely delivered the instrument to C, without indorsement. will pay the amount thereof to the holder or to any subsequent indorser
C did not know of the insolvency of X. who may be compelled to pay it.
4. C delivered the instrument to D.
5. When D could not obtain payment from X, D gave notice of The implied warranties under Sections 65 and 66 are founded on good faith and will
dishonor to A, B, and C. not apply when the transferee or the party relying on such warranties has
knowledge of defects in the instrument, and thus not in good faith. Stated another
Can D hold A, B, and C liable? way, the transferee’s knowledge of defects in the instrument negates the
Answer: application of the warranties as to such defects.
 A is liable to D
 B is not liable to D
 C is not liable to D.
“Every indorser who indorses without qualification, warrants to all subsequent
holders in due course” – the subsequent holder need not fulfill at the requisites of
Sec. 66. Liability of general indorser. - Every indorser who indorses a holder in due course, and hence the warranties of a general indorser extends as
without qualification, warrants to all subsequent holders in due course: well to all subsequent holders who have no knowledge of any breach of warranty at
(a) The matters and things mentioned in subdivisions (a), (b), and (c) of the time the instrument is indorsed to him.
the next preceding section; and
(b) That the instrument is, at the time of his indorsement, valid and Differences between the fourth warranties of a person negotiating by
subsisting; delivery and of a person negotiating by qualified indorsement.
Sec 65 (d) - That he has no Sec 66(b) – That the instrument is,
And, in addition, he engages that, on due presentment, it shall be knowledge of any fact which at the time of his indorsement,
accepted or paid, or both, as the case may be, according to its tenor, would impair the validity of the valid and subsisting
and that if it be dishonored and the necessary proceedings on dishonor instrument or render it valueless.
be duly taken, he will pay the amount thereof to the holder, or to any A person negotiating an On the other hand, knowledge on
subsequent indorser who may be compelled to pay it. instrument by delivery violates his the part of the general undorser of
fourth warranty if he has a fact affecting the validity of
knowledge of such fact and instrument is immaterial.
GENERAL INDORSER – A general indorser is one who indorses without qualification, withholds it from the transferee.
or every indorser other than the qualified indorser.
WARRANTIES of a general indorser – Every indorser who indorses without CASE: Allied Banking Corporation v, Lim Sio Wan, et. Al
qualification, warrants to all subsequent holders in due course:
a. That the instrument is genuine and in all respects what it purports to be; Sec. 67. Liability of indorser where paper negotiable by delivery. —
b. That he has a good title to it; Where a person places his indorsement on an instrument negotiable by
c. That all prior parties had capacity to contract; delivery, he incurs all the liability of an indorser.
d. That the instrument is, at the time of his indorsement, valid and subsisting.

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When an instrument that was originally payable to bearer instead of being dishonored.
negotiated by mere delivery, is indorsed specially, the liability of the person is that
of an indorser and not as a person negotiating by mere delivery. Against whom may D proceed?
 D may proceed against A, B, or C in any order he may choose.
a. If the person indorses specially, he is liable only to holders who make title  He may do so even without including X in the action as an
through his indorsement (sec. 40) immediate tight of recourse pertains to the holder against
b. If the person indorses without qualification, he incurs the liability of persons secondarily liable whenever the instrument is
general indorser. dishonored (Sec. 84; Sec. 151)
Sec. 68. Order in which indorsers are liable. - As respect one another, In case B pays D, from whom can B collect the amount paid.
indorsers are liable prima facie in the order in which they indorse; but
 In case B paid D the amount of the note, B can collect from A,
evidence is admissible to show that, as between or among themselves,
but he cannot proceed against C because as respects one
they have agreed otherwise. Joint payees or joint indorsees who
another, inorsers are liable in the order which they indorse.
indorse are deemed to indorse jointly and severally.
 It means that an indorser may hold a prior indorser liable but
not an indorser subsequent to him.
Order in which indorsers are liable
The first phrase of sec. 68 means that each indorser is liable to all suceeding Sec. 69. Liability of an agent or broker. - Where a broker or other agent
indorsers, but not to preceding ones. negotiates an instrument without indorsement, he incurs all the
liabilities prescribed by Section Sixty-five of this Act, unless he discloses
 However, the order of indorsement establishes only a prima facie order of the name of his principal and the fact that he is acting only as agent.
liability among indorsers, and evidence is admissible to show that as
between or among themselves, they have agreed otherwise.
Relate this to Section 20 regarding the liability of a person signing as an agent.
Order of liability of the indorsers insofar as the HOLDER is concerned.
 As far as the holder is concerned, once the instrument is dishonored and
notice of dishonor is given, the indorsers are liable in aby order that the
holder may choose.
 The holder may even prefer to collect from any of the indorsers instead of
collecting from the maker or acceptro.
 The reason is that “when the instrument is dishonored by nonpayment, an
immediate right of recourse to all parties secondarily liable thereon
accrues to the holder.” (Sec. 84)
 The same princuple applies when the instrument is dishonored by non
acceptance, that is “an immediate right of recourse against the drawe and
indorsers accrues to the holder and no presentment and no presentment
for payment is necessary.” (sec. 151)
Examples: X made a note payable to A or or der. A indorsed it to B, B to
C and C to D. D presented the note to X for payment but it was
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 This is because presentment is required to be made to the person primarily
liable on the instrument (sec. 72) and thus such person is the one who
dishonored the instrument.
 Having dishonored the instrument, the person primarily liable need not be
given notice of dishonor.

Purpose of notice of dishonor – the purpose of the notice of dishonor is:

a. To inform the party notified that the paper has been dishonored and that
he is expected to make payment;
b. To enable the party notified to protect his rights against others who are
prior to him on the instrument; and
c. To give the party notified an opportunity to discharge it before an action is
instituted to enforce payment of the instrument, with consequent cost.

(Next provisions no slides) Effect of failure to give notice of dishonor

NOTICE OF DISHONOR  The failure to give notice of dishonor operates to discharge any drawer or
indorser to whom such notice was not given.
Sec. 89. To whom notice of dishonor must be given. - Except as herein
otherwise provided, when a negotiable instrument has been dishonored  If the holder gives notice to only one(1) indorser, the others will be
by non-acceptance or non-payment, notice of dishonor must be given to discharged from liability.
the drawer and to each indorser, and any drawer or indorser to whom
such notice is not given is discharged.
A stable check may still be evidence of indebtedness of the drawer

NOTICE OF DISHONOR  The fact that a check has become stale does not mean that the drawer is
discharged form liability thereon; it merely means that the negotiability
a. Bringing to the knowledge of the DRAWER or INDORSER of the instrument,
ceases.
either verbally or in writing, the fact that a specified instrument, upon
 The stale check remains an evidence of indebtedness and if such debt has
proceedings taken, has not been accepted or has not been paid, and that
not been paid, the debtor may still be liable for payment of such debt.
the party notified of the dishonor or non-acceptance, is expected to pay it.
b. Under BP 22, the notice of dishonor must be in writing. Verbal notice is not Sec. 90. By whom given. - The notice may be given by or on behalf of the
effective. holder, or by or on behalf of any party to the instrument who might be
compelled to pay it to the holder, and who, upon taking it up, would
have a right to reimbursement from the party to whom the notice is
Notice of dishonor is not necessary to hold parties primarily liable, such as the given.
maker of a note or the acceptor of a bill.

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The notice of dishonor may be given by:  D indorsed the note to E, the holder
 E presented the note to A for payment, who dishonors the note
1. The holder;
 E gave notice of dishonor to B,C, and D.
2. Someone acting on behalf of the holder;
 E indorsed the note to F.
3. Any party to the instrument:
a. Who might be compelled to pay it to the holder, and May F hold B, C, and D liable even if F himself fif not give notice of
b. Who upon taking it up, would have the right to reimburse from dishonor?
the party to whom notice is given;
4. Someone acting on behalf of such party. Suppose C paid F, will the notice of dishonor given by E to B and D
inure to the benefit of C?
PROBLEM: a. The notice of honor given by the holder € inures to the benefit
 X issued a promissory note “payable to A or order” of prior parties who have a right of recourse against the party
 A indorsed the note to B. to whom notice is given.
 B indorsed the note to C. b. Hence, notice given by E to B inures to the benefit of C.
 C indorsed the note to D, the Holder. c. But the notice given to D does not inure to the benefit of C.
 D presented the note to C for payment who dishonors the
note.

Who may give notice of dishonor? Sec. 93. Effect where notice is given by party entitled thereto. - Where
D, the holder or anyone acting on his behalf may give notice of dishonor notice is given by or on behalf of a party entitled to give notice, it inures
to any one of the indorsers to the benefit of the holder and all parties subsequent to the party to
whom notice is given.
If D gave notice to dishonor B, who else can give notice of dishonor?
B may give notice of dishonor to A. B cannot give notice of dishonor to
PROBLEM:
C. C is not entitled to give notice of dishonor.
 A issued a promissory note “payable to B or order”
 B indorsed the note to C.
Sec. 91. Notice given by agent. - Notice of dishonor may be given by any  C indorsed the note to D.
agent either in his own name or in the name of any party entitled to  D indorsed the note to E, the holder.
given notice, whether that party be his principal or not.  E gave notice of dishonor to C only.
 C in turn, gave notice of dishonor to B.
Sec. 92. Effect of notice on behalf of holder. - Where notice is given by May holder E hold B liable?
or on behalf of the holder, it inures to the benefit of all subsequent Yes because the notice of dishonor given by C to B inures to the benefit
holders and all prior parties who have a right of recourse against the of the holder.
party to whom it is given.
Suppose D waived notice of dishonor and voluntarily pays E, may D
PROBLEM: hold B liable?
 A issued a promissory note “payable to B or order” Yes/ D may hold B liable... Because the notice C gives to B inures to
 B indorsed the note to C benefit of all the parties subsequent to whom notice was given
 C indorsed the note to D
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Sec. 97. To whom notice may be given. - Notice of dishonor may be
given either to the party himself or to his agent in that behalf.
Sec. 94. When agent may give notice. - Where the instrument has been
dishonored in the hands of an agent, he may either himself give notice
to the parties liable thereon, or he may give notice to his principal. If he If the notice of dishonor is given to an AGENT, it must be shown that it was within
gives notice to his principal, he must do so within the same time as if he the scope of the Agent’s authority to receive notice of dishonor.
were the holder, and the principal, upon the receipt of such notice, has
himself the same time for giving notice as if the agent had been an
independent holder. Difference between the authority of the Agent to give notice of dishonor and his
authority to receive notice of dishonor.
Sec. 95. When notice sufficient. - A written notice need not be signed
and an insufficient written notice may be supplemented and validated Giving notice of dishonor Receiving notice of dishonor
by verbal communication. A misdescription of the instrument does not When notice of dishonor is given Creates liability on the part of the
vitiate the notice unless the party to whom the notice is given is in fact by an Agent, such notice is Principal.
misled thereby. effective whether the Agent was
authorized to give notice or not, or
whether that party be his principal
Sec. 96. Form of notice. - The notice may be in writing or merely oral
or not (sec. 91)
and may be given in any terms which sufficiently identify the
instrument, and indicate that it has been dishonored by non-acceptance
or non-payment. It may in all cases be given by delivering it personally Sec. 98. Notice where party is dead. - When any party is dead and his
or through the mails. death is known to the party giving notice, the notice must be given to a
personal representative, if there be one, and if with reasonable
diligence, he can be found. If there be no personal representative,
The Notice of Dishonor may either be written or merely oral. But in either case
notice may be sent to the last residence or last place of business of the
should sufficiently identify the instrument and indicate that it has been dishonored deceased.
by non-acceptance or non-payment.
Written notice of dishonor Oral notice of dishonor Sec. 99. Notice to partners. - Where the parties to be notified are
partners, notice to any one partner is notice to the firm, even though
May be delivered personally or May be made by telephone or by
there has been a dissolution.
through registered mail, so that verbally informing the person
there will be evidence of receipt entitled to be given NOD of the
thereof. dishonor of the instrument. Sec. 100. Notice to persons jointly liable. - Notice to joint persons who
are not partners must be given to each of them unless one of them has
For the purposes of Batasang Pambansa Bilang 22, the notice of dishonor of the authority to receive such notice for the others.
CHECK must always be in writing, and an oral notice is insufficient.
 Pursuant to Section 78, presentment must be given to all persons, not
 The written notice of dishonor should clearly identify the chech number,
partners, primarily liable on the instrument, where no place of payment is
date, and amount, and should indicate the reason for dishonor. It should
specified, whether or not they signed the instrument jointly, or jointly and
be sent to and received by the drawer of the dishonored check. Otherwise,
severally.
the drawer may not be held criminally liable therefor.

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 Pursuant to Section 100, the notice of dishonor may be sent to all of the
persons jointly liable, unless one of them has authority to revive the notice
for the others.
 Hence, if only one of such joint parties is notified, all of them are
discharged.
Sec. 101. Notice to bankrupt. - Where a party has been adjudged a
bankrupt or an insolvent, or has made an assignment for the benefit of
creditors, notice may be given either to the party himself or to his
trustee or assignee.

Sec. 102. Time within which notice must be given. - Notice may be given
as soon as the instrument is dishonored and, unless delay is excused as
hereinafter provided, must be given within the time fixed by this Act.

Notice given before the instrument becomes due is premature.

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DISCHARGE OF NEGOTIABLE INSTRUMENTS

119 gives instances when NI is discharged.
 First by payment in due course by principal debtor.
o Payment in general. Essentially, payment is discharge of a debt in
MONEY.
o Delivery of a NI or a check will not operate as payment, nor will it
discharge the obligation.
 Payment is made in accommodation
 By intentional cancellation by the holder
o What do we mean by to cancel? To annul, destroy, set aside, void
the instrument.
Discharge can only be made by the holder or his authorized representative. This
also implies that the holder intends such cancellation.
Any other act that will discharge…. … … art. 1231 NCC
When principal debtor becomes holder of the instrument in his own right

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When the instrument in 121 is paid by the party accommodated, said party
becomes the principal debtor. The effect is that it amounts to a discharge of the
instrument.
122. renunciation. Requisites: must be express. Must be absolute and
unconditional. Must be made at or after maturity of the instrument. Must be in
writing. Unless instrument is delivered to person primarily liablie
123. cancellation made unintentionally. Without authority of the holder. Not
discharge.
124 Altered instrument. Alterations are either material or immaterial.

Remember what tender of payment is under oblicon. It is the manifestation by the

d to the c of this desire to fulfill the obligation. It also means to offer to pay in lawful
currency.
Again. Check not valid unless C accepts it.
Remember tender of payment under the NIL (SEC 70)

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