ATENEO LAW SCHOOL COMMERCIAL LAW REVIEW NEGOTIABLE INSTRUMENTS LAW I. NATURE AND COVERAGE A.

NEGOTIABLE INSTRUMENTS LAW (NIL) A COMPLETE LAW 1. General Rule - "NIL applies only to negotiable instruments (NI) and covers the entire subject of Nl and must be treated as a complete body of law upon the subject and controlling in all cases to which it is applicable." 2. Exception - Arts. 443 to 556, Code of Commerce (CoC): provisions on crossed-checks B. FUNCTION 1. General Rule - Sec. 63, New Central Bank Act (NCBA): NI are meant to be substitutes for money, but are nevertheless not legal tender; hence, option to accept NI as payment is with creditor; even cashier's or manager's check does not extinguish obligation if not accepted (although there are vacillating rulings). 2. Exceptions a. Sec, 60 NCBA: Check which has been cleared and credited to creditor's account shall be equivalent to delivery of cash to creditor. b. Art. 1249, Civil Code: NI shall produce effect of payment when they have been encashed; or through the fault of the creditor they have been impaired. Exception: unreasonable delay in presenting check for payment (letting check go stale) due to fault of payee, but is not equal to dishonor. C. PRINCIPAL FEATURES OF NI 1. Negotiability 2. Accumulation of secondary contracts: distinguish negotiation from assignment 3. Person primarily protected - Sec. 52: Holder In Due Course (HIDC) ATTY. ALEXANDER C. DY 2ND SEMESTER, SY 2012-2013

D. SPECIFIC INSTRUMENTS COVERED 1. Promissory Note (PN) - Sec. 184 2. Bill of Exchange (BoE) - Sec. 126 3. Check - Sec. 185 II. FORMAL REQUISITES OF NEGOTIABLE INSTRUMENTS A. IT MUST BE IN WRITING - Sec. 1(a) 1. Why In Writing: otherwise, nothing to negotiate; to prevent fraud 2. "Physical Integrity of Whole Instrument" Rule - negotiability determined only from face of NI itself and not elsewhere. 3. When Terms Sufficient - Sec. 10 B. IT MUST BE SIGNED BY MAKER OR DRAWER - Sec. 1 (a) 1. Why: consent is necessary to bind party - Sec. 18 2. Form: any inscription; may be printed, typewritten, stamped, engraved, photographed, lithographed, etc. 3. Location: not material; may even be found in body of the instrument 4. Trade or assumed name - Sec. 18 5. By agent - Sees. 19 to 21 C. IT MUST CONTAIN AN UNCONDITIONAL PROMISE OR ORDER - Sec. 1(b) 1. Why: to ensure that it takes the place of money; must be express in the NI, as mere existence of debt does not amount to a promise. 2. Form: a. no specific words required; "Good for" or "Due" or "I will pay" are sufficient b. words of courtesy not inconsistent with unconditional promise or order to pay ("X will oblige Y by paying") does not affect negotiability; but mere request or authorization to pay not enough c. mere acknowledgment of debt is not promise to pay, except if: i. date of payment is mentioned ("payable on") ii. words of negotiability used ("Due to X or order)

3. Nature of condition a. If NI is payable upon a contingency (if it rains"), it not negotiable, and the happening of the event does not cure the defect - Sec. 4 b. If obligation subject to a period (10 days after X dies) even if the exact date not known, it is negotiable - Sec. 4(c) c. Note: If condition is imposed on an indorsement, it does not destroy the negotiability of the instrument - Sec. 39 4. When promise is unconditional - Sec. 3: NI still unconditional even if order or promise to pay is coupled with: a. An indication of particular fund out of which reimbursement is to be made or a particular account to be debited with the amount. Example: check b. A statement of the transaction which gives rise to the NI. 5. When not negotiable a. If order or promise to pay out of a particular fund is not unconditionalSec. 3(b) - Example: treasury warrant b. If reference to transaction which gives rise to the NI subjects the NI to the conditions of such agreement, it is not negotiable. c. If NI contains an order or promise to do any act in addition to the payrnent of money is not negotiable Sec. 5 6. Additional provisions not affecting negotiability - Sec. 5: But nothing in this section shall validate provision or stipulation otherwise illegal a. Authorizes the sale of collateral securities in case the NI be not paid at maturity; b. Authorizes the confession of judgment if the NI be not paid at maturity; c. Waives the benefit of any law intended for the advantage or protection of the obligor d. Gives the holder an election to require something to be done in lieu of payment of money.

D. TO PAY A SUM CERTAIN IN MONEY - Sec. 1(b) 1. Why: NI is meant to be a substitute for money 2. What constitutes certainty as to sum - Sec. 2: Negotiable even if: a. With interest; b. By stated installments; c. By stated installments, with a provision that, upon default in payment of any installment or of interest, the whole shall become due; or d. With exchange, whether at a fixed rate or at the current rate; or e. With costs of collection or any attorney's fees, in case payment shall not be made at maturity. f. Designates a particular kind of current money in which payment is to be made - Sec. 6(e) E. IT MUST BE PAYABLE ON DEMAND OR AT A FIXED OR DETERMINATE FUTURE TIME- Sec. 1 (c) 1. Why: so people will know when instrument is due (or already overdue) 2. When Payable on Demand - Sec. 7 a. When it is so expressed to be payable on demand, or at sight, or on presentation; or b. In which no time for payment is expressed: (silent as to when payable) c. Note: Where an instrument is issued, accepted, or indorsed when overdue) it is, as regards the person so issuing, accepting, or indorsing it, payable on demand. 3. When Payable at a Determinable Future Time - Sec. 4 a. Payable at a fixed period after date or sight;. b. Payable on or before a fixed or determinable future time specified, therein; or c. On or before a fixed period after tile occurrence of a specified event which is certain to happen, though the time of happening be uncertain.

4. When Not Negotiable a. "On or before" a fixed date or determinable future time scenarios: i. If it contains acceleration clause due to non-payment of installments: negotiable Sec. 2(c) ii. If it contains a clause that if the holder feels insecure, he can ask the maker to put UP additional securities, failing which, holder can accelerate the date of maturity TWO (2) views: (a) not negotiable because date of maturity uncertain (b) negotiable because undertaking to put up a security is merely an accessory obligation and is within the control of the maker - better view iii. If it contains a clause that if a holder feels insecure, he can accelerate the date of maturity - Two (2) views (a) not negotiable because date of maturity uncertain; since option to pay on or before should be with maker, here it is within the control of the holder - better view (b) negotiable since it still qualifies as "on or before" b. Before the occurrence of a specified event which is certain to happen, not negotiable because the date of maturity can be determined only after the note has become overdue c. Payable upon a contingency, not negotiable - Sec. 4; Example: postal money order, because while "pay to the order of', bureau of posts may refuse to pay on numerous grounds, therefore,not unconditional d. "When my means permit me to do so" although by law will constitute a period (Art. 1180, Civil Code), still not negotiable since the courts will have to fix the period. (Art. 1197, Civil Code). F. IT MUST BE PAYABLE TO ORDER OR TO BEARER- Sec. 1(d) 1.Why: so instrument will be negotiable 2. When Payable to Order - Sec. 8 a. Where it is drawn payable to the order of a specified person or to him or his order. It may be drawn payable to the order of: i. Payee who is not maker, drawer, or drawee; ii. Drawer or maker; Note: If PN payable to maker, NI not complete until he indorses it - Sec. 184; iii. Drawee; iv. Two or mre payees jointly;

v. One or sorneljof several payees; or vi. The holder of an office for the time being b. Payee must be named or otherwise indicated therein with reasonable certainty. Example: Equitable Banking Corp. v. lAC, 161 SeRA 518 (1988) - "Equitable Banking Corporation order of NC of Caville Enterprise, Inc." - negotiable, but ambiguity will be construed against person who caused it (Art. 1377, Civil Code) 3. When Payable to Bearer - Sec. 9 a. Bearer: Definition - Sec. 191 b. NI is payable to bearer when: i. It is expressed to be so payable. Example: "bearer', "holder" ii. It js payable to a person named therein or bearer. Example: Not negotiable, "X or his collector", "X or his agent", "Bearer X" iii. It is payable to the order of a fictitious or non-existing person, and such fact was known to the person making it so payable. Note: What is controlling is not whether the payee exists, but whether the person issuing intended to issue NI to such payee. iv. The name of the payee does not purport to be the name of any person. Example: "cash" v. The only or last indorsement is an indorsement in blank - See Sees. 34 and 35 4. Importance of Distinction: How NI Negotiated - Sec. 30 a. Payable to Order - indorsement and delivery b. Payable to Bearer - delivery G. IF NI IS A BILL OF EXCHANGE. DRAWEE MUST BE NAMED OR OTHERWISE INDICATED THEREIN WITH REASONABLE CERTAINTY - Sec.1(e) 1. Why: to determine to whom BoE shall be .presented for acceptance/payment 2. If blank: may be filled in - See Sec. 14

H. RULES OF INTERPRETATION 1. When Terms Sufficient - Sec. 10: NI need not follow language of NIL, but any terms are sufficient which clearly indicate an intention to conform to the requirements of NIL 2. Provisions Not Affecting Negotiability - Sec. 5 3. Omissions, Etc. - Sec. 6: Validity of Nl not affected by following: a. It is not dated. Considered dated as of time issued - Sec. 17(c) b. It does not specify value given. Presumed consideration - Sec. 24 c. It does specify place where drawn or place where payable. Rules: address given in NI; usual business/residence address; where found/last known business/residence address - Sec. 73 d. It bears a seal. e. It designates a particular currency in which payment is to be made. 4. Construction Where Instrument Ambiguous - Sec. 17 a. Sum expressed in words prevail over sum expressed in numbers, except if words are ambiguous. b. Interest stipulated, but not starting date, interest runs from date of Nl or, if undated, from issue thereof. c. Undated NI considered dated as of time issued, d. Written provisions prevail over printed provisions. e. If NI ambiguous whether PN or BoE, holder may treat is as either. f. If capacity of signatory not clear, deemed an indorser. g. "I promise to pay" signed by 2 or more, deemed joint and solidary.

III. ISSUANCE OF NEGOTIABLE INSTRUMENTS (COMPLETION AND DELIVERY) A. DEFINITIONS 1. Issuance - Sec. 191: first delivery of the NI, complete in form, to a person who takes it as a holder 2. Delivery - Sec. 191: transfer of possession, actual or constructive, from one person to another; Note: delivery must be for the purpose of giving effect thereto

B. COMPLETENESS 1. Why - Sec. 1: Necessary to conform to formal requirements to be negotiable 2. Requisites - See Sec. 1 and discussions under Item II above 3. Date a. Importance: When necessary (but not to make NI negotiable) i. to determine maturity ii. to determine when interest is to run ii. to determine whether party acted within a reasonable time (a) Sec. 53: If NI payable on demand is negotiated unreasonable time after issue, holder is not deemed HIDC (b) Sec. 71: If NI is payable on demand, presentment must be made within reasonable time after issue, except if BoE, then presentment for payment is sufficient if made within a reasonable time after last negotiation. iv. to determine prescription of cause of action b. Dated i. Presumption - Sec. 11: If NI, acceptance, or any indorsement is dated, such date is deemed prima facie to be the true date of making, drawing, acceptance, indorsement. Note: presumption is prima facie only, therefore rebuttable. ii. Ante-dated and post-dated - Sec. 12 (a) General rule: NI not invalid for the reason only that it is antedated or post-dated (b) Exception: if done of an illegal or fraudulent purpose. Does not affect HIDC by implication of Sec. 13 (PD). Example: To circumvent Usury Law (no longer in force). (c) When title to NI acquired: as of date of delivery to him c. Undated i. Validity not affected - Sec. 6(a) ii. Considered dated at time it was issued - Sec. 17(c) iii. When date may be inserted - Sec. 13: (a) Where NI is expressed to be payable at a fixed period after date (b) Where acceptance of NI payable at a fixed period after sight

iv. Effect of insertion of date - Sec. 13: (a) NI shall be payable accordingly (b) If wrong date inserted. does not avoid the instrument in the hands of HIDC, but as to him, the date so inserted is to be regarded as the true date (Personal Defense [PD]) (c) If wrong date. avoids NI as to person inserting wrong date 4. Blanks - Sec. 14 a. When blanks may be filled i. If NI is wanting in material particular, person in possession has prima facie authority to complete it by filling up the blanks. (a) Omissions which will render instrument non-negotiable name of payee, name of drawer (b) Omissions which will not render instrument non-negotiable date, place of payment, rate of of interest ii. If signature on blank paper is delivered by a person making the signature in order that paper may be converted into NI, it operates as a prima facie authority to fill it up as such for any amount. Example: "blank check" b. Requisites for filling up blanks: NI must be filled up: i. strictly in accordance with the authority given; and ii. within a reasonable time - Sec. 193: reasonableness based on nature of NI, usage of trade or business, facts c. Effect of want of authority: NI may be enforced against person who became party to NI prior to its completion (not even to extent of authority given), except if NI, after completion, is negotiated to HIDC, then it is valid and effectual for all purposes in his hands. C. DELIVERY 1. Why - Sec. 16: Every contract on a NI is incomplete and revocable until delivery of the NI for purpose of giving effect thereto 2. Requisites for effective delivery - Sec. 16 a. Must be made either by or done under authority of party making, drawing, accepting, or indorsing b. Must be for the purpose of transferring to the property in the NI, and not conditional or for a special purpose only (e.g. safekeeping or collection)

3. Presumption of Valid and Intentional Delivery - Sec. 16 a. If NI is no longer in possession of party whose signature appears thereon - prima facie presumption, but subject to rebuttal b. As between immediate parties and a remote party other than HIDC - prima facie presumption, but subject to rebuttal. Note: broad meaning of "immediate parties", i.e., privity (knowledge) not proximity c. If NI in hands of HIDC - conclusive presumption, by all parties prior to him so as to make them liable to him . d. If NI is incomplete and undelivered, presumption will not apply - Sec. 15: NI will not, if completed and negotiated without authority, be valid in hands of any holder as against any person whose signature was placed thereon before delivery D. CASES OF DEFECTIVE ISSUANCE 1. Incomplete but Delivered NI - Sec. 14 (PD) 2. Incomplete and Undelivered NI-- Sec. 15 (Real Defense [RD]) 3. Complete but Undelivered NI- Sec. 16 (PD) IV. SIGNATURE AND FORGERY A. RULES ON SIGNATORIES 1. General Rule Sec. 18; No person is liable on the instrument whose signature does not appear thereon 2. Exceptions a. Person signing in trade or assumed name - Sec. 18 b. Agent signing for principal Secs. 19-21 c. Signature appears on paper from NI(allonge) i. Sec. 134 - acceptance of BoE on a separate piece of paper ii. Sec. 135 - unconditional written promise in advance to accept BoE before it is drawn d. Forger - Sec. 23 e. Estoppel - Sec. 23 f. If NI can be negotiated by mere (delivery) - Sec. 65

3. Rules on Signature of Agent a. To be valid i. Must be duly authorized (no form necessary) Sec 19. But if signature by procruration, agent has limited authority- Sec. 21 ii. Must indicate that he is signing as agent - Sec. 20 iii. Must indicate his principal- Sec. 20 b. Want of authority of agent i. General Rule: principal not bound beyond authority of agent (RD) ii. Exception: if agent has apparent authority (PD) 4. Rules for Incapacitated - Sec. 22: Indorsement or assignment by corporation or infant passes the property therein;notwithstanding that, from want of capacity, corporation or infant not liable thereon a. Corporation (ultra vires) i. Absolutely prohibited by its charter or statute from issuing any commercial paper under any circumstances - Sec. 22 (RD) ii. Has power to issue NI but issuance was not authorized for the particular purpose for which it was issued (PD) b. Minority i. General Rule: minor not liable (RD) - Sec. 22 ii. Exceptions: (a) Active misrepresentation (estoppel) (b) Retention of fruits and benefits ( c) Ratification c. Other incapacity i. Insanity where the insane person has a guardian appointed by the court (RD) - Sec. 22 by analogy ii. Insanity where there is no notice of insanity (PD) iii. Intoxication (PD)

B. FORGERY 1. Definition and Coverage a. Forgery - counterfeit making or fraudulent alteration of any writing i. If signature is forged or made without authority of person whose signature it purports to be (RD) - Sec. 23 ii. If forgery consists of alteration other than signature - Sec. 124 b. Fraud i. Fraud in factum and in esse contractus (RD) Sec 23 : amounts to forgery since no intent to issue NI (e.g., autograph) ii. Fraud in inducement (PD) - Sec. 55: does not amount to forgery since there is no intent to issue NI, although defrauded c. Duress amounting to forgery i. Duress amounting to forgery (R9f- See: 2)3: amounts to forgery since no intent to sign NI (e.g. hand forced) ii. Ordinary duress, force or fear (PD) - Sec. 55: does not amount to _forgery since intent to sign NI (e.g. hand forced) d. Fraudulent impersonation i. If intent is to pay the real person (RD) - Sec. 23: because signature of impostor is forgery ii. If intent is to pay the person he is dealing with - Sec. 18: not forgery since impostor will be merely signing in assumed name. 2. Effect of Forgery a. General Rule - Sec. 23: When signature is forged or made without authority of person whose signature it purports to be, it (the forged signature, not the NI) is wholly inoperative. Therefore, there is no, right to: i. Retain the NI ii. Give a discharge therefor iii. Enforce payment thereof against any party thereto can be acquired through or under such signature. b. Exception - Sec. 23: Unless party against whom it is sought to enforce such right is precluded from setting up the forgery or want of authority, namely:

i. Contrary to warranty: Those who warrant or admit the genuineness of the signature in question: (a) Acceptor - Sec. 62(a): admits existence of drawer and genuineness of his signature (b) Person negotiating by delivery or by qualified indorsement Sec. 65(a): warrants that NI is genuine and in all respects what it purports to be (c) General Indorser - Sec. 66(a): warrants the matters and things mentioned in Sec. 65(a) ii. Guilty of negligence: Those who by their acts, silence or negligence are estopped from setting up the defense of forgery iii. Forged signature unnecessary: When forged signature is unnecessary to the title of the holder as when the indorsement is forged on a NI payable to bearer Sec. 40: NI may nevertheless be further negotiated by delivery 4. Cases of Forgery a. PNs i. Indorsement on NI (a) Payable to order (b) Payable to bearer ii. Maker's signature b. BoEs i. Indorsement on NI (a) Payable to order (b) Payable to bearer ii. Drawes signature (a) With acceptance by drawee (b) Without acceptance but the BoE is paid by drawee

C. ALTERATION 1. Definition and Coverage - Sec. 125 a. In general: any change in or addition to a NI b. When Material: If it alters the effect of the NI, such as' change in: i. The date; ii. The sum payable, either for principal or interest; iii. The time or place of payment; iv. The number or the relation of the parties; v. The medium or currency in which payment is to be made; vi. Adds a place of payment where no place of payment IS specified; or vi. Any other change or addition which alters the effect of the instrument in any respect, c. When not Material: If it does not alter the effect of the NI Example: change in serial number of check d. No distinction between fraudulent and innocent alterations. 2. Effect of Material Alteration - Sec. 124 a. General Rule: Where NI is materially altered without asset of all parties liable thereon, it is avoided (RD) b. Exceptions: NI may be enforced against: i. A party who has himself made, authorized or assented to the alteration; and ii. Subsequent indorsers. c. Rule for HIDC: If materially-altered NI is in hands of HIDC not party to alteration, HIDC may enforce payment thereof according to the original tenor:

V. CONSIDERATION A. CONSIDERATION 1.Definitions a. Value - Sec. 191: value means "valuable consideration" (could be obligation to give; to do, or not to do; but not liberality) b. What constitutes value - Sec. 25: Value is any consideration sufficient to support a simple contract. An antecedent or pre-existing debt constitutes value; and is deemed as such whether the instrument is payable on demand or at a future time. 2. Importance: The four fundamental contracts of making, drawing, accepting and indorsing must be supported by valuable consideration. 3. Prima Facie Presumptions - Sec. 24 a. Every NI is deemed prima fade to have been issued for valuable consideration b. Every person whose signature appears thereon is deemed prima facie to have become a party thereto for value .. 4. Effects of Absence or Failure of Consideration (PD) - Sec. 28 a. Absence or failure is a defense as against any person not a HIDC b. Partial failure of consideration is a defense pro tanto, whether the failure is an ascertained and liquidated amount or otherwise. B. HOLDER FOR VALUE (HFV) 1. Who is a HFV - one who gives valuable consideration for a NI issued or negotiated to him. 2. Who is deemed HFV - Sec. 26: Where value has at any time been given for the NI, the holder is deemed a HFV in respect to all parties who become such prior to that time. " 3. Extent - Sec. 27: Where the holder has a lien on the Nl arising either from contractor by implication of law, he is deemed a HFV to the extent of hisl1eri: r . '. Importance Sec. 52(c): To be HIDe, a holder who took the NI for value. Sec. 29: Accommodation party liable to HFV, notwithstanding knowledge of HFV of such fact.

C. ACCOMMODATION PARTY 1. Who is accommodation party - Sec. 29: One who has signed the NI as maker, drawer, acceptor, or indorser, without receiving value therefor and for the purpose of lending his name to some other person. 2. Liability of accommodation party - Sec. 29: Accommodation party is liable on NI to a HFV, not withstanding that such HFV, at the time of taking the instrument, knew him to be only an accommodation party.

VI. NEGOTIATION A. CONCEPT OF NEGOTIATION 1. Definition - Sec. 30: when NI is transferred from one person to another in such manner as to constitute transferee as holder thereof 2. Three Types of Transfer a. By Assignment - Asignee is merely placed in position of assignor and acquires the instrument subject to all the defenses that might have been set up against the original payee. b. By Operation of Law - such as by succession. by insolvency. c. By Negotiation 3. Methods of Negotiation - Sec. 30 a. If NI payable to bearer, by delivery b. If NI payable to order, by indorsement of holder and by delivery B. INDORSEMENT 1. Requisites a. Indorsement (signature of indorser, without additional words, is sufficient) must be written on NI itself or upon a paper attached thereto - Sec. 31 b. Indorsement must be of entire NI - Sec. 32 i. Application: Indorsement which purports to transfer to the indorsee a part only of the amount payable or which purports to transfer the NI to two (2) or more indorsees severally, does not operate as negotiation of the NI. ii. Exception: Where NI has been paid in part, it may be indorsed as to the residue. .

17 2. Importance a. Creates liability on the part of indorser i. Irregular Indorser - Sec. 64 ii. Qualified Indorser - Sec. 65 iii. General Indorser - Sec. 66 iv. Indorser if Nl negotiable by delivery - Sec. 67 b. Necessary for valid negotiatior of NI payable to order Secs. 30 and 49 3. Indorsement of NI Payable to Bearer - Sec. 40: NI may nevertheless be further negotiated by delivery, but the person indorsing specially is liable as indorser to only such holders as make title through his indorsement. 4. Effect of Transfer Wlthout Indorsement - Sec. 49 a. Transferee acquires only rights of the transferor; defenses available against transferor will also be available against transferee b. Transferee has right to require transferor to indorse the NI c. Time for determining whether transferee is HIDC is as of time of actual indorsement, not at time of delivery

5. Kinds of Indorsement - Sec. 33 a, Special i. How made - Sec. 34: specifies the person to whom, or to whose order, the instrument the NI is payable ii. Effect - Sec. 34: indorsement of indorsee is necessary for further negotiation ofthe NI b. Blank i. How made - Sec. 34: specifies no indorsee ii. Effect - Sec. 34: payable to bearer, may negotiate by delivery. iii. How changed to special indorsement - Sec. 35: by writing over signature of indorser in blank any contract consistent with character of indorsement

18 c. Restrictive I. How made - Sec. 36: (a) Prohibits further negotiation of NI (mere absence of words on power to negotiate is not restrictive). Example: "Pay to X only" (b) Constitutes indorsee as indorser's agent. Example: "Pay to X as agent" (c) Vests title in indorsee in trust for or to use of other persons. "Pay to X as trustee" ii. Effects - Sec. 37: (a) Restrictive indorsement confers upon indorsee right to: (1) Receive payment of NI (2) Bring any action thereon that indorser can bring (3)Transfer his rights as such indorsee, where form of indorsement auttlorizes him to do so. (d) All subsequent indorsees acquire only title of first indorsee under restrictive indorsement d. Qualified i. How made Sec. 38: By adding to indorser's signature words "without recourse" or other words of similar import (without resort to a person secondarily liable after default of person primarily liable) ii. Effects - Sec. 38 (a) Constitutes indorser a mere assignor of title to the NI; hence, limited liability (but still subject to certain warranties) - Sec. 65 (b) Does not impair negotiable character of NI e. Conditional i. ii. How made - By making indorsement subject to a.conclition Effects - Sec. 39 (a) Party required to pay NI may disregard condition and make payment to indorseee or his transferee whether condition has been fulfilled or not (b) But any person to whom NI so indorsed is negotiated will hold NI, or proceeds thereof, subject to the fights of person indorsing conditionally

19 6. Other Rules on Indorsements a. Payable to two (2) or more payees (who are not partners) - Sec. 41: All must indorse unless the one indorsing is authorized by others b. Payable to "cashier" {or other fiscal officer of bank or corporation) Sec. 42 i. ii. NI deemed prima facie to be payable to bank or corporation of which he is such officer NI may be negotiated by either indorsement of bank or corporation or indorsement of officer

c. Misspelling or wrong designation of payee - Sec. 43: Payee may indorse NI adding, if he deems fit, proper signature d. Representative capacity - Sec. 44: If person under obligation to indorse in representative capacity, he may indorse in such terms as to negative personal liability. e. Time of indorsement Sec. 45 i. Importance: to determine if HIDC Sec. 52(b) ii. Presumption: Every negotiation is deemed prima facie to have been effected before NI was overdue iii. Exception: where indorsement bears date after maturity of NI f.Place of inrosement Sec. 46 i. Importance: to determine governing law ii. Presumption: every indorsement is deemed prima facie to have been made at place where NI is dated iii. Exception: Where contrary appears 7. Striking Out Indorsements - Sec. 48 a. How: Holder may at any time strike out any indorsement which is not necessary to his title. b. Effect: Indorser whose indorsement is struck out, and all indorsers subsequent to him, are thereby relieved from liability on the NI. C. DELIVERY - See Discussions under Item III.C above

1.

20 D. COMMON PROVISIONS 1. Continuation of Negotiable Character - Sec. 47: An instrument negotiable in its origin continues to be negotiable until it is: a. Restrictively indorsed (but only if it prohibits further negotiation) -- Sec. 36(a); or b. Discharged by payment or otherwise. c. What about after maturity? - Two (2) views: i. ceases after maturity ii. negotiability continues after maturity: better view, except that a transferee who takes NI after maturity is subject to defenses between original parties (because he is considered holder with notice). 2. When Prior Party May Negotiate NI - Sec. 50: Where a NI is negotiated back to a prior party: a. Such party may, subject to NIL, reissue and further negotiate the NI b. But he is not entitled to enforce payment- thereof against any intervening party to whom he was personally liable VII. RIGHTS OF HOLDERS A. SIMPLE HOLDER 1. Definition - Sec. 191: "holder" means payee or indorsee of a bill or note who is iQ possession of it, or the bearer thereof. a. What about transferee of unindorsed NI payable to order? - Sec. 49: Transfer vests in transferee such title as transferor had in NI 2. Rights a. He may sue on NI in his own name (even if holder only in representative capacity or for collection or as pledgee of NI) - Sec. 51 a. Payment to him in due course discharges the NI (therefore, even if holder is not a HIDC, he may still recover, albeit subject to defenses as if it were non-negotiable) - Sec. 51; See Sec. 88: Payment is made in due course if made: i. at or after maturity of NI; ii. to holder thereof; iii. in good faith and without notice that holder's title is defective.

c.

21 d. He holds NI subject to original defenses - Sec. 58 i. General Rule: In the hands on any holder other than HIDC, a NI is subject to same defenses as if it were non-negotiable. ii. Exception: Holder who derives his title through a HIDC and who is not himself a party to any fraud or illegality affecting the NI, has all the rights of such HIDC in respect of all parties prior to such HIDC. B. HOLDER FOR VALUE (HFV) 1. Definition - Sees. 26 and 27; See Discussions under Item V.8 above 2. Rights a. May sue on NI in his own name - Sec. 51 b. Payment to him in due course discharges the NI- Sec. 51 c. Sec. 29: Accommodation party is liable on NI to a HFV, notwithstanding that such HFV, at the time of taking the instrument, knew him to be only an accommodation party. See Discussions under Item V.C above. C. HOLDER IN DUE COURSE (HIDC) 1. Definition a. What constitutes a HIDC - Sec. 52 i. One who took the NI complete and reqular upon its face (a) If incomplete, distinguish between material particular which renders NI incomplete (Sec. 14), as opposed to omission which does hot affect validity or negotiability of NI (Sec. 6) See Discussions under Item 111.B above (b) If irregular, distinguish between material alteration (Secs. 124 and 125) as opposed to alteration which is not material - See Discussions under Item IV.C above ii. One who became holder before NI was overdue, and without' notice that it has been previously dishonored, if such was the fact

22 (a) If overdue (after date of maturity), carries strong indication that it has been dishonored (1) Sec. 71: If payable on demand, presentment must be made within reasonable time after its issue for PNs, or after the last negotiation thereof if BoE, since date of maturity is determined by date of presentment under Sec. 143(a) (2) Sec. 53: When NI payable on demand is negotiated un unreasonable length of time after its issue, holder is not deemed HIDC (3) What is reasonable time? - Sec. 193: nature of NI, usage of trade or business, facts particular to case. See B.P. Big. 22, which seems to make ninety (90) days a reasonable period within which to leave funds in bank to answer for a check. (b) If dishonored; holder must have notice of dishonor (thus, if dishonor does not appear on face of NI, holder may still be HIDC) iii. One who took it in good faith and for value (a) Good faith of the indorsee or transferee - Sec. 56: actual knowledge not required, sufficient that facts are known which show that something is wrong with transaction (b) For value - Sec. 25. See Discussions under Item V.B above. Discount does not prevent holder from being a HIDC unless discount unusually large and/or other suspicious circumstances. iv. One who, at the time NI was negotiated to him, had no notice of any infirmity in the instrument or defect in the title of the person negotiating it (a) Things wrong with NI under the NIL: (1) Defects in title: covers situations which at common law were known as equitable defenses under Sec. 55. (2) Defenses: includes common law defenses outside of those covered under Sec. 55. EX: mistake; absence or failure of consideration (Sec. 28); minority and other forms of incapacity to contract (Sec. 22); lack of authority of agent (Sec. 19). (3) Infirmities: includes thins wrong with NI itself as distinguish from those lacking in the contracts, not the NI. EX: insertion of wrong date (Sec. 13); incomplete but delivered NI (Sec. 14); incomplete and undelivered NI

23 (Sec. 15), complete but undelivered NI (Sec. 16); agent signing per procuration beyond scope of his authority (Sec. 21); forgery (Sec. 23); material alteration (Secs. 124 and 125) (b) When title defective - Sec. 55: The title of a person who negotiates a NI is defective: (1) In acquisition: When he obtained the NI, or any signature thereof, by fraud, duress, or force and fear, or other unlawful means, or for an illegal consideration, or (2) In negotiation: When he negotiates it in breach of faith, or under such circumstances as amount to fraud. (c) What constitutes notice of defect - Sec. 56: The person (or his agent) to whom NI is negotiated must have had: (1) actual knowledge of the infirmity or defect; or (2) knowledge of such facts that his action in taking the NI amounted to bad faith. (c) Notice before amount is fully paid - Sec. 54: Transferee will be deemed a HIDC only to the extent of the amount therefor paid by him b. Who is deemed HIDC i. Presumed HIDC - Sec. 59: Every holder deemed prima facie to be HIDG (a) When burden is shifted: When it is shown that title of person who has negotiated the NI is defective, burden is on holder to prove that he or some other person under whom he claims acquired the title as HIDC. (b) When burden not shifted: But this exception does not apply in favor of party who became bound on NI prior to acquisition of defective title. ii. Holder acquiring from HIDC - Sec. 58: Holder who derives his title through a HIDC and who is not himself a party to any fraud or illegality affecting the NI, has all the rights of such HIDC in respect of all parties prior to such HIDC. c. Who can be HIDC a. Payee - Based on proper interpretation of NIL as a whole, payee may, even if NI is not negotiated (but rather issued) to him, a payee may be a HIDC b. Drawee - Cannot be considered HIDC is not even a holder since the drawee, upon acceptance and payment of the NI, thereby strips NI of all its negotiability.

24 2. Rights of HIDC a. May sue thereon in his own name - Sec. 51 b. Payment to him in due course discharges the instrument - Sec. 51 c. Holds NI free from any defect of title of prior parties - Sec. 57 d. Holds NI free from defenses available to prior parties among themselves - Sec. 57 e. May enforce payment of NI for the full amount thereof against all parties liable thereon - Sec. 57. Exceptions: i. Sec. 33: If NI paid in part, may be indorsed as to residue . . ~ ii. Sec. 54: Notice of infirmity in NI or defect in title of person negotiating NI before amount is fully paid. ili. Sec. 124: Material alteration.

D. DEFENSES 1. Real or Legal Defenses (RD) a. Want of delivery of incomplete NI - Sec. 15 b. want of authority of agent c. Minority - Sec. 22 d. Ultra vires act of corporation absolutely prohibited by its charter or statute from issuing NI under any circumstances - Sec. 22 e. Insanity where insane has court appointed guardian - Sec. 22 by analogy f. Forgery - Sec. 23 g. Fraud in factum/Fraud in esse contractus - Sec. 23 by analogy h. Duress amounting to forgery - Sec. 23 by analogy i. j. Material Alteration Sec. 124 Execution of NI between public enemies

k. Illegality of contract where it is the contract or NI itself which is expressly made illegal by statute

25 2. Personal or Equitable Defenses (PD) a. Insertion of wrong date- Sec. 13 b. Incomplete but delivered NI - Sec. 14 c. Want of delivery of complete NI - Sec. 16 d. Want of authority of agent where he has apparent authority e. Ultra vires act of corporations where corporation has power to issue Nls but the issuance was not authorized for the particular purpose f. Insanity where there is no notice of insanity on the part of person contracting with the insane

g. Intoxication h. Absence or failure of consideration, partial or total - Sec. 28 i. Fraud in inducement - Sec. 55 j. Acquisition of Nl by force, duress, or fear - Sec. 55 k. Acquisition of NI for an illegal consideration - Sec. 55 I. Negotiation in breach of faith - Sec. 55 m. Negotiation under circumstances that amount to fraud - Sec. 55 n. Mistake o. Illegality of contract where form or consideration is illegal VII. LIABILITIES OF PARTIES A. PRIMARY VS. SECONDARY LIABILITY 1. Who are Primarily liable? - Sec. 192: Persons who, by the terms of NI, are absolutely required to pay the same a. In a PN - Maker b. In a BoE - Acceptor 2. Who are Secondarily Liable? - Sec. 192: All other parties to NI a.Drawer b.Indorser 3. Importance of Distinction: Failure to take any of the two (2) steps (presentment" for payment and) notice of dishonor) will discharge persons secondarily liable.

26 B. LIABILITY OF MAKER 1. Definition of Maker Person who makes PN 2. Liability Sec. 60: Maker of NI, by making it: a. Engages that he will pay NI according to its tenor (primary liability) b. Admits: i. existence of payee (cannot set up defense that payee is fictitions) ii. payees capacity to indorse (cannot set up defense that payee is insane, minor, corporation acting utra vires) C. LIABILITY OF DRAWER 1. Definition of Drawer - Person who draws BoE 2. Liability - Sec. 61: Drawer, by drawing NI: a. Engages that: (secondary liability) i. On due presentment, the NI will be accepted or paid, or both, according to its tenor, and ii. If NI is dishonored and the necessary proceedings on dishonor be duly taken, he will pay the amount thereof to the holder or to any subsequent indorser who may be compelled to pay it. b. Admits: i. existence of payee ii. payee's capacity to indorse 3. Negation/Limitation of Liability - Sec. 61: Drawer may insert in NI an express stipulation negativing or limiting his own liability to holder D. LIABILITY OF ACCEPTOR 1. Definition of Acceptor - Drawee who accepts BoE 2. Liability - Sec. 62: Acceptor, by accepting NI: a. Engages that he will pay NI according to tenor of his acceptance (primary liability) b. Note that there are two kinds of acceptance (a) General -- Sec. 139: Drawee assents without qualification to the brder of the drawer (b) Qualified - Secs. 139 and 141: Drawee in express terms varies the effect of the BoE as drawn

ix.

27

ii. If BoE altered after issuance but before acceptance, and drawee accepts without qualification, will he be liable based on original or altered tenor of BoE? Two (2) views: (a) Since acceptance is general, liable based on his acceptance of BoE as altered (b) Since acceptance is assent to the order of the drawer (Sec. 139), then liable based on original tenor of BoE better view b. Admits: I.existence of drawer (cannot up defense that drawer is fictitious) II. genuineness of drawer's signature (cannot set up defense that drawers signature is a forgery) III. capacity and authority of drawer to draw the Nl (cannot set up defense of want of consideration between him and drawer) iv. existence of payee v. payee's capacity to indorse E. LIABILITY OF INDORSERS 1. Who is Liable as Indorser a. Who is deemed Indorser - Sec. 63: Person placing his signature upon NI otherwise than as maker, drawer, or acceptor, is deemed indorser unless he clearly indicates by appropriate words his intention to be bound in some other capacity (no parol evidence allowed) a. Liability of Irregular Indorser - Sec. 64: Person, not otherwise a party to a NI, places thereon his signature in blank before delivery (applies whether first delivery, i.e., issuance, or subsequent delivery), he is liable as indorser, in accordance with the following rules: i. If NI is payable to order of a third person, he is liable to the payee and to all subsequent parties. ii. If NI is payable to the order of maker or drawer, or is payable to bearer, he is liable to all parties subsequent to the maker or drawer iii. If he signs for: the accommodation of the payee, he is liable to all parties subsequent to the payee. c.Liability of indorser where NI negotiable by delivery - Sec. 67: Person placing his indorsement on NI negotiable by delivery incurs all the liabilities of an indorser

28 d. Joint Indorsees - Sec. 68: Joint payees or joint indorsees who indorse are deemed to indorse jointly and severally. e. Liability of agent or broker - Sec. 69: Broker or agent negotiating NI without indorsement incurs all liabilities for Qualified Indorsers (Sec. 65), unless principal's name and his acting only as agent disclosed. 2. Liability of General Indorser - Sec. 66: Indorser who indorses without qualification: a. Engages that: (secondary liability) I. On due presentment, the NI will be accepted or paid, or both, according to its tenor, and

II. If NI is dishonored and the necessary proceedings on dishonor be duly taken, he will pay the amount thereof to the holder or to any subsequent indorser who may be compelled to pay it. b. Warrants to all subsequent HIDC (includes person deriving title from HIDC and immediate transferees, but not remote holders who are not HIDC), that: i. NI is genuine and in all respects what it purports to b~ (cannot set up defense of prior forgeries or material alterations) ii. He has good title to it (cannot set up defense of prior parties' defective title) iii. All prior parties had capacity to contract (cannot set up defense of incapacity of prior parties) iv. NI, at time of his indorsement, is valid 'and subsisting (cannot set up defense that person primarily liable is insolvent or did not receive consideration)

3. Liability of Qualified Indorser - Sec. 65: Indorser who indorses by qualified indorsement: a. Warrants (to all subsequent holders who derive title from his indorsement) that: i. NI is genuine and in all respects what it purports to be II. ii. He has good title to it iii. All prior parties had capacity to contract, except that this warranty does not apply to a person negotiating public or corporation securities other than bills or notes iv. He has no knowledge of any fact which would impair the validity of the NI or render it valueless (therefore, he may not be liable for breach of warranty b. Note that liability of Qualified Indorser is based on breach of warranties, and not because person primarily liable refuses to pay.

29 4. Liability of Person Negotiating By Delivery - Sec. 65: Person who negotiates NI by delivery: a. Warrants the same things as a Qualified Indorser, but the warranty extends only to the immediate transferee b. Note that liability of person negotiating by delivery is based on breach of warranties, and not because person primarily liable refuses to pay. 5. Order in Which Indorsers Liable - Sec. 68: a. As respect one another, indorsers liable prima facie in order in which they indorse; but evidence is admissible to show that, as between or among themselves, they have agreed otherwise. b. Note that the order in which indorsers are liable is inter se (among themselves), but does not apply to the holder.

VII. PROCEDURES TO CHARGE PERSONS SECONDARILY LIABLE ON NI A. IN GENERAL 1. No Steps Necessary to Charge Persons Primarily Liable on NI Sec. 70 a. If PN - Sec. 60: Maker, by making NI, engages that he will pay it according to its tenor b. If BoE - Sec. 62: Acceptor, by accepting NI (Sec. 132), engages that he will pay it according to the tenor of his acceptance; See Discussions on Acceptance under Item VII.D below. 2. Necessary Steps to Charge Persons Secondarily Liable For Promissory Notes a. PN must be presented for payment to person primarily liable (Sec. 70), within period required (Sec. 71), unless presentment for payment is: i. not required to charge indorsers (Sec. 80) ii. excused (Sec. 82)

30 b. If PN dishonoredft1Y non-payment (Sec. 83), an immediate right of recourse against persons secondarily liable accrues to holder (Sec. 84). Thus, notice of dishonor by non-payment must be given to persons secondarily liable (Sec. 89) within time required (Sec. 102), unless notice of dishonor is: I. waived (Sec. 109) ii. dispensed with (Sec. 112) iii. not necessary to be given to indorsers (Sec. 115) 3. Necessary Steps to Charge Persons Secondarily Liable For Bills of Exchange a. In the three cases provided by law (Sec. 143), presentment for acceptance to the drawee or negotiation within a reasonable time from acquisition (Sec. 144), unless excused (Sec. 148). b. If BoE dishonored by non-acceptance (Sec. 149), immediate right of recourse against persons secondarily liable accrues to holder, and no presentment for payment is necessary (Sec. 151). But holder must treat bill as dishonored by non-acceptance (Sec. 150), thus, notice of dishonor by non-acceptanqe must be given to persons secondarily liable (Sec. 89), unless notice of dishonor by non-acceptance is: i. waived (Sec.109) ii. dlspensed With (Sec. 112) iii. not necessary: to be given to drawer (Sec. 114) iv. not necessary to be given to indorsers (Sec. 115) Note: If due notice of dishonor by non-acceptance has been given, subsequent notice of dishonor by non-payment is not necessary unless in the meantime, NI has been accepted (Sec. 116). Note: Omission to give notice of dishonor by non-acceptance does not prejudice rights of HIDC subsequent to omission (Sec. 117). Note: If BoE appears on its face to be a foreign BoE, it must be duly protested for non-acceptance (Sec. 152), unless protest is waived (Sec. 111) or dispensed with (Sec. 159). c. If BoE is accepted, or if BoE is not required to be presented for acceptance, it must be presented for payment to person primarily liable (Sec. 70), within period required (Sec. 71), unless presentment for payment is: i. not required to charge drawer (Sec. 79) II. not required to charge indorsers (Sec. 80) iii. excused (Sec. 82)

31 d. If BoE dishonored non-payment (Sec. 83), an immediate right of recourse against persons secondarily liable accrues to holder (Sec. 84). Thus, notice of dishonor by non-payment must be given. to persons secondarily liable (Sec. 89) within, time required (Sec. 102), unless notice of dishonor is: I. waived (Sec. 109) ii. dispensed With (Sec. 112) iii. not necessary to be given to drawer (Sec. 114) iii. not necessary to be given to indorsers (Sec. 115) Note that if BoE appears on its face to be a foreign BoE, it must be duly protested for non-payment (Sec. 152), unless protest is waived (Sec. 111) or dispensed with (Sec. 159). 4. Necessary Steps to Charge Persons Secondarily Liable in Other Cases (Acceptor For Honor) a. Presentment for payment (Sec. 165) b. Notice of Dishonor (Sec. 165) c. Protest for non-payment (Sec. 167) B. PRESENTMENT FOR PAYMENT 1. When Necessary - Sec. 70: To charge persons secondarily liable on NI 2. When Not Required a. When not required to charge drawer - Sec. 79: Where drawer has no right to expect or require that drawee or acceptor will pay NI b. When not required to charge indorser - Sec. 80: Where NI was made or accepted for his accommodation and he has no reason to expect that NI will be paid if presented c, When excused - Sec. 82 I. where, after exercise of reasonable diligence, presentment cannot be made ii. when drawee is a fictitious person iii. by waiver of presentment, express or implied

32 3. Period to Make Presentment- Sec. 71 a. If not payable on demand, on day it falls due: I. Sec. 85: Time of maturity is at time fixed in NI without grace. If day of maturity falls on Saturday, Sunday or holiday, on next succeeding business day

II. Sec. 86: If payable at fixed period after date, after sight, or after happening of specified event, time of payment determined by excluding day from which time begins to run, and including date of payment. b. If payable on demand, within a reasonable time after its issue, except if BoE, presentment sufficient if within a reasonable time after last negotiation c. Sec. 85: At option of holder, may be presented before 12 noon on Saturday if not holiday d. If delay is excused by circumstances beyond control of holder and not imputable to his default, misconduct, or negligence - Sec. 81: With reasonable ,diligence when cause of delay ceases to operate 4. What Constitutes Sufficient Presentment - Sec. 72 a. By holder, or by some person authorized to receive payment on his behalf b. At a reasonable hour on a business day - Sec. 75: If payable at a bank, during banking hours, unless person to make payment has no funds there to meet it at any time during the day, in which case, before bank is closed on that day c. At a proper place as herein defined - Sec. 73 i. Place specified in NI ii. If none, address of person to make payment given in NI c. If none, usual place of business or residence of person to make payment iv. Other cases, wherever person to make payment can be found or at his last known place of business or residence Sec. 87: If NI is made payable at a bank, it is equivalent to an order to the bank to pay the same for the account of the principal debtor. d. To the person primarily liable on NI, or if he is absent or inaccessible, to any person found at the place where the presentment is made. e. If principal debtor is dead and no place specified - Sec. 76: To his personal representative, if any and if can be found with reasonable diligence

33 ii. If persons primarily liable are liable as partners and no place specified - Sec. 77: To anyone of them, even if firm dissolved iii. If several persons, not partners, are primarily liable and no place specified - Sec. 78: To all of them e. NI must be exhibited to person from whom payment is demanded Sec. 74 5. If NI is Paid a. What constitutes payment in due course - Sec. 88: When made at or after maturity; payment is made to holder thereof in good faith and without notice that his title is defective b. Holder's obligation if NI paid - Sec. 74: NI must be delivered up to party paying it c. Effect of payment in due course - Sec. 119: Nl discharged 6. If NI is Dishonored By Non-Payment a. When dishonored by non-payment - Sec. 83 i. It is duly presented for payment and payment is refused or cannot be obtained ii. Presentment is excused and the NI is overdue and unpaid b. Holder's rights if NI dishonored by non-payment - Sec. 84: Immediate right of recourse to all parties secondarily liable on Ni accrues to the holder. c. Holder's obligation - Sec. 89: Notice of dishonor must be given to drawer and to each indorser; otherwise, discharged C. NOTICE OF DISHONOR 1. When Necessary - Sec. 89: Except as otherwise herein provided, when NI dishonored by non-acceptance or non-payment, notice of dishonor must be given to drawer and to each indorser, and any drawer or indorser to whom notice is not given is discharged. 2. When Not Required a. When waived b. Wavier of notice - Sec. 109: Notice of dishonor may be waived either before time of giving notice has arrived or after omission to give notice, and waiver may be waived or implied. c. Whom affected by waiver - Sec. 110: If waiver on Ni itself, binding on all parties; if written above signature of indorser, binding on him only.

34 iii. Waiver of protest - Sec. 111 Deemed waiver not only of formal protest but also of presentment and notice of dishonor. b. When dispensed with - Sec. 112: When, after exercise of reasonable diligence, it cannot be given to or does not reach the parties sought to be charged c. When not required to charge drawer - Sec. 114 i. Drawer and drawee one and the same person ii. Drawee is fictitious person or person not having capacity to contract iii. Drawer is person to whom NI is presented for payment iv. Drawer has no right to expect or require that drawee or acceptor will honor the NI v. Drawer has countermanded payment d. When not required to charge indorser Sec.115 i. Drawee is fictitious person or person or person not having capacity to contract, and indorser was aware at time of indorsement ii. Indorser is person to whom NI is presented for payment iii. NI was made or accepted for indorser's accommodation Note: If due notice of dishonor by non-acceptance has been given, subsequent notice of dishonor by non-payment is not necessary unless in the meantime, 1\11 has been accepted (Sec. 116). Note, moreover, that omission to give notice of dishonor by non-acceptance does not prejudice rights of HIDC subsequent to omission (Sec. 117). 3. Period to Give Notice - Sec. 102: as soon as Ni is dishonored a. If parties reside in same place - Sec. 103 b. If parties reside in different places - Sec. 104 c. If party received notice of dishonor, he has, after such receipt, same time to give notice to antecedent parties d, If delay is excused by circumstances beyond control of holder and not imputable to his default, misconduct, or negligence - Sec. 113: With reasonable diligence when cause of delay ceases to operate 4. What Constitutes Sufficient Notice a. By whom given - Sec. 90: b. By or on behalf of holder - Sec. 92: Inures to benefit of all subsequent holders and all prior parties who have right of recourse against party to whom notice is given

35 ii. By or on behalf of any party to NI who might be compelled to pay it to holder and, who upon taking it up, would have a right of reimbursement from party to whom notice is given - Sec. 93: Inures to benefit of the holder and all parties subsequent to the party to whom notice is given iii. By agent (a) Sec. 91: Notice of dishonor may be given by any agent either in his own name or in name of any party entitled to give notice, whether that party is his principal or not. (b) Sec. 94: If NI dishonored in hands of agent, he may either himself give notice to parties liable, or give notice to his principal. If he give notice to principal, he must do so within same time as if holder, and principal, upon receipt of such notice, has himself same time to give notice as if agent had been independent holder. b. Form and contents I. Form - Sec. 96: In writing or merely oral and may e given in any terms which sufficiently identify the instrument, and indicate that it has been dishonored by non-acceptance or non-payment

ii. Sufficiency - Sec. 95: Need not be signed and insufficient written notice may be supplemented and validated by verbal communication. MisdescriptIon of NI does not vitiate notice unless party notified is misled thereby. c. How notice is delivered - Sec. 96 i. Personally ii. By mail- Secs. 105 and 106 d. To whom given - Sec. 97: To party himself or his agent on his behalf e. If party to be notified is dead and death is known to party giving notice - Sec. 98: To his personal representative, if any, and if can be found with reasonable diligence. If none, then last residence or place of business of deceased. II. If parties to be notified are partners - Sec. 99: To anyone of them, even if firm dissolved iii. If joint parties to be notified are not partners - Sec. 100: To each of them, unless one is authorized to receive for others iv. If bankrupt - Sec. 101: To party himself, or to his trustee or assignee d. Where notice must be sent - Sec. 108

36 D. PRESENTMENT FOR ACCEPTANCE 1. When Required - Sec. 143: Presentment for acceptance must be made in the following (and no other case) cases: a. Where BoE is payable after sight, or in any other case where presentment for acceptance is necessary in order to fix the maturity of the NI b. Where BoE expressly stipulates that it shall be presented for acceptance c. Where BoE is drawn payable elsewhere than at residence or place of business of drawee. 2. Where Excused - Sec. 148: Presentment for acceptance is excused and a BoE may be treated as dishonored by non-acceptance: a. Where drawee is dead. has absconded, is a fictitious person, or a person not having capacity to contract by BoE b. Where, after exercise of reasonable diligence, presentment cannot be made. c. Where, although presentment has been irregular, acceptance has been refused on some other ground. 3. Effect of Failure to Present - Sec. 144: Except as herein otherwise provided, if BoE not presented for acceptance or negotiated within a reasonable time, drawers and indorsers are discharged. 4. What Constitutes Sufficient Presentment - Sec. 145 a. Made by and behalf of holder b. At a reasonable hour on a business day - Sec. 146: Same as presentment for payment (Secs. 72 and 85) c. Before BoE is overdue - Sec. 147: When delay is excused d. To drawee or some other person authorized to accept or refuse acceptance on his behalf I. If drawee is dead: To his personal representative II. If two (2) or more drawees who are not partners: To all, unless one is authorized to receive for others IV. If bankrupt: To him or to his trustee or assignee 5. If BoE is Accepted a. Definition of acceptance - Sec. 132: Signification of drawee of his assent to order of drawer

37 b. Why necessary - Sec. 127: BoE not assignment of funds in hands of drawee, and drawee not liable on BoE unless and until he accepts it c. What constitutes sufficient acceptance - Sec. 132 i. Must be in writing ii. Must be signed by drawee iii. Must not express that drawee will perform his promise by any other means than payment of money IV. Where acceptance is made (a) On face of bill- Sec. 133: Holder may require acceptance to be written on BoE (b) On separate instrument - Sec. 134: Does not bind acceptor except in favor of person to whom it is shown and who, on faith thereof, receives BoE for value (c) Promise to accept - Sec. 135: Unconditional promise in writing to accept BoE before it is drawn is deemed actual acceptance in favor of every person to whom it is shown and who, on faith thereof, receives BoE for value d. Period to accept - Sec. 136: Drawee hast 24 hours after presentment in which to decide, and the acceptance, if given, dates as of day of presentation. e. Kinds of acceptance - Sec. 139 i. General: Assents without qualification to order of drawer - Sec. 140: Acceptance to pay at particular place, general, unless only in such place and not elsewhere ii. Qualified: In express terms varies effect of BoE as drawn - Sec. 141: (a) conditional (pay only upon fulfillment of condition) (b) partial (pay only part of amount) (c) local (pay only at a particular place) (d) qualified as to to time (e) some or one of drawees, but not all Sec. 128: BoE may be addressed to two (2) or more jointly, not not in alternative in succession. xi. x.

xii.

38

Note: Sec. 142: if qualified acceptance is taken, drawer and indorsers discharged from liability on BoE unless they expressly or impliedly authorized, or subsequently assented to, holder taking qualified acceptance. Thus, drawer or indorser receiving notice of qualified acceptance must, within reasonable time, dissent; otherwise, deemed to have assented iii. When BoE deemed accepted - Sec. 137: If drawee destroys BoE or refuses to accept within period, or return the BoE accepted or non-accepted to holder iv. Acceptance of incomplete bill - Sec. 138 6. If Dishonored By Non-Acceptance a. When dishonored by non-acceptance i. Sec. 149(a): When it is duly presented for acceptance and such an acceptance as prescribed by NIL is refused or cannot be obtained .

ii. Sec. 149(b): When presentment for acceptance is excused and the BoE is not accepted iii. Sec. 133: If holder requests that acceptance be written on BoE and drawee refuses, holder may treat BoE as dishonored iv. Sec. 142: Holder may refuse to take qualified acceptance and treat BoE as dishonored by non-acceptance. b. Holder's rights if BoE dishonored by non-acceptance - Sec. 151: An immediate right of recourse against the drawer and indorsers accrues to the holder and no presentment for payment is necessary. c. Holder's duty - Sec. 150: Holder presenting BoE must treat BoE as dishonored by non-acceptance; otherwise, he loses right of recourse against the drawer and indorsers. E. PROTEST 1. When Required - Sec. 152: Where foreign bill (Sec. 129: Inland BoE is, or on its face purports to be, both drawn and payable within RP; all other BoE foreign bills) appearing on its face to be such, it must be duly protested for non-acceptance or non-payment if dishonored. If it does not appear on its face to be a foreign bill, protest unnecessary. 2. When Dispensed With - Sec. 159: In any circumstances which would dispense with notice of dishonor 3. Effect of Lack of Protest - Sec. 152: Drawer and indorsers discharged.

xiii.

39

4. When Optional - Sec. 158: Where acceptor bankrupt, holder may cause BoE to be protested for better security against drawer and indorsers. 5. Period to Protest a. In general- Sec. 155: On day of dishonor, unless delay excused. b. If delay excused by circumstances beyond control of holder and not imputable to his default, misconduct, or negligence - Sec. 159: With reasonable dilig~e of delay ceases to operate 6. What Constitutes Suffucient Protest a. By whom made Sec. 154: By notary public; or by any respectiable resident of place where BoE dishonored, in presence of two or more witnesses b. How made Sec. 153: Protest must be annexed to BoE and contain copy thereof, and must be under hand and seal of notary making it, and must specify: i. ii. Time and place of presentment Fact that presentment was made and manner thereof

iii. Cause or reason for protesting BoE iv. Demand made and answer give, if any, or fact that drawee or acceptor cannot be found Sec. 157: BoE protested for non-acceptance may be subsequently protested for non-payment Sec. 160: If BoE is lost, destroyed, wrongly detained, protest may be made on a copy or written particulars thereof c. Where made - Sec. 156: 7. If Accepted for Honor - Sees. 161 to 170 8. If Paid for Honor - Sees. 171 to 177

xvi. xv. xiv.

40

VIII.DISCHARGE OF NI A. DISCHARGE OF NI- Sec. 119 1. By payment in due course on or behalf of the principal debtor Note: Sec. 121: Where NI is paid by party secondarily liable, it is not discharged, but party so paying it: a. is remitted to his former rights as regards prior parties b. may strike out his own and all subsequent indorsements and again negotiate the NI, except: I. Where it is payable to order of a third person and has been paid by drawer ii. Where it was made or accepted for accommodation and has been paid by party accommodated. 2. By payment in due course by the party accommodated, where the NI is made or accepted for his accommodation 3. By the intentional cancellation thereof by the holder Note: Sec. 123: A cancellation made unintentionally or under a mistake or without the authority of the holder, is inoperative, but where NI or signature thereon appears to have been cancelled, burden of proof lies on party alleging that cancellation not intentional. 4. By any other act which will discharge a simple contract for the payment of money Note: Sec. 122: Holder may expressly renounce his.rights against any party to NI before, at, or after its maturity: a. Renunciation must be in writing unless NI is delivered up to person primarily liable thereon. b. Absolute and unconditional rights against principal debtor made at or after maturity of NI discharges NI. c. But renunciation does not affect HIDC without notice. 5. When the principal debtor becomes the holder of the NI at or after maturity in his own right

41

B. DISCHARGE OF PERSONS SECONDARILY LIABLE ON NI - Sec. 120

1. By any act which discharged the NI 2. By intentional cancellation of his signature by holder See Note on Sec. 123 above 3. By discharge of prior party 4. By valid tender of payment made by prior party 5. By release of principal debtor unless holder's right of recourse against party secondarily liable is expressly reserved 6. By any agreement binding upon holder to extend time of payment or to postpone holder's right to enforce the NI unless made with assent of party secondarily liable or unless holder's right of recourse against such party is expressly reserved

IX. MISCELLANEOUS PROVISIONS

A. DEFINITIONS AND RULES GOVERNING KINDS OF NI
1. Promissory Note (PN) - Sec. 184: An unconditional promise in writing made by one person to another, signed by the maker, engaging to pay on demand, or at a fixed or determinable future time, a sum certain in money to order or to bearer. Examples of special types of PN: certificates of deposit; bonds; bank notes; due bills. 2. Bill of Exchange (BoE) - Sees. 126 to 131: An unconditional order in writing addressed by one person to another, signed by the person giving it, requiring the person to whom it is addressed to pay on demand or at a fixed or determinable future time a sum certain in money to order or to bearer. Examples of BoE: drafts; trade acceptance; banker's acceptance; treasury warrant; money orders; clean bills of exchange; documentary bills of exchange; D/A bills of exchange; DIP bills of exchange; time and usance bills; bills in set; inland bills; foreign bills. 3. Check - Sees. 185 to 189: A bill of exchange drawn on a bank payable on demand. Examples of special types of checks: cashier's checks; manager's checks; memorandum checks; certified checks; crossed checks. 4. 8.Bills in Set - Sees. 178-183 7.

42

B. GENERAL PROVISIONS
1. Title - Sec. 190 2. Definition and Meaning of Terms; Persons Primarily Liable; Reasonable Time - Secs. 191-194 3. Application and Cases Not Provided For - Secs. 195-196

4. Repeals - Sec. 197

5. Effectivity - Sec. 198