OVERVIEW

INTRODUCTION
Instruments are negotiable when they
conform to all the requirements prescribed
by the Negotiable Instruments Law (NIL) -
Act 20! enacted "ebruary # !$!!%
Kinds of negotiable instruments
&wo main groups'
o (romissory note ()ec% !*+), and
-.idences a promise to pay
money
-%g% normal promissory note#
certificate of deposit and the
bond
o /ill of -0change ()ec% !21)
An order made by one
person to another to pay
money to third person
-%g% chec2s# draft
LEGISLATIVE HISTORY OF THE NIL
3erbatim reproduction of 4niform
Negotiable Instruments Law of 4) (!*$1)
o &his statute was patterned after
-nglish /ill of -0change Act (!**2)
)ince !$!!# no amendment to the NIL has
been made
APPLICABILITY OF NIL
NIL applies only to negotiable instruments
i%e% to those instruments which conform
with the requisites laid down in )ec% !%
NEGOTIABLE INSTRUMENTS; DEFINITIONS
Section 1
Form of negotiable instruments.
An instrument to be negotiable must conform to
the following requirements'
(a) It must be in writing and signed
by the ma2er or drawer,
(b) 5ust contain an unconditional
promise or order to pay a sum certain in
money,
(c) 5ust be payable on demand# or
at a fi0ed or determinable future time,
(d) 5ust be payable to order or to
bearer, and
(e) 6here the instrument is
addressed to a drawee# he must be
named or otherwise indicated therein
with reasonable certainty%
In effect gi.es definition of a negotiable
instrument
Any instrument which has the requisites of
enumerated therein is negotiable and is
go.erned by the NIL% All other instruments
are non-negotiable%
Note that the fact that an instrument does
not meet the requisites will not affect its
.alidity% 7nly consequence is that it will not
be go.erned by the NIL but by the general
law on contracts (New 8i.il 8ode)%
Functions of Neoti!"#e Inst$u%ents
A negotiable instrument may ser.e any of
the following functions'
o As a substitute for money in
payment for property or ser.ices,
o As a means of creating and
transferring credit, and
o &o facilitate sale of goods
&INDS OF NEGOTIABLE INSTRUMENTS '
PARTIES
Section 126
Bill of exchange, defined.
A bill of e0change is an unconditional order in
writing addressed by one person to another#
signed by the person gi.ing it# requiring the
person to whom it is addressed to pay on
demand or at a fi0ed or determinable future
time a sum certain in money to order or to
bearer%
Section 184
Promissory note, defined.
A negotiable promissory note within the
meaning of this Act is an unconditional promise
in writing made by one person to another#
signed by the ma2er# engaging to pay on
demand# or at a fi0ed or determinable future
time# a sum certain in money to order or to
bearer% 6here a note is drawn to the ma2er9s
own order# it is not complete until indorsed by
him%
P!$ties !n( t)e N!tu$e of t)ei$ Li!"i#it*
Parties and the nature of their liabilities
&wo parties to a promissory note'
o 5a2er : the promissory
o (ayee : the person to whom the
promise to pay is made
&hree parties in a bill of e0change'
o ;rawer : the person who gi.es the
order to pay in a bill of e0change
o ;rawee : the addressee of the
order
o (ayee : person to whom the
payment is to be made
Note that when the payee of
an instrument transfers it to
another by signing it at the
bac2# he is said to ha.e
negotiated or indorsed the
same and thereby becomes
an indorser.
&he person to whom he
negotiates it is the indorsee,
who# by such negotiation
becomes the holder of the
instrument%
As to nature of liabilities'
o (rimary party : is the one who is
absolutely and unconditionally
required to pay the instrument
when it falls due%
&he ma2er is the person
primarily liable in a
promissory note
No person is primarily liable
in a bill of e0change# until
and unless the drawee
accepts the order of the
drawer to pay% If drawee
accepts# he becomes an
acceptor who is absolutely
bound to pay on the date
specified on the bill% &he
drawer of a bill of e0change
and the indorsers of either a
note or a bill are the
secondary parties%
ROLE OF NEGOTIABLE; LEGAL TENDER
Section 52, RA 7653
Legal Tender Power.
All notes and coins issued by the /ang2o )entral
shall be fully guaranteed by the <o.ernment of
the =epublic of the (hilippines and shall be legal
tender in the (hilippines for all debts# both public
and pri.ate' (ro.ided# howe.er# &hat# unless
otherwise fi0ed by the 5onetary /oard# coins
shall be legal tender in amounts not e0ceeding
"ifty pesos ((>0%00) for denominations of
&wenty-fi.e centa.os and abo.e# and in amounts
not e0ceeding &wenty pesos ((20%00) for
denominations of &en centa.os or less%
;oes not constitute as a legal tender but
often ta2e place of money as a means of
payment%
A !2+$ of 88 states that a ?deli.ery of
promissory notes payable to order or bills
of e0change and other mercantile
documents shall produce the effect of
payment only when they ha.e been cashed
or when through the fault of the creditor
they ha.e been impaired@A
&ender of a chec2 is sufficient to compel
redemption of foreclosed property since
such redemption is not an obligation but a
right% Bowe.er# such tender is not in itself
payment that relie.es the redemptioner
from his liability to pay the redemption
price%
NEGOTIABLE NON+NEGOTIABLE
INSTRUMENTS
,!$e)ouse Recei-ts
Docu%ent of Tit#e
Article 1636, CC
"Document of title to goods" includes any bill of
lading# doc2 warrant# Cquedan#C or warehouse
receipt or order for the deli.ery of goods# or any
other document used in the ordinary course of
business in the sale or transfer of goods# as proof
of the possession or control of the goods# or
authoriDing or purporting to authoriDe the
possessor of the document to transfer or recei.e#
either by endorsement or by deli.ery# goods
represented by such document%
Lette$ of C$e(it
Ce$tific!te of Stoc.s
Ce$tific!te of De-osit
Is an instrument issued by a ban2 reciting a
deposit of certain sum of money# payable
either at a fi0ed time or on demand# to the
depositor named therein%
7ther instruments'
/ond : is an e.idence of indebtedness
issued by a corporation# public or pri.ate#
payable at a definite date in the future#
usually for a long term% It is in effect a
written promise of the corporation to pay a
definite sum of money%
;raft : is a form of bill of e0change used
mainly in transactions between persons
physically remote from each other% It is an
order made by one person (e%g% buyer of
goods) addressed to a person ha.ing in his
possession funds of such buyer# ordering
addressee to pay the purchase price to the
seller of goods%
o 6here irder is made by one ban2 to
another ban2 it is referred to as a
ban2 draft%
NON+NEGOTIABLE; E/CEPTION
-stoppel : see Banco de ro ! "#uitable Ban$
CHAPTER 2
FORS A!" I!TERPRETATIO!
,RITTEN AND DULY SIGNED
Section 18
Liability of %erson signing in trade or assumed
name. - No person is liable on the instrument
whose signature does not appear thereon#
e0cept as herein otherwise e0pressly pro.ided%
/ut one who signs in a trade or assumed name
will be liable to the same e0tent as if he had
signed in his own name%
Section 1#
&ignature by agent' authority' how shown. - &he
signature of any party may be made by a duly
authoriDed agent% No particular form of
appointment is necessary for this purpose, and
the authority of the agent may be established
as in other cases of agency%
In writing includes print and includes not
only what is written with pen or pencil# but
also what has been typed%
)ignature is binding whether it is oneEs
handwriting# or printed# engra.ed#
lithographed or photographed# as long as it
is intended or adopted as the signature of
the signer or made with his authority%
)ignature may appear on any part of the
instrument (usually appears at lower right
hand corner)
If signature is so placed upon an
instrument that it is not clear in what
capacity the person intended to sign# he is
deemed an indorser ()ec% !Ff)
UNCONDITIONAL ORDER OR PROMISE TO PAY
Section 3
(hen %romise is unconditional. ) An unqualified
order or promise to pay is unconditional within
the meaning of this Act though coupled with'
(a) An indication of a particular fund
out of which reimbursement is to be
made or a particular account to be
debited with the amount, or
(b) A statement of the transaction
which gi.es rise to the instrument%
/ut an order or promise to pay out of a
particular fund is not unconditional%
5ere ac2nowledgement of debt does not
constitute a promise% &here should be an
e0press promise on the face of the
instrument to pay the money%
In a bill of e0change# words which are
equi.alent to an order are sufficient% 7rder
is a command or imperati.e direction% 5ere
request or authority to pay does not
constitute an order% /ut mere use of polite
words does not depri.e the instrument its
characteristics as an order%
(hen unconditional
&he promise or order to pay to be
unconditional must be unqualified%
o =ationale' realty increases the
ability of a negotiable instrument to
pass freely from one person to
another%
7n bills of e0change# mere indication of the
particular fund out of which reimbursement
is to be made# or an indication of a
particular account to be debited with the
amount will not render an order
unconditional%
o =eimbursement also presupposes
pre.ious disbursement%
o Note that reimbursement and debit
refers to a separate transaction
between the drawer and the drawee
(3asqueD)
o As a rule# unless reference to the
fund clearly indicates an intention
that such fund alone should be the
source of payment# courts usually
decide in fa.our of negotiability%
=ecital of the transaction for which the
instrument was issued does not ma2e the
promise or order unconditional unless'
o It appears through the recital that it
qualifies the time of payment or the
sum to be paid (Powell ! *reenleaf)
&he fact that the condition appearing on
the instrument has been fulfilled will not
con.ert it to a negotiable one ()ec% +)

CERTAIN SUM PAYABLE
Section 2
(hat constitutes certainty as to sum. - &he sum
payable is a sum certain within the meaning of
this Act# although it is to be paid'
(a) with interest, or
(b) by stated installments, or
(c) by stated installments# with a
pro.ision that# upon default in payment
of any installment or of interest# the
whole shall become due, or
(d) with e0change# whether at a
fi0ed rate or at the current rate, or
with costs of collection or an attorney9s fee# in
case payment shall not be made at maturity%
&he amount payable must be certain%
=ationale' An instrument cannot function
properly as a substitute for money unless
the amount for which it stands for is
specified and definite%
An agreement to pay interest does not
render the sum uncertain%
o -0act amount thereof can be
computed without loo2ing beyond
the instrument%
)tipulation to pay higher rate of interest if
the note is not paid at maturity or a lower
rate if it is paid on or before maturity does
not render the instrument non-negotiable
since it is entirely without force until either
the maturity thereof or is payment before
maturity%
)um is certain although payable in
instalments as long as the latter are stated
i%e% the amount of each instalment and its
due date are fi0ed in the instrument%
Acceleration pro.ision based on default will
not render sum uncertain%
An instrument e0pressed in a foreign
currency may contain a pro.ision that the
same is payable in (hilippine currency at a
fi0ed rate of e0change or at the rate
current at the time payment is made% &his
pro.ision does not affect the negotiability
of the instrument%
A pro.ision in an instrument or attorneyEs
fees# but lea.ing the amount thereof blan2#
amounts to a promise to pay a reasonable
sum as attorneyEs fees and does not ma2e
instrument non- negotiable% )uch amount
may be fi0ed by the court%
Payable in money
In order to be negotiable# an instrument
must be payable in money%
=ationale' negotiable instruments are
intended to be substitutes for money# to
properly perform such function they must
necessarily be capable of being
transformed into money if holder so
wishes%
5oney : as used in the law : means not
only legal tender but any 2ind of current
money%
An instrument which contains an order or
promise to do an act IN A;;I&I7N to the
payment of money is N7& negotiable% ()ec%
>)
o =ationale' =etain simplicity of form
which is absolutely necessary to the
free use of negotiable instruments
in the place of money%
/ut if the order or promise gi.es the holder
an election to require something to be
done IN LI-4 of payment of money# an
instrument otherwise negotiable would not
be affected thereby%
o )hould be gi.en to (AG-- not to
5AH-= or the person primarily
liable
PAYABLE TO ORDER OR TO BEARER
Section 8
(hen %ayable to order. - &he instrument is
payable to order 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'
(a) A payee who is not ma2er#
drawer# or drawee, or
(b) &he drawer or ma2er, or
(c) &he drawee, or
(d) &wo or more payees Iointly, or
(e) 7ne or some of se.eral payees,
or
(f) &he holder of an office for the
time being%
6here the instrument is payable to order# the
payee must be named or otherwise indicated
therein with reasonable certainty%
Section #
(hen %ayable to bearer. - &he instrument is
payable to bearer'
(a) 6hen it is e0pressed to be so
payable, or
(b) 6hen it is payable to a person
named therein or bearer, or
(c) 6hen it is payable to the order of
a fictitious or non-e0isting person# and
such fact was 2nown to the person
ma2ing it so payable, or
(d) 6hen the name of the payee
does not purport to be the name of any
person, or
6hen the only or last indorsement is an
indorsement in blan2%
Section 184
Promissory note, defined.
A negotiable promissory note within the
meaning of this Act is an unconditional promise
in writing made by one person to another#
signed by the ma2er# engaging to pay on
demand# or at a fi0ed or determinable future
time# a sum certain in money to order or to
bearer% 6here a note is drawn to the ma2er9s
own order# it is not complete until indorsed by
him%
Instrument in order to be negotiable must
contain the ?words of negotiabilityA : i%e%
must be payable to or$er or %e&rer%
&hese words ser.e as an e0pression of
consent that the instrument may be
transferred%
Note that the instrument need not follow
the language of the law# but any term
which clearly indicates an intention to
conform to the legal requirements is
sufficient ()ec% !0)
(hen instrument %ayable to order
&wo ways by which an instrument may be
made payable to order'
o It is drawn payable to the order of a
specified person, and
o It is drawn payable to the order of a
specified person or his order%
6ithout the words ?to orderA or ?to the
order of#A the instrument is payable only to
the person designated therein and is
therefore non-negotiable%
o )ubsequent purchaser mere
assignor not holder%
(hen instrument %ayable to bearer
-0amples'
)ec% $(a)
I promise to pay bearerJ holder the sum of
(!00
)ec $(b)
(ay to Kose =eyes or bearer
)ec $(c)
(ay to Kohn ;oe or order
A name is fictitious when it is feigned or
pretended
=equisite'
o &he fact that the payee is a
fictitious or non-e0isting person
must be 2nown to the ma2er or
drawer
o &he theory is that since the payee is
not capable of indorsing and since
the ma2er or drawer 2new of this
fact# he must ha.e intended the
instrument to be transferred by
mere deli.ery
If the ma2er or drawer is no aware that the
person he named as payee is fictitious or
non-e0istent# then the instrument is not a
bearer instrument but an order one%
A note payable to the order of an estate of
a person still ali.e at the time of the
e0ecution of the note has been held to
constitute a .alid bearer paper# since it is
payable to a non-e0isting person%
A note payable to the order of the estate of
an already deceased person# although not
an order note because the name of the
payee does not purport to be the name of
any person%
)ec% $(d)
(ay to cash or pay or sundries%
It is presumed that the ma2er or drawer# by
using an impersonal payee# intends the
instrument to be payable to bearer%
)ec% $(e)
6hen the last or only indorsement is an
indorsement in blan2# the instrument
becomes payable to bearer e.en if
originally payable to order of a specified
person%
A blan2 instrument cannot howe.er con.ert
a non-negotiable note to a negotiable one%
N7&-' 7nly instruments under )ec% $ a and b are
e0pressly made payable to bearer%
CERTAIN DESIGNATION OF PARTIES
5a2er of a note or the drawer of a bill must
sign the instrument (usually at lower right-
hand corner)
;raweeEs name : lower left hand corner#
although in chec2s the ban2Es name
sometimes appears across the top
&he payee and successi.e indorsees
negotiate the instrument by signing on the
bac2
As long as parties to the bill or note comply
with these long established and recogniDed
customs# it would be clear in what capacity
the parties signed% Bowe.er# once a party
to an instrument de.iates from the
commercial usage with respect to the place
of signature# and is not clear from the
instrument in what capacity he signs#
ambiguity arises%
&he law sol.es this by considering such a
person as an indorser and not as a ma2er
or drawer%
Section 8
(hen %ayable to order. - &he instrument is
payable to order 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'
(g) A payee who is not ma2er#
drawer# or drawee, or
(h) &he drawer or ma2er, or
(i) &he drawee, or
(I) &wo or more payees Iointly, or
(2) 7ne or some of se.eral payees,
or
(l) &he holder of an office for the
time being%
6here the instrument is payable to order# the
payee must be named or otherwise indicated
therein with reasonable certainty%
An instrument may be made payable to anyone of
the following as payees'
to the order of payee who is not a ma2er#
drawer# or drawee
to the order of ma2er or the drawer
to the order of the drawee
to two or more payees Iointly
o (ay to the order of Kuan 8ruD and
Kose )antos (Iointly not alternati.e)
to one or some of se.eral payees in
alternati.e
o (ay to the order of Kuan 8ruD or Kose
)antos
o 7nly one of them may demand
payment for the full amount
o 7nly one of them need to indorse
when negotiating the instrument
to the holder of an office for the time being
o 8ampos .iews this as a floating
promise : the payee may be the
person who happens to be secretary
at any particular moment
Section 128
Bill addressed to more than one drawee.
A bill may be addressed to two or more
drawees Iointly# whether they are partners or
not, but not to two or more drawees in the
alternati.e or in succession%
Section 13'
(hen bill may be treated as %romissory note.
6here in a bill the drawer and drawee are the
same person or where the drawee is a fictitious
person or a person not ha.ing capacity to
contract# the holder may treat the instrument at
his option either as a bill of e0change or as a
promissory note%
6hen instrument is addressed to a drawee#
he must be name or otherwise indicated
therein with reasonable certainty%
5ay be addressed to two or more drawees
Iointly i%e% &o Kuan 8ruD and Kose =eyes
/ut not to two or more drawees in the
alternati.e or in succession
6here drawer and drawee are the same
person# or where the drawee is a fictitious#
or a person ha.ing no capacity to contract#
the holder may treat the instrument either
as a bill or a note because otherwise no
one can e.er be made primarily liable on
the bill
CERTAIN TIMES OF PAYMENT
Section 4
Determinable future time' what constitutes. -
An instrument is payable at a determinable
future time# within the meaning of this Act#
which is e0pressed to be payable'
(a) At a fi0ed period after date or
sight, or
(b) 7n or before a fi0ed or
determinable future time specified
therein, or
(c) 7n or at a fi0ed period after the
occurrence of a specified e.ent which is
certain to happen# though the time of
happening be uncertain%
An instrument payable upon a contingency is
not negotiable# and the happening of the e.ent
does not cure the defect%
Section 11
Date, %resum%tion as to. - 6here the
instrument or an acceptance or any
indorsement thereon is dated# such date is
deemed prima facie to be the true date of the
ma2ing# drawing# acceptance# or indorsement#
as the case may be%
Section 17
+onstruction where instrument is ambiguous. -
6here the language of the instrument is
ambiguous or there are omissions therein# the
following rules of construction apply'
(a) 6here the sum payable is
e0pressed in words and also in figures
and there is a discrepancy between the
two# the sum denoted by the words is the
sum payable, but if the words are
ambiguous or uncertain# reference may
be had to the figures to fi0 the amount,
(b) 6here the instrument pro.ides
for the payment of interest# without
specifying the date from which interest is
to run# the interest runs from the date of
the instrument# and if the instrument is
undated# from the issue thereof,
(c) 6here the instrument is not
dated# it will be considered to be dated
as of the time it was issued,
(d) 6here there is a conflict between
the written and printed pro.isions of the
instrument# the written pro.isions
pre.ail,
(e) 6here the instrument is so
ambiguous that there is doubt whether it
is a bill or note# the holder may treat it as
either at his election,
(f) 6here a signature is so placed
upon the instrument that it is not clear in
what capacity the person ma2ing the
same intended to sign# he is to be
deemed an indorser,
6here an instrument containing the word ",
%romise to %ay" is signed by two or more
persons# they are deemed to be Iointly and
se.erally liable thereon%
PROVISIONS AFFECTING NEGOTIABILITY
Section 5
-dditional %ro!isions not affecting negotiability.
- An instrument which contains an order or
promise to do any act in addition to the
payment of money is not negotiable% /ut the
negotiable character of an instrument otherwise
negotiable is not affected by a pro.ision which'
(a) authoriDes the sale of collateral securities
in case the instrument be not paid at
maturity, or
(b) authoriDes a confession of Iudgment if
the instrument be not paid at maturity, or
(c) wai.es the benefit of any law intended
for the ad.antage or protection of the
obligor, or
(d) gi.es the holder an election to require
something to be done in lieu of payment
of money%
/ut nothing in this section shall .alidate any
pro.ision or stipulation otherwise illegal%
OMISSIONS
Section 6
missions' seal' %articular money. ) &he .alidity
and negotiable character of an instrument are
not affected by the fact that'
(a) it is not dated, or
(b) does not specify the .alue gi.en# or that
any .alue had been gi.en therefor, or
(c) does not specify the place where it is
drawn or the place where it is payable, or
(d) bears a seal, or
(e) designates a particular 2ind of current
money in which payment is to be made%
/ut 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%
DATES OF INSTRUMENT
Section 11
Date, %resum%tion as to. - 6here the
instrument or an acceptance or any
indorsement thereon is dated# such date is
deemed prima facie to be the true date of the
ma2ing# drawing# acceptance# or indorsement#
as the case may be%
Section 12
-nte)dated and %ost)dated. ) &he instrument is
not in.alid for the reason only that it is ante-
dated or post-dated# pro.ided this is not done
for an illegal or fraudulent purpose% &he person
to whom an instrument so dated is deli.ered
acquires the title thereto as of the date of
deli.ery%
Section 13
(hen date may be inserted. - 6here an
instrument e0pressed to be payable at a fi0ed
period after date is issued undated# or where
the acceptance of an instrument payable at a
fi0ed period after sight is undated# any holder
may insert therein the true date of issue or
acceptance# and the instrument shall be
payable accordingly% &he insertion of a wrong
date does not a.oid the instrument in the hands
of a subsequent holder in due course, but as to
him# the date so inserted is to be regarded as
the true date%
BLAN&S; ,HEN FILED
Section 14
Blan$s' when may be filled. - 6here the
instrument is wanting in any material particular#
the person in possession thereof has a prima
facie authority to complete it by filling up the
blan2s therein% And a signature on a blan2
paper deli.ered by the person ma2ing the
signature in order that the paper may be
con.erted into a negotiable instrument
operates as a prima facie authority to fill it up
as such for any amount% In order# howe.er# that
any such instrument when completed may be
enforced against any person who became a
party thereto prior to its completion# it must be
filled up strictly in accordance with the
authority gi.en and within a reasonable time%
/ut if any such instrument# after completion# is
negotiated to a holder in due course# it is .alid
and 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 gi.en
and within a reasonable time%
INCOMPLETE INSTRUMENTS
Section 15
,ncom%lete instrument not deli!ered. - 6here
an incomplete instrument has not been
deli.ered# it will not# if completed and
negotiated without authority# be a .alid
contract in the hands of any holder# as against
any person whose signature was placed
thereon before deli.ery%
CONSTRUCTION
Section 17
+onstruction where instrument is ambiguous. -
6here the language of the instrument is
ambiguous or there are omissions therein# the
following rules of construction apply'
(g) 6here the sum payable is
e0pressed in words and also in figures
and there is a discrepancy between the
two# the sum denoted by the words is the
sum payable, but if the words are
ambiguous or uncertain# reference may
be had to the figures to fi0 the amount,
(h) 6here the instrument pro.ides
for the payment of interest# without
specifying the date from which interest is
to run# the interest runs from the date of
the instrument# and if the instrument is
undated# from the issue thereof,
(i) 6here the instrument is not
dated# it will be considered to be dated
as of the time it was issued,
(I) 6here there is a conflict between
the written and printed pro.isions of the
instrument# the written pro.isions
pre.ail,
(2) 6here the instrument is so
ambiguous that there is doubt whether it
is a bill or note# the holder may treat it as
either at his election,
(l) 6here a signature is so placed
upon the instrument that it is not clear in
what capacity the person ma2ing the
same intended to sign# he is to be
deemed an indorser,
6here an instrument containing the word ",
%romise to %ay" is signed by two or more
persons# they are deemed to be Iointly and
se.erally liable thereon%
CHAPTER 3
CO!SI"ERATIO!
PRESUMPTION
Section 24
Presum%tion of consideration. - -.ery
negotiable instrument is deemed %rima facie to
ha.e been issued for a .aluable consideration,
and e.ery person whose signature appears
thereon to ha.e become a party thereto for
.alue%
VALUE
Section 25
.alue, what constitutes% L 3alue is any
consideration sufficient to support a simple
contract% An antecedent or pre-e0isting debt
constitutes .alue, and is deemed such whether
the instrument is payable on demand or at a
future time%
HOLDER FOR VALUE
Section 26
(hat constitutes holder for !alue. - 6here
.alue has at any time been gi.en for the
instrument# the holder is deemed a holder for
.alue in respect to all parties who become such
prior to that time%
LIEN HOLDER; HOLDER FOR VALUE
Section 27
(hen lien on instrument constitutes holder for
!alue% L 6here the holder has a lien on the
instrument arising either from contract or by
implication of law# he is deemed a holder for
.alue to the e0tent of his lien%
EFFECT OF ,ANT OF CONSIDERATION
Section 28
"ffect 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
otherwise%
ACCOMMODATION PARTY
Section 2#
Liability of accommodation %arty. - An
accommodation party is one who has signed
the instrument as ma2er# drawer# acceptor# or
indorser# without recei.ing .alue therefor# and
for the purpose of lending his name to some
other person% )uch a person is liable on the
instrument to a holder for .alue#
notwithstanding such holder# at the time of
ta2ing the instrument# 2new him to be only an
accommodation party%
CHAPTER 4
TRA!SFER A!" !E(OTIATIO!
ISSUANCE AND DELIVERY
Section 16
Deli!ery' when effectual' when %resumed. )
-.ery contract on a negotiable instrument is
incomplete and re.ocable until deli.ery of the
instrument for the purpose of gi.ing effect
thereto% As between immediate parties and as
regards a remote party other than a holder in
due course# the deli.ery# in order to be
effectual# must be made either by or under the
authority of the party ma2ing# drawing#
accepting# or indorsing# as the case may be,
and# in such case# the deli.ery may be shown to
ha.e been conditional# or for a special purpose
only# and not for the purpose of transferring the
property in the instrument% /ut where the
instrument is in the hands of a holder in due
course# a .alid deli.ery thereof by all parties
prior to him so as to ma2e them liable to him is
conclusi.ely presumed% And where the
instrument is no longer in the possession of a
party whose signature appears thereon# a .alid
and intentional deli.ery by him is presumed
until the contrary is pro.ed%
Section 1#1
Definition and meaning of terms. - In this Act#
unless the contract otherwise requires'
CAcce)t&nceC means an acceptance
completed by deli.ery or notification,
CActionC includes counterclaim and set-off,
C*&n+C includes any person or association of
persons carrying on the business of ban2ing#
whether incorporated or not,
C*e&rerC means the person in possession of a
bill or note which is payable to bearer,
C*illC means bill of e0change# and CnoteC
means negotiable promissory note,
C"eli,er-C means transfer of possession#
actual or constructi.e# from one person to
another,
CHol$erC means the payee or indorsee of a bill
or note who is in possession of it# or the bearer
thereof,
CIn$or.e/entC means an indorsement
completed by deli.ery,
CIn.tr0/entC means negotiable instrument,
CI..0eC means the first deli.ery of the
instrument# complete in form# to a person who
ta2es it as a holder,
CPer.onC includes a body of persons# whether
incorporated or not,
CV&l0eC means .aluable consideration,
CWrittenC includes printed# and CwritingC
includes print%
NEGOTIATION; HOLDER
Section 3'
(hat constitutes negotiation. - An instrument is
negotiated when it is transferred from one
person to another in such manner as to
constitute the transferee the holder thereof% If
payable to bearer# it is negotiated by deli.ery, if
payable to order# it is negotiated by the
indorsement of the holder and completed by
deli.ery%
INDORSEMENT
B* Sin!tu$e on Inst$u%ent o$ On A##one
Section 31
,ndorsement' how made. ) &he indorsement
must be written on the instrument itself or upon
a paper attached thereto% &he signature of the
indorser# without additional words# is a
sufficient indorsement%
,)e$e N!%e is Miss-e##e(
Section 43
Indorsement where name is misspelled# and so
forth% - 6here the name of a payee or indorsee
is wrongly designated or misspelled# he may
indorse the instrument as therein described
adding# if he thin2s fit# his proper signature%
INDORSEMENT MUST BE ENTIRE
INSTRUMENT
Section 32
,ndorsement must be of entire instrument. ) &he
indorsement must be an indorsement of the
entire instrument% An 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 se.erally# does not operate as a
negotiation of the instrument% /ut where the
instrument has been paid in part# it may be
indorsed as to the residue%

&INDS OF INDORSEMENTS
Section 33
Hinds of indorsement% - An indorsement may be
either special or in blan2, and it may also be
either restricti.e or qualified or conditional%
S-eci!# !n( B#!n. In(o$se%ents
Section 34
&%ecial indorsement' indorsement in blan$. - A
special indorsement specifies the person to
whom# or to whose order# the instrument is to
be payable# and the indorsement of such
indorsee is necessary to the further negotiation
of the instrument% An indorsement in blan2
specifies no indorsee# and an instrument so
indorsed is payable to bearer# and may be
negotiated by deli.ery%
Section 35
Blan$ indorsement' how changed to s%ecial
indorsement. - &he holder may con.ert a blan2
indorsement into a special indorsement by
writing o.er the signature of the indorser in
blan2 any contract consistent with the
character of the indorsement%
P!*!"#e to Be!$e$
Section 4'
,ndorsement of instrument %ayable to bearer. -
6here an instrument# payable to bearer# is
indorsed specially# it may ne.ertheless be
further negotiated by deli.ery, but the person
indorsing specially is liable as indorser to only
such holders as ma2e title through his
indorsement%
Rest$icti0e In(o$se%ent
Section 36
(hen indorsement restricti!e. - An indorsement
is restricti.e which either'
(a) (rohibits the further negotiation of the
instrument, or
(b) 8onstitutes the indorsee the agent of the
indorser, or
(c) 3ests the title in the indorsee in trust for
or to the use of some other persons%
/ut the mere absence of words implying power
to negotiate does not ma2e an indorsement
restricti.e%
Section 37
"ffect of restricti!e indorsement' rights of
indorsee. - A restricti.e indorsement confers
upon the indorsee the right'
(a) to recei.e payment of the instrument,
(b) to bring any action thereon that the
indorser could bring,
(c) to transfer his rights as such indorsee#
where the form of the indorsement
authoriDes him to do so%
/ut all subsequent indorsees acquire only the
title of the first indorsee under the restricti.e
indorsement%
1UALIFIED INDORSEMENTS
Section 38
/ualified indorsement. - A qualified
indorsement constitutes the indorser a mere
assignor of the title to the instrument% It may be
made by adding to the indorser9s signature the
words Cwithout recourseC or any words of
similar import% )uch an indorsement does not
impair the negotiable character of the
instrument%
CONDITIONAL INDORSEMENT
Section 3#
+onditional indorsement. ) 6here an
indorsement is conditional# the party required
to pay the instrument may disregard the
condition and ma2e payment to the indorsee or
his transferee whether the condition has been
fulfilled or not% /ut any person to whom an
instrument so indorsed is negotiated will hold
the same# or the proceeds thereof# subIect to
the rights of the person indorsing conditionally%
INDORSEMENT TO OR BY COLLECTING BAN&
UNINDORSED INSTRUMENTS
Section 4#
Transfer without indorsement' effect of. - 6here
the holder of an instrument payable to his order
transfers it for .alue without indorsing it# the
transfer .ests in the transferee such title as the
transferor had therein# and the transferee
acquires in addition# the right to ha.e the
indorsement of the transferor% /ut for the
purpose of determining whether the transferee
is a holder in due course# the negotiation ta2es
effect as of the time when the indorsement is
actually made%
CANCELLATION OF INDORSEMENTS
Section 48
&tri$ing out indorsement. - &he holder may at
any time stri2e out any indorsement which is
not necessary to his title% &he indorser whose
indorsement is struc2 out# and all indorsers
subsequent to him# are thereby relie.ed from
liability on the instrument%
INDORSEMENT BY AGENT
Section 44
,ndorsement in re%resentati!e ca%acity. -
6here any person is under obligation to indorse
in a representati.e capacity# he may indorse in
such terms as to negati.e personal liability%
Section 2'
Liability of %erson signing as agent, and so
forth. - 6here the instrument contains or a
person adds to his signature words indicating
that he signs for or on behalf of a principal or in
a representati.e capacity# he is not liable on
the instrument if he was duly authoriDed, but
the mere addition of words describing him as
an agent# or as filling a representati.e
character# without disclosing his principal# does
not e0empt him from personal liability%
PRESUMPTION AS TO INDORSEMENTS
Ti%e
Section 45
Time of indorsement' %resum%tion. - -0cept
where an indorsement bears date after the
maturity of the instrument# e.ery negotiation is
deemed prima facie to ha.e been effected
before the instrument was o.erdue%
P#!ce
Section 46
Place of indorsement' %resum%tion. - -0cept
where the contrary appears# e.ery indorsement
is presumed prima facie to ha.e been made at
the place where the instrument is dated%
P!*ee
Section 42
"ffect of instrument drawn or indorsed to a
%erson as cashier. - 6here an instrument is
drawn or indorsed to a person as "cashier" or
other fiscal officer of a ban2 or corporation# it is
deemed prima facie to be payable to the ban2
or corporation of which he is such officer# and
may be negotiated by either the indorsement of
the ban2 or corporation or the indorsement of
the officer%
CONTINUATION OF NEGOTIABLE CHARACTER
Section 47
+ontinuation of negotiable character. ) An
instrument negotiable in its origin continues to
be negotiable until it has been restricti.ely
indorsed or discharged by payment or
otherwise%
CHAPTER 5
HO1"ER I! "2E CO2RSE
HOLDER
Section 1#1
CBolderC means the payee or indorsee of a bill
or note who is in possession of it# or the bearer
thereof,
HOLDER FOR VALUE
Section 26
(hat constitutes holder for !alue. - 6here
.alue has at any time been gi.en for the
instrument# the holder is deemed a holder for
.alue in respect to all parties who become such
prior to that time%
HOLDER IN DUE COURSE
Section 52
(hat constitutes a holder in due course. - A
holder in due course is a holder who has ta2en
the instrument under the following conditions'
(a) &hat it is complete and regular upon its
face,
(b) &hat he became the holder of it before it
was o.erdue# and without notice that it
has been pre.iously dishonored# if such
was the fact,
(c) &hat he too2 it in good faith and for
.alue,
(d) &hat 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%
Section 53
(hen %erson not deemed holder in due course.
) 6here an instrument payable on demand is
negotiated on an unreasonable length of time
after its issue# the holder is not deemed a
holder in due course%
0ights
A holder in due course can acquire a better
title than his predecessors because he
ta2es the instrument free from any defect
of title of prior parties%
Be is also free from defenses a.ailable to
prior parties among themsel.es%
Defenses
A holder N7& in due course ta2es
instrument subIect to all defenses because
he is treated as a transferee of a non-
negotiable paper%
=eal defenses which attach to the
instrument itself would be a.ailable e.en
against a holder in due course%
1egotiability
&he fact that a holder is not a holder in due
course will not affect the negotiability of
the instrument%
o 7nly affects such holderEs rights
and does not necessarily pre.ent
subsequent holders from acquiring
the status of due course holders
N7&-' Muestion of 67N a holder is a holder in due
course is significant only when there is e0isting
defense between prior parties% If there is no such
defense and the instrument is completely .alid#
then it will not matter 67N a holder is a holder in
due course%
HOLDER FOR VALUE
Section 24
Presum%tion of consideration. - -.ery
negotiable instrument is deemed %rima facie to
ha.e been issued for a .aluable consideration,
and e.ery person whose signature appears
thereon to ha.e become a party thereto for
.alue%
Section 25
.alue, what constitutes% L 3alue is any
consideration sufficient to support a simple
contract% An antecedent or pre-e0isting debt
constitutes .alue, and is deemed such whether
the instrument is payable on demand or at a
future time%
Section 26
(hat constitutes holder for !alue. - 6here
.alue has at any time been gi.en for the
instrument# the holder is deemed a holder for
.alue in respect to all parties who become such
prior to that time%
Section 27
(hen lien on instrument constitutes holder for
!alue% L 6here the holder has a lien on the
instrument arising either from contract or by
implication of law# he is deemed a holder for
.alue to the e0tent of his lien%
(hat constitutes !alue
3alue
means .aluable consideration
any consideration sufficient to support a
simple contract
3A)M4-N' includes liberality
/4& 8A5(7)' In cases where a negotiable
instrument is gi.en as a gift to the indorsee or
transferee# whate.er defenses that can be set up
against the transferor can also be set up against
the transferee%
3alue and consideration are generally con.ertible
terms% /ut'
+onsideration is more proper term when the payee
of the note sues the ma2er# or the payee of a bill
sues the drawer# or an indorsee sues his
immediate indorser%
.alue is more appropriate where a holder sues any
party to the instrument with whom he himself has
not dealt
3alue need not be full and a holder will be one for
.alue e.en if he ga.e less than the face .alue of
the instrument# %ro!ided that the intention of the
transferor is to transfer the fill amount
represented by the instrument%
Ban$ credit as !alue
6hen the holder of a chec2 deposits it with his
ban2 (assuming it is not the drawee ban2) and the
ban2 credits it to his account# is the ban2 at this
stage a holder for .alueO
8A5(7)' 5ost courts hold that it is not on the
theory that the ban2 has parted with nothing and
that the crediting is a mere boo22eeping entry%
&he ban2 becomes a holder for .alue only when
the depositor withdraws the amount of the
deposited instrument%
3A)M4-N' If ban2 credits in ad.ance prior to
clearing : a holder% If waits for clearing : not a
holder%
IN GOOD FAITH
Section 55
(hen title defecti!e. ) &he title of a person who
negotiates an instrument is defecti.e within the
meaning of this Act when he obtained the
instrument# or any signature thereto# by fraud#
duress# or force and fear# or other unlawful
means# or for an illegal consideration# or when
he negotiates it in breach of faith# or under
such circumstances as amount to a fraud%
Section 56
(hat constitutes notice of defect. - &o
constitutes notice of an infirmity in the
instrument or defect in the title of the person
negotiating the same# the person to whom it is
negotiated must ha.e had actual 2nowledge of
the infirmity or defect# or 2nowledge of such
facts that his action in ta2ing the instrument
amounted to bad faith%
In order to constitute notice# the holder must ha.e
A8&4AL not merely constructi.e 2nowledge of the
defect# or he must ha.e acted in bad faith%
<ross negligence in itself would not constitute
notice since it is not the equi.alent of bad faith nor
actual 2nowledge%
1otice, bad faith
&est established in )ec% >1 is subIecti.e%
/ad faith being a state of mind can only be pro.en
by circumstantial e.idence%
It is a question of fact which must be
determined in accordance with the
particular circumstances of each case%
Article 1338, CC
&here is fraud when# through insidious words or
machinations of one of the contracting parties#
the other is induced to enter into a contract
which# without them# he would not ha.e agreed
to% (!21$)
Article 1344, CC
In order that fraud may ma2e a contract
.oidable# it should be serious and should not
ha.e been employed by both contracting
parties%
Incidental fraud only obliges the person
employing it to pay damages% (!2F0)
Bolder must ha.e ta2en the instrument in good
faith and that at the time it was negotiated to him
he had no notice of any infirmity in the instrument
or defect in the title of the person negotiating it%
;ue course holding is N7& affected by the holderEs
acquisition of 2nowledge A"&-= he has ta2en the
instrument%
C$ossin ! C)ec.; B!( F!it)
Fin!ncin Co%-!n*; Ho#(e$ in Goo( f!it)
&endency of courts is to protect the buyer against
the finance company in the e.ent that the goods
sold turn out to be defecti.e% &he finance company
will be subIect to the defense of failure of
consideration and cannot reco.er the purchase
price from the buyer%
N7&-' Article 146 o3 Con.0/er4. Act 5 S&le o3
Con.0/er Pro$0ct. On In.t&l/ent P&-/ent6
7 In a consumer credit sale other than one
pursuant to an open-end credit plan# the obligation
of the consumer to whom credit is being e0tended
shall be e.idenced by a single instrument which
shall include# in addition to the disclosures
required by this act# the signature of the seller and
the person to whom credit is e0tended# the date it
was signed# a description of the property sold and
a description of any property transferred as a
trade-in% &he instrument e.idencing the credit
shall contain a clear and conspicuous typewritten
notice to the person to whom credit is being
e0tended that'
a) he should not sign the instrument if it
contains any blan2 space,
b) he is entitled to a reasonable return of the
precomputed finance charge if the balance
is prepaid, and
c) he is entitled to an e0act# true copy of the
agreement%
In cases where the instrument will be sold at a
discount to a ban2# financing company or other
lender# the .&i$ tr&n.3eree .8&ll %e .0%9ect to
&ll cl&i/. &n$ $e3en.e. which the debtor could
assert against the seller of consumer products
obtained hereto or with the proceeds thereof%
Post(!tin ! C)ec.
Section 12
-nte)dated and %ost)dated. ) &he instrument is
not in.alid for the reason only that it is ante-
dated or post-dated# pro.ided this is not done
for an illegal or fraudulent purpose% &he person
to whom an instrument so dated is deli.ered
acquires the title thereto as of the date of
deli.ery%
-ntedated instruments
If an instrument bears a date earlier than
the date of its actual issuance
Postdated
If an instrument contains a date later than
the date of its issuance
&he instrument is not only .alid but negotiable
though it is antedated or postdated%
A holder thereof can therefore be holder in due
course# and he is not put on inquiry by the mere
fact of its being antedated or postdated%
e%g% an instrument which is antedated in order to
e.ade the effects of the 4sury Law
Illegal under this section
Sus-icious ci$cu%st!nces
Negligence in trac2ing down a suspicious
circumstance which would put a prudent man on
inquiry is not of itself sufficient to pre.ent
reco.ery# though it may properly be admitted
together with other circumstances as e.idence of
bad faith%
/ut where the suspicious circumstances are so
cogent and ob.ious that to remain passi.e would
amount to bad faith# the holder would be subIect
to defences%
&here is difference between the e0istence of
suspicious circumstances and actual suspicion of
the purchaser%
If he does in fact suspect and fails to ma2e
in.estigation lest it disclose a defense# he
is not a purchaser in good faith%
In order to show that the defendant had
?2nowledge of such facts that his action in ta2ing
the instrument amounted to bad faithA it is not
necessary to pro.e that the defendant 2new the
e0act fraud that was practiced upon the plaintiff
by the defendantEs assignor# it being sufficient to
show that the defendant had notice that there was
something wrong about his assignorEs acquisition
of title# although he did not ha.e notice of the
particular wrong that was committed%
/ad faith may under certain circumstances be
imputed from 2nowledge of the purchaser of other
suspicious transactions of the transferor%
Effect of Pu$c)!se !t ! Discount
&he purchase of an instrument at a discount does
not# of itself# constitute bad faith%
In most cases a purchaser at a discount is
influenced by the financial condition of the
issuer of the instrument rather than by the
possibility that it was obtained subIect to
defense%
Bowe.er# if the instrument is purchased at a
hea.y discount# this fact together with other facts#
may be ta2en into account in deciding the issue of
purchase in good faith%
-g% (urchase at a discount although ma2er is
2nown to be'
)ol.ent#
Note is amply secured
7r is ta2en from a total stranger
&hese additional circumstances ta2en with the fact
of hea.y discount might pro.e bad faith%
Effect of Notice Not Sufficient
Section 54
1otice before full amount is %aid. - 6here the
transferee recei.es notice of any infirmity in the
instrument or defect in the title of the person
negotiating the same before he has paid the full
amount agreed to be paid therefor# he will be
deemed a holder in due course only to the
e0tent of the amount therefore paid by him%
Notice of defenses to a purchaser before he has
acquired title and before he has paid any portion
of the purchase price is fully operati.e to pre.ent
him from being a holder in due course%
/ut where he recei.es such notice after he has
partially paid the instrument# he is a holder in due
course as to such amount paid by him%
)hould he pay the remainder despite notice he
cannot thereafter reco.er such amount from the
ma2er because to that e0tent# he will be subIect to
the defences which the ma2er may ha.e%
Const$ucti0e Notice Not Sufficient
Kust as a purchaser of a negotiable instrument is
not put on inquiry# neither he is charged with
notice of defenses or equities disclosed by public
records nor is he affected by the doctrine of lis
%endens%
Notice to agent is chargeable against the principal
Notice of Acco%%o(!tion Not Notice of
Defect
Section 2#
Liability of accommodation %arty. - An
accommodation party is one who has signed
the instrument as ma2er# drawer# acceptor# or
indorser# without recei.ing .alue therefor# and
for the purpose of lending his name to some
other person% )uch a person is liable on the
instrument to a holder for .alue#
notwithstanding such holder# at the time of
ta2ing the instrument# 2new him to be only an
accommodation party%
A holderEs title is not rendered defecti.e by his
2nowledge that the party sought to be held liable
was an accommodation party% Also it does not
pre.ent such holder from being a holder in due
course%
COMPLETE AND REGULAR; MATERIAL
ALTERATION
Section 124
-lteration of instrument' effect of. - 6here a
negotiable instrument is materially altered
without the assent of all parties liable thereon#
it is a.oided# e0cept as against a party who has
himself made# authoriDed# or assented to the
alteration and subsequent indorsers%
/ut when an instrument has been materially
altered and is in the hands of a holder in due
course not a party to the alteration# he may
enforce payment thereof according to its
original tenor%
Bolder must ha.e ta2en the instrument complete
and regular on its face%
If a purchaser of a negotiable paper ta2es
prior to completion or contemporaneously
with the act of completion# he is not a
holder in due course%
5ere failure to affi0 re.enue stamps as
required by law does not render the
instrument incomplete%
An instrument payable in PP(blan2)PPP days
after date is N7& complete and regular on
its face%
6here it specifies the date but not the year
of maturity# it is also not complete%
Also when it is blan2 as to the payee#
although the holder can sue on the said
instrument without filling in the payeeEs
name (O)
6here the instrument is e0ecuted in blan2
and is subsequently filled up and issued to
the first holder who has no 2nowledge of
e0ecution in blan2# the holder is a holder in
due course%
If the first holder ta2es the instrument
complete in form with 2nowledge of
original e0ecution in blan2# he is not a
holder in due course# although he actually
too2 it complete%
&a2ing of an incomplete instrument lets in
all defenses and equities# 67N connected
with the e0ecution in blan2%
)ame rule when holder ta2es and
instrument irregular on its face'
o -%g% alteration which is apparent on
the instrument%
Section 125
(hat constitutes a material alteration% - Any
alteration which changes'
(a) &he date,
(b) &he sum payable# either for principal or
interest,
(c) &he time or place of payment'
(d) &he number or the relations of the
parties,
(e) &he medium or currency in which
payment is to be made,
(f) 7r which adds a place of payment where
no place of payment is specified# or any
other change or addition which alters
the effect of the instrument in any
respect# is a material alteration%
&ee )ec% !2+'
If alteration is apparent on the instrument#
it renders the instrument irregular within
)ec% >2(a)# e.en if the change may ha.e
been authoriDed or assented%
And this puts the purchaser on inquiry as to
all defenses and equities# 67N connected
with the alteration%
If the unauthoriDed alteration is /7&B
A((A=-N& and 5A&-=IAL# then not only is
the holder depri.ed of the rights of a holder
in due course# but the instrument is
entirely .oid and is a real defense against
enforcement%
)ec >2 (a) : deals with matters e.idencing bad
faith which are to be found on the instrument
)ec >2 (c) and (d) and )ec >1 : deal with the
issues of bad faith where the e.idence thereof is
not on the face of the instrument# but lies in
e0trinsic circumstances%
HOLDER AT OR AFTER MATURITY AND
,ITHOUT NOTICE OF DISHONOR
Section 53
(hen %erson not deemed holder in due course.
) 6here an instrument payable on demand is
negotiated on an unreasonable length of time
after its issue# the holder is not deemed a
holder in due course%
4nder Sec 234"5 a holder in order to be a
holder in due course must become a holder
of the instrument before it is o.erdue and
without notice that it has been pre.iously
dishonoured if such was the fact%
&he fact that the instrument is o.erdue is a
strong indication that it was dishonoured
and the law puts the potential holder on
inquiry as to whether it was dishonoured
and the reason therefor%
An instrument may be dishonoured'
o /y Non-acceptance
8an refer only to a bill of
e0change
ta2es place when the
drawee refuses to accept the
order of the drawer as stated
in the bill% &his may occur
e.en before the date of
maturity of the bill%
o /y non-payment
7ccurs at the time of
maturity
6hen the party primarily
liable i%e% the ma2er of the
note# or the acceptor of the
bill# fails to pay the
instrument at the date of
maturity%
N7&-' An instrument is not o.erdue on the day of
its maturity%
If instrument is payable after sight
&he date of maturity is fi0ed by the date of
presentment
If instrument is payable on the occurrence
&he date of the instrument is fi0ed by the
happening of the e.ent
Purchase made outside reasonable time
If the purchase of a demand instrument is
made outside of the reasonable time after
issue# the purchase is one of an o.erdue
instrument%
4sage of time
o )ec !$ pro.ides that ?regard is to
be had to'
the nature of the instrument#
the usage of trade or
business with respect to
such instrument and
the fact of the particular
caseA
o 6ith regard to the nature of the
instrument# it is the function of the
instrument which must be noted in
determining whether reasonable
time has elapsed or not%
o -.idence as to usage of trade or
business is admissible to show lapse
of reasonable time# and it is not
sufficient that such usage is general
but it should be local in the sense
that it may not be the same in all
localities%
o "acts of the particular case will .ary
in each case%
(ayment of interest may be an important factor in
determining reasonableness of time
6ith respect to instruments with a fi0ed maturity
but subIect to acceleration# either automatically or
at the option of the holder# the ultimate date of
maturity is the date of maturity for the purpose of
determining whether a purchaser is a holder in
due course# 4NL-)) such purchaser had
2nowledge of earlier maturity at the time he
acquired title%
RIGHTS OF A HOLDER IN DUE COURSE
Section 57
0ights of holder in due course. - A holder in due
course holds the instrument free from any
defect of title of prior parties# and free from
defenses a.ailable to prior parties among
themsel.es# and may enforce payment of the
instrument for the full amount thereof against
all parties liable thereon%
Section 58
(hen sub2ect to original defense. ) In the hands
of any holder other than a holder in due course#
a negotiable instrument is subIect to the same
defenses as if it were non-negotiable% /ut a
holder who deri.es his title through a holder in
due course# and who is not himself a party to
any fraud or illegality affecting the instrument#
has all the rights of such former holder in
respect of all parties prior to the latter%
EFFECT OF 1UALIFIED CONDITIONAL AND
RESTRICTIVE INDORSEMENTS
&he status of a holder as a holder in due
course is not affected by his ta2ing under
qualified indorsement%
o ;oes not necessarily imply that
there is a defect in the instrument
or in the title of any prior party
8onditional indorsement does not by itself
depri.e the conditional indorsee or any
subsequent holder of the rights of a holder
in due course%
o &he fact that a condition is imposed
on the indorsee does not
necessarily mean that there is some
defect in the title or infirmity in the
instrument% It merely subIects him
to the rights of the conditional
indorser should he recei.e payment
before condition is fulfilled%
=estricti.e indorsement which prohibits
further negotiation will not pre.ent the
indorsee from being a holder in due course%
Bowe.er# should he .iolate the prohibition
and indorse the instrument to another#
then the latter cannot be a holder in due
course%
o &here is no .alid negotiation%
&ransferee will ne.er be a holder
o &he restricti.e indorsement ser.es
as a notice to any prospecti.e
purchaser of the instrument of the
prohibition to negotiate
A restricti.e indorsement which constitutes
the indorsee as an agent of the indorser
can .est the former with the rights of a
holder in due course# if his principal# the
restricti.e indorser# is a holder in due
course% If restricti.e indorser is not a holder
in due course# neither is the restricti.e
indorsee# since he merely is an agent of
the indorser%
o Any subsequent holder from the
indorsee-agent will ha.e the same
rights as the latter% /ut such
subsequent holder can ne.er
acquire rights which are
antagonistic to the indorser-
principal# for he is merely a sub-
agent of the latter%
6here the restricti.e indorsement .ests
title in the indorsee in trust for a third
person can be a holder in due course#
regardless of the status of the restricti.e
indorser%
PAYEE AS HOLDER IN DUE COURSE
<=' A payee cannot be a holder in due course
because he has dealt directly with the ma2er or
drawer and thus must ha.e 2nowledge of facts
which may create defense%
Q(N' 8ircumstances which he is insulated from the
ma2er or drawer by a third party# such as a
remitter% Bence pro.ided he meets requirement in
)ec% >2# weight of authority considers him a holder
in due course%
RIGHTS OF A PURCHASER FROM A HOLDER
IN DUE COURSE
Section 58
(hen sub2ect to original defense. ) In the hands
of any holder other than a holder in due course#
a negotiable instrument is subIect to the same
defenses as if it were non-negotiable% /ut a
holder who deri.es his title through a holder in
due course# and who is not himself a party to
any fraud or illegality affecting the instrument#
has all the rights of such former holder in
respect of all parties prior to the latter%
A holder who deri.es title to the instrument
through a holder in due course has all the rights of
the latter e.en though he himself satisfies none of
the requirements of due course holding%
A purchaser with notice of defect in title
who ta2es from a holder in due course#
acquires all the rights of the latter and is
free from defenses%
A purchaser after maturity from a holder in
due course# 67N he too2 with notice
acquires all the rights of the latter and is
free from defenses%
A holder not for .alue who ta2es from a
holder in due course# 67N he ta2es the
instrument before maturity and with or
without notice# acquires all the rights of the
latter and is free from defenses%
=A&I7' If a holder in due course cannot
in.est his transferee with the rights which
come with his impro.ed position# his status
as a holder in due course would oftentimes
lose its significance because the
mar2etability of the instrument would be
seriously hampered%
N7&-'
If the purchaser from a holder in due
course is party to the fraud or illegality
affecting the instrument# he does not
acquire the rights of his predecessor%
A payee whose title was defecti.e at the
time the instrument was issued to him
cannot better it by selling the instrument to
a holder in due course and buying it bac2
again%
A person not an original party to the
instrument but who was a party to the
fraud in procuring it# cannot later reco.er
on the instrument# e.en if he purchased it
from a holder in due course%
PRESUMPTION IN FAVOR OF DUE COURSE
HOLDING
Section 5#
(ho is deemed holder in due course. - -.ery
holder is deemed prima facie to be a holder in
due course, but when it is shown that the title
of any person who has negotiated the
instrument was defecti.e# the burden is on the
holder to pro.e that he or some person under
whom he claims acquired the title as holder in
due course% /ut the last-mentioned rule does
not apply in fa.or of a party who became bound
on the instrument prior to the acquisition of
such defecti.e title%
&he presumption established by this pro.ision
applies in fa.our of holders only and not to other
2inds of transferees%
/efore the presumption can be a.ailed of by the
plaintiff# he must pro.e'
&hat he is a holder
&he genuineness of the ma2erEs or
drawerEs signature to establish# at least
presumpti.ely# the e0istence of the
obligation
&he genuineness of all indorsements
necessary to his title# to establish his lin2 to
the ma2er and thus his status as a holder%
7nce the plaintiff pro.es that he is a holder# then
the presumption that he is a holder in due course
arises%
If the defendant claims to ha.e a personal
defense# he will ha.e to pro.e it% )hould he
succeed in doing so# the burden of pro.ing
due course holding will be on the plaintiff-
holder%
&he law# howe.er# in the second sentence
of )ec% >$# establishes an e0ception to the
last mentioned rule where the defendantEs
defense is not his own i%e% the burden of
pro.ing due course holding will not be on
the plaintiff if the defendant became bound
on the instrument prior to the acquisition of
the defecti.e title%
&he presumption refers only to the status of the
present holder and not to any pre.ious holder%
&hus if the present holderEs rights depend
on a pre.ious holderEs status as a holder in
due course# he would ha.e to pro.e such
fact and cannot rely on the presumption
because the latter is no longer the holder%
TRANSFER OF UNINDORSED INSTRUMENT
Section 4#
Transfer without indorsement' effect of. - 6here
the holder of an instrument payable to his order
transfers it for .alue without indorsing it# the
transfer .ests in the transferee such title as the
transferor had therein# and the transferee
acquires in addition# the right to ha.e the
indorsement of the transferor% /ut for the
purpose of determining whether the transferee
is a holder in due course# the negotiation ta2es
effect as of the time when the indorsement is
actually made%
67N transferee under this section would acquire
the rights of holder in due course under )ec% >* if
his transferor is a holder in due course'
&wo .iews'
!
st
.iew' )ince )ec% >* fa.ors a holder# it
cannot apply to one who is not a holder li2e
a transferee without indorsement% )ec% +$
grants such transferee the title but not
necessarily the all the rights of the
transferor% In order to acquire the rights of
a prior holder in due course# the transferee
must first acquire the latterEs indorsement%
2
nd
.iew' )ec% +$ and >* ta2en together
gi.e him the title of the pre.ious holder in
due course free from defences and equities
of prior parties%
o &he 4niform 8ommercial 8ode has
settled the conflict in fa.our of the
latter .iew in the Iurisdictions which
ha.e adopted it% It pro.ides that the
transfer without indorsement .ests
in the transferee such rights as the
transferor had therein%
If the transferor who did not indorse was not a
holder in due course# then his transferee is subIect
to all defenses as if the instrument were non-
negotiable# although he himself may satisfy the
requirements of )ec% >2# unless he obtains the
formerEs indorsement%
Bowe.er# if at the time of such indorsement# the
transferee already 2new of the defense or he
obtains the indorsement after maturity# such
indorsement will not impro.e his status since his
being a holder in due course is determined as of
the time of indorsement%
An intention by both parties at the time of the
transfer to ha.e the paper indorsed is not enough
for it is the actual act of indorsement which
constitutes the negotiation%
8ampos# further states# that in the absence of
proof of the time of the subsequent indorsement#
the presumption of )ec% +> that e.ery negotiation
is prima facie deemed effected before the
instrument was o.erdue# can probably apply%