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HOLDER IN DUE COURSE (Section 52)

-One who has taken the instrument: RIGHTS OF A HOLDER IN DUE COURSE (Section 57)
(a) That is complete and regular on its face 1. Sue on the instrument in his own name
(b) Becomes the holder of it before it was 2. Receive payment and if the payment is in due
overdue, and without notice that it has course, the instrument is discharged
been previously dishonored, if such was 3. Holds the instrument free from any defect of
the fact title of prior parties
(c) Took it in good faith and for value 4. Holds the instrument free from defenses
(d) At the time it was negotiated to him, he available to prior parties among themselves
had no notice of any infirmity in the 5. Enforce payment of the instrument for the
instrument or defect in the title of the full amount thereon
person negotiating it.

The holder of a non-negotiable instrument DEFENSES


cannot attain the status of a holder in due REAL DEFENSES- those that are available
course. He is a mere assignee. against all parties, both immediate and remote,
including holders in due course or holders
Knowledge of an agent acting within the through the latter.
scope of his authority is a constructive It challenges the validity of the instrument
knowledge of the principal and will render itself. It cannot be enforced by the holder
the principal not a holder in due course. because there is no contract to enforce.

NOT HOLDER IN DUE COURSE: Where an instrument Examples:


payable on demand is negotiated for an 1. Incapacity of the person concerned
unreasonable length of time after its issue, the 2. Illegality of the contract when declared
holder is not deemed a holder in due course. by law (except when the maker or drawer
(Section 53) himself is a party to the illegality)
3. Want of delivery or incomplete
NOTICE BEFORE FULL AMOUNT PAID (Section 54) instrument
- Holder in due course only to the extent of 4. Forgery
the amount theretofore paid by him. 5. Want of authority, apparent and real
Where the instrument has been transferred 6. Duress amounting to forgery
to him in consideration of his promise to 7. Fraud in factum or fraud in esse
make future payments to his transferor, contractus
he is under no legal obligation to pay 8. Fraudulent alteration by holder
the balance of the amount he has agreed 9. Prescription
to pay on discovering the infirmity or 10. Other infirmities appearing on the face
defect. If he does, he can be considered of the instrument
a holder in due course only to the extent 11. Discharge at or after maturity
of the amount theretofore paid to him.

EVERY HOLDER IS DEEMED PRIMA FACIE TO BE A PERSONAL DEFENSES- those which grow out of
HOLDER IN DUE COURSE. (Section 59) the agreement or conduct of a particular person
When he is shown that the title of any in regard to the instrument which renders it
person who has negotiated the instrument was inequitable for him, though holding the legal
defective, the burden is on the holder to title, to enforce it against the party sought to
prove that he or some person under whom he be made liable but which are not available
claims acquired title as holder in due course. against holders in due course or holders through
the latter.

WHEN TITLE IS DEFECTIVE (Section 55) It is affects the validity of the agreement for
1. In the acquisition -when he obtained the which the instrument was issued.
instrument or any signature thereto by fraud
duress or force and fear or other unlawful Examples:
means, or for illegal consideration. 1. Filling of wrong date
2. Filling up of blanks not in accordance
2. In the negotiation -when he negotiates the with the authority given and within
instrument in breach of faith, or under such reasonable time
circumstance amounting to fraud. 3. Want of delivery or complete instrument
4. Absence or failure or consideration
*What constitutes Notice of Defect (Section 56) 5. Simple fraud or fraud in inducement
- Actual knowledge of the infirmity or defect 6. Acquisition of instrument by duress,
- Knowledge of such facts that his action in force or fear
taking the instrument amounted to bad faith.
7. Acquisition of instrument by unlawful as a mere transferee or does not satisfy the
means requirements of a holder in due course.
8. Acquisition of instrument for an illegal LIABILITIES OF PARTIES
consideration A person becomes a party to an instrument by
9. Negotiation of breach of faith signing his name thereon.
10. Negotiation under circumstances that GR: No person is liable on an instrument
amounts to fraud unless his signature appears thereon.
11. Innocent alteration or spoliation Exceptions:
(alteration by a stranger) (a) Where a person signs in a trade
12. Set-off between immediate parties or assumed name (Section 18)
13. Discharge by payment or renunciation or (b) The principal is liable if a
release before maturity duly authorized agents signs on
14. Discharge of party secondarily liable by his own behalf. (Section 19)
discharge of prior party (c) In case of forgery, the forger
is liable even if his signature
Real and Personal defenses are subject to does not appear on the
estoppel. Through estoppel, an admission or instrument
representation is rendered conclusive upon the (d) Where the acceptor makes his
person making it and it cannot be denied or acceptance of a bill on a
disproved as against the person relying thereof. separate paper. (Section 134)
(e) Where a person makes a written
promise to accept a bill before
IMMEDIATE PARTIES- those that are in direct it is drawn. (Section 135)
contractual relation to each other; those who
know of the conditions and limitations placed PRIMARILY LIABLE SECONDARILY LIABLE
upon the delivery of the instrument. -those who, by the terms -those who face only
of the instrument, are potential secondary
REMOTE PARTIES one who takes title to an absolutely required to liability on the
instrument by negotiation from either the pay the same instrument.
original payee or any subsequent holder; those - Maker of a - Indorser of a note
who are not in direct contractual relation to promissory note or bill
each other. - Acceptor of a bill - Drawer of a bill
of exchange
Example: - Certifier of a
Maker Payee A B check
(a) Immediate party: Maker and Payee are NOT LIABLE
immediate parties. - Drawee: until he accepts the instrument in
-but when P delivers to X, an intermediary, which case he becomes an acceptor.
and X delivers the instrument to P for
value, M and P are not immediate parties.
Immediacy signifies privity and not mere LIABILITIES OF A MAKER (Section 60)
proximity. -by making the promissory note:
(b) Remote party: M and A, M and B, P and B. (a) He engages that he will pay it according
(c) Prior party: M, P and A are prior parties to its tenor
with respect to B. (b) Admits the existence of the payee and
his then capacity to indorse it
FRAUD IN FACTUM FRAUD IN INDUCEMENT
A person without The signer knew what A person placing his name on the face of a
negligence signs an he was signing but was note is prima facie a maker and he is presumed
instrument which was, induced by fraud to to have acted with care and to have signed the
in fact, a negotiable sign. (PERSONAL) instrument in question with full knowledge of
instrument, but was its contents.
deceived as to the
character of the
instrument and without LIABILITIES OF A DRAWER (Section 61)
knowledge of it. (REAL) -by drawing a bill:
(a) Admits the existence of the payee and
his then capacity to indorse
RIGHTS OF TRANSFEREE (b) Engages that on due presentment, the
(a) Not a holder in due course- his rights are instrument will be accepted or paid
those of a transferee of a non-negotiable according to its tenor
instrument so that he is not free from (c) In case of dishonor, he will pay the
personal defenses amount thereof to the holder, or to the
(b) From a holder in due course- has all the subsequent indorser who may be compelled
rights of the latter even though he himself to pay it.
(e) Engages that on due presentment, it
Note: The drawer may insert in the instrument an shall be accepted or paid according
express stipulation negativing or limiting his to its tenor.
own liability to the holder, while the maker may (f) In case of dishonor, he will pay
not do so. the amount thereof to the holder,
or to the subsequent indorser who
may be compelled to pay it.
LIABILITIES OF AN ACCEPTOR (Section 62)
-by accepting the instrument: His liabilities as a warrantor is distinct
(a) Engages that he will pay it according to from his liability to pay the instrument. As
the tenor of his acceptance warrantor, his liability is unconditional. No
(b) Admits the existence of the drawer steps are necessary to fix an indorser
(c) Admits the existence of his signature liability for breach of warranty.
(d) Admits the existence of his capacity and
authority to draw the instrument Example:
(e) Admits the existence of the payee and R (P3000) P (changed it to P8,000) A (GF)
his then capacity to indorse. B (HDC)
In this case, B can recover a judgment against
Before Acceptance: not liable thereon R, the drawer in the amount of P3,000 and a
After Acceptance: he becomes an acceptor and judgment against A in the amount of P5,000 for
is virtually in the same position as a maker breach of the warranty of genuineness. A is
of a note. liable notwithstanding the fact that he had no
knowledge of the forgery.

LIABILITIES OF AN INDORSER II. IRREGULAR INDORSER


A person placing his signature upon an - Where a person, not otherwise a party to an
instrument otherwise than as a maker, drawer or instrument, places thereon his signature in
acceptor is deemed to be an indorser, unless he blank before delivery, he is liable as
clearly indicates by appropriate words his indorser, in accordance with the following
intention to be bound in some other capacity. rules:
(Section 63) (a) If payable to the order of third person
- Liable to the payee and to all
General Warranties (Section 65) subsequent parties.
Every person negotiating an instrument by (b) If payable to the order of the maker or
delivery or by qualified indorsement warrants drawer, or payable to bearer
that: - Liable to all parties subsequent to
(a) The instrument is genuine and in all the maker or drawer
respects what it purports to be (c) If he signs for the accommodation of the
(b) He has a good title to it payee
(c) All prior parties had capacity to - Liable to all parties subsequent to
contract the payee
(d) He has no knowledge of any fact which
would impair the validity of the
instrument or renders it valueless. ORDER OF LIABILITY (Section 68)
Among themselves
When the negotiation is by delivery only, the - Liable prima facie in the order in which
warranty extends in favor of no holder other they indorse
than the immediate transferee. - The order may be rebutted because it may
be shown by parol evidence either
written or oral that as between or among
I. GENERAL INDORSER themselves they have agreed otherwise.
- Every indorser who indorses without
qualification, warrants to all Joint payees or joint indorsees who indorse
subsequent holders in due course: jointly and severally.
(a) The instrument is genuine and in
all respects what it purports to be
(b) He has a good title to it
(c) All prior parties had capacity to
contract
(d) That the instrument at the time of
his indorsement, is valid and
subsisting.
FORM OF NEGOTIABLE INSTRUMENTS (Section 1) SUM CERTAIN IN MONEY (Section 2)
-An instrument to be negotiable must conform to If the holder can determine from the
the following requirements: instrument itself the amount he is entitled
(a) In writing and signed by the maker or to receive at maturity.
drawer
(b) Contains an unconditional promise or It is still a sum certain although it is paid:
order to pay a sum certain in money (a) With interest
(c) Payable on demand, or at a fixed or (b) By stated installments
determinable future time (c) By stated installments, with a provision
(d) Payable to order or to bearer that upon default in payment of any
(e) Where the instrument is addressed to a installment or of interest the whole
drawee, he must be named or otherwise shall become due
indicated therein with reasonable (d) With exchange, whether at a fixed rate
certainty. or at the current rate
(e) With costs of collection or an
The instrument need not follow the language attorneys fee, in case payment shall
of this Act, but any terms are sufficient which not be made at maturity.
clearly indicate an intention to conform to the
requirements thereof. (Section 10)
WHEN PROMISE IS UNCONDITIONAL (Section 3)
It is still deemed unconditional or
PROMISSORY NOTE- a promise to pay a sum of unqualified even though coupled with:
money. (a) An indication of a particular fund out
Parties: of which reimbursement is to be made, or
(a) Maker- the one who makes the promise and particular account to be debited with
signs the instrument. the amount.
(b) Payee- the party to whom the promise is (b) A statement of the transaction which
made or the instrument is payable. gives rise to the instrument.

An order or promise to pay out


BILL OF EXCHANGE- an order to pay a sum of of a particular fund is NOT
money unconditional.
Parties:
(a) Drawer- the one who issues and draws the
order bill; he gives the order to pay
money to a third party. DETERMINABLE FUTURE TIME (Section 4)
(b) Drawee- the party upon whom the bill is An instrument is payable at a certain
drawn; the person to whom the bill is determinable future time when it is payable:
addressed and who is ordered to pay. (a) At a fixed period after date or sight
(c) Payee- the party in whose favor the bill (b) On or before a fixed or determinable
is originally drawn or is payable. future time specified therein
(c) On or at a fixed period after the
occurrence of a specified event which is
PROMISSORY NOTE BILL OF EXCHANGE certain to happen, though the time of
Unconditional happening be uncertain.
Unconditional
promise to pay a
Nature order to pay the An instrument payable upon a
sum certain in
instrument contingency is NOT negotiable and the
money
Drawer happening of the event does not cure the
Maker defect.
Drawee
Payee
Payee
Parties Subsequent
Subsequent
Indorser PROVISIONS NOT AFFECTING NEGOTIABILITY (Sec.5)
indorser
Holder (a) Authorizes the sale of collateral
Holder
Drawer: securities in case the instrument be not
Maker: Primary paid at maturity
Liability Subsidiary
Liability (b) Authorizes a confession of judgment if
Liability
For payment and the instrument be not paid at maturity
Presentment For payment (c) Waives the benefit of any law intended
acceptance
Maker cannot Drawer can for the advantage or protection of the
unilaterally counterman his obligor
Retract (d) Gives the holder an election to require
retract his order to a third
promise to pay person. something to be done in lieu of payment
of money
OMISSIONS (Section 6) ANTE-DATING and POST-DATING (Section 12)
The validity and negotiability of an Ante-Date: when it contains a date earlier
instrument are NOT affected by the fact that: than the true date of issuance.
(a) It is not dated Post-Date: when it contains a date later than
(b) Does not specify the value given, or the true date of its issuance.
that any value has been given therefor
(c) Does not specify the place where it is Effect: does NOT invalidate the instrument,
drawn or the place where it is payable except if it is done for an illegal or
(d) Bears a seal fraudulent purpose.
(e) Designates a particular kind of current
money in which payment is to be made The person to whom an instrument so
dated is delivered acquires the title
thereto as of the date of delivery.

PAYABLE ON DEMAND (Section 7)


(a) Where it is expressed to be payable on WHEN DATE MAY BE INSERTED (Section 13)
demand or at sight or on presentation (a) Where an instrument is payable at a
(b) In which no time for payment is fixed period after date but is issued
expressed undated.
(c) Where an instrument is issued, accepted (b) Where an instrument is payable at a
or indorsed when overdue, it is, as fixed period after sight but the
regards the person so issuing, accepting acceptance is undated.
or indorsing it payable on demand
In the hands of a holder in due course, the
date inserted, even if wrong, is to be
regarded as the true date.
PAYABLE TO ORDER (Section 8)
The instrument may be drawn payable to the order
of: RULES ON CONSTRUCTION (Section 17)
(a) A payee who is not the maker, drawer or
drawee = WORDS unless it is
(b) The drawer or maker Sum: Words vs. Figures ambiguous then figures
(c) The drawee
(d) Two or more payees jointly =DATE OF THE
Interest, without
(e) One or more several payees INSTRUMENT, but if it
specific date
(f) The holder of an office for the time is undated, from the
being. issue thereof.
=dated as the TIME IT
When the instrument is payable to If not dated
WAS ISSUED
order, the payee must be named or Written vs. Printed =WRITTEN
otherwise indicated therein with Provisions
reasonable certainty. = the holder may treat
Doubt as to whether it
is as EITHER AT HIS
is a bill or a note
ELECTION
PAYABLE TO BEARER (Section 9) Signature is placed
(a) When it is expressed to be so payable upon the instrument =deemed an INDORSER
(b) When it is payable to a person named and not clear under
therein or bearer what capacity he signs
(c) When it is payable to the order of a I promise to pay =deemed JOINTLY AND
fictitious or non-existing person, and signed by 2 or more SEVERALLY LIABLE
such fact was known to the person making persons THEREON
it so payable
(d) When the name of the payee does not
purport to be the name of any person
(e) When the only or last indorsement is an
indorsement in blank

PRESUMPTION AS TO DATE (Section 11)


Where the instrument or an acceptance or
any indorsement thereon is dated, such date is
deemed prima facie to be the true date of the
making, drawing, acceptance or indorsement, as
the case may be.
INCIDENTS IN THE LIFE OF A NEGOTIABLE INCOMPLETE INSTRUMENT not delivered (Sec.15)
INSTRUMENT - Where an incomplete instrument has not
1) Issue been delivered, it will not, if
2) Negotiation completed and negotiated, without
3) Presentment for Acceptance (for bill of authority, be a valid contract in the
exchange) hands of any holder, as against any
4) Acceptance person whose signature was placed
5) Dishonor by non-acceptance thereon before delivery.
6) Presentment for payment
7) Dishonor for non-payment The invalidity of the above instrument is
8) Notice of Dishonor only with reference to the parties whose
9) Protest (in certain cases) signatures appear on the instrument before
10) Discharge and not after delivery.

Example:
ISSUE- The first delivery of the instrument Maker---P(steals and inserted his name as
complete in form, to a person who takes it payee) A B C D (holder in due course)
as a holder. *D cannot enforce the note to M. As the
signature of M was placed thereon before
delivery, he does not assume any
DELIVERY transfer of possession,
responsibility. There is however a prima
actual or constructive, from one
facie presumption of delivery, which M must
person to another.
rebut by proof to the contrary.

*D can enforce the instrument to P, A, B and


Kinds of Instruments issued:
C because as indorsers, they warrant that
1. Complete instrument
the instrument us genuine and in all
2. Incomplete instrument, but delivered
respects what it purports to be.
3. Incomplete instrument not delivered

INCOMPLETE INSTRUMENT but delivered (Section 14)


The holder or the person in possession has
COMPLETE INSTRUMENT (Section 16)
the prima facie authority to complete an
- One that is mechanically complete and in
incomplete instrument by filling up the blanks
accordance with the requirements of
therein.
Section 1.
NOTE: The authority to complete is not
an authority to alter.
Every contract on negotiable instrument even
if it is completely written is incomplete and
A signature on the blank paper delivered in
revocable until its delivery for the purpose of
order that it may be converted into a negotiable
giving it effect.
instrument operates as a prima facie authority
No initial delivery, no liability
to fill it up as such for any amount.

If a complete instrument is found in the The instrument may be enforced only against a
possession of an immediate party or a remote party prior to completion if filled up strictly
party other than a holder in due course, there in accordance with the authority given and
is a prima facie presumption of delivery but within a reasonable time.
subject to rebuttal.
The defense that the instrument has not been
filled up in accordance with the authority given
If a complete instrument is in the hands of a and within the reasonable time is NOT available
holder in due course, a valid delivery thereof as against a holder in due course.
by all parties prior to him is conclusively
Example:
presumed.
M authorized P to put only P10,000.00
P put P12,000.00 A B C
When delivery is made, it is presumed to be
made with the intention to transfer ownership of (a) If C is not a holder in due course
the instrument to the payee. - C cannot collect from M
- However it may be shown between (b) If C is a holder in due course
immediate parties that the delivery was - C can collect from M.
- The defense that P exceeded his authority is
conditional or for special purpose. not available against a holder in due course.
LIABILITY OF PERSONS SIGNING IN TRADE OR ASSUMED GR: not bound by his indorsement for lack of
NAME (Section 18) capacity
One who signs in a trade or assumed name is Except: when he is guilty of actual
liable as if he signed his own name. fraud, committed by stating that he is
- It is necessary however that the party of age, when in fact, he is not.
who signed intended to be bound by his
signature. (b) Other incapacitated persons
The incapacity is a real defense.
He is not bound to restore anything he
SIGNATURE BY AGENT (Section 19) has received by virtue of the contract.
The signature of any party may be made by a Except: to the extent to which he
duly authorized agent. has been benefitted thereby.
No particular form of appointment is (Art.1399, Civil Code)
necessary for this purpose.
The authority of the agent may be (c) Corporations
established as in other cases of agency. -not bound for ultra vires acts and acts
beyond its powers.
LIABILITY OF PERSON SIGNING AS AGENT (Section 20)
In order that an agent who signs a negotiable
instrument may escape personal liability, he
must be: FORGERY (Section 23)
(a) duly authorized GR: the forged signature is inoperative
(b) adds words to his signature indicating No right to retain the instrument
that he signs as an agent No right to give discharge
No right to enforce payment
(c) discloses his principal. EXCEPT:
1. If precluded from setting up forgery or
If the agent signs an instrument in want of authority as defense.
his own name and discloses no principal,
a) Those who by their act, silence
he is personally bound and evidence to or negligence are estopped from
the contrary may not be admitted to
setting up defense of forgery
relieve him from personal liability. b) Those who warrant or admit the
- As between immediate parties,
extrinsic evidence may be admitted to genuineness of the signature is
shown the real character of the question:
transaction. - Indosers
- Acceptors
- Persons negotiating by delivery.

SIGNATURE BY PROCURATION (Section 21) 2. Where the forged signature is not


Procuration- the act by which a principal necessary to the holders title in which
gives power to another to act in his place as case the forgery may be disregarded.
he could himself.
RIGHTS OF PARTIES in case of forged indorsements
Effect: (a) Note payable to order
It operates as notice that the agent has but -the party whose indorsement is forged is
limited authority to sign, and the principal is not liable to any holder even to a holder
bound only in case the agent in so signing acted in due course.
within the actual limits of his authority.
(b) Note payable to bearer
(a) Agent exceeded authority -the party whose indorsement is forged is
- Principal is NOT bound. liable to a holder in due course only.
(b) Agent acted with abuse of authority given
- Principal is liable
(c) Bill payable to order
- Not a defense against bona fide holder for
value. -the party whose indorsement is forged is
- not liable to any holder even a holder in
due course.

EFFECT OF INDORSEMENT BY INFANT OR CORPORATION (d) Bill payable to bearer


(Section 22) -the drawee may debit the drawers
The indorsement or assignment of the account in spite of the forged
instrument by a corporation or by an infant indorsement.
passes the property therein, notwithstanding The forged indorsement is not
that from want of capacity, the corporation or necessary to the title of the
infant may incur no liability thereon. holder. The drawee cannot recover
from the holder.
(a) Minor
CONSIDERATION -An inducement to a contract; ABSENCE OR WANT OF CONSIDERATION (Section 28)
the cause, price or impelling influence which -total lack of any valid consideration.
induces a contracting party to enter into the Effect: a defense against a holder not
contract. in due course (mere personal defense)

MOTIVE is the personal or private reasons of FAILURE OF CONSIDERATION


a party in entering into a contract. -failure or refusal of one of the parties to do,
perform or comply with the consideration agreed
PRESUMPTION OF CONSIDERATION (Section 24) upon.
Every negotiable instrument is deemed prima Effect: a defense pro tanto, whether the
facie to have been issued for a valuable failure is an ascertained and liquidated
consideration. amount or otherwise.
Every person whose signature appears thereon
has become a party thereto for value.

ACCOMMODATION PARTY (Section 29)


VALUE (Section 25) -one who has signed the instrument:
-any consideration sufficient to support a (a) As a maker, drawer, acceptor or indorser
simple contract. (b) Without receiving any value for
A valuable consideration need not be adequate.
signature
It is sufficient if it is a valuable one.
(c) For the purpose of lending his name to
some other person.
An antecedent or pre-existing debt constitutes
In lending his name to the
value. -It must be shown that the holder has
accommodated party, the accommodation
given up the pre-existing debt or the right to
party is in effect a surety for the
sue.
former.
Example:
M owes P P1,000 payable today. LIABILITY OF ACCOMMODATION PARTY
M fails to pay in cash so he issued a check for that liable on the instrument to a holder for
amount to P who accepts the check. value notwithstanding such holder at the
-the consideration for the check is the pre-existing time of taking the instrument knew him to be
debt of M. only an accommodation party.
liable to a holder in due course except if
the defense is absence of consideration
HOLDER FOR VALUE (Section 26) between the accommodation party and the
-one who has given a valuable consideration for accommodated party.
the instrument issued or negotiated to him.
RIGHTS OF ACCOMMODATION PARTY
The holder is deemed as such not only as 1) Right to revoke accommodation before the
regards the party to whom value has been given instrument is negotiated
by him but also in respect to all those who 2) Right to reimbursement from accommodated
became parties prior to the time when value was party
given. 3) Right to contribution from other solidary
accommodation maker.
A holder is presumed to be a holder for value
until the contrary is shown. ACCOMMODATION PARTY REGULAR PARTY
Signs without receiving Signs for value
HOLDER HAS LIEN ON THE INSTRUMENT (Section 27) value thereof
Where the holder has a lien on the Purpose: to lend his name Not sign for that
instrument, arising either from contract or to other persons purpose
by implication of law, he is deemed a holder
Can show by parol No parol evidence
for value to the extent of his lien.
evidence that he is may limit his
merely an accommodation liability
(a) Instrument > debt secured
party
-the pledgee is a holder for value to the
Defense of absence or Can avail said
extent of his lien
failure of consideration defense against a
is NOT a defense against holder not in due
(b) Instrument < debt secured
a holder not in due course
-the pledgee is a holder for value for the
course
full amount and may therefore recover all.
May sue for reimbursement Cannot sue any
If between the pledger and the party liable on the the accommodated party subsequent party for
instrument, there are existing defenses, then the reimbursement.
pledgee can collect on the instrument only to the
extent of the amount of the debt.
NEGOTIATION the transfer of a negotiable GR: Indorsement must be of entire instrument
instrument from one person to another made ELSE: does not operate as a negotiation of
the instrument.
in such a manner as to constitute the
transferee the holder thereof. EXCEPT: if part of the amount has already been
paid, the unpaid balance may be indorsed.
Methods of Negotiation:
1. Payable to order
BLANK INDORSEMENT
-indorsement + Delivery
-specifies no particular indorsee; consist only
ELSE: it operates as mere assignment.
of the signature of the payee or indorser.
*When indorsement is subsequently
obtained, the transfer operates as a
negotiation only as of the time the SPECIAL INDORSEMENT
indorsement is actually made. (Sec.49) -One where it specifies the person to whom, or
to whose order, the instrument is to be payable.
2. Payable to bearer
-mere delivery Conversion of Blank Indorsement to Special
Indorsement:
*Where an instrument payable to bearer is indorsed - By writing over the signature of the
specially, it may nevertheless e further negotiated by
indorser in blank any contract
delivery; but the person indorsing specially is liable
as indorser to only such holders as make title through consistent with the character of the
his indorsement. (Sec. 40) indorsement. (Section 35)

RESTRICTIVE INDORSEMENT
Assignment- the transfer of the title to the (a) Prohibits the further negotiation of the
instrument, with the assignee generally taking instrument
only such title as his assignor has subject to (b) Constitutes the indorsee the agent of
all defenses available against his assignor. indorser
(c) Vests the title in the indorsee in trust
NEGOTIATION ASSIGNMENT for or to the use of some other person.
Refers only to Refers generally to an
negotiable instruments ordinary contract Mere absence of words implying power to
Transferee is an negotiate does not make an indorsement
Transferee is a holder restrictive.
assignee
Holder in due course Assignee is subject to
is subject to real both real and personal Effects:
defenses only defenses It confers upon the indorsee the right to:
(a) Receive the payment of the instrument
Holder in due course
Assignee merely steps (b) Bring any action thereon that the
may acquire a better
into the shoes of the indorser could bring
title than the
assignor (c) Transfer his rights as such indorsee,
transferor
where the form of the indorsement
General indorser Assignor does not
authorizes him to do so.
warrants solvency of warrant it unless
prior parties stipulated
QUALIFIED INDORSEMENT
Indorser is liable
Assignor is liable even -constitutes the indorser as mere assignor of
only when there is
without notice of the title to the instrument.
presentment and notice
dishonor How? by adding to the indorsers
of dishonor
signature the words without
Governed by the NIL Governed by Civil Code
recourse or any words of similar
import.
Whether negotiation or assignment, payment by
negotiable instrument is merely conditional. It is
subject to the condition that it be converted into Effects:
cash at maturity. 1. He is secondarily liable for breach of
his warranties as an indorser.
2. He is liable if the instrument is
dishonored by non-acceptance or non-
INDORSEMENT-the writing of the name of the payment due to:
payee in the instrument with the intent either
- Forgery
to transfer title to the same, or to strengthen
- Lack of good title to the
the security of the holder by assuming a
instrument indorsed
contingent liability for its future payment, or
- Lack of capacity to contract on
both.
the part of prior parties
- The fact that the instrument is
Place of indorsement:
1. On the instrument itself valueless or not valid at the
2. Upon a paper attached thereto (allonge)
time of indorsement which fact Every indorsement is presumed prima facie to
was known to him. have been made at the place where the instrument
ABSOLUTE INDORSEMENTS is issued; except when the contrary appears.
-one by which the indorser binds himself to CONTINUATION OF NEGOTIATION (Section 47)
pay, upon no other condition than the An instrument negotiable in its origin
failure of the prior parties to do so, and continues to be negotiable until:
of due notice to him of such failure. 1. it has been restrictively indorsed, or
2. discharged by payment or otherwise.
CONDITIONAL INDORSEMENTS
-one by which the indorser imposes some
other conditions to his liability or on the STRIKING OUT OF INDORSEMENT (Section 48)
indorsees right to collect the proceeds of The holder may at any time strike out any
the instrument. indorsement which is not necessary to his title.

A party required to pay the instrument may Effect: The indorser whose indorsement is
disregard the condition and make payment to struck out, and all indorsers subsequent to
indorsee or his transferee. him are thereby relieved from liability on the
instrument.
The person who receives the payment will hold
(a) Bearer Instrument
the proceeds subject to the right of conditional
-holder may strike out all indorsements because
indorser. they are not necessary to his title.
- merely holds the proceeds in trust and does
not become the owner thereof until the
(b) Order Instrument
condition is fulfilled.
-cannot strike out the payees indorsement
because an order instrument cannot be validly
JOINT INDORSEMENT negotiated without his indorsement.
- Where an instrument is payable to the
order of two or more payees or indorsees
who are not partners, all must indorse TRANSFER WITHOUT INDORSEMENT (Section 49)
unless the one indorsing has authority (Applicable only to payable to order)
to indorse for the others. - Where the holder of a bill payable to order
transfers it for value without indorsing it,
INDORSEMENT WHERE INSTRUMENT DRAWN OR INDORSED the transferee cannot negotiate the bill by
TO A PERSON AS CASHIER (Section 42) indorsing it to another.
- deemed prima facie to be payable to the bank
of corporation of which he is such officer; If the transferor has legal title, transferee
and may be negotiated by either indorsement
of the bank or corporation, or the
acquires:
indorsement of the officer. 1. Such title
2. Right to have the indorsement of the
INDORSEMENT WHERE THE NAME IS MISSPELLED (Sec. 43) transferor
- Where the name of a payee or indorsee is 3. Right to maintain legal action the maker
wrongly designated or misspelled, he may or acceptor or other party liable to the
indorse the instrument as therein described, transferor.
adding if he thinks fit, his proper
signature.

A person may correct a spelling error only if the REACQUIRER (Section 50)
intention of the maker or drawer was that the If a prior party reacquires an instrument
instrument should be payable to the person making the before maturity, he may negotiate the same
correction. further. But after paying the holder, he may not
claim payment from any of the intervening
INDORSEMENT IN REPRESENTATIVE CAPACITY (Sec.44) parties.
- Where any person in under obligation to
indorse in a representative capacity, he may Limitations:
indorse in such terms as to negative personal A prior party cannot further negotiate the
liability. instrument:
- See Sec.20 re liabilities.
1) Where it is payable to the order of a
third person, and has been paid by the
TIME OF INDORSEMENT (Section 45) drawer
Every negotiation is deemed prima facie to 2) Where it was made or accepted for
have been effected before the instrument was accommodation and has been paid by the
overdue. party accommodated
EXCEPT when an indorsement bears a date
after the maturity of the instrument.
3) Where the instrument is discharged when
acquired by prior party.
PLACE OF INDORSEMENT (Section 46)

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