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 maker or drawer;
b. Must contain an unconditional promise or order to pay a sum certain in money;
c. Must be payable on demand, or at a fixed or determinable future time;
d. Must be payable to order or to bearer; and
e. Where the instrument is addressed to a drawee, he must be named or otherwise indicated therein with
reasonable certainty.

Instrument = contract or even a document, an agreement

Promissory note - a - d (4 requisites)

Bill of exchange - a - e (5 requisites)

PN - Maker and payee

BOE - Drawer, drawee and payee

SECTION 2.Certainty as to Sum; What Constitutes. — The sum payable is a sum certain within the meaning of
this Act, although it is to be paid —
a. With interest; or
b. By stated installments; or
c. By stated installments, with a provision that upon default in payment of any installment or of interest
the whole shall become due; or
d. With exchange, whether at a fixed rate or at the current rate; or
e. With costs of collection or an attorney's fee, in case payment shall not be made at maturity.

SECTION 3. When Promise 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 gives rise to the instrument.
But an order or promise to pay out of a particular fund is not unconditional.

SECTION 4. Determinable Future Time; What Constitutes. — An instrument is payable at a determinable future
time, within the meaning of this Act, which is expressed to be payable —
a. At a fixed period after date or sight; or
b. On or before a fixed or determinable future time specified therein; or
c. On or at a fixed period after the occurrence of a specified event, 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 event does not cure
the defect.

SECTION 5. Additional Provision 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. But the negotiable character of
an instrument otherwise negotiable is not affected by a provision which —
a. Authorizes the sale of collateral securities in case the instrument be not paid at maturity; or
b. Authorizes a confession of judgment if the instrument be not paid at maturity; or
c. Waives the benefit of any law intended for the advantage or protection of the obligor; or
d. Gives the holder an election to require something to be done in lieu of payment of money.
But nothing in this section shall validate any provision or stipulation otherwise illegal.

Article talks about the exceptions to the general rule that an instrument containing an order or promise to do any act in
addition to the payment of money is non-negotiable.
SECTION 5. Additional Provision 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. But the negotiable character of
an instrument otherwise negotiable is not affected by a provision which —
a. Authorizes the sale of collateral securities in case the instrument be not paid at maturity; or
b. Authorizes a confession of judgment if the instrument be not paid at maturity; or
c. Waives the benefit of any law intended for the advantage or protection of the obligor; or
d. Gives the holder an election to require something to be done in lieu of payment of money.
But nothing in this section shall validate any provision or stipulation otherwise illegal.

SECTION 6. Omission; Seal; Particular Money. — The validity and negotiable character of an instrument are
not affected by the fact that —
a. It is not dated; or
b. Does not specify the value given, or that any value has been given 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 kind of current money in which payment is to be made. cdrep
But nothing in this section shall alter or repeal any statute requiring in certain cases the nature of the
consideration to be stated in the instrument.

A stipulation that payment will be made in a foreign currency stated in the instrument is valid and does not affect
negotiability.

“All monetary obligations shall be settled in the currency which is the legal tender in the Philippines. However, parties
may agree that the obligation or transaction shall be settled in any other currency at the time of payment.” (R.A. No.
8183)

SECTION 7. When Payable on Demand. — An instrument is payable on demand —

a. Where it is expressed to be payable on demand, or at sight, or on presentation; or
b. In which no time for payment is expressed.
Where an instrument is issued, accepted, or indorsed when overdue, it is, as regards the person so issuing,
accepting, or indorsing it, payable on demand.

SECTION 8. When Payable to Order. — The 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 maker, drawer, or drawee; or
b. The drawer or maker; or
c. The drawee; or
d. Two or more payees jointly; or
e. One or some of several payees; or
f. The holder of an office for the time being. cdpr
Where the instrument is payable to order the payee must be named or otherwise indicated therein with
reasonable certainty.

SECTION 9.When Payable to Bearer. — The instrument is payable to bearer —

a. When it is expressed to be so payable; or
b. When it is payable to a person named therein or bearer; or
c. When it is payable to the order of a fictitious or non-existing person, and such fact was known to the
person making it so payable; or
d. When the name of the payee does not purport to be the name of any person; or
e. When the only or last indorsement is an indorsement in blank.

People v. Wagas - a check “payable to cash” is a check payable to bearer and could be negotiated by mere delivery
without the need of an indorsement.

GR: An instrument payable to a fictitious or non-existing person is payable to bearer only when such character is known
to or intended by the party making it payable to such person.

EXPN: Where the name of the fictitious person is fraudulently imposed on the maker or drawer, as a real person, and
afterwards impersonated by the fraudulent indorser, the instrument is not payable to bearer.
SECTION 10. Terms, When Sufficient. — The instrument need not follow the language of this Act, but any terms
are sufficient which clearly indicate an intention to conform to the requirements hereof.

Jimenez v. Bucoy - An acknowledgment may become a promise by the addition of words by w/c a promise of payment
is naturally implied as “payable”, “payable on a given day”, “payable on demand, “paid… when called for”; To constitute
a promissory note, no precise words of contract are necessary, provided they amount, in legal effect, to a promise to
pay.

SECTION 11. Date, Presumption As To. — Where the instrument or an acceptance or any indorsement thereon
is dated, such date is deemed prima facie to be the true date of the making, drawing, acceptance, or
indorsement, as the case may be.

The date appearing in the instrument is presumed as the date when it was made, drawn, accepted or indorsed, as the
case may be.

He who claims that some other date is the true date has the burden to establish such claim.

SECTION 12. Antedated and Postdated. — The instrument is not invalid for the reason only that it is antedated
or postdated, provided this is not done for an illegal or fraudulent purpose. The person to whom an instrument
so dated is delivered acquires the title thereto as of the date of delivery.

Presumption: date on the instrument is the true date

SECTION 13. When Date May Be Inserted. — Where an instrument expressed to be payable at a fixed period
after date is issued undated, or where the acceptance of an instrument payable at a fixed period after sight is
undated, any holder may insert therein the true date of issue or acceptance, and the instrument shall be
payable accordingly. The insertion of a wrong date does not avoid 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.

When a date be inserted:

1. When an instrument expressed to be payable at a fixed period after date is issued or undated, or
2. Where the acceptance of an instrument payable at a fixed period after sight is undated.

Kinds of Incomplete Instrument (Sec. 14, 15, 16)

1. Mechanically incomplete but delivered instrument (Sec. 14)
2. Mechanically incomplete but undelivered instrument (Sec. 15)
3. Mechanically complete but undelivered instrument (Sec. 16)

SECTION 14. Blanks; When May Be Filled. — Where 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 blanks therein. And a
signature on a blank paper delivered by the person making the signature in order that the paper may be
converted into a negotiable instrument operates as a prima facie authority to fill it up as such for any amount.
In order, however, 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 given and
within a reasonable time. But if any such instrument, after completion, is negotiated to a holder in due course,
it is valid 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 given and within a reasonable time.

Mechanically incomplete but delivered instrument

Two steps or acts involved in the issuance of a negotiable instrument (acts necessary to complete the instrument):
1. Mechanical act of writing an instrument
2. Delivery thereof for the purpose of giving effect thereto

Requisites in order that a person may have a prima facie authority to convert a signature on a blank paper into a
negotiable instrument and fill it up for any amount:
1. The blank paper bears the signature of the maker/drawer;
 2. The instrument was delivered by the maker/drawer (person making the signature); and
3. The instrument was delivered for the purpose of negotiating it.

What is the extent of the authority of the holder to fill in the blanks?
1. If the date of the instrument was in blank - holder may fill in the blank by writing the date intended
2. If the place of payment of a bill or note is left in blank - holder has implied authority to fill the blank
3. If the amount is in blank - holder may fill it up provided that the authority was reasonably exercised and without
fraud
4. If the name of payee is in blank - holder has absolute authority to put his own name into the blank as payee
or he may insert the name of a 3rd person

Note:

1. Holder in due course - a person who is in good faith (who knows that the instrument is free from any defect in
the title of the person who transferred it or in the instrument itself
2. Not a holder in due course - one who knows that there was some defect in the title of the person who
transferred it or in the instrument itself

Liabilities of parties when a mechanically incomplete instrument has been delivered and the blank has been filled up:
1. Any person who became a party thereto prior to its completion shall be liable to:
a. Any person who is not a holder in due course, provided that:
i.It was filled up strictly in accordance with the authority given; and
ii.Within a reasonable time
b. Person who is a HDC as if it had been filled up strictly in accordance with the authority given and within a
reasonable time.
2. Any person who became a party after the completion of the instrument shall be liable to any holder in
accordance with his warranties:
.Indorser (Sec. 66)
i.Negotiates by mere delivery (Sec. 65)
ii.Acceptor (Sec. 62) - drawee once he accepts or certifies the BoE.

In the hands of a HDC, it was as if it was filled up in accordance with the authority given and within a reasonable time.

Borromeo v. Sun - the blanks may be filled up by the holder, the signing in blank being with the assumed authority to
do so. Where 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 blanks therein.

Pacheco v. CA - The holder, or the person in possession of the instrument has prima facie authority to complete it by
filling up the blanks therein.

*Personal defense

SECTION 15. Incomplete Instrument Not Delivered. — Where an incomplete instrument has not been delivered,
it will not, if completed and negotiated without authority, be a valid contract in the hands of any holder, as
against any person whose signature was placed thereon before delivery.

Mechanically incomplete and undelivered instrument

SECTION 16. Delivery; When Effectual; When Presumed. — Every contract on a negotiable instrument is
incomplete and revocable until delivery of the instrument for the purpose of giving effect thereto. As between
immediate parties, and as regards a remote party other than a holder in due course, the delivery, in order to
be effectual, must be made either by or under the authority of the party making, drawing, accepting, or
indorsing, as the case may be; and in such case the delivery may be shown to have been conditional, or for a
special purpose only, and not for the purpose of transferring the property in the instrument. But where the
instrument is in the hands of a holder in due course, a valid delivery thereof by all parties prior to him so as to
make them liable to him is conclusively presumed. And where the instrument is no longer in the possession
of a party whose signature appears thereon, a valid and intentional delivery by him is presumed until the
contrary is proved.
Mechanically complete but undelivered instrument

Delivery - transfer of possession of the instrument with the intent to negotiate it

Negotiation - is the transfer of title and ownership of one person to another which will have the effect of giving the
transferee a title or right that is better than what the transferor had

Holder - payee or indorsee of a bill or note who is in possession of it or the bearer thereof

Q: If a bill or note remains undelivered, what is its status?

A: It is inoperative and revocable until it is delivered.

Kinds of parties when talking about delivery:

1. Immediate and remote parties - refers to the knowledge and are deemed to know about the limitations and
conditions placed upon the delivery of the instrument
2. Holders in due course - those defined under Sec. 52; one who is in good faith or one who knows that the
instrument is free from any defect; not immediate parties

Four (4) instances when it can be shown there was no valid delivery
1. It was not supposed to be delivered
2. No authority to deliver
3. There were conditions imposed
a. Ex. It should be signed with a co-maker
4. It was for a special purpose
. Ex. Intended only for safe keeping

Sec. 16 - Mechanically complete but undelivered instrument

Delivery - transfer of possession of the instrument with the intent to negotiate it

Negotiation - is the transfer of title and ownership of one person to another which will have the effect of giving the
transferee a title or right that is better than what the transferor had

Holder - payee or Indorsee of a bill or note who is in possession of it or the bearer thereof

4 instances when it can be shown there was no valid delivery

1. It was not supposed to be delivered
2. No authority to deliver
3. Conditions imposed
a. Ex. It should be signed with a co-maker
4. It was for a special purpose only
. Ex. Intended only for safe keeping

> Non-delivery can be shown by whoever will be liable.

Sept. 5, 2019

Recap:

Section 16

Two steps or acts involved in the issuance of a negotiable instrument:

3. Mechanical act of writing an instrument
4. Delivery thereof for the purpose of giving effect thereto (or making it a negotiable instrument
> Until there is delivery, the contract is inoperative.

General presumption under Sec. 16: when an incomplete instrument, which is not delivered yet, is already in the hands
of the holder, there is a presumption that it has been validly delivered to the holder. (Disputable presumption)

Presumption of the law when a mechanically complete but undelivered instrument is actually delivered - depends on
what kind of person the holder is:
3. Holder in due course - there is a conclusive presumption that there is a valid delivery by all parties prior to him
(disputable presumption)
4. Not a holder in due course - there is only a conclusive presumption (cannot be rebutted) that it was validly
delivered until the contrary is proven

De La Victoria v. Burgos - under Section 16 of the NIL, every contract on a negotiable instrument is incomplete and
revocable until delivery of the instrument for the purpose of giving effect thereto.

In this case, the check which the City Fiscal De La Victoria was supposed to deliver it to the Asst. City Fiscal was not
yet delivered. Hence, it was still considered as “public funds” and cannot be subject to garnishment.

People v. Yabut - the spouses were claiming that the checks were drawn in Caloocan and were given to Yambao
(messenger of the payees) who delivered it to the payees in Bulacan. When the payees did not get paid, they filed a
case in Bulacan.

The drawers of the check argued that the damage occurred in Caloocan when the spouses gave it to Yambao.

SC held that Yambao cannot be held liable since he was acting as a mere messenger. Therefore the delivery happened
when it was delivered to the payees in Malolos, Bulacan.

Doctrine: The delivery of the instrument is the final act essential to its consummation as an obligation. An undelivered
bill or note is inoperative. Until delivery, the contract is revocable. And the issuance as well as the delivery of the check
must be to a person who takes it as a holder, which means "(t)he payee or indorsee of a bill or note, who is in possession
of it, or the bearer thereof."

People vs Gorospe - the checks were issued by Parulan were made in Guiguinto, Bulacan, and delivered to SMC also
in Bulacan (which was received by the sales supervisor). Were deposited in Planter’s Bank (drawee bank) at Santa
Maria, Bulacan and was received by BPI at San Fernando, Pampanga for clearing purposes. The case was instituted
in Pampanga.

Same holding in Yabut. Until delivery, the contract is revocable.

Lim v. CA - Lims ordered materials, which they paid with 7 checks. The checks were received by the collector of the
payee. When Linton deposited the checks with the bank, they were dishonored. Linton then instituted a case against
the Lims. The case was instituted in Malabon because that was where the company of Linton (his office). Again, venue
was questioned.

Delivery to the collector of the payee is not a valid delivery in contemplation of the law. The collector cannot be
considered as the holder as defined in the law.
Other cases regarding delivery:
1. DBP v. Wei - the checks were not delivered to the bank for reasons not stated in the case. Without the delivery
of said checks to the petitioner, it did not acquire any right or interest therein and cannot therefore assert any
cause of action, founded on said checks, whether against the drawer Sima Wei or against the Producers Bank
or any of the other respondents. However, it does not mean that drawer Sima Wei is freed from liability to
petitioner Bank under the loan evidenced by the promissory note agreed to by her. Since the checks were not
delivered to the petitioner, no obligation was extinguished. Even assuming that the checks were delivered, it
still does not constitute payment until encashment by the creditor.
2. RCBC v. Hi-Tri Development Corp. - the manager’s check remained undelivered; the amount of check
remained with the Bakunawas who did not abandon their claim of the funds. Thus, their funds cannot be escheated by
the government because they were not yet abandoned.
a. Escheat is a proceeding whereby real and personal properties in the Philippines of a deceased person who
has left no will or legal heirs become the properties of the state.

SECTION 17. Construction Where Instrument is Ambiguous. — Where the language of the instrument is
ambiguous or there are omissions therein, the following rules of construction apply:
a. Where the sum payable is expressed 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 fix the amount;
b. Where the instrument provides 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. Where the instrument is not dated, it will be considered to be dated as of the time it was issued;
d. Where there is a conflict between the written and printed provisions of the instrument, the written
provisions prevail;
e. Where 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. Where a signature is so placed upon the instrument that it is not clear in what capacity the person
making the same intended to sign, he is to be deemed an indorser;
g. Where an instrument containing the word "I promise to pay" is signed by two or more persons, they
are deemed to be jointly and severally liable thereon.

Construction where instrument is ambiguous.

Rules under Sec. 17:

1. Sums expressed in words and in figures different - in case of discrepancy between the two, sum expressed in
words shall control
a. Ex.
2. Words ambiguous or uncertain -
3. Date when stipulated interest to run not specified -
4. Instrument undated -
5. Conflict between the written and printed provisions -
6. Whether instrument bill or note in doubt -
7. Capacity in which person signed in doubt -
8. Instrument signed by two or more persons -
. “I promise to pay” signed by two or more makers - solidarily liable
a. “We promise to pay” signed by two or more makers - jointly liable

PNB v. Conception Mining Company, Inc -

Sec. 2 (e) of NIL -

Sec. 5 of NIL - “demand and dishonor waived”

Sec. 18 - Liability of person signing in trade or assumed name

GR: Only persons whose signatures appear on an instrument are liable thereon
EXPNS (5):
1. Person signs in a trade or assumed name;
2. Principal is liable if a duly authorized agent signs on his own behalf;
a.
3. Forger is liable even if his signature does not appear on the instrument;
4. Acceptor makes his acceptance of a bill on a separate paper;
5. Person makes a written promise to accept a bill before it was drawn.

Ex. Erap signed bank documents in the name of Jose Pidal.

Sec. 19 and 20
Requisites in order that the agent will not be personally liable for his signature in an instrument (AWDi) :
1. The agent is duly Authorized;
2. He adds to his signature Words indicating that he signs for or on behalf of his principal; and
3. He Discloses his principal.

Legal effects of an agent’s signature:

 It will bind his principal and he will be exempt from personal liability.

PBC v. Aruego - Example of a case where a person alleged that he was merely signing as an agent was still found to
be personally liable since he did not disclose his principal. Court inspected the drafts accepted by Aruego and found
that he DID NOT DISCLOSE that he was signing as representative of Philippine Education Foundation Company. He
merely signed "JOSE ARUEGO (Acceptor) (SGD) JOSE ARUEGO." For failure to disclose his principal, Aruego is
personally liable for the drafts he accepted.

Section 22. Effect of indorsement by infant or corporation.

Section 23. Forged signature; effect of.

1. Section 23 applies only to forgery of a signature.

 Alterations of the instrument are covered by Sections 124 and 125 of the NIL.

2. The forged signature may be the signature of the Drawer or Maker, or that of the Payee or Indorser.

3. No right may arise from a forged signature and no right may be asserted against the person whose signature is
forged.
 A person whose signature was forged was never a party and never consented to the contract which allegedly
gave rise to the instrument.
 However, Section 23 does not avoid the instrument, but only the forged signature. The existence of one forged
signature in a negotiable instrument will not render void all the other negotiations of an instrument with respect
to the other parties whose signatures are genuine.
 In other words, a forged signature may give rise to a valid right after a series of negotiations of the instrument,
in favor of the indorsee who acquired his rights from a lawful indorser whose right is founded on a valid
signature and who did not know of the forgery.

GR: a forged signature makes it wholly inoperative. Because of the forged signature, you cannot acquire any right
under or through the forged signature.
EXPN: Unless the party against whom it is sought to enforce such right is precluded

PROBLEM: A forged the signature of X as Maker in a Promissory Note payable as follows:

“I promise to pay to A or order PHP100,000.00.”
A negotiated the instrument to B.
a) May B hold X liable?
b) Will it matter if B is a holder in due course or not?

4. The effects of forgery of a SIGNATURE:

1. It is wholly inoperative, and
2. No right against any party thereto, can be acquired through or under such signature –

a) To retain the instrument, or

b) To give a discharge therefor, or
c) To enforce payment thereon.

Exception: When the party against whom it is sought to enforce such right is precluded from setting up the forgery or
want of authority as a defense.

5. Persons barred from raising the defense of forgery:

 a. The FORGER.
b. The INDORSERS and persons negotiating the instrument by delivery as they warrant that the instrument is
genuine and in all respects what it purports to be (Sections 65 and 66, NIL).
c. The ACCEPTOR with respect to the signature of the drawer as he admits the existence of the drawer, the
genuineness of his signature, and his capacity and authority to draw the instrument (Sec. 62).
d. Those who are barred by estoppel or by their own negligence from raising the defense of forgery.
i.Estoppel - By one’s acts or omissions, one is prohibited from
e. Others who admit the genuineness of the signature expressly or impliedly, such as those who failed to deny
specifically under oath the genuineness of an actionable document (Section 8, Rule 8, Rules of Court)

6. Forgery of a signature is a real defense which could be raised against any holder, even a holder in due course.

7. Forgery of an indorsement in a Promissory Note payable to order.

PROBLEM:
A made a Promissory Note payable to B or order. B’s indorsement was forged by C, who indorsed the Note to D. D
indorsed the Note to E.
a) May E hold A liable?

> E is the holder of the note. He cannot hold A liable (whose signature is genuine) because E’s right or title to the note,
was BROKEN because of the forgery of C’s signature. Thus, there was no valid transfer of the instrument. He cannot
also hold B liable since he was never a party of the instrument. The effect of C’s forgery of B’s signature is .

b) May E hold C and D liable?

> YES. C is the indorser and the forger (two-fold liability). Under Sec. 66, as an indorser, he warranted that the
instrument is what it

Forgery is different from alteration.

Forged signature - not the real signature and there was no signature in the first place; no alteration.

Whose signature may be forged?

1. Maker
2. Drawer
3. Indorser

Person whose signature is forged was never a party to the contract.

If there is a forged signature on the instrument, it does not make the whole instrument void but only the forged signature.
Thus, the instrument may still be validly negotiated and may end up in the hands of the holder.

If there was an allegation of forgery, who may invoke such? The person who alleges the forged signature.

PNB v. Quimpo - drawer’s signature was forged

Gempesaw v. Phil. Bank - indorser’s signature was forged

Gempesaw v. Phil. Bank - Natividad Gempesaw owned 4 grocery stores in Caloocan. She entrusted the issuance of
the checks with Alicia Galang (trusted bookkeeper of Natividad) and Gempesaw only signs the checks once delivered
to her, without checking the actual amounts in the purchase orders. These checks (total of 82) were issued for the
payment to the suppliers of the grocery stores. Almost all of them are crossed checks (can only be deposited to the
owner of the bank account). The Chief of Accounts of Phil. Bank accepted all the checks. The checks had the genuine
signature of Gempesaw, the forged signature of the payee and the genuine indorsements of either Romero and Lam.
The amount of the checks amounted to P1.2M. This prompted Gempesaw to demand the recovery of the amount from
the bank. SC held that not only Gempesaw was negligent but also the bank. The bank had the policy that for a 2nd
indorsement, it needed the approval of the Chief Accountant, which was not followed. Thus, the bank was not supposed
to accept the crossed checks. 50/50 liability. The drawee bank pays the amount of the check with a forged indorsement,
it cannot escape liability and cannot debit the amount to the account of the drawer. However, if the drawer was negligent
as well, as in this case, for not checking her bank statements, then she is also liable.
Province of Tarlac case -

CHAPTER II

Consideration

SECTION 24. Presumption of Consideration. — Every negotiable instrument is deemed prima facie to have
been issued for a valuable consideration; and every person whose signature appears thereon to have become
a party thereto for value.

Consideration - an inducement to a contract, that is the cause, price or impelling influence, which induces a party to
enter into a contract.

“Consideration” in NIL -

Effect if there is no valuable consideration: there was or want of consideration or failure of consideration

Absence or want of consideration - no consideration to begin with or illegal

Failure of consideration - consideration was not executed

Pineda v. Dela Rama -

Travel-On -

Sec. 29

Accommodation party - p. 149

Liabilities
1. Primary
a. Maker
b. Acceptor
2. Secondary
. Drawer
a. Indorser

Accommodation party - surety

Accommodated party - principal

SECTION 31. Indorsement; How Made. — The indorsement must be written on the instrument itself or upon a
paper attached thereto. The signature of the indorser, without additional words, is a sufficient indorsement.

Indorsement - writing of the name of the payee on the instrument with the intent to either (or both):
1. To transfer the title to the same, or
2. To strengthen the security of the holder by assuming a contingent liability for its future payment.

Sec. 32 - indorsement must be of entire instrument

GR: indorsement must be an indorsement of the entire instrument

EXPN: where the instrument has been paid in part, it may be indorsed as to the residue

SECTION 33.Kinds of Indorsement. — An indorsement may be either special or in blank; and it may also be either
restrictive or qualified, or conditional.
Once an instrument as issued satisfies all the requirements of negotiability, no indorsement, even restrictive one, can
negate its negotiable status.

Special indorsement - one where the name of the payee is specified.

Two forms of special indorsement:

1. One that specifies the person to whom the instrument is payable
2. One that specifies the person to whose order the instrument is payable

CHAPTER IV
Rights of the Holder
SECTION 51. Right of Holder to Sue; Payment. — The holder of a negotiable instrument may sue thereon in
his own name; and payment to him in due course discharges the instrument.

GR: In the hands of holder other than a holder in due course, a negotiable instrument is subject to the same defenses
whether real or personal as if it were non-negotiable.
EXPN: Under Secs. 58 and 59, a holder who is not himself a holder in due course but derives his title from a holder
in due course is given the rights of such prior holder.
Ordinary holder / mere holder - a holder that does not meet all the conditions to qualify as a HDC
SECTION 52. What Constitutes a Holder in Due Course. — A holder in due course is a holder who has taken
the instrument under the following conditions:
a. That it is complete and regular upon its face;
b. That he became the holder of it before it was overdue, and without notice that it had been previously
dishonored, if such was the fact;
c. That he took it in good faith and for value;
d. That at the time it was negotiated to him he had no notice of any infirmity in the instrument or defect
in the title of the person negotiating it.

In absence of any of the requisites under Sec. 52, holder cannot be considered a HDC but merely an assignee of a
contract. The only disadvantage of a holder who is not a HDC is that the instrument is subject to defenses as if it were
non-negotiable. Thus, as compared to a HDC, it is possible for a HDC to acquire greater rights under a negotiable
instrument that those possessed by the payee / holder.

Under Sec. 59, every holder is generally deemed prima facie a HDC. Burden of proving otherwise lies in the person
who disputes the presumption.

Holder - the payee or indorsee of a bill or note, who is in possession of it, or the bearer thereof. (Sec. 191, par. 7)

A drawee does not, by paying a bill, become a holder in due course under Sec. 52. Upon acceptance and payment of
the instrument, he thereby strips it of all negotiability and reduces it to a mere voucher or proof of payment.

De Ocampo v. Gatchalian - crossed check and payee was the De Ocampo Clinic
 Or if even if there be “suspicious circumstances”, that there is such inquiry as will satisfy a prudent man of the
validity of the transaction.
 Without fraud or any other unlawful intent or design
 What about the transferor of the instrument? Did he have to be in good faith in transferring the instrument?

A holder must take in GF, but if he does not take in bad faith, that his good faith is sufficiently shown.

“For value”

“No notice” - having no actual knowledge of any infirmity in the instrument or defect in the title of the person negotiating
it. (DON’T MIX UP); or he must not have acted in bad faith himself.
Knowledge of an agent acting within the scope of his authority is constructive knowledge of the principal and will render
the principal not a HDC.

BPI v. Roxas - Cashier’s check of BPI was issued as payment for vegetable oil that Roxas sold and delivered. Cashier’s
check - it was the primary obligation of the bank to pay it upon demand

SECTION 53. When Person Not Deemed Holder in Due Course. — Where an instrument payable on demand is
negotiated an unreasonable length of time after its issue, the holder is not deemed a holder in due course.

A person is not deemed a HDC where an instrument, payable on demand, is negotiated an unreasonable length of
time after its issue.

What is a “reasonable time” will depend on the circumstances. (Borromeo v. Sun)

SECTION 54. Notice Before Full Amount Paid. — Where the transferee receives 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 extent of the amount theretofore paid
by him.

Q: There can be instances that the instrument may not be paid in one time or maybe partially paid. If that instrument is
partially paid and then notice of any infirmity of the instrument is brought to the attention of the party before payment of
the full amount, what would be the effect?

Check De Leon for example. Although Sir gave a simpler one and wrote it on the board.

SECTION 55. When Title Defective. — The title of a person who negotiates an instrument is defective 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.

When title is defective

1. In the acquisition - 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
2. In the negotiation - he negotiates the instrument in bad faith, or under such circumstances as amount to a
fraud.

Sec. 55 emphasizes the honesty of the negotiator as brought to the notice of the taker.

SECTION 56. What Constitutes Notice of Defect. — To constitute 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 have had actual
knowledge of the infirmity or defect, or knowledge of such facts that his action in taking the instrument
amounted to bad faith.

Notice - transferee must have actual knowledge of the infirmity in the instrument or defect

Test of notice: did the transferee have notice of the infirmity or defect or have a reasonable suspicion of the same?

SECTION 57. Rights 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 available to prior parties among themselves, and may
enforce payment of the instrument for the full amount thereof against all parties liable thereon.

Rights of a holder in due course:

1. May sue on the instrument in his own name
2. May receive payment
3. Holds the instrument free from any defect of title of prior parties
4. Holds the instrument free from defenses available to prior parties among themselves; and
5. May enforce payment of the instrument for the full amount thereof against all parties liable thereon
GR: HDC may enforce the payment of the full amount.

EXPNS:

Sec. 27 - Extent of his lien

Sec. 28 -
Sec. 54 - Notice of infirmity or defect

Can a holder not in due course act like a HDC?

Yes. Sec. 58.

SECTION 59. Who is Deemed Holder in Due Course. — Every 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 defective,
the burden is on the holder to prove that he or some person under whom he claims acquired the title as holder
in due course. But the last-mentioned rule does not apply in favor of a party who became bound on the
instrument prior to the acquisition of such defective title.

Before the presumption can be availed of by the plaintiff, he has to prove that he is a holder. Once the person through
whose hands an instrument has passed shows that he is a holder, the presumption accrues in his favor. He does not
have to prove that he acquired the instrument under Sec. 52.

When it is shown that the title of any person who has negotiated the instrument was defective as when the instrument
is not payable to him or to bearer (De Ocampo v. Gatchalian), then the burden of proof shifts to the holder who must
show he is a HDC although he is not himself a holder in due course (holder through a HDC)

CHAPTER V

LIABILITIES OF PARTIES

Liability - obligation of a party to a negotiable instrument to pay the same according to its terms

Primary liable - persons who by the terms of the instrument is absolutely required to pay the same. All other parties are
secondarily liable (Sec. 192); unconditionally bound and absolutely required to pay the instrument upon its maturity
1. Maker of a PN
2. Acceptor of a BoE
3. Certifier of a check

SECTION 60. Liability of Maker. — The maker of a negotiable instrument by making it engages that he will pay
it according to its tenor, and admits the existence of the payee and his then capacity to indorse.

Maker (of a promissory note) is a party primarily liable for he engages to pay the note according to its tenor, subject to
no condition whatever.

SECTION 61. Liability of Drawer. — The drawer by drawing the instrument admits the existence of the payee
and his then capacity to indorse; and engages that on due presentment the instrument will be accepted or
paid, or both, according to its tenor, and that if it be dishonored, and the necessary proceedings on dishonor
be duly taken, he will pay the amount thereof to the holder, or to any subsequent indorser who may be
compelled to pay it. But the drawer may insert in the instrument an express stipulation negativing or limiting
his own liability to the holder.

Liability of a drawer - conditional; agrees to pay the bill only in the event certain conditions are complied with:
1. Presentment;
2. Dishonor of the instrument; and
3. The taking of the necessary proceedings of dishonor
a. Protest (in the case of foreign bills); and
b. Notice of dishonor to the drawer

Drawer, just as the maker of a note, warrants the existence of the payee and the latter’s capacity to indorse the
instrument at the time of its issuance.

The drawee is not liable to the BoE until he accepts the same or certifies it.

SECTION 62.Liability of Acceptor. — The acceptor by accepting the instrument engages that he will pay it
according to the tenor of his acceptance; and admits —
a. The existence of the drawer, the genuineness of his signature, and his capacity and authority to draw
the instrument; and
b. The existence of the payee and his then capacity to indorse.

A drawee has no liability on the bill until and unless he accepts the same. Liability of the drawee becomes primary after
his acceptance for then he engages to pay it according to the tenor of his acceptance, subject to condition whatever.

“According to the tenor of his acceptance” - the acceptor would be liable to a HDC only as to its original amount. If he
pays before knowledge of the alteration - he may be subsequently recover the difference between the altered and
original amount

SECTION 63. When Person Deemed Indorser. — A person placing his signature upon an instrument otherwise
than as maker, drawer, or acceptor is deemed to be an indorser, unless he clearly indicates by appropriate
words his intention to be bound in some other capacity.

Other than what is provided under Sec. 63, where a signature is so placed upon the instrument that it is not clear in
what capacity the person making the same intended to sign, he is to be deemed an indorser (Sec. 17(f)).

SECTION 64. Liability of Irregular Indorser. — Where a person, not otherwise a party to an instrument, places
thereon his signature in blank before delivery, he is liable as indorser, in accordance with the following rules:
a. If the instrument is payable to the order of a third person, he is liable to the payee and to all subsequent
parties.
b. If the instrument is payable to the order of the maker or drawer, or is payable to bearer, he is liable to
all parties subsequent to the maker or drawer.
c. If he signs for the accommodation of the payee, he is liable to all parties subsequent to the payee.

Irregular indorser (anomalous indorser) - one who indorses for some purpose other than to transfer the instrument;
indorses the instrument in an unusual or peculiar manner (his name appears where we would naturally expect another
name).

SECTION 65. Warranty Where Negotiation by Delivery and So Forth. — Every person negotiating an instrument
by delivery or by a qualified indorsement warrants —
a. That the instrument is genuine and in all respects what it purports to be;
b. That he has a good title to it;
c. That all prior parties had capacity to contract;
d. That he has no knowledge of any fact which would impair the validity of the instrument or render it
valueless.

But when the negotiation is by delivery only, the warranty extends in favor of no holder other than the
immediate transferee.

The provisions of subdivision (c) of this section do not apply to persons negotiating public or corporation
securities, other than bills and notes.

Qualified indorsement - made by adding the words “without recourse” or words of similar import, to the indorser’s
signature, and constitutes the indorser as mere assignor of the title to the instrument.
 Warranties of a person negotiating by delivery Warranties of a person indorsing the instrum
(qualified indorsement)

Warranties extend in favor of no holder other than the immediate transferee. The warranties apply to all subsequent holders.

SECTION 66.Liability of General Indorser. — Every indorser who indorses without qualification, warrants, to
all subsequent holders in due course —
a. The matters and things mentioned in subdivisions (a), (b), and (c) of the next preceding section; and
b. That the instrument is at the time of his indorsement valid and subsisting.
And, in addition, he engages that on due presentment, it shall be accepted or paid, or both, as the case may
be, according to its tenor, and that if it be dishonored, and the necessary proceedings on dishonor be duly
taken, he will pay the amount thereof to the holder, or to any subsequent indorser who may be compelled to
pay it.

General indorser - one who indorses w/o qualification;

 Every indorser other than a qualified indorser is a general indorser;
 Term includes a restrictive indorser who indorses “for collection”
 Thus, warranties under Sec. 66 are applicable to a restrictive indorser.

Ex. I promise to pay A or bearer

X (insolvent)

A (knew about X’s insolvency) - qualified indorsement -> B (also knew about X’s insolvency)
B -> delivery -> C (did not know about X’s insolvency)
C -> delivery -> D (current holder)

Q: Can D, the holder, go against, A, B or C?

A: A is liable because he violated the warranty under Sec. 65 that he has no knowledge of any fact which would impair
the validity of the instrument or render it valueless
B would not be liable to D because he is not an immediate transferor as to D (Sec. 65 because negotiation is by delivery
only, the warranty extends in favor of no holder other than the immediate transferee)
C would not be liable because he did not know about X’s insolvency. Thus, he did not violate his warranty under Sec.
65

Order of liability:

GR: Liabile in the order in which they indorsed (to subsequent ones)
EXPN: Unless they had another agreement that they should be liable in another way

Ex. A->B->C->D->E->F

F can go after any indorser ; holder has a right of recourse against any indorser at any order, at his option

Sec. 84 and 151 - they both talk about the right of recourse of holder against all parties secondarily liable.

Indorser who pays the holder has right to reimbursement from other indorsers. But generally, has no right to collect
contribution from other indorsers prior to paying the payee unless otherwise agreed upon.

A general indorser may be made liable if the instrument is dishonored for any reason whether valid or not. The
last paragraph of Sec. 66 means that a general indorser also warrants that the instrument shall be paid and, if
dishonored, that he himself will pay it.

SECTION 67.Liability of Indorser Where Paper Negotiable by Delivery. — Where a person places his
indorsement on an instrument negotiable by delivery he incurs all the liabilities of an indorser.
Ex. A indorsed the note negotiable by mere delivery “To B” and delivered it to B.

SECTION 68. Order in Which Indorsers are Liable. — As respects one another, indorsers are liable prima facie
in the order in which they indorse; but evidence is admissible to show that as between or among themselves
they have agreed otherwise. Joint payees or joint indorsees who indorse are deemed to indorse jointly and
severally (solidary).

GR: The order of indorsement establishes only a prima facie order of liability among indorsers
EXPN: Evidence is admissible to show that as between or among themselves, they have agreed otherwise.

GR: Successive indorsers do not bear the relation of sureties of one another
EXPN: there is an agreement to be so bound.
While there is no right to seek contribution, an indorser may hold a prior indorser liable for the amount of the instrument
paid.

SECTION 69. Liability of an Agent or Broker. — Where a broker or other agent negotiates an instrument without
indorsement, he incurs all the liabilities prescribed by section sixty-five of this Act, unless he discloses the
name of his principal and the fact that he is acting only as agent.