Divina L. Reyes BM41 Section 40. Indorsement of instrument payable to bearer.

Where an instrument, payable to bearer, is indorsed specially, it may nevertheless be further negotiated by delivery; but the person indorsing specially is liable as indorser to only such holders as to make title through his indorsement. This section seems to cover situations: (1) where the paper originally payable to order is indorsed in blank and later indorsed specially; (2) where the paper originally payable to bearer is indorsed specially. In both cases at common law it was held that such paper could be further negotiated by delivery. This also seems to have been the intent of the framers of the Act. As a rule, instruments payable to bearer are negotiable by (1) mere delivery, or (2) by blank indorsement plus delivery. Under this section, a bearer instrument may be negotiated by a special indorsement, and further negotiated by mere delivery, thus making the instrument still payable to bearer. The special indorser becomes liable as an indorser only to holder who derived his title thru the special indorsers indorsement. This section applies only to instruments which are originally payable to bearer. It does not apply to instruments originally payable to order, even when they become payable to bearer because the only or last indorsement is in blank. What is the rule on indorsements of bearer instrument? By virtue of this sec., an instrument payable to bearer is not converted into an instrument payable to order by being indorsed specially and therefore, the indorsee mey further negotiate the instrument by mere delivery. This means that an instrument which is originally payable to bearer is always payable to bearer. But, such indorser, because of his indorsement, can be held liable secondarily by those holders who can trace their

title to the instrument by the series of unbroken indorsements form such special indorser. His liability is that of a general indorser as provided in sec. 66. Negotiation of an instrument payable to bearer but specially indorsed. Where the instrument originally payable to bearer is indorsed, it may nevertheless be further negotiated by delivery. The person indorsing specially is liable as indorser only to such holders as make title through his indorsement. EXAMPLE:

I promise to pay Bryan Tan or bearer P10,000,000 30 days after date. (Sgd.) Aye Santos Suppose Bryan now negotiates the note to Carlo by special indorsement Pay to Carlo (Sgd.) Bryan. Carlo, in turn, negotiates the instrument to Dan by mere delivery. The note remains payable to bearer, but in this case Dan elects to present the note for payment to Aye on maturity and Aye dishonors it, Dan can collect only from Carlo, from whom he derived his title. Dan cannot collect from Bryan because he did not get his title from Bryan. Bryan will only liable to Carlo who derived his title from the indorsement of Bryan. Supposing Bryan merely delivers the note to Carlo and Carlo to Dan also by merely delivery, and Aye dishonors the note, can Dan collect from Bryan? Yes, because the negotiations are all by mere delivery. This section will not apply to an instrument originally payable to order. Application of Section 40 Section applies only to instruments which are originally payable to

bearer

Cannot apply where the paper is originally made payable to order and

indorsed in blank; for by Section 9, a note or bill which is payable to order becomes payable only when the last indorsement is in blank; and hence, when a blank indorsement is followed by a special indorsement, the instrument is not within the terms of Section 9. Indorsement is not necessary to the holders title in the following cases: (1) When the instrument is payable to order and all indorsements are special except if indorsed back to prior party in which case, all intervening indorsements may be stricken out; (2) When the instrument is indorsed in blank so that the holder can strike out all indorsements subsequent to the blank indorsement; and (3) When the instrument is originally payable to bearer.

Divina L. Reyes BM41 Section 92. Effect of notice given on behalf of holder. Where notice is given by or on behalf of the holder, it inures to the benefit of all subsequent holders and all prior parties who have a right of recourse against the party to whom it is given. Meaning of Benefit Benefit refers to the right to charge the person secondarily liable who

received notice The party to whom this benefit inures can charge the party receiving notice

of dishonor, even if himself didnt give the notice Inures to the benefit of the following: 1. All parties prior to the holder, who have a right of recourse against the

party to whom the notice is given. 2. All holders subsequent to the holder giving notice.

Persons benefited by notice given by or on behalf of the holder. a) Holder himself b) All subsequent holders . c) All prior parties who have a right of recourse against the party notified.

EXAMPLE:

August 1, 2011 I promise to pay Paulo Aragon or order P10,000. (Sgd.) Mario Paz

Paulo negotiates to Aye, Aye to Bryan, Bryan to Carlo, Carlo to Dan, present holder. Instrument dishonored. Dan notifies Paulo, Aye, Bryan, and Carlo.

a) The notice of Dan to Paulo inures to the benefit of Aye, Bryan, and Carlo.

Such being the case, Paulo is not discharged as to them and they can hold Paulo liable on the basis of the notice given by Dan to Paulo. If any of them is compelled to pay, he can sue Paulo without having the necessity of giving Paulo another notice of dishonor. b) The notice of Dan to Aye inures to the benefit of Bryan and Carlo, for the same reason but not for the benefit of Paulo because while Paulo is a party prior to Dan who gave the notice, Paulo does not have a right of recourse against Aye. On other hand it is Aye who can hold Paulo liable. c) The notice by Dan to Bryan inures to the benefit of Carlo only but not to Aye and Paulo. d) Suppose that after giving notice, Dan, holder, further negotiates the instrument to Elmer, Elmer to Fred, Fred to Gorge. The notice given by Dan

will inure to the benefit of all of them: Elmer, Fred, and Gorge. They need not give another notice of dishonor to Paulo, Aye, Bryan, and Carlo to hold them liable.

Divina L. Reyes BM41 Section 144. When failure to present releases drawer and indorser. Except as herein otherwise provided, the holder of a bill which is required by the next preceding section to be presented for acceptance must either present it for acceptance or negotiate it within a reasonable time. If he fails to do so, the drawer and all indorsers are discharged. What is presentment for acceptance? Presentment for acceptance is the production or exhibition of a bill of exchange to the drawee for his acceptance. What is the general rule on presentment for acceptance? GEN.RULE: Presentment for acceptance is not necessary to render any party to the bill liable. EXCEPTIONS: Where it is payable after sight or in any case where presentment for acceptance is necessary to fix the maturity of the instrument; Where it is expressly stipulated; Where it is drawn payable elsewhere than at the residence or place of business of the drawee.

In these three cases, it is necessary (1) to present the bill for acceptance, or (2) to negotiate it within reasonable time to charge the drawer and all indorsers. The reason is that the drawer and indorser have a right in having the bill accepted immediately in order to shorten the time of payment and thus put a limit to the period of their liability and likewise to enable them to protect themselves by other means before it is too late, if the bill is not accepted and paid within the time originally contemplated by them. In the 3 cases, where the bill is not presented for acceptance nor negotiated within reasonable time, the parties secondarily liable will be discharged from liability. Other than the 3 cases, presentment for acceptance is not required and failure to do so would not affect the instrument in any manner. However, there is nothing wrong in making presentment for acceptance in other cases (even if not required). And, if the bill is dishonored, by non-acceptance, the holder may treat the bill as if it had required acceptance. What are the reasons for the exceptions? In exception (1) it is essential to present for acceptance to fix the maturity date of the instrument. (e.g. A bill payable 30 days after sight will not mature unless seen by the drawee. Only when it is seen will the 30 day period start). In exception (2) it is to comply with the expressed stipulation of the parties in the bill itself. In exception (3) it is to inform the drawee of the existence of the bill so that he can make arrangements for its payment on the date of maturity at the place designated. The holder of a bill required to be presented for acceptance, within a reasonable time, in order not to discharge the drawer and indorsers, may either: (1) Present it for acceptance within a reasonable time or without unreasonable delay, or
(2) Negotiate it within a reasonable time.

It is opined that a bill that need not be presented for acceptance may nevertheless be presented for acceptance and when dishonored, there arises an immediate right of recourse against secondarily liable. Acceptance is an unnecessary step in case of bills of exchange which are payable on demand. Effect of failure to exercise the option. Failure to present the bill for acceptance or negotiate within a reasonable time shall, unless presentment is excused, discharge the drawer and all indorsers, because they have an interest in having the bill accepted immediately in order to shorten the time for payment and the time of their liability. Under Section 50. Duty of holder where bill not accepted. Where a bill is duly presented for acceptance and is not accepted within the prescribed time, the person presenting it must treat the bill as dishonored by non-acceptance or he loses the right of recourse against the drawer and indorsers. Where the bill is dishonored by non-acceptance, notice of dishonor must be given to drawer and indorsers to make them liable otherwise the holder shall lose his right to go after them.

Divina L. Reyes BM41 Section 183. Effect of discharging one of a set. Except as herein otherwise provided, where any one part of a bill drawn in a set is discharged by payment or otherwise the whole bill is charged. The rule is that if any part of bills in set is discharged, the other parts are deemed discharged except in the cases mentioned in Sections 179 to 182 where the holders in due course are protected. If the one part is discharged, the whole bill is discharged because the parts constitute only one bill.