REVI

EW ONNEGOTIABLEINSTRUMENTSLAW
(
ActNo.2031)

1.Whati
stheor
igi
nofournegot
iabl
eInst
rument
sLaw?

Ourpr esentNegoti
ableinstr
umentLaw waspat ternedaft
ertheuni
form Negot
iabl
e
Instr
ument sLaw oftheUni t
edStatesof1896wi thv er
ysl
ightmodi
fi
cati
ons.I
ttook
affectonJune2,1911.Itrepeal
edtheprovi
si
onsoft heCodeofCommerceandbill
sof
exchangeandpromissorynotesexceptt
hoseoncrossedchecks.

Hist
oryrecor
dst hatearl
ycivi
li
zat
ions,
whichhadengagedext
ensi
velyi
ncommerce,had
atonet i
meoranot herdev i
sedandut i
l
izedsomeform ofnegot
iabl
einst
rument
st o
faci
l
itat
ebusinesstransact
ions.

- Thelawmaybet r
acedbackt ot
hebeginningoftheChrist
ianer a.Duri
ngthemedi eval
peri
od,merchant
swhoengagedi nforei
gnt r
adeadoptedthepl anoftransf
erri
ngcredit
thr
oughtheuseofnegotiabl
epaperratherthanphysi
calmoney .Thispract
iceisbased
onnecessi
ty,owi
ngtotheinconv
eni
enceandt hedangeroftransport
ingmoneyi t
sel
f.

- -Duri
ngthe12thcent ur
y,thi
scustom waswidel
yusedbymer chantsofItal
y.Later
,itwas
i
ntroducedintoFranceandt heni
ntoEngl
andwhereitbecamepar toftheLawMer chant
.
Whent heLawMer chantwasabsor bedbytheKi
ng’scourt,underthedir
ecti
onofLor d
Mansf i
eldofEngl and,liti
gati
onarisi
ngoutoftransacti
onbet weenmer chantscame
underthejuri
sdi
ctionoft hecommonl awcourt
s.

- In1882,t
heEngli
shParl
iamentpassedtheBil
lofExchangeActwhichcodif
iedthel
awof
negoti
abl
einst
rument
sasf oundinthecourtdeci
sionsofEngland.Whent heAmerican
col
oniesbrokeawayfrom motherEnglandin1776,t heyal
readyadoptedt heEngli
sh
commonl awonnegoti
ablei
nstr
ument s.

- -Alongt het erri

tor
ialdevel
opmentandexpansi onoft heUnitedst at
es,tr
adei ncreased
amongt heSt atesandt err
it
oriestosuchanext entthati
tbecamei mperativ
et oadopt
great
eruni formityofcommer ciallawsforcommonuseamongt hestates.Thusi n1895,
aconf erencewashel dinDetroit
,Michigan,whereinaresolut
ionwaspassedr equest i
ng
foradr aftofaUni form Negot i
abl
eI nst
rumentsLawwasappr oved.Ther esultwast he
codif
icationandadopt i
onoft heUniform Negoti
ableInst
rument sLawt hefoll
owingy ear
byallthest atesandt er
ri
tori
es,usingasitsmodel theEngl
ishBi l
lofExchangeAct .

- -Int
hePhilippines,t
hel awonnegoti
abl
einstr
ument
s–appliedduri
ngtheSpanishand
earl
yAmer i
canr egimeswer etheprovi
sionsofAr
ticl
e443 t o566oft heCodeof
Commer ce.Thesewer elat
ersuppl
ant
edbyActNo.2031knownast heNegotiabl
e
Inst
rumentLaw,enact edonFebruar
y3,1911andbecameeffect
iveonJune2,1911.-
Ournegotiableinstr
umentslawwaspatter
nedaft
ert
heUnif
orm Negoti
abl
eInst
ruments
LawoftheUni tedSt at
esofAmerica.

2.Doest henewCi v
ilCodeappl
ytonegotiabl
eInst
rument
s?
Yes,butonl
yt osupplyanydefi
ciencyi
ncasesnotcoveredbyt
hel
aw.(
Sec.196;new
Civ
ilCode,
Art.18.
)

3.St
atet
hecommer
cial
funct
ionsofnegot
iabl
epaper
s

Theyare:
a.Al t
hought heydonotconst i
tutel egalt
ender,theyareusedasasubst i
tut
efor
moneyf reefrom per
sonaldefensesav ai
labl
eagainstt
heori
ginalowner;
b.They const i
tute,atpresent/t he medi a ofexchange f
ormostcommer cial
transact
ions.Wit
houtthem,mor emoneywoul dbeneededincircul
ati
on;and
c. Theyserveasmedi um ofcr
edittransact
ions.

4.Giv
ethepr
inci
palf
eatur
esofanegot
iabl
einstrument
.
Theyar
e:
a.Negoti
abi
l
ity
-Iti
sthequal
i
tyoratt
ributewherebyabi
l
l,not
eorcheckpassesor
maypassf rom hand£chandsimi l
artomoneyast ogivetheholderi
ndue
1
 cour set her ightt ohol dt hei nst r
umentandcol lectt hesum pay ableforhi msel f
freef rom def enses( Ogden/ p.45) ;and
b.Accumul at i
onofsecondar ycont racts-Wher eani nst r
umenti snegot i
at edf rom
oneper sont oanot her,i tmakesasmanysecondar ycont ractsast henumberof
ti
mesf tisnegot iated.
Examples:
(1) LetussupposeSsel l
sanddel iv ersgoodst oBwhol aterr efusest opayf ort hem
ast heyi nf actar enotasor der ed.Inasui tbySagai nstBf ort hepr ice,Bcan
successf ul l
yr aisebr eachofcont ractbySasadef ense.I fSassi gnst heaccountt o
X, Bcani nt erposet hesamedef enseagai nstXnot withst andingt hef actt hatXdi d
notknowofanydi sputebet weenSandBwhenXboughtB' saccount .Asassi gnee
Xst andsi nt heshoesofS,hi sassi gnor .Assumenowt hatBhadi ssuedt oShi s
promi ssor ynot efort hepr iceoft hegoods.I fSsuesBont henot e,thedef enseof
breachofcont ractisav ailablet oB.Buti fSnegot i
at est henot et oYwhot akest he
noteundersuchci rcumst ancesast omakehi m ahol deri nduecour se( seeSec.
52), Bcannol ongeri nterposesuchdef enseagai nstY.Abonaf idehol der,howev er,
whi tef reef rom per sonaldef ensesav ail
ablet opr iorpar ti
esamongt hemsel ves,i s
subj ectt or eal defensest hatmi ghthav eobt ainedbet weent hem.( SeeSec.58)
(2) SupposeAi ssuesapr omi ssor ynot epay ablet ot heor derofBf ort hesum st ated
therein.Her e,t hecont racti sonl ybet weenA andB.A i spr i
mar ilyliabl e.IfB
transf ershi sr ightt othei nst r
umentt oC, Bther ebyent ersi ntoanewcont ractwi th
Cwher ebyBbi ndshi msel ft opayCi ncaseA,t hemaker ,doesnotpayt henot e.
Her e,Bi ssecondar i
lyliable.Thepr i
mar ycont racti st hatbet weenAandB.The
transf eroft henot et oCmakesasecondar ycont r actbet weenBandC.I fDbuy sor
discount st henot ef r
om C, asi mi larcont ractisent eredi ntoendsoonasi tpasses
from hand t o hand .I ti sobv ioust hatt hemor edebt sar eadded t hemor e
adv ant ageousI twillbet ot hehol derashecanpr oceednotonl yagai nstthemaker
butal soagai nstall tr
ansf erors.

5.Whatar
ethecommonf
ormsofnegot
iabl
einst
rument
s?

Theyar
e:
a.Pr omissorynot e-anunconditionalpr omiseinwr it
ingmadebyoneper sonto
another,signedbyt hemaker ,engagi ngtopayondemand,orataf ixedor
determinedf uturet
ime,asum certaini nmoneytoor derortobearer(
sec.184)
b.Billofexchange- anuncondi
ti
onalor deri nwrit
ingaddr essedbyoneper sonto
another,signedbyt hepersongi vingi t,r
equir
ingt hepersont owhom itis
addressedt opayondemandorataf i
xedordeterminablefutur
etimeasum in
moneyt oor derortobearer(Sec.126) ;and
c. Check-abil
lofexchangedr awnonabankpay ableondemand.( Sec.185)

6.Whoaretheorigi
nalpart
iest
oapromissorynote?
Theyar
e:
a.Maker-t
hepersonwhomakesthepr omiseai
dsignstheinst
rument
;and
b.Payee(ifinst
rumenti
spayabl
et oorder)orbearer(i
finst
rumentispay
abl
eto
bearer
).-Thepart
ytowhom t
hepr omiseismadeortheinst
rumenti
spayabl
e.

7.Whoar
etheor
igi
nal
spar
ti
est
oabi
llofexchange?

Theyar
e:
a.Dr awer-
theper
sonwhodrawsthebil
l
;and
b.Dr awee-t
hepart
yuponwhom thebi
ll
isdrawn;and
c. Payee-
thepart
yinwhosef
avorthebi
lli
sdrawnori
spay
abl
e

8.Giv
ei l
lust
rati
on showi
ngt
hegener
alout
li
neandpr
inci
palf
eat
uresofapr
omi
ssor
y
note.
a.Pay abl
etoorder

(
a)

January1,
1990
Manila
P1,000.
00

Forv
aluedr
ecei
ved,Ipr
omi
sedt
opayt
otheor
derof

2
 Al
fredoAlmedathesum ofOneThousand(P1,
000.00)
Pesos on orbef
ore Apr
il30,1990,athi
s house at
Pater
os,Metr
oManil
a

(
Sgd.)Ar
seni
oF.Fl
ores

(
b)

January1,
1990
Mainla
P1,000.
00
Thir
ty day
s aft
erdat e,Ipr
omise t
o pay to Al
fr
edo
AlmedaororderthesumeofOneThousand(P1,
000.00)
Pesos.

(
Sgd.
)Ar
seni
oF.Fl
ores

(
2)Pay
ablet
obear
er
(
c)

January1,1990
Manila
P1,000.
00
Two mont hs afterdat
e,Ipromi
set opaytoAl f
redo
Almeda or bearer t
he sum of the One Thousand
(P1,000.
00)Pesos.
(Sgd.
)Arseni
oF.Fl
ores

January1,
1990
Manila
P1,000.
000
Twomonthsfaterdat
e,Ipr omisetopaytobear
ert
he
sumeofOneThousand(P1,000.
00)Pesos.
(
Sgd.)ArsenioF.Fl
ores

9.Gi
veani
ll
ust
rat
ionshowi
ngt
hegener
alchar
act
eri
sti
cofabi
llofexchange

January1,
1990
Manila
P1,000.
00
Thir
tydaysaf
terdat
e,payt
oAl
fr
edoAl
medaoror
dert
he

sumeofOneThousand(
P1,
000.
00)Pesos.Val
uer
ecei
ved

andchar
get
hesamet
otheaccountof

(
Sgd.
)Ar
seni
oF.Fl
ores

10.
Ment
ionatl
eastf
our(
4)speci
alt
ypesofpr
omi
ssor
ynot
e.

Theyare,amongothers:
a.Cer t
if
icat
eofdeposi tsawr itt
enacknowl edgementbyabankoft her eceiptof
moneyofdeposi twhichthebankpr omisestopayt othedeposi
tor
,bearer,or
someot herpersonororder:
b.Bond- anevidenceofi ndebtednessissuedbyapubl icorpri
vatecorporation,
promisi
ngtopayasum ataspeci fi
cti
mei nthefut
ure;
c. Banknote-ani nst
rumentissuedbyabankf orci
rcul
ati
onasmoneypay ableto
bearerondemand; and
3
 d.Duebi l
laninst r
umentwhichshowsoni t
sfacethatt
heyconfor
mt othel
egal
requi
rementofnegotiabi
l
ity
.(seesec.1)
Note:Theabov ei
nstrument
sarenegot i
abl
eiftheyconf
ormtothel
egalrequir
ementof
negot
iabil
it
y.(seesec.1)

11.
Menti
onatl eastfour( 4)specialtypesofbi l
lofexchange.
Theyare,amongot hers:
a.Dr aftabil
lofex changepay ableondemandoratsomef uturedeter
minableti
me.
Thet ermi sof tenusedf orabi l
lofexchanged.I fdrawnbyabankagai nstit
s
branchoranot herbanki tiscall
edabankdr aft
;
b.Tradeaccept anceabi llofexchangedr awnbyt hesel l
eront hepurchaserof
goodsandaccept edbyt helatter;i
ftheinstrumentisdr awnagainstabank
insteadofthepur chaser,iti
scalledbanker’sacceptance;
c. Document ar
ybi llofexchange-bi ll
t owhichareattachedthedocumentsoft i
tl
eto
besur r
ender edt othedraweewhenheaccept sorpaysthebill
;and
d.Cleanbi ll
ofexchange- bil
ltowhi chasuchdocument softi
tl
earenotattached.

12.
Whataret hedi fferenceki ndsofchecks?
Asidefr
om t heper sonal checkwhi chi sthemostwi del
yused, theyar e:
a.Memor andum check-acheckupont hefaceofwhi chthewor d“wor d”“mem” ,or
memo” ,signifyi
ng,wi thoutt hedr awerengagest opayt hebonaf idehol der
absol utely,wi t
houtt henecessi tyofpr esentmentatmat uri
tyandnot iceof
dishonor ;
b.Cashi er’scheck-onedr awnbyt hecashi erofabankupont hebanki tselfand
deemedaccept edbyt heactofi ssuance;
c. Manager ’
scheck-onedr awnbyt hebank’ smanagerupont hebanki tself.Itis
similart othechai r’
scheckbot hast oeffectanduse.
Travel
er’
scheck’ -oneuponwhi cht hehol der ’
ssignaturemustappeart wice,onet obe
affi
xedbyhi m att hetimei tisissuedandt hesecondorcount ersi gnat ure, t
obeaf f
ixed
byhim beforei tispaid, otherwi sei tisincompl ete;
d.St atecheck-one, whichhasnotbeenpr esentedf orpaymentwi thi nar easonabl e
ti
meaf t
eri t
si ssue.Iti sv aluelessand,t herefore,shouldnotbepai d( seeSec.
186)
e. Certifi
edcheck-Onewhi chbear sacr ossi tsfaceanagr eementbyt hedr awee
bankt hatthecheckwi l
l bepai donpr esentati
on; and
f. Cross-check- onewhi chbear sacr ossi tsfacet wopar al
lellinesdr awndi agonal l
y
usual l
yont heupperl eftsi de.A checkmaybecr ossedei therspeci all
yor
gener all
y ;
i
.i fcr ossedspeci ally,thenameofapar ti
cularbankorcompanyi swr i
tten
orappearbet weent hepar allelli
nei swhi chcaset hedr aweebankmust
payt hecheckonl yuponpr esent mentbysuchbankorcompany ;and
ii
.I fcrossedgener ally,whenonl ythewor ds“andCo. ,”ar ewr i
ttenbet ween
thepar all
el l
i
nesorwhennot hingiswr it
tenatal lbetweensai dl i
nes.
Thepur poseofcr ossi ngachecki st oissuepay mentt ot her i
ghtpar t
y.In
actualpr acti
ce,thehol derofacr ossedcheckmer elydeposi tsitswi t
ht he
bankf orcol l
ecti
on.

13.
Whatinstrument sbey ondt hescopeoft heNegot iabl eInst rument sLaw?
Theyare:
a.Let terofcr edit-al et
terissuedbyonemer chantt oanot her ,orf ort hepur poseof
at tendingt oa. commer ci
altransaction.(Art .567, CodeofCommer ce.)Reason:
Itisi nf avorofadet ermi nedper sonandnott oor der.(Ar t.568, i
bid.)Illmoder n
banki ngpr actice/itreferst oani nstrumentorl etterissuedbyabanki nbehal f
andf ortheaccountofabuy erofmer chandi sef eeaut hor i
zingt heset tert o
dr aw ont hei ssuingbankorononeofi tscor respondent sI nsteadofont he
buy erforanamountoncer tai
nt ermsst i
pul ated;
b.Tr easur ywar r
ant -awar rantpay ableoutoft hef undsoft henat i
onalt reasur yor
outofaspeci ficappr opriati
on.Reason:I ti sanor dert opayoutofapar ticular
fund.
c. Post almoneyor der-aspeci eofdr aftdrawnbyonepost -officeuponanot herf or
anamountofmoneydeposi t
edatt hef i
rstof ficebyt heper sonpur chasi ngt he
moneyor der,andpay ableatt hel etterofficet ot hepay eenamedht heor der.
(USv s.Long, 30F.679. )Reason:I tissubjectt or estricti
onsunderpost all aws
andr egulati
onse. g.onl y oneendor sementi sal lowed. )I nconsi stentwi tht he
char acterofanegot i
abl einstrument .Mor eov er,inest ablishingandoper ating-

4
 a post almoney or der,t he gov er
nmenti s notengaged i n commer ci
al
transact ionsbutmer el
yexer ci
se$agov ernment alpowerforthepubli
cbenefi
t.
(Phi l
.Educ.Co.v s.Soriano,L-22405, June30,1971. )
d.Billofl ading-acont ractofr eceiptforthet r
anspor tofgoodsandt hei
rdeli
ver
yto
theper sonnamedt herein,t oor derort obear er.Reason:Itiswithoutan
uncondi t i
onalpr omiseoror dertopayasum cer tai
ninmoney ;
e. Certif
icater eceipt
-awr itt
enev i
denceoft hehol der'
sowner shi
pofshar esina
cor poration.Reason: Sane; and
f. War ehouse r ecei
pt -
a cont r
act or r eceipt for goods deposi ted with a
war ehousemencont ainingt heletter'
sunder -
takingtoholdanddel i
verthesai
d
goodst oaspeci f i
cperson, toor derortobear er.Reason:Same.

14.
Givetheincidentsint hef i
feofanegot iableinstrument.
Theywe:
a.I ssue-t
hef i
rstdel i
veryoftheinst r
umentcompl eteinformt oaper sonwhot akes
itas hol der .Deliver
y ofa negot i
ablei nst
rumentmeans i tst ransf
erof
possession, actualorconstr
uct i
ve,from weper sontoanother.(Sec.191.)
;
b.Negot i
ation(seeChap111) ;
c. Present mentf oracceptance,i
ncer tai
nki ndsofbillofexchange(seeChap.XI )
;
d.Accept ance( seeChap.X. )
e. Dishonorbynon-accept ance( seeChap.XI )
f. Present mentf orpayment( seeChap.VI ;
g.Di shonorbynon- payment( seeIbid);
h.Not i
ceofdi shonor( seeChap.VI I
):
i. Protestincer tai
ncases( seeChap.XI I)and
j. Discharge( seeChap.VI II
)

NEGOTI
ABLEINSTRUMENTSI NGENERAL
FORM ANDINTERPRETATI
ON

1.Whatar ethenecessaryrequir
ement sinor dertomakeani nst
rumentnegot
iabl
e?
Theyare:
(1)I
tmustbei nwri
tingandsignedbyt hemakerordr awer;
(2)I
tmustcontainanunconditi
onalpromi seor dert
opayasum certai
ntime;
(3)I
tmustbepay ableondemand, orataf ixedordeterminabl
efut
ureti
me;
(4)I
tmustbepay abletoorderorbearer;
and
(5)Wheret heinst
rumenti saddressedt oadr awee,hemustbenamedoror ther
wise
i
ndicat
edtherei
nwi t
hreasonablecertainty
.

NOTE:
(
1)Sect i
on 1 abov ei n ef fectgi v es a def unction ofa negot i
ableinstrument .The
requirement sinNos.1, 2, 3and4ar enecessar yinor derthatanecessaryinor derthata
billofexchangedmybenegot iabl
e.Thei nstrumentmustcont ain“anuncondi t
ional
promi se”ifitisapromi ssor ynote
(
2)Anon- negotiabl
einstrumenti s, ofcour se, aninst r
umentwhi chisnotnegot i
able, t
hati s,
ani nstrumentwhi chdoesnotmeett her equi r
ement slaiddownt oquali
fyani nstrument
asanegot iableone,orani nstrumentwhi chi nitsincepti
onwasnegot iablebuthasl ost
itsqual i
tyofnegot i
abili
ty.(11Am.Jur .2d, p.37)At ypicalexampleischeckpay abl
eonl y
toaspeci fi
edper son,aswheni treadsmer ely“Payt oPedroCr uz.”A negot iable
instrumentceasest obenegot i
abl eifthei ndorsementpr ohibi
tsthefurt
hernegot i
ation
oft heinstrument.Sec.36[ a];
alsoSecs.32and41. )

2.Asusedi nt heNegot iableInstr

ument sLaw.Expl
ainthemeani
ngoftheterm “holder
s”
and“ bearer”
(1)Holdermeanst hepay eeorindorseeallabi
l
lnornote,whoisi
npossessi
onofi t
,orthe
bearerthereof.(sec.191)
(2)Bearermeanst heper soninpossessionofabil
lornotewhi
chispay
abletobearer
.(Ibi
d)

3.Whenisthesum pay abl

easum cert
ain?
Thesum payableisasum certai
nwheniti
sst
atedint
ermsoraf
ixedamountofmoney
(e.
g.“PayP500” )But“t
opayP500andal soallot
hersumswhi
chmaybeduet ome”
doesnotexpressasum cert
ain.

4.Whatcl
ausesdonotaf
fectt
hecer
tai
ntyast
othesum payabl
e?
(
1)Bystat
edinst
all
ment(e.
g.,
Ipr
omisetoPayPororderP1,800i
ntwoi
nst
all
mentas

5
 fol
lows:P500,onorbeforeJuly1,1990andP500,onorbef oreSeptember1,
1990,
butapr omiset
opay ,
P1,000in“t
woi nstall
ment”doesnotful
fi
llt
herequi
rement
sof
thelaw):
(
2)Byst ated i
nst
all
ments wit
h accel
eration cl
ause (e.g.xxxupon defaul
tint he
paymentofanyi nst
all
mentori nterest,the whol
e sum shallbecome due and
payable);

Thesum pay
ableisasum certai
nal
thoughi
tist
obepaid-
(
1)Withint
erest(
e.g.Ipr
omiset
opayPoror derP1,
000wi
thi
nter
estat12%)
;

NOTE:Anexchangeist hechargef ortheexpenseofpr ovidi

ngfundsatt heplacewhere
theinst
rumentispayabl ewhichi nstrumentwasi ssuedatanot herplace.Itmaybeat
fi
xedrateoratthecurrentrate.Itisappli
cableonlytoforeignbil
l,i
.e.i
nstrumentdrawn
i
nonecount r
yandpay ableinanot her(seeSec.129)
(
3)Withcostofcol
l
ecti
onanat torney’
sf eesandcostofcollecti
onifnotpaidonmat uri
ty.
)
Allt
heabovedonotaff ectthecertaintyofthesum payableatmat ur
ity

5.Whenisapromiseoror dertopayuncondi
ti
onal
?
I
tisuncondi
ti
onalwheni tisnotsubj
ecttoanycondi
ti
on(exceptimpli
edcondit
ionsof
pr
esentment
,protest andnot i
ceofdishonorasprovi
dedint helaw,inf
ra.
)Inorder
words,
thenot
eorbi l
lmustbepay abl
eabsol
utel
y.

6.I
sitnecessar
ythatt
hewor d“pr
omise”or“or
der”beusedtosat
isf
ytherequi
rement
?
No.t
hef ol
l
owingwordsorstat
ementsamounttoapromiseoror
dertopay:
(
1)“Pay able”or“t obepai
d”
(
2)Iagreet opay ;
(
3)Iguar antytopay ;
(
4)Goodf or;
(
5)DueXoror der;
(
6)Letthebear erhave;
(
7)W (drawee)wi l
lmuchobli
geR(
drawer
)topayPoror
der
.

Amer erequestorauthori
zati
ontopay ,l
i
ke“Irequesty
outopay
”orIaut
hori
zey
out o
pay”doesnotconstit
ut eanorder.However
,themereuseofpol
it
ewordli
ke“Pl
ease”
doesnotconvertt
heor deri
ntorequest
.

NOTE:A mereacknowledgementofadebt
,li
ke“I.
O.U.
”,dueX P1,
000,
”“f
orv
alue
r
ecei
ved,
“arenotsuff
ici
enttoi
mpartapr
omi
setopay
.

7.Whati st heef f
ectwhent her eisani ndicat i
onofapar ti
cularfundort ransact ioni nt he
i
nst rument ?Anunqual ifi
edor derorpr omi set opayi snotmadeuncondi tionalalthough
coupl edwi th.
(1)Ani ndi cati
onofapar t
icularf undoutofwhi chreimbur sementi st obemade( e.g.Payt o
theor derofP1, 000andr eimbur sey oursel ffrom ther entalsofmyhouse. )Reason:The
draweemaypayamountoutofanyf und.Thef undi ndicatedi sonlyt hesour ceof
rei
mbur sement;
(2)Ani ndi cati
onofapar ti
cul araccountt obedebi t
edwi ttheamount( e.g.
,PayPoror der
P1,000andchar gethesamet omyaccount ).Reason:Thepay mentdoesnotdepend
upont heexi st
enceoradequacyoft hepar t
icularaccount ;
(3)Ast atementoft hetr
ansact ionwhi chgi v esr i
set ot heinstrument( sec.3.e. g.Ipr omi se
topayPoror derP1,000bei ngt hepr i
ceofacart hisdaysol danddel iveredt ome. )
reason:The st atementmer el
yi dent i
fies the t ransaction whi ch gives r i
se t ot he
i
nstrument .
Butani nstrument“pay ableoutofapar ticularfund”i snonnegot i
able(Ibid.:e. g.XXX
P1000outoft hemoneyi ny ourhands)r eason:Themakerordr aweei sl i
mi tedt ot he
fundi ndicatedandi snotsupposedt opayi ft hatshoul dpr oveinsufficient.Tobe
negot iable,theinstr
umentmustcar r
yt hegener alper sonalcreditofthemakerordr awer.

8.Wheni sani nstr

umentpay ableatadet ermi nabl
efutureti
me?
Wheni ti
sexpr essedtobepay able
(1)Atf
ixedtime( e.g.IpromisetopayPor derthesum ofP1,000onOct ober10,1990;
(2)Atafixedper i
odaf t
erdateorsight(e.g.60day safterdat
e;or60day saftersi
ght);
(3)Onorbef or eafixedordeterminabl
ef uturet i
mee.g.Onorbef oreOctober10,1990)
;or
onbeforet hestartofthenextschoolsemest er
);or
(4)Onoratf ixedper i
odaf t
ertheoccurrenceofaspeci menev entthatiscert
aintohappen
6
 thoughtheti
meofhappeni
ngisuncer
tai
n(sec.4;e.
g.,Ont
hedeat
hofaper
son;or30
daysaft
erthedeat
hoftheper
son)
.

Ani nstrumentpayabl
euponacont i
ngency(aneventwhichmaynothappen)i snot
negotiableandthehappeningoftheventdoesnotcuret
hedefect(I
bid:e.
g.Payt
othe
orderofP1, 000uponhisreachi
ngtheageofmaj or
it
y;ori
fhisfat
hershoulddiewi
thi
n
fi
vey ears).

NOTE:
(
1)Incaseofdemandi nstr
ument, t
heholdermaycal lforpaymentatanyt ime.Ont heot
her
hand,at erminstrumentispay ableonlyupont hear r
ivalofthetimef orpay ment.The
ti
memustbecer t
ainsot hattheholderwillknowwhenhemayenf orcethei nstr
ument
andtheper sonli
able,whenhemayr equi
redtopay .
(
2)Aftersignmeansaf tertheinstrumentisseenbyt hedr aweeuponpr esentmentfor
acceptance.(see Sec.143 [ a].)Hence,t he date ofmat ur
itymaybe det er
mined
beforehandbycount i
ng60day sf r
om thedateitispresentedtothedrawee.

9.Ani nstr
umentcont ai
nsapr omiseoror dertodoanactaddi ti
ontot hepaymentof
money .Istheinstr
umentnegotiable?
Asagener alrul
e,no(e.g.P1,
000andt odeliverahouse;XXandtoinsurethepropert
y
pledgeassecur i
ty;XXandtopayt axesassesseduponthenoteori
tsmortgage)
.
10.
Whatpr ovi
sionsdonotaf f
ectthenegot i
ablecharacterofaninst
rumentot her
wise
negotiable?

Theyar
ethosewhi ch-
(
1)Authori
zet hesal eofcol l
ater
alsecuri
tiesincasetheinstrumentbenotpai dat
maturit
y.(e.g.Ipr omisetopayPor derthesum ofP1,000onMar ch10,19990
securedbyar ightbywayofpl edgeandwhi chPcouldsellshouldIfal
ltopayhim
atmat uri
ty):reason:Theaddi ti
onalactist obeper f
ormedaf t
erthedat eof
maturit
ywhent hei nst
rumentisnolongernegot i
abl
einthefullcommer i
alsense;
(
2)Authori
zeaconf essionofjudgmentiftheinstr
umentbenotpai datmat ur
it
y;

NOTE:War rantsofat
tor
neytoconf
essjudgmentunlessexpressl
yauthor
izedbyl
aw,are
avoidasagai nstpubl
icpol
icy
.Theyaut hori
zetherendit
ionofj udgmentagai
nstthe
defendantbeforet
heacti
onhasbeenfi
l
e, ther
ebyel
iminat
ingthenecessi
tyofatr
ial
.

(
3)Waivet hebenefi
tofanyl aw intendedfortheadvantageorpr otect
ionofthe
obl
iger(e.
g.PaytobearerP1,000.Noticeofdi
shonorwaived)or
(
4)Giv
et heholderanel
ecti
ontor equir
esomet hi
ngtobedonei nli
euofmoney( sec.
5;e.g.P1,000oranair-
conditi
oneratt heopti
onofthehol der
).Reason:Asthe
hol
derhasachoi ce,
theinst
rumenti sasgoodasonepay ableinmoney.

11.
Whatomissi
ondonotaf
fectt
henegot
iabi
li
tyofani
nst
rument
?
Theyar
e:
(
1)I
tisnotdat ed.Reason:Theinst
rumentcoul
dbeconsider
edasdat edont hedat
e
i
twasi ssued;
(
2)Doesnotspeci f
yt hevaluegivenorthatanyv al
uehasbeengi ven.Reason:
Considerat
ionispresumed;or
(
3)Doesnotspeci f
ytheplacewhereiti
sdrawnortheplacewhereiti
spay abl
e.(
sec.
6)reason:Secti
on1( seequesti
onNo.1,supr
a)doesnotrequi
reit
.

12.
Givetheef
fectofthepr
esenceofasealinani nst
rument
.Thef
actt
hatani
nst
rument
bearsasealdoesnotaf
fecti
tsnegot
iabi
li
ty.(
Ibi
d)

NOTE:Atcommonlaw,asealedinst
rumenti
snon-
negot
iabl
eandissubj
ectt
other
ules
gov
erni
ngcont
ract
sunderseal.Ourl
awmakesnosuchdisti
nct
ion.

13.
Isaninstrumentpayabl
einfor
eignmoneywhi chisnotl
egaltenderi
nthePhili
ppines
negoti
able?
Yes,i
ftheobl i
gat
ionmaybedi schar
gedinpesosofequival
entamount.Thecr edi
tor
,
however,hasnotorequi
redpaymentinapart
icul
ari
naparti
cul
arkindofcur
rencyother
thanPhil
i
ppinescurr
ency.(
RA.No.529,Sec1)

14.
Wheni
sani
nst
rumentpay
abl
eondemand?

7
 Aninstr
umenti spayableondemand-
(1)Wheni tisexpressedt opay abl
eondemand,oratsi ghtoronpr esentati
on( e.
g.I
promisetopayt obearerondemandP1, 000);or
(2)I
nwhi chnot i
mef orpaymenti sexpressed;or
(3)Whereani nstr
umenti sissued,accepted,orindorsedwhenoverduei t
,isas, r
egards
thepersonsoi ssui
ng,accept i
ng,orindorsi
ngi t
,payableondemand.( sec.7;e.g.a
notedatedJune1,1990andpay able“20day safterdat
e”isissuedonJune22,
payableonJune21andi sacceptedori ndorsedonJune22).

15.
Wheni sani nstrumentpay abletoor der?
Theinstrumenti spay ablet oorderwher eitisdr awnpay abletotheorderofaspeci f
ied
person( e.g..Payt otheor derofP1, 000)ort ohi m orhi sor der(e.
g.,RelytoPoror der
P1,000).Itmaybedr awnpay abletot heor derof :
(1)Apay eewhoi snotmaker /drawer ,ordrawee( e.g.,Ipr omisetopayP500i dtheorder
ofP, signedbyM; Payt otheor derofP500, addr essedt oW andsignedbyR) ;or
(2)Thedr awerormaker( e. g.
,Ipromi setopayt ot heor derofmy selfP500.)
;or
(3)Thedr awee( e.g.
/Payt otheor derofy ourselfP500) ;or
(4)Twoormor epayeesj ointl
y(e.g./Payt otheor derofPandAP1, 000);
(5)Oneormor eofsev er
alpay ees( e.g.
/Payt otheor derofP, A,
orB; PaytotheorderP,
A,aidB/oranyoneoft hem, orantt wooft hem) ;or
(6)Thehol derofanof ficef ort het i
mebei ng,( e.g.
.PayP500t otheor deroft he
Commi ssionerofCust om) .

Wheretheinstr
ument sis payabl
etoorder/thepay eemustbenamedorot her
wise
i
ndicat
edtherei
nwithr easonabl
ecer
tai
nty.(Sec.8,aninst
rument"t
of i
reorderof.
..
"
i
snotnegotiabl
e;butani nstr
umentpayable"totheorderof{headmini
str
atorofthe
est
ateofPisnegotiable).

16.Whenisaninst
rumentpay
ablet
oabear
er?
Aninst
rumentist
oabearer?

(
1) Wheni ti
sexpr essedt obesopay able( e.
g.Payt obearerP1, 000;butifpayable
tobearer,P,”thei nstrumentisnon-negot i
able);
(
2) Wheni ti
spay ablet oaper sonnamedt hereinorbear er(e.g.Payt oPorbear er
P1,000) ;
(
3) Wheni tispay abl et otheorderofaf ictit
iousornon- existingper son,andsuch
factwasknownt ot hepersonmaki ngi tsopay able.Reason: Si
ncet hemakeror
drawerknowst hatt hepay eei snotcapabl eofi ndor sing/hemusthav e
i
ntendedt heinst rumentt obetransferredbymer edeli
ver y
;
(
4) Whent henameoft hepayeedoesnotpur porttobet henameofanyper son
(e.
g./Payt ocash) ;or
(
5) WhenSheonl yorf astindorsementisani ndorsementi nbl ank.(Sec.9)

NOTE:Aninstr
umentisi
ndor
sedinbl
ankbythepayeebysimplywrit
inghi
snameon
t
hebackthereof.Thebl
anki
ndor
sementmakesthe(negot
iabl
e)Instr
umentpay
abl
e
t
obearer
.

17. I
sdat
enecessar
ytomakeaninst
rumentnegot
iable?
No,
int
hecaseofinst
rument
swhichar
epayable

(
1) Ataf i
xedf
uturedateandwhichdonotsti
pulateforthepaymentofi
nter
est
(e.
g.“xxxt opayPorbearerP1,
000onDecember4, 1984)
;and
(
2) Ondemand,sincet
heyaredemandabl
eatanytime.(seeSec.6[
a].
)

18. Gi
vethecaseswhendat eisnecessar yinanegot iableinstr
ument .
Theyare:
(1) Whent hedat ei smat erialtodet erminet hemat urit
yoft heinstr
ument( i
nthe
caseofi nstr
ument spay ableataf i
xedper i
odaf terdate,oraf t
ersi ghtor
presentati
on);
(2) Wheni nterestisstipul
atedf orthepur poseofdet erminingwhent heInteresti
s
t
or un;and
(3) Inthecaseoft hepr omissor ynote,thedat eofissue, andinthecaseoft hebill
ofexchange,t hedat eoft hel astnegot i
ati
on thereof,forthepur poseof
determining whet hera par ty acted wi thi
nar easonabletime in maki ng
presentmentf orpay ment( seeSees.70, 71,144.)

8
 NOTE:Thedat
eisnecessar
yint
heabov
ecasesbutnott
omaket
hei
nst
rument
negot
iabl
e.

19. Whati
stheeffectofante-dati
ngorpost -
dati
nganegotiableI
nstr
ument ?
I
tdoesnotrendertheinstr
umentinvali
dornon-negoti
ablebythatfactal
oneunlessit
i
sdoneill
egalorfraudulentpur
posesast ovi
olett
heUsur yLaw.Sec.12;e.g.ante-
dat
ed-
aninstr
umentissuedonJul y1,1984butisdat
edJul y1,
1984)

20. Whenmayahol derinsertthedateinani nst

rument?
I
ntwocases,namel y;
(1) Wher ethei nstrumentIspay ableataf i
xedper i
odafterdatebuti sissued
undated( e.
g.,xxxpayP( nodate)ororderP1,00030daysafterdate)
;and
(2) Wher et he Instrumenti s payable ata fixed per
iod aft
ersi ghtbutt he
acceptancei sundated(Sec.13; e.
g.,
Abidofexchangepay able“30day saft
er
si
ghtoraf t
erpresentat
ion"isacceptedbyonewhowr it
esthewor d"accept
ed"
buttheaccept ancewasundat ed).

NOTE:(1)Theinserti
onofthet
ruedat
eofi
ssueoracceptance,asthecasemaybe/
i
snecessarytodet er
minethedateofmat
uri
ty.(
2)Thei
nserti
onoft hetruedat
eof
i
ssueoraccept anceast hecasemaybe,isnecessar
yt odet er
minethedateof
matur
it
y.

21. Whati stheeffectoft heinser

ti
onofawr ongdatebyt heholderi
nanegot iabl
e
i
nstr
ument ?
(1)Itwillav
oidthei nstr
umentast ohimi fhehadknowledgeofthetr
uedat eof
issueoracceptance;and
(2)Itis notavoidedast oahol derinduecour
se;astohim.Thedateinser
tedis
deemedt obet hetruedat
e.(Sec.13.
)

22. Statethest epsi nv olvedi nt hei ssuanceofanegot iableinstr ument .

Theyar e:
(
1) Themechani calactofwr i
ti
ngt hei nst
rumentcompl et yandi
el naccor dance
wi thther equirement sofSect i
on1; and
(
2) Thedel i
ver yoft hecompl eteinstrumentwi tht heintent ionofgivi
ngef f
ectt oi t
.
23. Givether uleswher eani nstr umentbuti ncompl etebutdel i
ver ed?
Theyar e:
(1) Thehol derorper soni npossessi onhaspr imaf acieaut hori
tytocompl etean
i
nst rumentwant ingi nanymat er
ialpar t
iculart ocompl eteitbyf i
lli
ngupt he
blanks( e. g.
, blanksf ordat e,duedat e,nameofpay ee, amount ,
orrateofi nterest)
therein;
(2) Asi gnat urei nblankmaybeconv ertedintoanegot iablei nstr
umentonl yifsuchi s
theint entionoft heper sonmaki ngt hesignatur eineffect ingdeli
verythereof;
(3) Thei nst rumentmaybeenf orcedonl yagainstapar typr i
ortocompl eti
oni ffill
ed
upst r
ictlyinaccor dancewi ththeaut hori
tygi venandwi thi
nar easonabl etime;
and
(4) Thedef enset hatt heI nstrumenthadnotbeenf il
ledi naccordancewi tht he
author it
ygi v enandwi t hinar easonabl eti
mei snotav ailabl
eagainstahol derin
duecour se.( Sec.14. )

EXAMPLE:m ( maker )issuedanot etoP( Payee)withthespacef ortheamountl ef

t
Bank,authorizi
ngPt oputintheblankP1,000.Pi nser
tedinst
eadP2, 000.Thenoteis
endorsedt oA,At oB, andBt oC,whoisnot6hol derinduecourse.Inthiscase,
Ccan
col
lectnothingf r
om M ont henote.IfCisaholderin duecourse,thenoti sval
idand
eff
ectiv
ef orallpurposesInhishands.”

24. Givet
her uleswher eani nst
rumentisi ncompleteandundeli
vered.
Theyere:
(1) Thef actthatani ncompleteinst r
ument,compl et
edwithoutauthori
ty,hadnot
beendel iver
ed( aswhenam I ncompl et
eI nstr
umentisstol
en).I
sadef enseeven
againstahol derhduecour se;and
(2) Thei nvali
dit
yoft heaboveinstrumentisonl ywit
hrefer
encetothepartieswhose
si
gnat uresappearont heinstrumentbef oreandnotafterdeli
very
.(Sec.15.)a
holderhduecour se.Ccanenf orcethenot eagai
nstP,AandB( seeSees.65,66.
)
butnotagai nstM.

9
 EXAMPLE:M makesanot eforP1,000wi
ththenameofthepay eei
nbank.Thenoteis
stol
enbyPwhoi nsert
shisnameaspay eeandtheni
ndor
sesthenotetoA,AtoB,andB
toCwhoi sahol derinduecourse.Ccanenfor
cethenot
eagainstP,AandB(seeSecs.
65,66.)butnotagainstM.

25.Givethe r ules t hatgov ern an inst rument ,whi ch i s mechanicall

y compl et
e but
undel i
vered.
Theyere:
(1) Thecont ractonsuchanegot iabl einstrumenti sincomplet
eandr evocableunt il
i
tsdel i
v eryforthepur poseofgi vingaf fectthereto;
(2) Ther ei s a pr i
ma f acie presumpt ion ofv alid and int
ent
ionaldeliveryi fthe
i
nst r
umenti sf oundi nShepossessi onofani mmedi ateparty
,orar emot epar t
y
whoi snotahol derinduecour se;
(3) I fdeliverywasmadeoraut hor i
zed/i tmaybeshownt ohavebeencondi ti
onal
(e.
g.,thei nst r
umentshal lnotbebi ndingunt ilaco- makerhasbeenpr ocured)or
foraspeci alpur poseonl y( e.g.,saf ekeepi ng/orcol l
ecti
onandnotf ort he
purposeoft ransferri
ngthet it
let ot heinstrument );and
(4) I fthecompl etei nst
rumenti si nt hehandsofahol derinduecour seav ali
d
deliv
er yther eofbyal lpart
iespr iort ohi mi sconcl usiv
elypresumed.( Sec.16.A
presumpt i
oni ssai dtobeconcl usivewheni tadmi tsofnoev idencet ot he
contrary .

26.
Whatr ulesofconst ruct ionappl yI ncaseofambi guityoromi ssi oninani nstrument ?
Theyar e;
(1)Whent her eisadi screpancybet weent hesum expr essed t hewor ds( e.
g.,one
thousand)andt hesum expr essedi nf i
gur es( e.
g.,P100)t hef ormercont rols;
(2)Whent hewor dsar eambi guousoruncer t
ain( e.g.,twot hreef i
v epesos)r ef
erence
maybehadt ot hef i
gur es( e.g.,P235)t odet er minet het rueamount .
(3)Ifthedat ewhent hest i
pul atedi nteresti stor uni snotspeci fi
ed,t hei nterestruns
from thedat eofi tsissueI fundat ed;
(4)Anundat edinstr umenti sconsi dereddat edasoft hedat eofi tsissue;
(5)Incaseofconf lictbet weent hewr i
ttenandpr i
ntedpr ovisions,t hef ormerpr evail
.
Reasont hewr ittenwor dsar edeemedt oexpr esst het ruei ntentionoft hemakeror
signerbecauset heyar epl acedt herebyhi msel f;
(6)Incaseofdoubtast owhet herani nstrumenti sabi llornot e,thehol dermayt r
eat
eitherathi sel ect i
on( e.
g.,wher eani nstrumentsi gnedbyRandaddr essedt oW,
reads;pr omiset opayPoror derP1,000) ;
(7)Incaseofdoubtast owhatcapaci tytheper sonmaki ngt hei nstrumenti ntended t o
sign,hei stobedeemedani ndorser( e.g.
,wher eP,pay eeofapr omi ssorynot e,
wr i
teshi snameacr osst hef aceoft henot e;Pcannotbeconsi der edanaccept or
becauset heinst rumenti snotabi llofexchange) ; and
(8)Ani nstrumentwi t
ht hewor dsT;pr omi set opay "signedbyt woormor eper sons
givesriset osolidar yl i
abil
ity .(Sec.17. );and
(9)Ani nstrumentwi tht hewor ds“wepr omi set opay ”byt woormor eper sonsgi vet o
ri
set ojointli
abi l
ity.

27. Hayaper sonwhosesi gnat

uredoesnotappearont henegot iableinstr
umentbe
l
iabl
ethereon?
(
1)Generalr ule-Onl yper sonswhosesi gnaturesappearont henegot iabl
einstr
ument
er
eli
ablet her eon.
(
2)Exceptions- Theyar e:
(
a)Wher eaper sonsignshat radeorassumedname( Sec.18.);
(
b)Thepr incipalisli
ableifonagentsi gnsonhi sownbehal f(Sec.19.
);
(
c)I ncaseoff orgery,t
hef orgeri sli
ableevenifhi
ssignat ur
edoesnotappear
ont heI nst r
ument( Sec.23.);
(
d)Apar sonwhonegot i
atesbydel i
veryisli
abletohi simmedi atetr
ansferee
(Sec. 65);
(
e)Wher et he accept ormakes hi s acceptance ofa bi llon a separ ate
i
nst rument( seeSec.135, infra);
and

28.Giveinst
anceswhereaper son'
ssignat
ureappearsonanegot
iabl
einst
rumentandy
et
heisnotyetheisnotl
iabl
et her
ein.
Theyare:
(1)Incaseofanundel
i
v er
edandi ncompl
etei
nstrument
;

10
 (
2)Incaseofsignaturebyanauthori
zedagent(Sec.20)
;and
(
3)Incaseofani ndor
sementorassi gnmentofani nstr
umentbyami nororother
anti
cipat
edper sonalthoughsuchindorsementorassi
gnmentpassest
it
leoverthe
i
nstrument.(Sec.22.
)

29.
Givetherequisi
tesi nor derthatanagent whosi gnsanegot i
abl
einstrumentmay
escapepersonalli
abil
it
y.
Theyare:
(1)Heisdulyauthori
zed;
(2)Headdswor dst ohissignaturei
ndicati
ngthathesignsasanagent
,thatis,
fororon
behal
fofaofapr i
ncipal,orinarepresent
ati
vecapacit
y;and
(3)Hediscl
oseshispr i
ncipal.(
Sec.20)

NOTE:Themereaddit
ionofdescri
pti
vewords(e.
g.,"agent""
trust
ee," guardi
an,et
c.)
di
scl
osi
ngthepr
inci
pal
will
notr
eli
evethesi
gnerf
rom personall
i
abili
ty,
(Ibid)

30.
Explainsignaturebypr ocuration.
Asi gnatureby" procuration"oper atesasnoticet
hattheagenthasbutli
mitedauthor
it
y
tosign,andt hepr incipalisboundonl yincasetheagentissosigni
ngactedwithi
nthe
actualli
mitsofhi saut horit
y.( Sec.21.
)Itmaybemadeasf oll
ows:
JovencioP.Csnco
PerPr ocurati
on:GilL
Flores;or
Itmayal sobei ndicatedbysuchsi gnsas"P.
P.”“pp”or"Per
Proc.
"

31.
Givet
heef fectsofaforgedsi gnat
ureoronemadewi thouttheauthori
tyoft heperson
whosesi gnatureitpurportstobe
(1) I
nanysuchcase,t hesi gnat
ureiswhol l
yinoperati
ve,and,t
herefore,norightto
retaint heinstr
ument ,ort ogiveadi schar
get herefor
e,ortoenf orcepay ment
thoughorundersuchsi gnaturecanbeacquired.(
Sec.23.)
(2) Butr i
ght smaystill standbeenf
exi or
cedast othosewhosesignaturestheretoare
genui ne.(SeeRepubl i
cv s.Ebarda,
L40796,July31,1975.
)

EXAMPLE:M makesanot epay abletoor derofP whoi ndorsesitt oA.Fobt ains

possessionoft henot efraudul ently
,for
gesA' ssi gnatureandindorsesittoBwhoi nt urn
i
ndorsest oC.
(1) Ccannotenf or
cet hei nst r
umentagai nstM andP.Reason:Hecoul dacquirerights
againstM orPt ot hei nst r
umentonl yt hrought hefor
gedsi gnatureofAwhi chi s
i
noper at iv
e.
(2) C cannot enf orcet hei nstr
umentagai nstA.Reason:A' ssignatureiswhol l
y
i
noper ativ
e.
(3) Ccanenf orcet hei nstrumentagai nstB.Reason:B' ssignat ur
ei sgenuine and,
ther
ef or e,operative.HeI sli
ableonhiswar r
antiesasagener ali
ndorser.(
seeSees.
65,66. )
(4) Ofcour se,BorChasar i
ghtofrecour seagai nstF,thef orgerwhoi sli
abl ebot h
cri
mi nal l
yandci vi
ll
yf ort heforger
y.
(5) Acanr ecov erfrom M andP.Reason;Hi srightagai
nstM andPi snotaf fectedby
thefor gery .Theirsignatur esaregenuine.

32.
Givetheexcepti
onst ot hegener alrulethatnor i
ghtort it
lecanbeacquiredtoa
negoti
abl
einstr
umentthroughaf orgedorunauthori
zedsi
gnat ur
e.
Theyare:
(1)I
fthepart
yagainstwhom itissoughtt oenforcesuchr
ightisprecl
udedf
rom set
ti
ng
upthefor
geryorwantofaut hori
ty(sec.23)and
(2)Wheretheforgedsignatur
ei snotnecessaryt otheholder’
stit
lei
nwhichcasethe
for
gerymaybedischarged.(seeSec.48, i
nfr
a)

33.
Whoar eprecludedf rom setti
ngupthedefenseoff orger
y?
Theyare:
(1)Thosewhobyt heiracts,si
l
enceornegl igence,arestoppedfr
om sett
ingupthe
defenseofforger y;and
(2)Thosewhowar rantoradmi tt
hegenuinenessoft hesi
gnaturei
nquest
ion,
namel
y:
(a)indorser
s;
(b)acceptors; and
(c)Personsnegot i
ati
ngbydeli
ver
y( seeSec.65)

11
 EXAMPLES:
(1)Pmakesapr omissorynot epay ablet ohi sownor der ,for gingM’ ssignat uret hereto
asmaker .WhenPat tempt st oindor set henot et oA, thel atterasksM i fhissi gnat ure
i
sgenui ne andM say s,“I tisal lright”.Int hi
scase,M i sest oppelf rom set tingup
thathi s si gnatureisaf or gery.Thi si s an exampl e ofest oppelar ising f rom
declaration.
(2)M, maker ,P,payee.Xi ndor sest henot etoAbyf orgingP’ ssi gnature.Ai ndor sest he
notetoB, Bt oC, CtoD, thepr esenthol der .Dcanenf or cet henot eagai nstA, Band
Cwhoar eindorsessubsequentt ot hef orgery.Asi ndor sers,theywar rantt hatt he
i
nst r
umenti sgenui neandi nal lrespect swhati tpur por ttobe.( seeSecs.65and66. )
(3)Pmakes, abi l
lofexchangepay abl etohi sownor derbyf orgingR’ ssi gnaturet hereto
asadr awer .Thebi l
lIaddr essedt oW asdr awee.Onpr esent ationf oraccept ance, W
acceptst hebi ll
.(seeSec.143)Pt heni ndor sest hebillt oA, At oB.Bt oC, Ct oD, the
presenthol der.Int hiscase,W cannotr ef
uset opayD ont hegr oundt hatt he
genuinenessoft hedr awer ’ssignat ure.( seeSec.62. )ofcour se,W i snotl iabl etoP,
theforger ,andhecanr ecov erfrom hi mt hemoneypai dt oD.Nei theri sW l i
abl et oD
i
ft helatterhadknowl edge oft hef orgeryorwasgui l
tyofnegl i
genceatt het imehe
acquiredt hebi l
linnotmaki ngi nquireswhi chi fmadehav er eveal edt hef actof
forgery.

34.
Stat
ether
ight
soft
hepar
ti
esi
ncasesoff
orgedi
ndor
sement
s?

Theyare:
(1)Wher enot epay abletoor der-Thepar t
ywhosei ndorsementi sfor gedandal lpar t
ies
pri
ort ohim,ar enotl i
abletoanyhol der.Reason:Thei nst r
umentcanbenegot i
ated
onlybyi ndor sement(compl etedbydel iver
y):andt hei ndorsement ,bei
ngf orged,is
whollyinoper at i
ve;
(2)Wher enot epay abletobear er-Thepar tywhoseindor sementi sf orgedandal lpart
ies
tohim arel i
abl et oahol derinduecour se.Reason: Thei ndorsementi snotnecessar y
tothet i
tl
eoft hehol der.Thei nstrumentcanbenegot iatedbymer edel i
very( seeSec.
30);
(3)Wher ebi l
lpay abletoor der–Thepar tywhosei ndorsementi sf orgedanal lpar t
ies
pri
ort ohim ar enotliableevent oahol derinduecour se.Reason: Thei ndorsementi s
whollyinoper ati
ve.Thedr aweri snotl iabl
e ont hebi l
landt hedr awee(e.g.bank)
whopay sundert hef orgedindor sementmaynotdebi tthedr awer ’
saccount ;and
(4)Wher ebillpay abl
et obear er–Thedr aweemaydebi tt hedr awer ’
saccount .Reason:
Thef orgedi ndor sementi snotnecessar ytothetit
leoft hehol der.Hence, i
tdoesnot
preventthet ransf eroft i
tl
e.
NOTE:Al lthef or egoingar equal i
fiedinthosecasewher et her
eisest oppelagai nstthe
part
yset t
ingupt hedef enseoff orgery.

1.Whati
sthepr
esumpt
ionast
oconsi
der
ati
onwhenanegot
iabl
einst
rumenti
sissued?

Everynegotiableinst
rumentis deemed pr
ima faci
eto have been i
ssued f
ora v
aluabl
e
consi
derat
ion,andev eryper
sonwhosesi gnat
ureappear
st her
eontohav ebecomeapar t
y
ther
etof
orv alue.(
Sec.24)

2.Whatconst
it
utesv
alue?

Valueisanyconsiderat
ionsuffi
cienttosuppor
tasimplecontract
.Anantecedentorpr
e-exi
sti
ng
debtconstit
utesval
ue;andi sdeemedsuchwhet hertheinstr
umentispay abl
eondemandorat
futureti
me.(Sec.25;e.g.
,whereM f ail
stopayPincashP1, 000payabletodayandM issuesa
checkfortheamounti nfavorofPwhoaccept sthecheck,theconsi
derat
ionfort
hecheckisthe
pre-exi
sti
ngdebtofM.

NOTE:
Consi
der
ati
onneednott
obeadequat
e.I
tissuf
fi
cienti
fiti
sav
aluabl
eone.

3.Whoi
sahol
derf
orv
alue?

Aholderforval
uei
sonewhohasgi venav al
uabl
econsi
derat
ionf
ort
heinst
rumentissuedor
negot
iat
edtohim.Theholderisdeemedassuchnotonlyasregar
dst
hepart
y,towhom v al
ue
hasbeengivenbyhim,butalsoinrespecttoal
lthosewhobecamepar
ti
espriort
ot hetime

12
whenv
aluewasgi v
en.(Sec.26)
Examples:
(1)M i
ssuesanot etoPwi thoutconsiderat
ionP,alsowi t
houtconsiderati
on, i
ndorsesi
t
t
oAwhowi thvalue,i
ndor sestoB.Bi saholderforv al
uenotonlyasr egardsAbutas
r
egardsM andP; andifhei saholderinduecour se;hemayenf orcepay mentforthe
f
ull
amount .
(2)Nowsupposei nt hesameexampl e, Bnegoti
atest henotetoCbywayofagi f
t.Cis
aholderforvaluewi t
hint hemeani ngofSection26asagai nst,P,andAbecause
t
heybecomepar t
iespriortotheti
mewhenv aluewasgi v
enont henot ebyB.

NOTE:Wherethehol
derhasal i
en on thei
nst
rumentari
sing ei
therfrom contr
actorby
i
mpli
cat
ionofl
aw,hei
sdeemedaholderf
orval
uet
otheext
entofhislien. (Sec.27)

4.Whatki
ndofdef
ensei
sabsenceorwantofconsi
der
ati
on?

I
tisonlyaper
sonal(
notreal
)def
ense,
andis,t
heref
ore,notav
ail
abl
eagai
nstaholderi
n
duecourse.(
Sec.28;
e.g.
,wher
eM makesapr omi
ssorynotetoPinpaymentf
orparcelofl
and,
whichdoesnotown).

5.Whoi
sanaccommodat
ionpar
ty?

Anaccommodat i
onpartyisonewhohassignedtheinst
rumentasmaker
,dr
awer,accept
oror
i
ndor
ser,withoutrecei
vingval
uether
efor
e,andforthepurposeofl
endi
nghisnamet osome
ot
herperson.(Sec.29)

6.Whoi
sanaccommodat
edpar
ty?

Anaccommodatedpar
tyisonewhosefav
oraper
son,wit
houtrecei
vi
ngval
uetheref
ore,
signed
aninst
rumentf
ort
hepurposeofl
endi
nghiscr
edi
tandenabl
ingsaidpar
tyt
oraisemoneyupon
i
t.

7.Whati
sanaccommodat
ionbi
llornot
e?

Anaccommodat i
onbil
lornotet
owhichtheaccommodat
ionpart
yhasputt
ohi
sname,
without
consider
ati
on,forthepurposeofaccommodatingsomeotherpar
tywhoist
ouseit
,andi s
expectedtopayit
.

8.St
atet
hel
iabi
li
tyoft
heaccommodat
ionpar
ty.

(
1)Hei snotl i
ablet ot heaccommodat ed partybecauseofabsenceofconsi derat
ion
betweent hem i
sadef enseagainsttheaccommodat edpar
ty.
(
2)Hei sli
ableont heinstrumenttoahol derf
orv al
uenot wi
thstandingsuchholderatt he
ti
met akingthei nstr
umentknewhi mt obeanaccommodat ionpar t
y.(Ibi
d)Thismeans
thatsuchabsenceofconsi derati
oni snotvali
ddef enseagainstahol derforv
alue.(See
RepublicEnakv s.Ebrada,L-40796,July31,1975)
(
3)Heisliableonlyt oaholderforvalueinduecourse.(seeSecs.16, 55,58)

9.St
atet
her
ightoft
heaccommodat
ionpar
ty.

(
1)Anaccommodat i
onpartyisinef
fectasurel
yfortheaccommodat edpart
y.Incasehe
makespaymenttotheholder
,hemaysuetheaccommodat edpart
yforr
eimbursement
.
(
2)Hecannotav
ailofthedef
enseofabsenceofconsi
derat
ionagai
nstaholderval
ue.

10.Supposeaper sonrecei
vesconsi
der
ati
onforl
endinghi
snamei
nanegot
iabl
einst
rument
.
Mayhest i
llbeconsider
edanaccommodationpar
ty?

Yes.Thephrase“wit
houtrecei
vi
ngv
aluet
her
efor
e”usedi
nsect
ion29means“
wit
houtr
ecei
vi
ng
paymentforlendi
nghisname”

11.Whataret
hekindsofaccommodat i
onparty
?
Theyar
e;
(
1)Accommodat i
onmaker -e.
g.M,asaccommodat ionpar
ty,issuesapromissor
ynote
payabl
etoPwhomayt hennegoti
abl
eiti
ntocasht
oA;
(
2)Accommodat i
ondrawer-e.
g.M,anaccommodat i
onpar
ty,si
gnsabil
lexchangewit
hP
aspayeeandPmayi ndorsethesametoA;

13
 (
3)Accommodat i
onacceptor
-e.
g.,
M,asaccommodat i
onparty,acceptsabi
lldrawnonhim
byPinfavorofhi
mselfandPmayi ndor
sethesametoA; and
(
4)Accommodat i
onindor
ser-e.
g.M,accommodationpart
y,simplysignsasani ndor
seri
n
bl
ank,thebil
lornotemadebyPi nf av
orofA,befor
eitisdel i
veredtoA.(seeSec.63,
i
nfra.
)

Chapt
er3Negot
iat
ion

1.Whatar
et hemet hodsoftr
ansferofnegot i
abl
ei nst
rument ?
Theyar
e:
(
1)Byassignment–Theassi gneet akestheinstrumentsubj ectt
otherul
esappli
cabl
eto
assi
gnment ;
(
2)Byoperationbyl aw–Fori nstance,theholderoftheinstrumentdi
esandhist
it
leheret
o
istr
ansferredt ohi
sheir
sorper sonalrepr
esentati
ve;and
(
3)Bynegotiation–Thi saf
fectedeitherbydel
iveryorindorsementcompl
eteddel
iv
ery.

2.Whatconsti
tut
esnegotiat
ion?
Aninstrumentisnegotiat
edwheni ti
st r
ansferredf rom oneper
sontoanotheri
nsuch
mannerastoconstit
utethetransfer
eetheholderthereof.Ifpayabl
etobear
er,i
tisnegoti
ated
bythei
ndorsementoftheholdercomplet
edbydeliv
er y
.( sec.30.
)

3.Whatdoesassignmentofabil
lornot
emean?
Anassi gnmentofabil
lornosemerel
ymeansat ransf
erofthetit
letotheinst
rument,
wit
htheassigneegeneral
l
ytaki
ngonlysucht
itl
eashisassi
gneegeneral
lytaki
ngonlysuchas
hi
sassignorhas,subj
ecttoal
ldef
ensesavai
l
ableagai
nsthisassi
gnor
.(see11am,Jur .2d,p.
338)

4.Whatistheeffectofthedel
iveryofanor derinstr
umentwi t
houti ndorsement?
The transferoperates as an or di
naryassi gnmentand t he assignee acquir
es the
i
nstr
umentsubjecttoalldef
enser ealorpersonal,availabl
eagainsttheassignor.Thetransf
eree
orassi
gneeisnotahol derbecause“hol der”meanst hepayeeori ndorsesifabillornote,
who
i
sinpossessionofit,
orthebearerthereof

5.Gi
vethedifferencesbet weennegot iationandassi gnment .
Theyar
e:
(
1)Negot iat
ionr ef
ersonl ytonegot i
ablei nstrument s,whi l
eassi gnmentrefer sgener al
lyt
o
anor dinarycontract;
(
2)Innegot i
ati
on,t het r
ansfereei sahol der,whi l
ei nassignment ,t
het ransf ereeisan
assi
gnee.
(
3)Ahol deri nduecour sei ssubjectonl ytor ealdef enses,whi l
easassi gneei ssubjectt
o
bothr ealandper sonal defense.
(
4)Ahol deri sduecour semayacqui r
eabet terti
tlet hant hatofapr i
orpar ty,whil
ean
assi
gneemer el
yst epsi ntotheshoesoft heassi gnor ;
(
5)Agener alindorserwar rantsthesol vencyofpr iorpar ti
es,whi l
eanassi gnordoesnot
warrantt hesol vencyofpr i
orpar ti
esunl essexpr esslyst i
pulatedorthei nsolvencyi
s
unknown;
(
6)Anindor serisnotl iableunlesst herebepr esentmentandnot i
ceofdishonor ,whil
ean
assi
gnori sl i
ableev enwi thoutnoticeofdi shonor ;and
(
7)Negot iat
ioni sgov er nmentbyt heNegot i
ableI nstrument sLaw,whi l
eassi gnmentis
governedbyAr ti
cle1624t o1635( onassignmentofcr edit
s)oft henewCi v i
l Code.

6.Canther ebeanegot iati

ontoapay ee?
I
tdepends.
(
1)ifthef irstdeliveryoftheinst
rumentismadebyt hemakerordrawerdirectl
ytothepay ee,
thel at
ter,ast hef ir
stholder
,acqui
restit
letot heinst
rumentbyissueofi ssuance.(see
Sec.191[ 10]).Onlytheholder
ssubsequentt othepayeecanacquireti
tlebynegotiat
ion.
(
2)Ift hedel i
v er
yt ot hepayeeisnotsomadeaswher easthedel
iveryismadet hroughan
agentoft hemakerordr awer,t
hepayeerequiresti
tlet
henegoti
ation.(
seeOcampo&Co.
v s.Gat challi
an, L-15125,Nov.30,
1961;Sec.52[c])
(
3)Ther emayal sobenegot i
ati
ontothepay eewhent heinstr
umenti sdel
iver
edbackt ohi ,
byt helasthol der.(seeSec.48,
50,
121,i
nfr a)

7.Defi
neindorsement.
I
ndorsementisthewr
iti
ngofthenameoftheindorserontheinst
rumenti
tsel
forupona
paperatt
achedther
etoinevi
denceofhist
ransf
eroft
het i
tletoi
t,orofhi
sassuri
ngit
spayment

14
orbot
h.Thesi
gnat
ureoft
hei
ndor
ser
,wi
thoutaddi
ti
onalwor
ds,
issuf
fi
cienti
ndor
sement
.(sec.
31)

8.Gi
vetherequir
ementofaval
idi
ndorsement;
Theyar
e:
(
1)Thei ndor
sementmustbewr it
tenont heinst
rumentit
sel
foruponapaperat
tached
ther
eto;
(
2)Itmustbeanindor
sementoftheenti
reinst
rument(
sec.31)
;and
(
3)Itmustbecomplet
edbydeli
very.(
sec.1910

Example
(1) AnoteforP500i ndoresedasf oll
ows:
(a)“PaytoAP400,“l eavingthebal ancewi t
houtindor sement,i
snon-negot
iabl
e.Forbei
ng
onl
yindor
see,Ai sconsideredmer el
yasanassi gnee.
(b)“PaytoAP400andt oBP100, ”i
salsonon- negotiable.
Reason:Theinstr
umentmustbedel i
veredtot hei ndor
seeandt herecannotbepar t
ial
deli
ver
yofoneinst
r ument.Inbothcases, thecauseofact i
onisdiv
ided.

(
2)Ifindorsedasf oll
ows:“PaytoAandBP500” ,theindorsementoperat
easanegot i
ati
on.
Int hi
scase, bothAandBP500”musti ndorseunl esstheoneindorsi
nghasauthori
tyto
indorseunl esstheoneindorsi
nghasaut
horit
yt oindor
sefortheothers.(
seeSec.
41)
NOTE: Wheretheinstrumenthasbeenpai
dinpart,itmayindorsedastotheunpai
dbalance.

9.Whati
sanall
onge?
Al
longeisaslipofpaperwheretheindor
sementi
smade,whi
chi
sat
tachedt
othe
i
nstr
umentandconsi
deredasapar
tther
eof.

10.Mayindorsementbemadebyr ubberstamp?
Yes,
asl ongasther
eisint
enttoindor
seandthestampingisdonewi
thpr
operaut
hor
it
y.
Thelawdoesnotr equi
reanexcl
usi
vefrom bywhi
chasindorsementmaybemade.

11.Whatar
etheki
ndsofaccommodat
ionpar
ty?

Theyar
e:
(
1)Specialendor
sement–Onewhi chspeci
fi
est
hepersontowhom towhom ordert
he
inst
rumentispayabl
e(Sec.34;e.
g.“PaytoAorPaytotheor
derofA”or“PaytoAor
order’,
Sgd.P”bei
ngthepayee);

(
2)Endorsementi
nbank–Onebei ngspeci
fi
esnoendor see,maki
ngtheinst
rumentpayabl
e
tobearerandnegot
iabl
ebydel i
ver
y (Ibi
d.,e.
g.,P,inthesameexampl e,i
ndor
sesthe
i
nstrumentbymerel
ywrit
inghi
ssignat
urebackthereofanddel
ivert
hesamet oA;)

(
3)Restri
ctedindor sement-Onewhi cheit
her(a)prohibitst hef ur
thernegotiat
ionofthe
i
nstrument( e.g.’PaytoAonl y);or(b)consti
tut
est hei ndorseet heagentofindor
ser
(e.
g.,Pt oAf orcollect
ion)
;or(c)vestt
hetitl
einthei ndor seeintrustorfortheuseof
someot herper son(Sec.36;e.
g.,
PaytoAintrustforB; orAf ortheuseofB) ;

(
4)Qualifi
edindorsment-Onebywhichconstit
utesthei
ndorseramer eassignoroft he
i
nstrument( e.g.PaytoA ati
ndorsee’
sri
sk).Itmayalsobemadebyaddi ngt othe
i
ndor ser’
ssignatur
ethewords“wi t
houtrecour
se”oranywordsofsimi l
ari mport
.A
quali
fiedindor
sementdoesnotdestr
oydoesnotdestr
oynegoti
abi
l
ityoftheinstrument
(Sec.38);

(
5)Absol
utei
ndor
sement–Onebywhi chtheindor
serbi
ndshimsel
ftopayuponnoot her
condi
ti
ont
hanthef
ail
ureofpr
iorpar
ti
estodoso,andduenoti
cet
ohim ofsuchf
ail
ure;

(
6)Condit
ionalinst
rument
-Onebywhi cht
heindor
serannexessomeot hercondi
ti
ontohi
s
l
iabi
li
tyinhisindor
sement(
e.g.
,PayB,i
fhemarri
esbeforehereach25y ear
sofage)

(
7)Joi
nti
ndor
sement–Onewhichrequi
restheindor
sementofallpay
eesori
ndor
seest
o
whom t
hei
nst
rumenti
spay
able(
sec.41;seeexample2quest
ionsNo.8)

(
8)Successi
veindorsement-Onebywhichconsistoftwoormor eindor
ement
smadei
n
successi
on.(seeSec.68,i
nfr
a,i
nfr
a;e.
g.appeari
ndorsementbyPtoA,AtoPandBt
o
C)

15
 (
9)I
rr
egul
arindor
sement-Onemadebyapersonnotot
herwi
seapar tytoaninst
rument
,
whopl
acesthereonhi
ssi
gnat
urei
nbl
ankbef
oret
hedeli
ver
y(seeSec.64i
nfr
a);and

(
10)Facul
tat
ivei
ndor
esment-onewheretheindor
serengageshi
sli
abi
l
itybywai
vi
ngt
he
usual
demandandnot
iceofdi
shonor
.(seeSec.111,
inf
ra)

12.Howmayani
ndor
sementi
nbl
ankbeconv
ert
edi
ntoaspeci
ali
ndor
sement
?

Itmaybeconv ert
edbyt hehol
derswri
ti
ngov erthesi gnatur
eoft heindorserinblankany
cont
ractnoti
nconsist
entwi
tht
hechar
acteroftheindorsement.(sec.35)Thus, t
heholdermay
wri
tehisnameov erthesi
gnatur
eofthei ndor
ser( e.
g.,“Payt oH” )therebyindor
singthe
i
nstr
umenttohim.

13.Whatr
ight
sar
eacqui
redbyt
hei
ndor
seeunderar
est
ri
cti
vei
ndor
sement
?

Theyare:
(1)Toreceiv
epaymentoftheinstr
ument ;
(2)Tobringanyact
ionther
eonthattheindorsercoul
dbri
ng;and
(3)Totransf
erhi
srichassuchindorsee,wherethefor
m oft
heindor
sementaut
hor
izes

Butallsubsequentindor
seeacqui
reonl
ythet
it
leoft
hef
ir
sti
ndor
seeundert
her
est
ri
cti
ve
i
ndorsement(Sec.37)

14.Whereanindor
sementiscondit
ional
,mayt
hemakerordr
awermakepay
mental
though
thecondi
ti
onhasnotbeenf
ulf
il
led?

Yes,Hemaydi sr
egardt hecondi
ti
onwithoutincur
ri
nganyl iabi
l
ity
.Reason,Hecannotbe
bur
denedwi
thcondit
ions,whichwerenotpartofhiscontr
act.Butt hepersonwhor ecei
ved
pay
mentwil
lhol
dtheproceedssubj
ectt
otherightoft
hecondit
ionali
ndorser
.(sec.39)

15.Givetheef
fectofaspeciali
ndorsementwheret
heinst
rumentori
ginall
ypayabl
etobearer?
Theinstr
umentisnottherebyconvert
edint
oaninst
rumentpayabl
etoor der
,andther
efor
e,the
i
ndorseemayfurthernegoti
abl
etheinstr
umentbymeredel
iver
y.(
sec.40)

16.Whati
sthel
iabi
li
tyoft
heper
soni
ndor
singspeci
all
yani
nst
rumentor
igi
nal
lypay
abl
eto
bear
er?

Hisl
iabi
li
tyi
sthatofgener
ali
ndorse.(seeSec.66,i
nfr
a.)Buthei
sli
abl
eindor
sert
oonl
ysuch
hol
dersasmaketit
lethr
oughhi
sindorsement.

Example:M issueapromi ssor

ynotepayabl
etoPorbear
er,I
findor
sedbyPt
oA, t
helat
termay
never
thelessnegot
iabl
ei tbymeredeliv
erytoB.ButPwil
lnotbeli
abl
etoBbecauseBdidnot
obtai
ntit
lethoughtheindorsementofP.

Supposi
ngAal
soi
ndorsesthenoteBwhonegoti
atest
hesametoCbymer
edel
i
ver
y,Pi
sli
abl
e
toAandBasagener
alindor
serbutnott
oC.Aisnotal
soli
abl
etoC.

17.Givetheeff
ectofani
nstr
umentdr
awnori
ndor
sedt
oaper
sonascashi
erorot
herf
iscal
off
icerofabankorcor
por
ati
on.

I
tisdeemedpr i
mafaciepay
abletothebankorcorpor
ati
onofwhichheissuchoff
erandmay
benegoti
atedbyei
therthei
ndorsementofthebankorcorpor
ati
on,ort
heindor
sementoft
he
of
fi
cer.(
Sec.42)

18.Whati
sthepr
esumpt
ionast
othepl
aceofi
ndor
sement
?

I
ftheindor
sementbear
’sadate,i
sdeemedprimafacietobet
het
ruedat
e.(
sec.11)i
fiti
s
wi
thoutdat
e,t
hati
swasnegot
iatedbef
oremat
uri
ty.(
sec.45)

19.Whati
sthepr
esumpt
ionast
othepl
aceofi
ndor
sement
?

I
tispresumedpr
imaf
aci
ethati
thasbeenmadeatt
hepl
acewher
ethei
nst
rumenti
sdat
ed.
(
Sec.46)

16
20.Howshal
lthei
ndor
sementbemadewher
ethenamei
swr
ongl
ydesi
gnat
edormi
sspel
led?

Thepayeeorindor
seemayindor
set
hei
nst
rumentast
her
eindescr
ibedaddi
ng,i
fhet
hinksf
ir
,
hi
spropersi
gnatur
e.(
sec,
43)

21.Whomaymaket
hei
ndor
sement
?

Anindor
sementmaybei
ndor
sedbyaper
sonper
sonal
l
yort
hroughanagent(
sec.44seeSec.
20,
supra)

22.Whenwi
llani
nst
rumentnegot
iabl
einor
igi
nceaset
obenegot
iabl
e?

Suchani nstr
umentconti
nuestobenegot iabl
euni
tithasbeenrestri
cti
vel
yindor
sed(the
i
ndorsementprohibi
tst
hefurt
hernegot
iat
ionofthei
nst
rument
)ordischargedbypaymentor
other
wise.(
sec.47)

23.St
atet
her
uler
egar
dingt
hest
ri
kingoutofi
ndor
sement
s.

Theholdermayatanyti
mest r
ikeoutani ndor
sementwhi
chisnotnecessar
yt ohi
sti
tle.The
i
ndor
serwhoseindor
sementistruckoutandalli
ndor
ser
ssubsequentt
ohim areher
byreli
eved
fr
om l
iabi
li
tyonthei
nst
rument.(sec.48)

24.Whati
ndor
sementar
enotnecessar
ytot
hehol
der
’st
it
le?

(
1)Wher etheinst
rument sisorigi
nallypay abl
etobear er,
anyi ndorsementthereon.(seeSec.
40,supra)Reason:Itremainsabear erinstr
umenti nspiteofthespecialindorsement ;
(
2)Wher etheinstr
umenti sor igi
nallypay abl
et oorder,allindorsementsubsequentt othe
blankindor
sement .(seeSec.9[ e],supra)reason:itwoul dbecomeabear erinstrument
andt hehol
dercouldhav eacqui redtitl
ebymer edel i
very;and
(
3)Wher etheinstr
umenti snegot iablebackt oapr i
orpar t
y ,al
linter
veni
ngi ndorsement s.
(sec.50)Reason:Ani ndorserisnotl i
abletoapr i
orpar t
y.

Not
e:UnderNo.2,thei
ndor
sermaynotst ri
keoutt hepay
ee’sindor
sement
.Sincet
he
i
nst
rumenti
spay
abl
etoor
der,
itcannotbev
ali
dlynegot
iabl
ewi
thouthisi
ndor
sement.

25.Whati
sther
ightofapar
tywhor
eacqui
resani
nst
rumentbef
oremat
uri
ty?

Hemayr e-
issueandf ur
thernegot
iat
etheinst
rument.Butaft
erpayi
ngt
heholder
,he
maynotenf orcepay mentt her
eofagai
nstanyinter
veni
ngpar t
iest
owhom hewas
per
sonal
l
yli
able.(sec.50)Reason:Toavoi
dmulti
pli
cit
yofsui
ts.

26.Gi
vetheceaseef fectofthetransferwi thoutindorsementofanorderinst
rument
?
Theyare:
(1) Wher etheinstrumenti spay abletot heorderofathi
rdpersonandhasbeenpaid
bythedr awer(sec.121[ a];seechap.8)
(2) Wher eitwasmadeoraccept edf oraccommodat i
onandhasbeenpai dbythe
par
tyaccommodat ed( Ibid,[b]seechap.8)and
(3) Inor dercaseswher et hei nstr
ument sisdischar
gedwhenacqui r
edbyapri
orpart
y
(sec.119,seeChap8) .

27.Whati
stheef
fectoft
het
ransf
erwi
thouti
ndor
sementofani
nst
rument
?

Wher et hehol derofani nstr

umentpay ablet ohisordertransferitf orvaluewithout
i
ndor singi t
,thet ransfervestinthet r
ansfereesucht i
tl
east het ransfer
orhadt herein,
and t he transferee requires,i
n additi
on,the rightto havet he indorsementoft he
transferor.Butfort hepurposeofdet ermini
ngwhet hert
het r
ansfereeisahol deri
nadue
course,t henegot i
ati
ont akesef f
ectasoft hetimewhent hei ndorsementi sactually
made.( sec.49)Reason:Negot iat
ioniscompl et
edatthetimeofi ndorsementandnotat
thetimeofdel i
v ery.

Chapt
er4-Ri
ght
soft
heHol
der
s

1.Ingeneral
,whatar
etheri
ghtsofthehol
der?
Theyar
e:
(
1)Hemaysueont heinst
rumenti
nhisname;
and

17
 (2)Hemayr ecei
vepaymentifthepay mentisinduecour
se,t
heinst
rumenti
s
di
scharged.(sec.51;
seeSecs.88,119,
inf
ra)
Note:Ahol derforcoll
ecti
onandt hepledgeofanoteorabil
lmaysueinthei
rown
namesast heyareholdersundert
helaw

2.Mayat r
ansf er
eeofanunendorsedinstrumentsue?
Whil
ethereisconfl
ictofopi
nion,
itisbel
ievedthathemaydoso.I f“thetr
ansfer
”vesti
n
t
hetransfereesuchtit
leasthetransfer
orhadt herei
n( sec.49)andt hetr
ansfer
orhad
l
egalti
tl
e,thismustpassbythetransf
er,alt
houghsubjecttodefenses.

3.Whatconstit
utesaholderi
nduecour
se?
Aholderinduecourseisaholderwhoaskt
akent
hei
nst
rumentundert
hef
oll
owi
ng
condi
ti
ons:

(
1)Thatiti
scompl eteandr egul
aruponi t
sf ace(i
.e,
itisnotwant i
ngi nanymat er
ial
part
icul
ar[seeSec.14) ,suchasdat e,nameofpay ee,amount ,et
c.andt her
eis
noapparentalternati
onont hei nstrument );
(
2)Thathebecamet heholderofi tbef oreitwasov erdue,andwi t
houtnoticethatit
hadbeenpr eviouslydi
shonor ed,ifsuchwast hefact;
(
3)Thathetooki tingoodfai t
handf orv alue;and
(
4)Thatatthet i
mei twasnegot iat
edt ohi m hehadnonot iceofanyi nf
ir
mi t
yinthe
i
nstrumentordef ectinthet i
tl
eoft heper sonnegoti
atingit
.(sec.52)

Note;Wher
ethei
nst
rumenti
spayabl
eondemandanditisnegoti
atedanunreasonabl
e
l
engthofti
meaft
eri
tsi
ssue,
thehol
deri
snotdeemedahol
derinduecourse.

4.Di
sti
ngui
shahol
derf
orv
aluef
rom ahol
deri
nduecour
se.

Aholderi
nduecoursei
salwaysahol
derforval
uewhil
eaholderf
orvaluemaynotbea
hol
derinduecour
seaswhenthehol
deracqui
resthei
nst
rumentaf
teri
twasover
due.

5.St atether ul
eswher ethehol derreceiv
ednot i
ceofanyi nf
ir
mityintheinstrumentor
defectinthetit
leofthepersonnegot iat
ingthesame.
Theyar e:
(
1)Ifhehasnotpai danything,heisreli
evedfrom t
heobl i
gati
ontomakepay ment;
(
2)Ifhest i
llpaysthetr
ansf er
oraf t
errecei
vingnotice,heisnotdeemedahol deri
n
duecourse;and
(
3)Ifhehasnoty etpai
dt hef ul
lamountagr eedtobepai dfortheinst
rument ,hei
s
deemedahol derinduecour seonl ytotheextentoftheamountt heret
of orpai
d
byhim.(sec.54)

6.Wheni
sthetitl
eofaper sonwhonegot i
ateaninstr
umentdefect
ive?
(
1)i
nt heacquisi
tion-Whenheobt ai
nedtheinstr
umentoranysignaturet
heretoby
fr
aud,duress,orf orceand fear,orotherunlawfulmeans,orf oran il
legal
consi
derati
on.(sec.55)
(
2)Inthenegot i
ation-Whent henegoti
atestheinst
rumentinbr eachoffait
h,or
undersuchcircumst ancesasamounttoaf r
aud.(I
bid)

7.Whatconst i
tutesofani
nfi
rmi
tyi
nt hei
nstr
umentordef ecti
nt heti
deoftheperson
negotiat
ingthesame?
The transfer
ee musthave(1)act
ualknowledge ofthe inf
ir
mi t
yordefect;or(2)
knowledgeofsuchf actt
hathi
sact
ionintaki
ngtheinstr
umentamount stobadfaith.
(sec.56)

8.Statet
her i
ghtsofahol derinduecour se
Theyar
e:
(
1)Hemaysueont heinstrumenti nhisownname( sec.51)
(
2)Hemayr eceivepay mentandi fthepaymentisinduecour se,theinstr
umentis
discharge( I
bid)
(
3)Hehol dst heinst r
umentf reef r
om anydefectofti
tl
eofpr i
orpart
ies;
(
4)Hehol dst hei nstrumentf reefrom (per
sonal)def
ensesav ai
labl
et opri
oramong
themsel ves;and
(
5)Hemayenf orcepay mentoft heinstr
umentforthefullamountthereofagai
nstal
l
parti
esliablether eon.(sec.57)

18
9.Whatar ethet woki ndsofdef enseswhi chmaybei nterposedt oanact ionupona
negoti
ableinstr
ument ?Gi veexampl e
Theyare:
(1)realorabsol utedef enses–Thoset hatattachétopt hei nstr
umenti tselfandar e
avail
ableagai nstallpersoni ncludingholdersinduecour se.Examplear e:
(a)Incapaci tyasf arast heincapacitat
edper soni sconcerned( seeAr t
.
1327, newCi vilCode)
(b)Il
legal i
tyofcont ractwhendecl aredbylaw( seeAr t.1409,Ibid);thus,a
not eissuedf oragambl i
ngdebt
(c)Wantofdel i
veryofi ncompl etei
nstrument( sec.15) ;
(d)For gery
(e)Wantofaut hori
ty ,appar entandreal
(f)Dur essamount i
ngt of orgeryaswher eonet akest hehandsofanot her
andf orceshimt osi gnhi sname.
(g)Fraudi nfactum orf raudinessecont r
acts
(h)Fraudul entalternat i
onbyhol der
(i
) Prescr ipti
on
(j
) Ot herinfir
mi ti
esappear i
ngont hefaceoft hei nstr
ument; and
(k)Dischar geatoraf t
ermat urit
y

(
2)Personalorequi
tabledefenses-Thosewhi chgrow outoft heagr eementor
conductofapar ti
cularpersoninr egardt otheinst
rumentwhi chr ender
sit
i
nequitablef
orhi
m,thoughhol di
ngthel egalti
tl
e,t
oenforceitagainstthepart
y
soughtt obemadel i
ablebutwhi charenotav ai
l
ableagainstahol derindue
course.
Exampl esar
e:

(
a)Fi l
lingofwr ongdat e
(
b)Fi l
lingupofbl anksnotaccor dancewi tht heaut horit
ygiv enandwi thi
n
reasonabl et ime.
(
c)Wantadel i
ver yofcompl etei nstrument
(
d)Absenceorf ailureofconsi der ation
(
e)Si mpl ef r
audorf raudini nducement
(
f)Acqui siti
onofi nstr
ument( notsi gnat ure)bydur ess, orforceandf ear
;
(
g)Acqui siti
onofi nstr
umentbyunl awf ulmeans;
(
h)Acqui siti
onofi nstr
umentf ori l
legal consi derati
on;
(
i) Negot iati
oni nbr eachoff ai
t h
(
j) Negot iati
onunderci r
cumst ancest hatamountt of raud;
(
k)Innocental terati
onorspol iation.( seesecs.124,l astsent ence,125)
Spol i
ationisanal t
erati
onmadebyast rangert oani nstrument .I
fthe
originalmeani ngcanbeascer tained,t hehol derinduecour semay
recov eraccor dingt oit
sor i
ginal tenor .
(
l) Set -
offbet weeni mmedi atepar ti
es
(
m) Dischar geofpar tysecondar i
lyl i
ablebydi schargeofpr iorparty
(
n)Di schar geofpay mentorr enunci ati
onorr eleasebef oremat uri
ty
(
o)Usur y,becauset hecont ractofl oani tselfisnotv oi
donl ytheagreed
i
nter est;and
(
p)Wantofaut hor it
ybyi tagenthasappar entauthor i
ty

Not
e:Bot
hreal
andper
sonal
def
ensear
esubj
ectt
oest
oppel
.

10.Di
sti
ngui
shf
raudi
nfact
um andf
raudi
nducement
.

Theyar
e:
(
1)Fraudinfactum orfraudinessecont ract
s–Thatwhi chexistwher eaperson
withoutnegli
gencehassi gnedani nstrumentwhichwasi nf actanegot iable
instr
umentbutwasdecei vedast oitschar act
erandwithoutknowl edgeofit,as
wher eanotewassignedbyoneundert hebel i
eft
hathewassi gni ngasawi t
ness;
and
(
2)Fraudi ntheinducementorsi mplef raud– Thatwhi chrelatest ot hequal i
ty,
quantit
y,val
ueorcharact
eroft heconsiderati
onorter
msoft hei nstrument.Her e,
thesignorisledbydecepti
ont osignwhatheknowsi sanegot iableinst
rument .
Thiskindoffraudi
sonlyaper sonaldefense.

Exampl
e:M i
sinducedt
hrough(
simpl
e)f
raudcommi
tt
edbyPt
oissueapr
omi
ssor
y

19
 notei nfavorofP.Thenot eisi ndorsedbyPt oA,holderinduecourse.A,inturn,
i
ndor sesthenotetoBwhohasnot i
ceofthefr
aud.Bcanrecoverf
rom M asl
ongasBi s
notapar tytothefraud.Ift
henot eisendor
sedbyBt oCwhohas al sonoticeofthe
fr
aud, Ccannotrecoverfr
om M becausehedidnotacqui
rehisti
tl
efr
om aholderi
ndue
course.

11.Whataretherightsofahol dersnotinduecourse?
Theyar
e:
(
1)Hemaysueont hei nstrumentinhisownname
(
2)Hemayr eceiv
epay mentandi fthepaymentisinduecourse,t
heinst
rumentis
discharged;
(
3)Hei sent i
tl
edt ot hei nstrumentbutholds i
tsubjectt
ot hesamedefenseasif
wer enon-negotiable;and
(
4)Hehasal ltheri
ght soft heholderinduecour
sefrom whom hederi
veshisti
tl
ein
respectofal lpartiespr iortosuchholder
,provi
dedhei snothi
mselfapartyto
anyf r
audori ll
egalityaffecti
ngtheinst
rument.

Examples:M isinducedthrough(si
mpl
e)fr
audcommi t
tedbyPt oissueapr omissor
y
noteinfavorofP.Her ePisapartytot
hefr
aud.Pindor
sedthenoteA.Ahasnot iceof
thefr
audbutdi dnottakeparti
nit
.ByA,t
henotei
sindor
sedtoB,aholderi
nduecour se,
B,intur
n,indorsesthenotetoCknowshowt henot
ewasobt ai
nedbutwithoutbeinga
part
ytothef r
aud.

(
1)I
nt hiscase, evenifCi snotahol derinduecour se,hehasal lther i
ghtofsuchhol derin
respectofM,PandA,hav i
ngder i
vedhidtitl
efrom B,ahol derinduecour seandt he
defensesoff raudcannotbesetupagai nsthim.I neffect,Csahol deri nduecour se
rel
ativet oM, P,andA.
(
2)I
fi nsteadofi ndorsingthenot etoC,Bi ndorsesittoP,pay ee,t helatt
ercannotr ecover
ont hei nstrumentbecausehei spartytothefraud.Pisr emittedt ohisor iginalposi t
ion
whenhef ir
stacqui r
edt henot efr
om M.
(
3)I
ft henot ei sindorsedbyCt oD,whohasal sonot i
ceoft hedef ectbywasnotapar tyof
thef r
aud,Dcannotr ecoverfrom M becauseDdi dnotacqui rehi stitl
ef rom ahol derin
duecour se.
(
4)Assumi ngt hatCi sahol derinduecourseandAr eacquiresfrom himt henot e, t
hel att
er
i
snotgi vent hef ormer ’
srightsal
thoughhewasnotapar tytot hefraud.Ai sr emitt
edt o
hioriginalposi ti
onwhi chheoccupi edwhenhef i
rstacquiredthenot ef rom P.Theactof
Ai nnegot i
atingthenot et oaholderinduecour seinordert ocutof fM’ sdef enseupon
his(A’s)r eacquisit
ionoft heinstr
umentmaybeconsi deredf r
audundersect ion55.

12.
Giv
etheexecut
iont
othepr
esumpt
iont
hatev
eryhol
deri
sahol
deri
nduecour
se

Wheni tisshownt hatt

het i
tl
eofanyper sonwhohasnegotiat
edtheinstr
umentwas
defecti
ve,theburdenisontheholdert
opr ovet
hatheorsomepersonunderwhoclaims
acquir
edt hetit
leasaholderinduecourse.Butahol
derisst
il
ldeemedprimafaci
easa
holderinduecour seasagainstapartywhobecameboundont heinst
rumentpri
orto
theacquisiti
onofsuchdefecti
veti
tl
e.

Example:Pobtainedthenot eofM t hrough(si

mple)fr
audandnegotiat
esi
ttoA, AtoB.
Bt oCandCt oD. ,thepr esentholder.OnceM provesthefraudcommitt
edbyP,t he
burden i
sshift
edt oDt hathei sholderinduecourseorthatCf r
om whom heacqui
red
ti
tl
ei s a hol
deri n due cour se.Ifthe fr
aud was commi t
ted byA againstP,the
presumpti
onthatDi shol derinduecour seisnotdestroy
edbecauseM becamebound
ont hei
nst
rumentbef oretheacqui si
ti
onofthedefect
iveti
tl
ebyA.

Chapt
er4-Ri
ght
soft
heHol
der
s

13.Ingeneral,whatarether i
ghtsofthehol der
?
Theyare:
(1)Hemaysueont heinst
rumenti nhisname;and
(2)Hemayr ecei
v epaymenti fthepay menti
sinduecour
se,theinst
rumentisdi
schar
ged.
(sec.51;seeSecs.88,119, i
nfr
a)
Note:Ahol derforcol
lecti
onandthepl edgeofanoteorabi
llmaysueintheirownnamesasthey
arehol
der sunderthelaw

14.Mayat r
ansf
ereeofanunendorsedinst
rumentsue?
Whil
ethereisconf
li
ctofopini
on,itisbel
iev
edt hathemaydoso.I f“thetransf
er”vestinthe
t
ransf
ereesuchti
tl
easthetransfer
orhadtherei
n( sec.49)andt
het
ransf
erorhadlegalti
tl
e,t
his
20
 mustpassbyt
het
ransf
er,
alt
houghsubj
ectt
odef
enses.

15.Whatconst
it
utesahol
deri
nduecourse?
Ahol
derinduecour
sei
saholderwhoasktakent
hei
nst
rumentundert
hef
oll
owi
ngcondi
ti
ons:

(
1)Thatitiscompl eteandr egularuponi t
sf ace(i
.e,itisnotwant i
nginanymat er
ial
part
icul
ar[ seeSec.14) ,suchasdat e,nameofpay ee,amount ,et
c.andthereisno
apparentalter
nati
onont heinstrument);
(
2)Thathebecamet heholderofitbef or
ei twasov er
due,andwi thoutnot
icet
hatithadbeen
prev
iouslydishonored,i
fsuchwast hef act;
(
3)Thathet ookitingoodfait
handf orval
ue; and
(
4)Thatatt hetimei twasnegot iat
edt ohi m hehadnonot i
ceofanyi nfi
rmityinthe
i
nstrumentordef ectint
het i
tl
eoft heper sonnegotiat
ingit.(
sec.52)

Not
e;Wher
etheinst
rumentispay
ableondemandanditi
snegoti
atedanunr
easonabl
elengt
hof
t
imeaft
eri
tsi
ssue,t
heholderi
snotdeemedahol
deri
nduecourse.

16.Di
sti
ngui
shahol
derf
orv
aluef
rom ahol
deri
nduecour
se.

Aholderinduecour
seisal
waysaholderf
orval
uewhileahol
derforval
uemaynotbeahol
deri
n
duecourseaswhenthehol
deracqui
rest
heinst
rumentaf
teri
twasoverdue.

17.Stat
et her uleswheretheholderr eceivednot iceofanyinf
ir
mi tyintheinstr
umentordef ecti
n
theti
tl
eoft hepersonnegoti
atingt hesame.
Theyare:
(1)I fhehasnotpai danyt
hi ng,heisrelievedfrom t
heobl
igationtomakepay ment
;
(2)I fhest il
lpaysthetransf erorafterreceivi
ngnoti
ce,hei snotdeemedahol derindue
cour se;
and
(3)I fhehasnoty etpai
dt hef ullamountagr eedtobepai
df ortheinst
rument,hei
sdeemeda
holderinduecourseonl ytot heextentoftheamounttheretoforpaidbyhim.(
sec.54)

18.Whenisthet i
tl
eofaper sonwhonegotiat
eani nstr
umentdef ect
ive?
(
1)int heacqui sit
ion-Whenheobt ai
nedt heinstrumentoranysi gnatur
etheretobyfraud,
duress,orforceandfear
,orotherunlawf ulmeans,orforanil
legalconsi
derat
ion.(
sec.55)
(
2)I nthenegot iat
ion-Whenthenegotiatest heinstr
umentinbreachoff ait
h,orundersuch
cir
cumst ancesasamountt oafraud.(Ibid)

19.Whatconstit
utesofaninfi
rmit
yintheinstr
umentordefectint
hetideofthepersonnegoti
ati
ng
thesame?
Thetransf
ereemusthav e(1)act
ualknowl edgeoft
hei nf
ir
mit
yordef ect
;or(2)knowledgeof
suchfactt
hathisact
ionintaki
ngthei
nstrumentamount
st obadfai
th.(
sec.56)

20.Stat
ether i
ght
sofahol derinduecourse
Theyare:
(1)Hemaysueont heinstr
umentinhisownname( sec.51)
(2)Hemayr eceivepay mentandifthepay mentisinduecour se,
theinstr
umentisdischarge
(
Ibi
d)
(3)Heholdstheinst r
umentf r
eef
rom anydef ectoftit
leofpri
orpart
ies;
(4)He holds the instrumentfr
ee f rom (personal)defenses avai
labl
et o pr
ioramong
t
hemselv
es;and
(5)Hemayenf orcepay mentofthei nstr
umentf ortheful
lamountthereofagai
nstallpart
ies
l
i
ablet
hereon.(sec.57)

21.Whatar et hetwoki ndsofdef enseswhi chmaybei nter

posedt oanact i
onuponanegot iabl
e
i
nstr
ument ?Giveexampl e
Theyare:
(1)r ealorabsol utedef enses– Thoset hatat t
achét op thei nst
rumenti tsel
fand are
avail
ableagai nstallpersoni ncl udinghol dersi nduecour se.Exampl ear
e:
(a)Incapaci t
yasf arast heincapaci t
atedper soni sconcer ned(seeArt
.1327,new
Civ i
lCode)
(b)Illegalit
yofcont ractwhendecl aredbyl aw ( seeAr t.1409,Ibi
d);t
hus,anote
i
ssuedf oragambl ingdebt
(c)Wantofdel i
veryofi ncompl eteinst r
ument( sec.15);
(d)For gery
(e)Wantofaut horit
y ,appar entandr eal
(f) Dur essamount ingt of orgeryaswher eonet akest hehandsofanot herand
forceshi mt osi gnhi sname.
(g)Fr audi nf actum orf r audi nessecont racts
(h)Fr audul entalternat i
onbyhol der
(i
) Pr escr i
ption
(j
) Ot herinfi
rmi ti
esappear ingont hef aceoft heinst r
ument; and
(k)Di schar geatoraf termat ur
ity

21
 (
2)Personalorequit
abledefenses-Thosewhichgrowoutoft heagr
eementorconductofa
parti
cul
arpersoninr egar
dtot hei
nstr
umentwhi chrender
siti
nequi
tabl
eforhi
m, t
hough
holdi
ngthelegaltit
le,toenforcei
tagai
nstthepartysoughttobemadel i
abl
ebutwhich
arenotavail
ableagainstaholderi
nduecourse.
Examplesare:

(
a)Fi l
lingofwr ongdat e
(
b)Fi l
ling up ofbl anks notaccor dance wi tht he author i
ty given and wi t
hin
reasonabl eti
me.
(
c)Wantadel iv
eryofcompl eteinstrument
(
d)Absenceorf ai
lureofconsi deration
(
e)Si mpl efraudorf raudini nducement
(
f) Acqui sit
ionofi nst r
ument( notsignat ur
e)bydur ess,orf orceandf ear;
(
g)Acqui sit
ionofi nst r
umentbyunl awf ulmeans;
(
h)Acqui sit
ionofi nst r
umentf orill
egal considerati
on;
(
i) Negot iationinbr eachoff aith
(
j) Negot iationunderci rcumst ancest hatamountt ofraud;
(
k)I nnocental t
erati
onorspol i
ation.(seesecs.124, l
astsent ence, 125)Spoliat
ion
i
sanal terati
onmadebyast rangert oani nstrument.I ftheor iginalmeaning
canbeascer tai
ned,t hehol deri nduecour semayr ecov eraccor dingtoits
originaltenor.
(
l) Set -
offbet weeni mmedi atepar ti
es
(
m)Di schar geofpar t ysecondar i
lyli
ablebydi schar geofpr i
orpar t
y
(
n)Di schar geofpay mentorr enunci at
ionorr eleasebef oremat uri
ty
(
o)Usur y,becauset hecont ractofl oani t
selfisnotv oi
donl yt heagr eedint
erest
;
and
(
p) Wantofaut hor i
tybyi tagenthasappar entaut hori
ty

Not
e:Bot
hreal
andper
sonal
def
ensear
esubj
ectt
oest
oppel
.

22.Di
sti
ngui
shf
raudi
nfact
um andf
raudi
nducement
.

Theyare:
(1)Fr audi nfactum orf r
audi nessecontract
s–Thatwhi chexi stwhereaper sonwi t
hout
negli
gencehassi gnedani nst
rumentwhichwasi nfactanegot i
ableinstr
umentbutwas
deceivedast oitschar act
erandwithoutknowl
edgeofi t,aswher eanot ewassignedby
oneundert hebel i
efthathewassigningasawitness;and
(2)Fr audi nthei nducementorsi mplefraud–Thatwhi chr elat
est othequali
ty,quanti
ty,
valueorchar acteroftheconsider
ati
onortermsofthei nstrument.Her e,t
hesi
gnorisled
bydecept i
ont osignwhatheknowsi sanegoti
ableinstrument .Thi
ski ndoffr
audisonly
aper sonaldefense.

Example:M isinducedt hr
ough(si
mple)fr
audcommi t
tedbyPt oissueapr omissorynotein
favorofP.Thenoteisi
ndorsedbyPt oA,holderinduecour
se.A,i
ntur n,
indorsesthenotetoB
whohasnot i
ceofthefraud.Bcanrecoverf
rom M aslongasBi snotapar t
ytot hefraud.I
fthe
noteisendor
sedbyBt oCwhohasal sonoticeofthefr
aud,Ccannotrecoverfr
om M becausehe
didnotacqui
rehi
stit
lefrom ahol
deri
nduecour se.

23.Whataret heri
ght sofahol dersnotinduecourse?
Theyare:
(1)Hemaysueont heinstr
umenti nhi
sownname
(2)He mayr eceive pay mentand i fthe pay mentisin due cour
se,the instr
umenti s
di
scharged;
(3)Hei sentitl
edt ot heinstrumentbuthol
ds i tsubj
ectt
ot hesamedefenseasi fwerenon-
negoti
able; and
(4)Hehasal lther i
ghtsoft heholderi
nduecour sef
rom whom heder
iveshisti
tl
einrespect
ofallpartiespr iortosuchhol der
,providedhei snothi msel
fapar t
yt oanyf r
audor
i
ll
egali
tyaff ect
ingtheinst r
ument.

Examples:M i
sinducedthrough(si
mple)fraudcommi ttedbyPt oissueapr omissorynotein
favorofP.Her
ePi sapartytothefr
aud.Pindorsedthenot eA.Ahasnot i
ceofthefraudbutdid
nottakeparti
nit
.ByA,thenot eisi
ndorsedtoB,ahol derinduecourse,B,i
nturn,i
ndorsesthe
notetoCknowshowt henotewasobt ai
nedbutwithoutbeingapar
tytot hefr
aud.

(
5) Inthi
scase,evenifCisnotahol derinduecour se,hehasalltheri
ghtofsuchhol deri
nrespect
ofM,PandA,hav i
ngder i
vedhidtit
lefr
om B,ahol deri
nduecour seandt hedefensesoffraud
cannotbesetupagainsthim.Ineff
ect,Csahol derinduecourserelati
vetoM, P,andA.
(
6) Ifi
nsteadofindor
singthenot etoC,Bi ndorsesittoP,payee,thel at
tercannotrecov
eront he
i
nstrumentbecausehei spartytothefraud.Pi sremitt
edtohi sorigi
nalposit
ionwhenhef ir
st
acquir
edthenotefrom M.
(
7) Ift
henoteisindor
sedbyCt oD,whohasal sonoticeofthedefectbywasnotapar t
yofthefr
aud,

22
 Dcannotr ecoverfr
om M becauseDdi dnotacqui
rehistit
lefr
om aholderi
nduecourse.
(
8) Assumi ngthatCi saholderinduecour seandAr eacqui
resfrom hi
mt henot
e,thelatt
erisnot
giventhef ormer’
sright
salthoughhewasnotapar tytothefraud.Aisremi
ttedtohior i
ginal
positi
onwhi chheoccupiedwhenhef i
rstacqui
redthenot efr
om P.TheactofAi nnegotiati
ng
thenotet oaholderinduecourseinordert ocutoffM’sdefenseuponhis(A’
s)reacqui
sit
ionof
theinstrumentmaybeconsi der
edfraudundersecti
on55.

24.Gi
vet
heexecut
iont
othepr
esumpt
iont
hatev
eryhol
deri
sahol
deri
nduecour
se

Whenitisshownthatt
het i
tl
eofanypersonwhoahsnegoti
atedtheinst
rumentwasdefecti
ve,
thebur
denisontheholdert
oprovethatheorsomepersonunderwhoclaimsacquir
edtheti
tle
asaholderi
nduecourse.Butaholderi
sstil
ldeemedpri
mafacieasahol deri
nduecourseas
agai
nstapartywhobecameboundont heinstr
umentpr
iort
ot heacqui
sit
ionofsuchdefect
ive
ti
tl
e.

Example:Pobtainedt henoteofM through(si

mple)f r
audandnegot i
atesittoA,At oB.Bt oC
andCt oD.,
thepr esenthol
der.OnceM provesthefraudcommittedbyP, theburdenisshi
ftedto
Dthatheisholderi nduecourseorthatCf r
om whom heacquiredtitl
eisahol deri
nduecour se.
Ift
hef r
audwascommi t
tedbyAagai nstP,t
hepresumpt i
onthatDi sholderinduecourseisnot
destr
oyedbecauseM becameboundont heinstr
umentbeforet heacquisit
ionofthedefectiv
e
ti
tl
ebyA.

AteneodeDav
aoUniv
ersi
ty
CAPRev i
ewCent
er

Chapt
er5–LI
ABI
LITI
ESOFPARTI
ES

1.Howmanyt hepartiestoanegot i
abl
einstrumentcanbeclassi
fi
edaccor
dingt
othei
rli
abi
l
ity
?
Asfoll
ows:
(1)Pri
maril
yliable:
(a)Themakerofapr omi ssor
ynote;
(b)Theaccept orofabi l
lofexchange;and
(c)Thecerti
fierofcheck.
(2)Secondari
lyliabl
e:
(a)Thedrawerofabi ll
;and
(b)Theindorserofanot eorabil
l
(3)Notli
able:
(a)Thedraweeunt i
lheacceptstheinstrumenti
nwhi chcasehebecomesanaccept
or.

2.Whoi sthepersonpr
imari
lyli
ableont
hei
nst
rument?
Heisthepersonwhobyt het er
msoft
heinst
rumenti
sabsol
utel
yrequi
redt
opayt
hesame.Al
l
otherpart
iesar
esecondari
l
yl i
able.

3.Whati sthel
i
abil
it
yofamakerofanegot i
ablepr
omissor
ynote?
Themakerofanegot i
ableinst
rumentbymakingitengagesthathewil
lpayi
taccor
dingt
oit
s
tenor,andadmit
stheexi
stenceofthepayeeandhi
sthencapacit
ytoindor
se.

4.Giv
ethewar r
antsofadr awerofabi l
lofexchange.
Thedr awerbydr awingt heinstrument
(1)Admi tst heexistenceoft hepay eeandhi st
hencapacitytoindorse;and
(2)Engagest hatonduepr esentmentt heinstrumentwi l
lbeaccept edorpaid,orboth,accordingto
i
tstenor,andt hatifitbedi shonored,andt henecessaryproceedingsondi shonorbedulyt aken,he
wil
lpayt heamountt hereoft othehol der,ortoanysubsequenti ndor serwhomaybecompel ledto
payit
.
Butthendr awermayi nsertint hei nstr
umentanexpr essstipul
ationnegativi
ngorli
mi ti
nghi sown
l
iabi
li
tyt
ot hehol der.Thus, t
hedr awermayi nserti
nthebillt
hewor d“ Ishal
lnotbeboundincaset hi
s
i
nstr
umenti sdishonor ed”or“ wi
thoutr ecourse.
”

5.Di
sti
nguisht
hedr awerfr
om themaker.
(1)Thedrawerissuesabill
ofexchange,whi
let
hemaker,
apromissor
ynote;
(2)Thedrawerisonlysecondari
l
yli
able,
whil
ethemakeri
spri
maril
yli
abl
e;and
(3)Thedrawercannegativeorli
mithi
sli
abil
i
ty,
whi
lethemakermaynotdoso.

6.Givethewar ranti
esofanacceptor.
Theaccept orbeaccepti
ngtheinstr
umentengagesthathewillpayitaccor
dingtot
hetenorofhi
s
acceptance;andadmi ts:
(1)Theexi stenceoft hedrawer,t
hegenuinenessofhissi
gnature,andhiscapacit
yandauthor
it
yto
drawtheinstrument ;and
(2)Theexi st
enceoft hepayeeandhisthencapaci
tyt
oindorse.

Not
e:Theaccept
orhast
hesamel
i
abi
l
ityast
hemakerandt
hedr
awerwi
thr
espectt
otheex
ist
ence

23
oft
hepay
eeandhi
scapaci
tyt
oindor
se.

7.Whenisaper
sondeemedani ndor
ser
?
Apersonpl
acinghissignatureuponaninstr
umentother
wiset
hanasmaker
,dr
aweroraccept
or
i
ddeemedt obeani ndorser,unl
essheclearl
yindi
cat
esbyappropr
iat
ewordshi
sint
enti
ontobe
boundi
nsomeot hercapacity
.

8.Whoisanir
regul
aroranomalousi
ndorser
?
Heisaperson,notot
her
wiseapartytoani
nst
rument
,whopl
acest
her
eonhi
ssi
gnat
urei
nbl
ank
bef
oredel
iv
ery.

9.Whatist heextentoftheliabil
it
yofani r
regul
arindorser
?
Hi
sli
abi l
i
tyisdeterminedi naccordancewit
ht hefoll
owingrules:
(1)Iftheinstrumenti spay abletotheor derofat hir
dper son,heisl i
abletothepay eeandtoall
subsequentpar t
ies;
(2)Iftheinstrumentispay abletothet otheorderofthemakerordr awerorispayabletobear
er,
he
i
sliabl
etoal lparti
essubsequentt othemakerordr awer;and
(3)Ifhesignsf ortheaccommodat i
onoft hepayee,heisli
abletoallpart
iessubsequenttot
hepayee.

Examples:
(1)M makesanot eapay ablet
oPoror der.ThenoteisindorsedbyXi nbl ankbeforeitisdel i
veredto
Pwhonegot i
atest henot etoA.I nthiscase,Xi sli
abl easf i
rstindorsertoP,pay ee,andt oA,a
subsequentpar t
y ,
butnott oM.
(2)Ifthenot eispay abletotheorderofM ( heis,t
herefore,al
sothepay ee)whonegot i
atesthenot e
toA,Xi sl
iableassecondi ndor
sertoAbutnott oM whosel i
abi
li
tyisthatoff i
rstindorser.Ifthenote
weretobear er,Xwoul dalsobeliabl
et oallpar
ti
essubsequentt oM.
(3)Suppose, inthef i
rstexample,Pwant st odi
scountthenot ewithA( abank) ,butAi snotwi l
l
ingto
rel
yont hefinancialabili
tyofM andPal one.Pthensecur esXt oaccommodat ehim.Xi ndor sesthe
notetoA.Int hiscase, Xisli
abl
et oallparti
essubsequentt oP.IneffectPi sthefirsti
ndor ser,andX,
thesecondindor ser.

10.Givet he warranti
es ofa per son negot iat
ing an i
nst
rumentbydeli
ver
yorbya qual if
ied
i
ndorsement.
Theyare:
(1)Thattheinstr
umenti sgenuineinallrespectswhatitpur
port
stobe;
(2)Thathehasagoodt itl
etoit;
(3)Thatallpr
iorparti
eshav ecapacit
yt ocontract
;
(4)Thathehasnoknowl edgeofanyf actwhichwoul dimpai
rtheval
i
dit
yoft
heinst
rumentorr
ender
i
tval
ueless.

Butwhenthenegoti
ati
oni
sbydel
i
ver
yonl
y,t
hewar
rant
yext
endsi
nfav
orofnohol
derot
hert
hant
he
i
mmediatetr
ansfer
ee.

Exampl e:M makesapr omissorynot epay ablet obeareranddel iv

erst hesamet oP, whonegoti
atesit
toAei therbydel i
veryorbyaqual if
iedindor sement .I
fthenot eisdishonor edi nthehandsofAduet o
theinsol vencyofM, Acannotrecov erfr
om PbecausePdoesnotwar rantM’ssol v ency.However,
Pi s
l
iableift heinstrumentisforgedforhewar r
ant sthatt
he“ instrumentisgenui ne”( 1);orifPhadstolen
thenotef rom M forhewar rant
st hat“hehasagoodt itl
et oit”(2)
;IfM i sami norf orhewar r
antsthat
allpri
orpar t
iesandcapaci t
yt ocont r
act( 3);or,ifPknewt hattheinst r
umentwasi nvalidf
orwantor
fail
ureofconsi derati
onort hatM wasi nsolventbutconceal edt hatf actfr
om Af orhewar r
antsthat
“hehasnoknowl edgeonanyf actwhi chwoul dimpairt hev ali
dityoft hei nstrumentorr enderit
useless”
(4).
Supposet henot eisnegoti
atedbyPt oA, andAt oB, allbydelivery,isPliablet oBf orv
iol
ati
onof
anyoft hef ourwar r
anti
es?No,becauset hewar r
antiesofP ext end onlyt o A,hi si
mmedi ate
transf
er ee.A, ofcourseisli
abletoB, hisimmedi atetr
ansferee.

11.Giv
et hewar rantiesofagener alorunqualifi
edi ndorser.
Theyar e:
(1)Thatt heinstr
umenti sgenui neandi nall
r espectswhati tpurportst
obe;
(2)Thathehasgoodt i
tl
etoit;
(3)Thatal lpri
orpar ti
eshadcapaci t
yt ocontract ;
(4)Thatt heinstr
umenti satt hetimeofhi sindor sementv ali
dandsubsisting;and
(5)Thatonduepr esentment,itshallbeaccept edorpai d,orboth,asthecasemaybe,accor dingto
i
tstenor,andt hati fitbedishonored,andt henecessar ypr oceedi
ngsondi shonorbedulyt aken,he
wil
lpayt heamountt her
eoft othehol der
,ort oanysubsequenti ndor
serwhomaybecompel ledto
payit
.
Note:Whilet hequal i
fi
edindorserwar r
antsmer elythathehasnoknowl edgeofanyf actwhichwoul d
i
nvali
datet heinstrumentorr enderi tusel
ess,t hegener alindorserguaranti
est hatt
heinst
rumenti s
val
idandsubsi sti
ngwhet herornothahasknowl edgeoft hatfact.

12.Di
sti
ngui
sht
hei
ndor
serf
rom t
hedr
awer
.

24
(
1)Anindor
serisapart
yt oei
theranot
eorabill
,whileadrawer
,toonlyabil
l
;
(
2)Anindor
serdoesnotmakeanyadmi ssi
onregardi
ngtheexi
stenceofthepay
eeandhi
scapaci
ty
t
hent
oindor
see, whi
l
ethedrawermakessuchadmi ssion;
and
(
3)Thewarrant
iesofanindor
seraredi
ff
erentf
rom thoseofadrawer.

13.Dist
inguisht hegeneralindorserfrom theirr
egul ar.
(1)Agener alindorsermakesei t
herabl ankorspeci ali
ndor sement
,whi
leanir
regularindorseralway s
makesabl anki ndorsement ;
(2)Agener ali ndorserindorsest hei nst
rumentbef or
ei tsdeli
ver
ytothepay ee,whi l
eani rregular
i
ndorserindorsesaf teri
tsdeliverytothepay ee;and
(3)Agener alindorserisliableonlyt oparti
essubsequentt ohim,whi
leanirr
egularindorserisliable
tothepay eeandsubsequentpar t
iesunlesshesi gnsf ortheaccommodationoft hepay eeinwhi ch
casehei sli
ableonlyt oallpart
iessubsequentt ot hepay ee.

14.Whati
st hel
iabi
l
ityofanindor
serofaninst
rumentnegoti
abl
ebydel
i
v er
y?
Whereaper sonplaceshi si
ndorsementonani nstr
umentnegot
iablebydel
i
ver
y(pay
abl
eto
bear
er)
,heincur
salltheli
abi
l
iti
esofindor
ser.

15.Whati stheorderinwhi chindorser

sar eli
abl
e?
Asrespecttooneanot her
, i
ndorser
sar eli
ablepri
mafaci
eintheorderinwhichtheyindorse;but
evi
dencei sadmi ssibl
et oshowt hatasbet weenoramongt hemselv
est heyhaveagreedotherwise.
Thus,ani r
regularindorserwil
lnotbel iabletotheaccommodatedpartyalt
houghfrom theor derin
whichhei ndorsed,thel at
terappearssubsequentt othef
ormer.Butast othehol
der,indor
ser sare
l
iablei
nanyor der.

16.Whatistheli
abil
i
tyofjoi
ntpay eesorjoi
ntindorseeswhoindorse?
Theyaredeemedt oindorsejoint
lyandsev er
ally
.Theirl
i
abil
it
y,ther
efor
e,i
ssol
i
darysothatnone
canescapeliabi
l
ityj
ustbecausepr opernoti
ceofdi shonorwasnotgi vent
otheother
s.Buttheone
whopaysmaydemandr eimbursementf r
om theothers.

17.Whatistheli
abil
ityofanagentorbrokerwhonegoti
atesaninstrument
?
Hei ncursthel i
abil
it
iesofaper sonnegotiat
ingani nst
rumentbydel i
ver
yorbyaqual
if
ied
i
ndorsement,orofagener alindor
ser
,ast hecasemaybe,unl esshedi scl
osest
henameofhis
pri
nci
pal,andthefactthatheisacti
ngonlyasagent
.

Chapt
er6–PRESENTMENTFORPAYMENT

1.Whatismeantbypresent
mentforpayment?
Presentmentf
orpay menti
sthepr esent
ati
onofani
nst
rumentt
otheper
sonpr
imar
il
yli
abl
efor
thepurposeofdemandingandr
eceivi
ngpay ment.

2.Whenispresentmentf
orpaymentnecessar
y?
Itisnecessar
yt ochargethepersonsecondar
il
yli
abl
e,namely
,thedr
awerandt
hei
ndor
ser
.
Reason:Theyundert
aketopayonl
yift
heinstr
umentisdi
shonor
ed.

3.Whenispr esentmentforpaymentnotnecessar y
?
Inthefollowingcases:
(1)tocharget hepersonsprimar i
l
yl i
able.ReasonTheyar eabsol
utel
yrequi
redt
opayt
hei
nst
rument
uponmat ur
ity;
(2)Whenpr esentmentisdi
spensedwi t
h
(3)Whent hebi ll
hasbeendi shonoredbynon- acceptance;and
(4)Tochar get hedr
awerunderSect i
on79andt heindorserunderSect
ion80.

4.Givetheeffecti
ftheinst
rumentisbyitsterms,pay
ableataspeci alpl
ace(e.
g.,atabankoratan
offi
ce)andthepersonprimari
ly
.
Suchabil
i
tyandwi l
l
ingnessareequiv
alenttoatenderofferofpaymentonhispar tsot
hati
fthe
i
nstrumentisnotpaidandisov er
due,hecannotbeconsider
edi ndel
ayand,ther
efore,
heisnotl
iabl
e
forcostsofcoll
ect
ionandinter
ests.

5.Whenshoul dpr esentmentforpaymentbemade?

Itdepends.
(1)Wher et heinstrumentispayabl
eataf i
xedordet
erminabl
ef ut
uret i
me.–I tmustbemadeont he
dateiffal
lsduewi t
houtperiodofgr
ace;
(2)Wher ethei nstrumentispayabl
eondemand:
(a)Pr omissorynot e–I tmustbemadet ot
hemakerwithi
nar easonableti
meaf teri
tsissue.
(b)Billofexchange–I tmustbemadet othedr
aweeoraccept orwithinareasonabletimeaft
ert
he
l
astnegot i
at i
onther eof
.

6.Whatistheeffecti
fpr esent
mentofpaymentisnotmadeindueti
me?
The dr
awerand i ndorses wil
lbe dischar
ge from t
heirsecondari
l
yl i
abil
it
y unless such
present
menti sexcusedordi spensedwit
h.Butt hi
sdoesnotmeant hattheindorser
sareal so
di
schargedfrom li
abi
l
ityf orbr
eachofwarr
anti
es.

25
7.Whatconst i
tut
essuf fi
cientpresentmentforpayment?
Tobesuffici
ent,i
tmustbemade:
(1)Bythehol der,orbysomeper sonauthori
zedtorecei
vepay
mentonhisbehalf
;
(2)Atar easonablehouronasbusi nessday;
(3)Atapr operplace;and
(4)Tot hepersonpr imari
lyliabl
eont heinstr
ument,orifhei
sabsentori
naccessi
ble,t
oanyper
son
foundattheplacewher ethepr esentmentismade.

8.Wher eisthepr operplacef orpresentat

ionforpayment?
I
nt heorderenumer atedbelow:
(1)Thepl acef orpay mentspeci f
iedintheinstr
ument;
(2)Theaddr essoft hepersont omakepay mentgivenintheinst
rument
s;
(3)Theusual placeofbusinessorr esi
denceoft heofthepersontomakepayment
;
(4)Inanyot hercase,wher everhecanbef ound,orhislastknownplaceofbusi
nessorr
esi
dence.
(Sec.73.)
Note:IfNo.1i sappl i
cable,presentmentmadi nanyot herpl
aceunderNos.2,
3and4will
beimpr
oper

9.Howshoul
dpr
esent
mentf
orpay
mentbemade?

Thei
nst
rumentmustbeexhi
bit
edtotheper
sonf
rom whom pay
menti sdemanded,andwheni
tis
pai
dmustbedeli
ver
edupt othepart
ypayi
ngit
.Theri
ghttoanexhibi
ti
onoftheinstr
umentmaybe
wai
ved.

10.Stat
et herulewher
et hei
nstrumentispayableatablank.
Present
mentf orpaymentmustbemadedur ingbankinghours,unlessthepersont
omakepay ment
hasnof undst her
etomeeti tanyti
medur i
ngt heday,inwhichcasepr esent
mentatanyhourbef
ore
thebanki sclosedont hatdayi ssuff
ici
ent
.Reason:Ev eni fpresent
menti smadeduri
ngbanking
hours,t
hei nst
rumentcannotbepaidjustt
hesame.

11.Wheni spresent
mentf
orpay
mentnotrequi
redinordert
ochar
get hedr awer ?
Iti
snotrequir
edwheret
hedrawerhasnorightt
oexpectorrequir
et hatt hedr
aweeoraccept
or
willpaythei
nstrument
,aswher
ethedrawerhasstoppedpaymentthereof ,orhasnofundswi
ththe
drawee.

12.Whenisthepresentmentforpaymentnotr
equi
redi
nordertochargetheindor
ser
?
Iti
snotrequi
redwheret heinstr
umentwasmadeoracceptedforhisaccommodati
onandhehas
noreasontoexpectthattheinstr
umentwil
lbepai
difpr
esented.ReasonTheaccommodatedpay
ee-
i
ndorseri
stherealdebtor
.

13.Whenmaypr esentmentbedi spensedwi t

h?
I
nthefoll
owi ngcases:
(1)Whereaftertheexerciseofr easonabledil
i
gencepresent
mentasr equi
redbyl
awcannotbemade;
(2)Wheredraweei safi
ctit
iousper son;
and
(3)Bywaiverofpr esent
ment ,expressorimplied.
14.Whenisani nstrumentdishonor edbynon-accept
ance?
I
ntwocases:
(1)I
tisdul
ypr esent edf
orpay mentandpay mentisr
efusedorcannotbeobtai
ned;or
(2)Pr
esentmenti sexcusedandt heinstr
umenti sov
erduethei
nstrumentisdi
shonor
ed?

15.Whatistheliabi
li
tyofper sonssecondari
l
yliabl
ewhent heinstr
umenti
sdishonored?
Theybecomet hepr i
ncipaldebtors.Animmedi at
erightofrecour
seaccruestot heholderaft
er
thegi
vi
ngofnot iceofdishonort othem.Theycannoti nt
erposethedef
ensethatthesuitshouldhave
beenbroughtfi
rstagainstthemakeroraccept or.

16.Whati sthetimeofmat uri

tyofaninstr
ument?
Anynegot i
ableinstr
umenti spayabl
eattheti
mef i
xedtherei
nwithoutgrace.
(1)Whent hedateofmat ur i
tyfall
suponSunday ,oraholi
day–I ti
spayableont henextsucceedi
ng
businessday ;
(2)Whent heinstr
umentf all
sdueorbecomespay ableonSat ur
day–Itisalsotobepresentedonthe
nextsucceedingbusi nessday ;
(3)Whent heinstrumenti spay abl
eondemand–I tmayatt heopti
onoft heholderbepresentedf
or
paymentbef ore12: 00o’cl ocknoononSat urday
, oronMonday .ReasonThepr esumptionisthatt
he
part
ypr i
mar i
lyli
ablehast hemoneyr eadyatanytimeforpayment .

17.Wher etheinstr
umentpay
ableatafi
xedperi
odaft
erdat
e,aft
ersight
,oraf
terthehappeni
ngofa
specif
iedevent,theti
meofpaymentisdeter
minedbyexcl
udingthedayfrom whichtheti
meisto
begintorun,andbyincl
udi
ngthedat
eofpayment.

18.Statether
ulewheretheinst r
umenti
spayabl
eatabank.
Theinstr
umentisequiv alenttoanor
dertothebanktopaythesamefortheaccountofthe
pri
ncipaldebt
orther
ein.Thei nstr
umentmustbepayabl
etoapar
ti
cul
arnamedbank,e.
g.,Phi
l
ippi
ne

26
Nat
ional
Bank.

19.Whati smeantbypaymentinduecourse?Givei
tsrequisi
tes.
Paymentinduecour
seispaymentintheusualcourseofbusiness.Ther equisi
tesareasf ol
lows:
(1)Pay mentmustbemadeatoraf tert hedat
eofmat uri
ty;otherwi
se,i twoul d consti
tut
ea
negotiati
onbacktot
heprimar
yparty;
(2)Itmustbemadet otheholder
;and
(3)Itmustbemadebyt hemakeroraccept ori
ngoodf ai
thandwi thoutnot
icethatt heholder’
stit
lei
s
defectiv
e.

Chapt
er7–NOTI
CEOFDI
SHONOR

1.Whati smeantbynoti
ceofdi shonor?
Noti
ceofdishonorisbr i
nging,ei
therv
erbal
l
yorbywr it
ing,totheknowledgeoft hedraweror
i
ndor serofaninst
rument,thatfactthataspeci
fi
ednegoti
ableinstr
ument,uponproperproceedi
ng
taken,hasnotbeenacceptedorhasnotbeenpaidandthatt
hepar tynot
if
iedi
sexpectedtopayit.

2.Whenisnoticeofdishonornecessar
y?
I
ti snecessar
yi nordertochanget heper
sonssecondar
il
yli
abl
e,namel
y,t
hedr
awerandt
he
i
ndorser,
otherwi
se,suchparti
esaredischar
gef
rom l
i
abi
li
tyonthei
nst
rument
.

3.Wheni snot iceofdi shonornotnecessar y?

Int
hef ollowi ngcases:
(1)Tochanget heper sonspr i
mar i
lyliabl
ebecauset hey(makerandaccept or)aret hev eryoneswho
dishonoredt hei nstrument ;
(2)Whennot iceofdi shonori swaived.
(3)Whenpr ot estiswai ved.Reason:Pr otestincl udespr esentment ,noti
ceofdi shonorandal lthe
stepsaccompany i
ngdi shonornecessar ytochar get heper sonssecondar il
yliable;
(4)Whennot iceofdi shonori sdispensedwi th
(5)TOchar get hedr awerunderSect ion114andt heindorserunderSect i
on115;
(6)Wher eduenot i
ceofdi shonorbynon- acceptanceofabi l
lhasbeengi ven,inwhi chcasenot iceof
asubsequentdi shonorbynon- paymenti snotnecessar y, unl
essi nthemeant i
met hei nstr
umenthas
beenaccept ed; and
(7)Wher eabi llhasbeendi shonoredbynon- accept ance,noticeofdi shonort oper sonssecondar il
y
l
iableisnotnecessar yinor dert ochar get hem ast ot hehol derinduecour se,wit houtnoti
ceof
dishonorbynon- accept ance.Reason:Theomi ssiont ogi venot iceofnon- accept ancedoesnot
prejudi
cether ightsofahol derinduecour sesubsequentt otheomi ssion.

4.Whomaygi venot i
ceofdi shonor?
I
tmaybegi v en:
(1)Byt heholderoranot heronhisbehal f
;or
(2)Byoronbehal fofanypar tytotheinstr
ument-
(a)Whomaybecompel ledt opayitt
hehol der
;and
(b)Who, upont aki ngitup,wouldhav ear i
ghttorei
mbur
sementfr
om t
hepart
ytowhom thenoti
ceis
giv
enandi s,t
her efore,entit
ledtogivenotice.
I
fthenot i
ceisgiv enbyanagent ,thelatt
erneednotbeaut
hor
izedbyt
hepri
nci
pal
.Reason:Thegi
ving
ofnoticebenefi
tst hepr i
ncipal.

5.Whati st
heef f
ectofnoticeofdi
shonorgivenbyt heholderorbyapartyent
it
ledtogivenot
ice?
(1)Byt heholder–I ti
nurestothebenef i
tof( a)allsubsequenthol
derand(b)allpr
iorpar
tieswho
haveri
ghtofrecourseagainstthepartyt
owhom i tisgiven.
(2)Byapar t
yent i
tl
edtogi venoti
ce–I tinurest othebenef i
tof(a)theholderand(b)al
lparti
es
subsequenttothepartytowhom noticeisgiven.

Example:Anot eissuedbyM andpay abletotheor derofP, i

si ndorsedsuccessivelybyPt oA, byAt o
B,byBt oC, andbyCt oDi nwhosehandst henot eisdi shonor ed.Eisasubsequenthol der.
(1)Noticegi venbyDt oPoper at
est othebenef itofA,B,andC,par ti
essubsequentt oPandC,a
subsequenthol der,althoughtheythemsel v
eshav enotnot i
fiedP.Reason:Apar t
yent it
ledtonot ice
needtobenot i
fiedonlyonce.
(2)IfonlyCi snot i
fi
edbyD,P,A,andBar edischar gedf rom t hei
rli
abil
it
yf orlackofnot ice.IfC,
however,givesduenot icetoP, AandB, suchnot i
cei nurest ot hebenefi
tofD, thehol derandal soof
E.C’snoticet oPi nurest othebenefitofA,B,D,andE;C’ snot i
cetoAi nurestot hebenef itofB,D,
andE,etc.
(3)IfDgiv esnot i
ceonl ytoB,theeff
ecti stodischargeCduet olackofnoti
cesi nceBwoul dhav eno
ri
ghttonot if
yC.I fBdoesnotchooset onotif
yPandAaf terhav ingbeengivennot icebyD, thel att
er
wouldalsobedi schargefrom thei
nstrument .

6.Towhom mustnot i
ceofdishonorbegi
ven?
I
tmaybegi veneithertothepartyhi
mselfortohisagenti
nthatbehal
f.Theagentmustbe
authori
zed.Reason:Therecei
ptofnoti
cecreat
esl
iabi
l
ity
.

27
7.Whenmustnoti
ceofdishonorbegiv
en?
Itmustbegi
venassoonast hei
nstrumenti
sdishonor
ed(
e.g.
,af
terandnotbef
oredi
shonor
)and
wit
hinthet
imesfi
xedbyl
awunl essdel
ayisexcused.

8.Whenisnot i
ceofdishonordispensedwith?
Inthefol
lowingcases:
(1)When,af t
ertheexerciseofar easonabledi
li
gence,i
tcannotbegiventoordoesnotr
eacht
he
part
iessoughttobedischarged;
(2)Wheni ti
swai v
ed,expressl
yorimpliedl
y;and
(3)When, i
ncasepr ovi
dedbyl aw,i
tneednotbegiventothedrawerori
ndor
ser
.

9.Whoar
eaf f
ectedbya(expr
ess)waiverofnot
iceofdishonor?
(1)Wher
et hewai veri
sembodi ed i
nt heinstrumentitsel
f(i.
e.,i
tappear
son t
hef
aceoft
he
i
nstr
umenti
tself
),i
tisbi
ndi
nguponallparti
es.
(2)Wher
eitiswrit
tenabovet
hesignat
ureofani ndor
ser,i
tbindshim onl
y.

10.Givet
hecaseswhennot i
ceofdishonori
snotrequi r
edtobegiventot
hedrawer.
Theyare:
(1)Wherethedraweranddraweearethesameper son;
(2)Wherethedraweeisafict
it
iouspersonorapersonnothavingcapaci
tyt
ocontract
;
(3)Wherethedraweeisthepersontowhom theinstrumenti
spresent
edforpayment;
(4)Wheret hedrawerhasnor i
ghttoexpectorr equir
ethatthedraweeoracceptorwi
l
lhonort
he
i
nstrument;
and
(5)Wherethedrawerhascountermandedpayment .

11.Giv
ethecaseswhennot i
ceofdishonorisnotrequi
redt
obetothei ndor
ser.
Theyare:
(1)Wheret hedraweei saf i
cti
ti
ousper sonoraper sonnothavingcapacitytocontr
act
,andt
he
i
ndorserwasawar eoft hefactatt
het i
mehei ndorsedthei
nst
rument;
(2)Wheretheindor serist
hepersont owhom t hei
nstr
umenti
spresentedforpayment
;and
(3)Wheretheinstrumentwasmadeoraccept edforhi
saccommodation.

Chapt
er8–DI
SCHARGEOFNEGOTI
ABLEI
NSTRUMENT

1.
Whati smeantbydi schar
geofinst
rument?Stat
eitsaf
fect.
Dischar
geofi nstrumentmeansar el
easeofallpar
ti
es,whetherpri
mar yorsecondary,f
rom t
he
obl
igati
onari
singt her
eunder.I
trender
stheinstr
umentforceandeffectand,consequent
ly,i
tcanno
l
ongerbenegot i
ated.

2.Enumeratetheway sbywhi chanegoti

abl
einstrumentmaybedi schar
ged.
Theyare:
(1)Bypaymenti nduecour sebyoronbehal fofthepri
ncipaldebt or;
(2)Bypay menti n duecour sebyt hepartyaccommodat ed,wher et heinstr
umentismadeor
accept
edforaccommodat i
on;
(3)Bytheintenti
onal cancellati
onther
eofbytheholder;
(4)Byanyot heractwhi chwi lldi
schar
geasimplecontractfort hepay mentofmoney;and
(5)Whent hepr i
ncipaldebt orbecomest heholderofthei nstrumentatoraf termatur
it
yinhi
sown
ri
ght.

3.Enumer at etheway sbywhi chaper sonsecondar i

lyliabl
eont heinst
rumentmaybedischarged.
Theyar e:
(1)Byanyactwhi chdi schar gest hei nstrument ;
(2)Byt hei ntentionalcancel lationofhi ssignaturebyt heholder;
(3)Byt hedi schar geofapr iorpar t
y;
(4)Byav alidtenderofpay mentmadebyapr iorpart
y;
(5)Byar eleaseoft hepr inci paldebt or;unlessthehol der’
sr i
ghtofrecourseagai
nstt hepar t
y
secondari
lyl iableisexpr essl yr eser ved; and
(6) Byanyagr eementbi ndingupont hehol dert oext endthet i
meofpay ment,ortopostponet he
holder’
srightt oenf orcet hei nstrumentunl essmadet heassentoft hepart
ysecondari
lyliabl
e,or
unlessther ightofr ecour seagai nstsuchpar tyisexpresslyreserv
ed.

4.Givet
herightsofapartysecondari
lyli
abl ewhodischargesanegot i
abl
einstr
ument.
Theyare:
(1)Heisremi t
tedtohisformerri
ghtsasr egardsallpri
orpart
ies;and
(2)Hemayst r
ikeouthisownandal lsubsequenti ndorsementsandagainnegoti
ablet
hei nstr
ument
exceptwhere
(a)Theinstr
umenti spayablet
otheor derofat hi
rdperson,andhasbeenpai dbythedrawer;and
(b)Theinstrumentwasmadeoraccept edforaccommodat ionandhasbeenpai dbyt heparty
accommodat ed.Reasonfortheexcepti
ons: Theinstr
umentisdi schar
ged.

28
5.Whenwillr
enunci
ationdischar
geanegoti
abl
einst
rument?
Whenitis
(1)Madebefore,at
,oraf t
erit
smaturi
ty;
(2)Madeinfavorofthepr i
nci
paldebt
ororper
sonpri
maril
yli
abl
e;
(3)Absol
uteanduncondi ti
onal
;and
(4)I
nwr i
ti
ngortheinstrumentisdel
iv
ereduptot
hepersonpri
mari
lyl
i
abl
e.

Not
e:Butar
enunci
ati
ondoesnotaf
fectt
her
ight
sofahol
deri
nduecour
sewi
thoutnot
ice.

6.Wheniscancell
ati
onofanegoti
abl
einst
rumenti
noper
ati
ve?
Whenmade
(1)Uni
ntenti
onal
ly;
(2)Bymistake;
or
(3)Wit
houtauthori
tyoft
heholder
.

Not
e:Cancel
l
ati
on,
howev
er,
ispr
esumedt
obei
ntent
ional
.

7.Whatismateri
alalt
erat
ion?
Materi
alal
terat
ionisanychangeint heinst
rumentwhichaff
ect
sorchangest
hel
iabi
li
tyoft
he
par
ti
esinanyway .So,putti
ngthecor
rectfi
gurestomakethem conf
ormt
othesum wr
it
teninwor
ds
i
snotmat er
ial
alt
erati
on.

8.Gi
vet
hel
egaleffect
swher
eanegot
iabl
einst
rumenti
smat
eri
all
yal
ter
edwi
thoutt
heassentofal
l
par
ti
esl
i
abl
ether
ein.

(
1)I
nsuchcaset hei
nstrumentisavoidedexceptasagai
nst
(
a)Apartywhohastheal t
erat
ion;
(
b)Apartywhohasauthorizedorassentedtotheal
ter
ati
on;and
(
c)Subsequenti
ndor
sers;and

(
2)Aholderinduecour
se,notapart
ytot
heal
ter
ati
onoft
hei
nst
rument
,mayenf
orcepay
ment
t
her
eofaccor
dingt
oit
sor
igi
nalt
enor
.

Exampl
e:M makesapr omissorynoteforP1,
000pay
abl
etotheorderofP.Pnegoti
atest
henot
etoA
who,wi
ththeconsentofP, r
aisestheamounttoP7,
000andther
eafteri
ndor
sesitt
oB, BtoC,
andC
toDwhoisnotaholderinduecour se.

(
1)Dcannotrecov erevenP1,000asagai
nstM asthenoteisdischargedasagainsthim.
(
2)PandAar eliabletoDf orP7,
000astheyarethepar
tiesresponsi
bleforthealt
erat
ion.
(
3)BandCwoul dl ikewisebeli
abl
etoDf orP7,
000astheyar esubsequenti
ndorsers.
(
4)I
fDwer eholderi nduecourse,
hecouldenfor
cetheinstr
umentagai nstM f
orP1,000.

9.Whatconsti
tut
esamat eri
alal
terationofanegotiabl
einst
rument?
Analt
erati
onismat eri
alifi
tchanges-
(1)Thedate:
(2)Thesum payable,ei
therforpri
nci pal
orint
erest
;
(3)Theti
meorpl aceofpay ment;
(4)Thenumberort herelat
ionsoft heparti
es;
(5)Themedi um orcur r
encyinwhi chpaymenti stobemade,orwhi chaddsaplaceofpay ment
wherenoplaceofpay mentisspecif i
ed,oranyotherchangeoraddi
tionwhi
chalt
erstheef
fectofthe
i
nstr
umentinanyr espect.

Anyot heral
ter
ati
onisimmat eri
alandwil
lnotdi
schar
getheinstr
ument.
Note:Theabov ehasreferencetophysi
calal
ter
ati
onsoftheinst
rument.So,
anextensi
onoftime
gi
venbyt heholdert
otheprincipalmakert
heconsentoft
hesuretyco-makeri
snotanalt
erat
ion.

10.I
sthemot iv
eorpurposeinmakingamateri
alalt
erationmat eri
al?
No.Si nce no di
sti
nct
ion i
s made by law,mat erialalt
erati
on i
ncludes i
ncorr
ectchanges.
Consequentl
y,wheretheinstr
umenthasbeenal t
er edi nnocentl
y,iti
sdi schar
ged.However,t
he
i
nnocentpartycansueuponthepri
ncipal
debtforwhichi thasbeengiven.

TI
TLE2
BI
LLSOFEXCHANGE

Chapt
er9–FORM ANDI
NTERPRETATI
ON

1.Defi
neabil
lofexchange.
(Pl
easeseequesti
onNo.5,
INTRODUCTI
ON;
ast
ospeci
alt
ypesofbi
l
lsofexchange,
quest
ionNo.

29
9)

2.Isabillofi
tselfanassi
gnmentoff undsi
nt hehandsofdrawee?
A bi
llofitselfdoesnotoper at
easanassi gnmentoft hefundsinthehandsofthedrawee
avail
ableforthepay mentther
eofandt hedraweeisnotli
ableonthebil
lunl
essandunt
ilheaccept
s
thesame.Butt hedraweewhor efusestoacceptmaybel i
abletot
hedrawer.

3.Mayabi l
laddressedtomorethanonedrawee?
Abi l
lmaybeaddr essedtotwoormor edraweesjoint
ly(e.
g.,“
toAandB” )whethert
heyare
part
nersornot,butnottotwoormoredraweesintheal
ter
nati
ve(e.g.
,“AorB”
)ori
nsuccessi
on(e.
g.,
“t
oA, andinhi
sabsence, t
oB”).

4.Whati
sani nlandbi
llofexchangei
sabi
l
lwhi
chi
soroni
tsf
acepur
por
tst
obe,bot
hdr
awnand
pay
ablewi
thi
nt hePhil
i
ppines.

Anyotherbilli
saf or
eignbi l
l.Unlessthecont raryappear
sont hefaceofthebi
ll
,thehol
dermay
treati
tasinlandbill
.
5.Whyi sitimportanttodeter minewhet herabi l
lisinl
andorforei
gn?
Theyreasonsar e:
(1)A f or
eignbillisr equiredt obepr otest
edi ncaseofdi shonorandf ai
lur
etosopr otestwil
l
dischargethedrawerandi ndor sers,
whi l
eani nlandordomest i
cbil
lneednotbeprot
ested;
and
(2)Forpur poseofdet erminingwhatl awshall governthevali
dit
y,i
nter
pret
ati
onandeff
ectofthebi
ll
.

6.Whenmayabill
betreatedasapr omissorynote?
Thehol
dermaytr
eat,athisopti
on, abil
lofexchangeasapromissor
ynot
einthefol
l
owi ngcases:
(1)Whenthedr
awerandt hedraweear ethesameper son(
li
keadraftdr
awnbyabankoni tsbranch)
;
(2)Whenthedr
aweeisaf ict
it
iousperson;
(3)Whenthedr
aweehasnocapaci tytocont r
act;or
(4)Whenthei
nstr
umentissoambi guoust hattherei
sdoubtwhet
heriti
sabil
lornot
e.(Sc.17par.E)

I
ntheabovecases,
not
iceofdi
shonorneednotbegi
ventot
hedr
awert
ochar
gehi
m.Tr
eat
ingt
hebi
l
l
apromi
ssorynot
ewoul
dconsti
tutet
hedrawerasthemaker
.

7.Whoi stherefereei
ncaseofneed?
Refereeincaseofneedi sthepersonnamedbythedrawerorindor
serastheonet owhom the
hol
dermayr esortincaseofneed,t
hatis,i
ncaset
hebilli
sdishonoredbynon-accept
anceornon-
payment.

Note:Itisnotobl
igat
oryuponthehol
dertoappl
ytotherefer
eeincaseofdishonor.Theusual
for
mi s“Incaseofneedapplyt
oX.”ift
heref
ereepay
sthebi
ll
,thedrawerori
ndor
serwi l
lbeli
abl
eto
himfortheamount.

Exampl
e:

Payt
oBoror
derP10,
000.I
ncaseofneed,
appl
ytoY,
220Regi
naBui
l
ding,
C.M.Rect
oSt
.,Dav
ao
Ci
ty.

Sgd.A
ToX
216ReginaBui
lding
C.M.RectoSt
.,DavaoCi
ty

Chapt
er10–ACCEPTANCE

1.Whatisanaccept
ance?
Accept
anceofabil
listhesi
gni
fi
cat
ionbyt
hedr
aweeofhi
sassentt
otheor
deroft
hedr
awer
.

2.Givetherequi
sitesinorderthatacceptanceshal
lbebindi
ngonthedrawee.
Theyar
e:
(1)Itmustbei nwr i
ti
ng;
(2)Itmustbesi gnedbythedr awee;
(3)Itmustnotexpr esst hatthedr aweewi l
lperfor
m hispromisebyanyot hermeanst hanthe
paymentofmoney ;and
(4)Thebi l
lmustbedel i
veredbackt otheholder
.Beforedel
i
v er
yornoti
fi
cati
on,theacceptormay
revokeorcancelhisacceptance.

Not es:
a. Accept ancemustbei nwrit
ing:Ther easonisthatsoundpol
icyrequi
ressomesubstanti
aland
tangibl
eev idenceofcont r
actandmor er el
iabl
ei nnatur
ethant hestat
ementorr ecol
lect
ionof
witnesses.Anor alacceptanceisnotbindingont hedrawee.Thusacceptancebyt
elephoneisnot
acceptance.
b. Accept ancenotrequi
redinchecksforthesamear epayabl
eondemand.

30
c. Thedraweemustsi gnashewoul dnotbeboundi fhissignat
ureisnott
here.
d. Paymentmustbeexpr essedtobepay abl
einmoneyonl y.
e. Theacceptanceisincompleteunti
ldeli
veryornoti
ficati
on.Andt heaccept
orordr
aweehasnot
communicated hi
s acceptance ortransmitt
ed the accepted bi
lltothe holdermayrev
oke an
accept
ancebeforedel
iveryandcancelthewrit
tenacceptance.
f. Uponacceptance,t
hedr aweebecomesl i
ableofthebill
.

PAYMENTI
SNOTACCEPTANCE.

Thepay mentofthecheckdoesnoti ncludeori mplyit

sacceptancei nthesenset hatthi
swor di s
usedinSect i
on62oft heNI L.Ingener alacceptanceasusedi ntheNILi snotr equir
edf orchecksf or
thesamear epayableondemand.Hence,accept anceandpay mentar ediffer
entwi thinthepurview
ofthelawf oracceptanceisapr omisetoper for
m anactwher easpay menti stheact ualperf
or mance
ther
eof.I nthewordsoft hel aw,acceptanceoft hebillist
hesigni
fi
cati
onbyt hedr aweeofhi sassent
totheor derofthedrawerwhi chinthecaseoft hecheck,isthepay mentondemandofagi vensum
ofmoney .Upontheot herhand, actualpaymentoft hecheckimpl i
esnotonl yanassentt osaidorder
ofthedr awerandr ecognit
ionoft hedr awee’sobl i
gationtopaytheaf orement i
onedsum,butal soa
compl i
anceofsuchobl igat
ion.

3.Wher emayacceptancebemade?
Accept ancemaybeont hebil
litsel
fonasepar at
ei nstr
umentsuchasi nal ett
erort el
egram.
Accept anceonasepar at
epapermaybeei theranacceptanceofanexisti
ngbill
oranacceptanceofa
futureornon-exi
sti
ngbi l
l.Inaconstructi
veacceptance,thereisnoactualwri
tt
enacceptancebyt he
drawee.Thehol dermayr equi
rethatt heacceptancebewr it
tenonthebi l
landi fsuchrequestis
refused, mayt
reatt
hebi l
lasdishonored.

4.Whatistheef
fecti
fanacceptanceiswri
tt
enonapaperot
hert
hanthebil
li
tsel
f?
Itdoesnotbi
ndt heaccept
orexcepti
nfavorofaper
sontowhom i
tisshownandwho,
upont
he
fai
thther
efor
e,r
eceiv
esthebill
forval
ue

Example:Bef
oreabillisdrawn,Pwr it
esalett
ertowaski nghimi fhewoul dhonorR’
sdr af
tfor
P1,
000.00tocoverthepurchasepri
ceofgoodsRwant stobuyf rom P.Pr eceiv
estherepl
y :“
Yes”In
vi
ewoft hi
spromisetoacceptonthepar tofW,Psell
st hegoodst oR.UnderSect i
on135,Wi sli
able
toPasacceptorbecauseW’ spromise,
“isdeemedanact ualacceptance.”ButifPnegoti
atesthebil
l
toAandAnei t
hersawnorknewofW’ spromisetoaccept,W wi
llnotbeliabletoA.

6.Whati sti
meall
owedt hedraweewi thinwhicht oaccept?
Thedr aweeisal
lowedtwenty -
fourhoursaf terpresentmentinwhichtodeci dewhetherornothe
wil
lacceptthebi
ll
;buttheacceptance, i
fgi
ven, datesasoft hedayofpresentat
ion
Exampl e:P i
st heholderofabi l
lpay able20 day saf t
ersight.Ifthebi l
lispr esented f
or
acceptancebyP t oW at10: 00o’ clocka.m.onSept ember5,W hasupt o10: 00o’cl
ocka. m.
September6wi t
hinwhichtoacceptt hebill
.IfitisacceptedbyW onSept ember6t heacceptanceis
deemedt ohavebeengivenonSept ember5and, t
herefor
e,thebil
li
sdueonSept ember25andnoton
September26.

7.Whatistheli
abi
li
tyofadraweewhodestr
oysorrefusestoretur
nabil
lpresentedf
oraccept
ance?
Wherethedraweetowhom abilli
sdel
iver
edforacceptancedest
roy
st hesame,orref
useswithi
n
24hoursaf t
ersuchdeli
ver
y ,orwi
thi
nsuchotherperiodast hehol
der,hewi l
lbedeemedt ohave
accept
edthesame.Thisisknownasconstr
ucti
veacceptance.

8.Whenmayacceptancebemade?
I
tmaybemade
(1)Befor
ethebi
llhasbeensignedbythedr
awerorwhil
eother
wisei
ncompl
ete,
(2)Evenaft
eri
tisover
due,and
(3)Evenaft
eri
thasbeendishonoredbynon-
accept
anceornon-
payment
.

Not
e:Aninst
rumentdoesnotlosei
tsnegot
iabl
echar
act
erbyt
hemer
efactt
hati
tisal
ready
ov
erdueori
thasbeendi
shonor
ed.

9.Whatar
etheki
ndsofaccept
ance?

(1)Act ual–Onemadeexpr esslyinwr i

ti
ngandsi gnedbyt hedrawee
(2)Const ruct
ive–SeeSec.137( supra);
(3)Gener al– Wher ethedr aweeassent swi t
houtqual i
fi
cati
ont otheorderoft hedr awee.An
acceptancet opayatapar ti
cularplace(e.g.,“
accepted,payabl
eatthePNB”)isageneralacceptance
unlessi texpressl
ystatesthatt hebillist obepai dthereonlyandnotelsewhere( Sec.140;e.g.
,
accepted,payableonl
yatt hePNB) ;and
(4)Qual if
ied–Wher ethedrawee’ saccept anceinexpresstermv ar
iest
heeff
ectofthebillasdrawn.
(Sec.139)

10.Wheni
saccept
ancequal
i
fied?

31
Anacceptancei squali
fiedwhi chis:
(1)Conditi
onal,thatistosay ,whichmakespay mentbyt heaccept ordependentont hefulf
il
lmentof
aconditi
ont hereinstated( e.
g.“acceptance,butpay mentwi l
lbemadeonl yifpresent
edwi t
hin10
daysfr
om dat e”)
;
(2)Part
ial
,thati stosay ,anacceptancetopaypar tonl
yoft heamountf orwhi chthebi l
lisdrawn
(e.
g.abil
lforP700i saccept edthus:“AcceptedforP500onl y(seeSec.321)
(3)Local,
thatist osay, anacceptancetopayonl yatparticularpl
ace( e.
g.,
“acceptance,payableonl
y
atthePhil
i
ppineNat ional Bank”)
;
(4)Quali
fi
edast otime( e.g.“
acceptance30day sfrom date);
(5)Theaccept anceofsome, oneormor eofthedrawees, butnotall.(
Sec.14;e.g.abil
laddressedto
X,YandZi saccept edbyXandYonl y.
)

11.Hast
hehol
der
sther
ightt
orequi
reagener
alorunqual
i
fiedaccept
ance?

Yes,andifhedoesnotobt
ainsuchaccept
ance,hemayt
reatt
hebi
l
lasdi
shonor
edbynon-
accept
ance.(
Sec.
142.
)

12.Gi
vet
heef
fectofaqual
i
fiedaccept
anceont
hel
i
abi
l
itydr
awerandi
ndor
ser
sonabi
l
l.

Theywi l
lbedi scharged,unlesstheyauthori
zedt
hehol der
st ot
akeaqual i
fi
edacceptanceor
subsequentassentthereto.(
Ibi
d)Reason:Theyengagethatt
hebillwi
l
lbepaidasdrawnorindorsed
bythem, andtheeffectofaqualifi
edacceptancewoul
dbet omakeacontractfort
hem wit
houtthei
r
consent.

Chapt
er11-PRESENTMENTFORACCEPTANCE

1.Whati
smeanbypr
esent
mentf
oraccept
ance?

Pr
esentmentforaccept
anceisthepr
oducti
onorexhi
biti
onofabil
lofexchangetothedraweefor
hi
saccept
ance.Thewor ds“pr
esent
mentforaccept
ance”
.Incl
udepr
esentat
ionforpaymentalso.

2.Inwhatcasesi spresent mentf oraccept ancenecessar y?

Theyar e:
(1)Wher et he bil
lis pay able af t
ersi ght( e.g.30 day s aft
ersight)oranyot hercase,where
presentmentf oraccept ancei snecessar yi nor dertofixthematuri
tyoftheinstrument.Reason:Iti
s
essentialtofixthemat ur i
tydateoft hei nstrument ;whichiscomputed(30day s)from thedat
eofi t
s
presentment ;or
(2)Wher ethebi l
lexpresslystipulatedt hatitshal lbepresent
edforacceptance.Reason:Tocompl y
withtheexpr essedstipulationoft hepar t
iesint hebilli
tself
:or
(3)Wher ethebillisdrawnpay ableel sewher et hanattheresi
denceorplaceorpl aceofbusinessof
thedrawee.Reason: Toi nformt hedr aweeoft heexistenceofthebi
llsothathecanmaket hedrawee
arrangement sforitspay mentatt hepl acewher ein.

I
nnot hercasei
spr
esent
edf
oraccept
ancenecessar
yinor
dert
orenderanypar
tyt
othebi
l
lli
abl
e.
(
Sec.143.)

3.Gi
vethecaseswhenabi l
lneednotbepresent
edforaccept
ance.
I
fitis-
(1)Payableondemand
(2)Payableatsi
ght ;
(3)Payableonfixeddays;
(4)Payableatcertai
nnumberofdaysaft
eraf i
xedevent
;and
(5)Payableatcertai
nnumberofdaysaft
erdate.

4.Whenwi llf
ail
uretopresentabi l
lforacceptancereleaset
hedrawerandindor
ser
s?
Thehol derofbillwhichisr equiredtobepr esentedf
oracceptancemusteit
herpr
esentitfor
acceptanceornegotiat
ei twit
hinar easonabl
et i
me.I fhef
ail
stodoso,t hedr
awerandalli
ndorses
aredischar
ged.(Sec.144)

5.Givetherequisi
ti
oninorderthatpresentedforanaccept
ancemaybepr oper.
Theyar e:
(1)itmustbemadebyoronbehal fofthehol der;
(2)Itmustbemadeatr easonablehour;
(3)Itmustbemadeonabusi nessday ;
(4)Itmustbemadebef orethebill
isoverdueandwi thi
nareasonabl
etimeand,and
(5)Itmustbemadet ot hedraweeorsomeper sonaut
hor
izedtoacceptorr
efuseaccept
anceonhi
s
behalf(seeSecs.144,147)
Note:Thepl aceofpresentmentforaccept anceisnotmateri
alsi
ncethedraweeneedonlywri
tehi
s
acceptanceont hebi
lli
fhewi shestoaccept .

32
6.Wheni spresentmentforacceptanceexcused?
Ift
hef oll
owingcases:
(1)Wher ethedraweeisdead;
(2)Wher ethedraweehasabsconded;
(3)Wher ethedraweeisaf i
cti
tiousperson;
(4)Wher ethedraweeisaper sonnothav i
ngcapacitytocont r
actbybill
;
(5)Wher e,af
tertheexerci
seofr easonabl
edil
igence,presentmentcannotbemade;or
(6)Wher e,alt
houghpr esent
menthasbeeni rr
egular( e.
g.,present
mentismadeonaSundayor
Holi
day),acceptancehasbeenr efusedonsomeot herground( Sec.148.
)(e.
g.l
ackoff
undsi
nthe
handsoft hedrawee).

7.Wheni
sabi
l
ldi
shonor
edbynon-
accept
ance?

I
nthef
oll
owi
ngcases:
(
1)Wheniti
sdulypresentedforacceptance,andaccept
anceisref
usedorcannotbeobtai
ned;
or
(
2)Whenpr0esent
mentf oracceptanceisexcusedandthebil
lisnotaccept
ed.(
Sec.149)

8.Whati
sthedut
yofahol
deri
ncaset
hebi
l
lisnotaccept
ed?

Thepersonpresent
ingthebil
lmusttr
eatitasdishonor
edbynon-
accept
anceorhel
ossest
he
r
ightofr
ecourseagai
nstdrawerandi
ndor
sers.(
Sec.150)

9.Whatistherightofaholderofabill
dishonor edbynon-acceptance?
Aftergivi
ng ofdi shonored and pr otesti
ng when r equi
red (secs.152,157,i nf
ra)he may
i
mmedi atel
yproceedagainstthedrawerandi ndorser
swithoutwai t
ingfordateofmat uri
ty.(
sec.151)
.
Reasons:Paymentcannotbeexpect edaf teracceptancehasbeenr efused.Hence,presentmentfor
paymentisnotnecessary(Ibi
d)unl
esst hebi l
li
ssubsequent l
yaccepted.(SeeSec.116)
Chapter12–PROTEST

1.DefineProtest
.
Prot
estisaf or
malinstr
umentexecut
edbyanotarypubl
i
corothercomponentpersoncer
ti
fyi
ng
thatthefactsnecessar
yt othedi
shonoroft
heinst
rumentbynon-
acceptanceornon-
paymenthave
takenplace.

2.Pr otestisr equi r

edonl yoncaseofdi shonorei therbynon- accept anceornon- pay mentoff orei
gn
bil
ls( seeSec.129. ),whi chappearont hef acet obesuch.( Sec.152;seeSec.185)Pr otestofi nl
and
bil
ls,excepti n certaini nstances,and pr omi ssor ynot esi snotr equi
r ed although t heymaybe
protest edifdesi r
ed.
Int hefollowi ngcasespr ot esti sabsol utel
yr equi r
ed:
(1)Upondi shonorbynon- accept anceofaf orei
gnbi l
lappear i
ngoni tsfacet obesuch( Sec.152. )
;
(2)Upondi shonorynon- pay mentofaf or eignbi l
lappear i
ngoni t
sf acet obesuch, itnothav i
ngbeen
prev i
ouslydi shonor edbynon- accept ance;
(3)Bef oreabi llcanbeaccept edf orhonor ,i
tmustbepr otestedf ordishonorbynon- accept anceor
protest edforbet tersecur ity(Sec.161) ;
(4)Bef oreabi llcanbepr esent edf orpay mentt ot heaccept orf orhonorort her efereei ncaseof
need, itmustbepr otestedbyt hehol derf ornon- paymentbyanypar tyli
ablet hereon( Sec.167. );
(5)Upondi shonoroft hebi llbyt heaccept orforhonor ,itmustbepr otestedbyt hehol derfornon-
pay mentbyt heaccept orf orhonor( Sec. 170) ;
and
(6)Bef oreabi llcanbepai df orhonor ,itmustbepr otestedbyt hehol derf ornon- pay mentbyany
partyl i
ablet her eon.
3.Whatar et her easonsf orrequi ringpr ot est?
Theyar e:
(1)I tmakesf oruni formi tyinint ernat ional tr
ansact ionsbecausemostcount ri
esr equi r
ei t;and
(2)I tf ur
nishesaut hent i
candsat i
sf act oryev i
denceofduedi shonort ot hedr awer ,who,f rom his
residenceabr oadwoul dexper iencedi ffi
cul tyinv erifyi
ngt hemat terandt husbecompel l
edt orelyon
ther epresent ationoft hehol der .

4.Howispr otestmade?
Theprot estmustbeannexedt othebil
l,ormustcontainacopyt hereofandmustbeunderthe
handandseal ofthenotarymaki ngit,
andmustspeci f
y:
(1)Thetimeandpl aceofpr esentment;
(2)Thefactt hatpresentmentwasmadeandt hemannerthereof;
(3)Thecaseorr easonforpr ot
estingthebil
l;and
(4)Thedemandmadeandt heanswergi ven,ifany
,orthefactthatt
hedr aweeoraccept
orcoul
dnot
befound.
5.Whomaymaket heprotest?
Itmaybemadeby :
(1)Anotarypubl ic;or
(2)Byanyr espect abl
er esi
dentoft heplacewher ethebilli
sdishonored,inthepr
esenceoftwoor
morecrediblewi t
nesses.

6.
Whenmustpr
otestbemade?

33
 Whenabilli
sprotest
ed,suchprotestmustbemadeont hedayofdi shonor
,unl
essdel
ayi
s
excused.Whenabil
lhasbeendulynoted,thepr
otestmaybesubsequent
lyext
endedasoft
hedat
e
ofthenoti
ng.

7.Wher emustbepr otestedatt heplacewher eitisdishonored, expectthatwhenabi lldrawnpayable

attheplaceofbusi nessorr esi
denceofsomeper sonot herthant hedrawee, hasbeendi shonor
edby
non-acceptance,itmustbepr ot
est edf ornon- paymentatt hepl acewher ei tisexpr essedtobe
payableandnof urt
herpr esentmentf orpaymentt o,ordemandon, t
hedr aweei snecessar y.
Example:Supposet hedr aweer esidesinToky obutt hebil
li spayableatt hePhi l
ippinesNati
onal
Bank,Mani la.The bi l
li spr esented byt he pay ee foraccept ance tot he dr awee in Tokyo but
acceptancei srefused.Oni tsmatur it
y,thebi l
lispr esentedf orpay mentt ot hePhilippineNati
onal
Banki nMani l
a.Pay menti sr ef
used.Thehol dermustpr otestthebi l
lfornon- pay mentinMani l
aand
nofurtherpresentmentf orpay mentt o,ordemandon, thedraweei snecessar y.

8.Af t
erabillfor
eignbi
llhasbeendi
shonor
ed bynon-
accept
ance,i
spr
otestf
ornon-
pay
ment
necessary
?
Itisdi
scr
eti
onar
yonthehol
der
.

9.Whatisa“prot
estforbett
ersecurit
y?”
Prot
estforbett
ersecuri
tyisonemadebyt heholderofabil
laft
eri
thasbeenacceptedbutbefore
i
tmatures,agai
nstthedrawerandi ndorsers,
wheretheacceptorhasbeenadjustedabankr
uptoran
i
nsolv
entorhasmadeanassi gnmentf orthebenef
itofcredi
tor
.Suchaprotestispur
elyopt
ionaland
i
tsomissionwil
lnotaff
ecttheholder’
sr emedyagai
nstthedrawerandindor
sers.

Chapt
er13–ACCEPTANCEFORHONOR

1.Whati smeantbyaccept anceforhonor ?

Accept ancef orhonorisanundertakingbyast rangert
othebil
laft
erpr ot
estforthebenefi
tofany
part
yl i
ablet hereonorf orthehonoroft heper sonforwhoseaccountt hebi l
lisdr awnwhich
acceptancei nur
esal sotot hebenefi
tofal lparti
essubsequenttotheper sonf orwhosehonoritis
accepted,andcondi ti
onedt opaythebillwheni tbecomesdueiftheor i
ginaldraweedoesnotpayi t
.
Anothernamef oraccept anceforhonori sacceptancesuprapr
otestsincepr evi
ousprotestf
ornon-
acceptanceorf orbettersecuri
tyi
snecessar y.

2.Whati
sthepur poseofacceptancef
orhonor
?
Thepurposeofanaccept anceforhonori
sto-
savet
hecredi
toft
heparti
estotheinstr
umentor
somepartytoitf orwhosehonort heaccept
anceismade,asthedrawer
,drawee,orindor
seror
somebodyelse.

3.Giv
etherequisi
tesofacceptanceforhonor.
Befor
eanaccept anceforhonormaybemadef ourrequisit
esmustconcur:
(1)Thebil
lmusthav eprot
estedfordishonorbynon-acceptanceorforbett
ersecuri
ty;
(2)Theacceptorforhonormustbeaper sonnotapar tyalreadyli
ablet
hereon,t
hatis,ast
rangert
o
thebi
ll
;
(3)Thebil
lmustnotbeov erdueatthetimeoftheaccept anceforhonor;
and
(4)Theacceptanceforhonormustbewi ththeconsentoft heholderoft
heinstr
ument.

4.Howmustaccept ancef orhonorbemade?

Thefoll
owingrequisi
tesmustbeunderstoodt obeincl
udedinther
equi
sit
esj
ustenumer
ated:
(1)Theacceptanceforhonormustbewr it
ing;
(2)Itmustindi
catethati
ti sanaccept
anceforhonor;
(3)Itmustbesignedbyt heacceptorf
orhonor;
(4)Itmustcontai
nanexpr essori
mpli
edpromi setopaymoney ;
and
(5)Theacceptedbil
l f
orhonormustbedel i
veredtotheholder
.

5.Wheni
sanaccept
anceforhonordeemedforthehonoroft
hedr
awer
?
Wheni
tdoesnotexpr
essl
ystateforwhosehonori
smade.

6.Towhom i stheaccept orf

orhonorli
able?
Hei sli
abletot heholderandtoallparti
estothebi l
lsubsequentt
othepar tyforwhosehonorhe
hasaccept ed.
Example:Abi lldrawnbyRagai nstW withP,A, B,andCassuccessi veindorser
si spresentedby
thehol derDf oracceptancetoW whodi shonor
sitandDhast hebil
lprotestfornon-acceptance.If
thebillisacceptedbyXwi ththeconsentofDf orthehonorofB,Xwi l
lbel i
abletothehol derD,and
i
ndor serCwhoi sapar t
ysubsequenttoBbutnott oR,W,andAwhoar epar t
iespriortoB.I f
,after
havingbeenl iabl
e,Xpay sD,Xwillhavear i
ghtofrecourseagainstR,W,P,A,andB.ButX’ sri
ghtt o
holdW l i
ablewilldependuponwhet herW isli
abl
etoR.

7.Whati
stheagreementofunder t
akingoftheaccept
orforhonor
?
Byhisacceptance,heengagestopaythebil
laccordi
ngtotheter
msofhi
saccept
ancepr
ovi
ded:
(1)Thebil
lshall
hav ebeendulypresent
edforpayment;

34
(
2)I
tshal
lnothavebeenpai
dbythedrawee;
(
3)I
tshal
lhavebeenprot
estedf
ornon-pay
ment;and
(
4)Not
iceofdi
shonorisgi
ventohi
m suprapr
otest.

8.Givet hedist
incti
onsbetweenaccept anceforhonorandor dinar yaccept ance.
Theyare:
(1)Inthef ormer,ther
emustbepr ev i
ousprotest,whil
einthel atter,prot estisnotr equir
ed;
(2)Int heformer ,
ther
eacceptormustbeast rangertothebill,
whi l
eint helatter,theacceptoristhe
drawee;
(3)Int hef ormer,theconsentoft heholderi srequir
ed,whi lei nt hel att
er,suchconsenti snot
requir
ed;
(4)Inthef ormer,theaccept
orissecondar i
lyli
able,whil
einthel atter,theaccept orispri
mar i
l
yl i
abl
e;
(5)Inthef ormer,ther
emaybesev eralacceptorsforhonorfordi fferentpar tiesint hebil
l,
whi l
einthe
l
atter,t
herecanbenoaccept or
sint healter
nativeorinsuccession; and
(6)Inthef ormer,thebil
li
snotdischargeduponpay mentbyt heaccept orforhonor ,whi
leinthelat
ter
,
i
tisdischargeduponpay mentbytheaccept or.

Chapt
er14–PAYMENTFORHONOR

1.
Whati smeantbypay mentforhonor?
Paymentf orhonorispaymentmadebyaper son,whetherapar
tytothebillornot
,aft
erithas
beenpr otest
edf ornon-
payment ,f
orthebenefi
tofanypar tyli
abl
ether
eonorf orthebenef
itofthe
personf orwhoseaccounti twasdr awn.Anothertermf orpaymentforhonori spaymentsupra
protestbecausepriorpr
otestfornon-
paymenti
sr equir
ed.

2.Whomaymakepay
mentforhonor
?
I
tmaybemadebyapar
tytothebil
lorbyast
ranger
.

3.Whatisthepurposeandf
uncti
onofpaymentforhonor
?
Paymentforhonormaybeav ai
ledofwhent hehol
der
,knowi
ngthatthebil
lhasal
readybeen
di
shonoredfornon-pay
ment,doesnotnotwanttoindor
set
hebil
landther
ebyincurt
hel
iabi
li
ti
esof
anindor
ser.(
seeSecs.65supra)

4.Gi
vether
equi
sit
esofv
ali
dpay
mentf
orhonor
.
Theyar
e:

(1)Thebil
lhasbeendi shonor edbynon-payment( sec.83.)
;
(2)Ithasbeenpr otestedf ornon-
payment(Sec.171. )
;
(3)Paymentsupr apr otectismadebyanyper son, evenapartyt
her
eto(i
bid.
);
(4)Thepay menti sat t
est edbyanotari
alactofhonorwhi chmustbeappendedt othepr
ot est
edt
o
theprot
estorfrom anext ensi
onofit(
Sec.172.): and
(5)Thenotrialactmustbebasedont hedeclarationmadebyt hepayeeforhonororhisi
ntenti
ont
o
paythebil
lforhonorandf orwhosehonorhepay s.(Sec.173.
)

5.St
atet
her
ulewher
etwoormor
eper
sonsof
fert
opayabi
l
lfort
hehonorofdi
ff
erentpar
ti
es.

Theper
sonwhosepay
mentwi
l
ldi
schar
gemostpar
ti
est
othebi
l
lisgi
venpr
efer
ence.(
Sec.174.
)

Example:R drawsabi llpayabletoP ororderwithW,ast hedr

awee,andA,B,C andD as
successionindorser
,andE,ashol der
s.W doesnotpayandEhasdulyprot
est
ednon-payment
.IfT
offertopaysupr aprotestfort
hehonorofCwhi leS,forA,ist
obeprefer
redashi
spay mentwil
l
dischargeB,C,andDwher easpaymentbyTwi l
ldi
schar
geonlyD.

6.Gi
vetheef
fectwher
eabi
l
lispai
dforhonor
.
Theyar
e:

(
1) Allpar
ti
essubsequenttothepart
yf orwhosehonoriti
spai
daredischarged;and
(
2)Thepay erf
orhonorissubrogat
edf orandsucceedstoboththeri
ghtsanddut iesoftheholderas
r
egardsthepar
tyforwhosehonorhepay sandallpart
iesli
abl
etothelatt
er.Ifthepaymenti smade
f
orthehonorofal
lpart
iestothebil
l,
thepay erf
orhonormayhaverecourseallofthem.(Sec.175)

Example:Inhepr ecedingill
ustrat
ion,thepay mentsuprapro-t
estbyS f ort hehonorofA wi l
l
di
schargeB,C,andD, andSi ssubrogatedtother ight
softhehol
derE,withrespectt
oW, R,P,andA.
Ofcourse,
theri
ghtofSagai nstW, R,andPwi lldependonwhetherornottheyareli
abl
et oA.
IfSpaysforthehonorofal lparti
estothebi l
l,
W, R,P,
A,B,C,andD, t
henhemayr ecoveragai
nst
al
lofthem.
7.Whatistheeff
ectiftheholderrefusestoreceivepaymentsupr
aprotest?

Heloseshisri
ghtofrecour
seagainstanypar
tywhowoul
dhav ebeendischar
gedbysuch
pay
ment .
Example:I
ntheil
l
ust
rat
ionunderSecti
on174and175,i
fEref
usestorecei
vepaymentsupr
a

35
prot
estfrom Sfort
hehonorofA,hel
oseshi
sri
ghtofr
ecour
seagai
nstB,C,andDwhowoul
dhav
e
beendischar
gedbysuchpayment
.

8.
Whati
sther
ightoft
hepr
ayerf
orhonor
?

Thepayerforhonor
,onpay ingtotheholdert
heamountofthebi
llandthenot
ari
alex
penses
i
nci
dent
alt
oit
sdishonor
,isent
it
ledtorecei
vebotht
hebi
l
lit
sel
fandtheprot
est
.

9.Enumer atethedi stinctionsbet weenpay mentf orhonorandaccept ancef orhonor .

Theyar e:
(1)Int hef ormer,t hepr otestmustbef ornon- pay ment( Sec.171. )
;whi leint hel atter,f ornon-
acceptanceorf orbet tersecur i
ty(Sec.161);
(2)Int hef ormer,thebi l
lisov erdue,whil
ei nt helatter
,itmustbenotov erdue( Sec.161. );
(3)Int hef ormer,theconsentoft heholderisnotr equir
ednorcant hehol derr ef
use( Sec.176. ),whi
le
i
nt helatter,theconsentoft hehol derisrequired( Sec.161) ;
(4)Int hef ormer ,thepr ayermaybeapar t
yt othebi l
l( Sec.171.),whi l
ei nthel att
er,t heaccept or
mustnotbeapar tyal readyliableont hebill(Sec.161) ;
(5)Int hef ormer ,anot arialactofhonori snecessar y( Secs.162,173) ,whileint hel atter,itisnot
necessary( seeSec.162) ;
(6)Int hef ormer ,ther ecanbeonl yonepr ay erforhonor( seeSecs.174. ),whil
ei nthel atter,t
here
maybesev eralaccept or sforhonor( seeSec.174. ),whileint helat
ter,theremaybesev eral acceptors
forhonor( Sec.161) ;and
(7)Theef fectsofpay mentf orhonorar ethosepr ovidedf ori nSections175and177( supr a),whi
le
theeffectsofaccept ancef orhonorar ethosepr ovidedf orSect i
ons164and165.( Supra)

Chapt
er15–BI
LLSI
NSET

1.Defi
neabillinset
.
Bi
l
linsetisonecomposedofsev
eralpart
s,eachpar
tbeingnumber
edandcont
aini
ngar
efer
ence
tothepart
s,thewholeoft
hepart
sconsti
tuti
ngbutonebil
l.

2.Whati
sthepurposeofbi
ll
sinset
?
Thepurposeistoavoi
dthediff
icul
ti
eswhi
chwoul
dar
isei
ncaseofl
ossormi
scar
ri
ageont
he
wayofabil
l.

3.Whataret
heright
softheholder
sincasediffer
entpar
tsofasetarenegot
iatedt
odif
ferenthol
ders
i
nduecourse?
Insuchcase,theholderwhoset i
tl
ef i
rstaccrues(e.
g.,t
hehol dertowhom apar tisfi
rst
negot
iat
ed)i
sasbet weensuchholder
st hetrueownerofthebil
l.Butthedraweeisprotect
edifin
goodfai
thheaccept
sorpaysthepartf
ir
stpresentedtohi
m.

Exampl e:Rdrawsabi l
lsetcomposedoft hreepart
spayabletot heorderofP.IfPnegot iatesthe
fi
rstparttoAonSept ember20,thesecondpar tt
oBonSept ember25,andt het hi
rdpar ttoCon
September25,hei sli
ableonev er
ysuchpart.(Sec.180)AssumingA,B,andCar eallholdersindue
courseasbet weenthem,Aisthetrueowneroft hebil
lashi
st i
tl
efirstaccrues.Supposingallthreeof
them gosimul t
aneousl
ytoW,t helat
tershoul
dacceptorpayonl yA’ spart.ButW isnotl i
ablet oAif
W, i
nduecour se,paysthepartheldbyCwhoi sabletomakepr esentmentf oracceptance(seeSec.
143.)orforpaymentofhispartaheadofA.

4.Whati
stheliabi
li
tyofaholderwhoi ndorsestwoormor epart
sofasett
odi
ffer
entper
sons?
Heisli
ableonev erysuchpartandev eryindor
sersubsequentt
ohimisl
i
ableontheparthehas
hi
mselfi
ndorsed,asifsuchpart
swer esepar at
ebil
ls.

5.Whati
stheli
abi
li
tyofadraweewhoaccept
smor ethanonepar
tofaset?
I
fsuchaccept
edpart
sar enegot
iat
edt
odiff
erenthol
dersi
nduecour
se,hei
sli
abl
eonev
erysuch
par
tsasifi
twereasepar
atebil
l.

6.Whatisthel i
abil
it
yofanacceptorofabil
ldrawninasetwhopaysi
twi
thoutrequi
ri
ngthepar
t
bear
inghisacceptancetobedel
iv
ereduptohi
m?
I
fthatpartatmat ur
it
yisout
standi
nginthehandsofahol
deri
nduecourse,hewouldsti
l
lbe
l
iabl
etotheholderthereon.

Chapt
er16–PROMI
SSORYNOTESANDCHECKS

1.Defi
neapromissorynote.
(Pl
easeseequestionNo.5,I
NTRODUCTI
ON;astospeci
altypesofpr
omissor
ynote,
questi
onNo.
8,I
bid)
Note:Whereanot eisdrawntothemaker
’sownorder(nottobearer
),i
tisnotcomplet
eunti
l
i
ndorsedbyhim.(Sec.184)

2.Wheni
sapromi
ssorynotel
ikeabi
llofexchange?
Whenanotei
sindorsedbythepayeeitbecomesj
ustl
i
keabi
l
l.Themakercor
respondst
othe

36
accept
or,
thei
ndor
sert
othedr
awer
,andt
hei
ndor
se,
tot
hepay
ee.

3.Defi
neacheck.
(Pl
easeseequest
ionNo.5, I
NTRODUCTI
ON;ast
ospeci
alt
ypesofcheck,quest
ionNo.12,
I
bid)

4.Wi t
hinwhatti
memustacheckbepr esent
edf orpayment ?
Acheckmustbepr esentedforpaymentwi thi
nar easonabletimeaft
erit
sissue;ot
her
wise,t
he
drawerwillbedischargedfrom li
abi
li
tyther
eont ot heextentofthelosscausedbythedel
ay.(Sec.
186;)seeCapit
alIns.Co.vs.Plast
icEr
aCo. ,
Inc.L-22375,July18,1975.
)

Not e:Theonl ylosswhichwoul

dbesust ai
nedbyt hedr awerincasepr
esent
mentwasnotmade
wit
hinar easonabletimewouldbecausedbyt heinsolv
encyoft hebanksubsequenttothedel
i
very
andpriort othepresentmentoft
hecheck.(
PeninsulaNationalBankv.MansPendersonCo.,
158Pac.
246;Keenanv .McClure,252N.
W.204.
)

5.Gi
vetheeffectsofcert
if
icat
ionofacheck.
Theyare:
(1)I
tisequivalentt
oacceptance(Sec.187);
(2)I
tdischargespersonssecondari
lyli
abl
eifpr
ocuredbythehol
der(
seeSec.188)
;and
(3)I
toperatesasanassi gnmentoft hefundsofthedraweri
nthehandsofthedraweebank.(
Sec.
189)

6.Howiscerti
ficat
ionofacheckmade?
Cert
if
icati
onmustbei nwr it
ingeit
heronthecheckitselforonaseparat
einst
rument.(seeSecs.
134,135.)Theusualf or
m i sbyst amping orwrit
ing upon thecheckthewor d“cert
ifi
ed”and
under
neathitisthesignat
ureoft hepr
operoff
icer
.Ithasbeenhel dt
hatthecer
ti
fi
cat
ionbyabankof
acheckbeing“good”issuffi
ci
ent.

7.Whatist
hepurposeofcer t
if
yingchecks?
Thecerti
fi
cat
ion ofchecksenabl esper sonsnotwellacquai
nted wi
th each ot
herto cl
ose
prompt
lybusi
nesstransact
ionssincetheholderknowst
hathecancompelthedr aweebanktocash
i
t.

8.
Whendoesacheckoper
ateasanassi
gnmentoft
hefundsofthedrawertothecr
edi
tofthepay
ee
orhol
der
?
Themomentt
hechecki
saccept
edorcer
ti
fi
edbythebankonwhichiti
sdrawn.(
Sec.187)

9.I
sabankunderobli
gat
iontocert
if
yacheck?
Ther
eisaconfl
i
ctinthecases:

(1)No.Reason:Acheck,beingpay abl
eondemand,t hecontractofthedraweristhatitwi
llbepai
d
onpresentmentandnotthati
twill
becer t
if
ied.
(2)Yes.Reason:Thecerti
fi
cat
ionofacheckcl earl
yfal
lswithinthedrawer’
sundertaki
ng(seeSecs.
61,185);
andifnot,
thenasapr act
icalmatter
,iti
nferent
ial
l
yindicatesdi
shonorbynon-payment.

37