a.

In writing & signed by maker or drawer

PART 1 i. *instrument = means writing (incl. printed/typed) or reduced to tangible form
INTRODUCTION otherwise nothing can be passed
ii. No “oral negotiable instrument” – difficult determine liability, vulnerable to
fraud
ACT no. 2031 iii. GR: signature @ “lower right hand corner”, but allowed to be anywhere
Law governing N.I. iv. *signature = prima facie evidence of intention to be bound as maker/drawer
Enacted: Feb. 3, 1911 v. Signature is in the instrument BUT intention in signing is NOT CLEAR =
Publication in Official Gazette: March 4, 1911 deemed “indorser” not maker/drawer
Took effect: June 2, 1911 (90 days after publication) b. Contain an unconditional promise or order to pay a sum certain in money
i. Bcos money is the standard of value in actual business unlike other
commodities where value may rise and fall
APPLICABILITY OF act no. 2031 (Negotiable Instruments Law) ii. BUT ofcourse the promise/order may designate “particular kind of current
Applies only to negotiable instruments or those qualified in Section 1 money”
CASES NOT PROVIDED FOR BY THE ACT: governed by provisions of existing legislation [default = “law merchant”] iii. Money = cash, includes all legal tender.
CIVIL CODE: has no effect on it aside from supplying deficiency for cases not covered by the Act iv. Not money = gold, silver and bank notes
c. Payable on demand or at fixed or determinable future time
d. Payable to order or bearer &
CHARACTERISTICS e. Named if instrument is addressed to a drawee or otherwise indicated with reasonable certainty
i. Drawee should be named
1. NEGOTIABILITY ii. Applies only to bills and checks
Attribute which allows n.i. to be passed from one hand to another just like money in commercial iii. In order that payee/holder will know whom he is to call for acceptance or
transactions free from ALL PERSONAL DEFENSES available against original owner; in return holder of n.i will payment
have right to collect the sum payable to him that is “free from any defect in the title of any of the prior parties or iv. Not a bill = if order is not addressed to someone
defenses available to them among themselves” [sec 57] v. Promissory note = has no drawee thus payee must be named
In “Personal Property”, only the true owner has right to transfer/pass the title. BUT in Commercial Paper
“negotiable instruments”, it is treated like money that whoever finds can hold it against the world even to the true Written promises/ obligations arising from commercial transactions from use of instruments like promissory notes and bills of
owner. exchange. Either negotiable/non-negotiable. NOT COMMERCIAL PAPER if not arising from commercial transactions
Paper is non-negotiable. When transferability is limited or restricted

SM sells & delivers goods to Reynan. But Reynan didn’t pay bcos it wasn’t the one he ordered. Negotiable Instrument
SM sued Reynan for unpaid price. Reynan can successfully raise SM’s breach of contract as defense. Those documents as given under section 1.
SM assigns the account to Robinsons (bought Reynan’s acct). Reynan can still raise the same Doesn’t cover other negotiable documents involving “sale or transfer of goods”
defense against Robinsons even if Robinsons have no idea of the dispute between SM & Reynan. Section 1 helps you whether to take the instrument as security for an oblig or not
Assume Reynan had issued to SM his promissory note for the price of the goods. If SM sues Every n.i = presumed a contract, but not all contract is a n.i. May or may not be a commercial paper
Reynan on the note, Reynan can still raise defense of breach of contract. BUT if SM negotiates the n.i. = contractual oblig to pay money
note to Robinsons who will be the holder in due course, Reynan can no longer raise the same defense
against Robinsons. FORMAL REQUIREMENTS of negotiability
To determine negotiable or not = DEPENDS entirely on “form” and “content”
*Bona fide holder. Can be free from “personal defenses” but can be subject to “real defenses” Consider ALL the ff to determine negotiability:
a. Whole of the instrument
b. Only what in face of instrument & [not elsewhere]
2. ACCUMULATION of secondary contracts c. Provisions of NIL esp. Section 1
Passing of instrument from one person to another would spring secondary contracts (more
involved parties) which means more chances of collection bcos you can proceed not only to the
maker but also to all transferors. Many will become secondarily liable as instrument is passed.
APPLICABILITY of formal requirements
subsection PROMISSORY NOTE BILL OF EXCHANGE
a-d needed to be negotiable a-e needed to be negotiable
FUNCTION & IMPORTANCE of NI
1. Substitute for money a Maker = issuer of promissory note Drawer = issuer of BOE
But n.i is different from money bcos n.i is either valuable/worthless depending on financial
b Unconditional promise = contained in PN Unconditional order = in BOE
ability of parties to them

2. Media of exchange for most commercial transactions (checks)

Increase purchasing medium in circulation. Safe and convenient means of financial transactions.
Eliminate risk of dealing in cash. Check used for immediate payment (substitute for money) Non-negotiable Instrument
Not negotiable. Documents didn’t meet requirements
eg. Check which says “Pay to Reynan Cagas” – no longer negotiable if indorsement prohibits further negotiation of the instrument
3. Medium of credit transaction Can no longer be negotiated but may be assigned or transferred in the absence of prohibition written on face of instrument
Promissory notes – intended for circulation of credits; “credit instrument” TRANSFERS OF NON-NEGOTIABLE INSTR. – governed by Civil Code on assignment of contract rights
Not all people always have property to turn into cash anytime. Person who transfer/assign contractual/non-negotiable rights pass only the rights
N.i help men without cash in hand to complete business transactions thru promissory note, bills NON-negotiable = if instr payable upon contingency
of exchange and checks
Intended like money to have a definite value to be taken at sight without the need of Promissory Note
investigating into the outside facts Negotiable PN = unconditional promise in writing made by one to another, signed by maker, engaging to pay on demand or at a
FORMS of n.i. fixed or determinable future time, a sum certain in money to order or to bearer
NON-Negotiable PN = if it gives maker the right to ascertain amount rightly payable
1. Common Forms Written promise to pay sum of money. Also called note. May be “demand instrument” BUT is “time instrument”
a. Promissory notes ORIGINAL PARTIES to PN
Those which issuer has promised to pay This class of NI is a promise paper or two-party paper
a. Maker – one who makes promise and signs instrument. Promises to pay the payee or holder (if payee
further negotiate the instrument). Signature should be on face of instrument.
b. Bills of exchange b. Payee – to whom instrument is payable. May be specified or not (name, office title).
Those which issuer has ordered third person to pay
Checks. Special form or kind of BoE “I promise to pay” = absolute and unconditional promise to pay payee or holder. Means he must pay not that he might pay. Other
substitute phrases:
“I agree to pay” “payable” “to be paid” “I guaranty to pay” “Maker obliges himself to pay”
2. Special Types “I bind myself to pay” “Good for” “due on demand”
“I will pay”
“good to payee name or order”
*other instruments held negotiable under n.i Law (first 4 are special types of “due to payee name or order”
“I acknowledge to be indebted to payee name or order” and the like
promissory notes. Remaining are special types of BoE)
NOT USING “words of negotiability” (order or bearer) & mere acknowledgement of debt, OR bare acknowledgement of
indebtedness
= don’t satisfy requirement, doesn’t imply unconditional promise to pay. NOT NEGOTIABLE
 Certificates of deposits = “due to payee name P10,000” “will agree to pay” “I.O.U.” “for value received”
 Bank notes = Add WoN: “Due to payee or order” “Due payee or bearer” “IOU P10,000 to be paid on Sept. 30” =
NEGOTIABLE. we can fairly infer written promise to pay
 Due bills
“to the order of” & “or order”
 Bonds = promise to pay as ordered or commanded by payee/bearer
 Drafts
No time for payment is expressed
= payable on demand
 Trade acceptances “on or before”
= date of maturity, or time when promise to pay is to be fulfilled
 Banker’s acceptances Not necessary to specify payee
= if promise is made to bearer
Figures next to the amount in words
*in case of doubts of negotiability. = not essential
Courts have adopted policy to favor negotiability bcos of the significance of n.i in todays society Place of payment
= not essential, can pay any other place agreed by partners
Can be signed by several persons
Instruments with LIMITED NEGOTIABILITY = either jointly or jointly and severally
Widely used in commercial transactions but non-negotiable bcos no essential requisites under N.I Law. Governed by other laws
1. Letter of credit Bill of Exchange
I will write a letter to Walmart (addressee) to pay Apple (third party) in money or deliver goods but in turn I Negotiable BoE = unconditional order in writing addressed by one to another, signed by giver, and require addressee to pay upon
will provide money or repay walmart. *addressee should be in another place or country. demand or at fixed determinable future time a sum certain in money to order or to bearer.
Order made by one to another to pay money to third person
Negotiability = depends on terms of the order. Immaterial whether drawee obeys order to pay or not. Drawer has his liability under
2. Treasury warrant the law [sec 61]
Government warrant for payment of money like that issued in favor of public officer or employee covering Requires 3 parties in its inception
payment or replenishment of cash advances for official expenditures. It’s payable out of specific fund or Check – an order bill that is drawn on bank and payable on demand. Most common type of “order paper”
appropriation

3. Postal Money order ORIGINAL PARTIES to BOE

Order for payment of money to the payee drawn by one post office upon another under authority of law. Subject This class of NI is an order paper or three-party paper
to restrictions and regulations inconsistent with the character of negotiable instrument [only one indorsement is *all 3 need not to be different persons. 2 parties to the bill can be same person (drawer-drawee or drawer-payee)
allowed] a. Drawer – issues and draws the order bill. Gives order to pay money to third party. Don’t pay directly.
In establishing and operating PMO system, govt is not engaging in commercial transactions but merely exercises Signs BOE. Maker if in PN
govtal power for public benefit b. Drawee – whom the bill is drawn/addressed. He is ordered and expected to pay. Becomes acceptor
when he indicates willingness to pay the bill (primarily liable and drawee become only a surety -
guarantee). Drawee is the bank in the case of check. Not really party to the bill. Assumes liability only
4. Bill of lading c.
when he accepts usually by writing word “accepted” and signing his name on the face
Payee – reason why bill is originally issued or is payable
There’s conditional promise or order to pay sum in money
*other words aside from “order” to satisfy requirement:
“Let the bearer”
“Drawee will much oblige Drawer to pay Payee or order”
5. Certificate of stock
No unconditional promise or order to pay a sum certain in money ORDER
Proof of ownership for a designated number of shares in a corporation  Not a request, demands drawee to make payment
 NOT AN ORDER:
mere request or authority “I request you to pay” “I wish you would pay” “I hope you will pay” “I authorize you to
6. Warehouse receipt pay”
No unconditional promise or order to pay sum certain in money  DOESN’T CONVERT ORDER INTO REQUEST:
Mere use of polite words like “please”

*BOE characteristics not in PN

TITLE 1  “pay to” – unconditional order to pay (instead of to pay in the case of PN)
NEGOTIABLE INSTRUMENTS in general  “Jovencio Cinco” – drawer
 “Domingo Lantican” – drawee
 “charge the same amount to the account of” – amount to be paid by drawee is to be charged
CHAPTER 1 against funds of drawer. But this can be omitted
FORM & INTERPRETATION
IDEAS & PURPOSE of BOE
a. Drawer’s funds in hands of drawee – drawer has funds in the hands of drawee. Drawer wants the
SECTION 1. Form of n.i money to be paid to payee. That’s why drawer draws BOE to order drawee
To be negotiable, they must be… [formal requirements]
 b. Liability of drawee for nonpayment – if drawee refuse to accept even if he has the money of drawer,
then he becomes liable to drawer (not to payee)
- if drawer has no funds in the hands of drawee, presumption is that
drawer made arrangement to drawee to honor the bill. Thus, drawee
must ask drawer for reimbursement and NOT to a bona fide holder.
For drawee to be liable there must agreement for drawee to honor
order like “debtor-creditor relationship”
SECTION 2.
Certainty of sum payable
Requisite for negotiability to assure clarity and certainty in valuing instrument
PAYMENT OF FIXED AMOUNT OF MONEY
Impt it represents fixed amount to be paid wholly in money since it intends to take place of
money
AMT TO BE PAID – state plainly on face of instr. and determinable from face w/o need to refer
outside source
“SUM CERTAIN” REQUIREMENT IS MET – if holder can determine from instr. amt to be
received at maturity
NOT NEGOTIABLE - if instr call for an act other than payment of money bcos n.i. is intended
as substitute for money
PERMISSIBLE CLAUSES or STIPULATIONS
SUM IS STILL CERTAIN – even if theres clause in instr that it should be paid with interest, by
stated installments, with exchange, with costs of collection or with attorney’s fees, or
acceleration provision in installment note
BASIC TEST – whether holder can determine by computation amount payable when instr is due
he can sell the ring I pledged as security in case of failure to pay
additional is performed after maturity where it’s no longer negotiable in full commercial sense.
Promise is to pay money only until maturity
Doesn’t subject the promise or order to the terms or conditions of the pledge
CONFESSION of JUDGMENT –
…and I hereby authorize my attorney-at-law to appear at any court of record after oblig becomes due
COJ given after action is brought to save expenses is VALID
WAIVER of BENEFIT GRANTED by law –
Even if it’s waiver of protest, presentment for payment or demand
ELECTION of holder to require some other act –
Payment of another thing at the option of the holder. As good as instr payable in money
NON-NEGOTIABLE = if at promissor’s option
SECTION 6.
Effect of omission of DATE
NOT NECESSARY - date in bill/note. Presumed to be dated at time of issuance. BUT necessary if “undated note” – eg payable 30
days after date
Instruments can be: anti-dated (date earlier than actual date) or post-dated
Date stated is not in calendar – deemed as nearest date of the month
Effect of omission of VALUE
NOT NECESSARY – to state value received bcos consideration is presumed
Effect of omission of PLACE
NOT NECESSARY – to specify place where it is made/drawn, or where it is payable
Payment place not specified - “Presentment of payment” should be made [sec 73] ; presumed to be payable at place of residence or
business of maker/drawee

Sum to be paid with INTEREST Effect of omission of SEAL

NOT NECESSARY – seal BUT advisable that bill/note appear in public instrument para included among preferred credits with
INTEREST @ FIXED RATE respect to other property of debtor
INTEREST @ INCREASED or REDUCED RATE
(increased rate if note not paid at maturity and reduced if made on or before)
Effect of designation of particular kind of current money
NOT NECESSARY – to be paid in legal tender, pwede current money or foreign money, pwede pud note (particular kind of
Sum to be paid by STATED INSTALLMENTS money)
“STATED INSTALLMENTS”
Means interest & due date of each instalment must be fixed in the instrument
SECTION 7. When instrument payable on demand
Payable on demand NOT ONLY to immediate parties but also to subsequent ones (due and payable immediately after delivery)
Sum to be paid by stated installments with ACCELERATION CLAUSE Overdue instr or if time not expressed – on demand
acceleration dependent ON MAKER
s.i with acceleration clause – full payment upon default of installment or interest. Wont make instr payable upon ON DEMAND (used in PN)
contingency bcos time of payment will surely come “at sight” (used in BOE) – payable as soon seen by party liable
“on presentation” “on call” “at any time called for”
acceleration at HOLDER’S OPTION
non-negotiable! Payable on demand as regards the MAKER
Date last month but issued now (already overdue)
Sum to be paid with EXCHANGE
Refers/applicable to instr payable in foreign currency Payable on demand as regards the ACCEPTOR
EXCHANGE – the charge for the expense of providing funds at the place where instrument is payable to meet the instrument Due yesterday but accepted today pa
issued at another place. Either at “fixed” or “current” rate
STILL NEGOTIABLE – even if theres provision for payment in foreign currency whether payable at fixed or current exchange
rate. Bcos “current exchange rate” can be easily ascertained, such rate is a matter of “common commercial knowledge” Payable on demand as regards the INDORSER
CURRENT RATE – going rate or market rate Due yesterday but indorsed just now
Don’t apply to domestic bill
RA 8183 – every monetary oblig must be paid in PH currency (legal tender in PH), but parties may agree to settle transaction in any
other currency at time of payment
SECTION 8. When instrument payable to order
“to the order of” “or order” “or bearer” “to bearer” “and assigns” – convey consent that instr can be transferred to whoever payee
orders
Sum to be paid with COSTS OF COLLECTION or an ATTORNEY’S FEE Payable to order if:
STILL NEGOTIABLE – even if there’s added “costs of collection” or an “attorney’s fee” after default on maturity of note
DON’T AFFECT CERTAINTY OF AMOUNT PAYABLE – even if uncertain the increase in amount due takes place after maturity Drawn payable to the order of specified person OR to him OR his order
(when instr ceases to be negotiable in full commercial sense) To order of payee who is not the maker
“…with 15% attorney’s fee and costs of collection if not paid on maturity” = NEGOTIABLE To order of payee who is not the drawer
“…to pay all costs, charge and expenses incl attorney’s fee incurred by payee in any legal To order of payee who is not the drawee
proceedings for the collection of debt” = NON-NEGOTIABLE we cant ascertain exact value of each from the To order of drawer
face To order of maker – not complete until indorsed by maker
ATTORNEY’S FEES – courts can reduce the fee if found “unconscionable” or unreasonable. If AF is not specified, it should be in To order of drawee – if he is both drawee and payee. Drawee can pay himself on maturity from funds belonging to drawer in his
reasonable sum possession
TRASFEREE ACQUIRED INSTR AFTER MATURITY – not a holder in due course, he can hold the instr subject to defenses as if To order of 2 or more payees jointly
it’s NON-NEGOTIABLE To order of one or some of several payees
To order of holder of office for the time being

SECTION 3. When promissory or order to pay UNCONDITIONAL

Note or Bill must be payable absolutely. Not enough there’s promise or order. Should not be subject to any condition/contingency
except implied conditions of presentments, protests and notice of dishonor as law provides
Effect if payee is not named/described
In order instrument – specific person should always be named either before/after the word “order”. If not specified nobody can
give order to collect (nobody can indorse) BUT ok even if not named as long as described with reasonable certainty
Why it should be unconditional?
Bcos if its CONDITIONAL = it’s a simple contract rather than n.i. Remains non-negotiable even if condition really did happen SECTION 9. When instrument payable to bearer
subsequently and ofcourse would be payable at that time. No one would accept conditional paper for debt, bcos unclear when &
how much to receive at maturity
SECTION 10. Criterion of negotiability
Being UNCONDITIONAL = enhances ability of instr to circulate freely from one person to another

Terms not affecting unconditional Liability

Additional terms appearing on instr – don’t affect if duty to pay is unaffected by such terms (statement of purpose for which the
instrument is issued, the collateral securing it, consideration received in exchange of the instrument like goods purchased)
Mere indication from what fund the reimbursement will be taken
Statement of the transaction which gives rise thereto SECTION 28. Want of consideration
 Instrument mentioning which fund to use for reimbursement Absence or Failure of consideration
NEGOTIABLE. cos order to pay is not rendered conditional. Drawee is not limited to the - can be a defense to person NOT holder in due course
money in his hands which belongs to Drawer
Fund indicated is not the direct source of payment BUT source of reimbursement (which is an
act after payment) Absence of consideration
- aka “want of consideration”
 Instrument mentioning usage of particular fund for payment - total lack of any valid consideration for the contract
NON-Negotiable. bcos amount to be paid depends on existence of that fund. Immaterial whether - EFFECT: no contract
fund exists or is to yet to be made. Remains non-negotiable even if fund was found sufficient on SM made a promissory note to Reynan in payment for land that don’t exist
maturity. But nonnegotiability don’t make the note uncollectible = BETWEEN THE PARTIES: no recovery on note bcos absence of consideration
TEST OF NEGOTIABILITY. Whether instrument carries the maker or drawer’s general If Reynan indorses the note to Penshoppe (a holder in due course)
personal credit = Penshoppe can recover from SM bcos “absence of consideration” is ONLY a personal defense not available to
Intention to limit payment to particular fund must be made plain. holder in due course
IF LANGUAGE IS AMBIGUOUS or OBSCURE =courts usually decide in favor of
negotiability Failure of consideration
- when one of the parties refuse or fail to comply with the agreed consideration
 Instrument containing direction to debit a particular account If Reynan really has land but he failed to deliver it to SM bcos he sold it again to Bench who in good faith
NEGOTIABLE. promise/order is not conditional. Payment don’t depend on adequacy or registered the sale
existence of the account to be debited. Payable absolutely and not out of particular fund. Instr is = there’s failure of consideration where Reynan cannot recover from SM
paid first then the acct will be debited
Partial failure of consideration (whether failure is an ascertained & liquidated amount otherwise)
- can be a defense Pro tanto
 Statement of transaction which gives rise to instrument
If only 2/3 portion of land was delivered
NEGOTIABLE. Mere recital of transaction/consideration why instr was issued doesn’t make it
= there’s partial failure of consideration, recovery only pro tanto. Reynan can recover only 2/3 of note and SM not
conditional. The instr is to be paid whether the reason really occur
liable for 1/3
NON-negotiable. if promise/order or oblig to pay is burdened with terms and conditions of
another contract. Nonego regardless of what those terms are SECTION 29. Accommodation Party
SECTION 4. Certainty of time of payment Accommodation bill or note
- One to which accommodation party has put his name, without consideration, for the purpose of accommodating some other party
who is to use it, and is expected to pay it
TO BE NEGOTIABLE – should be payable on demand (at all events) or at fixed or determinable future - it is a loan of one’s credit
NON-negotiable – if payable upon contingency “condition or event uncertain if will happen or not”
Demand (sight) instrument – holder can call for payment anytime Accommodation party
Term (time) instrument – payable only when time to pay arrives or at definite time - one who signed the instrument as maker, drawer, acceptor, or indorser without receiving value therefor and for purpose of lending
Checks – should be payable on demand his name to another party
- usually expects that accommodated party will pay the bill or note when due
Why time should be certain? - he is lending his credit to party whom accommodation is made
Enforcement – so that holder will know when to enforce - he is classified accdg to “accommodated party’s” status (i.e if accommodated party is maker then he is liable as if he is maker)
Required – so that liable person will know when he is required to pay (maker, drawee/acceptor)
Arise – so that secondary parties will know when his oblig will arise (drawer, indorser, accommodation party) Accommodated party
- the person who is the reason why accommodation party signs instrument for lending his credit and enabling him to raise money
Examples: upon it.
“Payable at fixed time” - he impliedly agrees to take up the instrument at maturity and to indemnify accommodation party against consequences of
“Payable at fixed period after date” – date of maturity can be determined by counting ___ days from issuance nonpayment
“Payable at fixed period after sight” – count days from date it is presented to drawee; after instr is seen by drawee upon Reynan needs P30,000 but no one wants to lend him bcos he has no credit
presentment for acceptance or accepted by the drawee He went to rich relative James. James let Reynan borrow his credit. So James signs promissory note payable to P
“Payable on or before a fixed time” – has option to pay on or before; Payee can demand only “on” date not “before”. Maker (receiving no consideration therefor)
only has option to pay “before” Reynan indorses the note to PNB which discounts the note bcos of James’ credit
*you need to state “YEAR OF MATURITY” bcos it will otherwise not be determinable even if time of payment is = here the promissory note = accommodation note (or bill)
certain James is the accommodation party
“Payable on or before a determinable future time” – on or before start of next school semester Reynan is the accommodated party
“Payable on the occurrence of specified event” – upon death of his father
“Payable after occurrence of specified event” – 30 days after death of his father *If Reynan pay PNB
*NON-NEGOTIABLE = if payable days before occurrence of specified event = Reynan cant enforce note against James bcos Reynan gave no consideration to James and he was merely
“Payable upon contingency” – upon reaching age of majority (order is conditional, he may die before reaching that age; accommodated by James
happening of contingency doesn’t cure the defect)
Accommodation Party: LIABILITY TO HOLDER
SECTION 5. Acts in addition to payment of money NOT VALID DEFENSE AGAINST HOLDER FOR VALUE
NON-NEGOTIABLE = GR: if contains promise or order to do any act in addition to payment of money. BASIS. While one could Absence of consideration bet “accommodation party” and “accommodated party” even though he knew it before
be indorsed, the other would have to be assigned he became a holder

EXCEPTIONS: RELATION: Principal debtor and surety

SALE of COLLATERAL SECURITIES – After paying holder he may recover from accommodated party for reimbursement
 The surety for accommodated party is the lending of his name of accommodation party

= the fact that James did not receive any consideration for note would not be a defense in an action brought
against him by PNB even if PNB knew that James’ signature was made for Reynan’s accommodation (the
accommodation would not serve any purpose if James will not be held liable)

If after signing note, James keeps it in safe but Reynan steals it then indorses it to PNB and PNB knows that
Reynan stole the note
= PNB is not a holder in due course bcos it knows the lack of delivery making James NOT liable (sec 16 and 58)

“without receiving value therefor” MEANING

One of the requisites to be considered Accommodation Party
U can still be Accommodation Party even if u receive some consideration for the use of your name
Therefor - refers to instr itself and not to the use of name by way of accommodation
Supreme Court: “only means that no value has been received for the negotiable instr and don’t mean not receiving payment for
lending his name”
If James was given P10,000 as consideration of lending his name but not for promissory note he signs
= James does not lose status as an Accommodation Party

Kinds of Accommodation Party

1. Accommodation maker
James (as accommodation party) issues promissory note payable to Reynan who can then it to
Nadine
2. Accommodation Drawer
James (as accommodation party) signs a BoE with Reynan as payee, and Reynan can indorse to
Nadine
3. Accommodation Acceptor
James (as accommodation party) accepts a bill drawn on him by Reynan in favor of himself and
Reynan may indorse it to Nadine
4. Accommodation Indorser
James (as accommodation party) simply signs as an indorser in blank, the bill or note made by
Reynan in favor of Nadine, before it is delivered to Nadine

Accommodation Party VS. Regular Party

Signs instr without receiving value therefor Signs instr for value
Signs instr for purpose of lending his name
Does not sign for that purpose
to some other person
Cannot disclaim or limit his personal
May always show by parol evidence that he
liability as appearing on instr by parol
is only such
evidence
Cannot avail of defense of absence or failure
May avail said defense against holder not
of consideration against holder not in due
in due course
course
After paying holder may sue for
May not sue any subsequent party for
reimbursement the Accommodated party
reimbursement
although a subsequent party

CHAPTER 3. NEGOTIATION
SECTION 30.
Negotiation
Transfer of negotin from one person to another made in manner as to constitute the transferee the holder thereof
NO NEGOTIATION. If transfer don’t make transferee the holder

Methods of transferring negotin

1. Issue
First delivery of instr (complete in form) to a person who takes it as a holder
First transfer of instr to payee
Negotin’s life start from issuance by maker/drawer to first holder

2. Negotiation
Make transferee of negotin the holder thereof
Ordinarily involves indorsement so that “negotiation” and “indorsement” are used interchangeably

3. Assignment
Transfer of title to an instrument with assignee
Assignee generally taking only such title or rights as his assignor has (subject to all defenses available against his
assignor)
Less usual method. May or may not involve indorsement in the sense of a writing on instr back
Involves transfer of rights under a contract
NOTE: transfer of non-negotiable instr ALWAYS constitute assignment
“transfer” also used to refer to “assignment”
TRANSFEREE BECOMES HOLDER. When negotiation takes place

Methods of negotiation
1. Instrument payable to order
Payable to the payee named therein or
To the indorsee or
Person ordered or authorized by payee to collect (order or authority made thru indorsement followed by delivery
to indorsee)
1st step: indorsement by payee or present holder
2nd step: delivery to next holder

2. Instrument payable to bearer

Negotiated by mere delivery alone w/o indorsement
“bearer”
– person in possession of bill or note payable to bearer
- any person in possession of #2 is always the bearer thereof although he may have NO legal right thereto
- if instr is negotiated to a holder in due course, HIDC may acquire better title than that of transferor

“Delivery”
- transfer of possession (actual or constructive) from one person to another

“Holder”
- payee or indorsee of bill/note (who possess it) or the bearer thereof

If Daniel makes note payable to Reynan or order and Reynan delivers it w/o indorsement to
Kathryn
= NO negotiation. Kathryn by such transfer does not become holder of the note

If instr is a bearer instr

= Reynan can negotiate it without indorsement of any kind simply by handing or mailing the
note to subsequent purchaser

Daniel issues note “payable to bearer.” Note was stolen and Thief delivered note to Reynan
= Thief’s acquisition of note don’t constitute delivery
NO negotiation to Thief. Delivery must be voluntary.
There’s Negotiation to Reynan. If acted in good faith
*Thief or finder don’t acquire title of instr by virtue of theft
= can only transfer title to subsequent innocent purchaser

*if no negligence of Daniel – he should be relieved from liab

NOT NEGOTIATION. Payment of a check (or other bill) by drawee bank. Doesn’t make bank holder
Bank is neither payee nor indorsee. Check is extinguished and cant be put in circulation again so as to bind
drawer/indorser
NOT INDORSEMENT. Writing of name of holder on back of check before surrendering for payment to drawee-bank
Signature serves only as receipt for money.
UPON PAYMENT. Check becomes merely a voucher. Payment effects a discharge of the instrument not a
transfer of title

Delivery of order instr w/o indorsement