Nego Reviewer 2020-2021 | J.
Rigor
NEGOTIABLE INSTRUMENTS
FORM AND INTERPRETATION
**I don’t have notes on the first eight articles
Requisites of Negotiability (Sec.1)
SECTION 1. Form of Negotiable Instruments. — An instrument to be
negotiable must conform to the following requirements:
(a) It must be in writing and signed by the maker or drawer;
(b) Must contain an unconditional promise or order to pay a sum
certain in money;
(c) Must be payable on demand, or at a fixed or determinable future
time;
(d) Must be payable to order or to bearer; and
(e) Where the instrument is addressed to a drawee, he must be
named or otherwise indicated therein with reasonable certainty.
Sum Certain in Money (Sec.2)
SECTION 2. Certainty as to Sum; What Constitutes. — The sum payable
is a sum certain within the meaning of this Act, although it is to be paid
— Act in addition to Payment of Money (Sec. 5)
(a) With interest; or
(b) By stated installments; or
(c) By stated installments, with a provision that upon default in
payment of any installment or of interest the whole shall become
due; or
(d) With exchange, whether at a fixed rate or at the current rate; or
(e) With costs of collection or an attorney's fee, in case payment
shall not be made at maturity.
Unconditional Promise or Order to Pay (Sec. 3)
SECTION 3. When Promise is Unconditional. — An unqualified order or
promise to pay is unconditional within the meaning of this Act, though
coupled with —
(a)An indication of a particular fund out of which reimbursement is
to be made, or a particular account to be debited with the amount;
or
(b)A statement of the transaction which gives rise to the instrument.
But an order or promise to pay out of a particular fund is not
unconditional.
Determinable Future Time (Sec. 4).
SECTION 4. Determinable Future Time; What Constitutes. — An
instrument is payable at a determinable future time, within the meaning
of this Act, which is expressed to be payable —
(a)At a fixed period after date or sight; or
(b)On or before a fixed or determinable future time specified
therein; or
(c)On or at a fixed period after the occurrence of a specified event,
which is certain to happen, though the time of happening be
uncertain.
An instrument payable upon a contingency is not negotiable, and
the happening of the event does not cure the defect.
SECTION 5. Additional Provision Not Affecting Negotiability. — An
instrument which contains an order or promise to do any act in addition
to the payment of money is not negotiable. But the negotiable character
of an instrument otherwise negotiable is not affected by a provision
which —
(a)Authorizes the sale of collateral securities in case the instrument
be not paid at maturity; or
(b)Authorizes a confession of judgment if the instrument be not paid
at maturity; or
(c)Waives the benefit of any law intended for the advantage or
protection of the obligor; or
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(d)Gives the holder an election to require something to be done in
lieu of payment of money.
But nothing in this section shall validate any provision or stipulation
otherwise illegal.
Matters that may be Added or Omitted (Sec. 6)
SECTION 6. Omission; Seal; Particular Money. — The validity and
negotiable character of an instrument are not affected by the fact that
—
(a)It is not dated; or
(b)Does not specify the value given, or that any value has been given
therefor; or
(c)Does not specify the place where it is drawn or the place where it
is payable; or
(d)Bears a seal; or
(e)Designates a particular kind of current money in which payment
is to be made.
But nothing in this section shall alter or repeal any statute requiring in
certain cases the nature of the consideration to be stated in the
instrument.
Payable on Demand (Sec.7)
SECTION 7. When Payable on Demand. — An instrument is payable on
demand —
(a)Where it is expressed to be payable on demand, or at sight, or on
presentation; or
(b)In which no time for payment is expressed.
Where an instrument is issued, accepted, or indorsed when overdue, it
is, as regards the person so issuing, accepting, or indorsing it, payable on
demand.
Payable on Order (Sec. 8)
SECTION 8. When Payable to Order. — The instrument is payable to
order where it is drawn payable to the order of a specified person or to
him or his order. It may be drawn payable to the order of —
(a)A payee who is not maker, drawer, or drawee; or
(b)The drawer or maker; or
(c)The drawee; or
(d)Two or more payees jointly; or
(e)One or some of several payees; or
(f)The holder of an office for the time being.
Where the instrument is payable to order the payee must be named or
otherwise indicated therein with reasonable certainty.
SECTION 9: when an instrument is payable to bearer – The instrument is
payable to bearer –
a. When it is expressed to be so payable; or
b. When it is payable to a person named therein or bearer; or
c. When it is payable to the order of a fictitious or non-existing
person, and such fact was known to the person making it so
payable; or
d. When the name of the payee does not purport to be the name
of any person; or
e. When the only or last indorsement is an indorsement in blank.
 Essential: Remember the (5) instances enumerated in Section 9
when an instrument is payable to bearer, particular paragraph (c)
and (f) thereof.
 Payable to bearer or holder – “Bearer” means the person in
possession of a bill or note which is payable to bearer (Sec.161,
par.4)
o “Holder” means the payee or indorsee of a bill or note,
who is in possession of it, or the bearer thereof (Sec.191,
par 7)
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 An instrument is payable to bearer when it is payable to the order
of a fictitious or non-existing person, and such fact was known to
the person making it so payable (Sec. 9 c)
Who is a fictitious person or non-existing person?
a. A fictitious person need not be a non-existing person, and thus
may even be a living and existing one.
b. An instrument is payable to bearer under paragraph (c) only if
the fictitious or non-existent character of the payee is known or
intended by the party (MAKER, DRAWER, INDORSER) making it
payable to such person.
a. This is so because when an instrument is made
payable to a fictitious or non-existing person, there
will be no one to endorse the instrument. Hence, the
maker or drawer is deemed to have intended it to be
payable to bearer
c. It is the knowledge of the MAKER or DRAWER which
determines whether or not the instrument is payable to a
fictitious or non-existent payee, and therefore, payable to
bearer.
 There is no one to endorse the instrument, thus it should be
understood to be payable to bearer
 An instrument is payable to bearer when the name of the payee
does not purport to be the name of any person [Sec. 9(d)]
o For example, “pay to cash”, which is equivalent to “pay
to bearer”.
 So the word “cash” here is equivalent to the
word “bearer”
 Difference between an order instrument and bearer instrument.
RELEVANT CASES
PNB v Rodriguez
People v Wagas
Sec. 10. Terms, when sufficient – The instrument need not follow the
language of this Act, but any terms are sufficient which clearly indicate
an intention to conform to the requirements thereof.
 A negotiable instrument need not be written in English, and can
be written in any other language. What is important is that the
terms of the instrument must clearly indicate the intention to
conform to the requirements of the NIL.
 Instead of: a) “promise” – “bind myself”; b0 “on demand” – “on
call”; “bearer” – “holder”.
Sec. 11. Date, presumption as to – Where the instrument or an
acceptance or any indorsement thereon is dated, such date is deemed
prima facie to be the true date of the making, drawing, acceptance or
indorsement, as the case may be.
 The date is presumed to be the true date of the making, drawing,
acceptance, or endorsement, as the case may be.
 He who questions the date appearing on the instrument has the
burden of proof to show the correct date.
Sec. 12. Ante-dated and post-dated – The instrument is not invalid for
the reason only that it is ante-dated or post-dated, provided that is not
done for an illegal or fraudulent purpose. The person to whom an
instrument so dated is delivered acquires the title thereto as of the date
of delivery.
 E.G. A check is not rendered invalid by the fact that it is ante-
dated or post-dated, although it must be presented for payment
within a
 reasonable time from the date apprearing in the instrument, or
before it becomes stale. (Sec. 186)
 a check becomes stale in 6 months
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Sec. 13. When date may be inserted. - Where an instrument expressed
to be payable at a fixed period after date is issued undated, or where
the acceptance of an instrument payable at a fixed period after sight is
undated, any holder may insert therein the true date of issue or
acceptance, and the instrument shall be payable accordingly. The
insertion of a wrong date does not avoid the instrument in the hands of
a subsequent holder in due course; but as to him, the date so inserted is
to be regarded as the true date.
Section 13. When date may be inserted
 Two (2) situations contemplated in Section 13:
o a) an instrument expressed to be a payable at a fixed
period after date is issued undated.
Example: A issued a PN which states, “I promise to pay X
or order P10,000.00 thirty dats after date”, but does not
bear a date.
 The holder may insert the TRUE date of issue so
as to fix the date of maturity
o The acceptance of an instrument payable, at a fixed
period after sight is undated
Example: X issued a bill which states, “To Y: Pay to A at
order P10,000.00 sixty days after sight”. The drawee Y,
accepted the bill but did not state the date of
acceptance.
 The holder may insert the true date of
acceptance.
 Effect of insertion of a wrong date – The last sentence of Section
13 states that the insertion of a wrong date does not avoid the
instrument in the hands of a holder in due course; but as to him,
the fate inserted is to be regarded as the true date.
o This means the insertion of the wrong date for some
fraudulent purpose by the holder of the instrument –
who knows the true date – avoids the instrument as to
him.
o However, if the instrument with a wrong date is
negotiated to a holder in due course, the instrument is
not avoided as to the holder in due course and the date
inserted, even if wrong, is regarded as the true date.
o Example: An undated PN states, “I promise to pay A or
order P100,000.00 ninety (90) days after date.”
 The note was issued on Aug 1, 2020 but A
placed June 1, 2020 as to hasten maturity of the
note.
 A then negotiated the noted to B
 If B is a holder in due course, the insertion of the
wrong fate does not avoid it and insofar as he is
concerned, the maturity of the instrument is 90
fays from June 1. The wrong date inserted.
 If B is not a holder in due course, the instrument
is not valid since the insertion of a wrong date or
the antedating thereof was done for a
fraudulent purpose.
Sec. 14. Blanks; when may be filled. - Where the instrument is wanting
in any material particular, the person in possession thereof has a prima
facie authority to complete it by filling up the blanks therein. And a
signature on a blank paper delivered by the person making the signature
in order that the paper may be converted into a negotiable instrument
operates as a prima facie authority to fill it up as such for any amount.
In order, however, that any such instrument when completed may be
enforced against any person who became a party thereto prior to its
completion, it must be filled up strictly in accordance with the authority
given and within a reasonable time. But if any such instrument, after
completion, is negotiated to a holder in due course, it is valid and
effectual for all purposes in his hands, and he may enforce it as if it had
been filled up strictly in accordance with the authority given and within
a reasonable time.
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Section 14, 15, and 16 are to be studied together. In these sections, you
will find the kinds of incomplete instruments under the negotiable
instruments law.
Kinds of Incomplete instruments (Sec. 14-16)
1. Mechanically incomplete but duly delivered instrument (sec. 14)
2. Mechanically incomplete and undelivered instrument (Sec. 15)
3. Mechanically complete but undelivered instrument (Sec. 16)
Acts necessary to complete an instrument.
Two acts are necessary to complete instruments
1. The mechanical act of writing an instrument; and
2. The delivery thereof for the purpose of giving effect thereto.
Section 14 covers a situation where the instrument duly signed by the
maker or drawer is delivered by the latter to a person for the purpose of
converting it into a negotiable instrument, who has the prima facie
authority to fill up the blanks.
 Pursuant to Section 14, of the NIL, the HOLDER of an instrument
containing a blank space has the assumed authority to fill the
blanks.
Sec.14 Blanks, when may be filled
1. The extent of the authority or implied power of the holder to fill in
the blanks of a duly signed instrument extends to every
incomplete feature of the instrument such as the:
o Date;
o Place of payment;
o Amount;
o Name of payee.
2. Section 14 also speaks of an instrument that is only a signature on
a blank piece of paper.
o In order that the person may have prima facie authority
to convert a signature on a black paper into a negotiable
instrument and fill it up for any amount, the following
requisites must be present:
a. The paper bears the signature of the maker or
drawer;
b. it was delivered by the person making the
signature; and
c. it was delivered in order that the paper may be
converted into a negotiable instrument.
Liabilities of parties when a mechanically incomplete instrument has been
delivered and the blank has been filled up.
a. Party prior to the completion of the instrument
Any person who becomes a party prior to its completion shall be
liable to:
i. A person not a holder in due course, provided that the
instrument has been filled up –
a. Strictly in accordance with the authority given,
and
b. Within a reasonable time
ii. A holder in due course as if the instrument had been
filled up strictly in accordance with the authority given
and within a reasonable time. (PERSONAL DEFENSE
ONLY).
b. Party after completion of the instrument
Any person who becomes a party thereto after its completion
shall be liable to any holder in accordance with his warranties,
whether as an acceptor [Sec.62], a party who negotiated the
instrument by delivery [Sec.65], or as a general indorser [Sec.66].
E.G.
X signed a PN with the amount in blank, payable to A or bearer.
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X authorized A to fill in the blank up to P50,000.00
A filled in the blank by writing P75,000.00 and negotiating the note to B.
Q: What are the liabilities of X and A to B? X as the maker of the PN
and A as the payee and indorser.
X is a party prior to the completion of the note
- if B is not a holder in due course, C will not be liable to him, not
even for the authorized amount, because the note was not filled up
strictly in accordance with the authority given.
- if B is a holder in due course, X is liable to him for P75,000.00
because a holder in due course may enforce it as if it had been strictly
filled up in accordance with the authority given and within a reasonable
time.
A became a party to the note after its completion and therefore he is
liable to B as he warrants that the instrument is genuine and in all
respects what it purports to be [Section 65 and 66].
Borromeo v Sun
Pacheco v CA
Sec. 15. Incomplete instrument not delivered. - Where an incomplete
instrument has not been delivered, it will not, if completed and
negotiated without authority, be a valid contract in the hands of any
holder, as against any person whose signature was placed thereon
before delivery.
Section 15. Mechanically incomplete and undelivered instruments
 An INCOMPLETE and UNDELIVERED instrument, if completed and
negotiated without authority is inoperative.
 The term “any holder” as used in Section 15 includes both a
person who is not a holder in due course and a holder in due
course.
 Hence the defense of mechanically incomplete and undelivered
instrument is a REAL DEFENSE which can be raised against any
holder, whether a holder in due course or not.
E.g.
A signed a PN payable to bearer with the amount in blank. He kept it in
his drawer.
B stole it and filled up the blank by writing P100,000.00
B then negotiated the note to C.
Q: if C was not a holder in due course, could he hold A and B liable?
Q: if C was a holder in due course – could he hold A and B liable then?
C cannot hold A liable regardless – since the instrument was incomplete
and undelivered and therefore, it will not, if completed and negotiated
without authority, be a valid contract in the hands of “any holder” as
against any person whose signature was placed thereon before delivery.
C can hold B liable since B warrants that the instrument is genuine in all
respects what it purports to be [Sec. 65 and 66]
Sec. 16. Delivery; when effectual; when presumed. - Every contract on a
negotiable instrument is incomplete and revocable until delivery of the
instrument for the purpose of giving effect thereto. As between
immediate parties and as regards a remote party other than a holder in
due course, the delivery, in order to be effectual, must be made either by
or under the authority of the party making, drawing, accepting, or
indorsing, as the case may be; and, in such case, the delivery may be
shown to have been conditional, or for a special purpose only, and not
for the purpose of transferring the property in the instrument. But
where the instrument is in the hands of a holder in due course, a valid
delivery thereof by all parties prior to him so as to make them liable to
him is conclusively presumed. And where the instrument is no longer in
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the possession of a party whose signature appears thereon, a valid and
intentional delivery by him is presumed until the contrary is proved.
Sec. 16. Mechanically Complete BUT Undelivered Instruments
Take note of the first sentence that states “every contract on a negotiable
instrument is incomplete and revocable until delivery of the instrument for
the purpose of giving effect therto.”
DELIVERY – the actual constructive transfer of the possession of the
instrument by the maker or drawer with the intent to transfer title to the
payee and recognize him as the holder thereof. (Sec. 191)
HOLDER – the payee or indorsee of a bill or not who is in possession of it,
or the bearer thereof.
ISSUE – the first delivery of the instrument, complete in form, to a person
who takes it as a holder.
You need to know who the parties of the instrument are for purposes of
delivery. Who are they?
The Parties to the instrument, for purposes of delivery:
a) Immediate and remote parties – refer to those who are not
merely in proximity but also know or are being held to know the
conditions and limitations placed upon the delivery of the
instrument.
- They transferees with notice that the delivery was
unauthorized, Conditional or for a special purpose, and
not for the purpose of transferring the property in the
instrument.
b) Holders in due course – are those who meet the requirements of
section 52 of the NIL, with no notice or knowledge of the
conditions or limitations of delivery.
- holders in due course are not “immediate paries”.
i. Holders in due course are necessarily in good
faith, taking it with no knowledge of any sort of
infirmity or defect.
Presumption of the law whenever the instrument is no longer in the
position of a party whose signature appears there on.
 In the hands of a Holder in due course, a valid delivery of the
instrument by all parties prior to him so as to make them liable to
him is conclusively presumed;
 While in the hands of a person who is not a holder in due course,
a valid intentional delivery by the party whose signature appears
thereof is presumed until the contrary is proven.
Requisites for an effective delivery of a mechanically complete
instrument:
a. Delivery to a person who is not a holder in due course (that is,
immediately parties and a remote party other than a holder in
due course) – in order to be effectual, must be made either by or
under the authority of the party making, drawing, accepting or
indorsing, as the case may be.
- In such case it may be shown that:
i. There was no delivery; or
ii. Delivery was unauthorized; or
iii. Delivery was conditional; or
iv. Delivery was for a special purpose only, and not
for the purpose of transferring the property in
the instrument.
b. Delivery to a holder in due course - A valid delivery of the
instrument by all parties prior to him so as to make them liable to
him is conclusively presumed.
Cases:
De la Victoria v burgos
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State investment house, inc v CA and Nora Moulic
People v Yabut – The place where the bills were written, signed, or
dated does not necessarily fix or determine the place where they were
executed. What is of decisive importance is the delivery thereof. The
delivery of the instrument is the final act essential to its consummation
as an obligation. An undelivered bill or note is inoperative. Until
delivery, the contract is revocable. And the issuance as well as the
delivery of the check must be to a person who takes it as a holder,
which means '(t)he payee or indorsee of a bill or note, who is in
possession of it, or the bearer thereof.' Delivery of the check signifies
transfer of possession, whether actual or constructive, from one person
to another with intent to transfer title thereto .
People v Gorospe
Development Bank of Rizal v Wei
Lim v CA –
RCBC v Hi-Tri Development Corp. – the mere issuance of a manager’s
check does not ipso facto work as an automatic transfer of funds to the
account of the payee. In case the procurer of the manager’s or cashier’s
check retains custody of the instrument, does not tender it to the
intended payee, or fails to make an effective delivery. Incomplete. No
delivery.
Sec. 17. Construction where instrument is ambiguous. - Where the
language of the instrument is ambiguous or there are omissions therein,
the following rules of construction apply
(a) Where the sum payable is expressed in words and also in figures and
there is a discrepancy between the two, the sum denoted by the words
is the sum payable; but if the words are ambiguous or uncertain,
reference may be had to the figures to fix the amount;
(b) Where the instrument provides for the payment of interest, without
specifying the date from which interest is to run, the interest runs from
the date of the instrument, and if the instrument is undated, from the
issue thereof;
(c) Where the instrument is not dated, it will be considered to be dated
as of the time it was issued;
(d) Where there is a conflict between the written and printed provisions
of the instrument, the written provisions prevail;
(e) Where the instrument is so ambiguous that there is doubt whether it
is a bill or note, the holder may treat it as either at his election;
(f) Where a signature is so placed upon the instrument that it is not clear
in what capacity the person making the same intended to sign, he is to
be deemed an indorser;
(g) Where an instrument containing the word "I promise to pay" is
signed by two or more persons, they are deemed to be jointly and
severally liable thereon.
Section 17 of the NIL is similar to the Rules on Interpretation of Documens
as provided for in the Rules of Court, namely, Sec. 10-19 of Rule 130; and
the equivalent Civil Code provisions, specifically Art. 1370 – 1379 of the
Code.
Sec. 17 (c) Where the instrument is not dated, it will be considered to be
dated as of the time it was issued;
 This was first brought up in Sec 6
 Sec 6(a) as you remember, states that the validity and negotiable
character of an instrument are not affected by the fact that it is
not dated . So that under Sec 17 (c), where the instrument is not
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dated, it will be considered to be dated as of the time it was
issued.
Sec. 17 (e) Where the instrument is so ambiguous that there is doubt
whether it is a bill or note, the holder may treat it as either at his
election;
 This happens when the wordings of the instrument are such that
it is difficult to determine whether it is a promissory note or a bill
of exchange.
 Example given in the book of De Leon: “An instrument which
states I promise to pay A or order 10,000 pesos”. It sounds like a
promissory note, but it is also addressed to a drawee. drawing. So
therefore, there is doubt as to whether it is a promissory note or a
bill of exchange. In that case, the holder may treat it as his
election.
Sec. 17 (f) Where a signature is so placed upon the instrument that it is
not clear in what capacity the person making the same intended to sign,
he is to be deemed an indorser;
 This happens when the location of the signature appearing on an
instrument is ambiguous that is, because of the location of that
signature, it cannot be determined whether the person who
placed that signature intended to be liable as either a maker
drawer or an endorser. In that case because of the location of
that signature, then the person who placed the signature will be
deemed to be an endorser. And as an endorser, you will have
lesser liability than a maker or a drawer.
Sec. 17 (g) Where an instrument containing the word "I promise to pay"
is signed by two or more persons, they are deemed to be jointly and
severally liable thereon.
 you will remember that this means that their liability will be
solidary.
 This provision, read in relation to Art. 1216 of the Civil Code,
means that the payee is entitled to hold any one or two of the
signers of the promissory note liable for the amount of the note.
Sec. 18. Liability of person signing in trade or assumed name. - No
person is liable on the instrument whose signature does not appear
thereon, except as herein otherwise expressly provided. But one who
signs in a trade or assumed name will be liable to the same extent as if
he had signed in his own name.
 The general rule is that only persons whose signatures appear on
an instrument are liable theron.
 However, take note that the person signing an instrument in
agreed or assumed name will be liable to the same extent as if he
had signed it in his own name.
 If you don't want to use your real name and you can sign in, in a
trade or assumed name, so, one can sign in or as “Dolphie” or
“Ramon Revilla Jr.” or whatever. In that case a person signing in a
trade or assumed name will be liable to the same extent as if he
had signed in his own name.
Sec. 19. Signature by agent; authority; how shown. - The signature of
any party may be made by a duly authorized agent. No particular form
of appointment is necessary for this purpose; and the authority of the
agent may be established as in other cases of agency.
Sec. 20. Liability of person signing as agent, and so forth. - Where the
instrument contains or a person adds to his signature words indicating
that he signs for or on behalf of a principal or in a representative
capacity, he is not liable on the instrument if he was duly authorized; but
the mere addition of words describing him as an agent, or as filling a
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representative character, without disclosing his principal, does not
exempt him from personal liability.
 Sections 19 and 20 are complementary and are to be taken
together because they refer to the signature by the agent and the
liability of an agent.
 In general, an agent who signs and instrument for his principal will
not be personally liable for a signature in an instrument.
Sec. 21. Signature by procuration; effect of. - A signature by
"procuration" operates as notice that the agent has but a limited
authority to sign, and the principal is bound only in case the agent in so
signing acted within the actual limits of his authority.
Section 21 essentially restates what was already provided for in sections 19
and 20.

Requisites in order that the agent will not be personally liable for his Sec. 22. Effect of indorsement by infant or corporation.- The
indorsement or assignment of the instrument by a corporation or by an
signature in an instrument.
infant passes the property therein, notwithstanding that from want of
a. The agent is duly authorized by his principal; capacity, the corporation or infant may incur no liability thereon.
b. He adds to his signature words indicating that he signs for or on
behalf of his principal; and
c. He discloses his principal (most important one) Indorsement or assignment by a corporation – Section 22 applies only to
ultra vires acts as defined in Section 44 of The Revised Corporation Code.

PROBLEM:
Agent X signed the following P.N.:
“I promise to pay to the order of A Fifty Thousand pesos (P50,000.00)
(Sgd) X, Agent”
X claims that he is not personally liable on the note and instead, his
principal, Y, s should be made liable. Will X be liable?
Ans: Yes. X will be liable. Here, he didn’t disclose who his principal was.
the undisclosed principal can’t be held liable, even if the agent is
authorized.
 An ultra vires act is one not within the express, implied, and
incidental powers of the corporation.
 An ultra vires act may be ratified expressly by the board of
directors of the corporation, or impliedly by the receipt and
enjoyment of the benefits flowing from the act or contract.
If the corporation itself will not be liable for the ultra vires act, who will be
liable then for it?
 The corporate officer or the directors assenting therto, may be
held personally liable therefor.

CASES: Indorsement or assignment by an infant – the indorsement or assignment

PBCom v Aruego of an instrument by an infant passes the property therein.
Republic Planters Bank v CA  Minority is a type of REAL defense, available to the minor even
against a holder in due course.

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Can a minor enter into a contract? o REASON: A person whose signature was forged was
never a party and never consented to the contract which
 minors can enter into contracts. OBLICON.
allegedly gave rise to the instrument.
 It is a contract that is voidable if there is only one party that is a
 Section 23 does not avoid the instrument but only the forged
minor, but unenforceable if they’re both minors.
signature. (2nd important principle)
 If a minor executes a N.I. and the holder wants to hold several
o The existence of one forged signature in a N.I. will not
parties liable, the other parties cannot use the defense of
render void all the other negotiations of an instrument
minority, only the minor can
with respect to the other parties whose signatures are
 Recall voidable contracts: valid until annulled. it is capable of
genuine.
ratification by guardian or by minor when he reaches age of
 In other words, a forged signature may give rise to a valid right
majority.
after a series of negotiations of the instrument, in favor the
indorsee who acquires his rights from a lawful indorser, whose
Sec. 23. Forged signature; effect of. - When a signature is forged or right is founded on a valid signature, and who did not know of the
made without the authority of the person whose signature it purports to forgery.
be, it is wholly inoperative, and no right to retain the instrument, or to PROBLEM:
give a discharge therefor, or to enforce payment thereof against any A forged the signature of X as maker in a promissory note payable as
party thereto, can be acquired through or under such signature, unless follows:
the party against whom it is sought to enforce such right is precluded “I promise to pay to A or order One Hundred Thousand Pesos
from setting up the forgery or want of authority. (P100,000.00).
(Forged Signature) X”
***“This is one of the more important sections of NIL. I encourage you to
memorize 23 in its entirety. Anyway its a short section. it tells you about A negotiated the instrument to B.
A) May B hold X liable?
the effects of a forged signature does not apply to alterations of the
B) Will it matter if B is a holder in due course or not?
instruments”
Effects of forgery of a SIGNATURE:
 First thing to bear in mind when studying section 23 is that section
a. It is wholly inoperative, and
23 applies only to forgery of a signature. It is different from an
b. No right against any party thereto, can be acquired through or
alteration of the instrument which are covered by sections 124
under such signature –
and 125 of the NIL .
a. To retain the instrument, or
 Whose signature is forged? – the forged signature may be the b. To give discharge therefor, or
signature of the drawer or maker, or that of the payee or c. To enforce payment thereon.
indorser. Exception: When the party against whom it is sough to enforce
 No right may arise from a forged signature and no right may be such right is precluded from setting up forgery or want of
asserted against the person whose signature is forged. (1 st authority as a defense.
important principle)

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Forgery of signature is a REAL defense which could be raised against any deemed prima facie to have been issued for a valuable consideration;
holder, even a holder in due course. and every person whose signature appears thereon to have become a
party thereto for value.

Persons barred from raising defense of forgery: Take Section 24 in connection with Section 6(b), which provides that the
a. The FORGER, validity and negotiable character of an instrument are not affected by the
b. The INDORSERS and persons negotiating the instrument by fact that it does not specify the value given, or that any value has been
DELIVERY, because they warrant that the instrument is genuine given therefor, because consideration is presumed under Section 24.
and in all respects what it purports to be (Sec.65 and 66) Likewise, relate Section 24 to Art. 1354 of the Civil Code:
c. The ACCEPTOR with respect to the signature of the drawer as he
admits the existence of the drawer, the genuineness of his  Art. 1354. Although the cause is not stated in the contract, it is
signature, and his capacity and authority to draw the instrument presumed that it exists and is lawful, unless the debtor proves the
(sec. 62) contrary.”
d. Those who are barred by estoppel or by their own negligence
from raising the defense of forgery.
e. Others who admit the genuineness of the signature expressly or Sec. 25. Value, what constitutes. — Value is any consideration sufficient
impliedly, such as those who failed to deny specifically under oath to support a simple contract. An antecedent or pre-existing debt
constitutes value; and is deemed such whether the instrument is
the genuineness of an actionable document. (Sec 8, ROC)
payable on demand or at a future time.
PROBLEM:
A made a promissory note payable to B or order. B’s indorsement was
What constitutes value?
forged by C, who indorsed the note to D. D indorsed the note to E.
a. May E hold A liable?  The consideration for a bill or note must be a valuable
b. May E hold C and D liable? consideration [Sec. 191, penultimate paragraph]; as distinguished
Cases from a good consideration.
 PNB v Quimpo, et al. o A valuable consideration usually consists of money
 Gempesaw v. CA and PBCom
 Good consideration: natural love and affection, gratitude or other
 Associated Bank v CA
things commonly called good.
 Francisco v CA
 Samsung Construction Company Philippines, Inc. v. Far East o These will not alone suffice to support an undertaking in
Bank and Trust Company and CA. a bill or note.

CONSIDERATION Sec. 26. What constitutes holder for value. - Where value has at any
time been given for the instrument, the holder is deemed a holder for
Sec. 24. Presumption of consideration. - Every negotiable instrument is
value in respect to all parties who become such prior to that time

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X issued a P.N. for P100,000 payable to A or order on October 31, 2020.

What constitutes a holder for value?
In the mean time, A borrowed P20,000 from B and as security for the
 Difference between a HOLDER FOR VALUE and a HOLDER IN DUE loan, A pledged the P.N. of X to B. Is B a holder for value?
COURSE – a holder for value is one who meets all the
requirements of a holder in due course under Section 52 of the Ans: B is a holder for value to the extent of P20,000.00 because that is
the extent of his lien on the P.N. issued by X. To be considered as a
NIL, except for the last requirement thereof.
holder in due course, the holder must have taken the instrument in
 The HOLDER FOR VALUE holds the instrument subject to the same good faith and for value [Sec. 52(c)].
defenses as if it were non-negotiable. Theses are personal
defenses such as fraud or failure of consideration between the B could be a holder in due course only to the extent of P20,000.00
maker and the holder to whom the instrument was delivered. because he is holder for value only to that extent.
E.g. of a failure of consideration – if a check had been issued in payment of
shoes that were not made and delivered, the fact which is lack of Sec. 27. When lien on instrument constitutes holder for value. — Where
consideration is a defense against a holder who is not a holder in due the holder has a lien on the instrument arising either from contract or
course. by implication of law, he is deemed a holder for value to the extent of
his lien.
HOLDER for VALUE HOLDER IN DUE COURSE
a. that it is complete and regular a. that it is complete and regular Sec. 28. Effect of want of consideration. - Absence or failure of
upon its face; upon its face; consideration is a matter of defense as against any person not a holder
in due course; and partial failure of consideration is a defense pro tanto,
b. That he became the holder of it b. That he became the holder of it whether the failure is an ascertained and liquidated amount or
before it was overdue, and before it was overdue, and otherwise.
without notice that it had been without notice that it had been
previously dishonored, if such was previously dishonored, if such was
the fact; the fact; Caltex v CA: Secu

c. That he took it in good faith and c. That he took it in good faith and
Difference between absence of consideration and failure of
for value; for value;
consideration:
d. That at the time it was Absence of Want of Consideration Failure of Consideration
negotiated to him he had no  Involves transactions or  Valuable consideration was
notice of any infirmity in the instances where no contemplated or agreed
instrument or defect in the title consideration was intended. upon, but there was failure to
of the person negotiating it.  No valuable consideration was execute or give the
agreed upon, or it is illegal, consideration contemplated
Example: immoral or fraudulent. by the parties.

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Want of consideration is a personal defense because it is not available
against a holder in due course.
(EXAMPLE. I m tamad later na lang)
Will A be liable to C?
Depends if C is not a holder in due course.
A may raise the defense of partial failure of consideration against C and
A will this be liable for 50k only
Holder in due course . a will be liable for the full amount of 100k to C as
the defense of partial or total failure of consideration cannot be raised.
Sec. 29. Liability of accommodation party. - An accommodation party is
one who has signed the instrument as maker, drawer, acceptor, or
indorser, without receiving value therefor, and for the purpose of
lending his name to some other person. Such a person is liable on the
instrument to a holder for value, notwithstanding such holder, at the
time of taking the instrument, knew him to be only an accommodation
party.
Requisites in order that a party may be considered an accommodation
party:
a. He must have signed the instrument as a maker, drawer, acceptor
or indorser.
b. He signed without receiving value therefor; and
c. He signed for the purpose of lending his name to some other
person.
An accommodation party lends his name to enable an accommodated
party to obtain credit or raise money.
 He receives no part of the consideration for the instrument but he
assumes liability to the other parties thereto because he wants to
accommodate another.
Whether his liability is primary or secondary depends on whether he signs
as a maker, drawer, acceptor or indorser.
 If he signs as a maker or acceptor, he is primarily liable on the
note or bill.
An Accommodation Party is liable to a HOLDER FOR VALUE
notwithstanding that “such holder at the time of taking the instrument
knew him to be only an accommodation party.”
PROBLEM
A wanted to borrow money from Z bank but because of his poor credit
standing, he was asked to get a -co-maker to the note that he had to
issue upon getting the loan.
A thus asked B to sign with him as a co-maker of the note, to which B
agreed. However, the entire proceeds of the loan were released by Z
Bank only to A.
Q: Can B later on claim that he was not liable on the note because he
did not receive any part of the loan?
No he is liable as an accommodation party
Q: Supposing Z Bank never released the proceeds of the loan to A,
would B be liable on the note?
No. kasi no valuable consideration.
Liability of Accomodation Party
ACCOMODATION PARTY ACCOMODATED PARTY
Surety Principal
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Creditor Debtor SECTION 31. Indorsement; How Made. — The indorsement must be
written on the instrument itself or upon a paper attached thereto. The
signature of the indorser, without additional words, is a sufficient
Xxxx indorsement.

 The payee indorses the instrument by writing his name on the

NEGOTIATION
SECTION 30. What Constitutes Negotiation. — An instrument is
negotiated when it is transferred from one person to another in such
manner as to constitute the transferee the holder thereof. If payable to
bearer, it is negotiated by delivery; if payable to order, it is negotiated
by the indorsement of the holder completed by delivery.
“Holder” means the payee or indorsee of a bill or note, who is in
possession of it, or the bearer thereof. [Sec. 191]
instrument with the intent to transfer the title to the instrument.
a. Indorser – the payee who signs the instrument and delivers it
to another person.
b. Indorsee – the person who receives the indorsed instrument.
 The second sentence of Section 31 describes a BLANK
indorsement [Sec. 33]
 An allonge is a paper attached or annexed to the instrument on
which subsequent indorsements may be written, which will have
the same effect as if written on the instrument itself, such paper
being deemed a part thereof.

Difference between ASSIGNMENT and NEGOTIATION of an instrument:

ASSIGNMENT
The Assignee acquires no better
right than the Assignor and
acquires his rights subject to
defenses which the debtor could
have set up against the original
Assignor before the assignment.
NEGOTIATION
The holder of the instrument may
become a holder in due course, if
he has taken the instrument under
the conditions prescribed in Sec.
52 of the NIL, who then holds the
instrument free from prior
defenses available to prior parties.
SECTION 32. Indorsement Must Be of Entire Instrument. — The
indorsement must be an indorsement of the entire instrument. An
indorsement which purports to transfer to the indorsee a part only of
the amount payable, or which purports to transfer the instrument to
two or more indorsees severally, does not operate as a negotiation of
the instrument. But where the instrument has been paid in part, it may
be indorsed as to the residue.

Through the process of negotiation, the instrument could pass to a holder An indorsement may be either special or in blank; and it may also be either
in due course, (Sec. 52) who acquires the instrument free from any defect restrictive or qualified or conditional.
of title of pripr parties, and free from defenses available to prior parties 1. Example of partial indorsements:
(Sec. 57)
a. Indorsement of part of amount payable – a note payable to A or
Caltex case order for P100,000.00 was indorsed by A as follows: “To B for
P50,000.00 only (sgd.) A.”

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b. Indorsement to two or more indorsees severally

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Kinds of indorsment. Special, blank, restrictive, qualified, conditional

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I WAS ABSENT FOR 51 to 59 ☹

RIGHTS OF A HOLDER (SEC 51 – 59)

Sec. 51. Right of holder to sue; payment. - The holder of a negotiable
instrument may to sue thereon in his own name; and payment to him in
due course discharges the instrument.

Sec. 52. What constitutes a holder in due course. - A holder in due

course is a holder who has taken the instrument under the following
conditions:
(a) That it is complete and regular upon its face;
(b) That he became the holder of it before it was overdue, and
without notice that it has been previously dishonored, if such was
the fact;
(c) That he took it in good faith and for value;

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(d) That at the time it was negotiated to him, he had no notice of
any infirmity in the instrument or defect in the title of the person
negotiating it.
Sec. 53. When person not deemed holder in due course. - Where an
instrument payable on demand is negotiated on an unreasonable length
of time after its issue, the holder is not deemed a holder in due course.
Sec. 54. Notice before full amount is paid. - Where the transferee
receives notice of any infirmity in the instrument or defect in the title of
the person negotiating the same before he has paid the full amount
agreed to be paid therefor, he will be deemed a holder in due course
only to the extent of the amount therefore paid by him.
Sec. 55. When title defective. - The title of a person who negotiates an
instrument is defective within the meaning of this Act when he obtained
the instrument, or any signature thereto, by fraud, duress, or force and
fear, or other unlawful means, or for an illegal consideration, or when
he negotiates it in breach of faith, or under such circumstances as
amount to a fraud.
Sec. 56. What constitutes notice of defect. - To constitutes notice of an
infirmity in the instrument or defect in the title of the person
negotiating the same, the person to whom it is negotiated must have
had actual knowledge of the infirmity or defect, or knowledge of such
facts that his action in taking the instrument amounted to bad faith.
Sec. 57. Rights of holder in due course. - A holder in due course holds
the instrument free from any defect of title of prior parties, and free
from defenses available to prior parties among themselves, and may
enforce payment of the instrument for the full amount thereof against
all parties liable thereon.
Sec. 58. When subject to original defense. - In the hands of any holder
other than a holder in due course, a negotiable instrument is subject to
the same defenses as if it were non-negotiable. But a holder who
derives his title through a holder in due course, and who is not himself a
party to any fraud or illegality affecting the instrument, has all the rights
of such former holder in respect of all parties prior to the latter.
Sec. 59. Who is deemed holder in due course. - Every holder is deemed
prima facie to be a holder in due course; but when it is shown that the
title of any person who has negotiated the instrument was defective,
the burden is on the holder to prove that he or some person under
whom he claims acquired the title as holder in due course. But the last-
mentioned rule does not apply in favor of a party who became bound
on the instrument prior to the acquisition of such defective title.
LIABILITIES OF PARTIES (Sec. 60 – 69)
Sec. 60. Liability of maker. - The maker of a negotiable instrument, by
making it, engages that he will pay it according to its tenor, and admits
the existence of the payee and his then capacity to indorse.
LIABILITY of the MAKER – the maker of a negotiable instrument by making
it engages that he will pay it according to its tenor.
 The maker is primarilt and unconditionally liable as his liability is
not conditioned on the presentment of the instrument to any
other party for payment or otherwise
ADMISSIONS of the MAKER – the maker admits (1) the existence of the
payee and (2) his capacity to indorse.
PROBLEM:
 A made a note payable to the order of B
 B indorsed the note to C
 May A latter on refuse to pay C on the ground that B did not
have capacity to indorse the instrument?
ANSWER: the two admissions of the maker. The maker cannot question
the capacity of the payee. By making the p.n., he acknowledges the
existence of the payee and his capacity to indorse.
U also know liability of drawer. How would you distinguish the two?
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Hence, the DRAWER has the same admissions as the MAKER.

Sec. 61. Liability of drawer. - The drawer by drawing the instrument
admits the existence of the payee and his then capacity to indorse; and
engages that, on due presentment, the instrument will be accepted or
paid, or both, according to its tenor, and that if it be dishonored and the
necessary proceedings on dishonor be duly taken, he will pay the
amount thereof to the holder or to any subsequent indorser who may
be compelled to pay it. But the drawer may insert in the instrument an
express stipulation negativing or limiting his own liability to the holder.
The Drawer may restrict his liability on the bill – the drawer “may insert in
the instrument an express stipulation negativing or limiting his own liability
to the holder”
 Therefore, the drawer’s liability may be qualified by express
terms.
 He may thus state in the bill that he will not be liable in case the
instrument is dishonored by the drawee or acceptor.

Differences between the liabilities of the MAKER and the DRAWER:

Sec. 62. Liability of acceptor. - The acceptor, by accepting the
MAKER DRAWER instrument, engages that he will pay it according to the tenor of his
Maker is primarily and Drawer is only Secondarily liable acceptance and admits:
unconditionally liable on the note. on the bill. (a) The existence of the drawer, the genuineness of his signature, and
Presentment for payment is not Presentment for payment is his capacity and authority to draw the instrument; and
necessary to hold the maker liable. necessary to hold the drawer (b) The existence of the payee and his then capacity to indorse.
liable (Sec. 70)
Notice of dishonor need not be Notice of dishonor must be given
Who is an ACCEPTOR – an acceptor is a drawee who has assented to the
given to the maker as he is the ti the drawer to hold him liable
one who dishonored the (Sec. 89) order of the drawer (Sec. 132)
instrument LIABILITY of an ACCEPTOR- “The acceptor by accepting the instrument
The maker cannot negative or The drawer may insert in the engages that he will pay it according to the tenor of his acceptance”.
limit his liability on the note. instrument an express stipulation
negativing or limiting his own The acceptor, by his acceptance becomes the primary obligor of the bill, or
liability to the holder (Sec.61) a person primarily liable on the bill.
PROBLEM
LIABILITY of the DRAWER – the drawer is only secondarily and conditionally  X drew a bill addressed to Y for P100,000, payable to the order
liable on the instrument, as he only becomes liable for the payment of the of A.
bill:  A presented the bill to Y for acceptance.
 Y wrote on the bill, “Accepted for P60,000.00”
a. Upon its non-payment or non-acceptance by the acceptor or How much is the liability of the acceptor?
drawee; and
b. After notice of dishonor is given to him.
ADMISSIONS of the ACCEPTOR – the acceptor admits (1) the existence of
ADMISSIONS of the DRAWER – the drawer admits (1) the existence of the the DRAWER, the genuineness of his signature, and his capacity and
payee and (2) his capacity to indorse.

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authority to draw the instrument; and (2) the existence of the PAYEE and
his then capacity to indorse.
 Hence, the acceptor can not say, or is estopped from interposing
the defense, that the drawer is fictitious; or that the drawer’s
signature is forged; or that the drawee or payee is a minor.
Can the acceptor allege that the signature of the payee or any subsequent
indorser are forged?
 Yes, because the acceptor does not admit the genuineness of the
signatures of the payee nor of any subsequent indorser.
 Hence, the acceptor does not guarantee the indorsements on the
bill.
Relevant Case: Far East Bank & Trust Company v, Gold Palace Jewellry
Co.
Sec. 63. When a person deemed indorser. - A person placing his
signature upon an instrument otherwise than as maker, drawer, or
acceptor, is deemed to be indorser unless he clearly indicates by
appropriate words his intention to be bound in some other capacity.
When is a person deemed an indorser?
1. Where a signature is so placed upon the instrument that it is not
clear in what capacity the person making the same intended to
sign, he is deemed to be an INDORSER (Sec. 17(f))
2. When a person who signed the instrument has clearly indicated
by appropriate words his intention to be bound in some other
capacity, he shall not be deemed an indorser even if he did not
sign as maker, drawer, or acceptor
Examples:
1. A person who signed at the back of the instrument and wrote
“I hereby guarantee patment of this note” shall not be
considered an indorses but as a guarantor.
2. A person who signs for the purpose of identifying a person
only and not for the purpose of incurring any liability for the
payment of a bill or note and clearly indicates that it is for the
purpose of identification only, is not an indorser.
3. A person who only guarantees prior indorsments does not
become an indorser.
Sec. 64. Liability of irregular indorser. - Where a person, not otherwise a
party to an instrument, places thereon his signature in blank before
delivery, he is liable as indorser, in accordance with the following rules:
(a) If the instrument is payable to the order of a third person, he is
liable to the payee and to all subsequent parties.
(b) If the instrument is payable to the order of the maker or drawer,
or is payable to bearer, he is liable to all parties subsequent to the
maker or drawer.
(c) If he signs for the accommodation of the payee, he is liable to all
parties subsequent to the payee.
IRREGULAR INDORSER – An “irregular indorser” or “anomalous indorser” is
one who indorses for some purpose other than to transfer the instrument.
He is called an irregular indorser because he indorses the instrument in an
unusual or peculiar manner – his name appears where another name
would be expected.
What is the purpose of an irregular indorsement??
Examples:
1. When a person other than the4 payee writes his name at the
back of the instrument.
2. An indorsement in blank by a third person above the name of
payee.
3. When the payee does not indorse at all.
Sec. 65. Warranty where negotiation by delivery and so forth. — Every
person negotiating an instrument by delivery or by a qualified
indorsement warrants:
(a) That the instrument is genuine and in all respects what it
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purports to be;
(b) That he has a good title to it;
(c) That all prior parties had capacity to contract;
(d) That he has no knowledge of any fact which would impair the
validity of the instrument or render it valueless.
But when the negotiation is by delivery only, the warranty extends in
favor of no holder other than the immediate transferee.
The provisions of subdivision (c) of this section do not apply to a person
negotiating public or corporation securities other than bills and notes.
“(a) that the instrument is genuine and in all respects what it purports to
be”
a. A person negotiating an instrument by delivery or by qualified
indorsment warrants the genuineness of the note or bill
negotiated, and that it is in all respects what it purports to be.
b. The warranty of genuineness extends to all prior signatures, and if
such signatures are forgeries, the party negotiating the
instrument is liable under his warranty.
Problem:
 A forged the signature of X as maker in a note payable to A or
order.
 A negotiated it to B by indorsement in blank completed by
delivery.
 B in turn delivered the instrument to C.
 X refused to pay C on the grounf that his signature was forged.
Can C hold B liable?
Answer: C can hold B liable. When b negotiated the instrument, it came
w the Warranty that the instrument is genuine and in all respects what
it purports to be.
“(b) That he has a good title to it;”
a. This warranty is violated when the person negotiating the
instrument does not have valid title to the instrument, for
example, when the instrument was merely stolen.
“(c) That all prior parties had capacity to contract;”
a. The person negotiating the instrument by delivery or by qualified
indorsement warrants that the antecedent parties are legally
capable of binding themselves in the capacities on which they
have signed.
b. This the person negotiating by delivery or by qualified
indorsement is liable if it turns out that a prior party is a
corporation which has no power to execute a note or to indorse
it, or that a prior party is a minor, because of his warranty that all
prior parties had capacity to contact.
c. However, in the absence of misrepresentation or fraud, a person
negotiating by delivery or qualified indorsement does not warrant
the solvency of the parties.
“(d) That he has no knowledge of any fact which would impair the
validity of the instrument or render it valueless.”
a. The person negotiating an instrument by delivery ot by qualified
indorsement violates this fourth warranty if he has knowledge of
any fact which would impair the validity of the instrument or
renders it valueless, and fraudulently conceals or withholds the
same from the transferee.
Difference between the warranties of a person negotiating by delivery
and those of a person indorsing the instrument without recourse
(Qualified Indorsment):
 A person negotiating by delivery and by a qualified indorsment
have the same warranties.
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 However, as expressly stated in Sec.65, when the negotiation is by 2. A indorsed the instrument without recourse to B. B also knew
delivery only, the warranties extend in favor of no holder other of the insolvency of X.
than the immediate transferee. 3. B merely delivered the instrument to C, without indorsement.
 Whereas the negotiation is by qualified indorsement, the C did not know of the insolvency of X.
4. C delivered the instrument to D.
warranties of the person negotiating apply to all subsequent
5. When D could not obtain payment from X, D gave notice of
holders.
dishonor to A, B, and C.
Warranties of a person negotiating Warranties of a person negotiating
an instrument by delivery an instrument by qualified Can D hold A, B, and C liable?
indorsement Answer:
Extend only to the immediate Apply to all subsequent holders.  A is liable to D
transferee  B is not liable to D
 C is not liable to D.

PROBLEM
1. X made a note payable to A or bearer. Sec. 66. Liability of general indorser. - Every indorser who indorses
2. A delivered the note to B. without qualification, warrants to all subsequent holders in due course:
3. Instead of merely delivering the instrument, B indorsed it “to C (a) The matters and things mentioned in subdivisions (a), (b), and (c) of
or order”. the next preceding section; and
4. C indorsed it “To D” (b) That the instrument is, at the time of his indorsement, valid and
5. D delivered it without indorsement to E subsisting;

What are the liabilities of A, B, C, and D? And, in addition, he engages that, on due presentment, it shall be
Answer: accepted or paid, or both, as the case may be, according to its tenor,
 A will be liable only to B and that if it be dishonored and the necessary proceedings on dishonor
 B shall be liable only to C and D be duly taken, he will pay the amount thereof to the holder, or to any
 C is also liable only to D subsequent indorser who may be compelled to pay it.
 D is liable to E
 E cannot hold A liable GENERAL INDORSER – A general indorser is one who indorses without
qualification, or every indorser other than the qualified indorser.
Answer: ????????? B will be liable to C and D but since this is a bearer
instrument, B will not be liable to E under sec 40 because E didn’t get his WARRANTIES of a general indorser – Every indorser who indorses without
title from Bs indorsement. qualification, warrants to all subsequent holders in due course:
a. That the instrument is genuine and in all respects what it purports
to be;
PROBLEM b. That he has a good title to it;
1. X, an insolvent person, made a note payable to A or bearer. c. That all prior parties had capacity to contract;

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d. That the instrument is, at the time of his indorsement, valid and
subsisting.
And in addition, he engages that, on due presentment, it shall be
accepted or paid, or both, as the case may be, according to its
tenor, and that if it be dishonored and the necessary proceedings
on dishonor be duly taken, he will pay the amount thereof to the
holder or to any subsequent indorser who may be compelled to
pay it.
The implied warranties under Sections 65 and 66 are founded on good
faith and will not apply when the transferee or the party relying on such
warranties has knowledge of defects in the instrument, and thus not in
good faith. Stated another way, the transferee’s knowledge of defects in
the instrument negates the application of the warranties as to such
defects.
“Every indorser who indorses without qualification, warrants to all
subsequent holders in due course” – the subsequent holder need not
fulfill at the requisites of a holder in due course, and hence the warranties
of a general indorser extends as well to all subsequent holders who have
no knowledge of any breach of warranty at the time the instrument is
indorsed to him.
Differences between the fourth warranties of a person negotiating by
delivery and of a person negotiating by qualified indorsement.
Sec 65 (d) - That he has no Sec 66(b) – That the instrument is,
knowledge of any fact which at the time of his indorsement,
would impair the validity of the valid and subsisting
instrument or render it valueless.
A person negotiating an On the other hand, knowledge on
instrument by delivery violates his the part of the general undorser of
fourth warranty if he has a fact affecting the validity of
knowledge of such fact and instrument is immaterial.
withholds it from the transferee.
CASE: Allied Banking Corporation v, Lim Sio Wan, et. Al
Sec. 67. Liability of indorser where paper negotiable by delivery. —
Where a person places his indorsement on an instrument negotiable by
delivery, he incurs all the liability of an indorser.
When an instrument that was originally payable to bearer instead of being
negotiated by mere delivery, is indorsed specially, the liability of the
person is that of an indorser and not as a person negotiating by mere
delivery.
a. If the person indorses specially, he is liable only to holders who
make title through his indorsement (sec. 40)
b. If the person indorses without qualification, he incurs the liability
of general indorser.
Sec. 68. Order in which indorsers are liable. - As respect one another,
indorsers are liable prima facie in the order in which they indorse; but
evidence is admissible to show that, as between or among themselves,
they have agreed otherwise. Joint payees or joint indorsees who
indorse are deemed to indorse jointly and severally.
Order in which indorsers are liable
The first phrase of sec. 68 means that each indorser is liable to all
suceeding indorsers, but not to preceding ones.
 However, the order of indorsement establishes only a prima facie
order of liability among indorsers, and evidence is admissible to
show that as between or among themselves, they have agreed
otherwise.
Order of liability of the indorsers insofar as the HOLDER is concerned.
 As far as the holder is concerned, once the instrument is
dishonored and notice of dishonor is given, the indorsers are
liable in aby order that the holder may choose.
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 The holder may even prefer to collect from any of the indorsers
instead of collecting from the maker or acceptro.
 The reason is that “when the instrument is dishonored by
nonpayment, an immediate right of recourse to all parties
secondarily liable thereon accrues to the holder.” (Sec. 84)
 The same princuple applies when the instrument is dishonored by
non acceptance, that is “an immediate right of recourse against
the drawe and indorsers accrues to the holder and no
presentment and no presentment for payment is necessary.” (sec.
151)
Examples: X made a note payable to A or or der. A indorsed it to B, B to
C and C to D. D presented the note to X for payment but it was
dishonored.

Against whom may D proceed?

 D may proceed against A, B, or C in any order he may choose.
 He may do so even without including X in the action as an
immediate tight of recourse pertains to the holder against
persons secondarily liable whenever the instrument is
dishonored (Sec. 84; Sec. 151)

In case B pays D, from whom can B collect the amount paid.

 In case B paid D the amount of the note, B can collect from A,
but he cannot proceed against C because as respects one
another, inorsers are liable in the order which they indorse.
 It means that an indorser may hold a prior indorser liable but
not an indorser subsequent to him.

Sec. 69. Liability of an agent or broker. - Where a broker or other agent

negotiates an instrument without indorsement, he incurs all the
liabilities prescribed by Section Sixty-five of this Act, unless he discloses
the name of his principal and the fact that he is acting only as agent.

Relate this to Section 20 regarding the liability of a person signing as an

agent.

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(Next provisions no slides)

NOTICE OF DISHONOR
Sec. 89. To whom notice of dishonor must be given. - Except as herein
otherwise provided, when a negotiable instrument has been dishonored
by non-acceptance or non-payment, notice of dishonor must be given to
the drawer and to each indorser, and any drawer or indorser to whom
such notice is not given is discharged.

NOTICE OF DISHONOR
a. Bringing to the knowledge of the DRAWER or INDORSER of the
instrument, either verbally or in writing, the fact that a specified
instrument, upon proceedings taken, has not been accepted or
has not been paid, and that the party notified of the dishonor or
non-acceptance, is expected to pay it.

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b. Under BP 22, the notice of dishonor must be in writing. Verbal
notice is not effective.
Notice of dishonor is not necessary to hold parties primarily liable, such as
the maker of a note or the acceptor of a bill.
 This is because presentment is required to be made to the person
primarily liable on the instrument (sec. 72) and thus such person
is the one who dishonored the instrument.
 Having dishonored the instrument, the person primarily liable
need not be given notice of dishonor.
The notice of dishonor may be given by:
Purpose of notice of dishonor – the purpose of the notice of dishonor is:
a. To inform the party notified that the paper has been dishonored
and that he is expected to make payment;
b. To enable the party notified to protect his rights against others
who are prior to him on the instrument; and
c. To give the party notified an opportunity to discharge it before an
action is instituted to enforce payment of the instrument, with
consequent cost.
Effect of failure to give notice of dishonor
 The failure to give notice of dishonor operates to discharge any
drawer or indorser to whom such notice was not given.
 If the holder gives notice to only one(1) indorser, the others will
be discharged from liability.
A stable check may still be evidence of indebtedness of the drawer
 The fact that a check has become stale does not mean that the
drawer is discharged form liability thereon; it merely means that
the negotiability ceases.
 The stale check remains an evidence of indebtedness and if such
debt has not been paid, the debtor may still be liable for payment
of such debt.
Sec. 90. By whom given. - The notice may be given by or on behalf of the
holder, or by or on behalf of any party to the instrument who might be
compelled to pay it to the holder, and who, upon taking it up, would
have a right to reimbursement from the party to whom the notice is
given.
1. The holder;
2. Someone acting on behalf of the holder;
3. Any party to the instrument:
a. Who might be compelled to pay it to the holder, and
b. Who upon taking it up, would have the right to
reimburse from the party to whom notice is given;
4. Someone acting on behalf of such party.
PROBLEM:
 X issued a promissory note “payable to A or order”
 A indorsed the note to B.
 B indorsed the note to C.
 C indorsed the note to D, the Holder.
 D presented the note to C for payment who dishonors the
note.
Who may give notice of dishonor?
D, the holder or anyone acting on his behalf may give notice of dishonor
to any one of the indorsers
If D gave notice to dishonor B, who else can give notice of dishonor?
B may give notice of dishonor to A. B cannot give notice of dishonor to
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C. C is not entitled to give notice of dishonor.
Sec. 91. Notice given by agent. - Notice of dishonor may be given by any
agent either in his own name or in the name of any party entitled to
given notice, whether that party be his principal or not.
Sec. 92. Effect of notice on behalf of holder. - Where notice is given by
or on behalf of the holder, it inures to the benefit of all subsequent
holders and all prior parties who have a right of recourse against the
party to whom it is given.
PROBLEM:
 A issued a promissory note “payable to B or order”
 B indorsed the note to C
 C indorsed the note to D
 D indorsed the note to E, the holder
 E presented the note to A for payment, who dishonors the note
 E gave notice of dishonor to B,C, and D.
 E indorsed the note to F.
May F hold B, C, and D liable even if F himself fif not give notice of
dishonor?
Suppose C paid F, will the notice of dishonor given by E to B and D
inure to the benefit of C?
a. The notice of honor given by the holder € inures to the benefit
of prior parties who have a right of recourse against the party
to whom notice is given.
b. Hence, notice given by E to B inures to the benefit of C.
c. But the notice given to D does not inure to the benefit of C.
Sec. 93. Effect where notice is given by party entitled thereto. - Where
notice is given by or on behalf of a party entitled to give notice, it inures
to the benefit of the holder and all parties subsequent to the party to
whom notice is given.
PROBLEM:
 A issued a promissory note “payable to B or order”
 B indorsed the note to C.
 C indorsed the note to D.
 D indorsed the note to E, the holder.
 E gave notice of dishonor to C only.
 C in turn, gave notice of dishonor to B.
May holder E hold B liable?
Yes because the notice of dishonor given by C to B inures to the benefit
of the holder.
Suppose D waived notice of dishonor and voluntarily pays E, may D
hold B liable?
Yes/ D may hold B liable... Because the notice C gives to B inures to
benefit of all the parties subsequent to whom notice was given
Sec. 94. When agent may give notice. - Where the instrument has been
dishonored in the hands of an agent, he may either himself give notice
to the parties liable thereon, or he may give notice to his principal. If he
gives notice to his principal, he must do so within the same time as if he
were the holder, and the principal, upon the receipt of such notice, has
himself the same time for giving notice as if the agent had been an
independent holder.
Sec. 95. When notice sufficient. - A written notice need not be signed
and an insufficient written notice may be supplemented and validated
by verbal communication. A misdescription of the instrument does not
vitiate the notice unless the party to whom the notice is given is in fact
misled thereby.
Sec. 96. Form of notice. - The notice may be in writing or merely oral
and may be given in any terms which sufficiently identify the
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instrument, and indicate that it has been dishonored by non-acceptance effective whether the Agent was
or non-payment. It may in all cases be given by delivering it personally authorized to give notice or not, or
or through the mails. whether that party be his principal
or not (sec. 91)
The Notice of Dishonor may either be written or merely oral. But in either
case should sufficiently identify the instrument and indicate that it has Sec. 98. Notice where party is dead. - When any party is dead and his
been dishonored by non-acceptance or non-payment. death is known to the party giving notice, the notice must be given to a
personal representative, if there be one, and if with reasonable
Written notice of dishonor Oral notice of dishonor diligence, he can be found. If there be no personal representative,
May be delivered personally or May be made by telephone or by notice may be sent to the last residence or last place of business of the
through registered mail, so that verbally informing the person deceased.
there will be evidence of receipt entitled to be given NOD of the
thereof. dishonor of the instrument. Sec. 99. Notice to partners. - Where the parties to be notified are
partners, notice to any one partner is notice to the firm, even though
there has been a dissolution.
For the purposes of Batasang Pambansa Bilang 22, the notice of dishonor
of the CHECK must always be in writing, and an oral notice is insufficient.
Sec. 100. Notice to persons jointly liable. - Notice to joint persons who
 The written notice of dishonor should clearly identify the chech
are not partners must be given to each of them unless one of them has
number, date, and amount, and should indicate the reason for authority to receive such notice for the others.
dishonor. It should be sent to and received by the drawer of the
dishonored check. Otherwise, the drawer may not be held
criminally liable therefor.  Pursuant to Section 78, presentment must be given to all persons,
not partners, primarily liable on the instrument, where no place of
Sec. 97. To whom notice may be given. - Notice of dishonor may be payment is specified, whether or not they signed the instrument
given either to the party himself or to his agent in that behalf.
jointly, or jointly and severally.
 Pursuant to Section 100, the notice of dishonor may be sent to all
If the notice of dishonor is given to an AGENT, it must be shown that it was of the persons jointly liable, unless one of them has authority to
within the scope of the Agent’s authority to receive notice of dishonor. revive the notice for the others.
 Hence, if only one of such joint parties is notified, all of them are
discharged.
Difference between the authority of the Agent to give notice of dishonor
and his authority to receive notice of dishonor. Sec. 101. Notice to bankrupt. - Where a party has been adjudged a
bankrupt or an insolvent, or has made an assignment for the benefit of
Giving notice of dishonor Receiving notice of dishonor creditors, notice may be given either to the party himself or to his
When notice of dishonor is given Creates liability on the part of the trustee or assignee.
by an Agent, such notice is Principal.

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Sec. 102. Time within which notice must be given. - Notice may be given
as soon as the instrument is dishonored and, unless delay is excused as
hereinafter provided, must be given within the time fixed by this Act.

Notice given before the instrument becomes due is premature.

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DISCHARGE OF NEGOTIABLE INSTRUMENTS

119 gives instances when NI is discharged.
 First by payment in due course by principal debtor.
o Payment in general. Essentially, payment is discharge of a
debt in MONEY.
o Delivery of a NI or a check will not operate as payment,
nor will it discharge the obligation.
 Payment is made in accommodation
 By intentional cancellation by the holder
o What do we mean by to cancel? To annul, destroy, set
aside, void the instrument.
Discharge can only be made by the holder or his authorized representative.
This also implies that the holder intends such cancellation.
Any other act that will discharge…. … … art. 1231 NCC
When principal debtor becomes holder of the instrument in his own right

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Remember what tender of payment is under oblicon. It is the
manifestation by the d to the c of this desire to fulfill the obligation. It also
means to offer to pay in lawful currency.
Again. Check not valid unless C accepts it.
Remember tender of payment under the NIL (SEC 70)
When the instrument in 121 is paid by the party accommodated, said party
becomes the principal debtor. The effect is that it amounts to a discharge
of the instrument.
122. renunciation. Requisites: must be express. Must be absolute and
unconditional. Must be made at or after maturity of the instrument. Must
be in writing. Unless instrument is delivered to person primarily liablie
123. cancellation made unintentionally. Without authority of the holder.
Not discharge.
124 Altered instrument. Alterations are either material or immaterial.
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