I - FORM AND INTERPRETATION

APPLICABILITY OF NIL

- Act applies only to negotiable instruments and those meet requirements in Section1.

- Any case not provided in this Act, govern by existing legislation or in default – rules of law merchant.

3 FUNCTIONS & IMPORTANCE OF NI

1. Used as a substitute for money

*NI differs from money; NI is valuable/worthless depending on financial ability of parties to them

2. Media of exchange

3. Media of credit transaction

PURPOSE OF NEGOTIABILITY

- Allow men of UNDOUBTED credit to carry on business enterprise with the use of instruments knowing
that other businessmen will treat this promises as CASH.

Check – for immediate payment

BofE & PN – for circulation of credits

2 CHARACTERISTICS/FEATURES OF NI

1. Negotiability – quality/attribute where NI give the HDC the right to hold NI & collect sum payable for
himself FREE from defences

*A bona fide holder, FREE from PERSONAL DEFENSES, but may be subject to REAL DEFENSES.

2. Accumulation of Secondary Contracts (as they are transferred from one person to another)

10 COMMON FORMS OF NI (bbbb dd cpt)

1. BofE

2. Bank check
3. Bank notes

4. Banker’s acceptance

5. Bonds

6. Drafts

7. Due bills

8. Check

9. Promissory Notes

10. Trade acceptance

6 INSTRUMENTS W/ LIMITED NEGOTIABILITY

1. LETTER OF CREDIT

- letter from merchant/bank/banker in one place, addressed to another (place/country) requesting the
addressee to pay money/deliver goods to 3rd party

- letter requesting one person to make advances to 3rd person on the credit of writer

2. TREASURY WARRANT

- gov’t warrant for payment of money covering payment/replenishment of cash advances for official
expenditures

3. POSTAL MONEY ORDER

4. BILL OF LADING

- NO unconditional promise/order to pay a sum certain in money

5. CERTIFICATE OF STOCK

- written instrument signed by proper officer of corporation stating name of person (owner of designated
# of shares of its stock)

- NO unconditional promise/order to pay a sum certain in money

6. WAREHOUSE RECEIPT

- NO unconditional promise/order to pay a sum certain in money

Section 1 Memorize

NI – contractual obligation to pay money

To determine the negotiability of an instrument, consider the ff:

1. whole of the instrument

2. only what appears on FACE of the instrument

3. provisions of NIL esp. Section1

MAKER – person issuing PN

DRAWER – person issuing BofE

UNCONDITIONAL PROMISE – PN

UNCONDITIONAL ORDER – BofE

*Where the meaning is doubtful, the courts adopted the policy of resolving IN FAVOR OF
NEGOTIABILITY of the instrument.

*There is NO ORAL NI.

*The signature (of maker/drawer) is a prima facie evidence of his intention to be bound.

*If the signature placed in instrument, UNCLEAR what capacity person intended to sigh, he is deemed
INDORSER not maker/drawer.

*NI CEASES to be negotiable if the INDORSEMENT prohibits FURTHER negotiation of instrument.

Eg. Pay to Pedro Cruz.

*PLACE & DATE NOT ESSENTIAL to negotiability of instrument EXCEPT in cases, date IS necessary
to know the due/interest.

*Instead of “promise to pay”, other acceptable terms can be used:

- I agree to pay

- I will pay

- I bind myself to pay

- good to A or order

- due to A or order

- I acknowledge to be indebted

*MERE acknowledgment of debt w/o the word ORDER or BEARER (words of negotiability) DOES
NOT satisfy negotiability.

*The word TO THE ORDER OF and OR ORDER is a promise to pay as ordered/commanded by PAYEE
but may be payable to BEARER.

*When NO TIME of payment is expressed, an instrument is payable ON DEMAND.

*A note may be signed by SEVERAL persons either JOINTLY or JOINTLY AND SEVERALLY.
PN – maker, payee

BofE – drawer, drawee, payee (parties need NOT ALL be distinct persons. Thus, drawer may draw on
himself payable to his own order.)

                                                                December 29, 2013

                                                                                        Manila

P1000

                Thirty days after date, pay to (unconditional order to pay) to A or order the sum of One
Thousand (P1000) Pesos. Value received and charge the same account of

                                                                                (Sgd.) B

To C

College, Sampaloc

Manila

LEGEND:

B – drawer

C- drawee; not really a party to the bill, assumes liability ONLY when he accepts the bill usually by
writing the word ACCEPTED and signs his name on the face where he becomes ACCEPTOR and NOT
A DRAWEE. By being this (acceptor), he becomes primarily liable like the MAKER of a
note; DRAWER is ONLY A SURETY then.

*The words (in BofE) CHARGE THE SAME TO THE ACCOUNT OF means amount to be paid by
DRAWEE is to be charged against the funds of DRAWER. But this may be omitted.

2 IDEA & PURPOSE OF BofE

1. DRAWER’s funds in hands of DRAWEE

2. Liability of DRAWEE for non-payment

- If DRAWEE refuses to accept when he has funds for purpose, he is LIABLE TO DRAWER (not to
PAYEE) for resulting damages & harm done to his (DRAWER) credit.
-If DRAWER no funds in DRAWEE, presumed that DRAWER made arrangements with DRAWEE so he
will honor the bill. In such case, DRAWEE must look to the DRAWER for reimbursement and NOT TO
BONA FIDE HOLDER.

Section 2 Certainty as to sum, what constitutes

Sum payable is SUM CERTAIN although paid:

- w/ interest

- by stated installments

- by stated installments w/ provision that upon default in payment of any installment/interest, the whole
shall become due

- w/ exchange, fixed/current rate

- w/ costs of collection/attorney’s fee in case payment not made at maturity

*If instrument calls for an ACT OTHER THAN payment of money – NOT NEGOTIABLE

*A note giving the MAKER the right to ascertain the AMOUNT payable – NON-NEGOTIABLE

*A promise to pay P1000 in “two installments” or “in installments” – NON-NEGOTIABLE

*Acceleration at option of HOLDER – NON-NEGOTIABLE

*Acceleration at option of MAKER – NEGOTIABLE

(The MAKER can avoid acceleration by paying the installments on their due date)

*The promise/order to pay “w/ exchange” – NEGOTIABLE

(EXCHANGE – charge for providing funds, may be fixed/current rate; eg. compensating balance)

*Payment in FOREIGN CURRENCY – NEGOTIABLE

*Payment w/ EXCHANGE RATE – NEGOTIABLE

- applicable only to foreign bills

*If payment not made at maturity, then there is ADDED amount due (eg. Cost of collection, attorney’s
fee) – NEGOTIABLE

*Attorney’s fee may be REDUCED by courts if found UNREASONABLE; if attorney’s fee NOT
specified, it shall be in REASONABLE SUM.

*A provision of “to pay ALL costs, charges and expenses incurred by PAYEE in ANY legal proceedings
for collection of debt” – NON-NEGOTIABLE

*Acquisition of instrument AFTER MATURITY

- a transferee acquiring an instrument when it is OVERDUE would NOT BE HDC & would hold
instrument subject to defenses, as if it were NON-NEGOTIABLE.

Section 3 Promise is UNCONDITIONAL when:

- INDICATION of a particular fund out of w/c reimbursement is to be made or particular account to be

debited w/ the amount (NOT direct source of payment, only source of reimbursement) - NEGOTIABLE

- statement of transaction w/c gives rise to instrument - NEGOTIABLE

Promise is NOT UNCONDITIONAL – an order/promise to pay OUT OF particular fund (direct source of
payment) – NON-NEGOTIABLE

*The test of NEGOTIABILITY is whether the instrument carries the GENERAL PERSONAL CREDIT
of MAKER/DRAWER.

*A BARE acknowledgment of indebtedness (eg. IOU, due A P1000, for value received) ALONE – NON-
NEGOTIABLE. But if words like DUE A OR ORDER, DUE B OR BEARER – NEGOTIABLE although
NO express promissory words

*In BofE, there must be an ORDER TO PAY one party to another, OTHERWISE, it is NON-
NEGOTIABLE.

ORDER – command/imperative direction

*A MERE request IS NOT an ORDER.

(eg. I request you to pay, I wish you would pay, I authorize you to pay)

*The MERE use of POLITE words like PLEASE does NOT convert ORDER into REQUEST.

*The NOTE/BILL must be payable ABSOLUTELY.

*It is IMMATERIAL whether the DRAWEE obeys the order to pay or not. The NEGOTIABILITY of a
bill DEPENDS upon the TERMS OF ORDER. The DRAWER has his liability under the law.

*If there is CONDITION or subject to CONTINGENCY – NON-NEGOTIABLE

* If language used is AMBIGUOUS or OBSCURE, courts usually decide IN FAVOR OF

NEGOTIABILITY.

*A MERE recital of consideration for instrument is STILL UNCONDITIONAL – NEGOTIABLE

(statement merely identifies the transaction w/c gives rise to instrument)

(eg. I promise to pay to order of P1000 being the price of the car this day sold and delivered to me; as per
our contract; accordance w/ our contract)

*If promise/order is subject to TERMS AND CONDITIONS – NON-NEGOTIABLE

(As already stated, the negotiability of instrument is to be determined by what appears on its FACE AND
NOT ELSEWHERE.)

Section 4 Determinable future time, what constitutes

- fixed period after date/sight - NEGOTIABLE

- on/before a fixed or determinable future time specified - NEGOTIABLE

- ON/AFTER (fixed period) the occurrence of a specified event w/c is CERTAIN to happen, not known
when – NEGOTIABLE (eg. Death of father); if BEFORE – NON-NEGOTIABLE

*An instrument payable w/ CONTINGENCY (an uncertain future event, or an event w/c may or may not
happen) is NON-NEGOTIABLE, and the happening of the event DOES NOT cure the defect.

DEMAND INSTRUMENT – payment at anytime

TERM INSTRUMENT – payabe only UPON ARRIVAL of time for payment

AFTER SIGHT – means AFTER the instrument is SEEN by the DRAWEE upon presentment of
acceptance

DETERMINABLE FUTURE TIME – means a time that can be DETERMINED W/ CERTAINTY

AFTER execution of instrument

Section 5 Additional provisions still NEGOTIABLE:

- authorizes SALE OF COLLATERAL securities

- authorizes a CONFESSION OF JUDGMENT (written acknowledgment by defendant of his

indebtedness/liability to plaintiff) if not paid at maturity

- waives the BENEFIT OF ANY LAW intended for advantage/protection of obligor.

(eg. Pay bearer P1000. Notice of dishonor waived.)

- gives HOLDER the election to require something to be done in lieu of payment of money

(eg. I promise to pay P1000 to A or order or an air conditioner at the option of the holder –
NEGOTIABLE;

I promise to pay P1000 to A or order or air conditioner – NON-NEGOTIABLE because HOLDER cannot
COMPEL him to make payment in MONEY)

Section 6 OMISSIONS; SEAL; PARTICULAR IN MONEY

Still NEGOTIABLE:
- NO DATE

(If there is a date stated but there is no such date in calendar, the law will deem the NEAREST DATE of
the month the date intended; eg. Note dated Apr31 will be construed to be intended for Apr30)

- NO VALUE given

(eg. NO written “for value received”)

- NO PLACE where it is drawn or is payable

(An instrument that does not specify the place of payment is presumed to be payable at the
place/residence/business of MAKER/DRAWER.)

- WITH SEAL

- Designates a PARTICULAR KIND of current money as payment

(eg. I promise to pay A or order P1000 in Central Bank of fifty peso bills.)

Section 7 Payable on DEMAND when:

- EXPRESSED to be payable ON DEMAND, at sight, or on presentation

- NO TIME for payment is expressed

(eg. Pay to A or order P1000)

Where the instrument is issued, accepted, or indorsed when OVERDUE, it is, as regards the person so
issuing, accepting, or indorsing it, PAYABLE ON DEMAND.

*An OVERDUE instrument is a DEMAND paper. A HOLDER has immediate right of payment for
money promised/ordered to be paid.

Instead of ON DEMAND, other acceptable terms can be used:

- at sight (used in BofE)

- on presentation

- on call

- at anytime called for

*PAYABLE ON DEMAND as regards the MAKER (late issuance), the ACCEPTOR (late received), the
INDORSER (late indorsed)

Section 8 Instrument may be drawn PAYABLE TO THE ORDER of:

- PAYEE; not maker/drawer/drawee

- drawer
(eg. Pay to the order of myself P1000)

- or maker

(eg. I promise to pay to the order of myself P1000)

- 2 or more PAYEES jointly

(eg. Pay to the order of A and B P1000)

- 1 or more of several PAYEES

(eg. Pay to the order of A or B P1000)

- HOLDER OF AN OFFICE at the time being

(eg. Pay to the order of the Commissioner of BIR)

*An instrument is PAYABLE TO ORDER where it is drawn payable:

1. to the order of a specified person

2. to him or his order

Consequently, an instrument payable to a SPECIFIED person (eg. Pay to A) is NON-NEGOTIABLE as

the promise/order is LIMITED to paying one person.

*”to the order of”, “or order”, “to A and his assigns” can be used.

*NO PAYEE, not named, not described – NON-NEGOTIABLE because there would be nobody who
could indorse the instrument and nobody who could give the order or authority to collect.

Section 9 PAYABLE TO BEARER WHEN:

- Expressed to be SO PAYABLE.

(But an instrument payable to bearer, A is NON-NEGOTIABLE, since the word BEARER in such case
describes A, therefore, payable to A DEFINITE PERSON ONLY)

- Payable to person named therein or BEARER.

(eg. Pay to A or bearer P1000; Pay to B or holder P1000)

- Payable to order of FICTITIOUS PERSON and such fact was KNOWN to person making it so payable.

(eg. Pay to King Kong or order P1000)

* The bill is PAYABLE TO BEARER and NOT TO ORDER because King Kong is
a fictitious (feigned/pretended) person.

- Name of PAYEE is not name of any person.

(eg. Pay to the order of Queen of Planet Venus)

(eg. Pay to cash, Pay to money, Pay to sundries)

*The intention of the DRAWER is to make the instrument a BEARER PAPER negotiable by delivery.

- Only/last INDORSEMENT is indorsement in BLANK.

*The word INDORSEMENT, as used in the law, refers only to NI.

Section 10 Terms, sufficient when:

CLEARLY INDICATE THE INTENTION to conform the requirements thereof.

*A MERE defect in language/grammatical error – still NEGOTIABLE

Section 11 Presumption as to date

If instrument BEARS A DATE, it is PRESUMED to be the TRUE DATE (prima facie) made by maker,
drawn by drawer, accepted by drawee, or indorsed by payee/holder.

*He who claims that some other date is the true date has the burden to ESTABLISH the CLAIM.

Section 12 Ante-dated and Post-dated

Instrument is VALID although it is ANTE-DATED (earlier than true date) or POST-DATED (later than
true date), provided that it is NOT DONE for illegal/fraudulent purpose (eg. Bouncing check, NSF).

The person TO WHOM an instrument is dated is delivered acquires the TITLE thereto as of the date of
delivery.

The ANTE-DATED/POST-DATED may be negotiated BEFORE/AFTER the date given as long as it is

NOT NEGOTIATED AFTER ITS MATURITY.

Section 13 Date may be inserted when:

1. an instrument is payable at a fixed period AFTER DATE but is ISSUED UNDATED,

2. an instrument is payable at a fixed period AFTER SIGHT but the ACCEPTANCE is UNDATED

ANY HOLDER may insert therein the true date of issue/acceptance and the instrument shall be payable
accordingly.
The insertion of a WRONG DATE DOES NOT avoid the instrument in the hands of the SUBSEQUENT
HDC; but as to him the date so inserted is to be regarded as the TRUE DATE.

*The insertion of WRONG DATE constitutes MATERIAL ATERATION.

Section 14 INCOMPLETE and DELIVERED (personal defense)

(4) RULES

1. AUTHORITY TO FILL UP THE BLANKS

- The HOLDER/person in possession has prima facie authority TO COMPLETE an INCOMPLETE

INSTRUMENT by filling up the blanks therein

The law speaks of MATERIAL PARTICULAR (blanks for date, due date, name of PAYEE, amount, rate
of interest) may be filled in. It has been held that even the blank for the name of the DRAWER may be
filled up.

*The authority to complete is not an authority to alter. So, the HOLDER has NO AUTHORITY to change
the amount after it has been filled in, or to insert the words OR ORDER or OR BEARER after the name
of the PAYEE.

2. AUTHORITY TO PUT ANY AMOUNT

- A signature on a BLANK paper delivered in order to be converted into a NI is a prima facie authority to
fill it up as such for any amount.

3. RIGHT AGAINST PARTY PRIOR TO COMPLETION

- If an instrument is incomplete when delivered, the HOLDER has prima facie authority to fill up the
blanks thereon.

- If a blank paper is delivered by the person making the signature, the HOLDER has prima facie authority
to fill it up for any amount if the person making the signature INTENDED TO CONVERT it into NI.

- In either case of the above (2) situations, the presumption is that the BLANK was filled in
ACCORDANCE W/ THE AUTHORITY GIVEN and W/IN REASONABLE TIME.

4. RIGHT OF HDC

- not enforceable; personal defenses

- The rule is founded upon the principle that where one of 2 persons must suffer by the bad faith of
another, the loss must fall upon the one who FIRST REPOSED confidence and made it possible for the
loss to occur.

Section 15 INCOMPLETE and UNDELIVERED (real defense)

When an INCOMPLETE instrument is UNDELIVERED, if completed & negotiated w/o authority, be a

VALID CONTRACT in the hands of ANY HOLDER, as against any person whose signature was placed
thereon before delivery.
In the absence of any delivery, the instrument though complete in all particulars, there is NO
CONTRACT.

(2) RULES

1. DEFENSE EVEN AGAINST HDC

- Law is specific that instrument is NOT a VALID CONTRACT in the hands of any HOLDER even
HDC.

2. DEFENSE AVAILABLE TO PARTIES PRIOR TO DELIVERY

- The invalidity of the instrument is only w/ reference to the parties whose signatures appear on the
instrument BEFORE and NOT AFTER DELIVERY.

(eg. A(maker) – P(steals) – B – C – D; Instrument can be enforced against P, B, C because, as indorsers,

they warrant that the instrument is GENUINE and in all respects what it purports to be, etc. As their
signatures appear on the instrument after delivery, the instrument is valid as to them; In case of P, he is
liable not merely because he is an indorser but also because he is the one responsible for the theft, and the
completion and negotiation of the instrument.)

Section 16 COMPLETE and UNDELIVERED (personal defenses)

(4) RULES

1. UNDELIVERED – Every contract on NI even if it is completely written is INCOMPLETE AND

REVOCABLE UNTIL it is delivery for the purpose of giving it effect.

a. DELIVERY – transfer of possession, actual/constructive, from one person to another. It may be made
either by the maker/drawer himself or through a duly authorized agent.

b. ISSUE – FIRST delivery of the instrument, complete in form, to a person who takes it as HOLDER.

C. HOLDER – PAYEE/INDORSEE of bill/note who is in possession of it, or the BEARER thereof.

2. IN POSSESSION OF PARTY OTHER THAN HDC

- If a complete instrument is found in the possession of an IMMEDIATE PARTY (know the

conditions/limitations placed upon delivery of instrument) or a REMOTE PARTY (indirect contractual
relation to each other) other than HDC, there is prima facie presumption of delivery but subject to
rebuttal.

- An UNDELIVERED instrument is INOPERATIVE because DELIVERY is a PREREQUISITE to

LIABILITY. However, if instrument is NO LONGER in the possession of the person who signed it and it
is COMPLETE in its terms, “a VALID AND INTENTIONAL delivery by him is PRESUMED until the
contrary is proved”.

3. DELIVERED UNCONDITIONALLY OR FOR A SPECIAL PURPOSE

- If delivery was made/authorized, it may be shown to have been conditional, or for a special purpose
only and not for the purpose of transferring the property (title) to the instrument.

- When delivery is made, it is presumed to be made w/ the intention to transfer ownership of the
instrument to the payee.

- (eg. A delivers the note to B on condition that it will not be binding on him UNTIL co-maker has been
procured or for safekeeping, or for collection only.

B cannot enforce the instrument against A because A can set up the defense that the delivery was
conditional or for a special purpose only and not for the purpose of transferring title to the instrument.

4. IN THE HANDS OF HDC

- If a COMPLETE instrument is in the hands of HDC, a valid delivery thereof by all parties PRIOR to
him is CONCLUSIVELY PRESUMED.

A presumption is said to be CONCLUSIVE when it admits of no evidence to the contrary

Section 17 Construction where instrument is AMBIGUOUS

a. Sum payable expressed both in WORDS and in FIGURES, and there is discrepancy between the two,
SUM in WORDS is SUM PAYABLE; but if WORDS are AMBIGUOUS/UNCERTAIN, FIGURES may
be the reference.

b. Instrument w/ interest but NO DATE specifies, interest runs from the date of instrument; if instrument
is UNDATED, from issue thereof.

c. Instrument UNDATED, considered to be dated as of time it was ISSUED.

d. Conflict between WRITTEN and PRINTED provisions of instrument, WRITTEN provisions prevail.

*The reason for the rule is that the written words are deemed to express the true intention of the
MAKER/DRAWER because they are placed there by himself w/o any particular contract in view.

e. Instrument is AMBIGUOUS whether note or bill, the HOLDER may treat it as EITHER at HIS
ELECTION.

f. Signature placed in instrument UNCLEAR what capacity person making the same intended to sign, he
is deemed INDORSER.

*Signature of: (usually)

MAKER – lower right-hand corner

DRAWEE – lower left-hand corner

HOLDER - back

g. Instrument contain words “I promise to pay” signed by TWO OR MORE PERSONS, they are deemed
to be JOINTLY AND SEVERALLY LIABLE thereon.
*”I promise to pay” signed by 2 or more persons – SOLIDARY LIABILITY (anyone of the signers may
be held liable for the whole amount of instrument)

*”We promise to pay” signed by 2 or more persons – JOINT LIABILITY (there are as many debts are
there are debtors, each debt being considered distinct and separate from each other)

Section 18 Liability of person signing in trade or assumed name

GENERAL RULE: Only persons whose signatures appear on an instrument ARE LIABLE thereon.

EXCEPTIONS:

a. Where a person signs in a trade or assumed name.

b. The PRINCIPAL is liable if a duly authorized agent signs on his own behalf.

c. In case of forgery, the FORGER is LIABLE even if his signature does not appear on the instrument.

d. When the ACCEPTOR makes his acceptance of a bill on a SEPARATE paper.

e. Where a person makes a WRITTEN promise to ACCEPT a BILL BEFORE it is drawn.

Section 19 Signature by agent; authority; how shown

- The MAKER/DRAWER may sign the instrument PERSONALLY or by another DULY

AUTHORIZED by him.

- The authority of the AGENT may be shown, as in other cases of agency, to have been given ORALLY
or in WRITING subject to the provisions of the STATUTE OF FRAUDS. It has been held competent for
the AGENT to sign simply the PRINCIPAL’S NAME and to show his authority to do so by other
evidence.

Section 20 Liability of person signing as agent, etc.

(3) When agent MAY ESCAPE personal liability:

1. He is duly authorized;

2. He add words to his signature indicating that he signs AS AN AGENT, that is, for or on behalf of a
principal, or I a representative capacity;

3. He discloses his PRINCIPAL.

*The MERE addition of DESCRIPTIVE WORDS w/o DISCLOSING the PRINCIPAL will not relieve
signer from personal liability, although he add to his signature the word AGENT, TRUSTEE,
ADMINISTRATOR, GUARDIAN, or DIRECTOR (words added are but description personae –
describing the person who signed the instrument)

Section 21 Effect of signature by PROCURATION

PROCURATION – act by w/c a PRINCIPAL gives power to another to act in HIS PLACE as he could
himself.

- has special and technical meaning; gives a WARNING that the AGENT has but a LIMITED
AUTHORITY so that IT IS the duty of the person dealing w/ him to INQUIRE into the extent of his
(AGENT) authority.

*The PRINCIPAL is NOT BOUND if the agent has exceeded the ACTUAL LIMITS of his authority,
although he may acted w/in the general scope of the agency.

(eg. A signature by procuration may be made as follows:

A Mercado

Per Procuration: B San Miguel

Instead of “per procuration”, “per proc.”, “P.P.”, or “pp” may be used.

Section 22 Effect of indorsement by INFANT or CORPORATION

The indorsement/assignment of the instrument by a corporation or by an infant PASSES the property

therein, notwithstanding that from want of capacity, the corporation or infant may incur NO LIABILITY
thereon.

EFFECT OF INDORSEMENT BY INCAPACITATED PERSONS

1. MINORS

-  As a general rule, contracts entered into by a minor ARE VOIDABLE at his instance or at the instance
of his guardian.

                a. While MINOR NOT BOUND by his indorsement for lack of capacity, he CAN TRANSFER
certain RIGHTS. Minority is a real defense available to MINOR.

                b. A MINOR may be BOUND where he is guilty of ACTUAL FRAUD committed by

specifically stating that he is of age, when, in fact he is not.

2. OTHER INCAPACITATED PERSONS

- As far as such persons (incapacitated, insane, demented, deaf-mutes, etc) are concerned, THEIR
CAPACITY IS A REAL DEFENSE, that is, available even against HDC.

EFFECT OF INDORSEMENT BY A CORPORATION

As regards corporations, Section 22 applies to cases where corporation has committed ultra vires
acts (acts beyond its powers).

It has been held that a corporation IS NOT LIABLE on notes in a suit thereon by an indorsee, where the
corporation is WITHOUT CAPACITY to make the contract in fulfilment of w/c they are executed.

Section 23 Effect of FORGED signature

FORGERY – counterfeit-making or fraudulent alteration of any writing w/ INTENT TO DEFRAUD (eg.

Signing of another’s name; alteration of an instrument in the name,a mount, description of person and the
like)

- a REAL DEFENSE even against HDC

(2) Cases where SIGNATURE is wholly INOPERATIVE and NO RIGHT can be acquired through the
FORGED SIGNATURE:

1. Where signature on instrument is affixed by one who DOES NOT claim to act as an agent and who has
NO AUTHORITY to bind the person whose signature he has forged; and

2. Where signature is affixed by one who purports to be an AGENT BUT NO AUTHORITY to bind the
ALLEGED principal.

(2) CASES OF FORGERY IN GENERAL

1. Forgery of PROMISSORY NOTES

- indorsement of the note

- MAKER’s signature

2. Forgery of BILLS OF EXCHANGE

- indorsement of the bill

- DRAWER’s signature (either w/ acceptance by DRAWEE; or w/o such acceptance but the bill is paid
by DRAWEE)
*Section 23 DOES NOT purport to declare the instrument TOTALLY VOID nor the GENUINE
signatures thereon INOPERATIVE. IT IS ONLY THE FORGED/UNAUTHORIZED SIGANTURE that
is declared to be INOPERATIVE.

In other words, RIGHTS MAY STILL EXIST and be enforced by virtue of such instrument as to those
whose signature thereto are found to be genuine.

M – P – A, X (obtains possession of note and forged A’s signature) – B – C

C cannot enforce the instrument against M and P because C’s rights against them are CUT OFF by the
FORGED SIGNATURE of A w/c is WHOLLY INOPERATIVE.

Neither can C enforce the note against A because A’s signature is wholly inoperative. C has NO RIGHT
to retain, discharge, or ENFORCE PAYMENT OF, the note UNDER the forged signature of A.

But C may go against B whose signature is GENUINE and therefore, OPERATIVE. B is a GENERAL
INDORSER who warranted to C that the instrument is GENUINE and was VALID and SUBSISTING
(existing) at the time of B’s indorsement.

Of course, B or C has a right of recourse against X, the forger.

A can recover from M and P because his rights against them WERE NOT affected by forgery. The
signature of M and P are genuine and they are liable to A on their contract.

2 EXCEPTIONS TO THE GENERAL RULE THAT NO RIGHT/TITLE CAN BE ACQUIRED TO AN

NI THROUGH OR UNDER A FORGED/UNAUTHORIZED SIGNATURE

1. If the party against whom it is sought to enforce such right is PRECLUDED (stopped) from setting up
forgery or want of authority; and

2. Where forged signature is NOT necessary to the HOLDER’S TITLE in w/c case the forgery may be
DISREGARDED.

(2) PERSONS PRECLUDED FROM SETTING UP THE DEFENSE OF FORGERY

1. Those who by their acts, silence, or negligence are estopped from setting up the defense of forgery; and

2. Those who warrant/admit the genuineness of the signatures in question, namely:

                a. indorsers

                b. acceptors

                c. persons negotiating by delivery

READ pp.76-77
(4) RIGHTS OF PARTIES IN CASES OF FORGED INSTRUMENTS

1. Where note payable to order

- Where the note is payable to ORDER, the party whose indorsement (inoperative) is forged IS NOT
LIABLE to any holder even HDC.

- The other parties (including the MAKER) prior to the party whose signature is forged ARE NOT ALSO
LIABLE to ANY HOLDER. The instrument being payable to order, can be negotiated ONLY BY
INDORSEMENT COMPLETED BY DELIVERY. But since the indorsement is forged, it is
INOPERATIVE, and therefore, cannot operate to transfer ANY RIGHT/TITLE over the instrument.

2. Where note payable to bearer

- Where the note, mechanically complete, is originally payable to bearer, the party whose indorsement is
forged is LIABLE to HDC but NOT to one who IS NOT HDC.

- The other parties (including the MAKER) prior to the party whose signature is forged, MAY ALSO BE
HELD LIABLE by one who is NOT HDC.

The reason is that the instrument being originally payable to bearer, it can be negotiated by MERE
DELIVERY even w/o indorsement. Hence, even if the indorsement is forged, the FORGERY MAY BE
DISREGARDED.

3. Where bill payable to order

- Where the bill is payable to ORDER, the party whose indorsement (inoperative) is forged IS NOT
LIABLE to any holder even HDC.

                a. If DRAWEE pays under a forged indorsement, DRAWER NOT LIABLE on the bill and
DRAWEE may not debit the DRAWER’s account.

                b. Where, however, checks received MERELY FOR COLLECTION and deposit, the bank, as
agent, CANNOT BE EXPECTED to know/ascertain the GENUINENESS of all PRIOR indorsements.

4. Where bill payable to bearer

- In case the bill is originally payable to BEARER, the DRAWEE may debit the DRAWER’s account in
spite of the forged indorsement. The reason is that the forged instrument is NOT NECESSARY to the
title of the holder. The DRAWEE cannot recover from the HOLDER.

Section 30 What constitutes negotiation

Negotiation – to constitute the transferee the HOLDER thereof

2 METHODS OF NEGOTIATION
1. BEARER – delivery

2. ORDER – indorsement then delivery

*ANY person in possession of BEARER instrument is ALWAYS the bearer thereof, although he may
have NO legal RIGHT thereto. Meaning, if instrument is negotiated to HDC, the latter may acquire
BETTER RIGHT than transferor.

*NO NEGOTIATION if the transfer does NOT make the transferee the HOLDER of instrument.

(eg. If M makes a note payable to P or order, then P delivers w/o indorsement to A, negotiation is NOT

affected because A, by such transfer, DOES NOT become the HOLDER.) – just an ordinary
ASSIGNMENT because it is ORDER instrument but NOT indorsed.

*PAYMENT of check (or other bill) by drawee-bank is NOT NEGOTIATION and does NOT make bank
the HOLDER; BANK is not the payee or indorsee; check is EXTINGUISHED and CANNOT be put in
circulation again to bind the drawer or indorser.

* The writing of HOLDER’s name on the back of the check before surrendering for PAYMENT to
drawee-bank is NOT INDORSEMENT. Signature merely serves as RECEIPT OF MONEY. Upon
payment, the CHECK becomes merely a VOUCHER, NOT a transfer of TITLE thereto.

3 BASIC METHODS TO TRANSFER NI

1. ISSUE – 1st DELIVERY of instrument COMPLETE in form to a person who takes it as HOLDER

                - 1st TRANSFER of instrument to PAYEE

2. NEGOTIATION - to constitute the transferee the HOLDER thereof

3. ASSIGNMENT – assignee is placed in the position of assignor; assignee acquires instrument subject to
personal and real defenses available against assignor

*NI can be NEGOTIATED or ASSIGNED; NON-NI can only be ASSIGNED/TRANSFERRED, NOT

negotiated.

 --------------------------------------------------------------------------

*Indorsement NOT ONLY mode of transfer but also involves NEW CONTRACT and OBLIGATION on
part of INDORSER – an IMPLIED guaranty that instrument be paid according to terms thereof.
 NEGOTIATION ASSIGNMENT
Only to NI All contracts
Transferee is HOLDER Transferee is ASSIGNEE
HDC - REAL defenses ASSIGNEE –
PERSONAL and REAL
defenses
May acquire BETTER Merely steps in shoes of
title than PRIOR party ASSIGNOR
GENERAL ASSIGNOR does NOT
INDORSER warrants warrant SOLVENCY of
SOLVENCY of PRIOR prior parties (unless
parties stipulated or
INSOLVENCY known to
him)
INDORSER NOT ASSIGNOR IS LIABLE
LIABLE (unless there is even w/o NOTICE OF
PRESENT-MENT and DISHO-NOR
NOTICE of
DISHONOR)
Governed by NIL Governed by CIVIL
CODE on assignment of
credits

Can there be negotiation to a PAYEE?

MAKER/DRAWER → PAYEE – payee acquires title by ISSUANCE, NOT negotiation

MAKER/DRAWER → AGENT of MAKER/DRAWER →PAYEE – payee acquires title

by NEGOTIATION

*If negotiation refers to instrument already completely executed/ISSUED, then ONLY HOLDERS
SUBSEQUENT TO PAYEE can acquire title by NEGOTIATION.

*There is NEGOTIATION also to PAYEE when instrument delivered BACK to him by LAST HOLDER.
(In such case, indorsement of LAST HOLDER not necessary because PAYEE is remitted to his
FORMER RIGHTS, and all intervening parties are DISCHARGED from LIABILITY.)

Section 31 Indorsement; how made

Indorsement be written on INSTRUMENT itself or upon paper attached (allonge) thereto.

Signature of INDORSER, w/o additional words, is SUFFICIENT INDORSEMENT.

INDORSEMENT (from Latin in dorsa – writing on the back) – writing of indorser’s name on the
instrument w/ the intent EITHER 1.) to transfer TITLE to the same, or 2.) to STRENGTHEN security of
HOLDER by assuming contingent liability for its future payment, OR BOTH.

*Indorsement w/o delivery conveys NO TITLE and NO HOLDER.

NECESSITY (SIGNIFICANCE) OF INDORSEMENTS

1. Essential to the execution and for FURTHER NEGOTATION of ORDER instrument.

(eg. Note payable: “to the order of P”, P must indorse it BEFORE it can be further negotiated)

2. Not necessary to a mere ASSIGNMENT.

(Thus, one can acquire title w/o indorsement of ORDER instrument but he CANNOT be HDC thereof
although entitled to indorsement made.)

3. Determines SUBSEQUENT negotiations or transfer of instrument.

(Indorsement may determine whether another indorsement can be further negotiated [special

indorsement] – w/ indorsee name;

or NO further indorsement required for negotiation because it is converted into a BEARER instrument
negotiated by DELIVERY [blank instrument] – w/ indorsee signature only;

or RESTRICTED  for further negotiation [restrictive indorsement] – w/ additional words w/c

prohibit/limit further negotiation)

FORM OF INDORSEMENT

Law does NOT require EXCLUSIVE FORM by w/c indorsement be accomplished but it must be IN
WRITING.

Just like signature of maker/drawer, INDORSEMENT may be written in INK, PRINTED, (RUBBER)
STAMPED, TYPEWRITTEN, or any means that will create a mark.

LOCATION OF INSTRUMENT

1. On instrument itself

*As a matter of practice, indorsement is WRITTEN AT THE BACK of instrument (referred to as dorsal
portion of instrument) but it may be written on the face (although it would entail risk of being held liable
as co-maker [PN] or co-drawer [BofE].

2. Upon paper attached thereto (allonge)

*A paper that is merely clipped/pinned to an instrument is NOT an ALLONGE, and anything written on
it CANNOT be considered as INDORSEMENT. Accordingly, person in possession of instrument is NOT
the HOLDER.

*If there is still space for indorsements, the use of ALLONGE should be avoided so as not to cause
CONFUSION on ORDER OF LIABILITY of indorsers.

Section 32 Indorsement must be of entire instrument

(object of provision: to avoid multiplicity of suits/actions in court)

NO NEGOTIATION if indorsement transfer ONLY PART of AMOUNT payable (not HOLDER but
merely is an ASSIGNEE; renders instrument NON-NEGOTIABLE, NOT PAYEE/BEARER of note,
NOT INDORSEE.

(eg. The total payable is P10 000, “Pay to A P8 000” – NOT VALID NEGOTIATION)

Exception to entirety: Where instrument has been paid in part, it may be indorsed as to the RESIDUE.

(eg. The total payable is P10 000, P2 000 is already paid. “Pay to A P8 000” – VALID NEGOTIATION)

NO NEGOTIATION if indorsement transfer instrument to 2 or more indorsees severally.

 (eg. Pay to A P8 000 and pay to B P2 000 – NOT VALID NEGOTIATION)

However, there is VALID NEGOTIATION if indorsees are JOINT.

(eg. Pay to A and B P10 00 – VALID NEGOTIATION) – A and B must BOTH indorse UNLESS they
are PARTNERS, or one is authorized to indorse for both of them, in w/c case, only one may indorse.

Section 33 Kinds of Indorsement

5 CLASSIFICATIONS OF INDORSEMENT

1. As to the METHODS OF NEGOTIATION

- Special

- Blank

2. As to the KIND OF TITLE TRANSFERRED

- Restrictive

- Non-restrictive

3. As to the SCOPE OF LIABILITY OF INDORSER

- Qualified

- Unqualified (general)

4. As to the PRESENCE/ABSENCE OF LIMITATIONS

- Conditional

- Unconditional

5. Other kinds of indorsements

- JOINT – payable to two or more persons jointly

- SUCCESSIVE – in succession by several indorsers who are liable prima facie in ORDER in w/c they
indorse

- REGULAR – Delivery → Indorsement

- IRREGULAR (ANOMALOUS) – (placed signature in blank before delivery) Indorsement → Delivery

- FACULTATIVE – indorser ENLARGES his liability by writing over his signature a WAIVER of usual
demand (formal protest) and NOTICE OF NON-PAYMENT (dishonor).

Section 34 Special, and blank indorsement

SPECIAL indorsement – w/ indorsee name; can be further negotiated.

[eg. Pay to A; Pay to the order of A; Pay to A or order (Sgd.) B]

*If instrument originally payable to ORDER, INDORSEMENT NECESSARY for FURTHER

negotiation of instrument.

*If instrument originally payable to BEARER, it may be further negotiated by indorsement or even by
mere delivery but REMAINS a BEARER instrument even if specially indorsed. (BEARER ALWAYS A
BEARER.)

BLANK indorsement – specifies no indorsee; can be negotiated by DELIVERY because it becomes a

BEARER instrument.

[eg. “I promise to pay A or order P10 000” (Sgd.) B

A (payee) may indorse the instrument in blank by SIMPLY writing his signature at BACK of instrument:

                                                                                    (Sgd.) A             ]

*If instrument is payable to ORDER on its face and the ONLY or LAST indorsement is in BLANK, it is
CONVERTED into BEARER instrument.
*If instrument is payable to BEARER on its face, ANY indorsement, whether SPECIAL or BLANK,
does NOT change as BEARER instrument. (BEARER ALWAYS A BEARER.)

*A BLANK INDORSEMENT may be negotiated by delivery, or by indorsement and delivery.

However, ORDER instrument SPECIALLY INDORSED AFTER BLANK INDORSEMENT reacquires

status as ORDER INSTRUMENT.

(eg. ORDER instrument indorsed: SPECIAL → SPECIAL → BLANK (becomes a BEARER instrument)
→ SPECIAL (becomes ORDER instrument, again) → SPECIAL)

Section 35 Blank → SPECIAL

- Done by writing APPROPRIATE words OVER the signature of indorser in blank.

- The INDORSEE CANNOT add to the indorsement ANY contract INCONSISTENT w/ character of
indorsement. (eg. Adding “protest waived”; “Demand and notice waived”; “Without recourse”; if such
was NOT THE INTENTION of parties. Also, adding “I hereby guaranty payment” will make
INDORSER LIABLE as GUARANTOR and thus NOT ENTITLED to NOTICE in case of DISHONOR.)

*The INSERTION of UNATHORIZED contracts constitutes MATERIAL ALTERATION and AVOIDS

INDORSEMENT.

[eg. BLANK → SPECIAL

M – P (special) – A (blank) – B (beomes BEARER) (if indorse specially, negotiation will be effected only
indorsement) – C (special indorsee)

In example, the indorsement by P – A and A – B may appear:

Pay to A

                                                                                (Sgd.) P

                                                                                (sgd.) A

B, as HOLDER of instrument w/ BLANK indorsement, may PROTECT himself by converting it into

SPECIAL indorsement, as for example, by writing “Pay to B”, thereby indorsing it to himself. Thus, the
ff will appear:

Pay to A

                                                                                (Sgd.) P

                                Pay to B
                                                                                (sgd.) A

Section 36 Restrictive indorsement:

RESTRICTIVE INDORSEMENT – RESTRAINS the negotia-bility of instrument for purpose or to the

person stated therein.

a. Prohibits further negotiation of instrument.

(becomes NON-NEGOTIABLE)

“Pay to A only”

“Pay to A and to no other person”

Here, A is the only one authorized to receive payment.

b. Constitutes INDORSEE the AGENT OF INDORSER (AGENCY type: AGENT NO TITLE to

instrument; holds instrument as AGENT of principal, the restrictive indorser subject to restrictive
indorsement.)

“Pay to B for collection”

“Pay to B for collection and remittance”

“Pay to B for collection only”

“Pay to B for deposit”

c. Vests title in INDORSEE in TRUST for or use of some other person

(TRUST type: transfers TITLE to INDORSEE NOT FOR HIMSELF but in trust of for BENEFIT of
another person including INDORSER. The INDORSEE CANNOT NEGOTIATE instrument for OWN
BENEFIT BUT FOR BENEFICIAL OWNER.)

“Pay to C in trust for D”

“Pay to C as trustee for D”

“Pay to A for my use”

“Pay to C for the use of D”

Mere absence of words of negotiability does NOT make the indorsement restrictive.

*BUT if there are restrictive words stated like “only”, it prevents further negotiation, become restrictive
indorsement, and NON-NEGOTIABLE.

Sec. 37. Effect of restrictive indorsement; rights of indorsee. 

A restrictive indorsement confers upon the indorsee the right:
(a) to receive payment of the instrument;

(b) to bring any action thereon that the indorser could bring;

(c) to transfer his rights as such indorsee, where the form of the indorsement authorizes him to do so.
But all subsequent indorsees acquire only the title of the first indorsee under the restrictive indorsement.

Sec. 38. Qualified indorsement.

A qualified indorsement constitutes the indorser a mere assignor of the title to the instrument. It may be
made by adding to the indorser's signature the words "without recourse" or any words of similar import.
Such an indorsement does not impair the negotiable character of the instrument.

Sec. 39. Conditional indorsement.

Where an indorsement is conditional, the party required to pay the instrument may disregard the condition
and make payment to the indorsee or his transferee whether the condition has been fulfilled or not. But
any person to whom an instrument so indorsed is negotiated will hold the same, or the proceeds thereof,
subject to the rights of the person indorsing conditionally.

Sec. 40. Indorsement of instrument payable to bearer. 

Where an instrument, payable to bearer, is indorsed specially, it may nevertheless be further negotiated by
delivery; but the person indorsing specially is liable as indorser to only such holders as make title through
his indorsement.

Sec. 41. Indorsement where payable to two or more persons.

Where an instrument is payable to the order of two or more payees or indorsees who are not partners, all
must indorse unless the one indorsing has authority to indorse for the others.

Sec. 42. Effect of instrument drawn or indorsed to a person as

cashier. 
Where an instrument is drawn or indorsed to a person as "cashier" or other fiscal officer of a bank or
corporation, it is deemed prima facie to be payable to the bank or corporation of which he is such officer,
and may be negotiated by either the indorsement of the bank or corporation or the indorsement of the
officer.

Sec. 43. Indorsement where name is misspelled, and so forth.

Where the name of a payee or indorsee is wrongly designated or misspelled, he may indorse the
instrument as therein described adding, if he thinks fit, his proper signature.

Sec. 44. Indorsement in representative capacity. 

Where any person is under obligation to indorse in a representative capacity, he may indorse in such
terms as to negative personal liability. robles virtual law library
Sec. 45. Time of indorsement; presumption. 
Except where an indorsement bears date after the maturity of the instrument, every negotiation is deemed
prima facie to have been effected before the instrument was overdue.
Prima facie may be used as an adjective meaning "sufficient to establish a fact or raise a presumption
unless disproved or rebutted." An example of this would be to use the term "prima facie evidence

Sec. 46. Place of indorsement; presumption.

Except where the contrary appears, every indorsement is presumed prima facie to have been made at the
place where the instrument is dated.

Sec. 47. Continuation of negotiable character.

An instrument negotiable in its origin continues to be negotiable until it has been restrictively indorsed or
discharged by payment or otherwise.

Sec. 48. Striking out indorsement. 

The holder may at any time strike out any indorsement which is not necessary to his title. The indorser
whose indorsement is struck out, and all indorsers subsequent to him, are thereby relieved from liability
on the instrument.

Sec. 49. Transfer without indorsement; effect of. 

Where the holder of an instrument payable to his order transfers it for value without indorsing it, the
transfer vests in the transferee such title as the transferor had therein, and the transferee acquires in
addition, the right to have the indorsement of the transferor. But for the purpose of determining whether
the transferee is a holder in due course, the negotiation takes effect as of the time when the indorsement is
actually made.

Sec. 50. When prior party may negotiate instrument. 

Where an instrument is negotiated back to a prior party, such party may, subject to the provisions of this
Act, reissue and further negotiable the same. But he is not entitled to enforce payment thereof against any
intervening party to whom he was personally liable.
IV. RIGHTS OF THE HOLDER
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;

(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. robles virtual law library

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.
V. LIABILITIES OF PARTIES
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.

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.

Sec. 62. Liability of acceptor. 

The acceptor, by accepting the instrument, engages that he will pay it according to the tenor of his
acceptance and admits
(a) The existence of the drawer, the genuineness of his signature, and his capacity and authority to draw
the instrument; and

(b) The existence of the payee and his then capacity to indorse.
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.

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.
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 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.

Sec. 66. Liability of general indorser.

Every indorser who indorses without qualification, warrants to all subsequent holders in due
course:chanroblesvirtuallawlibrary
(a) The matters and things mentioned in subdivisions (a), (b), and (c) of the next preceding section; and

(b) That the instrument is, at the time of his indorsement, valid and subsisting;
And, in addition, he engages that, on due presentment, it shall be accepted or paid, or both, as the case
may be, according to its tenor, and that if it be dishonored and the necessary proceedings on dishonor be
duly taken, he will pay the amount thereof to the holder, or to any subsequent indorser who may be
compelled to pay it.

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.

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. robles virtual law library

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.
VI. PRESENTATION FOR PAYMENT
Sec. 70. Effect of want of demand on principal debtor.
Presentment for payment is not necessary in order to charge the person primarily liable on the instrument;
but if the instrument is, by its terms, payable at a special place, and he is able and willing to pay it there at
maturity, such ability and willingness are equivalent to a tender of payment upon his part. But except as
herein otherwise provided, presentment for payment is necessary in order to charge the drawer and
indorsers.

Sec. 71. Presentment where instrument is not payable on demand and where payable on demand.
Where the instrument is not payable on demand, presentment must be made on the day it falls due. Where
it is payable on demand, presentment must be made within a reasonable time after its issue, except that in
the case of a bill of exchange, presentment for payment will be sufficient if made within a reasonable time
after the last negotiation thereof.

Sec. 72. What constitutes a sufficient presentment.

Presentment for payment, to be sufficient, must be made:
(a) By the holder, or by some person authorized to receive payment on his behalf;

(b) At a reasonable hour on a business day;

(c) At a proper place as herein defined;

(d) To the person primarily liable on the instrument, or if he is absent or inaccessible, to any person found
at the place where the presentment is made.
Sec. 73. Place of presentment.
Presentment for payment is made at the proper place:
(a) Where a place of payment is specified in the instrument and it is there presented;

(b) Where no place of payment is specified but the address of the person to make payment is given in the
instrument and it is there presented;

(c) Where no place of payment is specified and no address is given and the instrument is presented at the
usual place of business or residence of the person to make payment;

(d) In any other case if presented to the person to make payment wherever he can be found, or if
presented at his last known place of business or residence.
Sec. 74. Instrument must be exhibited.
The instrument must be exhibited to the person from whom payment is demanded, and when it is paid,
must be delivered up to the party paying it.

Sec. 75. Presentment where instrument payable at bank. 

Where the instrument is payable at a bank, presentment for payment must be made during banking hours,
unless the person to make payment has no funds there to meet it at any time during the day, in which case
presentment at any hour before the bank is closed on that day is sufficient.
Sec. 76. Presentment where principal debtor is dead.
Where the person primarily liable on the instrument is dead and no place of payment is specified,
presentment for payment must be made to his personal representative, if such there be, and if, with the
exercise of reasonable diligence, he can be found.

Sec. 77. Presentment to persons liable as partners. 

Where the persons primarily liable on the instrument are liable as partners and no place of payment is
specified, presentment for payment may be made to any one of them, even though there has been a
dissolution of the firm.

Sec. 78. Presentment to joint debtors. 

Where there are several persons, not partners, primarily liable on the instrument and no place of payment
is specified, presentment must be made to them all.

Sec. 79. When presentment not required to charge the drawer.

Presentment for payment is not required in order to charge the drawer where he has no right to expect or
require that the drawee or acceptor will pay the instrument.

Sec. 80. When presentment not required to charge the indorser.

Presentment is not required in order to charge an indorser where the instrument was made or accepted for
his accommodation and he has no reason to expect that the instrument will be paid if presented.

Sec. 81. When delay in making presentment is excused.

Delay in making presentment for payment is excused when the delay is caused by circumstances beyond
the control of the holder and not imputable to his default, misconduct, or negligence. When the cause of
delay ceases to operate, presentment must be made with reasonable diligence.

Sec. 82. When presentment for payment is excused

Presentment for payment is excused:
(a) Where, after the exercise of reasonable diligence, presentment, as required by this Act, cannot be
made;

(b) Where the drawee is a fictitious person;

(c) By waiver of presentment, express or implied.

Sec. 83. When instrument dishonored by non-payment.
The instrument is dishonored by non-payment when:
(a) It is duly presented for payment and payment is refused or cannot be obtained; or

(b) Presentment is excused and the instrument is overdue and unpaid.

Sec. 84. Liability of person secondarily liable, when instrument dishonored.
Subject to the provisions of this Act, when the instrument is dishonored by non-payment, an immediate
right of recourse to all parties secondarily liable thereon accrues to the holder. robles virtual law library

Sec. 85. Time of maturity.

Every negotiable instrument is payable at the time fixed therein without grace. When the day of maturity
falls upon Sunday or a holiday, the instruments falling due or becoming payable on Saturday are to be
presented for payment on the next succeeding business day except that instruments payable on demand
may, at the option of the holder, be presented for payment before twelve o'clock noon on Saturday when
that entire day is not a holiday.
 
Sec. 86. Time; how computed.
When the instrument is payable at a fixed period after date, after sight, or after that happening of a
specified event, the time of payment is determined by excluding the day from which the time is to begin
to run, and by including the date of payment.
 
Sec. 87. Rule where instrument payable at bank.
Where the instrument is made payable at a bank, it is equivalent to an order to the bank to pay the same
for the account of the principal debtor thereon.
 
Sec. 88. What constitutes payment in due course. 
Payment is made in due course when it is made at or after the maturity of the payment to the holder
thereof in good faith and without notice that his title is defective.
 
VII. 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.
 
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.
 
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.
 
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.   
 
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
instrument, and indicate that it has been dishonored by non-acceptance or non-payment. It may in all
cases be given by delivering it personally or through the mails.
 
Sec. 97. To whom notice may be given. 
Notice of dishonor may be given either to the party himself or to his agent in that behalf.
 
Sec. 98. Notice where party is dead.
When any party is dead and his 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 diligence, he can be found. If there be no
personal representative, notice may be sent to the last residence or last place of business of the deceased.
 
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.
 
Sec. 100. Notice to persons jointly liable.
Notice to joint persons who are not partners must be given to each of them unless one of them has
authority to receive such notice for the others.