BASICS (REVIEW)

PARTIES INVOLVED IN A PN

1. Maker – person who made the note  the one who promises to pay
2. Payee – person whom the promise to pay is made

PARTIES INVOLVED IN A BILL OF EXCHANGE (CHECK)

1. Drawer – person who draws the bill/check  the one who gives order to pay (magbabayad)
2. Drawee – the one who is ordered by the drawer to pay the instrument  check is drawn against
him (Bank)
3. Payee - person to whom the order to pay is to be made  (babayaran)

OTHER PARTIES TO NI

1. Acceptor – drawee of the bill of exchange who has accepted the bill when presented to it for
acceptance
a. Once the bill has been accepted, the drawee becomes acceptor
2. Holder/Bearer – party who is currently in possession of the instrument.
3. Indorser – party who negotiated an order instrument by indorsement
i. Note: indorsement – act of signing at the back of NI and delivering the same to
another person
a. Payee negotiating an order instrument becomes an indorser
4. Indorsee – party to whom an order instrument has been indorsed
a. Last indorsee is the holder

PARTY PRIMARILY LIABLE IN NI

1. PN – maker
2. Bill of exchange (check) – drawee

PARTY SECONDARILY LIABLE IN NI

1. PN
a. PN payable to order – indorsers
b. PN payable to bearer – immediate transferor
2. Bill of exchange
a. Payable to order – drawers and indorsers
b. Payable to bearer – drawers and immediate transferor
- Note: to order – specific ; to bearer – possessor of the instrument

CONSIDERATION

SECTION 24. PRESUMPTION OF CONSIDERATION — PRIMA FACIE

1. Every NI is deemed to have been issued for a valuable consideration (benefit, rights, or interest)
 2. All persons whose signature appears on the instrument are presumed parties thereon for value

PRESUMPTIONS CAN BE REBUTTED — THEY ARE NOT CONCLUSIVE

RULE ON PRESUMPTION IS NOT APPLICABLE TO AN ACCOMODATION PARTY

- Although, the accommodation party cannot use this to refuse payment even if the holder knows
the accommodation party did not receive any value from the instrument (Sec 29)

SECTION 25. VALUE

- Any consideration sufficient to support a simple contract. It includes:

o Antecedent or pre-existing debts

SECTION 26. HOLDER FOR VALUE

- One who gives valuable consideration for an instrument issued or negotiated to him

SECTION 27. WHEN LIEN ON INSTRUMENT CONSTITUTES HOLDER FOR VALUE

LIEN - form of security interest granted over an item of property to secure the payment of a debt or
performance of some other obligation

WHEN THE HOLDER AS A LIEN ON THE INSTRUMENT, TO WHAT EXTENT IS HE A HOLDER FOR VALUE?

- Only to the extent of his lien on the instrument

- Illustration: DR used a check to pay his P5,000 obligation to P, but the check is for the amount of
P10,000. P is only a holder for value for the amount of P5,000 — subject to defense

IF THE VALUE OF THE INSTRUMENT IS PAYABLE AT FUTURE TIME — SEC. 4 – DETERMINABLE TIME

SECTION 28. EFFECT OF WANT OF CONSIDERATION

- Absence or failure of consideration is a matter of defense as against any person not a holder in
due course
- Partial failure of consideration is a defense pro tanto, whether the failure is an ascertained and
liquidated amount or otherwise

WANT OF CONSIDERATION

- Instrument is not supported by valuable consideration — lacking

CONSEQUENCE OF PARTIAL FAILURE OF CONSIDERATION

- Parties shall have a right over the partial amount only, and not for the whole amount, subject to
defenses

PRO TANTO – “TO THAT EXTENT”

WANT OF CONSIDERATION AS A DEFENSE

- The party being asked to pay can raise such defense so that he could validly refuse payment.
- It is a personal defense – can be raised against non-holders in due course
SECTION 29. LIABILITY OF ACCOMMODATION PARTY

ACCOMMODATION PARTY – person who signs the instrument as maker, drawer, acceptor or indorser,
BUT does not receive value therefore, for the purpose of lending his name to some other person

ACCOMMODATION ARRANGEMENT APPLIES TO ALL KINDS OF NI

REQUISITES OF ACCOMMODATION ARRANGEMENT

1. Accommodation party must be signing as maker, drawer, acceptor, or indorse — capacity

2. He must not receive value therefor
3. He must sign for the purpose of lending his name or credit

HE CANNOT SIGN AS AN ACCOMMODATION DRAWEE

- Because a drawee affixing his signature on the instrument becomes the acceptor. Hence, it is
the acceptor that is included and not the drawee

“PARTY MUST NOT RECEIVE VALUE THEREFOR” — value or consideration from the instrument (2nd
Requisite)

- EXCEPTION: Accommodation party could have received value from the party being
accommodated

WHY IS HE SIGNING THE INSTRUMENT IF HE DID NOT AND IS NOT GOING TO RECEIVE ANY VALUE BY
VIRTUE OF THE SUBJECT INSTRUMENT?

- The real party to the instrument (party being accommodated) might not have the funds needed
or has a poor financial standing. Hence, he will be needing someone who has better standing to
accommodate him — the accommodation party

PURPOSE OF THE ACCOMODATION PARTY IS TO LEND HIS NAME OR CREDIT TO ACCOMMODATED

PARTY (3rd Requisite)

ACCOMMODATION PARTY IS A PARTY TO THE INSTRUMENT, BUT NOT REAL PARTY

- The accommodated party has no reason to expect that the accommodation party to pay if asked
by the holder to pay

IILUSTRATIONS:

1. ACCOMMODATION MAKER
o A wants to issue a PN and use it to pay B, but A has poor financial standing. Hence, he
asked X his rich friend to sign a note to accommodate him.  X will sign a PN making it
payable to A. If A indorses the note to B, the party who will be primarily liable as per the
instrument is X
 X – accommodation party signed as the maker (the one who made the PN)
 A – accommodated party who was made the payee — to which after indorsing it
to B, will become the indorser (payee  indorser)
  B – the indorsee and holder of the instrument
2. ACCOMODATION ACCEPTOR
o A wants to borrow money from B Bank, however he does not have enough funds. A
issue a BOE payable to himself or his order and will ask a rich friend X to accept the said
bill even if A has no funds from X.  A will indorse the bill to X Bank for purposes of
loan, the party primarily liable is B
 A – accommodated party is:
 Drawer (the one who draws or pay)
 Payee (because of the loan)
 Indorser (he negotiated to B)
 X – accommodation acceptor (because he will be the one whom the bank will
debit from the loan)
3. ACCOMODATION DRAWER
o A would want his obligation to B paid but B would not accept the bill. Hence, A
requested his rich friend X to issue and sign a bill where A is the payee. A used the said
bill and indorsed it to B
 A – accommodated party is:
 Payee
 Indorser (he negotiated to B)
 X – accommodation drawer (he will be the one to pay to B so that A)
 B
 Indorsee
 Holder
4. ACCOMODATION INDORSER
o A would want to obtain a loan from a bank but the bank would not allow him due to his
poor financial standing. Hence, A issued a note payable to his order, and thereafter
asked his friend X to sign at the back of the instrument making him an indorser. A used
the said note indorsed by B to apply for loan with the bank
 A – accommodate party is
 Maker
 Payee (because of the loan)
 X – accommodation indorser (because he signed)

THE ACCOMMODATED PARTY CANNOT ENFORCE PAYMENT OR REIMBURSEMENT FROM THE

ACCOMMODATING PARTY BY THE VIRTUE OF NI

- There is no valuable consideration between the accommodating and the accommodated parties.
The accommodating party can raise the personal defense of absence of consideration. It can be
raised successfully because the latter is a non-holder in due course because of personal
knowledge of absence of consideration

EXCEPTION: THE ACCOMMODATION PARTY CANNOT INTERPOSE HE DEFENSE OF WANT OF

CONSIDERATION AGAINST A HOLDER IN DUE COURSE
 - Because the defense of absence of consideration is a personal defense, thus, cannot be raised
against a holder in due course

IF THE HOLDER KNOWS THAT THE ACCOMMODATING PARTY IS JUST ACTING AS SUCH TO
ACCOMMODATE ANOTHER PARTY, HE CAN ASK PAYMENT FROM THE ACCOMMODATING PARTY

SURETYSHIP AGEEMENT