Negotiable Instruments

Law - Chapter 6
By: Atty. Richard M. Fulleros, CPA, MBA
 Parties who are Liable – Chapter 6
• Nature or liability
Primary
Secondary
Maker
Drawer
Acceptor
Indorsers
 Nature of liability
• Active

• Passive
 Who are primary and secondary liable
• Persons primarily liable are the persons who, by the terms of the
instrument, is required to pay the same
• Persons who engages that on due presentment, the instruments shall be
accepted and when the primary liable cannot pay, he will pay the amount
to the holder
 Primary liable
PN
Maker - why is he primarily liable? See section 60

Bill
Acceptor - why is he primarily liable?
 Maker
• 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.
 Maker Primarily Liable
• Engagement of the maker is to pay absolutely for the note according to its
tenor
• His liability is primarily and unconditional
• One  who  has  signed  an  instrument  as  a  maker  is  presumed  to  have
acted with care and to have  signed the instrument with full knowledge of
its contents, unless of course, if fraud is proved
 
Makers must pay according to the terms of the
note
•  The  maker  bound  himself  to  pay  personally.    He  cannot  shift  the
obligation without the consent of the payee.  He cannot allege that he
spend  the  money  on  expenses  which  should  be  charged  to  a  trust
administered  by  a  creditor  because  it  is  not  the  payee’s  concern  to
know how the proceeds should be spent.  That is the sole concern of the
maker.  The payee’s interest is merely to see that the note is paid
according to its term.
 
 Liability vs. Warranty
- Warranty - Affirmation of facts – there must be breach
- Liab - it requires notice of dishonor, breach of warrante
 PNB vs. Maza, GR No. 24224
Facts:
Plaintiff sued the defendant for the non payment of the promissory notes the latter issued
and signed. The defendant argued that a certain Echaus went to them and asked them to
sign a blank instrument. That the defendant argued that they did not benefit from the said
instrument or received its value. The trial court ruled infavor of the plaintiff and ordered
the defendant to pay the judgement, hence the defendant appeal the said judgement.
Issue:
Whether the defendant who did not received the value of the note they signed were still
liable on the instrument.
 Held
Held:
Yes, the defendant were still liable, as accommodation party, the defendants having signed the
instruments without receiving value therefore and for the purpose of lending their names to some other
person, are still liable on the instruments. The law now is that the accommodation party can claim no
benefit as such, but he is liable according to the face of his undertaking, the same as if he were himself
financially interested in the transaction. The defense is made to the action that the defendants never
received the value of the promissory notes. it is, of course, fundamental that an instrument given
without consideration does not create any obligation at law or in equity in favor of the payee. However,
to fasten liability upon an accommodation maker, it is not necessary that any consideration should move
to him. The consideration which supports the promise of the accommodation maker is that parted with
by the person taking the note and received by the person accommodated.
 Liabilities of the Drawer
• Section 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
 Acceptor
• Section 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
 Warranties of the acceptor
• Existence of drawer
• Genuineness of signature of drawer
• Capacity of drawer to draw the instrument
• Existence of payee
• Capacity of the payee to indorse
 PNB vs. Bartolome Picornell GR No. 18751

Facts:
Picornell, following instruction of Hyndman, Tavera & Ventura (HTV), bought in bales of
tobacco from a loan obtained from PNB. The invoice and bill of lading were delivered to the
PNB with the understanding that the bank should not deliver them to HTV except upon payment
of the bill; The invoice and bill of lading was delivered and accepted by HTV who proceeded to
the examination of the tobacco. HTV wrote and cable to Picornell, notifying him that of the
tobacco received, there was a certain portion which was no use and was damaged. After a
number of communication between Picornell and HTV, HTV refuse to pay the bill and instruct
the bank to dispose and sell the tobacco. The Bank sold the tobacco for the amount less of the
bill it advanced. The bank demanded payment for the said balance which Picornell and HTV
refused to pay, hence this case.
 Issue
• Issue:
Whether Picornell and HTV are liable to reimburse the bank on the bill it
advanced to pay for the Tobacco.
 Held

• Yes, HTV cannot escape liability in view of section 28 of the Negotiable Instruments Law. The
drawee by acceptance becomes liable to the payee or his indorsee, and also to the drawer
himself. But the drawer and acceptor are the immediate parties to the consideration, and if the
acceptance be without consideration, the drawer cannot recover of the acceptor. The payee holds
a different relation; he is a stranger to the transaction between the drawer and the acceptor, and
is, therefore, in a legal sense a remote party. In a suit by him against the acceptor, the question as
to the consideration between the drawer and the acceptor cannot be inquired into. The payee or
holder gives value to the drawer, and if he is ignorant of the equities between the drawer and the
acceptor, he is in the position on a bona fide indorsee. Hence, it is no defense to a suit against
the acceptor of a draft which has been discounted, and upon which money has been advance by
the plaintiff, that the draft was accepted or the accommodation of the drawer.
 Indorsers
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.
 Indorsement by agent/ two indorsees
• Agent

• Indorsees
 General Indorser

Sec. 66. Liability of general indorser. - Every indorser who indorses without qualification,
warrants to all subsequent holders in due course:
(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.
Maralit vs. Imperial GR No. 130756 - please
prepare a digest
Imperial deposited US treasury warrants (TS) with the PNB Naga branch of
which Maralit is the Manager. Upon the indorsement of Maralit, Imperial was
allowed to withdraw the amount equivalent to P320,000.00 more or less. Later,
the US TS were returned because the checks were altered. Maralit was made
personally liable for the amount.

Issue:
Whether or not Maralit is liable as an indorser?
 Held
• Yes she is liable but only to the altered amount. She may recover it from
the respondent. (Please complete)
 Associated Bank vs. Tan GR No. 156940
please prepare a digest
Tan is a valued client of Associated Bank (AB), because of this, the bank
usually gives priority to the transactions of Tan including breach of bank
protocols. One time, Tan was allowed to withdraw more than his deposit
since the check deposited in his account will be credited in a few days.
Unfortunately, the check deposited to the account of Tan bounced, thus, the
checks issued by Tan also bounced. Tan instituted a case against AB
because he suffered embarrassment from his suppliers, having had a good
reputation in the Province of Nueva Ecija.
 Issue
• Whether AB is liable
 Held
• Please complete
People vs. Julia Maniego GR No. L-30190

Please prepare the digest

 Warranties of a general indorser
• Section 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.
 Qualified Indorser
• Who is a qualified indorser?
 Negotiation by delivery and qualified
indorsers
• Section 65 Warranty where negotiation by delivery and so forth. — Every person negotiating an instrument by delivery or
by a qualified indorsement warrants:chanroblesvirtuallawlibrary
• (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.
 Indorser of bearer instruments
• Section 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.
 RN Clark vs. Sellner GR No. 16477
• Please make the digest
 Maulini vs. Serrano GR No. 8844
• Please prepare the digest
 Town Savings vs. CA GR No. 106011
• Please prepare the digest