Professional Documents
Culture Documents
NEGOTIABLEINSTRUMENTSLAW
I.FORMSANDINTERPRETATION
A:
1. In writing and signed by the maker or
drawer
2. Contains an unconditional promise or
ordertopayasumcertaininmoney
3. Payable on demand, or at a fixed or
determinablefuturetime
4. Payabletoorderortobearer(socalled
badgesofnegotiability)
5. If addressed to a drawee, he must be
named or otherwise indicated with
reasonablecertainty.(Sec.1)
Note:ChecksarespecialformofBOE.
A:
Astonumber
ofparties
Astoliability
ofparties
Astonumber
of
presentments
needed
A.REQUISITESOFNEGOTIABILITY
A:
1. Words that appear on the face of
negotiableinstrument
2. Requirements enumerated in Section 1
ofNIL
3. Intention of the parties by considering
thewholeoftheinstruments
B.KINDSOFNEGOTIABLEINTRUMENTS
A:
1. Promissory notes (PN) An
unconditional promise in writing made
byonepersontoanother,signedbythe
maker, engaging to pay on demand, or
atafixedordeterminablefuturetime,a
sum certain in money to order or to
bearer.(Sec.184)
16
PROMISSORY
NOTE
Promiseto
pay
2original
parties
Makeris
primarily
liable
Only1
presentment
(for
payment)is
needed
BILLOF
EXCHANGE
Ordertopay
3parties
Draweris
secondarily
liable
2
presentments
(for
acceptance
andfor
payment)are
generally
needed
II.COMPLETIONANDDELIVERY
A.INSERTIONOFDATE
Q:Whenisdateimportant?
MERCANTILELAWTEAM:
ADVISER:ATTY.AMADOE.TAYAG;SUBJECTHEAD:EARLM.LOUIEMASACAYAN;
ASST.SUBJECTHEADS:KIMVERLYA.ONG&JOANNAMAYD.G.PEADA;MEMBERS:MA.ELISAJONALYNA.BARQUEZ,ANGELIR.CARPIO,
ANTONETTET.COMIA,ALBANROBERTLORENZOF.DEALBAN,JOEBENT.DEJESUS,CHRISJARKACEM.MAO,ANNAMARIEP.OBIETA,
RUBYANNEB.PASCUA,FLORANGELAT.SABAUPAN,GIANFRANCESNICOLEC.VILCHES
A:
1. Where an instrument expressed to be
payable at a fixed period after date is
issuedundated,or
2. Wheretheacceptanceofaninstrument
payable at a fixed period after sight is
undated
Completeinstrument
a. Delivered
i. Withforgeryandalteration
ii. Without
forgery
and
alteration
b. Notdelivered
i. Withforgeryandalteration
ii. Without
forgery
and
alteration
C.INCOMPLETEBUTDELIVEREDINSTRUMENTS
2.
Note:Anyholdermayinsertthereinthetruedateof
issue or acceptance, and the instrument shall be
payableaccordingly.(Sec.13)
Q:Whenisaninstrumentincomplete?
Q:Whatistheeffectofinsertionofwrongdate?
B.COMPLETIONOFBLANKS
Q:Whohastheauthoritytofilluptheblanksin
anincompletebutdeliveredinstrument?
Q:Whatismeantbymaterialparticular?
A:
1. Incompleteinstrument
a. Delivered
i. Withforgeryandalteration
ii. Without
forgery
and
alteration
b. Notdelivered
i. Withforgeryandalteration
ii. Without
forgery
and
alteration
ACADEMICSCHAIR:LESTERJAYALANE.FLORESII
UNIVERSITYOFSANTOTOMAS
VICECHAIRSFORACADEMICS:KARENJOYG.SABUGO&JOHNHENRYC.MENDOZA
Facultad de Derecho Civil
V ICECHAIRFORADMINISTRATIONANDFINANCE:JEANELLEC.LEE
VICECHAIRSFORLAYOUTANDDESIGN:EARLLOUIEM.MASACAYAN&THEENAC.MARTINEZ
17
D.INCOMPLETEANDUNDELIVERED
INSTRUMENTS
Reason:Deliveryisessentialtovalidity.(Sec.15)
E.COMPLETEBUTUNDELIVERED
A:Itisincompleteandrevocableuntildeliveryof
theinstrumentforthepurposeofgivingiteffect.
(Sec.16)
Q:Whatisdelivery?
Q:Whenisaninstrumentissued?
18
Q:Whatiftheinstrumentisinthepossessionof
apartyotherthanaholderinduecourse?
A: Possession of such party constitutes prima
facie presumption of delivery but subject to
rebuttal.
Q:Whoareimmediateparties?
A:Personshavingknowledgeoftheconditionsor
limitations placed upon the delivery of an
instrument.Itmeansprivity,andnotproximity.
Q:Whoareremoteparties?
MERCANTILELAWTEAM:
ADVISER:ATTY.AMADOE.TAYAG;SUBJECTHEAD:EARLM.LOUIEMASACAYAN;
ASST.SUBJECTHEADS:KIMVERLYA.ONG&JOANNAMAYD.G.PEADA;MEMBERS:MA.ELISAJONALYNA.BARQUEZ,ANGELIR.CARPIO,
ANTONETTET.COMIA,ALBANROBERTLORENZOF.DEALBAN,JOEBENT.DEJESUS,CHRISJARKACEM.MAO,ANNAMARIEP.OBIETA,
RUBYANNEB.PASCUA,FLORANGELAT.SABAUPAN,GIANFRANCESNICOLEC.VILCHES
A:
1. Without forgery and alteration, all
partiesarebound.
ii. Orderbillofexchange
- Drawers account cannot
be charged by the
Drawee;
- Drawer has no cause of
action against collecting
bank, since the duty of
the latter is only to
payee;
- Draweecanrecoverfrom
collectingbank;
- Drawer not liable to the
collecting
bank.
Collecting bank bears
loss (can recover from
personitpaid)
- Payee can recover from:
Drawer and Collecting
bank, but not from
Drawee unless with
acceptanceofthebill;
b. Bearerinstruments
i. Bearerpromissorynote
- Priorpartiesliable;
- Forged signatory not
liabletopartynotholder
induecourse.
ii. Bearerbillofexchange
- Draweebankliable.
III.RULESONINTERPRETATION
Q:Whataretherulesofconstructionincaseof
ambiguitiesinanegotiableinstrument?
A:
1.
2.
3.
4.
5.
6.
7.
Wordsprevailoverfigures
Interest runs from the date of the
instrument, if date from which interest
istorunisunspecified;ifundated,from
theissue
If undated, deemed dated on the date
ofissue
Writtenprovisionsprevailoverprinted
If there is doubt whether it is a bill or
note,theholdermaytreatitaseitherat
hiselection
When not clear in what capacity it was
signed,deemedsignedasanindorser
If "I promise to pay" but signed by two
or more persons, jointly and severally
liable.
IV.SIGNATURE
Q:Whoarethepersonsliableonaninstrument?
A:
GR:Onlypersonswhosesignaturesappearon
aninstrumentareliablethereon.(Sec.18)
XPN:
1. Person signs in trade or assumed name
(Sec. 18 [2]) Party who signed must
have intended to be bound by his
signature.
3. Incaseofforgery(Sec.23)
4. Acceptormakeshisacceptanceofabill
onaseparatepaper(Sec.134)
5. Person makes a written promise to
accept the bill before it is drawn (Sec.
135)
ACADEMICSCHAIR:LESTERJAYALANE.FLORESII
UNIVERSITYOFSANTOTOMAS
VICECHAIRSFORACADEMICS:KARENJOYG.SABUGO&JOHNHENRYC.MENDOZA
Facultad de Derecho Civil
V ICECHAIRFORADMINISTRATIONANDFINANCE:JEANELLEC.LEE
VICECHAIRSFORLAYOUTANDDESIGN:EARLLOUIEM.MASACAYAN&THEENAC.MARTINEZ
19
A.SIGNINGINTRADENAME
Q:Isapersonsigningintradenameliable?
B.SIGNATUREOFANAGENT
A:
1. Heisdulyauthorized
2. He adds words to his signature
indicating that he signs as
agent/representative
3. He discloses the name of his
principal.(Sec.20)
Q:Whatismeantbyprocuration?
A:Itoperatesasnoticethattheagenthasbuta
limited authority to sign and the principal is
bound only in case the agent in so signing acted
withintheactuallimitsofhisauthority.(Sec.21)
C.INDORSEMENTBYMINORORCORPORATION
A:
1. Notvoid.Theincapacityoftheinfantis
not a defense which can be availed of
by prior parties. However, it does not
20
2.
3.
4.
D.FORGERY
Q:Whatisforgery?
A:Forgeryisthecounterfeitmakingorfraudulent
alterationofanywriting.
Q:Whenisthereforgery?
A:Signatureisaffixedbyonewhodoesnotclaim
to act as an agent and who has no authority to
bindthepersonwhosesignaturehehasforged.
Q:Whenistherewantofauthority?
A:Signatureisaffixedbyonewhopurportstobe
anagentbuthasnoauthoritytobindthealleged
principal.
Q:Whatistheeffectwhenthereisforgery?
A:
GR: It does NOT render the instrument void.
The signature is wholly inoperative, and no
right to retain the instrument, or to give a
discharge thereof, or to enforce payment
thereof against any party to it, is acquired
throughorundersuchsignature.(Cutoffrule)
XPN:
1. Ifthepartyagainstwhomitissoughtto
enforce such right is precluded from
settingupforgeryorwantofauthority.
(Sec.23)
2. Where the forged signature is not
necessarytotheholderstitle,inwhich
case, the forgery may be disregarded
(Sec.48)
MERCANTILELAWTEAM:
ADVISER:ATTY.AMADOE.TAYAG;SUBJECTHEAD:EARLM.LOUIEMASACAYAN;
ASST.SUBJECTHEADS:KIMVERLYA.ONG&JOANNAMAYD.G.PEADA;MEMBERS:MA.ELISAJONALYNA.BARQUEZ,ANGELIR.CARPIO,
ANTONETTET.COMIA,ALBANROBERTLORENZOF.DEALBAN,JOEBENT.DEJESUS,CHRISJARKACEM.MAO,ANNAMARIEP.OBIETA,
RUBYANNEB.PASCUA,FLORANGELAT.SABAUPAN,GIANFRANCESNICOLEC.VILCHES
A:
1. Those who admit/warrant the
genuinenessofthesignature:indorsers,
persons negotiating by delivery and
acceptor;(Sec56)
2. Those who by their acts, silence, or
negligence, areestoppedfromclaiming
forgery;
3. A holder of a bearer instrument who
subsequently
negotiates
such
instrument with a prior forged
indorsement(forgedindorsementisnot
necessary to his title it being a bearer
instrument).
Q:Whataretherightsofthepartiesincasesof
forgedinstruments?
A:
1. Wherenotepayabletoorder:
1. Party whose signature was forged
is not liable to a holder, even a
HIDC
2. Indorsementiswhollyinoperative.
3.
Thedraweebankisunderstrictliabilitytopaythe
checktotheorderofthepayee.Paymentundera
forged indorsement is not to the drawer's order.
Since the drawee bank did not pay a holder or
other person entitled to receive payment, it has
no right to reimbursement from the drawer.
(AssociatedBankv.CA,G.R.No.107382,Jan.31,
1996)
Q:Whatistheremedyofthedraweebank?
A:Thedraweebankmaynotdebittheaccountof
the drawer but may generally pass liability back
through the collection chain to the party who
tookfromtheforgerand,ofcourse,totheforger
himself, if available. If the forgery is that of the
payee's or holder's indorsement, the collecting
bankisheldliable,withoutprejudicetothelatter
proceeding against the forger. Since a forged
indorsement is inoperative, the collecting bank
hadnorighttobepaidbythedraweebank.The
former must necessarily return the money paid
by the latter because it was paid wrongfully.
(AssociatedBankv.CA,G.R.No.107382,Jan.31,
1996)
A:Thelossoccasionedbysuchnegligenceshould
bedividedequallybetweenthedrawer/depositor
andthedrawee.
2.
Wherenotepayabletobearer:
a. The party whose indorsement is
forged is liable to a HIDC, but not
toonewhoisnotaHIDC
Reason: it can be negotiated by
meredelivery
b. The only defense available is want
ofdeliverybutthisdefensecanbe
raised only against a holder not in
duecourse.
ACADEMICSCHAIR:LESTERJAYALANE.FLORESII
UNIVERSITYOFSANTOTOMAS
VICECHAIRSFORACADEMICS:KARENJOYG.SABUGO&JOHNHENRYC.MENDOZA
Facultad de Derecho Civil
V ICECHAIRFORADMINISTRATIONANDFINANCE:JEANELLEC.LEE
VICECHAIRSFORLAYOUTANDDESIGN:EARLLOUIEM.MASACAYAN&THEENAC.MARTINEZ
21
Q:Canadrawer,fromwhomcheckswerestolen
but failed to report the same to the authorities
or the drawee bank, recover the value of the
checks paid by the drawee bank on the forged
checkswhichwasstolenfromthedrawer?
However,thedrawermaybeprecluded
or estopped from setting up the
defense of forgery as against the
draweebank,whenitisshownthatthe
drawerhimselfhadbeenguiltyofgross
negligence as to have facilitated the
forgery (Metropolitan Waterworks v.
CA,G.R.No.L62943,July14,1986).
2.
3.
4.
A:No,thedrawercannotrecover.Heistheone
which stands to be blamed for its
negligence/predicament.(SecurityBankandTrust
Company v. Triumph Lumber and Construction
Corp.,G.R.No.126696,Jan.21,1999)
Q: How is forgery proven and who has the
burdenofproof?
A:Forgery,asanyothermechanismoffraudmust
be proven clearly and convincingly, and the
burden of proof lies on the party alleging
forgery.(Chiang Yia Min v. CA, G.R. No. 137932,
Mar.28,2001)
A:
1. When drawer's signature is forged
Draweebank by accepting the check
cannot set up the defense of forgery,
because by accepting the instrument,
the drawee bank admits the
genuinenessofsignatureofdrawer(BPI
Family Bank v. Buenaventura, G.R. No.
148196,Sept.30,2005;Sec.23,NIL).
22
MERCANTILELAWTEAM:
ADVISER:ATTY.AMADOE.TAYAG;SUBJECTHEAD:EARLM.LOUIEMASACAYAN;
ASST.SUBJECTHEADS:KIMVERLYA.ONG&JOANNAMAYD.G.PEADA;MEMBERS:MA.ELISAJONALYNA.BARQUEZ,ANGELIR.CARPIO,
ANTONETTET.COMIA,ALBANROBERTLORENZOF.DEALBAN,JOEBENT.DEJESUS,CHRISJARKACEM.MAO,ANNAMARIEP.OBIETA,
RUBYANNEB.PASCUA,FLORANGELAT.SABAUPAN,GIANFRANCESNICOLEC.VILCHES
V.CONSIDERATION
Q:Whatisconsideration?
Q:Whatisthepresumptionrecognizedbylawas
totheexistenceofconsideration?
Q:Whatconstitutesvalue?
A:
1. Fraud in the execution or fraud in
factumAperson,withoutnegligence,
has signed an instrument which was in
factanegotiableone,butwasdeceived
as to the character of the instrument
and without knowledge of it (real
defense).
2. Fraudintheinducementorsimplefraud
Relatestothequantity,quality,value
orcharacteroftheconsiderationofthe
instrument. Deceit is not in the
character of the instrument but in its
amountorterms(personaldefense).
A:Thefailureofthedrawertoreporttheforgery
withintendaysfromreceiptofthemonthlybank
statement from the drawee bank does not
preclude the drawer from questioning the
mistakeofthedraweebankdespitetheprovision.
(BPIv.CASAMontessor,G.R.No.149454,May28,
2004)
A:Thebarefactthattheforgerywascommitted
byanemployeeofthepartywhosesignaturewas
forgedcannotnecessarilyimplythatsuchpartys
negligence was the cause of the forgery in the
absence of some circumstances raising estoppel
againstthedrawer.(SamsungConstructionCo.v.
Far East Bank and Trust Company, G.R. No.
129015,Aug.13,2004)
Note:Anantecedentorpreexistingdebtconstitutes
valueandisdeemedsuchwhethertheinstrumentis
payableondemandoratafuturetime.(Sec.25)
Loveandaffectiondonotconstitutevaluewithinthe
meaningofthelaw.
Q:Whoisaholderforvalue?
A:Onewhohasgivenavaluableconsiderationfor
the instrument issued or negotiated to him (Sec.
26).
Q:Uptowhatextentcanaholderbeconsidered
aholderforvalue?
Note:Wheretheholderhasalienontheinstrument
arisingeitherfromcontractorbyimplicationoflaw,
heisdeemedaholderforvaluetotheextentofhis
lien.(Sec.27)
Q:Whatistheeffectofwantofconsideration?
A:Itbecomesamatterofdefenseasagainstany
personnotaholderinduecourse(Sec.28);
A:Partialfailureofconsiderationisadefensepro
tanto, whether the failure is an ascertained and
liquidatedamountorotherwise(Sec.28)
ACADEMICSCHAIR:LESTERJAYALANE.FLORESII
UNIVERSITYOFSANTOTOMAS
VICECHAIRSFORACADEMICS:KARENJOYG.SABUGO&JOHNHENRYC.MENDOZA
Facultad de Derecho Civil
V ICECHAIRFORADMINISTRATIONANDFINANCE:JEANELLEC.LEE
VICECHAIRSFORLAYOUTANDDESIGN:EARLLOUIEM.MASACAYAN&THEENAC.MARTINEZ
23
A:Thedrawerofacheck,notthepayee,hasthe
burdenofprooftoshowthattheinstrumentwas
issued without sufficient consideration. Since a
negotiable instrument is presumed to have been
issued for a valuable consideration, the mere
presentation of a dishonored instrument in
evidence entitles the holder to recover from the
drawer even if the payee did not establish the
accountability of the drawer. (TravelOn v. CA,
G.R.No.L56169,June26,1992)
Q:Whatismeantbyfailureofconsideration?
VI.ACCOMODATIONPARTY
Q:Whoisanaccommodationparty?
A:Onewhohassignedtheinstrumentasmaker,
drawer, acceptor, or indorser, without receiving
valuetherefor,andforthepurposeoflendinghis
nametosomeotherperson.(Sec.29)
24
A:
1. Accommodation party must sign as
maker,drawer,acceptororindorser
2. No value is received by the
accommodation party for the
accommodatedparty;and
3. Thepurposeistolendthename.
A:
ACCOMMODATION
PARTY
Signsaninstrument
withoutreceiving
valuetherefore(Sec.
29)
Purposeofsigning:
lendhisnameto
anotherperson(Sec.
29)
Mayalwaysshow,by
parolevidence,thathe
isonlysuch
Cannotavailofthe
defenseof
absence/failureof
considerationagainsta
holdernotindue
course
Maysue
reimbursementafter
payingthe
holder/subsequent
party
REGULARPARTY
Signstheinstrument
forvalue(Sec.24)
Notforthatpurpose
Cannotdisclaim
personalliabilityby
parolevidence
Mayavail
Maynotsue
Q:Uptowhatextentisanaccommodationparty
liable?
A:
1. Right to revoke accommodation
before the instrument has been
negotiatedforvalue.
2. Right
to
reimbursement
from
accommodated
party
the
accommodatedpartyistherealdebtor.
Hence,thecauseofactionisnotonthe
instrument but on an implied contract
ofreimbursement.
MERCANTILELAWTEAM:
ADVISER:ATTY.AMADOE.TAYAG;SUBJECTHEAD:EARLM.LOUIEMASACAYAN;
ASST.SUBJECTHEADS:KIMVERLYA.ONG&JOANNAMAYD.G.PEADA;MEMBERS:MA.ELISAJONALYNA.BARQUEZ,ANGELIR.CARPIO,
ANTONETTET.COMIA,ALBANROBERTLORENZOF.DEALBAN,JOEBENT.DEJESUS,CHRISJARKACEM.MAO,ANNAMARIEP.OBIETA,
RUBYANNEB.PASCUA,FLORANGELAT.SABAUPAN,GIANFRANCESNICOLEC.VILCHES
A:Yes,aholderforvaluemayrecover.Thisisso
becauseanaccommodationpartyisliableonthe
instrumenttoaholderforvalue,notwithstanding
that such holder at the time of taking the
instrument knew him to be only an
accommodationparty.Theaccommodationparty
is liable to a holder for value as if the contract
was not for accommodation. It is not a valid
defense that the accommodation party did not
receive any valuable consideration when he
executed the instrument. Nor is it correct to say
that the holder for value is not a holder in due
course merely because at the time he acquired
the instrument, he knew that the indorser was
onlyanaccommodationparty.(AngTiongv.Ting,
G.R.No.L26767,Feb.22,1968)
VII.NEGOTIATION
Q:Whenisaninstrumentnegotiated?
2.
3.
A.DISTINGIUSHEDFROMASSIGNMENT
A:
NEGOTIATION
Onlyanegotiable
instrumentmaybe
negotiated
Thetransferee,ifheis
aHIDCmayacquire
betterrightsthanhis
transferor.
Theholdercanhold
thedrawerliableand
theindorsersliableif
thepartyprimarily
liabledoesnotpay.
ASSIGNMENT
Nonnegotiable
instrumentmaybe
assignedabsentofany
prohibitionagainst
assignmentwrittenon
itsface.
Thetransfereecan
havenobetterrights
thanhistransferor;he
merelystepsintothe
shoesoftheassignor
Thetransfereehasno
rightofrecoursefor
paymentagainst
immediateparties.
ACADEMICSCHAIR:LESTERJAYALANE.FLORESII
UNIVERSITYOFSANTOTOMAS
VICECHAIRSFORACADEMICS:KARENJOYG.SABUGO&JOHNHENRYC.MENDOZA
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25
B.MODESOFNEGOTIATION
Q:Whatarethemethodsofnegotiation?
A:
1. If payable to bearer it is negotiated by
delivery
2. Ifpayabletoorderitisnegotiatedbythe
indorsement of the holder completed by
delivery.(Sec.30)
"PayabletoAna.Signed:Joana."
Q:Whereindorsementshouldbeplaced?
A:
1. Ontheinstrumentitself;or
2. On a separate piece of paper attached
totheinstrumentcalledallonge.(Sec.
31)
26
Q:Cantherebepartialindorsement?
A:
GR: No. Indorsement must be of the entire
instrument.(Sec.32)
XPN:Whenthereispartialpayment.
Q:Whatistheeffectwhenanorderinstrument
wasdeliveredwithoutindorsement?
A:Thetransfereedoesnotbecomeaholderand
hemerelystepsintotheshoesofthetransferor.
Any defense available against the transferor is
availableagainstthetransferee.(Salasv.CA,G.R.
No.76788Jan.22,1990)
Q:Whatisanindorsement?
A:Indorsementisthewritingofthenameofthe
indorser on the instrument with the intent to
transfertitletothesame.
Q:WhatarethedifferentkindsofIndorsement?
A:
1. Special(Sec.34)Specifiesthepersonto
whom or to whose order the
instrumentistobepayable.Alsoknown
asspecificindorsementorindorsement
infull.
2. Blank(Sec.34)Specifiesnoindorsee.
1. Instrument is payable to bearer
andmaybenegotiatedbydelivery;
2. May be converted to special
indorsement by writing over the
signature of the indorser in blank
any contract consistent with the
characterofindorsement(Sec.35).
MERCANTILELAWTEAM:
ADVISER:ATTY.AMADOE.TAYAG;SUBJECTHEAD:EARLM.LOUIEMASACAYAN;
ASST.SUBJECTHEADS:KIMVERLYA.ONG&JOANNAMAYD.G.PEADA;MEMBERS:MA.ELISAJONALYNA.BARQUEZ,ANGELIR.CARPIO,
ANTONETTET.COMIA,ALBANROBERTLORENZOF.DEALBAN,JOEBENT.DEJESUS,CHRISJARKACEM.MAO,ANNAMARIEP.OBIETA,
RUBYANNEB.PASCUA,FLORANGELAT.SABAUPAN,GIANFRANCESNICOLEC.VILCHES
4.
1.
2.
4.
3.
5.
6.
7.
RestrictiveWhentheinstrument:
a. Prohibitsfurthernegotiationofthe
instrument (it destroys the
negotiabilityoftheinstrument);
b. Constitutestheindorseetheagent
oftheindorser;(Sec.36)
c. Vests the title in the indorsee in
trust for or to the use of some
persons. But mere absence of
wordsimplyingpowertonegotiate
does not make an instrument
restrictive.
A:
1. Toreceivepaymentoftheinstrument;
2. To bring any action thereon that the
indorsercouldbring;and
3. To transfer his rights as such indorsee,
where the form of the indorsement
authorizeshimtodoso.(Sec.37)
Q:Whatdosubsequentindorseesacquireunder
therestrictiveindorsement?
A:Allsubsequentindorseesacquireonlythetitle
st
ofthe1 indorsee.(Sec.37)
Q:Whenthereisajointindorsement,whomust
indorse?
A:
GR: All must indorse in order for the
transaction to operate as a negotiation. (Sec.
41)
XPN:
1. Payeesorindorseesarepartners;and
2. Payee or indorsee indorsing has
authoritytoindorsefortheothers.
A:
1. Indorsement of part of the amount of
theinstrument.(Sec.32)
2. In cases of qualified indorsement. (Sec.
38)
3. ConditionalIndorsement.(Sec.39)
4. Transfer of an instrument payable to
orderbymeredelivery.(Sec.49)
Note:Allofthemmustindorseunlessthe
oneindorsinghasauthoritytoindorsefor
theothers
6.
7.
8.
Forgery;
Lack of good title on the part of the
indorser;
Lack of capacity to indorse on the part
ofthepriorparties;or
The fact that at the time of the
indorsement, the instrument was
valuelessornotvalidatthetimeofthe
indorsement which fact was known to
him.
Q:Whatistheeffectofaqualifiedindorsement:
ACADEMICSCHAIR:LESTERJAYALANE.FLORESII
UNIVERSITYOFSANTOTOMAS
VICECHAIRSFORACADEMICS:KARENJOYG.SABUGO&JOHNHENRYC.MENDOZA
Facultad de Derecho Civil
V ICECHAIRFORADMINISTRATIONANDFINANCE:JEANELLEC.LEE
VICECHAIRSFORLAYOUTANDDESIGN:EARLLOUIEM.MASACAYAN&THEENAC.MARTINEZ
27
Q:Whencananindorsementbestrickenout?
Q:Whatarethelimitationstorenegotiation?
VII.RIGHTSOFAHOLDER
Q:Whoisaholder?
A:Thepayeeorindorseeofabillornotewhois
in possession of it or the bearer thereof. (Sec.
191)
Q:Whataretheclassesofholders?
A:
1. Holders in general (Simple Holders).
(Sec.51)
2. Holdersforvalue.(Sec.26)
3. Holdersinduecourse.(Secs.52,57)
Q:Whataretherightsofaholderingeneral?
A:
1. Righttosue
2. Righttoreceivepayment(Sec.51)
Note:Ifthepaymentisinduecourse,the
instrumentisdischarged.
28
A.HOLDERINDUECOURSE
Q:Whatconstitutespaymentinduecourse?
A:Whenmade:
1. At or after the maturity of the
instrument
2. Totheholderthereof,ingoodfaithand
withoutnoticethathistitleisdefective
(Sec.88)
Q:Whoisaholderinduecourse(HIDC)?
A:Hewhotakesanegotiableinstrument:
2.
3.
4.
Tookitingoodfaithandforvalue;
Atthetimeitwasnegotiatedtohim,he
had no notice of any infirmity in the
instrument or defect in the title of the
personnegotiatingit.(Sec.52)
MERCANTILELAWTEAM:
ADVISER:ATTY.AMADOE.TAYAG;SUBJECTHEAD:EARLM.LOUIEMASACAYAN;
ASST.SUBJECTHEADS:KIMVERLYA.ONG&JOANNAMAYD.G.PEADA;MEMBERS:MA.ELISAJONALYNA.BARQUEZ,ANGELIR.CARPIO,
ANTONETTET.COMIA,ALBANROBERTLORENZOF.DEALBAN,JOEBENT.DEJESUS,CHRISJARKACEM.MAO,ANNAMARIEP.OBIETA,
RUBYANNEB.PASCUA,FLORANGELAT.SABAUPAN,GIANFRANCESNICOLEC.VILCHES
A:
GR:Everyholderisdeemedprimafacietobe
aholderinduecourse;
Q:CanapayeebeaHIDC?
Q:WhataretherightsofaHNIDC?
A:HehasalltherightsofaHIDCfromwhomhe
derives his title in respect of all parties prior to
suchholder,providedheisnothimselfapartyto
any fraud or illegality affecting the instrument.
(Sec.58)
Q:CanadraweebeaHIDC?
Q:WhataretherightsofaHIDC?
A:
1. Holdtheinstrumentfreefromdefenses
availabletopartiesamongthemselves
2. Hold the instrument free from any
defectoftitleofpriorparties
3. Receivepayment
4. Enforce payment of the instrument for
the full amount thereof against all
partiesliable
5. Sue
Q:Whoisaholdernotinduecourse(HNIDC)?
A:
1. One who became a holder of an
instrument without any of the
requisitesunderSec.52
2. Onetowhomaninstrumentpayableon
demand is negotiated after an
unreasonablelengthoftimefromissue.
(Sec.53)
Q:Howdoestheshelterprincipleembodiedin
theNegotiableInstrumentsLawoperatetogive
the rights of a HIDC to a holder who does not
havethestatusofaHIDC?Brieflyexplain.
A:Undertheshelterprinciple,apersonwhodoes
not qualify as a holder in due course can,
nonetheless,acquiretherightsandprivilegesofa
holder in due course if he deriveshis title to the
instrument through a holder in due course.
However, a person who previously held the
instrument cannot improve his position by later
reacquiring it from a holder in due course if the
former holder was a party to fraud or illegal
activityaffectingtheinstrumentorhadnoticeof
a claim or defense against theinstrument. (2008
BarQuestion)
A:
1. In its acquisition 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.
ACADEMICSCHAIR:LESTERJAYALANE.FLORESII
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29
2.
InthenegotiationWhenhenegotiatesit
in breach of faith, or under such
circumstancesasamounttoafraud.(Sec.
55)
A:No,therulethatapossessoroftheinstrument
isprimafacieaHIDCdoesnotapplytoMBClinic
because there was a defect in the title of the
holder, since the instrument was not payable to
WILMA or to bearer, the drawer had no account
with the payee, Wilma did not show or tell the
payee why she had the check in his possession
and why he was using it for the payment of his
own account. As holders title was defective or
suspicious, it cannot be stated that the payee
acquired the check without knowledge of said
defectinholderstitle,thepresumptionthatitis
a HIDC does not exist. (De Ocampo& Co. v.
Gatchalian,G.R.No.L15126,Nov.30,1961)
A:No,thatthecheckshadbeenissuedsubjectto
theconditionthatthedraweronduedatewould
make the back up deposit for said check which
condition was not made, constitutes a good
defense against the holder who is not a HIDC,
30
Q:Isacorporationtowhichfourcrossedchecks
wereindorsedbythepayeecorporationaholder
induecourseandhenceentitledtorecoverthe
amountofthecheckswhenthesamehadbeen
dishonored for the reason of payment
stopped?
B.DEFENSESAGAINSTTHEHOLDER
Q:WhatarethedefensesagainsttheHolder?
A:
1. RealDefensesthosethatareavailable
against all parties, both immediate and
remote,includingholdersinduecourse.
MERCANTILELAWTEAM:
ADVISER:ATTY.AMADOE.TAYAG;SUBJECTHEAD:EARLM.LOUIEMASACAYAN;
ASST.SUBJECTHEADS:KIMVERLYA.ONG&JOANNAMAYD.G.PEADA;MEMBERS:MA.ELISAJONALYNA.BARQUEZ,ANGELIR.CARPIO,
ANTONETTET.COMIA,ALBANROBERTLORENZOF.DEALBAN,JOEBENT.DEJESUS,CHRISJARKACEM.MAO,ANNAMARIEP.OBIETA,
RUBYANNEB.PASCUA,FLORANGELAT.SABAUPAN,GIANFRANCESNICOLEC.VILCHES
A.MAKER
Q:Whataretheliabilitiesamaker?
A:
1. Engagestopayaccordingtothetenorof
theinstrument;and
2. Admits the existence of the payee and
histhencapacitytoindorse.(Sec.60)
IX.LIABILITIESOFPARTIES
Q:Whoareprimarilyliable?
A:
1. Makerinapromissorynote
2. Acceptorinabillofexchange
Q:Whoaresecondarilyliable?
A:
1. Drawer
2. Indorser
Q:Distinguishadrawerfromamaker.
A:
DRAWER
IssuesaBOE
Onlysecondarilyliable
Canlimithisliabilityby
puttingwithout
recourse
A:
1. Thatpayeeisafictitiousperson
2. That payee was insane, a minor, or a
corporationactingultravires.
A:AninstrumentwhichbeginswithI,orEither
of us promise to pay, when signed by two or
morepersons,makesthemsolidarilyliable.Also,
the phrase joint and several binds the makers
jointly and individually to the payee so that all
maybesuedtogetherforitsenforcement,orthe
creditormayselectoneormoreastheobjectof
the suit. (Astro Electronics Corp. v. Phil. Export
and Foreign Loan Guarantee Corporation, G.R.
No.96073,Dec.21,2003)
Q:OntherightbottommarginofaPNappeared
thesignatureofthecorporationspresidentand
treasurer above their printed names with the
phrase and in his personal capacity. The
corporation failed to pay its obligation. Are the
officersliable?
MAKER
IssuesaPN
Primarilyliable
Cannotlimitliability
Q:Whataretheconditionsinorderforpersons
secondarily liable in a BOE (drawer and
indorsers)tobecomeliable?
A:
1. The bill is presented for acceptance
(Sec.143)
2. The bill is dishonored by non
acceptance or nonpayment (Sec. 70);
and
3. Thenecessaryproceedingsfordishonor
aredulytaken.(Sec.152)
Q:Towhomshouldpresentmentbemade?
A:
1. Promissorynotemaker
2. Billofexchangedrawee/acceptor
A:SeeAppendixB
ACADEMICSCHAIR:LESTERJAYALANE.FLORESII
UNIVERSITYOFSANTOTOMAS
VICECHAIRSFORACADEMICS:KARENJOYG.SABUGO&JOHNHENRYC.MENDOZA
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A:ThebankcannotrecovertheamountpaidtoB
forthecheck.Whenthebankhonoredthecheck,
it became an acceptor. As acceptor, the bank
became primarily and directly liable to the
payee/holderB.
TherecourseofthebankshouldbeagainstXand
itsbookkeeperwhoconspiredtomakeX'sledger
show that he has sufficient funds. (1998 Bar
Question)
B.DRAWER
Q:Towhomisthedrawersecondarilyliable?
A:
1. Theholder
2. Any of the indorsers intervening
between holder and drawer who is
compelled to pay by the holder, the
drawerwillbeliabletothatindorserso
compelledtopay
C.ACCEPTOR
Q:Whataretheliabilitiesofanacceptor?
1. Engagestopayaccordingtothetenorof
hisacceptance
2. Admits the existence of the drawer, the
genuineness of his signature and his
capacity and authority to draw the
instrument
3. Admits the existence of the payee and
histhencapacitytoindorse.(Sec.62)
D.INDORSER
Q:Whoisdeemedanindorser?
32
indicatesbyappropriatewordshisintentiontobe
boundinsomeothercapacity.(Sec.63)
Note: A person who places his indorsement on an
instrumentnegotiablebydeliveryincursallliabilities
ofanindorser.(Sec.67)
A:Anirregularindorser,nototherwiseapartyto
the instrument, places his signature thereon in
blank before delivery to add credit thereto. A
general indorser is a regular party to the
instrument like a maker, drawer or acceptor and
he signs upon delivery of the instrument. While
an irregular indorser signs for accommodation, a
regular indorser signs for valuable consideration.
(Sec.64[2])(2005BarQuestion)
Q:Whoisaqualifiedindorser?
A: A qualified indorser is a person who indorses
withoutrecourse.(Sec.65)
Q: Does an indorser warrant the solvency of
priorparties?
A:AisliabletoF.Asthemakerofthepromissory
note,AisdirectlyorprimarilyliabletoF,whoisa
holderinduecourse.Despitethepresenceofthe
special indorsements on the note, these do not
detract from the fact that a bearer instrument is
always negotiable by mere delivery, until it is
indorsedrestrictivelyfordepositonly.
B,asageneralendorser,isliabletoFsecondarily,
and warrants that the instrument is genuineand
inallrespectswhatitpurportstobe;thathehas
goodtitletoit;thatallpriorpartieshadcapacity
tocontract;thathehasnoknowledgeofanyfact
whichwouldimpairthevalidityoftheinstrument
or render it valueless; that at the time of his
indorsement, the instrument is valid and
MERCANTILELAWTEAM:
ADVISER:ATTY.AMADOE.TAYAG;SUBJECTHEAD:EARLM.LOUIEMASACAYAN;
ASST.SUBJECTHEADS:KIMVERLYA.ONG&JOANNAMAYD.G.PEADA;MEMBERS:MA.ELISAJONALYNA.BARQUEZ,ANGELIR.CARPIO,
ANTONETTET.COMIA,ALBANROBERTLORENZOF.DEALBAN,JOEBENT.DEJESUS,CHRISJARKACEM.MAO,ANNAMARIEP.OBIETA,
RUBYANNEB.PASCUA,FLORANGELAT.SABAUPAN,GIANFRANCESNICOLEC.VILCHES
CisnotliabletoFsincethelattercannottracehis
title to the former. The signature of C in the
supposedindorsementbyhimtoDwasforgedby
X.Ccanraisethedefenseofforgerysinceitwas
his signature that was forged. (2001 Bar
Question)
Q:Canacollectingbankdebittheaccountofthe
depositorwhenthechecksindorsedtoit(bank)
wereforged?
2.
TotheholderInanyorder
Q:CarmeloindorsedachecktoLinas.Paolostole
the check from Linas, forged the latters
signatureandindorsedittoJohan.DenverBank
encashed the check upon presentment thereof
byJohan.Whoisthepartyliable?
Q:Whatistheliabilityofanagentorbrokerwho
negotiatesaninstrumentwithoutindorsement?
Q:Phebean,thedrawerissuedachecktoJames.
James,subsequentlyindorsedittoTrude.When
Trudeisabouttoencashthecheck,thedrawee
Union Bank refused to encash it due to
insufficiency of funds. Trude sued James for
payment of money. James alleged that the suit
should be dismissed because Phebean is an
indispensableparty.DoesJamesargumenthold
water?
Q:TreasurywarrantswereindorsedbyAandB.
These were presented for encashment by PNB.
Subsequently, these were dishonored by the
Insular Treasurer. Because of the dishonor, PNB
Note:Parolevidenceisnotadmissibletorelievean
agent or broker whose endorsement brings him
withintheaboveliability.
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UNIVERSITYOFSANTOTOMAS
VICECHAIRSFORACADEMICS:KARENJOYG.SABUGO&JOHNHENRYC.MENDOZA
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33
E.WARRANTIES
A:
1. Thattheinstrumentisgenuineandinall
respectswhatitpurportstobe
2. Thathehasgoodtitletoit
3. That all prior parties had capacity to
contract
4. That he has no knowledge of any fact
which would impair the validity of the
instrumentorrenderituseless.
X.PRESENTMENTFORPAYMENT(PP)
Q:Whatispresentmentforpayment(PP)?
Q:Howshouldpresentmentbemade?
A:
GR: Instrument must be exhibited to the
person from whom payment is demanded;
when paid, it must be delivered to person
payingit.(Sec.74)
XPN:Whenexhibitionisexcused:
1. Debtor does not demand to see the
instrument and refuses payment on
someothergrounds;or
2. Instrumentislostordestroyed.
A:Thebankremainsliabletotheholderifitpaid
the certificate of deposit payable to bearer
without requiring its surrender (Far East Bank &
TrustCompanyv.Querimit,G.R.No.148582,Jan.
16,2002).
34
A.NECESSITYOFPRESENTMENTFORPAYMENT
Q:WhenisPPnecessary?
MERCANTILELAWTEAM:
ADVISER:ATTY.AMADOE.TAYAG;SUBJECTHEAD:EARLM.LOUIEMASACAYAN;
ASST.SUBJECTHEADS:KIMVERLYA.ONG&JOANNAMAYD.G.PEADA;MEMBERS:MA.ELISAJONALYNA.BARQUEZ,ANGELIR.CARPIO,
ANTONETTET.COMIA,ALBANROBERTLORENZOF.DEALBAN,JOEBENT.DEJESUS,CHRISJARKACEM.MAO,ANNAMARIEP.OBIETA,
RUBYANNEB.PASCUA,FLORANGELAT.SABAUPAN,GIANFRANCESNICOLEC.VILCHES
Q:WhataretherequisitesforasufficientPP?
A:
1. Madebytheholder,orhisagent
2. Atareasonablehouronabusinessday
3. Ataproperplace
4. PP was made to the person primarily
liable,orifheisabsentorinaccessible,
toanypersonfoundattheplacewhere
thepresentmentismade(Sec.72)
Q:Isthebankliabletothepayeefordepositing
and encashing the crossed checks to an
unauthorizedperson?
Note:Wheretheperson/sprimarilyliableis/are:
1. Dead payment must be made to his
personalrepresentative(Sec.76)
2. Liable as partners and no place of
payment specified payment may be
made to any of them though there has
beenadissolutionofthefirm(Sec.77)
3. Several persons, not partners, and no
place of payment is specified payment
mustbemadetoallofthem(Sec.78)
A:
1. Specifiedplaceintheinstrument
2. Address of the person to make the
paymentifgivenintheinstrument
3. Usual place of business or residence of
thepersontomakethepayment
4. Whereverhecanbefound;or
5. At his Last known place of business or
residence(Sec.73)
B.PARTIESTOWHOMPRESENTMENTFOR
PAYMENTSHOULDBEMADE
A:
INSTRUMENT
Payableata
fixedor
determinable
futuretime
Promissory
notepayable
ondemand
Billof
exchange
payableon
demand
TIMEFORPRESENTMENT
GR:Onthedayitfallsdue.(Sec.
85)
Note:Ifpresentmentforpayment
is made before maturity; it will
not result to a discharge of the
instrument(Sec.50).
ACADEMICSCHAIR:LESTERJAYALANE.FLORESII
UNIVERSITYOFSANTOTOMAS
VICECHAIRSFORACADEMICS:KARENJOYG.SABUGO&JOHNHENRYC.MENDOZA
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35
personofsufficientdiscretionattheproperplaceof
presentment.
C.DISPENSATIONWITHPRESENTMENTOF
PAYMENT
A:Drawerandtheindorsersaredischargedfrom
their secondary liability unless such presentment
isexcused.
A:
3. When caused by circumstances beyond
thecontroloftheholder;and
4. Not imputable to his default,
misconduct,ornegligence(Sec.81).
Note:Onlythedelayinpresentmentisexcusedand
not the presentment itself. Hence, as soon as the
causeofdelayceasestooperate,presentmentmust
bemadewithreasonablediligence(Sec.81).
D.DISHONORBYNONPAYMENT
A:
1. Nonpayment upon due presentation.
Happenswhen:
a. The instrument is duly presented
for payment to party primarily
liable;&
b. It is either refused or cannot be
obtained.
A:Astotheholder,afteraninstrumenthasbeen
dishonored by nonpayment, the person
secondarily liable becomes the principal debtors
and he need not proceed against the person
primarilyliable.
36
XI.NOTICEOFDISHONOR
Q:Whatisnoticeofdishonor?
A:Givenbytheholdertothepartiessecondarily
liable, drawer and each indorser, that the
instrument was dishonored by nonpayment or
nonacceptancebythedrawee/maker.
Q:Whatarethepurposesforrequiringnoticeof
dishonor?
A:
1. Toinformpartiessecondarilyliablethat
the maker or acceptor has failed to
meethisengagement.
2. To advise them that they are required
tomakepayment.
Q:WhenisaPNconsidereddishonored?
A:
1. Ifnotaccepted
2. Notpaidwhenpresented;or
3. Where presentment is excused,
instrumentisoverdueandunpaid.(Sec.
83)
Q:Towhommustnoticebegiven?
A:Noticeofdishonorshouldbegivento:
1. Thedrawer;or
2. Hisagent(Sec.97)
3. Where party is dead to a personal
representative or sent to the last
residence or last place of business of
thedeceased(Sec.98)
4. When the parties to be notified are
partners notice to any one partner
though there has been a dissolution
(Sec.99)
MERCANTILELAWTEAM:
ADVISER:ATTY.AMADOE.TAYAG;SUBJECTHEAD:EARLM.LOUIEMASACAYAN;
ASST.SUBJECTHEADS:KIMVERLYA.ONG&JOANNAMAYD.G.PEADA;MEMBERS:MA.ELISAJONALYNA.BARQUEZ,ANGELIR.CARPIO,
ANTONETTET.COMIA,ALBANROBERTLORENZOF.DEALBAN,JOEBENT.DEJESUS,CHRISJARKACEM.MAO,ANNAMARIEP.OBIETA,
RUBYANNEB.PASCUA,FLORANGELAT.SABAUPAN,GIANFRANCESNICOLEC.VILCHES
6.
D.FORMOFNOTICE
Q:Whatistheformandcontentsofanoticeof
dishonor?
A:
1. Oral;or
2. Inwriting
3. Itmaybegivenbypersonaldelivery,or
bymail(Sec.96)
4. Mustcontainthefollowing:
a. Descriptionoftheinstrument;
b. Statement that it has been
presented for payment or for
acceptance and that it has been
dishonored(Ifprotestisnecessary,
notice must also contain a
statement that it has been
protested).
c. Statementthatthepartygivingthe
noticeintendstolookfortheparty
addressedforpayment.
Q:Theinstrumentwasdishonoredinthehands
of the agent. To whom and when may he give
notice?
A:
1. To the parties secondarily liable
WithinthetimefixedbySecs.102104,
and107,otherwise,theyaredischarged
B.PARTIESWHOMAYGIVENOTICEOF
DISHONOR
Q:Whogivesthenotice?
A:
1. Holder
2. Anotherinbehalfoftheholder
3. Any party to the instrument who may
be compelled to pay and who, upon
taking it up, would have a right to
reimbursementfromthepartytowhom
noticeisgiven.(Sec.90)
C.EFFECTOFNOTICE
A:Noticeofdishonorinurestothebenefitof:
A:Noticeofdishonorinurestothebenefitof:
1. Theholder;and
2. All parties subsequent to the party to
whomnoticeisgiven(Sec.93).
E.WAIVER
Q:Whenmaywaiverofnoticebegiven?
A:
1. Before the time of giving notice has
arrived;or
2. After the omission to give due notice.
(Sec.109)
Q:Whatarethewaystogiveawaiverofnotice?
A:Itcaneitherbe:
1. Express;or
2. Implied (e.g. Payment by an indorser
after he learns of the default of the
maker admission of liability after
dishonor).(Sec.109)
Q:Whoareaffectedbythewaiverofnotice?
A:
1. All parties (if embodied on the face of
theinstrument);or
2. Particularindorser(ifwrittenabovethe
signatureofsuchindorser)(Sec.110)
ACADEMICSCHAIR:LESTERJAYALANE.FLORESII
UNIVERSITYOFSANTOTOMAS
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37
F.DISPENSATIONOFNOTICE
Q:Whenisnoticeofdishonornotnecessary?
A:
1. Waiverofnotice.(Sec.109)
2. Waiverofprotest.(Sec.111)
3. Whenafterduediligence,noticecannot
begiven.(Sec.112)
4. DrawerincasesunderSec.114
5. IndorserincasesunderSec.115;and
6. Where due notice of dishonor by non
acceptance has been given (notice of
dishonor by nonpayment not
necessary).(Sec.116)
Q:Withregardtothedrawer,whencananotice
ofdishonorbedispensedwith?
A:
1. When drawer and drawee is the same
person
2. Drawee is fictitious or does not have
thecapacitytocontract
3. Drawer is person to whom the
instrument is presented for payment
(he is the one who dishonored the
instrument)
4. Drawerhasnorighttoexpectorrequire
that the drawee or acceptor will honor
theinstrument.
5. Drawer has countermanded the
payment (e.g. stop payment order)
(Sec.114)
Q:Withregardtotheindorser,whenisitnot
necessarytogiveanoticeofdishonor?
A:
1. Drawee is fictitious or has no capacity
to contract, and indorser was aware of
thesefacts at the time he indorsed the
instrument;
38
2.
G.EFFECTOFFAILURETOGIVENOTICE
Q:Whatistheeffectofomissionofaprevious
holder to give notice of dishonor by non
acceptance?
A:Itdoesnotprejudicetherightsofaholderin
due course subsequent to the omission to
present the instrument to the drawee for
acceptanceandnotifythedrawerandindorsersif
acceptanceisrefused.(Sec.117)
Q:Whenshouldthenoticebegiven?
A:
1. GR: As soon as instrument was
dishonored(Sec.102)Partyisallowed
oneentiredayforthepurposeofgiving
notice.
XPN:Delayisexcused(Sec.113)
2.
3.
Partiesresideinthesameplace
a. PlaceofbusinessBeforecloseof
business hours on the day
following
b. ResidenceBeforetheusualhours
ofrestonthedayfollowing
c. By mail Deposited in the post
office in time to reach him in the
usual course on the day following
(Sec.103)
Partiesresideindifferentplaces
a. By mail Deposited in the post
officeintimetogobymail(actual
departure in the course of mail
from the post office in which the
notice was deposited) the day
followingthedayofdishonor.
b. If no mail At a convenient hour
(ofthesender)onthatday,bythe
nextmailthereafter
c. Other than by post office (e.g.
personal messenger) Within the
time that notice would have been
receivedinduecourseofmail,ifit
has been deposited in the post
MERCANTILELAWTEAM:
ADVISER:ATTY.AMADOE.TAYAG;SUBJECTHEAD:EARLM.LOUIEMASACAYAN;
ASST.SUBJECTHEADS:KIMVERLYA.ONG&JOANNAMAYD.G.PEADA;MEMBERS:MA.ELISAJONALYNA.BARQUEZ,ANGELIR.CARPIO,
ANTONETTET.COMIA,ALBANROBERTLORENZOF.DEALBAN,JOEBENT.DEJESUS,CHRISJARKACEM.MAO,ANNAMARIEP.OBIETA,
RUBYANNEB.PASCUA,FLORANGELAT.SABAUPAN,GIANFRANCESNICOLEC.VILCHES
4.
XII.DISCHARGE
A.DISCHARGEOFNEGOTIABLEINSTRUMENT
Q:Whatisdischarge?
A:Itisthereleaseofallparties,whetherprimary
or secondary, from the obligations arising
thereunder. It renders the instrument without
force and effect, and consequently, it can no
longerbenegotiated.
A:
1. Paymentbyprincipaldebtor:
a. Byoronbehalfofprincipaldebtor
b. Atorafteritsmaturity
c. Totheholderthereof
d. In good faith and without notice
thattheholderstitleisdefective
2. Paymentbyaccommodatedparty
3. Intentional cancellation of instrument
by the holder (by expressly stating it in
theinstrumentorwhentheinstrument
istornup,burnedordestroyed)
4. Any act which discharges a simple
contract for the payment of money
under Art. 1231 of the NCC specifically
remission,novation,andmerger.
Q:Whatistheeffectoffailuretogivenoticeof
dishonor?
A:
GR: Any person to whom such notice is not
given is discharged, but he will still be liable
for breach of warranties pertaining to the
instrument.
XPN:
1. Waiver.(Sec.109)
2. Noticeisdispensedwith.(Sec.112)
3. Notnecessarytodrawer.(Sec.114)
4. Notnecessarytoindorser.(Sec.115)
A:
1. No acceleration clause Failure to give
notice of dishonor on a previous
installment does not dischargedrawers
and indorsers as to succeeding
installments.
B.DISCHARGEOFPARTIESSECONDARILYLIABLE
A:
1. Any act which discharges the
instrument;
2. Intentionalcancellationofhissignature
bytheholder
5.
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3.
4.
5.
6.
A:
1. Instrumentisnotdischarged
2. Itonlycancelshisownliabilityandthat
ofthepartiessubsequenttohim
3. GR:Instrumentmayberenegotiated
XPN:
a. Where it is payable to the order
of a third person, and has been
paidbythedrawer;and
b. Where it is paid by the
accommodatedparty
Note:(a)and(b)hasthesameeffectas
paymentbythepartyprimarilyliable.
Personpayingisremittedtohisformer
rights (as regards prior parties) and he
may strike out his own and all
subsequentindorsements.(Sec.121)
C.RIGHTOFAPARTYWHODISCHARGED
INSTRUMENT
4.
Q:Whataretherightsofapartywhodischarged
theinstrument?
A:
GR:Thepartysodischargingtheinstrument
isremittedtohisformerrightsasregardsall
priorparties,andhemaystrikeouthisown
and all subsequent indorsements, and again
negotiatetheinstrument.
XPN:
1. Where it is payable to the order of a
third person, and has been paid by the
drawee;&
40
2.
D.RENUNCIATION
Q:Whatisrenunciation?
A:Theactofsurrenderingaclaimorrightwithor
withoutrecompense(apersonaldefense).
Q:Howisrenunciationbyholdermade?
A:
1. Mustbewritten
2. If oral, the instrument must be
surrendered to the person primarily
liable.(Sec.122)
Q:Whataretheeffectsofrenunciation?
A:
1. Madeinfavorofprincipaldebtormade
at or after the maturity (made
absolutely and unconditionally) of the
instrument discharges the instrument
(Sec.122)
2. Madeinfavorofasecondarypartymay
be made by the holder before, at or
after maturity discharges only the
secondarypartiesandallsubsequentto
him(Sec.122)
Q:Whatistheruleregardingcancellationofan
instrument?
A.CONCEPT
Q:Whatisamaterialalteration?
A:Anychangeintheinstrumentwhichaffectsor
changestheliabilityofthepartiesinanyway.
MERCANTILELAWTEAM:
ADVISER:ATTY.AMADOE.TAYAG;SUBJECTHEAD:EARLM.LOUIEMASACAYAN;
ASST.SUBJECTHEADS:KIMVERLYA.ONG&JOANNAMAYD.G.PEADA;MEMBERS:MA.ELISAJONALYNA.BARQUEZ,ANGELIR.CARPIO,
ANTONETTET.COMIA,ALBANROBERTLORENZOF.DEALBAN,JOEBENT.DEJESUS,CHRISJARKACEM.MAO,ANNAMARIEP.OBIETA,
RUBYANNEB.PASCUA,FLORANGELAT.SABAUPAN,GIANFRANCESNICOLEC.VILCHES
XIV.ACCEPTANCE
A.DEFINITON
Q:Whatisacceptanceofabill?
A:Asignificationbythedraweeofhisassentto
theorderofthedrawer(Sec.132).
Q:Whatistheeffectofacceptance?
A:Uponacceptance,thebill,ineffectbecomesa
note. The drawee who thereby becomes an
acceptor assumes the liability of the maker
(whichisprimaryliability)andthedrawer,thatof
thefirstindorser.
B.MANNER
Q:Whataretherequisitesforacceptance?
A:
1. In
writing,
except
constructive
acceptanceandtoaforeignbillpayable
inanotherstate(unlesstheotherstate
requiresforwrittenacceptance)
2. Signed by the drawee (without it, he is
notliable)
3. Must express a promise to pay money
(notgoods)
4. Deliveredtotheholder(beforedelivery
or notification, acceptor may revoke or
cancelhisacceptance).
Q:Whatarethekindsofacceptance?
A:
1. General Assents without qualification
totheorderofthedrawer(Sec.139).
Q:Whatconstitutesamaterialalteration?
A:Anyalterationwhichchangesthe:
1. Date
2. Sum payable, either principal or
interest;
3. Timeorplaceofpayment
4. Numberorrelationsoftheparties
5. Medium or currency in which payment
istobemade;or
6. Addsaplaceofpaymentwhennoplace
of payment is specified, or any other
change or addition which alters the
effectoftheinstrumentinanyrespect.
(Sec.125)
Note:Thechangeinthedateofindorsementisnot
material where the date is not necessary to fix the
maturityoftheinstrument.
B.EFFECTOFMATERIALALTERATION
A:
1. Avoidstheinstrumentexceptagainst:
a. A party who has made the
alteration;
b. A party who authorized or
assentedtothealteration;or
c. The indorsers who indorsed
subsequent to the alteration
(becauseoftheirwarranties)
2. IfnegotiatedtoaHIDC,hemayenforce
the payment thereof according to its
originaltenoragainstthepartypriorto
the alteration. He may also enforce
payment thereof against the party
responsible for the alteration for the
alteredamount.
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b.
c.
d.
e.
f.
Conditionalmakespaymentbythe
acceptor dependent on the
fulfillment of a condition therein
stated.
Partial an acceptance to pay part
onlyoftheamountforwhichthebill
isdrawn.
Localanacceptancetopayonlyat
aparticularplace.
Qualifiedastotime
Theacceptanceofsomeoneormore
of the drawees but not of all. (Sec.
141)
2.
Constructive/implied
a. Drawee to whom the bill is
delivered for acceptance destroys
it;or
b. Drawee refuses, within 24 hours
after such delivery, or within such
time as isgivenhim, to return the
billacceptedornonaccepted
3.
Extrinsictheacceptanceiswrittenon
a paper other than thebill itself. To be
bindingupontheacceptor:
a. Acceptance must be shown to the
person to whom the instrument is
negotiated;and
b. Such person must take the bill for
value on the faith of such
acceptance(Sec.134).
4.
Virtualconditions:
a. Unconditional promise in writing
toacceptabill
b. Promisemadebeforeitisdrawn
c. Any person who, upon faith
thereof,receivedthebillforvalue.
(Sec.135)
C.TIMEFORACCEPTANCE
A:Thedrawerhas24hoursafterpresentmentto
decidewhetherornothewillacceptthebill.The
acceptance, if given, dates as of the day of
presentation.(Sec.136)
42
D.RULESGOVERNINGACCEPTANCE
Q:Whatistheeffectofacceptinganinstrument
withaqualifiedacceptance?
A:
GR: When the holder takes a qualified
acceptance the drawer and indorsers are
dischargedfromliabilityonthebill.
XPN:
1. When they have expressly or impliedly
authorized the holder to take a
qualifiedacceptance,or
2. Subsequentlyassentthereto
3. Implied assent (when they did not
express their dissent to the holder
within a reasonable time when they
received a notice of qualified
acceptance).(Sec.142)
Q:Whenmayanincompletebillbeaccepted?
XV.PRESENTMENTFORACCEPTANCE
Q:Whatispresentmentforacceptance(PA)?
Q:WhataretherulesastoPA?
A:
GR:PAisnotnecessarytorenderanypartyto
thebillliable.(par.2,Sec.143)
MERCANTILELAWTEAM:
ADVISER:ATTY.AMADOE.TAYAG;SUBJECTHEAD:EARLM.LOUIEMASACAYAN;
ASST.SUBJECTHEADS:KIMVERLYA.ONG&JOANNAMAYD.G.PEADA;MEMBERS:MA.ELISAJONALYNA.BARQUEZ,ANGELIR.CARPIO,
ANTONETTET.COMIA,ALBANROBERTLORENZOF.DEALBAN,JOEBENT.DEJESUS,CHRISJARKACEM.MAO,ANNAMARIEP.OBIETA,
RUBYANNEB.PASCUA,FLORANGELAT.SABAUPAN,GIANFRANCESNICOLEC.VILCHES
2.
Q:Whenispresentmentexcused?
A:
1. Draweeisdead,orhasabsconded,oris
a fictitious person not having capacity
tocontractbybill
2. After exercise of reasonable diligence,
presentmentcannotbemade;or
3. Although presentment has been
irregular, acceptance has been refused
onsomeotherground.(Sec.148)
C.DISHONORBYNONACCEPTENCE
Q:Whenisabilldishonoredbynonacceptance?
A:
1. When it is duly presented for
acceptance and such an acceptance is
refusedorcannotbeobtained;or
2. When presentment for acceptance is
excused, and the bill is not accepted.
(Sec.149)
A.TIME/PLACE/MANNEROFPRESENTMENT
Q:HowmustPAbemade?
A:
1. Byoronbehalfoftheholder
2. Atareasonablehouronabusinessday
3. Beforethebillisoverdue;and
4. To the drawee or some person
authorizedtoacceptorrefusetoaccept
onhisbehalf.When:
Note:Wheredraweeisdead,PAis
notrequired.
c.
Holderhasnotime,withtheexerciseof
reasonablediligence,topresentthebill
for acceptance before presenting it for
payment on the day that it falls due.
(Sec.147)
A:Thepersonpresentingitmusttreatthebillas
dishonored by nonacceptance or he loses the
right of recourse against the drawer and
indorsers.(Sec.150)
Draweeisbankruptorinsolventor
has made an assignment for the
benefitofcreditorsTohimorto
histrusteeorassignee.(Sec.145)
A:
1. Right of recourse against all secondary
partyaccruestotheholder
2. No presentment for payment is
necessary since dishonor of the
instrument by nonpayment is to be
expected
3. Iftheinstrumentisacceptedafterithas
been dishonored by nonacceptance
presentment for payment is necessary
uponmaturity;and
4. In case of nonpayment, holder must
give the corresponding notice of
dishonor; otherwise, secondary parties
aredischarged.
B.EFFECTOFFAILURETOMAKEPRESENTMENT
Q:WhenmaydelayinmakingPAbeexcused?
A:
1. Bill drawn payable elsewhere than at
the place of business or the residence
ofthedrawee;and
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XVI.PROMISSORYNOTES
Q:Whatisapromissorynote?
A: An unconditional promise in writing made by
one person to another, signed by the maker,
engaging to pay on demand, or at a fixed or
determinablefuturetime,asumcertaininmoney
toorderortobearer.(Sec.184NIL)
Q: What are the special types of promissory
notes?
A:
1.
2.
3.
4.
5.
6.
7.
8.
44
BankNotePNofissuingbankpayable
to bearer on demand and intended to
circulateasmoney.
MortgageNoteaninstrumentsecured
byeitherarealorpersonalproperty.
JudgmentNotethisisanotetowhich
a power of attorney is added enabling
thepayeetotakejudgmentagainstthe
makerwithouttheformalityofatrialif
thenoteisnotpaidonitsduedate.
XVII.CHECKS
A.DEFINITION
Q:Whatisacheck?
B.KINDS
Q:Whatarethedifferentkindsofchecks?
A:
1. Cashiers or managers check Drawn
bythebankscashierormanager,asthe
case may be, upon the bank itself and
deemed accepted by the act of
issuance.
3. CertifiedcheckBearsuponitsfacean
agreementbythedraweebankthatthe
checkwillbepaidonpresentation.
Q:Whatisacrossedcheck?Whataretheeffects
ofcrossingacheck?Explain.
A:Acrossedcheckisacheckwithtwo(2)parallel
lines,writtendiagonallyontheupperrightcorner
thereof. It is a warning to the drawee bank that
payment must be made to the right party;
otherwise the bank has no authority to use the
drawer's funds deposited with the bank. To be
assuredthatitwillavoidanymistakeinpayingto
the wrong party, banks adopted the policy that
crossed checksmust bedeposited in the payee's
account. When withdrawal is made, the banks
can be sure that they are paying to the right
party. The crossing becomes a warning also to
MERCANTILELAWTEAM:
ADVISER:ATTY.AMADOE.TAYAG;SUBJECTHEAD:EARLM.LOUIEMASACAYAN;
ASST.SUBJECTHEADS:KIMVERLYA.ONG&JOANNAMAYD.G.PEADA;MEMBERS:MA.ELISAJONALYNA.BARQUEZ,ANGELIR.CARPIO,
ANTONETTET.COMIA,ALBANROBERTLORENZOF.DEALBAN,JOEBENT.DEJESUS,CHRISJARKACEM.MAO,ANNAMARIEP.OBIETA,
RUBYANNEB.PASCUA,FLORANGELAT.SABAUPAN,GIANFRANCESNICOLEC.VILCHES
Q:Whatisastalecheck?
Q:Whatistheeffectofastalecheck?
Q:Whatisamemorandumcheck?
C.PRESENTMENTFORPAYMENT
Q:Withinwhattimemustacheckbepresented?
A:Withinareasonabletimeafteritsissueorthe
drawerwillbedischargedfromliabilitythereonto
the extent of the loss caused by the delay (Sec.
186).
shouldinsteadsuethedrawerwhomightinturn
sue the bank. This is so because no privity of
contractexistsbetweenthedraweebankandthe
payee (Villanueva v. Nite, G.R. No. 148211, July
25,2006).
A:Theindorsershallbedischargedfromliability.
(PNBvs.Seeto,G.R.No.L4388,August13,1952)
Note:SeealsoSec.186andabove.
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