NEGOTIABLE INSTRUMENTS e) Where the instrument is addressed to a drawee, he must be named

or otherwise indicated therein with reasonable certainty.

• X wear slippers – sent out
• Final exam b4 the last day of classes S52. WHAT CONSTITUES A HOLDER IN DUE COURSE - A Holder in due
• Campos & Campos 1994ed course is a holder who has taken the instrument under the ff conditions:
o Supplemented w newer cases a) That it is complete and regular upon its face;
• Intro & Chap 1 for thurs b) That he became the holder of it before it was overdue, and wo
• Course outline : table contents of the book (cover most of the book)
notice that it had been previously dishonored, if such was the fact;
• Volunteer recit (last part of the sem)
c) That he took it in good faith and for value;
• Grades: d) That at the time it was negotiated to him he had no notice of any
o 60% recit infirmity in the instrument or defect in the title of the person
o 30% final exam negotiating it.
o 10% attendance
• Email at the end of the sem plus grade • S1 is impt bec it indicates whether the instrument is negotiable & therefore falls
• If absent & called for recit = 5 under the NIL
• Computation for recit: get the average o If not negotiable, its governed by exiting legislation (law on contracts)
o Called at random
or the law merchant
o Excuses: medical cert ath start of the class
• If the instrument dsnt comply w the reqs under s1, it is governed by the law on
• Negotiable instruments, bills: not usually used in circulation contracts
• Once a NI is indorsed or negotiated, the orig parties to the instruments cant
• 2nd endorsed checks: banks as a general rule, dnt accept such invoke the defenses they have against each to a holder in due course
o Banks implemented this rule o If its not a NI, the holder of the instrument is subject to all the
o Think abt this when rdg the 1st chap defenses that the orig parties have against each other
• Primarily used as instruments for payment
• *govt cant revoke our foreign debt 2 KINDS OF NI:
o Bec Phil foreign debt is in the hands of Phil anks Promissory note: is a promise to pay
o If they revoke the debt, the banks fail • 2 parties: maker & payee
• ROP: $100k can transfer this to anthr person • Ex) I promise to pay 2k to Virgil order…
o But though the face value is 100k, its mrk value might be less Yvette
o As it moves from person to person, value is transferred for a pc of • You’re committing yourself to pay
paper
o NI can be transferred immediately Bill of exchange: order made to another person to pay a 3rd person
• Grading sys in the tests:  You’re directing payment from 1 person to another
o 1pt: form followed  3 parties: drawer, drawee, payee
 Ans the Q, law applicable, application to the prob/conclusion • Drawer: maker of the instrument, signs it & indicates the name of
w the prov the payee & addresses it to the drawee
o 1pt: correct law cited • Drawee: the person the instrument is addressed
o 1pt: conclusion is correct • Order: to pay the 3rd person
*Party: means the person has obligs and rights under that instrument
June 14, 2007  Rel btwn the drawer & drawee: presumably theres a rel where the drawer
Intro & Chap1 tells the drawee to pay
S1. FORM OF NEGOTIABLE INSTRUMENTS - An instrument to be negotiable  Ex) To: Kate
must conform to the ff reqs: Please pay P2000 to Virgil when he passes the Bar exams.
a) It must be in writing & signed by the maker or drawer; Yvette
• X a NI bec theres a condition
b) Must contain an unconditional promise or order to pay a sum o Condition: a future uncertain event
certain in money; o Period: a future & certain event
c) Must be payable on demand, or at a fixed or determinable future  Ex) To: Kate
time; Please pay P2000 to Virgil or order on or before July 2, 2007.
d) Must be payable to the order or to bearer; and Yvette

Drilon 1
  You’re ordering some1 else to pay the 3rd party
 You can order yourself to pay the 3 party
rd
• Ex) To: Yvette
Pls pay P2000…
 Or you can order the drawee to pay you
• Ex) To: Kate
Pls pay P2000 to Yvette
• Then endorse this to Virgil
 It is issued when its delivered to the payee
 When the BOE is created, the drawee isn’t yet part of the instrument…only
the drawer is liable
• Once the drawee accepts the instruments – signed
infront by the drawee – the drawee becomes liable to the
instrument
• Thus, the holder can sue the drawee for the amnt
(primarily liable)
• And the drawer is only liable if the drawee cannot pay –
he default, refuses to accept or fails to accept (2ndarily liable)
NIL: codification of Law Merchant
• Never been amended in the Phils (bec Congress dsnt understand it)
o Amended several times in the US
• Law Merchant: set of practices adhered to by businessmen & recognized by the
Cts
NEGOTIABLE INSTRUMENTS
• Instrument may be transferred from person to person = it’s a medium for
exchange
• Law dsnt compel one to enter into these transactions but ppl want to enter into
these transactions
o Bec if one accepts a NI, its possible for the holder to acquire a better
title than his transferor
• Determine if the instrument is worth anything and the viability of the person
who makes the promise on the instrument
o It’s a question of worthiness,
o The eco value of the instrument & indep of the legal value of the
instrument
o Legal value = legal advantages given to the instrument
• Ex) gets an instrument for 10M from Lucio Tan wc is endorsed to you – you’ll
probably take it bec Tan is probably good for it
• There’s inherent eco value & is used mainly as a payment instrument
• You can negotiate it or give it as a payment for future transaxns
• Discount: sell the instrument at a discount
o You do this when the instrument is worth less in the mrkt as compared
to its face value
o Ex) 10M PN from Lucio Tan
 the mrkt has determined that the chances Tan will pay is
10%, so instead of buying land for 10M, you buy land for 1M
• can be negotiated b4 their maturity, even after their maturity
o the rights of those parties to a NI negotiated after maturity, are
different from the rights of the orig parties to the instrument
 there are diff set of rights
o ex) if the instrument is negotiated to you after its overdue, you aren’t
a holder in due course as to the orig parties in the instrument BUT you
can be a holder in due course as to the person who negotiated it to
you
• Cant start its life as a non-NI and then become a NI
• It must begin its life as a NI
• Every signature is impt & has a meaning even if its in the wrong place
INDORSER
• other party to the NI
• also have default rights & obligs to the insturment
• B indorsed the instrument to you, you aren’t paid by the original maker – you
can go after the indorser (B) who is now liable
• The instrument itself tells you what your rights are
• NI: the docum is freely transferrable
o You may or may not know the other ppl
• Your rights emanate from the instrument in the writing itself
o S1: whatever is written on the four corners of the instrument
determine one’s rights
 Ability to present evidence outside of the instrument itself is
curtailed
o This is why the parole evidence rule is impt
o Parole evidence rule (R132): Whenever a written contract is the pt of
inquiry, testimonial evidence isn’t admissble to alter the terms of the
written contract
 Except under certain circums
S1: FORM OF NEGOTIABLE INSTRUMENTS:
A) it must be in writing & signed by the maker or drawer
• In order to be a party to the instrument, normally you have to sign
o But not necessarily in every case (e.g. holder)
• Signature: a mark adopted by a person to express one’s consent to the
instrument, to identify oneself or to authenticate the docum to wc its
attached/it relates
o Ex) Chinese stamp
B) must contain and unconditional promise or order…
• Uncond: unqualified
• S3: such statements in the instruments don’t affect the unconditional order or
promise
a) Indication of a particular fund out of wc reimbursement is to be made or
a particular accnt to be debited w the amnt
b) Statement of the transaxn wc gives rise to the instrument
• WON there’s a problem w that transaxn, the instrument continues to be
negotiable
o So long as the order or promise is uncond
Drilon 2
 o Just coz the transaxn is mentioned, dsnt mean the order/promise is
dependent on the fulfillment of that transaxn/order/contract
• Check: is a BOE, its negotiable
o Banks dnt pay if the depositor has no money in the bank – thus its
conditional on whether a person has money in their account?!
o No, its not conditional…bec in BOE reimbursement & debiting
presupposes that na order to pay has been made
Powell & Powell v Greenleaf & Currier
• The 2 statements made in the instruments were mere references
• Mention of the contract & agreement in the NI cldve affected negotiability if the
order or promise to pay were subj to this condition
• “For and in consideration of that transaxn”
o Dsnt this say that the instrument was dependent on that transaxn?
o No, was just stating that that transaxn gave rise to the instrument
Irving Trust Co v Leff
• “void unless & until title to the premises ____, is taken by Joe Leff”
o Referred to the payment of the $4,933 payment on the $10k PN
• Instrument is non-negotiable bec the instrument didn’t contain an unconditional
promise or order to pay
B) …to pay a sum certain…
• Sum is still certain even though there is interest to be paid
o The exact amnt can be computed
o Ex) instrument issued 3 yrs, 10mos, 5dys ago…saying 5p.a.
B) …in money
• It is in itself value
• Its value depends upon market forces
June 19, 2007
Incitti v Ferrante
• PN for the sum of 15,400 Italian lires
• I: WON the PN is negotiable
o What is money?
o WON the note is negotiable if its payble in the money/coins of another
country
• Instrument was dated in new Jersey & made payable at the Bank Italia Co. =
presumed payable in New Jersey since no address was indicated
• Money isn’t limited to leg currency
• Ct expanded the word money to include coins of anthr country as leg tender
• Ct was trying to define what money is
• Ct:
o Money isn’t limited to legal tender/lawful currency
o Money has value by law & not by nature
S7: Payable on demand
• 2nd par: the ____ doctrine
o Instrument is payable on demand if its issued, accepted or indorsed if
overdue AS TO ONLY THOSE who indorsed, issued or accepted it
o Only applies to certain ppl
o There are certain rules as to when the inst becomes overdue
 When ds it become overdue for the purpose of denying a
holder in due course?
• S52: to be a holder in due course, you shldve taken the inst b4 it was overdue
o Thus, wont be a holder in due course under S52
o However, vis a vis the indorser, you are a holder in due course
• Ex) A – B – C – D – E – F
o F X a holder in due course as to A-D bec acquired it when overdue
o But under s7, 2nd par…F is a holder in due course as to E, wherein the
inst is payable on demand
• Ex) A issued March 10 – B – C –D – E – F June 19
o Is it overdue in terms of a holder in due course?
 Depends on what the law says
o In the hands of the holder, it must be indorsed w/in a reasonable pd =
its based on the norm
o They shld immediately transfer the inst in order for it not to be
overdue
Effect of an acceleration prov:
• Depends on who can exer the option
o Maker: N isn’t affected
o Holder:
 N isn’t affected if the cond is smthn he has no control over
 N is affected is the exer is uncond since time of payment is
uncertain
Rehabilitaiton Finance
• Payment was valid since the PN said “on or b4”
o Makers are entitled to make a complete setllement of the oblig any
time b4 that date
Utah State Natl Bank
• Prov in Q: acceleration clause
• Note was still N despite the acceleration clause
o Since the date was still determinable – the date of payment may be
fixed by the payee
• Default: is an uncertain event – may or may not happen
o Its therefore a cond, so why dsnt it affect N?
o Bec it wsnt under the control of the payee
o Acceleration prov: can affect N if it makes the time uncertain; if its
operation makes the time when the instrument falls due uncertain
 But an acceleration prov per se dsnt affect N bec the inst is
due on the date the parties designated that payment is due
(found on the inst)
Puget
• Lang of the note: this note shall become due & payable on demand at the
option of the payee when it seems itself insecure
• Non-N
Drilon 3
• Bec this was a contingency
o Diff w Interest: happening of this contingency depends upon the
maker of the inst
o Here: happening of the contingency depends on the holder of the inst
• At anytime, they can go to the person & ask for payment
o It’s the same as a demand inst where you can ask for payment on
demand but why are they diff?
o Bec theres no compliance w s7
 In this case, there was time for payment expressed so cant
declare it to be a demand inst
• Its uncertain bec it depends on the holder when it feels insecure
Henry
• Lang of the note: For failure to pay any installments as the sme becomes due
shall render the entire oblig then due & payable
• They paid subsequent installments & the bank ddnt give any indication that the
inst was due & demandable due to the acceleration prov
• Were claiming they weren’t in default since they paid in subsequent
installments so that the past breaches were forgiven & therefore the entire
amnt is not due & demandable
• Bank: it is due & demandable already
• Ct: the entire oblig is due & demandable bec there was default
o Even if there was no ack from the bank that it was due & demandable
by virtue of the acceleration prov, it ddnt militate against the fact the
the oblig is due & demandable
o The subsequent payments of the drawer was applied to the entire oblig
• Here: paid subsequent installments and bank didn’t indicate due and payable
(overdue)
• Payor: not in default ‘cause paid subsequent installments so past breach
forgiven – entire amt not due and demandable
• Bank: due and demandable ‘cause of acceleration prov
• Ct: In favor of bank – acceleration prov didn’t affect negotiability so entire oblig
due and demandable at time of default
State Bank of Halstad
• Stll a determinate future time since originally on the inst there was a date due
only that there was a cond that if the crops fall below a certain amnt, there wld
be an extension
• Parties intended here that there would still be crops harvested
Secu Natl Bank
• It becomes uncertain bec you dnt know what they’ll agree upon
o That they’ll create an extension
o Therefore it becomes an uncertain future time thus its non-N
• You don’t know if they’ll agree on an extension, thus you wont know the inst
will fall due
• Ct said NO, the inst is N
• The prov was intended to not release the parties secondarily liable bec they
alrdy gave their consent originally
o But this has nothing to do w the fact of N
• Bec the time when the inst falls due isn’t changed
Words of Negotiability
• “Payable to order or bearer”
• They’re expression of consent that the inst may be transferred
• S8 & s9
• Ex) X has a wife in Mla, hes in Davao & he has a gf who dsnt know he’s married
o Gf & X gets married & she says she needs money for expenses
o He rights a check payable to “Mrs. X” (they aren’t married yt)
o Is this payable to order or bearer?
o Payable to bearer
 What matters is what the maker knows & not what the payee
knows
• Ex) Payable to santa clause, given to a child
o Payable to bearer bec the maker knows santa claus is ficititous
TRB
• Non-N
• Bec the lang shows that its only payable to Filriters
• Even w the word bearer – this word only describes Filriters
• Freedom of negotiability
o The lang of negotiability wc characterize a negotiable paper as a credit
instrument is its freedom to circulate as a substitute for money
o Hence, freedom of negotiability is the foundation for the protection wc
the law throws arnd a holder in due course
o This freedom in negotiability is totally absent in a certification of
indebtedness as its merely to pay a sum of money to a spcfcd person
or entity for a pd of time
o Its to facilitate transactions
Wettlaufer
• Non-N since the PN was written to be payable only to Baxter
• Baxter ltr negotiated it: Pay to X or bearer
o Dsnt this make the inst N? NO
o What is originally non-N CANT become N by a subsequent transfer in N
form
 This dsnt convert the inst into a N one
 Since from the inception of the note it shld alrdy be N as
stated in s1
Ang Tek Lian
• Is a check payable to cash N or Non-N? its N, payable to bearer
• Bec it dsnt purport to be the name of any person – ergo, its payable to bearer
Drilon 4
• Banking practice: a check payable to cash can be honored by the bank wo o Means each of them
asking for the indorsement of the maker o Their liablilty is solidary
• “we” = signed by 2 ppl
Ins payable to order (S8) o Liability is joint
When > 1 drawee’s named: nature of liab’s joint • “I/We” = still joint & several
Can 2 drawees be named in succession/alternatively? To X or Y: either can indorse
To: X or Y Continental
X or if refuse, to Y • “the undersigned” = dnt knw if this is singular or plural
S128: not allowed • Ct said it was solidary since the words used were in the singular
• The use of the pronoun in singular form means its solidary
• drawer = draweecan’t treat it as PN ‘cause in that ins, he’s both drawer and
payee
• 130: drawer and drawee CHAP2: TRANSFER
An inst is issued when it is 1st delivered
• checks are drawn v. whom? Bank (drawee)order to bank to pay
• drawer – Jim
In re Martens’ Estate
• payee – Jim
• X delivery
• drawee – bank
• Therefore it can have no effect
PNB
Negotiation
• Confession of judgment doesn’t affect negotiability of ins
• Transfer of an inst from 1 person to anthr in such a manner as to constitute the
• Affects S5: only if law sanctions confessions of judgment
transferee the holder
• Here: doesn’t
• Holder: the payee or indosee of a bill or note, who’s in possession
• Advs: makes ct procs more expedient (practically none)
• Methods of N:
• Won’t clog dockets
o By indorsement
• Penalty if frivolous defense
o By delivery
• Disadv:
• Assignment:
1. commission of fraud (lolokohin)abuse and oppression
o Assignee just steps into the shoes of the assingnor & is subj to all the
• Sir: If intention to defraud using this clause, ru prohibited by that
defenses the orig parties have against ea other
contractual prov fr suing other p? No
o Transfer of an inst wo negotiation
• If u’re defrauded, u’re rt to sue’s inherent – consent vitiated ‘cause of fraud
= voidable • Allonge:
• Completely robbed = void o Paper attached to an inst where an indorsement is written
o Used only when the inst itself is full of indorsement
• also rt to appeal o Shld be attached so that it forms part of the inst
• Bargains away rt to day in ct and does away w/ rt to appeal
o What if you use this b4 the inst is filled up w signatures – what is the
• Ct’s WRONG: not invalid
leg effect?
• Does it affect negotiability? Won’t ‘cause presence will be disregarded and  The transfer is merely an assignment
voidno effect on ins itself
June 21
Pacheco Young v Hembree
• Indorsement wasn’t that of the payee
• Is the N charc of the inst subj to the agreement of the parties of the inst? NO
• S43: presupposes that on was wrongly designated
• S1 determines the N of an inst o Is this being applied here?
• If s1 is complied w the inst is N, regardless of what the parties say
• Isn’t it relevant to see if the holder was an assignee?
• Resolve it w this case:
o The ruling is only applicable to crim cases
• If the face value is 50k, can you just indorse 25k? NO, s32
Evangelista • Whats the leg effect if the I is only part of the face value?
• Issue: WON the pets were personally liable o Its not a N but a mere assignment
o They were - they’re solidarily liable based on the land of the PN & the
• What if the face value is 100k and you I 100k but you rcve 25k for the inst?
cont suretyship agreement o There’s a discount
• “I” = signed by 2 ppl
Drilon 5
 o Valid I bec the discount you rcve is for the consideration that holder • What abt this leads you to blve that this is a QI?
has to wait b4 collecting • Ct: not a QI, the words shld be clear

Blake v Weiden Hutson v Rankin

• Transfer wsnt a negotiation since there were 3 indorsers • What is meant by I? what is I?
• Why ddnt it operate as a negotiation if s41 allows the inst to be indorsed to o Its the process transfer constitutes the transferee as holder of the inst
several ppl? = it transfers
o Why did the Ct just consider the transaxn here as assignment • I: for value rcvd we hereby guarantee payment of the w/in note, including
interest & cost at maturity or nay time thereafter demanded
Kinds of indorsements • Where ds it indicate, in the I, that theres a transfer of title?
• Spcl & blank I: difference is in the method of subsequent N o The words “guarantee”
o Inst shld be both indorsed & delivered but for subsequent N: o Sir: Nthng seems to indicate transfer of title, so how can you conclude
 Spcl: shld be indorsed & delivered that there was transfer of title?
 Blank: delivery only  Thru tradition/delivery
o Spcl: spcfs a person o Sir: what allows you to imply that this is an indorsement?
 Indorser is liable to all person who make title thru his I o Ct wasn’t clear on this pt…whats written is a guaranty, nothing wc
o Blank: spcfcs no indorsee indicates transfer
 Payable to bearer • What leads the Ct to conclude that it’s a transfer & not a mere guaranty?
 May be converted into a spcl I
Conditional I
 Indorser is liable only to its immediate transferee
• Where an addtl cond is added to the liability of the indorser
• Qualified & unqualified I:
o Qualified: indorser is a mere assignor of the title of the inst • What is conditional?
o The indorsement
 “wo recourse” or words of similar import are on the inst
• Leg effect of the I: any person to whom the inst is indorsed holds the proceeds
 Indorser only assumes the contract of sale/assignment
subj to the rights of the person indorsing conditionally
• He dsnt assume to pay if the maker fails to pay
• Ex) A-B-C-(ci)-D-E-F-G-H
• He merely assumes to transfer the leg title of the
o ci: whether armi will pass the bar
inst
 What if a subsequent indorser fails to pay? Is he liable? o H tries to collect from A, A refuses to pay, so H goes to G = can G
• Ex) A-B-C (qi) –D-E-F refuse to pay lawfully?
o Default by E, can F go after C? No, bec of  Yes bec their liability is conditioned on the I made
the qualified I • 2nd sentence in s39: refers to the holder & the person indorsing conditionally
 Only guarantees the leg title of the inst • Sir: theres no transfer of title, theres no I until the condition s fulfilled
 Thus, relieves him of liability on the inst o Since armi hasn’t passed the bar, H isn’t a holder of the inst
o But since maker, law allows him to disregard the cond on the fixed
• What if the inst is defective/forged? date & the holder
 If the holder claims that hes a HDC against A, A can refuse to o C-H is bound by the conditional I
pay bec of fraud, bec F isn’t a HDC or even if he is a HDC, the
 Party primarily liable is bound
defense is real & A is still liable
 If A pays, H holds it in trust
o If the condition never happens, the money shld be returned to C…all
Fay v Witte
the other Is wc were taken under the cond, are nothing
• PN: indorsed by Witte:
o I hereby assign all my right & interest in this note to Richard in full
Restrictive I
• Def: by having assigned the note transferring title, impliedly excluded the 2nd • A) prohibits… = so inst can no longer be N
cond or implication – the promise to pay upon default
o How ds the word assign here make them blve this defense? White v Natl Bank
o What abt the I makes it a QI? • Why did the bank refuse to pay?
• Ct: no exclusion of liablitlyt shld be expressed o Bec of the way the I was worded
• Sir: Where from the inst, can you imply that it’s a QI? • Words: “for the accnt of…” = indicates that White is an agent of the bank for
the collection of money
Copeland v Burke • What did White say? His 2 theories?
• I: I transfer my rights, title & interest o Words were merely directory
Drilon 6
 o Custom of bankers
 The custom shld control the construction of the contract
• Ct: words of the I are controlling, its clear…no need to construe
o It’s a restrictive I
• Sir: isn’t it true that bth parties to the I intended that it ws to be a sale?
o Yes, so why didn’t the Ct look into this?
o Do the words of the I trump the intention of the parties?
I to or by collecting bank
• When you deposit a check to your accnt, you’re indorsing it to the bank
• I if the check is deposited to a bank wc isn’t the drawee bank or is deposited in
anthr bank
o A restrictive I: you constitute your bank as agent to collect from the
other bank
Leonardi
• Check was drawn against Bank of Manhattan Trust
• Bank of Bay Biscayne: bank of the P where the check was deposited
• Check was sent to Chase Manhattan
• Offsetting was btwn Chase & bank of Biscayne
• P: suing Chase for having converted the check
o At the time of the set-off, B was only a collecting agent for them
o Its my money, Chase cant offset bec at the time of the offset, B was
merely its collecting agent & offset isn’t possible bec Ps don’t owe
Chase anything
• But if money is held in trust by Chase for L, they can convert the money
• Ct: offset is valid & Chase didn’t convert the money
o Rel was one of creditor & debtor
o Bec at the time of the offset, the money was alrdy credited to the
accnt of the Ps
• Whats the rel btwn B & Chase?
o Chase was the correspondent bank of B
o Looked at Florida law: said the rel of the parties was one of agency &
once the money was collected, the rel changed to debtor & creditor wc
thereby
• Inst payable to order, & its transferred wo I, what are the holders rights?
o The holder gets the leg title & can compel the transferor to indorse
such (ss49)
• Ds this affect the fact the you’re a HDC?
o Yes, transferee isn’t a HDC yet
Simpson v 1st Natl Bank of Roseburg
• Why didn’t Simpson put her name as payee?
o She had the option of putting her own name or that of the bank – she
put the name of the bank
o Then she sued them to compel indorsement
o Inst was already in her possession, there was no need for I if she put
her name as payee
• Q: cld she have placed her name directly?
o No, bec it was made by Mrs.J to the bank & not to her
• In a sit covered by s49 the holder will be entitled to an unqualified I – why an
unqualified I? why not a qualified?
o Bec the presumption is an unqualified I wo the necessary words
o Why not a restrictive I? why not a blank I?
• Inst was handed wo I, so how can there be words indicating a diff kind of I?
o An inst w a qualified I is still negotiable
• Whys there a preference for unqualified I?
Furbee v Furbee
• Is I necessary b4 suit can be brought?
o No, mere proof that title has transferred is sufficient for the holder to
bring suit against the maker
Whistler v Forster
• Griffths did the fraud, how ds this affect the rights of Whistler?
o Fraud is a personal defense, not a real defense
o Thus if Whistler was a HDC this wldnt hold
• W wsnt a HDC bec when the I was made, he alrdy had knowledge of the fraud
• Who can strike out an I? the holder
o At anytime, any I not necessary
o Ex) inst payable to bearer: can strike out bec all Is are unecssary
o Payable to order: cant its necessary for its transfer
• NI is presumed to be negotiable until its convertd into a non-NI such as:
o When theres a restrictive I
o When its discharged
Chap 3: HOLDER IN DUE COURSE
• Free from certain defenses
BPI v Berwin
• Wsnt able to present the orgis of the check
• Ct: cant be forced to pay if cant show that the Co is still in possession of the
PNs
• HDC shld acquire it for value
o Value means: valuable consideration
 P1 may be considered valuable consideration
o What if it’s a donation? Allowed
 The consideration is
 US law: consideration refers to a determent that one party
shld suffer for anthr = no detriment in donation so not
allowed
• When an inst is donated theres no consideration &
therefore theres no value & thus the holder cant
bcome a HDC
 Phil law: donation is an act & a contract
• But the law says its an act bec of Napoleon who said
it was an act
Drilon 7
 • Phil recogs that donations are contracts w sufficient • Why was De Ocampo not a HDC?
causa o Check was payable to De Ocampo
o Circums shldve put them on inquiry
June 26 • Suspicious Circums:
Elgin Natl Bank v Goecke o X for the sme amnt
• Why was there absence of consideration? o Crossed checks
• Bec the bank ddnt part w any value for the demand notes indorsed to it o Gatchalian had no oblig or liability to Ocampo Clinic = no contract
o Bec mere voluntary delivery by the brewing Co of the note as collateral btwn them wc wld give rise to the issuance of the check
secu for the Goecke note & the acceptance of the note as collateral for • For failing to inquire, they were guilty of gross neglect for not finding out the
the pre-existing debt & ow agreement for further extension of time or nature tile & possession, amntg to legal absence of gf
other agreement dsnt make the bank a HFV o Is this equivalent to actual knowledge?
• the 2 notes were given as collateral for the initial loan of the brewing Co & the • Bec of the presence of these suspicious circums, burden was on them to show
other was indorsed to it that it acquired the check in gf
o Who do you prove a negative fact?
Holder for Value
• Sir:
• if value is given for the inst = person is a HFV
o Even if ocampo & Gatchalian had a pre-existing contract, he wldnt
o is a HFV against all parties who became parties to the inst prior to that
have applied it to to Gonzales’ debt but to Gatchalian’s
time
 Why is it suspicious that Gonzales is holding a check payable
o ex) A (consideration) – B (no consideration) – C
to Ocampo
 C is a HFV against A & B  Ex) borrowed from Yvette for 5k, sir buys an ipod from lem &
Holder in GF lem says don’t pay me nlng, I owe Yvette, so just write the
• One who has no knowledge of an infirmity in the inst or a defect in the title check to her
o Defect in title: s55 • Dnst matter if there was a previous transaxn
• What constitutes notice of defect? S56 • What matters is that there is a link
o There shld be actual knowledge or knowledge of such facts that his  He cldve argued tht he wanted to get his wife out alrdy & cant
axn in taking the inst amnts to bf wait for the check to clear
o Actual knowledge: o Amnts are diff?
 Eh di nya alam kng magkano ang utang nya sa hospital, pero
Unaka alam nya magkano ang utang ni Gatchalian sa kanya
• Harris issued a check payable to the order of Butler = order inst o These suspicious circums can be explained & not necessarily leads to
• Butler indorsed it in blank to Davis bf
o Effect if the last indorsement is in blank? • Sir: duty to inquire
 It becomes payable to bearer (s9), becomes a bearer inst o Stupid to req ppl to inquire, you wont get anywhere
• Davis lost the inst o If SC says just inquire, why bother inquiring?
• W&F encashed the check – they rcvd the check from a customer in payment for o You wont get anything significant from that inquiry
goods
• W&F is a HFV bec they purchased it for value State Investment
• Aren’t they obliged to inquire into how he got the inst? Bec he just walkd in w a • Crossed check: features
bearer inst o Can only be deposited
o Purchasers owe no duty to former holders to actively inquire into the o Can only be indorsed once to the payee who has an accnt w the bank
title of the party in possession o Check is for a definite purpose
o No duty to inquire  Therefore, theres a duty to inquire if he rcvd the check
pursuant to that purpose
De Ocampo • Only indorsee of a crossed check is the collecting bank
• Gonzales gave the check to Ocampo Clinic for the hospitalization of his wife o Can only be deposited to the accnt of the payee
• Check was written by Gatchalian, not for payment but only for safekeeping – to • Here it was indorsed more than once
show that she was interested in the car of Ocampo Clinic • If crossed, is there an infirmity in the inst or defect in the title? NO
• Ocampo clinic cant collect o So what in s52 denies them the status of a HDC?
• What’s Gatchalian’s defense? Fraud
• Duty to inquire into the purpose for wc it was issued
o She had no intention to transfer her prop
o Sir: So if don’t, cant be a HDC?
o They were decived by Gonzales
 So the banks shld in quire
Drilon 8
• Act of crossing a checks serves as a warning, that the check has been issued • Tractors bought & broke down
for a defnte purpose so that he must inquire if he has rcvd the check pursuant • IFC Leasing a HDC?
to that purpose, otherwise hes not a HDC • Whats the rel btwn IFC & Consolidated?
o This is stupid! o IFC was the Financing Co in the transaxn w the tractors
o Why shld failure to inquire deny you the status of a HDC? o Consolidated: buyer
o IPM: seller-assignor
Bataan Cigar o IFC: assignee-financing Co
• Features of a crossed check:  They provided financing for the transaxn
o Cant be encashed, deposited only  They paid the purchase price of the tractors
o Negotiated only once – to 1 who has an accnt w the bank • IFC a HDC? NO
o Warning, that the check was issued for a definite purpose o Bec they had actual knowledge that the PN was subj to the cond that
the tractor’s weren’t defective
Atrium  They had knowledge that the sellers right to collect the price
• Checks were crossed wasn’t uncond
• Atrium inquired to Hi-Cement as to the purpose of the checks were – were told o They knew it wld be subj to the defense of failure of consideration &
that it was payment for the sale of petrol products cant recover the purchase price
• Checks were dishonored o But it took axn in taking the inst wc amntd to bf = so not a HDC
• Why isn’t Atrium a HDC if it inquired?
o Bec Atrium knew that the checks were only for deposit to ET Henry’s Salas
accnt, the payee • Filinvest can recover if it was a HDC
o SC said that it’s a HDC
TRB v Radio Phils • Btwn Salas & Consolidated wc will you follow?
• Sm of the checks were crossed o Most follow Consolidated
• Secu Bank were absolved from liability o Inherent for a financing Co to know abt the transaxn bec they will end
• If a bank pays a forged check, it must be considered as paying out of tis funds up taking money from the buyer – they’re a moving force in the
& cant charge such amnts to the depositor transaxn = they will have the docums bec they will have to collect
from the buyer
 Sir: in some cases, they convince the buyer to buy!
Yang v CA o Sir: Salas is better case law
• Manager checks – payee was David  Bec in IFC it was obiter, it wasn’t jurisprudence - it wasn’t in
• Stop payment order wsnt followed issue
• It was a crossed check: so how can David be a HDC?
o David checked if the checks were genuine Commercial Credit
o He had no knowledge of the stop payment order • Moving force used by the CT
o He had no oblig to ascertain the nature of Chandiramani’s title • Why shld the financing Co assume the risks in these cases?
o Bec he didn’t negotiate further, he deposited the money in his account o They’re in a btr position to asses the risk
• As the 1st holder of the inst?
Ham
o No, Chandiramani was 1st, then, David is only an indorsee = this shldt • I wont pay you bec I was defrauded when I issued you the inst
be allowed o Fraud is a personal defense = if you’re a HDC you can collect
o Check was payable to his order, the payee, the effects of crossing a
• By itself, a huge discount, isn’t conclusive of bf
check means the drawer had intended the check for deposit only by
the rightful person – the payee S54:
 Wc David did • You buy an inst, you haven’t paid in full, they you find a defect, whats you’re
• David is the payee, so there seems to be no violation of the rules, but in reality defense?
he was an indorsee coz he acquired it from sm1 else, and there shld be a duty o HDC wrt the amnt you paid for
to inquire then..so strictly speaking hes not a HDC
o X a HDC wrt to the amnt not yet paid

Pennoyer
• Finance Co – not a HGF as to a buyer
• Pennoyer  Live stock (note   cert of deposit) Dubois
Consolidate Plywood
Drilon 9
 o Live stock (negotiated the cert of deposit)  1st Natl Bank
• Pennoyer: Dubois isn’t a HDC bec he had notice of the fraud after the issuance
of the cert of deposit, but b4 effecting the payment of the cert of deposit
o Why will this deny Dubois a status of a HDC?
 S54: if rcvs notice, prior to full payment, hes deemed a HDC
only to the extent of the alrdy paid
 Why ds this apply here?
• The issuance of the cert of deposit dsnt amnt to payment
o Itll amnt to payment when its due
o What ds this have to do w s54?
o To avpoid the application of s
• Sir: s54 if you pay any amtn after youre aware of the infirmity/defect
o P: D paid nothing, he paid 100% after he became aware…thus as to
the full amnt, hes not a HDC
 D in payment of the inst, they paid paper w paper – the cert
of deposit was latr negotiated to 1st Natl
 Inst w D, cert w 1st natl, money w Live stock
 In the meantime, D becomes aware of the fraud…after, the
cert of deposits mature so 1st natl can no collect
 1 natl collected, D paid!
st
 So P was saying, whyd you do that?
o P: bec there was no payment of money at the time the transaxn
happened, when he remitted money on the cert of deposit, he knew of
the fraud, and therefore you aren’t a HDC
• Ct: in order for D to be a HDC, full payment shldve been made b4 it acquired
knowledge
o Mere delivery of the cert of deposit was payment – thus even if only
exchange of paper, there was alrdy full payment
o D parted w the certs b4 it had knowledge, thus it’s a HDC
• P: why ddnt D refuse to pay 1st Natl if it alrdy knew of the fraud?
o Ct: if the cert was negotiated & 1st natl is a HDC, D cant refuse to pay
o But cldnt have D raised the issue of fraud on a sep inst?
o Ct: bec the defense of fraud belonged to P, D cldnt have imposed that
defense
 Besides it was a sep inst
 The defense arose w rel to the inst
June 28
Foster
• Whats constructive notice?
• Just bec a docum is executed btwn the owner & debtor, means theres
constructive notice?
• How ds the doctrine of constructive notice apply to this case?
o When a transaxn is recorded in the pub registry, theres presumption
that the world is given notice of the transaxn
o Theres no need for actual notice
• Ct: constructive notice dsnt apply in this case since constructive notice only
applies when one is dealing w land, dsnt apply to N notes
• It was recorded b4 the note was ..
• When does doctrine of constructive notice apply? Only real prop (land, bldg, not
mort and lease)
• Ruling: constructive notice on land doesn’t apply to PN to secure a
• How could doctrine of constructive notice apply in this case? Claim constructive
notice ‘cause mort recorded before note was
• Doctrine of constructive notice – if transaxn’s recorded in pub reg = law gives
rise to presumption: serves as notice to whole world (every1) so doesn’t need
actual notice
S29: Accomodation party
• Party to the inst, but has not rcved any value but only signed for the purpose of
lending his name
• Liability: hes liable in the capacity in wc he signs = depends in wc capacity he
signs
o Maker – primarily
o drawer – 2ndarily
• HDC who takes the inst, wo knowledge that the person is merely an
accommodation party, dsnt prevent him from being a HDC
• Knowledge that the anparty is an accommodation party, isn’t knowledge that
theres a defect in the title
• Liab vis a vis HDCtakes ins accomm p’s merely accomm p = still liable
• Mean in contxt of disc of a HDC: Campos – knowledge a p’s an accomm p = not
knowledge of infirmity in ins
• S29 – accomm still liable to HDC even though aware merely accomm p
Complete inst
• When is an inst complete?
o When it complies w the reqs of s1
• Can 1 become a HDC if the inst is undated?
o Yes, bec if its undated, the date is considered as the date it was issued
• What happens if undated ins? Payable on demand
• What if the payee is in blank?
o Allowed, its considered a bearer inst
o What if a person fills in the name of anthr? Is this a matl alteration wc
makes the inst void?
o What is the inst is in red, the name of the payee is in blue ink? Shld
you inquire if auth was complied w? If you ddnt ask, are you a HDC?
 What if that person lies and says that he had auth? Are you
still a HDC?
• An inst incomplete frm the beginning, no 1 can be a HDC?
• S14: law contemplates that even if the inst is incomplete, it may be
filled up and the person may still be deemed a HDC
o S14 – last sent: law contemplates even if ins not filled up even in
accordance strictly w/ auth given = still become HDC
Miles City Bank
• Alteration was from what to what?
o Alteration consisted of changing from 1k to 5k
• Case was remanded bec the jury has to det when the matl alteration tk place
Drilon 10
 o If altered after execution & delivery, & not a party to the alteration =
HDC
o But if the alteration is obvious as to impart notice – P’s axn amntd to
bf
• 1st issue: WON hes a HDC
o They need to det if hes a HDC, so that they can det if he can collect as
to the orig tenor of the note
• 2nd issue: WON the alteration was obvious as to constitute notice?
o If its obvious on its face bec its matl altered, the inst is irreg and no1
can be a HDC
Bronson
• Not a HDC bec Mears exceeded his auth in filling in the name of the payee
• Vis a vis the blank or completion, what is the legal effect if Stetson is a HDC?
o If she was a HDC, she can enforce payment accdg to s14
• WON a party, prior to its completion, is bound to the inst
o If gave auth to a person to fill up the inst, if the person fills it up
exceeding his auth, you are not bound
o Except if the inst is w a HDC
o Even if there was a breach in auth, if its w a HDC, then the party may
still be made liable
• S14: even if auth not ffed/breach, in hands of HDC = presumed auth given as
seen filled upindependent WON Stetson’s a HDC (if she is, that part of the
prov will apply)
• Stetson wsnt a HDC bec she acquired it prior to its completion
o It was completed in her presence
*s14: the auth spoken of here, refers to the liability of the party who signed the inst
- the Q of auth is indep of the Q of won a person is a HDC
Bliss
• 3 notes negotiated to secure payment of Coop’s not to Bliss
• I: if installments unpaid, notice of dishonor?
• Was Bliss aware of failure to pay past installments? Useless if unaware
• As to installment not paid (still due on the note) = HDC? No
• HDC as to a certain part of the note (installment not yet matured); not
installment overdue
• Partially HDC and partially not? Any subsequent H hold it in same status? (not
to whole ins)
• Inquire ins – need to inquire WON past installments are paid: matter WON?
• What if don’t? ignorant, can be HDC as to entire ins?
• Mat’l to ask ‘cause?
• Was Bliss aware of the failure to pay the past instl?
• What abt the instl that wasn’t paid, is he a HDC as to that? Since its still
demandable?
o No, hes not a HDC
• Ct: purchaser of a note who has knowledge that a past due instl was unpaid
when he acquired the note, he cant be a HDC
Dissent:
• Can’t deny status of HDC ‘cause installment has several maturities, doensn’t
mean entire note overdue ‘cause when law speaks of dishonor = entire ins
• Installment note – several maturity dates
• 2 Knowledge installment not paid = not notice of defect, not infirmity in ins
• Partially a HDC as to those that aren’t yet due, and hes not a HDC as to the
instls that were overdue
o And any subsequent holder will hold the sme status as well
o So, if you acquire the inst, do you need to inquire if past instls were
paid
• Knowledge dnst matter
• Even if the holder knew the 1 st instl wsnt paid, you cant deny him the status of
a HDC bec an instl has several maturities, it dsnt make the entire note overdue
• Bec when the law speaks of dishonor, it talks abt the entire inst & an instl note
has several maturity date
• Notice of nonpayment of an instl cld be at most evidence of bf, but on its own
its not tantamount to bf
o Why? Bec 2things constitute bf:
 Notice of infirmity of the inst
 Defect in the title
• Is notice that an instl ws unpaid, is it a defect or infirmity? No
Barbour
• There was a default in several interests
• Nonpayment of interest, dsnt deprive a person from being a HDC
• Barbour knew default in int payment – doesn’t make entire note overdue and
Barbour’s still a HDC
Le Due
• Draft was indorsed to Jordan
• Inst is payable on demand = has no due date
o Why is this relevant?
o Bec it shld be presented w/in reasonable time, if not, its considered
overdue
• WON the draft is overdue? It was
• draft payable on demand – relevant in rel’n to 4mos and 23days
• WON draft can be considered overdue
• Demand ins relevant ‘cause abt WON it’s overdue: w/in reasonable time
• Impt to know ‘cause if overdue = not HDC
• Need to know ins was overdue/not
• If demand ins, know – based on
• Reasonable time fr date of I – ct has to fill in reasonable time otherwise won’t
know when it’s due; when take as H, how know if HDC on a demand ins?
Unlike ins payable on a fixed date – after falls due = not HDC
• Demand ins – no date: no idea of overdue
• How know if demand ins negotiated to u? – det when
• R: charged w/ notice if long issued and haven’t presented
• Ex. 1yr after issued, automatically overdue? Depend on bus usages and
purpose
• Prov in law that says that in the case of an ins payable on demand = won’t be
overdue if it’s negotiated w/in a reasonable time fr its issuance/last nego
• Reasonable time = not overdue
Drilon 11
• - so long as handed fr person to person w/in reasonable time
• S193 defines: based on usage of trade
Idaho
• When does ins fall due? How long? 6mos – negotiated a yr after I
• HDC as to the time – as to Wright, not overdue
• Indorsed 2nd time = became demand note
• Leg basis: ins payable on demand – S7: indorsed after overdue = becomes
payable on demand (as to person who Is/indorses it after overdue)
• - maturity as to him, WON overdue, reckoned fr a reasonable time fr
issuance/last nego
• possible for persons after Wright to be HDC
• In demand insts: need to look for reasonable time
Dunn
• I: O’Keefe not given notice previously dishonored
• Ct: O’ Keefe HDC even after dishonor ‘cause she had notive of dishonor only
after she purchased the ins
Triponoff
• Postdating of a check dsnt prevent one from becoming a HDC
• Does postdating of ins affect negotiability? No
• Effect of qualified indorsement? Can u become a HDC? Yes
• Condi’l indorsement? Yes
• Restrictive indorsement? Yes, if don’t violate condi
• Can a payee be a HDC? Yes
• QI, CI, RI = person can still be considered a HDC
• Payee can be a HDC
Howard Natl Bank
• Payee: Howard
• Whats the rel of the payee & E?
o E had accnts in the bank, he had overdrafts
o Note made by Wilson covered the overdraft
• What’s the rel bet Wilson and Elliot? Elliot asked Wilson to make note for him
• WON payee can be considered HDC? Howard Nat’l Bank
• Rel bet payee and Elliot: Elliot had accts there and there was an overdraft by
Elliot and the note made by Wilson covered that overdraft
• What happened to money?
• Cover overdraft secured by the bank
July5
S58
• Whats the right of a person who derives his title from a HDC?
o He has all the rights of a former holder wrt the prior parties
o Theres a diff from derives title & acquires title:
 Derives: dsnt necessarily mean you acquire the title
 Acquire: a HDC held the note b4 him
o Rights: holds it free from any defect of title of prior parties, can
enforce payment for the full amnt = he has all the rights of a HDC
• There are diff kinds of HDC – s52 HDC & s58 HDC
• S58 HDC dsnt necessarily take the inst from a HDC, so long as he derives his
rights from 1
o But rights are only as to the parties prior to the HDC
• To be a s58 HDC you shld:
o Derive title from a HDC
o Cant be a party to the fraud or illegality
• Reacquirer: so long as he reacquire from a HDC, you take his rights
• If you’re aware of the infirmity,
• Ex) note was for a gambling debt, you’re aware of that, but you can be a HDC if
you tk it from a HDC
o But you aren’t a HDC under s52 bec you had knowledge of a infirmity
• Reacquirer: 1st time held the inst, had knowledge of defect/infirmity or
participated, then N to a HDC, then reacquired it = X a HDC
o 1st time he held the inst, had no knowledge or participation, N to a
HDC, then reacquired it = HDC
• When you acquire an inst, even w knowledge, so long as not a party to it & you
acquire it from a HDC, then you’re a HDC under s58
• When is a reacquirer denied the status of a HDC under s58:
o If participated in the fraud/illegality
Pierce
• Allegation: the 1st time P held title, he was aware of the defect in title
o Agreed to by the CT
• No, cant compel payment from the maker bec was a party to the fraud
Lill
• Payment by a party other than the principal debtor dsnt discharge the parties
prior to the 1making the payment
o Payment operates as a transfer of the inst to the party paying
• He signed the inst as an indorser, hes an accommodation party
• Lill was a HDC
o Note was indorsed in blank by the bank = became payable to bearer
o When delivered by the bank, he became a bearer & holder w the sme
rights
• Bank was a HDC & he was a HDC even if he knew that it was overdue & unpaid
bec of s58
Fossum
• Original payee of the inst was PNB
• Explain why the inst makes sense in light of the transaxn
o Bec the seller was ordering drawee/buyer, to pay its agent/collector
wc is PNB
• Did PNB req that the inst be accepted? Yes
• But they refused to pay the draft wc remained dishonored
• PNB I it in blank wo consideration & delivered it to Fossum
• Fossum isn’t a s52 HDC bec he dsnt satisfy s52b
o He ddnt acquire it b4 it was overdue & had notice of its dishonor
Drilon 12
 o Under s52d he had knowledge of the defect/infirmity
• Not a HDC under s58
o Was he a party to the fraud or illegality? He had notice, but was he a
party to it?
• When he acquired the inst he had knowledge that the prod wsnt wat it was
suppose to be
• Ct said here that he wasn’t a HDC under s58 bec didn’t prove that he derived
title from a HDC
o Ddnt prove that the bank was a HDC
o He relied on the presumption under s59 – but s59 means holder under
s191 (payee, indorsee in possession or bearer)
S59: 2 kinds of HDC
• 1st: HDC presumed to be a HDC
• 2nd: HDC tho the title of his predecessor is defective
• Initially hes a HDC & he tries to collect from the party primarily liable, party
dsnt want to pay, indorser dsnt want to pay (hes a prior party to the holder
now
• Ex) a – b – c – d – e – f - j – f – g – k
o K trying to collect from J
o J says that C had defective tilte
o K wld have to prove that you derive title from a HDC – prove G is a
HDC
o If can prove that G is a HDC, then you are a HDC & K can collect from
J Yang
• 1st: presumption from s59
o Party can claim that hey, you acquired it from 1 w defective tilte
o If K can prove she acquired title from a HDC, shes a HDC
o The burden is shifted on the holder, to reinstate her status as a HDC
(burden is to lk for a HDC to prove shes a HDC)
• Last sentence:
o B & A are parties prior to the defective title & cant shift the burden
o So if K is collecting from A, saying I have a presumption under s59, A
cant say that C had defective title bec hes a prior party & he cant shift
the burden back to K/holder
• If 1 shifts the burden back to the holder, it assumes that the holder isn’t a s52
HDC
o Bec if you’re a s52 HDC everything dsnt matter
o S58: HDC as to certain ppl, only to those persons prior to the
fraud/illegality
o S52: you’re free to all attacks
o S58 & s59 assume that you aren’t a s52 HDC wc is why they only
apply to certain ppl
• S59 assumes that you aren’t a HDC under s52
Asia Banking Corp
• Snow’s Ltd were selling batiste to Ten Sen Guan
• BOE: snows = drawer, payee = snows, ten sen guan = drawee
o Snows directed ten sen guan to pay snows
• Snows I the BOE to Asian Banking wc was accepted b4 they inspected the
cargo wc wsnt batiste but burlap
• Was Asian a HDC? NO
o Bec they only held the BOE for collection & acceptance of the draft by
def (Ten Sen Guan) was conditional
• S59 cant apply bec bank wasn’t a HDC, they were merely collecting
• Bank failed to prove it was a S52 HDC so they were trying to invoke the
presumption under s59
o Lets assume that ABC is entitled to the presumption in s59, if so, what
can TSG do to refuse payment
o TSG cant rely on the presumption bec you acquired from a person w
defective title
o So ABC wld have to prove that it acquired from a HDC, wc they cant
bec Snows wsnt a HDC since they had knowledge of the fraud (knew it
was burlap)
• Isnt TSG prohibited from shifting the burden?
o Who is prohibited from attacking the presumption?
o Snows cant avail of s59
o TSG never became a holder of the inst but hes a party to the inst as a
drawee
 A drawee isn’t a party to the inst until he accepts it
 He became a party to the inst after the inst was alrdy w the
payee…therefore it became a party after the occurrence of the
defective title/fraud
• David/payee is claiming to be a HDC, can Yang invoke s59 in order to assail the
due course holding presumption enjoyed by David? No
o Bec Yang was a prior party to the defective title, thus cant shift the
burden
Van Syckel
• V is trying to estab that hes a s59 HDC
• Ct: no, he has to 1st prove that the I was genuine since the notes weren’t
payable to bearer – they were order notes & title didn’t pass until indorsed by
the payee
o Thus, proof of the payee’s sig is impt
• If he proved that the sigs were genuine, then he’d be a HDC
• If theres no allegation of forgery/if you dnt raise the sig as an issue, then you
don’t have to prove the genuineness of the sigs?
o No, wrong reasoning
Farmers State Bank
• How ds Koffler prove the presence of defective title?
• Check payable to the order of Davis, no negotiation as to the persons who
cashed the check
• K wanted to rely on the inference that since it was lost, title of whoever cashed
it is therefore defective
• Ct: defense of defective title isn’t available to K bec hes the maker & was party
prior to the defect
Drilon 13
 o And he was trying to avail of a defense that was only available only to o What if it’s a child porno? Depends if it void for all purposes, then it’s a
Davis real defense
o Davis is a party prior to defective title, bec after he lost is whoever tk
the inst had defective title – so he shldve been prohibited from raising S23: Forgery
this defense right? • Person isn’t bound bec wsnt a party to the inst at all
• The sig is wholly inoperative
S49 HDC • Unless party is precluded from setting up the forgery/want of auth
• Even b4 I hes a HDC bec the transferee acquires the title of the transferor & • Effect: you cant
the transferor is a HDC & he passes on these rights to the transferee even o Retain the inst
before I o Cant have it discharged
o Cant enforce payment
Commercial Bank of Lafayette
• Even if its not I, bec the law says the transferee acquires all the rights of the
 Against any party whose sig is forged
transferor – so if the transferor is a HDC, transferee is a HDC as well  Unless, they’re precluded from raising the defense of raising
the defense of forgery
4 kinds of HDC: • 2 kidns:
o Sig isfalsified
• S52: HDC in all contexts
• S58: HDC only as to parties prior to fraud/illegality o Sig made wo auth
• S59: presumptions, can overcome attack by proving you acquired from a HDC • Ex) a b c d e f g
o Can be enforced against all parties but ned to prove that youre a HDC o Forged sig of C
• S49: if a transferee wo I, from a HDC, you become a HDC o G cant enforce payment against A,B,C
 They’re all free from all defenses o But he can make D,E,F liable on the warranty that they made on the
 S58,59,49: need not comply w s52 but the enjoy the benefits of s52 inst (that its genuine)
o But s58 applies only to certain parties  Bec the defense of forgery isn’t available to them
Chap4: DEFENSES & EQUITIES o Forgery in effect creates a 2nd inst…its valid as to the parties AFTER the
• Real defense: forgery
o Available against all Hs, even against a HDC • Ppl b4 the forgery are insulated from parties after the forgery
• Personal defense: • NIL who are precluded from raising the defense of forgery?
o Available only against Hs not in due course o S62: an acceptor
o Cant be invoked against a HDC  Bec he admits the genuineness of the drawer’s sig & capacity
• *DON’T classify a certain defense as either real or personal – useless to indorse
o Ex) matl alteration  Only warrants the sig of the drawer & not an indorser
o Just study the rule wrt that defense  Bec hes suppose to know the sig of the drawer
o Indorser:
S22: incapacity  Bec he makes a warranty that the inst is genuine
• If person is incapacitated, can pass/vest title to the inst but cant be held liable
on the inst Gluckman
• Darling was claiming his sig is forged & if it wasn’t, he isn’t liable on the inst
Murray under s53
• Murray cant be held liable bec hes a minor • Ct: but hes estopped bec he represented that the sig is valid
• Cld the minor attack the validity of the I?
Strader
Illegality: • Person whose sig is forged, claims that her sig is forged & raises it as a defense
• Generally a personal defense, but sometimes a real defense • Ct: precluded from using the defense bec she rcvd the proceeds of the checks
in cash & merchandise
Rodriguez • She benefitted from the encashment of the checks so she impliedly ratified the
• Inst arising from a gambling debt forgeries
• Can Martinez interpose the defenses of illegality? Yes • Precluded: ds it include ratification?
• But Ct said that when Rodriguez acquired the inst, he was a HDC & illegality o It ds
was a personal defense • Won forgery cld be ratified? It can
• What if the inst was payment for services for appearing in a porn film, H is a
HDC, is it personal or real defense? Personal defenses
Drilon 14
• In order for you to be precluded from raising the defense of forgery must it 1st Natl Bank of Portland
raise to the level of estoppels? Must you be estopped from raising the defense • Checks stolen & sig of treasurer was forged
of forgery? • WON 1st natl bank cld recover the amnt from US Natl
o Shes not estopped, she ratified the acts but shes not estopped • Ct: drawee cant recover on the ground of forgery from a H
o Estoppel: if you make a statement & anthr relies on that statement, • H shld have no notice of defect on the inst
you cant change that statement if itll cause prejudice on the person o Ds this mean that he’s a HDC? NO
who relief on it • Price v Neal: drawee cant recover on the ground of forgery from a H
o Ct: precluded isn’t equivalent to estoppel o Not necessarily a HDC
• Exception of the rule:
San Carlos Milling o H guilty of bad faith
• S23 was it applied here?
o H who was negligent
• Wstn applied bec the money was paid to the proper payee, San Carlos, & thru
the forgery, he payee was actually paid • 1st natl bank = drawee
• It was a subsequent forgery w/in BPI o Asserted that US natl bank is negligent for failing to compare the sigs
(since the Co also had an accnt w them)
PNB v Quimpo • US natl bank = collecting bank
• Ct ddnt apply s23 here • Ct: no duty to the drawee bank to ascertain the genuineness of the sig of the
• WON Gozon cld be precluded from raising the defense of forgery? drawer
• Gozon says PNB shld return his money since PNB ddnt follow his order – wc is o As opposed to the duty of the drawee bank to know the genuineness
to pay w a valid sig – thus, for paying under a forged sig, his accnt shld be of the drawer’s sig
credited  Where ds this duty come from?
• Is PNB precluded from raising the defense of forgery since they paid the inst? • Case is a good case for the drawee bec he can argue that the collecting bank
By paying, you’re precluded from raising the defense that the sig is forged? was negligent too bec the drawer also had an accnt w them
o Also, if the negligence of the collecting bank is earlier than the neg of
July 9 the drawee bec he didn’t see the forgery
Price v Neal o In fact, the drawee bank’s loss is bec of the collecting bank
• Price wanted to recover the money to pay on the ground of forgery • Thus, so its necessary to determine why theres a duty on the drawee bank
• His other defense: Neal not a HDC bec its was forged • 2 exceptions of the Price v Neal doctrine:
• Ct: he cldnt recover o He guilty of bf
• Gen rule: person who pays under mistake can generally recover  He participated in the forgery/knew it was forged/knew of
• But in NI: payment under mistake, drawee cant recover bec shld know the sig circums causing suspicion of its genuineness
of the drawer  + circums aren’t known to the drawee & not told by the H
o But there are exceptions  = refund the money
• Neal = indorsee o H guilty of negligence
• Price = drawee  H cant profit by his mistake if he negligently contributed to
• Sutton = drawer consummation of the mistake, if he mislead the drawee
• Drawee paid the H and he’s trying to recover
• Why did the Ct rule in favor of the H? why not in favor of the drawee?
 = shld refund & drawee will be able to assert forgery against
the H
• What was the defense of Neal?
 if bth were negligent, why make the H suffer?
o That Price was negligent bec he shldve inquired whether the bill was
• H: so what if I didn’t detect it? I don’t have a duty to
really drawn on him by Sutton or not
detect it anyway?
• Whats the argument of Price? • Are either of these exceptions available under s62?
o He shld recover since it was paid by mistake and he can never recover o How ds S62 relate to Price v Neal?
against the drawer bec theres none & he cant go against the forger  S62 is the legis affirmation of the Price v Neal doctrine bec it
bec he was hanged embodies the practice being used by the law merchant then
o Leg basis: forgery was proven wc stands even upon an accepted bill
• Whats the basis for the Cts decision?  States the liab of the acceptor & that if the drawee pays for
o Incumbent on Price to check to the sig the inst, he cant recover
 Why on him if bth Price & Neal are in gf?
PNB v Natl City Bank of NY & Motor Service Co Inc
• Case was decided b4 s62
• Drawee: PNB
• Holder: Motor Service
Drilon 15
• Unknown persons indorsed checks to MSC, wc were drawn against the accnt of
Pangasinan in PNB
• Deposited w Natl City bank – PNB credited the money to them
• Test in determining the liab of a drawee who pays a forged inst:
o Neg of the H & the drawee shld be measured against ea other to see
wc party shld bear the loss
• *Price v Neal:
o 1st bill not accepted, other bill was accepted = bth were paid
o Ct ddnt make a distinction btwn the accepted/not accepted bills
o Just said that drawee cant recover
• So why was it impt in this case for the Ct to make a distinction?
o Bec in Price v Neal: payment includes acceptance
o Whereas in this case, payment dsnt necessarily mean that the drawee
accepted it
• Difference btwn acceptance & payment:
o Acceptance: X usually applied to checks
 But banks can do this thru certification
 If accepted, implies subsequent negotiation
o Payment: oblig is extinguished
 Once paid, its extinguished
• Bec if paid & accepted: drawee cant recover (s62 applies)
• If paid but not accepted: drawee can recover (s62 dsnt apply)
• Did the Ct abandon Price v Neal?
o Ct introduced a new doctrine: that the neg of the 2 (H/drawee) shld be
weighed
o Sir: they cldve just said that this is an exception to the price v neal
doctrine, when neg is present
• Motor service (H) was negligent:
o 2nd check, prior in #, was issued on a later date
o Given by strangers
o 1st check was indorsed by a sub-agent of the agent of the payee
 Ddnt inquire into the extent of their auth
o 2nd check was crossed
 Shld be deposited w the bank but MSC accepted it as
payment
PNB v CA
• GSIS issued a check payable to Polido, I to Go, I to Lim, Lim deposited the
money in PCIB
• PCIB stamped at the back of the check a guarantee
o Why was this stamped? Bec its necessary for clearing
o Its rule, shld have this stamp in order for to clear
• Check was cleared
• Forgery: the sigs of the ofcrs of the drawer (GSIS)
• Therefore, under s62 PNB can recover bec PNB cant disown the drawer’s sigs
o This was the final reason
• PCIB isn’t liable
o Warranted only the indorsements, not the drawer
o Assume that PCIB is neg, wld PNB be entitled to recover? NO bec
PNB’s neg is greater bec it had previous & formal notice that the check
was lost & there was a stop payment request
• “the prevailing view is that the same rule applies in the case of a drawee who
pays a bill wo having previously accepted it”
o Did this reverse the previous PNB ruling?
o No, rule here refers to bills whereas the PNB ruling refers to checks
• Checks: payment is not acceptance
• Bill: payment is acceptance
RP v Equitable Banking; RP v BPI
• Equitable & BPI: collecting bank
• RP/Treasurer: drawee
• The insts on their face were irregular
o If its apparent on its face, and the treasury & is negligent in nt seeing
it, why isn’t the collecting bank negligent as well if the irregularity was
apparent on its face?
• It’s the banks wc started the ball rolling, they were the one’s who induced
payment
Samsung v FEBTC
• Check was payable to cash or bearer for P999,500
• What drove them to ask him?
o Bec knew that Sempio worked in Samsung
o And bank procedure was to call the corp, but cldnt reach the ofc so
when they saw him, they asked him instead
• Samsung demanded that the bank re-credit their amnt wc they refused
• Samsung wsnt precluded from setting up the defense of forgery
o Invoking s23
• Price v Neal: reiterates the rule for a drawee & holder
• This case was btwn the drawer & the drawee
• Whats the basis of the COA? How is this related to s62?
• GR: the drawee who has paid the forged sig bears the loss
o Exception: when neg can be traced on the part of the drawer whose
sig was forged
 Need to weight the comparative neg btwn the drawer &
drawee to det who shld bear the loss
July 12
PNB v Natl City Bank NY & Motor Service
• Pangasinan  IARS  MSI  NCB NY
• Gen rule: If sig of Pangasisnan is forged, no 1 after him have the right to retain
the inst/enforce payment/discharge the inst
o PNB can recover for NCB NY then move down the line backward
o They can collect on ea other under warranties
• As btwn PNB & NCB NY can PNB recover under s23? NO
o But PNB is precluded – PNB is saying I paid you by mistake, im
entitled to recover
Drilon 16
 o But snce he paid & by implication accepted, he admitted the sig of
Pangasinan so he cant claim he’s precluded from raising forgery since
he alrdy admitted the sig
*applies also to PNB v CA
• GSIS  ____  Go  Lim  PCIB who collected from PNB
• Drawee: PNB
• If GSIS’s sig is forged, PCIB has no right to retain etc
• But if PNB accepted, hes precluded from raising the defense of forgery
• Drawee is only precluded under s62 if he ACCEPTS
o So know the distinction under acceptance & payment
o Under Phil law: acceptance isn’t subsumed under payment
1st Natl Bank of Portland v Noble
• Initially check was dishonored but when presented again, it was honored
• 1st natl bank seeking to recover from US natl bank since 1st natl bank paid by
mistake since Kelleck’s accnt had insufficient funds
• 1st natl bank cant recover bec it was negligent in encashing the check
• Relation to price v neal:
o Drawee who pays the H of the bill despite the fact that the drawer has
no sufficient funds to cover it, cant recover from the H what he paid
under mistake
o Rule in Price v Neal: By accepting, drawee is precluded from raising
the defense of forgery, thus cant recover
 Applies even if theres no negligence on the part of the drawee
 Still applies even if the forgery is so skillfully done
o Drawee is precluded from recovering the amnt bec it was incumbent
on him to detect the forgery, it’s the drawee’s duty to know the funds
of the drawer…so even if theres no neg in PvN, what more in this case
when there is negligence
Liberty Trust Co v Haggerty
• Bank precluded from recovering from the payee
• Bec:
o No privity btwn the payee & the bank
 Thus the bank had no COA to recover
o Bank has the means of knowing if the funds are sufficient
o To permit the bank to repudiate the payment wld destroy the certainty
wc comes w the N of commercial instruments
Stop payment order
• Is stop order isn’t followed & drawee bank pays, this cant be debited from the
drawers accnt
o Exception: unless payment discharges a legit debt of the drawer
• Why is the drawee precluded to recover?
o If theres negligence on the part of the drawee in not complying w the
stop payment order, drawee cant recover since the payee isn’t the one
who was negligent
• Can the bank deduct the amnt of the check from your accnt? Can you demand
recredit?
o No, cant debit the amnt of the check & drawer can recover
o Exception: if drawer was negligent, if it discharges a legit debt of the
drawer, if stop payment order is issued after the bank certified/paid
the check
Ilusorio v CA
• his sig is wholly inoperative
o can say that the inst is only inoperative by extension that the sig is
wholly inoperative = but whats really inoperative is the sig
• bank precluded in raising the defense of forgery?
o No, but Ilusorio
• Applying s23 & disregarding the ruling, can illosorio recover?
o Bec if he had no neg, the drawee bank had the duty to know if the sig
was genuine
o Bec under s23 his sig is forged & therefore he had no order to the
bank to pay the payee & the bank is unauth to make payment to the
payee
• Ds it matter that the check here wsnt certified?
o If Mla bank wants to maintain the position that the deduction from the
accnt of Ilosorio thus they shld say that the sig is genuine thus they’ll
stick to s62
o It dsnt change the result of this case
• What appens in s23? How ds s23 operate in this case?
o Exception applies
o Ilusorio is negligent, thus hes precluded from raising the defense of
forgery – he failed to rectify the sit by not preventing the sit
Now, we’re talking about forgery of Indorsers:
• Difference from drawer’s sig:
o Drawee bank isn’t under oblig to certify the genuineness of the sig of
the indorsee
• Der  Pee  Indrsr  H
o Dee
• Drawer issues the inst to drawee, payable to payee – payee’s sig is forged
• Drawee accepted & paid the H
• If drawee wants to collect from the H, can he?
o Gen rule: drawee can recover bec of s23
 Sig is wholly inoperative, no right to retain, no right to
enforce payment, no right to discharge the inst
 Thus, as btwn H & drawee, who has no right? The H
 If he has no right to enforce payment, he shldnt have been
able to take payment from the drawee
 Thus, drawee can recover
• Irrelevant if the drawee guarantees previous indorsements
o Relevant only if he DID issue a guaranty, wc therefore precludes him
from raising the defense of forgery
• Why wld anyone say that I guarantee?
o Its irrelevant bec the H wont invoke forgery anyway
Drilon 17
 o It’s the drawee who will invoke the forgery
• Why isnt the drawee precluded?
o Bec of s62 – he guarantees the genuineness of the sig of the drawer &
not everyone else
o Thus, drawee isn’t precluded from recovering from a H
• Case of forged sig of drawer, drawee cant recover bec of s62
o But in case of the forged sig of the indorse, can recover bec ddnt
warrant the sig of the indorser
• If drawee recovers from H, H can recover from the indorser
o When the H recovers from the indorser, is he recovering from his
2ndary liability? No, he recovers bec case law (SC) has interpreted s65
& s66 that the inst is genuine in all resects
o When the indorser warrants the genuine of the inst in all respects,
then he warrants all the other indorsements
o Hes not enforcing the inst, bec he has no title to it, hes enforcing the
warranty
o S65 & s66 dsnt say anything abt the warranty of previous sigs, but SC
has interpreted it this way
• If you’re the drawee, and you’re given the instrument
o H has no right to the inst
o So give the inst back to the payee/the party whose sig was forged
o Confiscate the inst & give it to the payee
Great Eastern
• GE  Melicor  (forged sig of Melicor bec stolen by Maasim) PNB  HSBC
• Can GE had HSBC re-credit their accnt? Yes
• Bec GE auth HSBC to pay Melicor & no1 else
• Bec of HSBC’s neg, GE can recover what was deducted from their accnt
• Apply s23 here:
o Forged sig of Melicor was of no effect so no title vested in Maasim
o So PNB bears the loss
Jai-alai
• Various clients of Inter-island  payble to inter-island  negotiated to Jai-alai
 deposited to BPI  BPI recover from various clients
• Suit btwn jai-alai & BPI
• Amnts were originally credited to the amnt of jai-alai, when discovered the
forgery, they debited the amnt again
• Suit btwn the collecting bank & H/depositor
• S23 applied here:
o Forged sig is the indorsers
o Rights of jai-alai wrt the inst: X right to retain, Xenforce payment, X
give discharge
 If they enforce payment, BPI can recover bec it was payment
by mistake – thus no C-D rel
o Under s23, BPI shld be able to recover from jai-alai
• Ruling: yes, BPI can recover
o Jai-alai was also negligent
o Payments made by BPI were ineffective
• Jai-alai having rcvd the checks, is deemed to have given warranty under s65
that the checks were genuine
Canal Bank
• Mont  Bentley (sig forged)  Budd  Bank of NY  defs/bank of Albany
• Canal bank (drawee)
• Suit btwn drawee & collecting bank
• Apply s23, who is entitled?
o Canal bank is entitled to recover from bank of Albany
o Bec Albany has no right to the inst bec it acquired the inst from a
forged I – B’s sig was forged & is wholly inoperative
 X right to retain, discharge, enforce payment from any party
to the inst
• Canal bank when accepted the inst, he became a party to the inst & Albany
cant enforce payment to them
o Any payment made by canal bank can be recover bec its
unenforceable, bec it paid by mistake
Rep Bank v Ebrada
• BTR  M Lorenzo  Ebrada  RB (drawee)
• Lorenzo alrdy dead when check was issued
• S23: since the sig of the payee was forged, Ebrada has no right to the inst
• S66: ebrada being the last indorser, she guarantees that the inst is genuine in
all respects
Significance of this warranty, is that she is precluded from raising the
o
defense of forgery
o But she ddnt want to raise the defense of forgery – why? Bec she’s
trying to collect from the inst!
 If she raises forgery, shes admitting that you have no title
Banco de Oro
• Equitable Visa  various estabs (forged sigs) Trencio  deposited w BDO 
Equitable (drawee bank)
• S23 applied:
o Can E recover from BDO? Yes, Trencio acquired no title bec the forged
sigs were wholly inoperative, thus when deposited w BDO, cldnt
enforce payment/retain/discharge
o Therefore, Equitable, having paid may recover the amnt paid
• Furthermore, E isn’t precluded from setting up the defense of forgery since they
only warrant the sig of the drawer & not that of the other parties
BPI v CA
• BPI (drawer)  Fernando  deposited to China Bank  BPI (drawee)
• X Fernando, but was an imposter
• Preterminated a money market placement
• forged: the sig of Fernando
• accnt opened in China bank w the sme forged sig
• s23: since fernando’s sig is forged, BPI can recover from china bank
o china bank ddnt acquire any title on the inst bec of s23
• BPI was neg
Drilon 18
• but china bank was made to share in the loss bec china bank was also negligent
o they shldve be suspicious by the huge over the counter wdrawals
immediately after the accnt was open = but what’s the teller suppose
to do?
o misrep when imposter opened an accnt
o bank tk the word of its own depositor – they tk the identity of
Fernando on the basis of a client’s word = is this neg?
• BPI released it on the strength of the representation of CBC that it was
Fernando
• As far as bpi is concerned, they paid it to the person itself – thus wasn’t neg on
part of bpi
• For sir: no neg on bth parties
July 17
Natividad v Gempesaw
• Galang knew that even if Gempesaw checked the invoices against the amtns on
the checks, wldnt discover anything
• Inexistent sales – were forged invoices
• Did Gempesaw have a right to recover from PBCom who paid the amnt of the
checks? Yes, but she shares in the loss bec she was also negligent
• Drawee bank is liable bec it contravened the tenor of its oblig by honoring a
check w more than 1 I
o Bank rules prohibit acceptance of 2nd I wo being cleared by bank
officials
o Bank was held liable based on the CC – A1170
o Drawer entitled to recredit bec of contract law
• But the drawer’s sig isn’t the 1 that’s forged – its the indorser’s sig
• S23 dsnt speak of the drawer vis a vis the drawee
• Ct employed s23 in saying that Gempesaw is precluded from using forgery to
prevent the bank’s debiting of her accnt
• S23: GR a forged sig, being in wholly inoperative, the holder has no right to
retain, enforce payment or give discharge to the inst
o Unless the party against whom its sought to be enforced is precluded
form setting up forgery/want of auth
• Assuming that Gempesaw is invoking the forgery as a defense – wc is why the
Ct said that she was precluded – but what gives her the right to invoke forgery
when it wasn’t her sig wc was forged?
Associated bank v CA
• Associated bank: collecting bank
• PNB: drawee bank
• PNB shld reimburse the amnt to the Province of Tarlac
• Liability of PNB for the 50% is passed to Associated Bank
o PNB isn’t precluded from raising the defense of forgery…actually it was
successful at invoking the forgery since they weren’t held liable
• Associated Bank was liable bec of breach of their guaranty
o So whey were they held liable for the whole amnt?
• Why is the neg of Province of Tarlac in the lawsuit btwn PNB & Associated
bank?
• PNB is collecting from Associated bank, they’ll share the loss/burden if PNB
were negligent
• Who could the neg of a non-party affect the liab of parties to a contract?
• Here, they’re invoking an exception to the rule, so whats the rule?
• Sep the 2 cases: case btwn Province of Tarlac & PNB and PNB & Associated
bank
• Case btwn Tarlac & PNB:
o Drawee bank cant debit the accnt of the drawer bec it paid checks wc
bore forged Is
• How did the Ct apply s23?
TRB v Radio Phils
• Radio stations bought from TRB 3 managers checks
• Checks were presented to Secu Bank, TRB honored the checks
• WON TRB shld be solely liable for the amnt of the checks
• Duty of TRB to det that the check was duly in order by the orig payee
Westmony v Ong
• Westmont: since Ong never had possession of the checks nor did he auhtorie
anybody, he ddnt become a H thereof hence he cant sue in his own name
o Legal basis of Westmont: S51, s191
o Ct: even in the absence of delivery, such consideration isn’t matl =
what P is dng is a shortcut
• Westmont was at fault for being negligent
• There’s a leg duty on their part to ascertain Ong’s sig? Why?
o The bank makes a warranty of prior Is bec of s65
• When Westmont collects form the drawee bank, it makes a representation that
the I are genuine under s65 & 66
• The warranties under s65 & 66 are directed to whom? When they make these
warranties, to who do they make them to?
o To the drawee bank
o Is On the drawee bank? No
o Is there any privity btwn Ong & the drawee bank? No
• What is Ong’s basis for trying to collect the amnt of the check from Westmont?
o He can collect, he’s the payee, if he has the check – but here, hes not
in possession of the inst
o Bec of the forgery of Tanlimco, hes entitled to possession of the inst
but he still dnst have it
• Pacific Bank can say that Westmont cldve detected the forgery, therefore, if you
cldve detected it – we wouldn’t have to pay
o But this argument isn’t available to Ong
o In fact, Ong isn’t even a party to he inst
 Wc is westmont’s defense – bec of s16 bec in order for him to
be party to the inst, he shld be delivered to him
• If anyone shld complain, it shld be Island Secu who wld demand that PBC re-
credit their acctn & PBC can recover from Westmont
• Westmont is saying dnt sue use, sue Island Secur – we aren’t privy to that, you
cant make us liable to it
• Ex) sm1 stole the inst, forged your sig & I it – can you sue just coz your name
is the inst bec your name appears there? NO, you aren’t a party to the inst
o SIR: Westmont is correct, Ong cant claim from them – he can only
claim from Island or Tanlimcos family
• The 1 ultimately liable is Island Secu
Drilon 19
• Ultimately liable on the check – Pacific bank bec it’s the drawee bank
• Who’s liable for the forgery? Ultimately who is liable is Tanlimco
• Ct: sig of the payee (Ong) was forged & the collecting bank erred in making
payment by virtue of the forged sig – thus, Ong shld be allowed to recover from
the collecting bank (Westmont) (based it on s23, sig is wholly inoperative)
• PBC has a COA against Westmont – for breach of warranty
• Sir: the short cut is suing Island Secu
o What the Ct said was the long way – he’s reaching/suing some1 who’s
not liable to him
• What if Westmont had defenses?
o Ex) if PBC was neg – can Westmont invoke these defenses against Ong
o What if there is defenses btwn the parties, can they invoke this against
the 1 taking the “short cut”
• Lets assume that Island Secu owed money to Tanlimco & the inst, tho it was
diverted to it, & the inst settled a valid oblig btwn Island Secu & Tanlimco
o Can Westmont raise this as a defense that they may not have followed
your order, but it settled a valid oblig of yours & you weren’t hurt by it
• SIR: defenses are available to the 1 taking the short cut?
July 19
Tolman v American Natl Bank
• Drawer: tolman
• Drawee: American Natl Bank
• Potter impersonated Haskell
• Potter indorsed it to Haskell & gave it to Homes who encashed it
• Ct: Tolman can recover since bank has the duty to pay to the order of the
drawer
o And his order was to pay Haskell – wc wasn’t followed
• Fraud of Potter wasn’t complete upon rcpt of the check
• And Haskell wasn’t the one who indorsed the check
• Check wasn’t payable to bearer bec Tolman intended the check to go to Haskell
who wasn’t a fictitious person
o Basis: s9 NIL – the inst wldnt need an indorsement if it was payable
by bearer
o Why did this defense fail? Bec Haskell was not known to be a fictitious
payee to the drawer Tolman when he made the check (S9)
• Genuine indorsement is necessary
Snyder v Corn Exchange Natl Bank
• Niemann – fictitious person
o Bec the drawer didn’t intend for him to rcve the proceeds of the check
• Greenfield was the agent of Snyder – so the intent of the agent controls?
o In this case yes, bec of the POA issued by Snyder to the bank,
authorizing Greenfield to draw checks for him on his accnt
• Thus, the inst here is payable to bearer
o So s23 cant apply
• If Greenfield acted wo auth, isn’t his sig forged? Did he have auth to issue a
check to Niemann?
o He was given gen auth to issue checks to ne1
Clearfield Trust Co v US
• Drawer: US
• Drawee: Treasurer of the US thru the Federal Reserve Bank
• Payee: EE
• Payee never rcvd the check
• Notice to Clearfield Jan 12, 1937…reimbursement demand Aug 31
• Sued in 1938
• Wheres the delay? In filing suit?
• At the date of issue…there was no forgery
• Delay was from when Barnes told the US that he didn’t rcve the check – May
10, 1936
o Nov 10 1936 he executed an affidavit that there was a forgery
• 8 mos b4 gave notice
• More than a yr to seek reimbursement & file suit
• They delayed & they are precluded
• But Ct said that the US could recover
• Delay dsnt preclude the drawer from reimbursement?
o Need to prove damage to recover
• Delay in giving notice wont precluded the drawer from collecting unless it also
proves damages
• Clearfield wasn’t able to prove the loss since it cld recover from JC Penny
• So why does delay preclude you from raising the defense of forgery?
o One can only shift the loss to the drawee only on a clear showing that
the drawee’s delay in notifying him of the forgery caused him damage
• If the drawer delays in giving notification, he wld be entitled to recover? He
wont be precluded from putting up the defense of forgery
o What will preclude him? If the collecting bank is able to prove that he
suffered damage
Detroit Piston Ring Co
• Culbert made out checks to non-existent persons/past EEs
• Ct remanded the case bec couldn’t det if Detroit exerd due care when they
discovered that their production cost was higher than usually
• If Detroit’s failure amnts to negligence – remanded
• What was the Ct’s standard?
• What are the facts necessary to det WON Detroit was negligent?
PCIB
• If there’s contributory neg, then the drawer shld bear the loss
o Premise is that the EE acted w the auth given by the principal
o But Ct said the EE didn’t act under the auth given to them by the
principal
 Bth EEs acted in their personal capacity
• Bth PCIB & Citibank are liable
o Bth were negligent in the selection & supervision of their EEs
Material Alteration
• Changes the leg effect of the inst
• Sec. 124. Alteration of instrument; effect of. - Where a negotiable instrument is
materially altered without the assent of all parties liable thereon, it is avoided,
Drilon 20
 except as against a party who has himself made, authorized, or assented to the
alteration and subsequent indorsers.
But when an instrument has been materially altered and is in the hands of
a holder in due course not a party to the alteration, he may enforce payment
thereof according to its original tenor.
• Sec. 125. What constitutes a material alteration. - Any alteration which
changes:
(a) The date;
(b) The sum payable, either for principal or interest;
(c) The time or place of payment:
(d) The number or the relations of the parties;
(e) The medium or currency in which payment is to be made;
(f) Or which adds a place of payment where no place of payment is specified, or any
other change or addition which alters the effect of the instrument in any respect, is
a material alteration.
• PNB v CA
o An alteration is material if it alters the effect of the inst
o Its an unauth change in an inst that purports to modify in any respect
the oblig of a party or an unauth addtn of words/numbers/other
change to an incomplete inst relating to the oblig of a party
o It changes items wc are reqd to be stated under s1, NIL
• effect: it avoids the inst
o = void inst
o discharges the parties unless they authorized or consented to the
alteration
• exception: a HDC not a party to the alteration, may enforce payment accdg to
the orig tenor
o addcg to the orig terms of the inst & not to the altered terms
Montinola v PNB
• Laya was the Provincial Treasurer & ex officio agent of PNB
• Ramos assistant agent of PNB
• Check was in possession of Montinola
• Under Laya’s sig there was an addtn “agent of PNB”
• Was a matl alteration bec it changes the nature of the resp of PNB from a mere
drawee to a drawer & drawee
• Whats the effect if the same party is the drawer & drawee of the inst?
o Hes ordering himself to pay
o Law says that the H has the option of treating it as a PN – making the
bank directly & primarily liable
• Whats the effect of matl alteration? The inst is void thus Montinola cant collect
• Montinola not a HDC bec its already a stale check
o Thus he really cant recover
• Montinola was a mere assignee of the P30k sold to him by Ramos – thus hes
subj to all the defenses available to the drawer Provincial Treasurer & Ramos
• Just bec the inst is materially altered Montinola cant recover?
o NO, if he was a HDC he could recover accdg to the orig tenor
o But here, hes not a HDC bec when he rcvd the check, it was alrdy
overdue (violates s52)
o Also, under s191 a H is a payee or indorsee of a bill/note & Montinola
is neither – so he’s not a holder
o Didn’t take the inst in GF
o Inst wasn’t properly negotiated – Montinola is a mere assignee
 Ramos only indorsed part of the inst – 30k only not the whole
100k
 S32 says the I shld be an I of the entire inst – if it only
transfers part of the amnt payable, it dsnt operate as a
negotiation of the inst
• No such thing as a partial negotiation
 Thus hes subj to all available defenses available to the prior
parties
PNB v CA
• Issue: Won the alteration of the serial # of the check is a matl alteration? NO
• Not a matl alteration – bec its not an essential req for negotiability under s1
• Oblig of the parties remains the same…no change in their relations/oblis
• If it were detected, the drawee wld be made to pay bec its only an immatl
alteration?
• If alter the serial # of the check, you can collect on the check?
• If the alteration dsnt change any of the reqs under s1, the alteration is immatl
& drawee can still be compelled to pay
• Ct said matl alterations are only those in s1? Only those wc affect its
negotiability?
• So if it has no impact on s1 its not a matl alteration? Yes
• So if the isn’t contains 5 Is on the back & sir deletes 4 of them – matl
alteration? If he adds a sig on the back – matl alteration?
• If sir holds an order inst wo a blank I and he deletes all the Is, then he has no
title to the inst bec theres no I & the inst goes back to the payee? Bec it has no
impact on s1?
• SIR’s point: Malt alteration isn’t limited to s1
Bank of Commerce of Sulphur v Webster
• Adds a party wo consent of the guarantors, so they are released
• The addtl sig changed the relations of the parties so it’s a matl alteration
• Sir: it adds a party, but its beneficial to the guarantors!
• Change in relations of the parties:
o Theres a modification of their rights & obligs
o It changes the rate of contribution & changes the charac & description
of the inst
Foutch v Alexandria Bank & Trust Co
• Altered the amnt & added “for note”
• Bec theres a matl alteration, the H isn’t entitled to anything bec the inst is
avoided
• Therefore Foutch can only recover the diff btwn the orig & altered terms
• If the drawer is negligent cant recover from the drawee bank
o Bec drawer’s have the duty not to leave spaces/blanks wc can invite
alterations
• Foutch’s neg:
o He allowed the payee to fill in the entire check
Drilon 21
  Negligent bec its in the payee’s handwriting & any alteration
cld be made wo detection by the bank
o It was written in pencil
 Facilitating the alteration
• Thus, Foutch is liable for the full amnt – the altered terms? No, just the orig
amnt
Savings Bank of Richmond v Natl Bank of Goldsboro
• Drawer: Natl Bank of Goldsboro
• Was there neg on the part of Norwood? Yes, the draft used was on plain white
paper wo safety devices
o Plus it was the bank’s procedure to use these safety devices
o Drafts were issued outside banking hours
• But drawer is only liable for the orig amnt
Critten
• Was the drawer neg here? Yes
o It failed to verify the statements & vouchers wc wldve revealed the
alteration
• Bank was also negligent in paying bec the alterations were apparent on the
check
July 26
Marine Natl Bank
• Marine can recover as a drawee bank since it’s an altered check
• S124 NIL says an altered inst avoids the inst but a HDC can recver on the orig
tenor
• Since its an altered check, payee can only recover the orig amnt
• Certification only holds the bank for the truth of the facts presumed w/in his
knowledge – only certifies the sig of the drawer
Wells Fargo (barbs)
• o
HSBC v Ppls Bank & Trust Co
• HSBC entitled to recover from Ppls bank? No, bec of the CB Circular 9
• Absent the circular, they are entitled to recover!
o Can recover wo the circular: bec of s124 (Marine Natl Bank)
 Only assented to pay accdg to its orig terms
 Bec relied on the representation of the collecting bank
o Cant recover wo the circular: bec of s62 (Wells Fargo)
• In all instances of matl alteration, the drawee bank shld be able to recover bec
of the warranties – but this isn’t true in all instances (why?)
• What is HSBC’s claim for reimbursement?
o S124 bec HSBC didn’t assent to the alteration, then the inst is avoided
as to the bank thus it paid under mistake & shld be reimbursed
o Since the inst is avoided, the payment wasn’t due & therefore there
was payment by mistake – reimburse
Rep Bank v CA & 1st Natl City Bank
• Was 1st Natl City Bank entitled to recover? NO
• Ct applied the 24hr clearing hse rule
o Aside from this rule, duty of the drawee bank shld be able to detect
alterations/erasures/superimpositions/intercalations since it has
control of the drawer’s accnt, knows his sig, shld have appropriate
detecting devices
o Thus, despite the 24hr rule, bank has the duty to detect the alteration
wc will prevent them from reimbursement from the collecting bank
o As btwn an innocent H & innocent drawee – it’s the drawee who shdl
bear the loss! – legal basis?
• Is there a contrary citation of the law? Contrary to the holding of the Ct?
• Ct is saying he shld warrant the entire inst – thus if theres an alteration, he’s
resp for the alteration bec by accepting it, the drawee admits the altered inst
o S62 is contrary to this bec theres nothing in s62 wc states that the
drawee guarantees the body of the inst
o S66 is contrary to this is well bec nthng in it states that the drawee
has this duty
FRAUD
CLT Corp v Panac et al
• S55 title was defective bec there was fraud
• TC: there was no neg on the part of the Sps, thus s15 still applies as a real
defense
o It’s a real defense
• Real defense of fraud was still available to the Sps – bec of fraud in the
execution – ddnt know they were signing a NI
• CA ruled that the fraud wsnt a real defense
o Cited a Wisconsin rule
• Dissent: s55 dsnt distinguish
o It ddnt pertain to whether it’s a real or personal defense
o If theres fraud in the execution, this wld bar a HDC from recovering
Fraud in inducement: maker knows the docum he’s signing is a NI =
personal defense
o Fraud as to execution: maker dsnt know that he’s signing a NI = real
defense
• Under what circums wld the party primarily liable be obliged to pay?
o If they had the means of discovering the fraud
o If he ratifies
• SC: upheld the TC, it’s a real defense
DURESS
• Personal defense
• But if the duress is so serious, may give rise to a real defense
S16: complete inst wc is undelivered
• Complete inst: 1 wc complies w the reqs of s1
• NU is Incomplete & revocable until delivery
Cohn et al v City of Taunton
• Cohn was a HDC & bec of s16 theres a conclusive presumption of delivery
Drilon 22
 o Conclusive presumption of delivery: if the H of the inst is a HDC
• How do you dispute the delivery?
o Show that delivery wsnt made by or under auth of the party
making/drawing/accepting/indorsing
o Delivery was conditional
o Delivery was for a spcl purpose
o Delivery wasn’t for the purpose of transferring the prop in the inst
Smith v Dotterwiech
• Issue on admissibility: parol evidence rule – testimony extraneous to a written
contract/agreement, isn’t allowed (whats not allowed is evidence wc is
attempting to modify/vary the provs of the written contract = inadmissible;
exceptions: if you plead it)
S15: incomplete & undelivered
• Not valid in the hands of ANY holder
• Invalid against any person whose sig is on the inst b4 delivery = drawer or
maker
o They’re released
o Possible that some indorsers signed – they’re released also
• Whys there a limitation that the inst is only invalid as against those who signed
b4 delivery? Whats the diff btwn those who signed b4 & after delivery?
o What if the date is blank? What if you don’t know, cant det the date of
the inst – its non-negotiable bec not at a determinable, future time
Pavilis v Farmers Union Livestock Commission
• How were the insts incomplete? Bec the manager signed the checks wo any
particulars
• Checks were taken by Hoard
• Pavilis is trying to recover from the drawer – he gt the checks from Hoard &
gave Hoard $102 in consideration
• Applying s15, wld Pavilis be entitled to recover from Farmers Union? No
o Bec Pavilis was a H of an inst wc was incomplete & delivered by 1 who
had no auth
o Hoard completed the check wo auth, therefore it wsnt a valid contract
as against Farmers Union
o Inst is not valid in the hands of any H – such as Pavilis, as against any
person whose sig was placed prior to delivery – and isn’t enforceable
against Farmers since their sig was placed prior to delivery
• Wasn’t Pavilis almst able to recover?
o In certain circums s15 may not apply:
 Neg on the part of the maker such that it becomes estoppel
Weiner
• Act of signing the check in blank contributed to her loss – she was deemed neg
for dng this
• Other theory: weighing of the neg of the drawee bank & drawer
• Strict application of s15: inst is invalid & Weiner wldnt be able to recover
o S15 says H or person who’s sig was placed b4 delivery – but a H takes
the inst b4 presentation of payment thus, not a H
o Drawee bank isn’t such a H
o Bec a H is some1 who takes an inst prior to presentment of payment &
a drawee takes it when its paid thus its not a H
Linick v AJ Nutting & Co
• Straight application of s15? Yes
• So Linick isn’t bound? Yes
• Linick wasn’t negligent so he can recover from the drawee bank
S14: incomplete inst wc has been delivered
• Blanks in the inst may be filled in by a person in possession to complete the
inst = has prima facie auth to complete the inst
• But in order for a person to be bound, party prior to completion – shld be filled
up strictly accdg to auth given & w/in reasonable time
o If not, parties prior to completion aren’t bound
o But if HDC – can enforce the inst
• Under s13: insertion of a wrong date wont avoid the inst
o Why ds it say void when s14 says its void only against certain parties
(those prior to completion)?
o Basis for saying inst is void, when a date inserted is wrong? As if if s13
wasn’t there, the inst is void?
 Bec the alteration of a date is a matl alteration under s125 &
under s124 the inst is avoided
 But only in instances of s13 will the inst be avoided
Simpson
• She put in the name of the bank & then asked the bank for an indorsement
• Since the inst was given in blank, there was no name of the payee
• Ct said the maker intended that the bank’s name be placed as payee
• Ds she have auth to fill in the blank even if she wasn’t the H?
o Yes , bec law gives auth to the person in possession...not necessarily
the holder
• Auth shld be strictly followed in accordance w the auth given & w/in reasonable
time
July31
CONSIDERATION: S28
• Absence/failure of consideration is a defense against a H not in due course
• Partial failure is also a defense
• Goes together w: S24 that theres a presumption of valuable consideration
• Valuable consideration: consists in a right/interest/profit or benefit accruing to
a party who makes the contract
o Oblig to give/to do/not to do in favor of a party (Ty v Ppl)
o There’s a benefit & detriment
• Is the contract void or voidable?
o Since there’s no consideration, shldnt it be void? Bec an essential elem
of a contract
• Contract when a maker gives the inst to a payee, in exchange for nothing –
isn’t this a contract of donation?
Drilon 23
 o Donation is an act, not a contract o Was the H a HDC? No, bec they there was a defect in the transaxn
o But its really a contract (sir) (bec the fertilizer they gave was worthless & they mustve known this)
o Since it’s a contract of donation, it must be valid! o The failure of consideration is binding on them! And yet, the Ct
o So it’s a valid donation but not a valid NI? allowed them to recover
o If a NI is issued wo consideration, whats the effect?
• Ex) dad issues a check to daughter who’s getting married as a gift
o This NI is invalid?
o Its wo consideration
o If the check bounces – can you sue your father for BP22? Yes, can sue
even if at gift
o If check is invalid for failure of consideration, then cant be liable
criminally, since the check dsnt exist?
• If a check is issued for no consideration, bec it’s a gift, it cant be enforced
unless HDC thus if in the hands of any other person, its ineffectual, thus how
can it give rise to criminal liab?
o This is the weird thing about it
o Theres an inconsistency here – there’s a causa in donation, but there’s
no consideration
 Exemplified by Ty v Ppl
• A contract of donation is valid, theres sufficient cause/consideration
o But if you give a check for nothing, we’re saying there’s no
consideration
o There’s sufficient cause – gratuity = thus it’s a valid contract
o But theres no consideration
o In a contract of donation, there’s cause but no consideration
o In contract law, gratuity is a valid causa, but theres no consideration!!
• Consideration: from AM contract law

Ty v Ppl
• It was a valid oblig, rcvd hospital services
• There was consideration here! Why?
o Bec they rcvd hospital services
• Elems of a contract: consent, cause/consideration, object
• Defense: no consideration, bec she wasn’t the 1 sick – it was her mom & sis
who were sick

Dougherty v Salt
• Was there consideration here? No
• Why was the note given? Bec the aunt loved her nephew, wanted to take care
of the boy

Barco & Son v Forbes

• Fertilizer was worthless – had no effect
o Some fraud was committed
• Wc is a defense in paying the inst
• Thus, H shld be able to recover from the inst – but Forbes executed a renewal
note
• Thus, waived the defense of failure of consideration
o Sir: so what? There was still no benefit to them? There was still no
consideration! So why is the defense considered waived?
o There as no benefit bec the fertilizer was worthless
Drilon 24
 Singson v BPI
CHAP 5: Liability of Parties • BPI garnished the accnt of singson when he ws absolved alrdy
• Primary liability: those liable to the inst unconditionally • Ct: existence of a contract dsnt bar the commission of a trot
• 2ndarily liable: to be liable certain reqs shld be satisfied – • Granted nominal damages since the bank remedied the wrong as soon as it was
o Presentment for payment to the primary party discovered
o Dishonor by the primary party *Presence of a contract dsnt preclude the finding of a tort & a breach of contract
may itself be a tort (Air France v Carrascoso)
o Notice of dishonor
 Given by the H to the parties sought to be 2ndarily liable Speroff v 1st Central Trust Co
 H has the option of running after the parties 2ndarily liable • Defense of bank: stop payment request contained an exemption for them
• Ct: clause was void for being against pub policy & want of consideration
LIABILITY OF MAKER o Pub policy:
• S60 Engages to pay accdg to its tenor & Admits existence of payee & capacity  Sir: is it against pub policy for 1 to contract w anthr, that the
to indorse other dsnt need to exer care & if there’s damage it’s the other
who is held liable?
• If payee is a minor, can maker set up the defense of minority/lack of capacity?  SC: banks shld exer EOD bec of the pub interest involved in
o No bec his warrants the capacity of the payee to indorse their business
o If inst is in the hands of a 3rd party who takes title thru the minor, the  So did the Ct follow the pub policy argument? Yes
maker cant raise the defense that the payee ddnt have the capacity to  *as a GR, not illegal for a party to enter into a contract w
indorse anthr for 1 not to exer any care & other is held liable
• Ex) insurance contract for cars = valid contract
1st Natl Bank of Central City v Utterback o Want of consideration:
• 1st Natl bank was trying to collect from Utterback  The statement/release was a new elem wc ddnt exist in their
• Utterback was saying Davis Co failed to comply w certain statutes to enable it previous relationship
to engage in business – thus, he’s not liable  Drawer rcvd no benefit but suffered a detriment based on the
• Ct: Utterback is precluded from raising such defense bec of his warranty release
• He cant deny the existence of the payee (Davis Co) & its capacity to indorse
Chase Natl Bank of City of NY v Battat
STATUS OF DRAWEE PRIOR TO ACCEPTANCE/PAYMENT; EFFECT OF STOP • Stop payment order but drawee (chase) still paid
ORDER • Why did the bank pay?
• Whats the effect of the acceptance of a BOE? • Ct: by paying the check to the payee, he was unjustly enriched bec Caracanda
o The drawee becomes a party primarily liable had no leg right to the money
 Consequence: the H can collect from the drawee/acceptor • Shldnt have sued the drawer bec he issued a
• There’s a transfer of funds to the H • Who shld the bank sue then?
• Assignment: what ds this mean here? o The payee – caracanda
o Why use the word assigned? Why not make available?
o The drawee then can take the funds of the maker/drawer & use such LIABILITY OF ACCEPTOR
to satisfy the inst • Formal reqs of acceptance: s132
o In writing
o Assignment operates as a transfer of the funds of the drawer to the
o Signed by drawee
drawee
o Shldnt chnge the promise to pay only in money
 can only do what the drawer can do w the funds
• Can be on a sep inst s133
o But the H can req that the acceptance be written on the inst itself
Araneta v Bank of America
• bank’s defense: araneta cldnt prove any loss to him, thus cant be awarded • When can you accept?
temperate damages o w/in 24 hrs from delivery
o evidence of the injury o or w/in time given by
• credit of araneta as a businessman was prejudiced by what the bank did o b4 drawer signs
o even if incomplete
Woody v Nalt Bank of Rocky mount o overdue
• no proof of actual damage suffered o dishonored
o non-pyament

Drilon 25
 o ergo…bill can be accepted anytime
Lawless v Temple
• so long as the inst is signed – this is sufficient
• sir: who do you knw that this is an acceptance?
o Bec the drawee signed
o What if the drawee signed at the back? Isn’t there a presumption that
if dsnt state in what capacity they signed, they’re considered
indorsers?
• Follows the sme principle that you can fill up a blank acceptance like a blank I
Kilgore Nalt Bank v Moore Bros lumber Co
• I: WON the oral agreement had the effect of an acceptance? NO
• Bare verbal agreement/promise is not sufficient
• The agreement was only a promise
o Isn’t a contract a promise anyway? No its an oblig
• What if the conversation was recorded (audio – but transcribed)?
o This wld reveal the info – documentary evidence
o So its in writing, so if in writing is this sufficient certification? Or is it
still just evidence of a promise to accept?
CONSTRUCTIVE ACCEPTANCE
• Drawee destroys the inst or refuses to return
o Refusal: active
• What if theres failure to return but no demand?
o 2 views:
 Mere failure to accept w/in the prescribed time even wo
demand for return constitutes constructive acceptance
 Word ‘refuses’ implies previous demand for return such that
under s150 if no acceptance is given w/in the time, it’s the
duty of the H to consider it as dishonor
Wisner v 1st Nalt Bank of Gallitzin
• Prompt axn on acceptance by bank is for the benefit of the H
• Law reqs 1 to present
• Ct: presentation is alrdy equivalent to demand
o Sir: you’re rdg into the prov wo it being stated there
o Ct recogd that accdg to the strict letter of the law there has to be a
demand bec law says for there to be constructive acceptance there
must be refusal
o If drawee is just passive & H dsnt demand, theres no refusal to return
– thus there needs to be demand
• Thus Ct said mere fact that he presented, this is equivalent to demand
• Bec the prov on constructive acceptance is for the benefit of the H to make it
easier to collect & to req him to demand, isn’t to his benefit
Urwiller v Platte Valley State Bank
• Check was returned more than 24hr pd
• Ds this result in constructive acceptance? NO
• Bec the prov dsnt apply to checks
• Bec checks are presented for payment & not for acceptance, thus prov dsnt
apply
Sumcad v Province of Samar
• There was constructive acceptance bec of the acts of the bank wc asked for
copies & when they reqd its presentation
• Bank ddnt ask for the orig – but this resulted in acceptance?
• All these axns wld be empty gestures if they were taken as not acceptance
• Ct recogd that there was constructive acceptance here – more of virtual
acceptance actually
• But a check isn’t presented for acceptance, thus s137 shldnt apply? Yes – but it
wasn’t applied by the Ct
Aug2
• S134: Acceptance in sep inst wont bind the acceptor unless acceptance is
shown to a person who tk the inst for value & in reliance on the acceptance =
extrinsic acceptance
o If embodied in the inst, then it’s a normal acceptance
• S135: virtual acceptance – bill is uncond accepted b4 its drawn & its binding on
the acceptor & is in favor of a person who tk it for value & in reliance on the
acceptance
o Also sep, but pertains to a future bill
o Acceptance dsnt need to be shown to the person taking the bill
 Bec the reliance on the acceptance is more impt than the
actual physical exhibition
 Bec the acceptance isn’t embodied in the inst
• If its embodied in the inst, then it’s a normal
acceptance
Coolidge v Payson
• Coolidge said it wld honor the draft if Williams deemed the bond to comply w
the law of the state of Coolidge
• Was a virtual acceptance bec made prior to the actual drawing of the draft
• Virtual acceptance CANT be conditional, must be unconditional
o But an extrinsic acceptance can be conditional
DIFF BTWN A GEN & QUALIFIED ACCEPTANCE
• Gen A: wo qualification
o Acceptance is absolute – no conds
• Qualified A: varies the effect of the bill as drawn
o Thus it’s a matl alteration under s125?
• A124: H can demand to have an unqualified A – if not given, can consider it as
dishonored
o So if rcve a qualified acceptance, need to go to the acceptor & demand
an unqualified acceptance & only then will it be considered
dishonored? No, no need to go back…can be considered dishonored
o Options of a H in a qualified A:
 Accept it
 Treat it as dishonored
 Take the QA but send a notice to the QA from the parties
2ndarily liable
Drilon 26
 • So that if the party primarily liable fails to pay, then
they aren’t discharged
o Effect when a QA is taken:
 Drawer & indorsers are discharged unless notice is given to
them & they authorized the H to take the QD or gave assent
to such
• Are they liable for the whole amnt or the amnt under
the QA?
o They’re liable for the amnt under the QA
o Why?
• Hows the A binding on the parties 2ndarily liable?
CHECK
• S185: a BOE drawn on a bank payable on demand
o Payable on demand = this is what differentiates it from a BOE
 Wc is why jurisprudence states that not all the rules of the
BOE apply to checks
o *Check if refused, dsnt amnt to dishonor bec payable on demand
RP v PNB
• Under what circums wld escheat be successful? They were looking a diff inst &
state had to prove it was entitled to them – so wc insts?
• Whats the standard they adopted to det if the inst is subj to escheat? ]
o Demand drafts: need to be accepted
o Cashier/mangers checks: can be escheated
 Bec primary oblig of the bank
o Telegraphic transfer: wsnt this an order? So why was this subj to
escheat?
• Standard adopted by the Ct: that there’s a C-D relationship btwn the bank &
depositor!!
• Demand drafts: no C-D rel until accepted
o Bec there’s an assignment of funds once its accepted
• Manager’s checks: bank is the DR & DEE – once issued, its alrdy accepted in
advance, thus, the H may treat the inst may be treated as a PN & the DR/DEE
is considered a party primarily liable & thus a C-D rel arose
PAL v Hon CA
• I: WON giving the check to the sheriff effected payment. NO
• Bec it was payable to the sheriff & not to the judgment creditor
o Ct was saying check shldve been in the name of Tan
• Say PAL gave the check in Tan’s name, wld the judgment debt have been paid?
No
o Payment of a check dsnt amnt to payment until its encashed (A1249
CC)
• A1249 contemplates a sit that if the inst is impaired in anthr hands (ex.
sheriff), payment is considered effected OR if its encahsed
• Payment by check bec a license? This seems unfair
• When is payment effective when using a check? (A1249,CC)
o When encashed; or
o When thru the fault of the C they’ve been impaired
 THEN DELIVERY OF THE INST PRODUCES THE EFFECT OF PAYMENT
o Bec once encashed/impaired, its effect retroacts to the date of
delivery
• But Ct here didn’t come to this conclusion
• What if PAL paid cashed to the sheriff? This wldve had the effect of payment
• But when the check is encashed by him, it wld be as if they delivered him cash
when they delivered him the check – based on A1249
o Ct said this shld differentiated from payment in cash since Ct dsnt go
into logical extremes = ergo, if there’s a ruling & apply it & it results in
illogical extremes/absurdity – we shldnt apply it!
 We shld only apply rulings wc are logical
• Are rulings are only for logical results
 If we follow this line of thinking, then no decision is unjust
• We don’t abandon a decision bec its logically absurd
• A decision is a decision
(sir laughs…mwahahahahahahahaha!!)
• Dissents say the maj ruling is illogical
o Bec if you say that a check isn’t proper, then they’re nullifying A1249
o Bec the moment they delivered the check its no diff from giving money
 And yet the maj is saying they have diff effect – but how can
this be if they’re the same?!?
• Ct was doing a complete denial here
• After this…the Ct starts to argue the facts (bec they were weak in the law)
o PAL ddnt pay in cash, but in check; payment in cash carries w it
cautions
• So Ct was saying they shldve paid in the name of the PEE
Narvasa, dissent:
• State shld carry the risk of the sheriff carrying out his duties
Feliciano, dissent:
• Pub isn’t the insurer of the sheriff’s integrity – it’s the resp of the State
CIFC v CA & Alegre
• Check was dishonored by BPI & deducted the proceeds of the check from the
acctn of CIFC & they ddnt return the check
• 2 lawsuits:
o Alegre v CIFC
 Sued bec wanted his money
 CIFC said they’d pay him, but return the check 1st =
impossible cond bec its w BPI
o CIFC v BPI
 Compromise agreement entered into – BPI wld debit the
money subj of the check from the current accnt of CIFC & if
CIFC is adjudged liable to Alegre, BPI isn’t liale
• They wld hold the money in trust
• After Ct decisions: Money alrdy deducted from its accnt & now CIFC also owes
Alegre the same amnt of money = unfair!!
• CIFC: NIL shld apply! Acceptance of BPI of the check made it primarily liable on
it & BPI hadn’t validly dishonored the check & that the debiting of BPI the amnt
constituted payment/discharge of CIFC’s liab
o Deducting the amnt of the check amntd to payment
o Were citing the prov on constructive acceptance
• Did delivery of the check constitute payment? NO
Drilon 27
 o Wsnt a valid tender of payment bec of A1249
o If applied s137, BPI as acceptor wld be primarily liable & CIFC/drawer
wld only be liable if BPI dishonors the inst – bt Ct said this ddnt apply
• Ct ddnt have to choose btnw S137 & A1249
o Effect of acceptance is only to set aside the money from the DWR to
the DEE bank
o Bottomline is he’s suing bec he hasn’t been paid & under bth circums
he hasn’t been paid on the inst – the constructive acceptance dsnt
result in payment
o A1249 is clear that delivery of check wo being encashed, it dsnt
produce payment
• WON the oblig was discharged? NO
o Act of deducting by BPI ddnt constitute payment
o Cant result in payment bec Algre isn’t a party to the compromise
agreement
o Unless it was a stip “pour autrui” – stip in favor of Alegre – this wlde
been binding, but wasn’t favorable to him (A1317)
Associated Bank v Tan
• Tho estab that the bank has a right to debit, this dsnt apply here bec of BF on
the part of Associate Bank wc allowed him to w/draw the amnt tho the check
wasn’t cleared yet
Fortunado v CA
• Ds this case support PAL v CA? NO, delivery of the check here had the effect of
payment
• Redemption is a right not an oblig – bec no C-D rel
• Diff from PAL bec redemption case wc is a right & tender of payment wld still
amnt to payment
• What if there was a stop payment order? Wont amnt to payment
• A1249 was abandoned & not applied – bec the check wasn’t encashed
o If say tender of payment constitutes the right, there was no tender of
payment bec the check wasn’t encashed
• Abandoned A1249, so whats the basis for saying there’s payment?
• Bottomline: liberal stance when it comes to payment of checks bec its
redemption & the policy of the law is to aid in redemption
Mesina v IAC
• On what ground ds the Ct justify denial of payment to Mesina?
• Bec Mesina failed to show that he was a HDC
o Isnt he entitled to the presumption of a HDC? No, bec showed that a
prior party had defective title – then burden is shifted to Mesina to
prove that he took title from some1 who was a HDC or derives title
from 1
• Defective title was from Lim bec it was stolen – thus, can no longer rely on the
presumption that he’s a HDC
o Thus, Mesina shld prove the elems of S52 – wc he ddnt so hes not a
HDC
• Since not a HDC , he cant enforce the check against the bank wc dishonors the
same
o Can raise the ff defenses: forgery, complete & undelivered (disputable
presumption of delivery – can prove that it wasn’t made, etc)
o Since not a HDC, delivery isn’t conclusively presumed, fact that the
check was never delivered to Go, he’s not entitled
Aug 21
CERTIFICATION & its effects
• Certification (C): when the bank certifies that itll pay the check
• Effect: equivalent to acceptance
• 188: if H procures the C, parties 2ndarily liable are discharged
o Are all parties 2ndarily liable discharged? Yes
o What abt future indorsers? No
 Only those at the time when the C is procured
• If it’s the DWR wc procures the C, 2ndary parties are released
New Pacific Timber
• New Pacific tried to stop the auction sale by depositing the amnt – cashiers
check & cash
• Ct: that amntd to payment
• Thru C, the funds represented by the check are transferred from the credit of
the DWR to that of the PEE/H
• What abt A1249 CC? isn’t there a conflict?
o A1249: says the deliver of the check shall have the effect of payment
only when encashed
o Ct: said that a certified check is equivalent to cash
o Conflict!!
• Checks are cash & cash are leg tender so checks are leg tender = sir this is
WRONG!!!
• Sir: C of the check is not equivalent to cash
Wachtel v Rosen
• Won refusal to certify the check amtns to dishonor?
• C is a substitute oblig, whereas acceptance is an addtl oblig
• Bec in C the 2ndary parties are discharged while in acceptance they aren’t
Roman Catholic Archbishop
• Personal check v managers check:
o Since it was a personal check, it wasn’t leg tender or currency stipd so
it dsnt constitute valid tender of payment
o Managers check: drawn by the bank on its itself
• So long as not in leg tender = no valid tender of payment
• Why isn’t a check legal tender?
• SIR: Ct said it wrong
o This part of the case is obiter – bec sir said “for the sake of argument”
o When they say checks aren’t leg tender, what they’re saying is that
checks cant result in the payment of obligs
o WRONG! Bec A1249 gives the conds for a check to result in payment
 Enchashment or if thru the fault of the creditor they’ve been
impaired
o So checks can become leg tender if they comply a A1249
Drilon 28
 o Correct rule: whatever kind of check it is, in order for it to result in o On inst itself, says all parties 2ndarily liable hereby waive all the reqs
payment, look at A1249 – in this case, they can immediately be held liable if the primarily
liable dsnt pay
Bulliet v Allegheny Trust Co  Can even be sought after 1st if they even waive presentment
• C was sought by the seller
• Bank refused to pay bec of a stop payment order from Mitchell PNB v Bartolome Picornell
• Bank cant raise the defense wc belonging to the DWR since here it was the H
who procured C • Why dd the bill make sense in this case? Why the way the bill is structured
makes sense?
Sutter v Security Trust Co o DEE: Hyndman, Tavera & Ventura Co
• No fraud when she got the check so the bank had an oblig to pay to her & the H o PEE: PNB
• There was a stop payment order – bank ddnt follow this o DWR: Picornell
• DWR was the 1 who procured the C • Why wsnt the seller the PEE?
o He can recall the check or req the bank not to pay if the PEE is not a o Bec they borrowed money from PNB
bona fide HFV o Bec here it’s the agent (Picorneel) ordering its principal(HTV) to pay
• Bank cant follow the stop payment order if the H holds a certified check if the H the bank
is bona fide HFV or HDC  Hey, I borrowed money to buy the tobacco so pay them
• DWR procures C then the stop payment order can be followed by the bank if • PNB was suing the party 2ndarily liable – the DWR = Picornell
NOT a HDC/bona fide HFV • 1st defense: since there was acceptance alrdy, the DWR is discharged!
o But if a HDC/bona fide HFV, he cant follow the stop payment order = o Ct: NO, acceptance only applies to checks, not to BOE
has to pay • Defense: agency!
• In al instances, the bank, must follow the stop payment order o If he was the agent of the HTV, then HTV is the DWR of the inst
• GR: In a certified check, the bank must ignore the stop payment order o And if the DWR & DEE is the sme person, H can treat it as a bill or
bec alrdy accepted it (s62 applies)
note
o Can impose personal defenses when: (must concur) o But Ct ruled that he was an agent, bec nothing in the inst wc indicated
 DWR procures the C that he was signing in representative capacity
 & the H isn’t a HDC or not a HFV • So Picornell is liable 2ndarily
o When these 2 conds apply, the bank can interpose defenses
against the H Banco Atlantico v Auditor General
• In this case, they interposed the defense against the person who procured the • She raised the amnts of the check = matl alteration wc shldve avoided the inst
fraud o BA wld only be able to recover if it was a HDC only as to the orig tenor
(this is pure case law- NIL says nothing abt the effect of a DWR procuring C [only of the inst
thing it says abt it is that money is set aside s189]) • Is BA a HDC? NO
o There was notice of defect in the title or infirmity in the inst = 3rd
LIABILITY OF SECONDARY PARTIES check
• S70 Reqs for them to be liable:
o 1st & 2nd check:
o Presentment for payment
• Ct: BA wstn sure it cld collect from the govt so not a HDC = but this isn’t 1 of
o Dishonor
the reqs of a HDC
 Refusal to accept
• Sir: but isn’t it better if you’re dealing w a stranger? Bec if stranger then all the
 But refusal to certify dsnt result in dishonor – thus liability of
more you’re probably a HDC
2ndary parties isn’t discharged yet
o Notice of dishonor given to 2ndary parties
McCornack v Central State Bank
• S61: liability of DWR • McCornack trying to recover from the bank
o Admits existence of the PEE • Bank’s defense: since PEE is fictitious, then the inst is a bearer inst
o Engages that upon presentment itll be accepted/paid accdg to its tenor • Ct: No, DWR ddnt know that the PEE was fictitious so not a bearer inst
o If dishonored, he will pay • Other defense: s61 – said McCornack admitted the existence of the PEE & his
o But he can insert a stip negativing or limiting his own liab capacity to indorse…so he cant deny the existence of the PEE
• By agreement, the DWR can say ‘I make no warranties & im not 2ndarily liable’ • Ct: No, he makes no admission
o Neutralizes his liab o S61 is for the protection of the PEE/H bec if the inst is dishonored,
then the DWR engages he’ll pay
o Pg617
Drilon 29
 o And this sec cant be used as an excuse by the bank not to detect
forged indorsements
• Sir: strange, lang of the statute is clear!
• 1st part of s61: there’s an admission
o Ct: this admission dsnt apply if its the DEE is the one invoking it bec
the sec if for the benefit of H & not the DEE
o The DEE isn’t reimbursed by the DWR of the inst
BP22
• Liability for BP22: criminal
• WON you know you don’t have sufficient funds, if you send notice & w/in 5 dyas
don’t pay – liable!
• No need to prove knowledge in BP22, just need to send notice & after a certain
pd of time if dnt pay, not liable
Lozano v Martinez
• BP22 is constitutional
• Arguments that its unconsti:
o Offends the consti prov forbidding imprisonment for debt
o Impairs freedom of contract
o Contravenes EP
o Unduly delegates legis & exec powers
o Enactment is flawed in that during its passage the…(nevermind this)
• EP:
o Pets: penalizes the DWR but not the PEE – PEE is also responsible for
the crime bec wo its indispensable participation, by his acceptance of
the check there wld be no crime
 *but possible that it’s the PEE wc gets the check knowing that
there’s no funds, then they deposit it to hold the DWR liable
o Ct: No, arguments says law shld punish the swindler & swindled
• Impairment of contracts:
o Checks aren’t contracts – they’re substitutes for money
• Imprisonment of debt:
o Pet: it’s a bad debt law – punishes ppl for not paying the check & not
the issuance
o Ct: no, gravamen of the offense is the act of making & issuing a
worthless check
 Justified this by looking at the history
 Estafa: shld issue the check when the thing is delivered to
you (simultaneous)
 Sir: artificial argument – its just an argument on wc supports
your position
• CT really ruled on based on policy consideration:
o That BP22 was enacted to prevent the issuance of worthless checks
o Inj to pub, shakes the pillars of business
• Sir: NOW, bec of this…flooded w cases regarding BP22
o So they issued resolutions/ruling: if 1st offense – no imprisonment, just
pay the person, no fine
o You have to personally serve the notice to the person
o *they’re making it more difficult to file BP22 cases
o Ds BP22 encourage the issuance of worthless checks?
 Its become a collection mechanism – if this is so, then what
shld be punished is non-payment of the check
 The H now is the 1 encouraging the issue of the checks
Aug 23
QUALIFIED INDORSEMENT
• Warranty is under s65
• Person who N an inst by delivery:
o Warranty is made only wrt the succeeding indorsee
o Person who negotiates by delivery is an exception to the rule that
anyone whose sig is on the inst is liable on it – bec a person who N by
delivery dsnt sign the inst
• Qualified indorsers:
o Warranty extends to all subsequent Hs
GENERAL INDORSER
• S66 -> Liab/warranties of an unqualified indorser:
o Same warranties under s65 + warrants that the inst is valid &
subsisting at the time of I
o Assuming the inst is orig a bearer inst & theres an I on the inst, this I
can be striken out – but if you don’t, are there any advs if you keep
the I when it’s a QI or UQI
 Adv: the indorser is liable for the warranties
• Is there a diff btwn the liab of a gen I wrt his liab under warranties & his
2ndary liab:
o Warranties:
 Even b4 maturity, H can sue him
 No need for notice in order to sue for breach of warranty
o 2ndary liab:
 To be enforceable, need to have presentment & notice of
dishonor
Ramish v Woodruff
• I: WON Ramish is liable as an indorser. HE IS
• Ct: adopted the maj rule
o That the words of guaranty being words of enlargement, it can be
inferred that the transferor’s intent was to assume the burdens of I &
the uncond liab of 1 who guarantees payment
• Why isn’t he liable as an indorser?
o Bec the note had a phrase wc said “to guarantee payment of the sme”
o Contention: the I as written, isn’t an I – it wsnt properly indorsed
 on the back of the inst there was a waiver of presentment & a
guaranty
 Addt of these words negative the fact that it was an I
 Since the sig had in addt these words – its really not an I
o Was arguing this bec there was nothing in the words written that there
was an intention to transfer title & an I necessarily includes transfer of
title = therefore it was merely a guaranty
• So how dd the Ct arrive at the conclusion that he was an indorser? How do you
conclude that its an I or a QI?
Drilon 30
 o Words of guaranty dsnt negative the fact of an I – if dsnt negative the
fact bec they’re words of enlargement Horowitz v Wollowitz
o Thus, can be inferred that the intent was to assumed the burdens of I • Wollowitz was an accommodation indorser
& the uncond liab of 1 who guarantees payment • Suit btwn the H & accommodation indorser
o Why are they words of enlargement? • Inst was void – bec of usury
 guaranty is I plus something else = means guaranty is bigger • Wollowitz was still liab on the inst
 when you issue a guaranty, you necessarily assume I & as a
guaranty your liab becomes uncond as opposed to 2ndary RESTRICTIVE INDORSER
liability
ORDER OF LIABILITY AMONG INDORSERS –s68
Sapiera v CA • S68: liab in the order they signed – but only applies as among themselves
• I: WON Sapiera is 2ndarily liable, as indorser. o Dsnt apply to Hs – they can go after any indorser
• Sapiera: merely signed for identification of de Guzman
• Ct: applied s63 – any1 who signs, deemed an indorser LIABITLITY OF ACCOMODATION PARTY – s29
• 2ndary liab: needs proceedings – were they taken? NO, there was no notice to • He signs – thus, hes a party & liab alrdy
Sapiera • Liable to a HFV
o HFV has been interpreted as a HDC
BPI v CA • Whats his liab? Liable only to a HDC
• Napiza is being made liab for his 2ndary liab as an indorser – bec he signed the o He’s liable in the capacity in wc he signed
back of the check o But he can seek reimbursement from the person accommodated
• Ct: he’s liab as an indorser – but certain circums negative his liab
• If you know that he’s an AP & not a HDC, you’re precluded from recovering?
o BPI was grossly negligent
 Shldve reqd presentment of the bank book IRREGULAR INDORSERS –S64
o Absence of agent-principal rel btwn Napiza & Gayon
• Wasn’t Napiza neg in signing the w/drawal slip? Yes, but Ct said this wsnt the Ingalls v Marston
proximate cause of the loss • 2 signed the note on its face, the other 2 signed at the back = all dne when the
• Ct: neg of the indorsee is a defense for the indorser/neg of indorsee negatives note was created & b4 delivery
the liab of the indorser • No proceedings taken on the note
o Sir: on what ground? bec theres nthn in the NIL wc says that the liab • PEE was suing all 4 orig promissors
of the indorser can be negative by the neg of the indorsee/nthn wc • I: WON Smith & Foss (who signed at the back) were indorsers? YES
says that it was dependent upon the diligence of the indorsee – so • Ct: prevailing rule is that if 1 signs at the back, deemed an indorser
whyd the Ct rule this way? • Are they accommodation indorsers? They’re irregular indorsers
o Ct cldve said: 2 diff rulings -
 Yes, you’re liable as indorser (&proceedings were taken,
notice was given to him by his son) West Rustland & Trust Co v Houston
 Cldve ruled that Napiza cldve reimbursed the amnt from the • Defense: note was given as mere collateral secu & their obligs is only that of
bank – BPI must recredit the amnt to Napiza’s amnt & this sureties
money cldve been used to pay back BPI = so quits lang • Buck & Houston were known to the bank to be accommodation makers
o This wldve been btr than their ruling that the neg of the indorsee
• Ct: if they gave the note as a semblance of collateral secu, then their actually
negatives the liab of the indorser trying to deceive the examined – this is an illegal transaxn wc is against pub
policy
Wachovia Bank & Trust Co v Crafton • They were accom makers who are primarily & absolutely liable on the inst to a
• Inst was void HFV
• I: WON Wachovia cld recover from the indorser – Crafton, even if the note is
void. Goodman v Gaul
• Is he liable as indorser of a void inst? YES • Accommodated party cant recover from the accommodation party
• Bank cant recover from the 2ndary liab of the indorser since the 2ndary liab
cant exist sep from the inst – so if the inst is void, so is the 2ndary liab Clark v Sellner
• BUT Ct said that the warranties survive so he’s liable based on his warranties • Is Sellner an AP?
• He warranted that the inst was valid & subsisting so he cant now raise that its • Ct: yes, when he lent his name, he became primarily liable w the other signers
invalid & was like a joint surety
Drilon 31

Lim v Saban
• Lim – buyer of the lot
• Ybanez – seller of the lot
• Saban – agent of Ybanez
• WON Lim was an AP. NO
o Bec lacks reqs for a person to be an AP:
 Ddnt rcve value for the sig
• Can rcve value for the name used = AP
• But if rcve value for the inst itself = X an AP
 Signed for the purpose of lending his name
o Only req satisfied: sign the inst as mkr,dwr,accptr,indorser
• At what pt ds the value not emanate from the inst?
o Ex) sir is the Mkr of a PN 100k, bong is the AP – after sir gets the
100k, he goes to his bank & w/draws 100k there & gives that to bong
as AP – still an AP?
o Ex) face value: 100k; for use of name, charged 100; wen sir gets the
100k, he gets 100 & gives it to bong – is bong an AP? Or bec it was
taken from the proceeds of the inst, not an AP?
o Intent trumps source(where the money comes from)? Or source
trumps intent?
 Intent trumps source
Maulin v Serrano
• Who’s the person lending the money? Maulini
• Serrano is the broker – facilitates the loan transaxns btwn ppl
• Moreno made the note, Serrano was the PEE – was intended for payment of the
debt incurred
• Serrano indorsed to Maulini (they had an agreement abt this – coz Maulini ddnt
want his name on the books, so he had Serrano make Moreno make the note
out in Serrano’s name & he wld then indorse it to Maulini)
• Serrano’s defense: that he only lent his name for the transaxn
• Ct: he wasn’t an accommodation indorser
o Bec an AP lends his name to the mkr/indorser & not the PEE/indorsee
o And Serrano lent his name to the PEE/indorsee = Maulini
• Moreno(PEE) -> Serrano(I) -> Maulini(HDC) -> Mesina
o Mesina cant find Maulini, so goes after Serrano = can this be? Is he
an AP?
 Yes, bec Mesina tk the inst w the belief that she cld collect
• Maulini ddnt take the inst from Serrano, knowing he cldnt recover from him bec
he merely accommodated Maulini
• Sir: (dsnt agree w the Ct) he is an accommodation party – but there can be no
recovery bec the accommodated party cant recover from the accommodation
party
PNB v MAZA
• Absent any consideration, the contract is void
• So whyd the Ct rule there was a valid K despite lack of consideration?
• Bec they signed the note as Mkr & their liab is primary
Acuna v Veloso
• Acuna was trying to recover from Veloso, an AP
• Can Acuna recover? Yes
• Bec the accommodating party (Veloso) & accommodated party (Xavier) signed
the note together – making a joint & several note
o As to the creditor, bth of them are joint & several makers
• Acuna wsnt a HDC – so how can he recover?
o Isn’t an AP only liable to a HDC?
o US cases refer to indorsement after the inst matured – so why is there
a variance of facts here?
Ang Tiong v Ting
• Defense: was an accommodation indorser
• Nothing in the check indicates Ang isn’t a gen indorser
• So Ang is liable to Ang Tiong
Sadaya v Sevilla
• Ct ruled that they were co-guarantors than co-sureties
o But they cldve ruled either
o Its an artificial decision –the Ct can take a position & rely on diff basis
& they chose guarantors, why?
• Chose guaranty bec of the conds under A2073
• Ct ddnt sufficiently justify the rel of guaranty btwn them
o And guaranty is diff
o Guaranty v Surety: diff is the benefit of excussion
• Ct dsnt justify why theres a benefit of excussion against AP
Agro Conglomerates & Soriano v Ca & Regent Savings Bank
• Agro: claims not liable bec signed merely as accommodation maker
• POINT OF THE CASE: when it comes to a defense a AP, Ct an look at
extraneous matters – extraneous to the inst itself
Prudencio v CA
• They were 3rd party mortgagors
• Are they liable as accommodation makers of the inst? NO, bec PNB isn’t a HDC
• Not a HDC bec they were immediate parties & they ddnt follow the agreement
• So Ct seems to imply that only HDC can recover from an AP
o Sir: but s29 dsnt say this
o S29 only says that if you’re a HDC & you have knowledge that he’s an
AP = dsnt affect your right to collect
Aug28
Liab of an agent
• What must an A do to negative his liab on the inst?
o Place words wc indicate that he’s signing as an agent or rep capacity
of anthr person & disclose the name of the principal
 No liability
o If fails to do either = A is personally liable & he cant present PE to
indicate that he’s merely acting as an A
 PE admissible if: name of P is disclosed but NO indication of
rep capacity
Drilon 32
  PE admissible if: name of P disclosed & fact of agency
disclosed
o Sit 1: both fact of agency & P present
o Sit 2: fact of agency is disclosed & P ISN’T disclosed
 PE inadmissible
• bec s20 is clear that the A is liable
• If you’re allowed to present PE, it wld nullify this
sentence
 Whats the basis of not allowing PE if the P isnt disclosed?
• Not allowed to present E to negative A’s liab – why?
• Bec law (s20) is clear that the A is personally liab
o Sit 3: fact of agency NOT disclosed & P is disclosed
 PE admissible
• You aren’t modifying but just clarifying bec you
aren’t bringing some1 new into the agreement
o The H is aware that there’s a name on the
inst & he has advance notice that its
possible that the name there is the P or is a
party to the inst
 Compliance isn’t all there, but
there’s some E of notice – the
name of the P
 There’s an indication on the face of the inst of a name of a
person, wc seems to be a disclosure of the name of the P =
so part of the info is there
 If there’s a name there, you’re not sure what he is – when
you say he’s my principal – are you modifying the agreement
or clarifying?
• Clarifying – he’s clarifying the reason why the name
is there
 If a party is named on the inst, this fact cant be changed
• Bec otherwise, why wld that name be there?
(common sense…hehe)
 If prohibited from presenting PE, then putting the name on
the inst wld be useless
*PER: bars intro of parol or extrinsic E to vary the terms of a written agreement to
vary the terms of the parties (only applies to Ks); not allow to modify or add, once
you’ve put an agreement in writing
o Can you present PE to clarify an agreement? Yes
Austin, Nichols & Co v Gross
• Name of the P was indicated (State St Grocery Co) but check ddnt contain the
presence of an agency relationship
• PER was admissible to prove that M.Gross signed as an A of the P
• Gross is the maj owner of State Grocery
o It wld be unfair if he wsnt allowed to prove that he was signing for the
Grocery
o Otherwise, why wld the name of the Grocery be there
New Georgia Natl Bank of Albany v J&G Lippman
• P was alleging that the A signed wo auth therefore the H has no COA so it shld
be dismissed
• Ct: WON there was auth, the case cant be displaced
o Lawsuit can proceed against Lippman – the Pres/agent
• Main lawsuit was against the P, Lippman the Co
o Defense: A/pres ddnt sign w auth
• I: WON you can sue the A in the alternative if you’re suing the P
o Bec if you’re suing the P, you’re saying the A has no liab
Pratt v Hopper
• Mayer is liab even tho an A in reality, bec ddnt name the P & ddnt say that he
was signing in a rep capacity
• PE cant be introduced to charge the P
Insular Drug Co v PNB
• I:WON Foerster had implied auth to indorse the checks made out in the name
of Insular Drug Co
o Ct: he ddnt
• Insular sued PNB bec the check payable to them were deposited to Foerster’s
accnt & paid to him
• PNB: was claiming that Foerster had implied auth to indorse the checks made
out to Insular Drug
o Leg basis: if you deal w an A, who has no auth, the P isn’t liable
 Exception: when the P clothes the A w apparent auth (the P is
liab)
• Foerster ddnt have the auth to collect & dsnt have implied auth to indorse the
checks
PBC v Aruego
• Did Aruego disclose the agency or P? ddnt
• So PE isn’t admissible
PRESENTMENT FOR ACCEPTANCE
• GR: presentment for acceptance is NOT necessary
o Exception: s143 – in these instances, you have to present the inst for
acceptance
• What are your options if you’re the H of the inst? If the inst isn’t presented w/in
reasonable time from ISSUANCE, whats the effect?
o DWRS & indorsers (2ndary parties) are discharged (s144)
 If they’re discharged & the DEE refuses to accept, there’s no1
the H can run after (the penalty is heavy)
o Is this an absolute rule? NO
 Bec if given w/in reasonable time from the last N of the inst,
can still present if for acceptance & 2ndary parties aren’t
discharged
WHEN IS PRESENTMENT EXCUSED (memorize)
• S148: excuses non-presentment
o DEE is dead/absconded/fictitious person
o After exer reasonable dil, presentment cant be made
o Tho presentment is irreg, acceptance is refused on sme other ground
Drilon 33
• Delay in presentment – when is this excused? S147b o Presentment for acceptance no longer necessary bec the bank was
o When the H of a bill is drawn payable other than the place of business primarily liable on the check
or residence of the DEE, & the H has no time, w the exer of reasonable o Irrelevant for the Ct to say that presentment for acceptance is no
dil to present the bill longer necessary bec checks dnt need to be presented for acceptance
 Except for instances of s143
DISHONOR & ITS EFFECTS • I: what is the consequence in the delay in presenting the check for payment?
• whats the effect of dishonor by non-acceptance? • S186: delay in presentment for payment, discharges the DWR only to the
o S151: Immediate right of recourse against the parties 2ndary liab extent of the loss caused by the delay
o Even if presentment for acceptance isnt reqd? like a check?
 No, if presentment isn’t reqd, non-acceptance dsnt amnt to Columbian Banking Co v Bowen
dishonor • Was there delay here? None, so Bowen isn’t discharged, still liab on the draft
 Checks are spcl – non-acceptance dsnt amnt to dishonor • To det whether there’s delay, it shld be considered from the last N to
• Unless it falls under s143 presentment
• Present inst for acceptance, wc dsnt need to be presented for acceptance = • There was delay for 2 mos
dishonored & you’re reqd to send notices
o If you don’t – parties 2ndarily liable are discharged Fick v Jones
o Ex) H fails to send notice of dishonor to parties 2ndarily liable, H then • Why cldnt the DWR raise the defense that he was discharged?
N it to some1 else – can that person collect? • There was no presentment, therefore, cant charge the DWR yet
 S117: failure to give notice of non-acceptance dsnt prejudice
the right of a HDC subsequent to the omission Gordon v Levine
• BUT the subsequent H must NOT have any notice of • WON the time of presentment was w/in a reasonable time. NO
the previous dishonor • PEE/G is suing the DWR/L
• DWR: it wasn’t presented w/in a reasonable time
PRESENTMENT FOR PAYMENT • There was delay, bec the presentment wsnt w/in a reasonable time
• Is presentment for payment necessary as a GR?
o Parties primarily liable – No need Morrison v McCartney
o 2ndarily liable – needed • Was there delay? Yes
• Presentment for payment is dispensed w under s82 o Bec the DEE’s hse was closed when it was gng to be presented (oct3)
o Cant be made after reasonable dil & it later was presented it on Jan 29 (3mos later)
o DEE is a fictitious person  The check was given on Oct 2
o Waiver of presentment • But since the DWR ddnt show any loss, Morrison & Hackland cld recover
o When the bill is discharged by non-acceptance
PNB v Seeto
• Where was the delay?
WHEN DO YOU PRESENT AN INST FOR PAYMENT?
o Date of check: mar10
• On the day of maturity of the inst/the day it falls due
o Cashed by PNB Surigao: mar13
• If demand inst – w/in reasonable time AFTER ITS ISSUE (for notes)
o Mailed to PNB Cebu: mar 20
o Except: if BOE – presentment for payment shld be made w/in
o To reach Cebu: mar30
reasonable time after its last N
o Presented to PNB Cebu: apr9
Intl Corp Bank v Sps Gueco • Seeto’s defense: PNB delayed, if ddnt, there were still sufficient funds in the
DWR’s accnt
• Were presenting a Manager’s check as payment for a car bec Dr Gueco ddnt
sign the joint MTD • What’s the basis of Seeto being discharged, as an indorser? S84 & s66
• Check became stale o S84: used this to det if presentment for payment w/in a reasonable
• Sps Gueco: bank’s fault that’s why the check became stale time after its issue
• Bank: there was excusable delay o S66: that due presentment is a cond to the indorser’s liab
• SC: the check was a BOE wc was drawn by the bank on itself & accepted in • Ct said that unreasonable delay in the presentation of the check for payment
advance = thus, can be treated as a PN fully discharges the indorsers
• So presentment is no longer necessary bec the bank became primarily liable on o Facts of this case justify this conclusion bec there was unreasonable
the check & is a written promise to pay on demand time alrdy not only from time of issue but also from the date of Seeto’s
I

Drilon 34
Aug30
Crystal v CA
• If check is dishonored: payment isn’t effective
• If stale: circums that caused its non-presentment shld be detd
• Whats the leg basis for this?
o 186: only says that the DWR isn’t 2ndarily liable on the inst thus the H
clnt hold him liable to the extent the extent of the loss caused to the
DWR
o Redemption shld be effected w/in a certain time
o The real leg basis is A1249: payment by check is deemed to effect
payment when encashed, except where thru the fault of the creditor
the inst is impaired
 PEE is the creditor, thus, if non-payment is caused by his neg
payment is deemed effected & the oblig for wc the check was
given was given as conditional payment will be charged
 Deliver of the NI will have the effect of payment once its
encashed, or if thru the fault of the creditor it has been
impaired
When delay in Presentment is excused
• A81
• Presentation of the inst is dnt by exhibition (A74)
• Sufficient presentment: ans who, when, where, to whom (s72)
o Who: the H or any person authorized
o When: reasonable hour on a business day
o Where: proper place (depends on s73)
o To whom: the person primarily liable on the inst, if absent or
inaccessible – to any person found at the place where presentment is
made
• If a check is crossed, how shld it be presented:
o Specially: presentment shld be made to the named bank only
o Generally: presentment shld be made on any bank
o If not presented by the bank = no due presentment
 Effect of no due presentment:
• liab wont attach to those 2ndarily liable
• s186: DWR is discharged to the extent of the loss
caused to him by the delay
*this was the ruling in Chan Wan v Tan Kim
Associated Bank & Cruz v CA & Merle Reyes
• when is a NI issued? When it is delivered (s16)
• checks were payable to Merle Reyes
• but the checks were deposited by Sayson
• Pet’s defense: no COA against them
• What’s Merle’s COA?
o She had a right to the proceeds of the check
o Duty: duty of AB had a duty to pay the proceeds of the checks to the
proper PEE
 Why ds the bank have this duty?
• Bec the checks on their face stated that the PEE was
Melissa RTW & not Sayson = but this order from the
DWR is directed to the DEE bank & not the CB
o So AB as the CB had no duty to pay her
o Breach: AB paid the checks to someone else/had no right to rcve the
proceeds of the checks
• But AB guaranteed all prior I on the checks
• So what’s the breach of AB to Merle?
o AB’s duty is to pay the person who endorsed the inst to them
 So why’s Merle butting in this transaxn?
• By the nature of a crossed check, this shldve served as a warning to the bank
that it was issued for a particular purpose so AB shld verify the endorsement of
the check
o “AB: are you authorized to rcve payment? Sayson: yes iam!” =
useless exercise!! (sir)
o If you’re stealing money you wont admit to it
• If you’re saying theres ‘conversion’
o You’re saying there was a duty to pay Melissa’s RTW & if they ddnt,
then when they pay it to some1 else, that’s conversion
o Why are you saying they had this duty?
 The order was directed to the DEE bank
 The duty of the CB is to follow the order of the indorser
• Wc they did!
• Sir: why is there no privity of contract?
o The inst was never delivered to her so she’s NOT a party to the
inst, so how can she sue!
• Other defense: A1249 wsnt complied w
o In order for payment to be effective, the checks shldve been
delivered to her & encashed
o The mistake in the delivery resulted in her not being paid – so
her COA was against the DWRs & not the CB
• So whyd she win this case?
o SC it was a shortcut against – save every1 the time & expense of
litigation
o Sir: what if there are defenses btwn them? Btwn the DWR & the DEE?
Btwn indorsers? Cant these defenses be raised?
 Will AB be able to raise the defense of these ppl? No
PROVS:
• When shld you present an inst for payment?
o Reasonable hour on a business day (s72)
• Where? (s73)
o If specified place = pay there
o If no place, but add of the person liable for payment is there = pay at
the add
o No place or add = usual place of business or residence
o Any other case = wherever he can be found, or last know place of
business or residence
• Shld be presented to the person primarily liable (s72)
• If dead: shld be made to representative (s76)
Drilon 35
• Partners: to any1 of them s77 Arterburn v Wakefield
• Joint debtors, not partners = present to ALL (s78) • Arterburn/DWR was saying that no notice was sent to him
• Is notice to the DWR to charge him for his 2ndary liable? YES (s89)
NOTICE OF DISHONOER • S114: states when notice dsnt need to be given to the DWR
• Shld state: o Used s144 d & e
o Due presentment • Ct is making an exception – says automatically s114 applies
o Dishonor • Ct here says: that a bank wont dishonor a check that theres no insufficient
funds, so you can assume that the DEE wont pay, therefore no need to send
Gullas v PNB the DWR of the check notice of dishonor
• If the bank permitted to off-set against the depositor’s accnt? o They’re making a very broad exception
o Maj view: yes o Wc exempts the H from sending notice to the DWR
• CAB: off-setting was improper • This is US case law – not binding on US
o Bec they effected the off-set even b4 the notice was rcvd by the o Sir: this case is persuasive, but its not necessarily true
indorser o Dsnt think it’s a good law
• Why’s the notice necessary? o Ex) like BP22 if you issued a check presumption that you knew you
o Ct: if notice were rcvd, then off-set can be effected ddnt have funds – but there’s a possibility that
o If off-set if from rcpt of notice, then Gullas cn do nothing o So s114 cant be automatically applied
• How can the bank properly do set-off?
o Recall: that bank deposits are loans, therefore… WHERE notice shld be given:
 In the absence of notice there’s no C-D rel btwn Gullas & PNB • S108
so PNB must make sure that notice was rcvd • Can an agent give notice? YES (s91)
 Once notice is rcvd, then they become C-D of ea other & leg • What if the agent rcves a notice of dishonor? (s94)
compensation may take place o Ex) indorser acted thru an agent & the H sent the notice to the agent
o Agent can send notice:
PROVS:  To the parties liable; or
• Form: may be in writing or oral  To his principal
• Shld sufficiently identify the inst & indicate that it has been dishonored • When he ds this, the pd is renewed (same time is
• May be delivered personally or thru mail given to him to send notice to other parties)
• When shld it be sent?
o Ex) PN given: A-B-C-D-E-F-G-H-I Simon v Ppls Bank & Trust Co of Passaic
o I is the H, he only sends notices to G & E • Only duty was to send the notices to the party/principal
o G sends notices to F & B
 If I cant collect from F & B even if he cant collect from G Sept 4
 But G can collect from F & B Cont of notice of dishonor
o Notice is for the benefit of the previous H or indorser
o All those who don’t rcve notice frm I are discharged (s89) To whom is a notice of dishonor sent?
• Party himself or his agent in that behalf
o Agent shld be authorized to rcve notice
State Bank of East Moline v Standaert, et al
• State bank’s claim: they sent notice of dishonor o So if not authorized, who’s risk is it? who will suffer the negative
o Did they have E specifically that that particular notice was sent? None effect?
 They only presented testi E  The 1 who sent the notice
o State bank had a witness testify that they had a usual practice in
• Party dead:
sending notices
o If he knows he’s dead, send to his rep
o Also that at the time the EE (the witness) was there, all notices were
o But how can a dead person have a personal rep?
sent = perfect record
 He’s dead! he’s not a person!
 Is this is admissible? Admissible  So he cant have a personal representative?!
 They’re testifying to a negative fact = that they never  Personal representative: the representative of the deceased
breached their process estate
 BUT its not sufficient • Administrator? But he’s appointed in by the Ct

Drilon 36
 • What abt an executor written to a will, but the will
hsnt been probated? Can notice to be sent to him?
• So send to executor, if none, the administrator, if
none, then send to the last residence or last place of
business of the deceased
o Who’s the personal rep? the person sending notice shld look for him?
If not then he shld send it to the last residence or business?
o If he dsnt make an inquiry, then he cant send the notice?
o So the law reqs an inquiry? And also try to find the personal rep w
reasonable dil?
• what if the notice is to be sent to a partnership?
o Notice to any1 partner, is notice to the firm evn tho theres a
dissolution
• What if the parties are jointly liable?
o Then all the joint persons shld be sent notices, unless 1 has auth to
rcve for the others
• What if the 1 who rcves notice is bankrupt?
o Notice can be given to the party himself or his trustee or assignee
o Can you send notice to the creditors?
 No!
 What if 1 creditor is the biggest creditor, the bankrupt owes
him 90% of his debts – will that be sufficient?
 No req in the law that you have to send notice to all of the
creditors
• In whose notice ds the notice operate?
o If given by or on behalf of the H, it inures to the benefit of all
subsequent Hs & all prior parties who have a right of recourse against
the party to whom its given
• S93: if a person gives a notice for & in behalf of a party entitled to give notice
o The benefit inures to the benefit of the H & all parties subsequent to
the party to whom notice is given
o Inures to the benefit of the H? what ds this mean?
 It inures to the benefit of all the H & all parties subsequent to
whom notice is given
• Diff btwn s92 & s93?
o Notice inures to the benefit of all subsequent Hs & all prior parties who
have a right of recourse
o What is meant by “it inures to the benefit”?
 They have a COA against all those who rcve notice
 Why is this a benefit? Bec those who don’t rcve notice are
discharged/no longer liab
 But if notice is give, a subsequent H may go after to those
persons who have been given notice
 No need to send notice to those persons who notices were
alrdy sent to by others
• Under what circums is notice not reqd to be given?
o If after reasonable dil, it cant be given or dsnt reach the parties sought
to be charged
• Waiver of notice may be done
o Either b4 the time of giving notice has arrived or after the omission to
give due notice
o Can be express or implied
• When you’ve given a notice of dishonor for non-acceptance, do you have to
give notice of non-payment?
o NO, but the rule dsnt prohibit you frm dng this
• Under what circums is the H reqd to give notice of dishonor for non-payment
even if he’s alrdy sent a notice for non-acceptnace?
o If after that, the inst is accepted, then not paid
Ppls Natl Bank of Ypsilanti v Dicks
• WON they cld be made liable, in the absence of notice of dishonor?
• No, cant be liable bec merely indorsers who weren’t bound by the printed
waiver
• Bec above the agreement, there was no waiver of notice of dishonor
• Ds the law req that it be above their sigs? (s110)
o Law says if the waiver on the face of the inst = applies to all
o But if the waiver is above the sig of the indorer = binds only him
• What ds the law req when it comes to waivers, if you want all the indorsers, all
parties to be bound to it?
o It shld be on the face of the inst = those on the face are considered as
embodied in the inst (s110)
• The case explains what “embodied in the inst” means – wc is why the case
interprets it
• Ct said it means: embodied in the inst means if its on the face of the inst
• If the waiver is at the back, then it shld be above the sig of the person to bind
him
• If on the face of the inst:
o Regardless of where the party signs, then all parties are bound
• If at the back of the inst:
o If its above the sig of the indorser, that only binds him
• What ds it mean, in that part of the statute, wc refers to the location of the
waiver on the inst in relation to the parties?
• An indorser signs at the back
o Therefore, when s110 says the waiver is above the sig of the indorser
= he’s bound
o What abt subsequent indorsers?
When the DWR isn’t expected to given notice?
S114
• DWR & DEE are the same person
• DEE is fictitious person or a person not having capacity to contract
• DWR is the person to whom the inst is presented for payment
• DWR has no right to expect or req that the DEE or acceptor will honor the inst
• DWR has countermanded payment
o So this applies to the BP22 – so that they aren’t entitled to notice of
dishonor?
o No, notice is always reqd to be given
• MKR is the person primarily liab, so he dsnt need notice bec he knows that he’ll
pay
Drilon 37

State Investment Hse v Ca
• As DWR she had no right to expect that the DEE wld pay the checks bec she
w/drew the funds – so no notice needed
Notice to not reqd to be given to the indorser: S115
• Whats the leg effect if notice of dishonor isn’t given? Parties are discharged
• Are you reqd to give notice of dishonor of non-payment, if you alrdy sent notice
of non-acceptance? Only if after 1st notice is sent, its accepted & not paid
• Effect of notice on non-acceptance isn’t given?
o Dsnt prejudice the rights of a HDC subsequent to the omission
o Why not have a similar rule in failure to send notice of non-payment?
 Bec there’s a presumption that the inst has alrdy matured
 Therefore, no subsequent H can be a HDC (s52)
• Effect: itll prejudice all subsequent H
 But you can be a s58 HDC right? So what abt this
*Skip protest
PAYMENT FOR HONOR
• S171
• Related to when an inst is dishonored for non-acceptance, the person cant be a
HDC anymore
• New bill doctrine:
o The indorser, issuer or acceptor at maturity = they’re considered to
have drawn an entirely new bill
o Who are the 2ndary parties who aren’t liable on the new bill? DWR
o So what abt the old bill?
 Whatever rights the H has wrt to the old bill, the parties there
are still liable & 2ndary parties aren’t discharge is given notice
 Any party to whom notice is given, all subsequent Hs, even
after maturity, he’s not bound/not discharged (bec the
sending of the notice inures to the benefit of subsequtn
parties)
o H of inst, negotiated to you (5th ka na), after maturity, can you run
after the X,Y,Z who are parties b4 maturity who are 2ndarily liable,
bec notices were sent to them – Can he run after the parties 2ndarily
liable under the old bill?
 Ds the new bill destroy the old bill?
 You’re now the H of the new bill – so are you the H of the old
bill still?
 credit in Chickasaw bank
o A (dwr of the new bill), when A pays…he can run after the parties
liable prior to him? Bec hes still a party liable to the old bill?
 So a goes after X, what if X says wait! You ddnt send me
notice = what then?
 NO!
o Are the parties to the new bill, parties to the old bill? Yes
o They’re all the same parties to the same bill
o The only effect of a new bill is there’s an addtl right
 They’re parties to the old bill except that insofar as the
old bill, they aren’t HDC, they can collect on the parties
2ndarily liable on the old bill
 OR they can collect on those who are parties to the new
bill & its payable on demand
o Consequence of the new bill doctrine:
 The party who indorsed after maturity bec the dwr of
the new bill
 And it becomes payable on demand
 Therefore, a subsequent on the new bill can become a
HDC (bec a bill indorsed a reasonable time after last
negotiation, can stil be a HDC wrt the parties in the
new bill; bt not a HDC wrt the old bill)
Bishop v Dexter
• Dexter (pee) indorsed the note to converse (bishop ws the 3r indorsee alrdy)
when it was alrdy due
• Why ds it help Bishop, to assume that the MKR ddnt pay?
o Bec he can presume that notice was given when the note fell due, &
therefore, he isn’t bound to make a demand or give notice wc will
enable him to recover of the 1st indorser
• How ds it help him recover from Dexter?
• Ct: indorsement of a bill/note after its equivalent to drawing a new bill payable
at sight & the indorsee shld make a demand & notice given
• No demand was made to the MKR nor notice of non-payment to Dexter – so
dexter is discharged
• Ex) sir indorses a PN after maturity to mae, that means that sir is the DWR of
the new bill? Then who’s the DEE? The mkr
• If Dexter here is the DWR & the note is put into suit by Dexter or some1 else,
then Dexter knows that the inst wld be honored – so no expectation for it to be
paid, so no notice is reqd (s114) = bec you alrdy had a suit on the inst b4 he
negotiated on the inst & he wsnt able to recover = so notice shldnt be
necessary – right?
Inst payable at a bank
• S87: whats the consequence of this sec?
o The MKR is still liable as a primary party
 So no need for presentment for payment
o But the bank is authorized to pay for the inst if presented to him
Binghampton Pharmacy et al v 1st Natl Bank
• Binghampton: were saying at the day of maturity, they had sufficient amtn of
o This is impt bec Chicksaw failed to pay
o So they were contending that they’re released frm liab bec they ddnt
present the note for payment to the bank
• Ct: no need to present it for payment
• The oblig of the MRK isn’t a conditional promise to pay only at a spcl place, but
is a promise to pay generally, even tho a place of payment is made
Drilon 38
• Chickasaw isn’t regarded as a DEE bank – just coz it was payable at a bank, it • Discharge of a prior party refers to a discharge by some act or neglect of
ddnt convert the MKR to a DWR the C & dsnt contemplate a discharge effected by operation of law
• S87 only gave the bank the right to pay the amnt of the notice (it authorizes • Defense on the it was suppose to be paid in a spcl place?
him to pay)
• No presentment for payment is needed to be made to the MKR bec he remains Corley v French
primarily liable • No valid tender of payment
• Bighampton’s other defense: when they made the inst payable to the bank, it o Reqs: payable in a spcl place & willingness & ability to pay by the
became an order to the bank to pay it for them MKR shld concur
• But Ct said this is wrong • Was deposit enough? NO
• Why dd the Ct have to say that s87 dsnt make the MKR into a DWR? o Bec there was no willingness
o Bec they were raising defenses of a DWR – the need for presentment
for payment & that if theres delay in presenting a BOE or check then Release of Principal Debtor
the DWR is discharged, to the extent of the loss he suffered • Release by the act of the H & not by operation of law
o But they’re not DWRs, they’re MKRS
o If on the back, if yopu’re sig is below – you’re bound Extension of payment
 If anywhere else, you aren’t bound • When the agreement is binding on the H & the principal D
 Last sentence refers to when its at the back • Agreement is supported by a consideration
• Parties 2ndarily liable are discharged unlesshe assents or right of recourse
is expressly reserved on such party
CHAP6: DISCHARGE • No consideration:
When is an inst discharged? • What if extension is indeterminate?
• S119 o Will this release the parties 2ndarily liable?

Renunciation by the H Maglione v Penta

• Can it be oral or verbal? NO • F
• Renunciation shld be in writing or not in writing but by surrender of the inst
to the primary party Renunciation
• F
McGlynn v Granstorm
• McGlynn’s defense was 122 on renunciation – since the K wsnt in writing, Failure to make due presentment
no delivery of inst to the primary party = Granstorm is discharged • This discharges the DWR & Indorsers
• Ct: No • When must you present?
• S122 dsnt apply bec the renunciation wsnt in writing, there was no deliver o At the time of maturity
to the inst • If you delay in presenting, it results in discharge? Ds delay of presenting
• But there was still a discharge result in discharge?
• Construe s122 w s119 & s120 o Presume its inexcusable delay
o Relation of the provs: if the renunciation isn’t in writing, then the o Where do you draw the line btwn reasonable & unreasonable?
inst isn’t discharge • S143:when presentment for acceptance must be made
• If renunciation is oral, then s119d applies o Bills: not reqd to be presented for acceptance
• What abt s120? S120a applies – wc said that if an inst is discharged under  Only in s142 are they reqd to be presented for
s119, it ceases to have no force & effect – so all parties are discharged
• SIR: the Ct was applying s122 Reqacuisition by Prior Party
• Ds it presuppose that that prior party paid, after you rcvd notice?
Discharge of 2ndary parties o Yes, it’s a pre-cond
• Are you allowed to cancel an I if your title depends on that I? Yes • Party who reacquires it, hes remitted to his former rights
• Exceptions in s121: When can that happen?
McCormick v Shea o Inst isn’t discharged, otherwise the DWR wldnt be able to recover
• Rule: the burden of proving a cancellation was made unintentionally, under from the acceptor wc will be unjust = so its an exception to the
mistake, or wo auth, is on the party alleging such re-negotiation
 He’s allowed to renegotiation
Roberts v Chappel o Accommodated party is in effect the principal D, wc is why its
exception bec he cant recover from the accommodation party
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  Its an exception to both renegotiation & he has a right to
recover

FINALS: comprehensive (dsnt include what we ddnt discuss: protest & bills in set)
•

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