hanamichi:law

Negotiable Instruments PRELIM Hector de Leon, 2004 Edition Questions What constitutes a negotiable instrument (requirements)? Mnemonic: W !!aW Answers "ection # o$ %&L: #' &t must be in writing and signed b the ma(er or dra)er 2' Must contain an unconditional *romise or order to *a+ a sum certain in mone+ ,' Must be pa+able on demand, or at a $i-ed or determinable $uture time 4' Must be pa+able to order or to bearer .' Where the instrument is addressed to a dra)ee, he must be named or other)ise indicated therein )ith reasonable certaint+' /o determine the negotiabilit+ o$ an instrument, the $ollo)ing must be considered: #' /he )hole o$ the instrument 2' 0nl+ )hat a**ears on the $ace o$ the instrument ,' /he *ro1isions o$ the %&L, es*eciall+ "ection #' 2e$ine %egotiable &nstrument What is a ma(er? What is a dra)er? 2istinguish !romissor+ %ote $rom 3ill o$ E-change "ection # !erson issuing a *romissor+ note !erson issuing a bill o$ e-change Promissory Note #' 4equirements: "ection #, &tems #, 2, ,, and 4 2' &ssuer: Ma(er ,' /he instrument must contain an 5unconditional *romise6 Wh+ negotiable instrument should be in )riting? Bill of Exc ange #' 4equirements: "ection #, &tems # to . 2' &ssuer: 2ra)er ,' /he instrument must contain an 5unconditional order6

Ho) to determine the negotiabilit+ o$ an instrument?

%othing could be negotiated or *assed $rom hand to hand i$ it is not in )riting'

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%ote: Writing includes not onl+ that )hich has been )ritten on *a*er and )ith a *en or *encil but also that )hich is in *rint' Wh+ is there a need to a$$i- the signature in the instrument? Who has the burden o$ *roo$ i$ the signature o$ the ma(er or dra)er is denied? Wh+ an instrument must contain an unconditional *romise or order to *a+? Wh+ the instrument must be *a+able in a sum o$ mone+? What is a legal tender? &t shall ser1e as a *rima $acie e1idence o$ his intention to be bound as either dra)er or ma(er' /he burden o$ *roo$ is on the holder to sho) it'

"ection , o$ %&L "ee comments in *receding *ages' %egotiable instruments must be *a+able in mone+ because mone+ is the one standard o$ 1alue in actual business' &t does not $luctuate in 1alue' Legal tender is that sort o$ mone+ in )hich a debt, or other obligation calling $or mone+, ma+ be la)$ull+ *aid, i$ the contract does not s*eci$+ the medium o$ *a+ment' "ection 4 and 7 o$ %&L:

Wh+ the instrument must be *a+able at a $i-ed or determinable $uture time or on demand? Wh+ the instrument must be *a+able to order or bearer? Wh+ is there a need to name the dra)ee? What is a non:negotiable instrument?

"ection 8 and 9 o$ %&L: /o enable the *a+ee or holder to (no) u*on )hom he is to call $or acce*tance or *a+ment' ; non:negotiable instrument is an instrument )hich is not negotiable, that is, an instrument )hich does not meet the requirements laid do)n to quali$+ an instrument as negotiable one, or an instrument )hich in its ince*tion )as negotiable but has lost its qualit+ o$ negotiabilit+' E-am*le: ; chec( *a+able onl+ to a s*eci$ied *erson' %ote: ; non:negotiable instrument ma+ not be negotiated but it ma+ be assigned or trans$erred'

2e$ine Mone+

Mone+ means )hat is coined or stam*ed b+ *ublic authorit+ and has 1alue $i-ed b+ *ublic authorit+'
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Mone+ means cash' &t is a medium o$ e-change authori<ed or ado*ted b+ a go1ernment as *art o$ its currenc+' &t includes all legal tender' What is a *romissor+ note? !romissor+ note is an unconditional *romise in )riting made b+ one *erson to another, signed b+ the ma(er engaging to *a+ on demand, or at a $i-ed or determinable $uture time, a sum o$ certain mone+ to order or to bearer' ; *romise to *a+ a sum o$ mone+' Who are *arties to a *romissor+ note? /he one )ho ma(es the *romise and signs the instrument is called the ma#er, and the *art+ to )hom the *romise is made or the instrument is *a+able is called the payee' E1er+ *erson to )hom an instrument is deli1ered is a H0L2E4' ;ugust ,0, 2004 Manila !#0,000'00 =or 1alue recei1ed, & *romise to *a+ to the order o$ !iolo !ascual the sum o$ /en /housand (!h* #0,000'00) !esos on or be$ore "e*tember ,0, 2004 at his house at !ateros, Metro Manila' ("gd') "am Milb+

What is a holder? "am*le o$ *romissor+ note *a+able to order'

"am*le o$ *romissor+ note *a+able to bearer'

;ugust ,0, 2004 Manila !#0,000'00 /)o months a$ter date, & *romise to *a+ to !iolo !ascual or bearer the sum o$ /en /housand (!h* #0,000'00) !esos' ("gd') "am Milb+
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&$ no time o$ *a+ment e-*ressed on the note, )hat does it mean? >an it be negotiated? What is a bill o$ e-change?

?es, it can be negotiated' Where no time $or *a+ment is e-*ressed, an instrument is payable on %eman%' ; bill o$ e-change is an unconditional order in )riting addressed b+ one *erson to another, signed b+ the *erson gi1ing it, requiring the *erson to )hom it is addressed to *a+ on demand or at a $i-ed determinable $uture time a sum certain in mone+ to order or to bearer' ;n order made b+ one *erson to another to *a+ mone+ to a third *erson'

Who are original *arties to a bill o$ e-change? "am*le 3ill o$ E-change

#' 2ra)er 2' 2ra)ee ,' !a+ee 0ctober ,0, 2004 Manila !#0,000'00 /hirt+ da+s a$ter date, *a+ to !iolo !ascual or order the sum o$ /en /housand (!h* #0,000'00) !esos' @alue recei1ed and charge the same to the account o$ ("gd') "am Milb+ /o Lolita "olis Aue<on >it+

What constitutes certain as to sum?

"ection 2 o$ %&L: /he sum *a+able is a sum certain )ithin the meaning o$ this ;ct, although it is to be *aid: a' With interestB or b' 3+ stated installmentsB or c' 3+ stated installments, )ith a *ro1ision that u*on de$ault in *a+ment o$ an+ installment or o$ interest the )hole amount shall become dueB or d' With e-change, )hether at $i-ed rate or at the current rateB or e' With costs o$ collection or an attorne+Cs $ee, in case
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*a+ment shall not be made at maturit+' E-am*les o$ "um to be *aid )ith interest #' Interest at fixe% rate: & *romise to *a+ !iolo or order !#0,000'00, )ith interest at #.D *er annum' 2' Interest at increase% or re%uce% rate: & *romise to *a+ !iolo or order !#0,000'00 )ith interest at #8D *er annum $rom date until *aidB #.D i$ *aid )hen due' ,' Accrual'rate of interest not specifie%: &$ no date $rom )hich interest is to run E com*uted $rom the date o$ the instrumentB i$ no date in the instrument E com*uted $rom the issue' &$ rate is not s*eci$ied E the legal rate is FD (;rticle 2209, ci1il code, no) #2D) 4' Interest usurious : can still be negotiated, the contract remains 1alid as to the principal only( "tated installments means that: a' /he interest o$ each installments, and b' /he due date o$ each installment must be $i-ed in the instrument' E-am*le: & *romise to *a+ !iolo or order the sum o$ !#0,000'00 in t)o installments as $ollo)s: !.00'00, on or be$ore %o1ember #, 2004 and !.00'00, on or be$ore 2ecember #, 2004' What are the di$$erent $orms o$ stated installments? #' With an acceleration clause E i$ installment or interest is not *aid, the )hole amount shall become due' 2' ;cceleration de*endent on ma(er E & *romise to *a+ !iolo or order !#0,000'00 )ith interest at #.D *er annum in $our equal monthl+ installments beginning 2ecember #, 2004' ,' ;cceleration at o*tion o$ holder E this is non: negotiable' What does 5)ith e-change means? E-change is the charge $or the e-*ense o$ *ro1iding $unds at the *lace )here the instrument is *a+able to co1er such instrument )hich is issued at another *lace' #' !a+ment in $oreign currenc+ 2' !a+ment )ith e-change rate

What is the meaning o$ 5stated installments6?

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Moses promises to pay Hana or order $1,000.00 with exchange at % ,' E-change not a**licable to inland or domestic bill' When is a *romise or order unconditional? "ection ,: ;n unquali$ied order or *romise to *a+ is unconditional i$: a' /here is an indication o$ a *articular $und out o$ )hich reimbursement is to be made, or a *articular account to be debited )ith the amount, or b' /here is a statement o$ the transaction )hich gi1es rise to the instrument %ote: &t contains a *romise or order to *a+' #' &t must be *a+able absolutel+ and it is not subGect to an+ condition or contingenc+' 2' &t has the abilit+ to circulate $reel+ $rom one *erson to another' When *romissor+ note contains a *romise to *a+? /here is an unconditional *romise to *a+: #' &m*lied *romise to *a+ a' b' c' d' e' & *romise !a+able /o be *aid & agree to *a+ & guarant+ to *a+

2' 3are ac(no)ledgement o$ indebtedness does not im*l+ negotiabilit+ ,' se o$ )ords o$ negotiabilit+ When bill o$ e-change contains an order to *a+? /here is an unconditional order to *a+ %ote: Mere request to *a+ does not constitute an order, but the )ord 5*lease6 im*lies a *olite command' When does an instrument becomes *a+able at a determinable $uture time? "ection 4: ;n instrument is *a+able at a determinable $uture time )hich is e-*ressed to be *a+able: a' ;t a $i-ed *eriod a$ter date or sight, or
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#' & *romise to *a+ ! or order the sum o$ !#,000'00 on "e*tember #, 2004 2' "i-t+ da+s a$ter date, & *romise to *a+ ! or order the sum o$ !#,000'00' b' 0n or be$ore a $i-ed or determinable $uture time s*eci$ied therein, or #' 0n or be$ore "e*tember #, 2004, & *romise to *a+ ! or order !#,000'00 2' 0n or be$ore the start o$ the ne-t school semester, & *romise to *a+ ! or order !#,000'00 c' 0n or at a $i-ed *eriod a$ter the occurrence o$ a s*eci$ied e1ent, )hich is certain to ha**en, the time o$ ha**ening be uncertain, or #' /hirt+ da+s a$ter the death o$ his $ather, & *romise to *a+ ! or order !#,000'00 What is *a+able u*on a contingenc+ mean? &s it negotiable? &t is not negotiable because the order is conditional' /he *a+ment is not certain' /he e1ent ma+ or ma+ not ha**en' E-am*le: !a+ ! or order the sum o$ !#,000'00 u*on his reaching the age o$ maturit+' Enumerate e-ce*tions to the non: negotiabilit+ clause "ection .: !ro1isions )ith :: #' "ale o$ collateral securities 2' >on$ession o$ Gudgment ,' Wai1er o$ bene$it granted b+ la) 4' Election o$ holder to require some other act Enumerate omissions )hich do not a$$ect the 1alidit+ and negotiabilit+ o$ instruments' +missions #' &t is not dated Effect /he time it )as issued is to be considered' %o date in the calendar E the nearest date in the month s*eci$ied' 2' 2oes not s*eci$+ the 1alue gi1en or that an+ 1alue has been gi1en there$or ,' 2oes not s*eci$+ the &t is *resumed to be the
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*lace )here it dra)n or the *lace )here it is *a+able 4' 3ears a seal .' 2esignates a *articular (ind o$ current mone+ in )hich *a+ment is to be made' When is an instrument considered *a+able on demand? "ection 7:

ma(erCs or dra)erCs *lace o$ business or his home'

;n instrument is *a+able on demand: a' When it is e-*ressed to be *a+able on demand or at sight, or on *resentationB or b' &n )hich no time $or *a+ment is e-*ressed' When is an instrument *a+able to order? "ection 8: /he instrument is *a+able to order )here it is dra)n *a+able to the order o$ a s*eci$ied *erson or to him or his order' &t ma+ be dra)n *a+able to the order o$: #' ; *a+ee )ho is not ma(er, dra)er, or dra)ee 2' /he dra)er or the ma(er ,' /he dra)ee 4' /)o or more *a+ees Gointl+ .' 0ne or more se1eral *a+ees F' /he holder o$ an o$$ice $or the time being' What is the e$$ect )hen the *a+ee is not named? /here is nobod+ )ho could gi1e the order or authorit+ to collect' /here )ould be nobod+ )ho could indorse the instrument, and, there$ore, there is not *oint considering it negotiable' "ection 9: /he instrument is *a+able to bearer: #' When it is e-*ressed to be so *a+able 2' When it is *a+able to a *erson named therein or bearer ,' When it is *a+able to the order o$ a $ictitious or non: e-isting *erson, and such $act )as (no)n to the
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When is an instrument *a+able to the bearer?

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*erson ma(ing it so *a+able 4' When the name o$ the *a+ee does not *ur*ort to be the name o$ an+ *erson .' When the onl+ or last indorsement is an indorsement in blan( %ote: # and 2 are bearer instrument' ,, 4, and . are called order instrument What is a bearer instrument? &nstrument *a+able to the bearer )hich can be trans$erred b+ mere deli1er+ )ithout indorsement'

What is the e$$ect o$ an instrument *a+able &t shall become an instrument *a+able to the bearer' to a dead *erson? "am*le o$ blan( indorsement *a+able to bearer !a+ to ! or order !#,000'00 ("gd') 4 /o W Manila ;t the bac( o$ the endorsement, sign the instrument:

("gd') !

2e$ine ;nte:dated

;n instrument is ante:dated )hen it contains a date earlier that the true date o$ its issuance' E-am*le: &nstrument is issued on Hune ,0, 2004 but dated Hune #., 2004'

2e$ine !ost:dated &nstrument

;n instrument is *ost:dated )hen it contains a date later than the true date o$ its issuance' E-am*le: &ssued on Hune #., 2004 but dated Hune ,0, 2004

When does ante:dated or *ost:dated instrument ta(es e$$ect?

0n the date it is deli1ered'

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>an date be inserted in case it is omitted in the instrument?

?es' ;ccording to "ection #, o$ %&L, an+ holder ma+ insert therein the true date o$ issue or acce*tance, and the instrument shall be *a+able accordingl+'

What is the e$$ect o$ inserting a )rong date /he instrument )ill become 1oid )ith res*ect to the (material alteration)? holder or an+ one claiming under the holder, but not to the subsequent holder in due course' %ote: Ia*ag holder in due course E *)ede ni+ang ien$orce ang instrument as i$ it has a true date' What constitutes the insertion o$ )rong date? What are the ste*s in1ol1ed in the issuance o$ a negotiable instrument? &t constitutes a material alteration' "ection #4: #' /he mechanical act o$ )riting the instruments com*letel+ in accordance )ith the requirements 2' /he deli1er+ o$ the com*lete instrument b+ the ma(er or dra)er to the *a+ee or holder 2istinguish "ection #4 $rom "ection #.B $rom "ection #F' "ection #4 a**lies onl+ to incom*lete instrument )hich has been deli1ered' &t raises a *ersonal de$ense' "ection #. a**lies to and incom*lete instrument )hich are undeli1ered' &t raises a real de$ense' "ection #F a**lies to com*lete instrument )hich are undeli1ered' What are t)o classes o$ instruments contem*lated in "ection #4? #' =&4"/ >L;"": /hose in )hich ob1ious blan(s are le$t at the time that are made or indorsed, o$ such a character as mani$estl+ to indicate that the instruments are incom*lete until such blan(s shall be $illed u*B 2' "E>0%2 >L;"": /hose )hich are a**arentl+ com*lete, containing blan(s onl+ because the )ritten matter does not so $ull+ occu*+ the entire *a*er as to *reclude the insertion o$ additional )ords or $igures, or both' =irst class: 0ne )ho signs or indorses is liable to the bona $ide holder on the doctrine o$ im*lied authorit+' "econd class: 0ne )ho signs or indorses is liable to the
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2istinguish the t)o classes o$ blan( instruments'

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bona $ide holder on the doctrine o$ negligence' What is the rule )ith regard to "ection #4: When instrument is incom*lete but deli1ered? #' Aut ority to fill0up t e blan#s: /he holder or the *erson in *ossession has *rima $acie authorit+ to com*lete an incom*lete instrument b+ $iling u* the blan(s therein' "u**ose M issues a note to ! )ith the s*ace $or the date le$t blan( in *a+ment $or goods *urchased b+ M $rom !' /his gi1es *rima $acie authorit+ to $ill:u* the blan(s'

"( Aut ority to put any amount "u**ose that M Gust deli1ered a blan( *a*er containing his signature to !' /here must be a *roo$ o$ MCs signature'

,' Rig t against party prior to completion1 /he instrument ma+ be en$orced onl+ against a *art+ *rior to com*letion i$ $illed u* strictl+ in accordance )ith the authorit+ gi1en and )ithin a reasonable time' %ot a holder in due course cannot reco1er i$ the instrument is $illed u* in accordance )ith the authorit+ gi1en and )ithin the reasonable time'

4' Rig t of ol%er in %ue course( 4eal de$ense What is the rule )hen the instrument is incom*lete but not deli1ered? "ection #. o$ %&L: Where an incom*lete instrument has not been deli1ered, it )ill %0/, i$ com*leted and negotiated )ithout authorit+, be a 1alid contract in the hands o$ an+ holder, as against an+ *erson )hose signature )as *laced thereon be$ore deli1er+' What are the de$enses a1ailable to *arties? #' 2e$enses e1en against a holder in due course' M ma(es a note )ith the name o$ the *a+ee in blan(' ! steals it' ! E ; E 3 E > E 2, holder in due course' 2 cannot en$orce the note against M' constitutes a $orger+' 2' 2e$enses a1ailable to *arties *rior to deli1er+'
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2 can en$orce the note against !, ;, 3, and > because their signature a**ear on the instrument a$ter deli1er+, the instrument is 1alid as to them' When does deli1er+ become e$$ectual? "ection #F o$ %&L: 2eli1er+, in order to be e$$ectual, must be made either b+ or under the authorit+ o$ the *art+ ma(ing, dra)ing, acce*ting, or indorsing, as the case ma+ beB and, in such case, the %eli2ery ma+ be sho)n to ha1e been conditional, or $or a s*ecial *ur*ose onl+, and not $or the *ur*ose o$ trans$erring the *ro*ert+ in the instrument' 3ut )here the instrument is in the hands o$ a holder in due course, a 1alid deli1er+ thereo$ b+ all *arties *rior to him so as to ma(e them liable to him is conclusi1el+ *resumed' ;nd )here the instrument is no longer in the *ossession o$ a *art+ )hose signature a**ears thereon, a 1alid and intentional deli1er+ b+ him is *resumed until the contrar+ is *ro1ed' 2e$ine deli1er+' 2e$ine issue' 2eli1er+ means trans$er o$ *ossession, actual or constructi1e, $rom one *erson to another )ith intent to trans$er title thereto' &ssue is de$ined as the $irst deli1er+ o$ the instrument, com*lete in $orm, to a *erson )ho ta(es it as holder' What are the rules )hen the instrument is mechanicall+ com*lete? An undeli ered instrument is inoperati e !ecause deli ery is a prere"uisite to lia!ility. M E !, M (ee*s it in his dra)er' M is not liable ! cannot acquire rights

M E !, M (ee*s it in his dra)er, ! stole it, ! E ; E 3 E > E 2 (has (no)ledge) ! and 2 are immediate *arties 2eli1er+ ma+ be *resumed but subGect to rebuttal'

M E J E ! ($or sa$e(ee*ing, but ! has no idea)

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! can en$orce the instrument as he is not an immediate *art+ )ith the meaning o$ "ection #F'

M E J E ! ($or sa$e(ee*ing, but ! has idea) ! cannot en$orce it against M because the deli1er+ is conditional or $or a s*ecial *ur*ose onl+ and not $or *ur*ose o$ trans$erring the title to the instrument'

%ote: &$ deli1er+ )as made or authori<ed, it ma+ be sho)n to ha1e been conditional, or $or s*ecial *ur*ose onl+, and not $or the *ur*ose o$ trans$erring the *ro*ert+ (title) to the instrument' What is the rule on conclusi1e *resum*tion? When the instrument is $ound in the hand o$ a *erson )ho is a holder in due course, it is conclusi1el+ *resumed that the deli1er+ thereo$ is 1alid and intentional' Ho)e1er, this does %0/ a**l+ to an instrument )hich is &%>0M!LE/E' 3 e %efense is only a personal %efense N+3 a real %efense 4incomplete instrument5( What is the rule i$ the construction o$ the instrument is ambiguous or has omissions? "ection #7 o$ %&L: Where the language o$ the instrument is ambiguous or there are omissions therein, the $ollo)ing rules o$ construction a**l+: a' Where the sum *a+able is e-*ressed in )ords and also in $igures and there is a discre*anc+ bet)een the t)o, the sum denoted b+ the )ords is the sum *a+ableB but i$ the )ords are ambiguous or uncertain, re$erence ma+ be had to the $igures to $i- the amountB b' Where the instrument *ro1ides $or the *a+ment o$ interest, )ithout s*eci$+ing the date $rom )hich interest is to run, the interest runs $rom the date o$ the instrument, and i$ the instrument is undated, $rom the issue thereo$B c' Where the instrument is not dated, it )ill be considered to be dated as o$ the time it )as issuedB d' Where there is a con$lict bet)een the )ritten and *rinted *ro1isions o$ the instrument, the )ritten
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*ro1isions *re1ailB e' Where the instrument is so ambiguous that there is doubt )hether it is a bill or note, the holder ma+ treat it as either at his electionB $' Where a signature is so *laced u*on the instrument that it is not clear in )hat ca*acit+ the *erson ma(ing the same intended to sign, he is to be deemed an indorserB g' Where an instrument containing the )ord #$ promise to pay# is signed b+ t)o or more *ersons, the+ are deemed to be Gointl+ and se1erall+ liable thereon' What is the rule i$ the sum e-*ressed in )ords and the $igures are di$$erent? E-am*le: !a+ to the order o$ ! the amount o$ =i1e Hundred !esos (!h* .000'00) 3 e amount in W+R6 controls( What i$ the )ords are ambiguous or uncertain? What o$ the date )hen sti*ulated interest to run is not s*eci$ied? /he marginal $igures control' /he instrument )ill earn interest $rom the date o$ the note or the date o$ its issue' &$ no rate o$ interest is mentioned, it )ill dra) interest at the legal rate' What i$ the date is not stated in the instrument? ;n undated instrument is considered dated as o$ the date o$ issue ($irst deli1er+)' E-am*le: %o date, but deli1ered on 0ctober #., 200. E the note )ill be considered dated as o$ the same time' What i$ the )ritten and *rinted *ro1isions are in con$lict? What i$ the instrument )as signed b+ t)o or more *ersons? /he W4&//E% *ro1isions control' 5& *romise to *a+6 E the t)o are solidaril+ liable 5& or )e *romise to *a+6 E Goint and se1erall+ liable 5We *romise to *a+6 E Goint liabilit+ What is the liabilit+ o$ a *erson signing in trade or assumed name? ;s a general rule, onl+ *ersons )hose signatures a**ear on the instrument are liable thereon' Ho)e1er, there are e-ce*tions:

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#' Where a *erson signs in a trade or assumed name (*ar' 2, "ection #8)' 2' /he *rinci*al is liable i$ a dul+ authori<ed agent signs on his behal$ ("ec'#9)' ,' =orger is liable e1en i$ his signature does not a**ear on the instrument' 4' Where the acce*tor ma(es his acce*tance o$ a bill on a se*arate *a*er' .' Where a *erson ma(es a )ritten *romise to acce*t a bill be$ore it is dra)n' What is the e$$ect o$ $orged signature? ; $orged indorsement *re1ents an+ subsequent *art+ $rom acquiring an+ right as against an+ *art+ )hose names a**ears *rior to the $orger+' %0' > cannot claim $rom M and ! because his rights against them are cut:o$$ b+ a $orged signature' %ote: &$ the note states 5in an+ order6 > can claim $rom M' > cannot claim $rom ;' > can claim $rom 3 because his signature is genuine and 1alid' 3 and > ha1e a right o$ recourse against J' >an ; go a$ter M and !? ; can reco1er $rom M and ! because his right against them )ere not a$$ected b+ the $orger+' What is the e-ce*tion to "ection 2,? #' &$ the *art+ against )hom it is sought to en$orce such is *recluded $rom setting u* the $orger+ or )ant o$ authorit+' 2' Where the $orged signature is not necessar+ to the holderCs title in )hich the case the $orger+ ma+ be disregarded' #' /hose )ho b+ their acts, silence, or negligence, are esto**ed $rom setting u* the de$ense o$ $orger+' 2' /hose )ho )arrant or admit the genuineness o$ the signature in question'

E-em*li$+ "ection 2,' M ma(es a note *a+able to the order o$ ! ! E ; E J E $raud E 3 E >' >an > claim $rom M and !? >an > go a$ter ;? >an > go a$ter 3? >an 3 and > go a$ter J?

Who are *recluded $rom setting u* the $orger+?

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What de$ense ma+ be a1ailed under "ection 2,? (=orger+) What are the t)o cases o$ $orger+?

4eal de$ense E e1en against a holder in due course' /he *art+ alleging $orger+ has the burden o$ *roo$' 1. Forgery of bearer instrument a' /he *ossessor can collect e1en though it is stolen' b' /he o)ner is liable to a holder in due course' 2. Forgery of order instrument a' !rior *arties can claim b' "ubsequent *arties cannot claim c' /he o)ner is not liable to an+ *erson, e1en to a holder in due course'

2e$ine 1alue'

"ection 2. o$ %&L: @alue is an+ consideration su$$icient to su**ort a sim*le contract' ;n antecedent or *re:e-isting debt constitutes 1alueB and is deemed such )hether the instrument is *a+able on demand or at a $uture time'

2e$ine >onsideration'

>onsideration means an inducement to a contract, that is, the cause, *rice or im*elling in$luence )hich induces a contracting *art+ to enter into the contract' ; 1aluable consideration need not be adequate' &t is su$$icient i$ it is a 1aluable one' ?es' ;n antecedent or *re:e-isting debt is a 1aluable consideration' "ection 2F o$ %&L: Where 1alue has at an+ time been gi1en $or the instrument, the holder is deemed a holder $or 1alue in res*ect to all *arties )ho become such *rior to that time' ; holder $or 1alue is one )ho has gi1en a 1aluable consideration $or the instrument issued or negotiated to him'

&s it necessar+ that the consideration must be adequate to be considered 1aluable? ;re antecedent or *re:e-isting debt considered a 1aluable consideration? What constitutes a holder $or 1alue?

E-am*le o$ holder $or 1alue

M E ! ()ithout consideration) E ; ()ithout consideration) E 3 ()ith 1alue)' B is deemed a holder for value.

!*

hanamichi:law

M E ! ()ithout consideration) E ; ()ithout consideration) E 3 ()ith 1alue) E > (as a gi$t)' C is the holder for value. What is the rule i$ the holder $or 1alue has lien on the instrument? "ection 27 o$ %&L: Where the holder has a lien on the instrument arising either $rom contract or b+ im*lication o$ la), he is deemed a holder $or 1alue to the e-tent o$ his lien' What is the e$$ect o$ )ant o$ consideration? "ection 28 o$ %&L: ;bsence or $ailure o$ consideration is a matter o$ de$ense as against an+ *erson not a holder in due courseB and *artial $ailure o$ consideration is a de$ense *ro tanto, )hether the $ailure is an ascertained and liquidated amount or other)ise' What is the meaning o$ ;bsence o$ >onsideration? ;bsence o$ consideration means a total lac( o$ an+ 1alid consideration $or the contract' E-am*le: M E ! (*romissor+ note) in *a+ment $or a *arcel o$ land )hich does not e-ist' ! E ; (a holder in due course) ! cannot reco1er $rom M because o$ absence o$ consideration 3 / ; can reco1er $rom M because absence o$ consideration is onl+ a PER7+NAL 6E8EN7E not a1ailable against a holder in due course' What is the meaning o$ =ailure o$ >onsideration? &t means the $ailure or re$usal o$ one o$ the *arties to do, *er$orm or com*l+ )ith the consideration agreed u*on' Meaning, there )as a consideration but such agreed consideration $ailed to materiali<e' What is an accommodation *art+? What is the liabilit+ o$ the accommodation *art+? "ection 29: ;n accommodation *art+ is one )ho has signed the instrument as ma(er, dra)er, acce*tor, or indorser, )ithout recei1ing 1alue there$or, and $or the *ur*ose o$ lending his name to some other *erson'
!,

hanamichi:law

"uch a *erson is liable on the instrument to a holder $or 1alue, not)ithstanding such holder, at the time o$ ta(ing the instrument, (ne) him to be onl+ an accommodation *art+' What is the liabilit+ o$ the accommodation *art+ to a holder in due course? What are the di$$erent (inds o$ accommodation *art+? ;ccommodation *art+ is in e$$ect solidar+ co:debtor' /here$ore, he is liable to a holder in due course' #' ;ccommodation ma(er E *romissor+ note 2' ;ccommodation dra)er E bill o$ e-change ,' ;ccommodation acce*tor E acce*ts *romissor+ note 4' ;ccommodation indorser E signs in blan( a bill or note Accommo%ation party "igns the instrument )ithout recei1ing 1alue there$or "igns the instrument $or the *ur*ose o$ lending his name to some other *erson Ma+ al)a+s sho) a *arol e1idence >annot a1ail the de$ense o$ absence or $ailure o$ consideration against a holder %0/ in due course Ma+ sue $or reimbursement the subsequent *art+ What constitutes a negotiation? "ection ,0: ;n instrument is negotiated )hen it is trans$erred $rom one *erson to another in such manner as to constitute the trans$eree the holder thereo$' &$ *a+able to bearer, it is negotiated b+ deli1er+B i$ *a+able to order, it is negotiated b+ the indorsement o$ the holder and com*leted b+ deli1er+'
!-

What is the di$$erence bet)een an accommodation *art+ and a regular *art+?

Regular party "igns the instrument $or 1alue %ot $or the *ur*ose o$ lending his name'

>annot limit his *ersonal liabilit+ b+ *arol e1idence' >an a1ail the de$ense o$ absence or $ailure o$ consideration against a holder %0/ in due course Ma+ not sue an+ subsequent *art+'

hanamichi:law

What are the three methods o$ trans$erring a negotiable instrument? 2e$ine %egotiation

#' &ssue E the $irst deli1er+ o$ the instrument 2' %egotiation E in1ol1es indorsement ,' ;ssignment /he trans$er o$ negotiable instrument $rom one *erson to another in such a manner as to constitute the trans$eree the holder thereo$'

What are the methods o$ negotiation $or an #' &ndorsement o$ the *a+ee to the holder order instrument? 2' 2eli1er+ What are the methods o$ negotiation $or a bearer instrument? &s the *a+ment o$ a chec( b+ the dra)ee ban( constitutes a negotiation? 2e$ine ;ssignment' What ha**ens i$ an order instrument is deli1ered )ithout indorsement? 2istinguish %egotiation $rom ;ssignment' ; mere deli1er+ )ithout indorsement is enough' %o' &t is not a negotiation and it does not ma(e the ban( a holder' /he ban( is neither the *a+ee not an indorsee' /rans$er o$ the title to the instrument' &t cannot be negotiated unless indorsed' Negotiation 4e$ers onl+ to negotiable instruments /he trans$eree is a holder ; holder in due course is subGect onl+ to a real de$enses ; holder in due course ma+ acquire a better title than that o$ a *rior *art+' Assignment Kenerall+ re$ers to an ordinar+ contract /he trans$eree is an assignee ;n assignee is subGect to both real and *ersonal de$enses' ;ssignee merel+ ste*s on the shoes o$ the assignor

E-am*le: ; entered into a contract )ith 3' 3 issued a *romissor+ note that is non:negotiable (the contract is )ithout consideration) to ;' 3 $ailed to deli1er the goods' "ubsequentl+, 3 indorsed the note to >' >an > collect $rom ;?

!.

hanamichi:law

%0' > cannot collect $rom ; because the trans$er o$ the note is not thru negotiation ((asi non:negotiable instrument) but b+ )a+ o$ assignment' &n assignment, > merel+ ste*s on the shoes o$ 3 (the assignor)' What are the di$$erent (inds o$ deli1er+? What is the rule i$ the deli1er+ is conditional? Ho) an indorsement is made? #' >onstructi1e deli1er+ 2' ;ctual deli1er+ #' >ondition *recedent E *arol e1idence is admissible 2' >ondition subsequent E *arol e1idence is not admissible' "ection ,# o$ the %&L: &ndorsement must be )ritten on the instrument itsel$ or u*on a *a*er attached thereto' /he signature o$ the indorser, )ithout additional )ords, is a su$$icient indorsement' Writing at the bac( o$ the instrument' &t is com*leted b+ means o$ deli1er+' &s an indorsement to t)o or more indorsees 1alid? %o' ;n instrument )hich *ur*orts to trans$er the instrument to t)o or more indorsees se1erall+ is not 1alid and does not o*erate as a negotiation o$ the instrument ("ection ,2)' E-am*le: !a+ to ; !.00 and !a+ to 3 !F00 E in1alid !a+ to ; and 3 E 1alid &s *artial indorsement allo)ed? ?es' !artial indorsement is allo)ed ho)e1er, the indorsee must ac(no)ledge recei*t or *a+ment o$ the amount *re1iousl+ *aid' "ection ,4 o$ the %&L: ; s*ecial indorsement s*eci$ies the *erson to )hom, or to )hose order, the instrument is to be *a+able, and the indorsement o$ such indorsee is necessar+ to the $urther negotiation o$ the instrument' ;n indorsement in blan( s*eci$ies no indorsee, and an instrument so indorsed is *a+able to bearer, and ma+ be
"/

What is a s*ecial indorsement? What is a blan( indorsement?

hanamichi:law

negotiated b+ deli1er+' Ho) to change a blan( instrument into a s*ecial instrument? "ection ,. o$ %&L: /he holder ma+ con1ert a blan( indorsement into a s*ecial indorsement b+ )riting o1er the signature o$ the indorser in blan( an+ contract consistent )ith the character o$ the indorsement' What is a restricti1e indorsement? "ection ,F o$ %&L: ;n indorsement is restricti1e )hich either: a' !rohibits the $urther negotiation o$ the instrumentB or b' >onstitutes the indorsee the agent o$ the indorserB or c' @ests the title in the indorsee in trust $or or to the use o$ some other *ersons' 3ut the mere absence o$ )ords im*l+ing *o)er to negotiate does not ma(e an indorsement restricti1e' E-am*le o$ restricti1e indorsement' a. Prohibits the further negotiation of the instrument : !a+ to ; onl+ : !a+ to ; and to no other *erson b. Constitutes the indorsee the agent of the indorser : !a+ to ; $or collection : !a+ to ; $or collection onl+ c. Vests the title in the indorsee in trust for or to the use of some other persons. : !a+ to ; $or m+ use : !a+ to ; $or the use o$ 3 What is a quali$ied indorsement? "ection ,8 o$ %&L: ; quali$ied indorsement constitutes the indorser a mere assignor o$ the title to the instrument' &t ma+ be made b+ adding to the indorserLs signature the )ords M)ithout recourseM or an+ )ords o$ similar im*ort' "uch an indorsement does not im*air the negotiable character o$ the instrument'

"!

hanamichi:law

What is the e$$ect o$ quali$ied indorsement? What is a conditional indorsement? ;bsolute indorsement?

&t limits the liabilit+ o$ the indorser' ;bsolute indorsement is one b+ )hich the indorser binds himsel$ to *a+, u*on no other condition than the $ailure o$ *rior *arties to do so, and o$ due notice to him such $ailure' >onditional indorsement is one b+ )hich the indorser adds some other conditions to his liabilit+, that is, )here there is some condition in the indorsement' E-am*le: !a+ to ; on com*letion o$ the construction b+ him o$ m+ house'

E-am*les o$ indorsements

7pecial an% restricti2e %ay to A only. &'gd( % 7pecial an% 9ualifie% %ay to A without recourse. &'gd( % 7pecial an% con%itional %ay to A i) he marries !e)ore he reaches the age o) *+. &'gd( % Blan# an% restricti2e ,or collection only. &'gd( A Blan# an% 9ualifie% -ithout recourse. &'gd( A
""

hanamichi:law

Blan# an% con%itional %aya!le upon completion o) my house in %ateros. &'gd( A 7pecial: unrestricti2e: un9ualifie% %ay to A &'gd( % What is the e$$ect o$ s*ecial indorsement i$ the instrument is originall+ *a+able to bearer? "ection 42 o$ %&L: Where an instrument, *a+able to bearer, is indorsed s*eciall+, it ma+ ne1ertheless be $urther negotiated b+ deli1er+B but the *erson indorsing s*eciall+ is liable as indorser to onl+ such holders as ma(e title through his indorsement' 3+ mere deli1er+' /a(e note that in 3earer &nstrument, mere deli1er+ is enough' ;lso, b+ deli1er+' %o, because 3 did not obtain his title through the indorsement o$ !' 3ut 3 can reco1er $rom ; (indorser) and M (ma(er)' What i$ ; indorses the note to 3 )ho later deli1ers it to >, then ! is liable to )hom? ! is liable to ; and 3, and ; is liable to 3' ! and ; are liable to > because he obtained his title through deli1er+ and not through indorsement o$ ! and ;' 3 is also liable to >' When a holder ma+ stri(e out his indorsement? "ection 48 o$ %&L: /he holder ma+ at any time stri#e out an+ indorsement )hich is not necessar+ to his title' /he indorser )hose indorsement is struc( out, and all indorsers subse9uent
"$

M issues a *romissor+ note to *a+able to ! or bearer and deli1ers it to !' Ho) can ! negotiate the instrument to ;? Ho) can ; negotiate the instrument to 3? >an 3 reco1er $rom !?

hanamichi:law

to him, are thereb+ relie2e% from liability on the instrument' E-am*le: M E ! E ; E ? E N E W (struc( out b+ J) W can go a$ter M, ! and J E all *rior indorsers 3ecause subsequent indorsers are $ree $rom liabilit+ What is the e$$ect i$ the instrument is deli1ered but not indorsed? M E ! E ; ()ithout indorsement) ; is a mere assignee ; should as( ! to indorse it E to clean the de$ect' ; must be a holder in due course E determine the time o$ actual indorsement' What is the e$$ect i$ the *rior *art+ renegotiates an instrument? &$ a *rior *art+ renegotiates an instrument be$ore maturit+, he can negotiate the same $urther' 3ut a$ter *a+ing the holder, he ma+ %0/ claim *a+ment $rom an+ o$ the inter1ening *arties' E-am*le: M to ! ! to ; ; to 3 OOOO *rior *art+ 3 to > &nter1ening *artiesB 3 cannot collect $rom them > to 2 2 to 3 OOOO *rior *art+ 3 to E 3 can onl+ collect $rom M, ! and ; E can collect $rom M, !, ; and 3 What are the rights o$ a holder? What constitutes a holder in due course? #' /o sue 2' /o recei1e *a+ment "ection .2 o$ the %&L:

"&

hanamichi:law

; holder in due course is a holder )ho has ta(en the instrument under the $ollo)ing conditions: a' /hat it is com*lete and regular u*on its $aceB b' /hat he became the holder o$ it be$ore it )as o1erdue, and )ithout notice that it has been *re1iousl+ dishonored, i$ such )as the $actB c' /hat he too( it in good $aith and $or 1alueB d' /hat at the time it )as negotiated to him, he had no notice o$ an+ in$irmit+ in the instrument or de$ect in the title o$ the *erson negotiating it' What constitutes a com*lete and regular instrument? &t is com*lete i$ all the requisites $or its com*leteness are *resent' (%ote: ;n instrument is incom*lete )hen it is )anting in an+ material *articularPs *ro*er to be inserted in a negotiable instrument )ithout )hich the same )ill not be com*lete)' ;n instrument is regular i$ it has no de$ects' /o render the instrument irregular, alteration, tam*ering or erasure must be 1isible or a**arent on the $ace o$ the instrument' Who is a holder in due course? 4e$ers to bona $ide holder or bona $ide holder $or 1alue )ithout notice' %o, he is a mere assignee' /he $act that the instrument is non:negotiable is a sign o$ )arning to a *ros*ecti1e *urchaser and *laces him on his guard and on inquir+ (li(e ca1eat em*tor)' Who has the burden o$ *roo$ in a case against a holder in due course? /he one )ho claims has the burden o$ *roo$' (&t lies on the *erson )ho dis*utes the *resum*tion' ;s a rule, e1er+ holder is generall+ deemed *rima $acie (*rima $acie *resum*tion) a holder in due course ("ec' .9)' &$ a holder has *roo$ o$ being a holder: the *resum*tion accrues on his $a1or, he does not ha1e to *ro1e it' &$ the indorserCs title is de$ecti1e E the holder must *ro1e it that he is a holder in due course

>an a holder o$ non:negotiable instrument attain the status o$ a holder in due course?

")

hanamichi:law

E-em*li$+ and state +our analog+ on "ection .9'

! obtained the note o$ M through $raud !E;E3E>E2 2 is *resumed to be a holder in due course &$ M raised the issue o$ $raud E the burden is shi$ted to 2 E he has to *ro1e that he is a holder in due course' =or e-am*le: M E ! E$raud E ; E 3 E > E 2 2 is *resumed to be a holder in due course, because > is a holder in due course' 2 can reco1er $rom M' M E ! E ; E $raud E > E 2 2 can reco1er $rom M and !

What is a holder through a holder in due course? >an a dra)ee become a holder in due course? What is meant b+ o1erdue instrument? What is the rec(oning date i$ the instrument is *a+able on demand?

; *erson )ho acquires a title $rom a *rior holder )ho is a holder in due course' %o, a dra)ee cannot be a holder in due course (onl+ the *a+ee E b+ *a+ing the bill)' ;n instrument is o1erdue a$ter the date o$ maturit+' /he date o$ maturit+ is determined b+ the date o$ *resentment' !romissor+ note: )ithin the reasonable time a$ter its issue 3ill o$ e-change: a$ter the last negotiation

;re o1erdue instruments negotiable? >an it be negotiated? What is the e$$ect i$ the instrument is *artl+ o1erdue and *artl+ not (as in the case o$ installments)?

?es, an o1erdue instrument is still negotiable, and although it is subGect to de$enses e-isting as a time o$ trans$er' &t de*ends' a' &$ the instrument became due be$ore trans$er, the trans$eree is not a holder in due course' b' &$ the trans$eree had no notice o$ *a+ment, he is holder in due course as to the installments to mature in the $uture' c' &$ there is a notice o$ non:*a+ment, the *urchaser cannot be a holder in due course'
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2i$$erentiate dishonor b+ non:acce*tance and dishonor b+ non:*a+ment' >an o1erdue or dishonored instrument be negotiated? Ho)? What is its e$$ect?

2ishonor b+ non:acce*tance re$ers onl+ to a bill o$ e-change and it ma+ occur be$ore the date o$ its maturit+' While dishonor b+ non:*a+ment can onl+ ta(e *lace at the time o$ maturit+' ?es, it can be negotiated either b+ indorsement or b+ deli1er+ to the same e-tent as be$ore maturit+, but: a' In t e case of o2er%ue instruments E the holder cannot be a holder in due course' b' In t e case of %is onore% instruments E the holder )ithout notice can be holder in due course'

What is the rule on holders not in due course? What constitutes a 5reasonable time6?

nder "ection .,, &$ the negotiation o$ the instrument is made outside the reasonable time a$ter its issue, the holder cannot be deemed a holder in due course' /he la) *ro1ides that 5regard is to be had to the instrument, the usage o$ trade or business (i$ an+) )ith res*ect to such instruments and the $acts o$ the *articular case ("tandard E usuall+ F months)' "ection .4 gi1es to instances: #' If no amount as yet been pai% E he is relie1ed $rom the obligation to ma(e *a+ment' 2' If an amount as been pai% E he can be considered holder in due course onl+ to the e-tent o$ the amount thereto$ore *aid b+ him'

What is the e$$ect o$ notice o$ in$irmit+ (de$ect) be$ore $ull *a+ment?

What is the meaning o$ de$ecti1e title? What constitute a de$ecti1e title?

"ection .. o$ %&L: ; title is de$ecti1e )hen the instrument, or an+ signature thereto is obtained: #' b+ $raud, duress, or $orce and $ear, or 2' other unla)$ul means, or ,' $or an illegal consideration, or 4' )hen he negotiates it in breach o$ $aith, or .' under such circumstances as amount to a $raud &t co1ers *ersonal or equitable de$enses'

What is the obGecti1e o$ "ection .. in connection )ith "ection .F?

/o *re1ent one $rom becoming a holder in due course )ho ta(es the instrument )ith notice that his trans$eror is not acting honestl+'
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hanamichi:law

/o require a thoroughl+ honest and $air transaction to continue one a holder in due course' What constitute notice o$ de$ect? "ection .F o$ %&L: /o constitutes notice o$ an in$irmit+ in the instrument or de$ect in the title o$ the *erson negotiating the same, the *erson to )hom it is negotiated must ha1e had actual (no)ledge o$ the in$irmit+ or de$ect, or (no)ledge o$ such $acts that his action in ta(ing the instrument amounted to bad $aith' What other things to be considered under "ection .F? What is the e$$ect o$ notice o$ de$ect? #' Mere negligence to ma(e inGuries is not su$$icient' 2' Ino)ledge o$ the in$irmit+ amounts to bad $aith' #' 2estro+s the status o$ a holder as a holder in due course' 2' 0*ens all de$enses "ection .7: /he $ollo)ing are the rights o$ a holder in due course: #' He ma+ sue on the instrument on his o)n nameB 2' He ma+ recei1e *a+ment and i$ the *a+ment is in due course, the instrument is dischargedB ,' He holds the instrument $ree $rom an+ de$ect o$ title *rior *artiesB 4' He ma+ en$orce *a+ment o$ the instrument $or the $ull amount Hereo$ against all *arties liable thereon' What is the im*ortance and $oundation o$ due course holding? #' ; holder in due course acquires a right better than an+ o$ his *redecessors because he ta(es the instruments $ree most o$ de$enses a1ailable to *rior *arties among themsel1es' 2' !rotection $or those )ho holds the instrument in due course E Esto**el' 4eal de$enses are a1ailable against all *ersons e1en as against a holder in due course' ; holder not in due course E subGect to all de$enses, )hether *ersonal or real' (Wh+? 3ecause he is treated as a mere assignee o$ the non:negotiable *a*er'

What are the rights o$ holder in due course?

What de$enses are a1ailable $or a holder in due course? Ho) about $or holder not in due course?

"-

hanamichi:law

What are the di$$erent t+*es o$ de$enses? 2i$$erentiate 4eal and !ersonal 2e$enses'

#' 4eal or absolute de$enses 2' !ersonal or equitable de$enses Real 6efenses 4eal de$enses are those that are a1ailable against all *arties, both immediate and remote, including the holder in due course' /he+ are real because the+ are attached to the res, that is, the instrument itsel$ regardless o$ the merits or demerits o$ the holder or the conduct or agreement o$ the *arties to it' %ote: &t cannot be en$orced b+ the holder because there is not contract to en$orce' ;**lied to 5onl+6 to the *erson )ho has made or dra)n the instrument' suall+ a**lied in @0&2 contracts or instruments' E-am*les: #' &nca*acit+ as $ar as the inca*acitated *erson is concerned' 2' Want o$ deli1er+ o$ incom*lete instrument ,' =orger+ 4' &llegalit+ o$ contract )hen declared b+ la)' .' 2uress amounting to $orger+ (signature) F' =raud in $actum or $raud in esse Personal 6efenses !ersonal de$enses are those )hich gro) out o$ the agreement or conduct o$ a *articular *erson in regard to the instrument )hich renders it inequitable $or him, though holding the legal title, to en$orce it against the *art+ sought to be made liable but )hich are not a1ailable against a holder in due course' /he+ are called *ersonal de$enses because the+ are a1ailable onl+ against that *erson or subsequent holder )ho stands in *ri1it+ )ith him' &n other )ords, the+ can be used onl+ bet)een 04&K&%;L !;4/&E" or immediate *arties, or against one )ho is %0/ ; H0L2E4 &% 2 E >0 4"E E-am*les: #' =iling the )rong date 2' =illing u* o$ blan(s not in accordance )ith the authorit+ gi1en and )ithin reasonable time' ,' Want o$ deli1er+ o$ com*lete instrument' 4' ;bsence or $ailure o$ consideration .' "im*le $raud or $raud o$ inducement F' ;cquisition o$
".

hanamichi:law

contractus 7' =raudulent alteration b+ the holder 8' !rescri*tion 9' 2ischarge at or a$ter maturit+ #0'0ther in$irmities a**earing on the $ace o$ the instrument 2i$$erentiate &mmediate, 4emote, and !rior !arties' ME!E;E3

instrument (not signature) b+ duress or $orce and $ear 7' sur+

&mmediate *arties: in direct contractual relations to each other' M ma(es and deli1ers his *romissor+ note to ! and ! endorses it to ;, and ; to 3' M and ! are immediate *arties' !ero (a*ag ma+ intermediar+, (e-am*le, ma+ inutusan si ! to deli1er it to M, let sa+ si J), M and ! are not immediate *arties'

ME!E;E3 4emote *arties: is one )ho ta(es title to an instrument b+ negotiation $rom either the original *a+ee or an+ subsequent holder' M and 3 M and ; ! and 3

ME!E;E3 !rior *arties: What de$enses a1ailable to the $ollo)ing *ersons, i$ the $lo) o$ negotiation is this: M E ! E ; E 3? M, ! and ; are *rior *arties )ith res*ect to 3

; holder in due course is $ree $rom *ersonal 5de$enses a1ailable to *rior *arties among themsel1es6 M and ! : 4eal ! and ; : 4eal ; and 3 E 4eal

$/

hanamichi:law

M and ; E the *rior *art+ can set u* real de$enses but i$ ; is not a holder in due course, the instrument is subGect to ;LL de$enses' &n such a case, ; is a mere assignee and the general rules on contract )ould a**l+' What de$enses a1ailable to a holder not in due course? What are their rights? #' He ma+ sue on the instrument on its o)n name 2' He ma+ recei1e *a+ment and i$ the *a+ment is in due course, the instrument is discharged E-am*le: 3 *urchases $rom ; an o1erdue *romissor+ note signed b+ M, 3 is not a holder in due course, but 3 ma+ reco1er $rom M or ;, i$ both has no 1alid e-cuse $or re$using *a+ment' ,' He is entitled to the instrument but holds it subGect to the same de$enses as i$ it )ere non:negotiable 4' He has all the rights o$ the holder in due course $rom )hom he deri1es his title in res*ect o$ all the *arties *rior to such holder, *ro1ided he is not a *art+ to an+ $raud' ;re de$enses subGect to esto**el? Wh+? ?es, real and *ersonal de$enses are subGect to esto**el since the rules and *rinci*les go1erning esto**el generall+ are a**lied to commercial instruments' E-am*le: =orger+ ma+ be *recluded b+ esto**el' 2istinguished $raud in $actum and $raud in inducement 8rau% in t e execution or frau% in factum E it e-ists in those cases in )hich a *erson, )ithout negligence, has signed an instrument )hich )as in $act a negotiable instrument, but )as decei1ed as to the character o$ the instrument and )ithout (no)ledge o$ it' ; tells 3 that he need the signature o$ the latter $or an autogra*h, but in $act, the *a*er )as a negotiable instrument' 8rau% in t e in%ucement or simple frau% E it is that )hich relates to the qualit+, quantit+, 1alue or character o$ the consideration o$ the instrument' (2eceit in the its
$!

0nl+ those de$enses a1ailable under ordinar+ contracts' ; holder not in due course has the $ollo)ing rights:

hanamichi:law

amount or its terms, not its character)' What de$enses are a1ailable in $raud in $actum and $raud in inducement? 8rau% in t e execution or frau% in factum E 4eal de$enses because there is no contract (but negligence is not included) 8rau% in t e in%ucement or simple frau% E What are the rights o$ *urchaser $rom a holder in due course? &$ he acquires the instrument $rom a *erson not a holder in due course E the ! 4>H;"E4 is li(e those o$ a trans$eree o$ a non:negotiable instrument (he is %0/ $ree $rom *ersonal de$enses) &$ he acquires it $rom a holder in due course E the ! 4>H;"E4 can ha1e all the rights a1ailable to a holder in due course' E-am*le: ! induced M in its $a1or ! indorsed it to ; ; has a notice o$ $raud but indorsed it to 3 3 indorsed it to >

;nalog+: > is not a holder in due course but has all the rights (o$ a holder in due course) (asi he acquires the note $rom 3 )ho is a holder in due course' > is a holder in due course relati1e to M, !, and ;' 3 indorsed it to !

! cannot reco1er because he is a *art+ to the $raud' ! is remitted to his original *osition (ahit na 3 is a holder in due course' > indorsed it to 2, )ho (no)s the de$ect but )as not a *art+ to the $raud'

2 cannot reco1er $rom M, because he did not acquire his title $rom a holder in due course (>)' ;ssuming > is a holder in due course, then ; reacquires the note'

; cannot reco1er because he is remitted to its original

$"

hanamichi:law

*osition' /his is not allo)ed under "ection ..' 3 (holder in due course) negotiates it to > 3 reacquires it $rom >

3 )ill hold the instrument in due course, he is remitted to his original *osition as a holder in due course' What are the liabilities o$ the ma(er? "ection F0: /he ma(er o$ a negotiable instrument, b+ ma(ing it, engages that he )ill *a+ it according to its tenor, and admits the e-istence o$ the *a+ee and his then ca*acit+ to indorse' What are the classi$ications o$ *arties according to their liabilities? !( Primarily liable a' Ma(er o$ a *romissor+ note b' ;cce*tor o$ a bill o$ e-change c' >erti$ier o$ a chec( "( 7econ%arily liable a' 2ra)er o$ the bill b' &ndorser o$ a note or a bill $( Not liable a' 2ra)ee until he acce*ts the instrument 2istinguished *rimar+ *art+ $rom secondar+ *art+' !rimaril+ liable E *erson )ho b+ the terms o$ the instrument is absolutel+ required to *a+' nconditionall+ bound' "econdaril+ liable E conditionall+ bound to *a+' Will *a+ the instrument onl+ a$ter certain conditions ha1e been $ul$illed: #' 2ue *resentment $or *a+ment or acce*tance to *rimar+ *art+' 2' 2ishonor b+ such *art+ ,' /a(ing o$ *roceedings required b+ la) a$ter dishonor' .ote: maging primary lia!le sila /apag they sign the instrument &'ection 01(. KE%E4;LL?, the liabilit+ o$ the secondar+ *arties ends )hen the *rimar+ *art+ *a+s the $ull amount o$ the
$$

hanamichi:law

instrument' What is the liabilit+ o$ the dra)er? "ection F#: He )ill *a+ the amount o$ the instrument to the holder or to an+ subsequent indorser )ho ma+ be com*elled to *a+ it' 3ut the dra)er ma+ insert in the instrument an e-*ress sti*ulation negati1ing or limiting his o)n liabilit+ to the holder' What is the liabilit+ o$ the acce*tor? "ection F2: /he acce*tor, b+ acce*ting the instrument, engages that he )ill *a+ it according to the tenor o$ his acce*tance and admits: a' /he e-istence o$ the dra)er, the genuineness o$ his signature, and his ca*acit+ and authorit+ to dra) the instrumentB and b' /he e-istence o$ the *a+ee and his then ca*acit+ to indorse' Who are deemed indorsers? "ection F,: ; *erson *lacing his signature u*on an instrument other)ise than as ma(er, dra)er, or acce*tor, is deemed to be indorser unless he clearl+ indicates b+ a**ro*riate )ords his intention to be bound in some other ca*acit+' What is the liabilit+ o$ the irregular endorser? "ection F4: Where a *erson, not other)ise a *art+ to an instrument, *laces thereon his signature in blan( be$ore deli1er+, he is liable as indorser, in accordance )ith the $ollo)ing rules: a' &$ the instrument is *a+able to the order o$ a third *erson, he is liable to the *a+ee and to all subsequent *arties' b' &$ the instrument is *a+able to the order o$ the ma(er or dra)er, or is *a+able to bearer, he is liable to all *arties subsequent to the ma(er or dra)er' c' &$ he signs $or the accommodation o$ the *a+ee, he is liable to all *arties subsequent to the *a+ee'

$&

hanamichi:law

What are the )arrant+ o$ negotiations i$ done b+ deli1er+ or indorsement?

"ection F.: E1er+ *erson negotiating an instrument b+ deli1er+ or b+ a quali$ied indorsement )arrants: a' /hat the instrument is genuine and in all res*ects )hat it *ur*orts to beB b' /hat he has a good title to itB c' /hat all *rior *arties had ca*acit+ to contractB d' /hat he has no (no)ledge o$ an+ $act )hich )ould im*air the 1alidit+ o$ the instrument or render it 1alueless' 3ut )hen the negotiation is b+ deli1er+ onl+, the )arrant+ e-tends in $a1or o$ no holder other than the immediate trans$eree' /he *ro1isions o$ subdi1ision (c) o$ this section do not a**l+ to a *erson negotiating *ublic or cor*oration securities other than bills and notes'

What is the liabilit+ o$ general endorser?

"ection FF: E1er+ indorser )ho indorses )ithout quali$ication, )arrants to all subsequent holders in due course: a' /he matters and things mentioned in subdi1isions (a), (b), and (c) o$ "ection F.B b' /hat the instrument is, at the time o$ his indorsement, 1alid and subsisting' ;nd, in addition, he engages that, on due *resentment, it shall be acce*ted or *aid, or both, as the case ma+ be, according to its tenor, and that i$ it be dishonored and the necessar+ *roceedings on dishonor be dul+ ta(en, he )ill *a+ the amount thereo$ to the holder, or to an+ subsequent indorser )ho ma+ be com*elled to *a+ it'

2istinguish Keneral &ndorser $rom &rregular &ndorser'

<eneral In%orser Ma(es either s*ecial or blan( indorsements' &ndorses the instrument a$ter its deli1er+'

Irregular In%orser 3lan( indorsements onl+ &ndorses the instrument be$ore deli1er+ to the *a+ee'
$)

hanamichi:law

Liable onl+ to subsequent *arties

Liable to the *a+ee and subsequent *arties

What is the liabilit+ o$ indorser )hen the *a*er negotiable is done b+ deli1er+?

"ection F7: Where a *erson *laces his indorsement on an instrument negotiable b+ deli1er+, he incurs all the liabilit+ o$ an indorser

What is the liabilit+ o$ the indorser i$ negotiation is done b+ negotiation?

&$ he indorses s*eciall+, he is liable to onl+ the holders )ho ma(e title through the indorsement &$ he indorses )ithout quali$ication, he incurs liabilit+ o$ a general indorser (liable onl+ to subsequent *arties)'

What order does a holder becomes liable?

"ection F8: ;s res*ect one another, indorsers are liable prima )acie in the order in )hich the+ indorseB but e1idence is admissible to sho) that, as bet)een or among themsel1es, the+ ha1e agreed other)ise' Hoint *a+ees or Goint indorsees )ho indorse are deemed to indorse Gointl+ and se1erall+'

What is the liabilit+ o$ the bro(er or agent?

"ection F9: Where a bro(er or other agent negotiates an instrument )ithout indorsement, he incurs all the liabilities *rescribed b+ "ection "i-t+:$i1e o$ this ;ct, unless he discloses the name o$ his *rinci*al and the $act that he is acting onl+ as agent'

What is the e$$ect o$ )ant o$ demand on *rinci*al debtors? (E$$ect o$ lac( o$ demand)

MI63ERM "ection 70: !resentment $or *a+ment is not necessar+ in order to charge the *erson *rimaril+ liable on the instrumentB but i$ the instrument is, b+ its terms, *a+able at a s*ecial *lace, and he is able and )illing to *a+ it there at maturit+, such abilit+ and )illingness are equi1alent to a tender o$ *a+ment u*on his *art' 3ut e-ce*t as herein other)ise *ro1ided, *resentment $or *a+ment is necessar+ in order to charge the dra)er and indorsers'

$*

hanamichi:law

What is the meaning o$ *resentment $or *a+ment When is *resentment and demand o$ *a+ment not necessar+?

!resentment o$ *a+ment to the *erson *rimaril+ liable $or the *ur*ose o$ demanding and recei1ing *a+ment' &$ the date has *assed' &% E==E>/: /he holder can sue the ma(er or the acce*tor and *resentment and demand o$ *a+ment are not necessar+ in order to charge the *erson *rimaril+ liable' %o, *resentment is not required' E-am*le: M E ! E !h* #000'00 *a+able at !%3' ! $ails to *resent the note at maturit+' M is still liable to *a+ the !h* #000'00 and the interest ! /0 /HE M;/ 4&/? (onl+) M is not liable to *a+ the interest ;=/E4 maturit+'

&s *resentment necessar+ to charge the ma(er or the acce*tor?

%ote: Hindi na required ang *resentment i$ the dra)er and the dra)ee is considered a ma(er E HE &" L&;3LE W&/H0 / !4E"E%/ME%/' What are the rules on the *resentment $or#' !resentment $or *a+ment is not necessar+ to charge the *a+ment? *erson *rimaril+ liable E 3 / /H&" &" ;!!L&>;3LE 0%L? /0 %0/E" !;?;3LE 0% 2EM;%2' 2' "uit ma+ be maintained though no *resentment or demand $or *a+ment has been made' What is the e$$ect i$ *resentment is not made? &t )ill not a$$ect the holder but it might *ut him in the ris( i$ the dra)ee is &%"0L@E%/'

Who are secondaril+ liable? >an the holder go directl+ a$ter the *ersons secondaril+ liable? What ha**ens i$ the instrument )as not *resented to the *erson *rimaril+ liable?

/he dra)er and indorsers' %o, demand $or *a+ment must $irst be made u*on the *erson *rimaril+ liable' /he secondaril+ liable *arties are discharged (unless *resentment is e-cused)' %ote: %otice o$ non:acce*tance or non:*a+ment must be gi1en to dra)ers and indorsers, other)ise (a*ag hindi sila nabig+an ng notice, the+ )ill be 4ELE;"E2 $rom liabilit+'

When *resentment should be made:

!resentment must be made on the da+ it $alls due (sa

$,

hanamichi:law

due date) )ithout grace *eriod' Promissory note : !resentment must be made )ithin a reasonable time a$ter its issue or deli1er+' Bill of Exc ange : Within reasonable time a$ter the last negotiation (last trans$er $or 1alue)' &t )as held in William "tate 3an( 1s' >lar( 208 !ac' .49 that it is not e$$ecti1e and is considered as an im*ro*er *resentment' "ection 72 o$ %&L: &$ the *resentment $or *a+ment is made: #' 3+ the holder, or b+ some *erson authori<ed to recei1e *a+ment on his behal$ 2' ;t a reasonable hour on a business da+ ,' ;t a *ro*er *lace as herein de$ined 4' /o the *erson *rimaril+ liable on the instrument, or i$ he is absent or inaccessible, to an+ *erson $ound at the *lace )here the *resentment is made' 2e$ine !resentment' ;ct o$ the holder o$ a negotiable instrument o$ e-hibiting a note to the ma(er and demanding *a+ment, or sho)ing a bill to the dra)ee and requesting its acce*tance or *a+ment'

: :

&$ not *a+able on demand? &$ *a+able on demand?

What ha**ens i$ the *resentment is done 3E=04E the instrument is due? What constitutes a su$$icient *resentment?

What is the e$$ect o$ *resent i$ the $ollo)ing circumstances occur: a' /he instrument is not e-hibited? What is the e-ce*tion? /he *resentment )ould be ine$$ectual E-hibition is not necessar+ i$ the e-hibition is demanded or )ai1ed' &t is not su$$icient because e-hibition o$ the instrument is not *ossible' %ot su$$icient to dishonor the note and charge the indorser (o(a+ lang)'

b' 2emand is through tele*hone?

c' /he demand is in$ormal and not accom*anies )ith *resentment?

$-

hanamichi:law

Ho) is *resentment done i$ the instrument is *a+able at a ban(?

"ection 7.: !resentment must be made: a' 2uring ban(ing hours b' ;n+time during the da+ c' 3e$ore close o$ ban(ing hours

What is the rule on *resentment )here the *rinci*al debtor is dead?

"ection 7F: &$ the *rinci*al debtor is dead, *resentment ma+ be made to his EJE> /04 or ;2M&%&"/4;/04 i$ there be one and can be $ound'

Ho) is *resentment done to *ersons liable as *artners?

"ection 77: !resentment ma+ be made to an+ one o$ the co:*artners or to the agent o$ one o$ them' %ote: ; dishonor b+ one is a dishonor b+ all'

What i$ the *arties are Goint debtors, ho) is *resentment e-ecuted?

"ection 78: !resentment must be made to all o$ them to hold the dra)er and indorsers on their secondar+ liabilit+'

When *resentment ma+ be dis*ensed )ith?

"ection 82: !resentment $or *a+ment is dis*ensed )ith: a' Where a$ter the e-ercise o$ reasonable diligence, *resentment cannot be made' b' Where the dra)ee is a $ictitious *erson c' 3+ )ai1er o$ *resentment, e-*ress or im*lied d' /he instrument is o1erdue and un*aid'

"ummari<e the rules on *resentment $or *a+ment'

#' !resentment $or *a+ment is not necessar+ to charge *ersons *rimaril+ liable but is necessary to c arge t e persons secon%arily liable ("ec' 70)' 2' &n the $ollo)ing cases, *resentment $or *a+ment is not necessar+ to charge the *ersons secondaril+ liable: a' as to dra)er b' as to indorser c' )hen *resentment is dis*ensed )ith d' )hen the bill has been dishonored b+ non: acc*etance' "ection 8,:
$.

When is an instrument considered

hanamichi:law

dishonored b+ non:acce*tance? /he instrument is dishonored b+ non:*a+ment )hen: #' it is dul+ *resented $or *a+ment and *a+ment is re$used or cannot be obtainedB or 2' *resentment is e-cused and the instrument is o1erdue and un*aid' What is the liabilit+ o$ the *erson secondaril+ liable, )hen the instrument is dishonored? "ection 84: When the instrument is dishonored b+ non:*a+ment, an immediate right o$ recourse to all *arties secondaril+ liable thereon accrues to the holder' ;s to the H0L2E4, the *ersons secondaril+ liable become the *rinci*al debtors' 2e$ine !;?ME%/ &% 2 E >0 4"E' What constitutes a !;?ME%/ &% 2 E >0 4"E? !a+ment in due course is *a+ment in the usual course o$ business' "ection 88: 4equisites o$ *a+ment in due course: #' !a+ment must be made ;/ or ;=/E4 date o$ maturit+' 2' !a+ment must be made to the H0L2E4 ,' !a+ment must be made in good $aith and )ithout notice that the holderCs title is de$ecti1e' E-am*le: M issues a note *a+able to ! or order' /he note is indorsed in blan( and deli1ered b+ ! to ; $rom )hom it )as obtained through $raud b+ 3 )ho *resented it to M $or *a+ment' &$ M had no notice o$ the $raud, *a+ment b+ him discharges the note' /his )ould not be so i$ the *a+ment )as made be$ore maturit+ or M had notice o$ the $raud )hen he made the *a+ment' What is a %0/&>E 0= 2&"H0%04? Notice of %is onor is bringing, either 1erball+ or in )riting, to the (no)ledge o$ the dra)er or indorser o$ an instrument, the $act that a s*eci$ied negotiable instrument, u*on *ro*er *roceedings ta(en, has not been acce*ted or has not been *aid and that the *art+ noti$ied is e-*ected to *a+ it'
&/

hanamichi:law

%ote: i$ a notice is gi1en b+ a notar+ *ublic, it is called a !40/E"/' /o )hom notice o$ dishonor must be gi1en? "ection 89: %otice o$ dishonor must be gi1en to the 24;WE4 and each &%204"E4, and an+ dra)er or indorser to )hom such notice is not gi1en is discharged' When is the instrument considered dishonored? ; negotiable instrument is considered dishonored: #' &$ is not acce*ted )hen *resented $or acce*tanceB or 2' &$ it is not *aid )hen *resented $or *a+ment at maturit+B ,' &$ *resentment is e-cused or )ai1ed and the instrument is *ast due and un*aid' What is the 03HE>/&@E o$ gi1ing notice o$ dishonor? #' /o in$orm the *arties secondaril+ liable (/HE 24;WE4 04 /HE &%204"E4) that the ma(er or acce*tor, as the case ma+ be, has $ailed to meet his engagement' 2' /o ad1ise such *arties that the+ )ill be require to ma(e *a+ment' ;n+ dra)er or indorser to )hom such notice is not gi1en is discharged (meaning, sinong di nabig+an ng notice a+ discharged na)' Ho)e1er, although the indorser to )hom the notice is not gi1en is discharged, he is still liable $or breach o$ )arranties *ertaining to the instrument' What )ill a *art+ do i$ he recei1es the notice o$ dishonor? Who are not entitled to notice o$ dishonor? ("ino ang hindi na (ailangang big+an ng notice?) Who ma+ gi1e a notice o$ dishonor? &$ a *art+ holding a bill o$ e-change recei1es notice o$ its dishonor, he is bound to communicate this to the dra)er' /he ma(er and acce*tor do not ha1e to be noti$ied, including the Goint ma(er andPor accommodation ma(er' "ection 90: %otice ma+ be gi1en: #' 3+ the holder 2' 3+ another on behal$ o$ +hr holder ,' 3+ the *art+ to the instrument )ho ma+ be com*elled to *a+ it to the holder and )ho, u*on
&!

What ha**ens i$ the *art+ ()ho has the right to issue a notice) $ailed to gi1e notice o$ dishonor?

hanamichi:law

ta(ing it u*, )ould ha1e the right to reimbursement $rom the *art+ to )hom the notice is gi1en 4' 3+ another *erson on behal$ o$ Q ,' %ote: ; mere stranger is ine$$ectual %LE"" he is acting as agent o$ the *art+ )ho is entitled to gi1e notice' &llustrati1e >ase: M ma(es a note *a+able to the order o$ !' /he note is indorsed successi1el+ as $ollo)s: !E;E3E>E2 "u**ose the note is dishonored sa (ama+ ni 2, )hat )ill ha**en? Ho) )ill the notice be en$orced? #' !)edeng magbiga+ ng notice si 2 or his agent (ina !, ;, 3, and >' 2 !, ;, 3 > 2' Iung si > lang ang binig+an ni 2 ng notice, si > ang magbaba+ad (a+ 2' !ero *)edeng big+an ni > sina !, ; and 3 *ara mareimburse si+a' 2 > (noti$+ !, ;, 3 $or reimbursement) ,' Halimba)a si 3 ang binig+an ni >, *)edeng big+an ng notice ni 3 sina ! and ;' > 3 (noti$+ !, ; $or reimbursement) 4' "i ; naman, *)edeng magbiga+ (a+ ! 3 ; (si ! lang *)ede ni+ang big+an) .' 3ut ! cannot gi1e notice to ;, because ; is the subsequent *art+ and ! has no right o$ reimbursement $rom ;' !; F' !ero (ung si 3 and binig+an ni 2, discharged na si >' Iasi di naman *)edeng magnoti$+ si 3 (a+ > (asi subsequent *art+ na si >'
discharge ! E ; E 3 E >d E 2

What is the e$$ect i$ the notice is gi1en b+ a "ection 9,: *art+ entitled to gi1e notice? Where notice is gi1en b+ or on behal$ o$ a *art+ entitled to gi1e notice, it inures to the bene$it o$ the H0L2E4 and ;LL *arties " 3"EA E%/ to the *art+ to )hom the
&"

hanamichi:law

notice is gi1en' M ma(es a note *a+able to ! or order' /he note is indorsed successi1el+ as $ollo)s: ! ; 3 > 2 E Holder (dishonored) E E "ubsequent holder "u**ose the note is dishonored sa (ama+ ni 2, )hat )ill ha**en? What is the e$$ect o$ the notice i$ it is gi1en b+ 2 to !, ;, 3, >? #' 2 !, ;, 3 > 2' /he notice gi1en to ! o*erates to the bene$it o$ ;, 3, and > and E ,' %otice o$ ; inures to the bene$it o$ 3, > and E 4' %otice o$ 3 inures to the bene$it o$ > and E .' %otice o$ > inures to the bene$it o$ E 5inures to the bene$it6 means *)edeng i:charge ng isang *art+ ang *rior *art+ na na(atangga* ng notice (ahit +ung *art+ na+ un ang hindi nagbiga+ ng notice' "a e-am*le, si 2 ang nagbiga+ ng notice sa lahat (!, ;, 3, >)' Ia+a i$ 3 *a+s >: 3 can go against ! or ; ($or reimbursement) (ahit hindi si+a ang nagbiga+ ng notice ;%0/HE4 ">E%;4&0: &$ 2 noti$ies onl+ >: #' 2 > !, ;, and 3 are discharged' Ho)e1er i$ > gi1es due notice to !, ;, and 3, such notice inures to the bene$it o$ 2 and E !E ;E 3E > E 2E E "i > lang ang binig+an ni 2' inures to the bene$it o$ 2 and E' =or the same reason, >Cs notice to ; inures to the bene$it o$ 3, >, 2, E' Ia+a (ahit na hindi nabig+an ni 2 ng notice si ; ($or e-am*le) ; is not discharged i$ ; is noti$ied b+ >' What is the rule i$ the instrument is dishonored in the hands o$ an agent? "ection 94: /he agent ma+ noti$+ his *rinci*al and he ma+ act as i$ he )ere the holder' E-am*le:

&$

hanamichi:law

! to ; ; to 3 3 to J (J is an agent o$ >) /he instrument )as dishonored in the hand o$ J' #' J can gi1e notice to >, his *rinci*al 2' J can directl+ gi1e notice to !, ; and 3 Ma+ a notice o$ dishonor be )ai1ed? ?es, a notice o$ dishonor ma+ be )ai1ed ("ection #09 o$ %&L)' Wai1er id the intentional abandonment o$ a (no)n right' &t is )illingness on the *art o$ the dra)er or the indorser concerned to be boun% as suc e2en wit out %ue notice of %is onor' Who are the *ersons that ma+ be a$$ected b+ a )ai1er? "ection ##0: #' &$ the )ai1er is embodied in the instrument itsel$, that is, it a**ears in the bod+ or on the $ace o$ the instrument, it binds ;LL *arties' 2' &$ it is )ritten abo1e the signature o$ an indorser, it binds him onl+' What is the e$$ect o$ the *rotest is )ai1ed? 5!rotest is a notice gi1en b+ the notar+ *ublic6 &t a**lies onl+ to =04E&K% 3&LL" ' #' When *rotest is )ai1ed O *resentment and notice o$ dishonor are also deemed )ai1ed' 2' When notice o$ *rotest is )ai1ed O onl+ the notice o$ dishonor is )ai1ed' ,' When *resentment is )ai1ed O notice o$ dishonor is also )ai1ed 4' When notice o$ dishonor is )ai1ed O does not )ai1e *resentment' !resentme nt W Not W Not W %otice o$ 2ishonor W W W Not W

!rotest %otice o$ !rotest !resentment %02 When can a notice be dis*ensed )ith? "ection ##2:

&&

hanamichi:law

%otice o$ dishonor is dis*ensed )ith )hen, a$ter the e-ercise o$ reasonable diligence, it cannot be gi1en or does not reach the *arties sought to be charged' What are the instances )here a notice is not required to be gi1en to the 24;WE4? "ection ##4: #' When the dra)er and the dra)ee are the same *erson 2' When the dra)ee is $ictitious *erson or a *erson not ha1ing ca*acit+ to contract' ,' When the dra)er is the *erson to )ho the instrument is *resented $or *a+ment 4' Where the dra)er has no right to e-*ect or require that the dra)ee or acce*tor )ill honor the instrument .' Where the dra)er has countermanded *a+ment 2ountermanded means re o/ed, rescinded or annulled. Ki1e the reasons ()ith res*ect to "ection ##4)' Instances #' When the dra)er and the dra)ee are the same *erson 2' When the dra)ee is $ictitious *erson or a *erson not ha1ing ca*acit+ to contract' ,' When the dra)er is the *erson to )ho the instrument is *resented $or *a+ment 4' Where the dra)er has no right to e-*ect or require that the dra)ee or acce*tor )ill honor the instrument .' Where the dra)er has countermanded *a+ment Reasons /he dra)er alread+ (no)s o$ the dishonor and ob1iousl+ notice to him is su*er$luous' "ame )ith #

/he dra)er has (no)ledge o$ the dishonor since he is the one )ho dishonored the instrument' 0b1iousl+, (a*ag e-*ected na ng dra)er na )ala si+ang account sa dra)ee:ban(, hindi si+a entitled to notice o$ dishonor' ;lam na ng dra)er that the instrument )ill be dishonored, and he orders the dra)ee not to *a+ (sto* *a+ment order)' E-am*le, (a*ag na)ala
&)

hanamichi:law

ang chec(' /he dra)er )ill sa+, )ag mo muna ba+aran (asi na)ala (o ang chec('

What are the instances )here a notice is not required to be gi1en to the &%204"E4?

"ection ##.: #' When the dra)ee is a $ictitious *erson or a *erson not ha1ing the ca*acit+ to contract, and the indorser )as a)are o$ the $act at the time he indorsed the instrument' 2' When the indorser is the *erson to )hom the instrument is *resented $or *a+ment ,' When the instrument )as made or acce*ted $or his accommodation' Instances #' When the dra)ee is a $ictitious *erson or a *erson not ha1ing the ca*acit+ to contract, and the indorser )as a)are o$ the $act at the time he indorsed the instrument' 2' When the indorser is the *erson to )hom the instrument is *resented $or *a+ment ,' When the instrument )as made or acce*ted $or his accommodation' Reasons ;lam na ng dra)er na ang dra)ee do not ha1e the ca*acit+ to contract or $ictitious ang dra)ee'

Ki1e the reasons ()ith res*ect to "ection ##.)'

"i+a (indorser) din ang tatangga* ng *a+ment' Hindi naman ni+a *)edeng big+an ng notice ang sarili ni+a, hehehehe' He is the accommodated *art+, (a+a si+a ang *rinci*al debtor' %o need to gi1e him a notice'

What is the e$$ect o$ the notice o$ dishonor b+ non:acce*tance i$ it is gi1en to subsequent *arties?

"ection ##F: When a bill is dishonored b+ non:acce*tance, an immediate right o$ recourse against all secondar+ *arties accrues to the holder and no *resentment $or *a+ment is necessar+'
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hanamichi:law

!aano (ung tinangga* ng dra)ee? Ho)e1er, (a*ag tinangga* ng dra)ee ang bill a$ter it has been dishonoredB the holder must *resent the bill $or *a+ment u*on maturit+' !aano (ung di bina+aran ng dra)ee? /he holder must gi1e notice to the dra)er and the indorsers (asi $ailure to do so )ill discharge them $rom liabilit+' What )ill ha**en i$ there is an omission to gi1e notice o$ non:acce*tance? E-em*li$+' &t has been said earlier na (a*ag di nabig+an ng notice )ithin the time *rescribed, the dra)er or the indorsers are discharged' !E40, omission to gi1e notice does not *reGudice the right o$ a *art+ )ho is a holder in due course' EJ;M!LE: 4 dre) a bill against W in $a1or o$ !' %ung i*inresent ni ! (a+ W ang bill, W re$used to acce*t it' Ia*ag ! $ails to gi1e notice o$ dishonor b+ non: acce*tance to 4 )ithin the time *rescribed, )ill discharge 4 $rom liabilit+' !ero (ung i*inasa ni ! ang bill (a+ ; (be$ore maturit+), ; cannot be *reGudiced (ahit na hindi nabig+an ng notice si 4 (asi HE &" ; H0L2E4 &% 2 E >0 4"E' &n e$$ect, *)ede *a nga ni+ang habulin both si ! and 4 $or thei secondar+ liabilit+' When *rotest need not be made? "ection ##8: - - - *rotest is not required e-ce*t in the case o$ foreign bills o$ e-change' &n summar+, )hat are the instances )here notice o$ dishonor is not necessar+ to charge *ersons secondaril+ liable? #' 2' ,' 4' When notice is )ai1ed ("ection #09) When *rotest is )ai1ed ("ection ###) When notice is dis*ensed )ith ("ection ##2) When the subGect is the 24;WE4 himsel$ ("ection ##4) .' When the subGect is the &%204"E4 himsel$ ("ection ##.) F' Where due notice o$ dishonor b+ non:acce*tance has been gi1en (##F) 7' When the *art+ in1ol1ed is a holder in due course, )ithout notice o$ dishonor b+ non:acce*tance,
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hanamichi:law

subsequent to the omission to gi1e notice ("ection ##7) Ho) ma+ an instrument be discharged? Mnemonics: !;&0H "ection ##9: #' 3+ *a+ment in due course b+ or on behal$ o$ the principal %ebtor 2' 3+ *a+ment in due course b+ the *art+ accommo%ate%, )here the instrument is made or acce*ted $or his accommodation ,' 3+ the intentional cancellation thereo$ b+ the holder 4' 3+ an+ ot er act )hich )ill discharge a sim*le contract $or the *a+ment o$ mone+ .' When the *rinci*al debtor becomes the ol%er o$ the instrument at or a$ter maturit+ in his o)n right' "hort 1ersion ($or memori<ation): #' 2' ,' 4' .' !a+ment b+ *rinci*al debtor !a+ment b+ accommodated *art+ &ntentional cancellation i$ instrument b+ holder ;n+ act )hich discharges a contract 4eacquisition b+ *rinci*al debtor in his o)n right'

%ote: While the 1arious causes o$ discharging a sim*le contract such as *a+ment, condonation, etc' )ill o*erate to discharge the instrument as bet)een the immediate *arties, the+ )ill %0/ in the hands o$ a H0L2E4 &% 2 E >0 4"E' What is discharge o$ an instrument? &t is the release o$ all *arties, )hether *rimar+ or secondar+, $rom the obligation on the instrument' %0/E: &t renders the instrument non:negotiable' When ma+ a *ersons secondaril+ liable on the instrument be discharged? "ection #20: #' 3+ an+ act )hich discharges the instrument 2' 3+ the intentional cancellation o$ his signature b+ the holder ,' 3+ the discharge o$ a *rior *art+ 4' 3+ a 1alid tender or *a+ment made b+ a *rior *art+ .' 3+ a release o$ the *rinci*al debtor unless the holderLs right o$ recourse against the *art+ secondaril+ liable is e-*ressl+ reser1ed F' 3+ an+ agreement binding u*on the holder to e-tend
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hanamichi:law

the time o$ *a+ment or to *ost*one the holderLs right to en$orce the instrument unless made )ith the assent o$ the *art+ secondaril+ liable or unless the right o$ recourse against such *art+ is e-*ressl+ reser1ed' &n summar+: #' ;n+ act )hich discharges the instrument 2' &ntentional cancellation o$ signature ,' 2ischarge o$ *rior *art+ b+ act o$ holder 4' @alid tender o$ *a+ment .' 4elease o$ the *rinci*al debtor b+ act o$ holder F' E-tension o$ time o$ *a+ment Ma+ a *art+ reser1e his right o$ recourse against a subsequent *art+? ?es, but it must be an express (not im*lied) reser1ation' =or e-am*le: M (ma(er) E ! (*a+ee) E indorsed to ; E 3 E > (*resent holder)' > releases M E automaticall+, all subsequent *arties are discharged' !ero (ung > released M, but e-*ressl+ reser1ed his right against !, ; and 3, the+ are not discharged' !ero, ang e$$ect ng reser1ation ni > a+ im*lied reser1ation ng mga subsequent *arties o$ their right o$ against the !4&%>&!;L 2E3/04' Ia+a, sina !, ;, 3 *)ede ding i:held liable si M' What are the rights o$ the *art+ )ho discharges instrument? "ection #2#: Where the instrument is *aid b+ a *art+ secondaril+ liable thereon, it is not dischargedB but the *art+ so *a+ing it is remitted to his $ormer rights as regard all *rior *arties, and he may stri#e out is own an% all subse9uent in%orsements an% again negotiate t e instrument, e-ce*t: #' Where it is *a+able to the order o$ a third *erson and has been *aid b+ the dra)erB and 2' Where it )as made or acce*ted $or accommodation and has been *aid b+ the *art+ accommodated'

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hanamichi:law

What is the meaning o$ the $irst *art o$ "ection #2#: 5Where the instrument is *aid b+ a *art+ secondaril+ liable thereon, it is not discharged - - -6?

!a+ment at or a$ter maturit+ b+ a *art+ secon%arily liable does not discharge the instrument' &t onl+ cancels his o)n liabilit+ and that o$ *arties subsequent to him' E-am*le: 4 is a dra)er o$ a bill addressed to W, the dra)ee, and *a+able to the order o$ !' /he bill is acce*ted b+ W and indorsed b+ !, ;, 3 and >' 4E !E;E3E> &$ ; *a+s the bill, the instrument is not discharged, but it discharges H&M, 3 and >, (asi +ung dala)a are )hom he is *ersonall+ liable )ith'

What is the meaning o$ the this *art ("ection#2#): but the *art+ so *a+ing it is remitted to his $ormer rights as regard all *rior *arties, and he may stri#e out is own an% all subse9uent in%orsements an% again negotiate t e instrument, e-ce*t: #' Where it is *a+able to the order o$ a third *erson and has been *aid b+ the dra)erB and 2' Where it )as made or acce*ted $or accommodation and has been *aid b+ the *art+ accommodated? What are the e$$ects i$ the holder renounces the instrument?

3ased on the abo1e e-am*le: ; is remitted (released $rom) to his $ormer rights as regards all *rior *arties na sina ! and 4, and *)ede ni+ang istri(e:out +ung indorsement ni+a (ina 3 and > and *)ede ni+a i: 4E%EK0/&;/E ang instrument ((asi si+a ang nagba+ad)' !ero (ung si 4 ang nagba+ad ng instrument, hindi allo)ed +ung *re1ious statement (asi the e-ce*tions )ill a**l+ (ung si+a ang 24;WE4 and ;>>0MM02;/E2 !;4/? (Eh di ba sa e-am*le, 4 is the dra)er? Ia+a di *)ede)'

"ection #22: /he holder ma+ expressl+ renounce his rights against an+ *art+ to the instrument be$ore, at, or a$ter its maturit+' ;n absolute an% uncon%itional renunciation o$ his rights against the *rinci*al debtor made at or a$ter the maturit+ o$ the instrument discharges the instrument' 3ut a renunciation %oes not affect t e rig ts of a ol%er in %ue course wit out notice' ; renunciation must be in writing unless the instrument is deli1ered u* to the *erson *rimaril+ liable thereon'
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Ki1e e-am*le o$ this: 3ut a renunciation %oes not affect t e rig ts of a ol%er in %ue course wit out notice'

ME!E;E3E>E2 "i 2 ang *resent holder' 2 renounces his right against M, automaticall+, discharged ang mga (asunod na *arties: M, !, ;, 3, > ME!E;E3E>E2::::E &$ 2 negotiates the instrument to E, a holder in due course )ithout notice, E can still en$orce the instrument'

When ma+ an instrument be renounced?

&n $a1or o$ secondar+ *art+ E 3E=04E, 2 4&%K, ;=/E4 maturit+ &n $a1or o$ *rinci*al debtor E 2 4&%K and ;=/E4 maturit+' 4enunciation must be made unconditionall+ and absolutel+' 4enunciation is a *ersonal de$ense'

What are other things that should be remembered in "ection #22?

What is the rule on cancellations i$ it is cancelled or made unintentionall+? Who has the burden o$ *roo$?

"ection #2,: ; cancellation made unintentionall+ or under a mista(e or )ithout the authorit+ o$ the holder, is i noperati2e but )here an instrument or an+ signature thereon a**ears to ha1e been cancelled, the bur%en of proof lies on the *art+ )ho alleges that the cancellation )as made unintentionall+ or under a mista(e or )ithout authorit+' &%0!E4;/&@E (a*ag: a' Made unintentionall+ b' 3+ mista(e or through $raud c' Without authorit+

What is the e$$ect o$ alteration?

"ection #24: Where a negotiable instrument is materiall+ altered )ithout the assent o$ all *arties liable thereon, it is a2oi%e%, e-ce*t as against a *art+ )ho has himsel$ made, authori<ed, or assented to the alteration and subsequent indorsers'

)!

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3ut )hen an instrument has been materially altere% and is in the hands o$ a holder in due course not a *art+ to the alteration, he ma+ en$orce *a+ment thereo$ according to its original tenor' What is the e$$ect i$ alterations are done b+: : /he *art+Pholder? Kenerall+, the e$$ect o$ material alteration b+ the H0L2E4 )ill discharge the instrument and all *rior *arties' !ero %0/ discharged ang: #' *art+ )ho has himsel$ made 2' *art+ )ho authori<ed, or assented to the alteration ,' indorsers )ho indorsed subsequent to the alteration E-am*le: M ma(es a *romissor+ note $or ,,000'00 *a+able to ! or order' ! negotiates it to ;' ; indorsed it to 3 $or 8,000'00 *ero nag*aalam si+a (a+ !' 3 indorsed it to >, then to 2' Halimba)a, 2 is not a holder in due course' "ince di si+a holder in due course, hindi si+a *)edeng maningil (a+ M, (ahit *a ,,000 (original tenor) ang sisingilin ni+a' Ia+ ; si+a *)edeng maningil ng 8,000 (asi he is the *art+ )ho made the alteration' !)ede ring maningil si 2 (a+ ! (asi he authori<ed or assented to the alteration' !ati na rin sina 3 and > (asi sila ang mga subsequent indorsers' What is the e$$ect i$ alterations are done b+ Ia*ag ang alteration a+ done b+ a stranger a "!0L&;/&0% ang ta)ag' : "tranger? What is the right o$ the holder in due course against *arties )ho made the alteration? !)ede si+ang maningil sa ma(er (M) in its original tenor and against *rior *arties in its altered tenor' E-am*le: !)edeng maningil si 2 (a+ M *ero ,,000'00 lang' !)ede rin si+ang maningil (ina !, ;, 3, > ng 8,000'00 i$ M dishonored the note'
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What constitutes a material alteration?

"ection #2.: ;n+ alteration )hich changes: #' 2' ,' 4' .' /he dateB /he sum *a+able, either $or *rinci*al or interestB /he time or *lace o$ *a+ment: /he number or the relations o$ the *artiesB /he medium or currenc+ in )hich *a+ment is to be madeB F' 0r )hich adds a *lace o$ *a+ment )here no *lace o$ *a+ment is s*eci$ied, or an+ other change or addition )hich alters the e$$ect o$ the instrument in an+ res*ect, is a material alteration'

2e$ine 3ill o$ E-change'

"ection #2F: ; bill o$ e-change is an unconditional order in )riting addressed b+ one *erson to another, signed b+ the *erson gi1ing it, requiring the *erson to )hom it is addressed to *a+ on demand or at a $i-ed or determinable $uture time a sum certain in mone+ to order or to bearer'

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2istinguish 3ill o$ E-change $rom !romissor+ %ote' "EE !;KE #'

Bill of Exc ange Promissory Note #' /he instrument must #' /he instrument must contain an contain an 5unconditional *romise6 5unconditional order6 to *a+' made b+ one *erson to another to *a+ it' 2' !arties (,): dra)er, dra)ee, *a+ee or bearer ,' /he issuer: dra)er is onl+ secondaril+ liable 4' ; bill dra)n *a+able to the dra)erCs o)n order is com*lete )ithout indorsement, *ro1ided it has been acce*ted b+ the dra)ee' .' !resentment is necessar+ F' ; bill *a+able on demand must be *resented $or *a+ment )ithin reasonable time from its last negotiation 2' !arties (2): Ma(er and *a+ee or bearer ,' /he issuer: ma(er is *rimaril+ liable 4' &t is not com*lete until indorsed b+ the ma(er'

.' !resentment is not necessar+ F' ; note *a+able on demand must be *resented $or *a+ment )ithin reasonable time from its issue(

When is *romissor+ note treated li(e a 30E? When is 30E treated li(e a *romissor+ note?

Ia*ag na:indorse' Ia*ag it is acce*ted' Ia+a, certi$ied chec( is *racticall+ a *romissor+ note (asi the ban( is the ma(er'

What are the di$$erent t+*es o$ bills o$ e-change?

#' 2ra$t 2' /rade ;cce*tance ,' 3an(erLs ;cce*tance 4' >hec( 6raft 0 /his is the common term o$ a bill o$ e-change and used s+non+mousl+' ; ban( dra$t is a bill o$ e-change dra)n b+ a ban(,
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2e$ine dra$t, /rade ;cce*tance and 3an(erCs ;cce*tance?

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issued at the solicitation o$ a stranger )ho *urchases and *a+s there$or' 3ra%e acceptance 0 ; dra$t or bill o$ e-change dra)n b+ the seller on the bu+er o$ goods sold and acce*ted b+ such *urchaser o$ goods' &t is *a+able to order and )ith certain maturit+' Ban#er=s acceptance 0 ; dra$t or bill o$ e-change o$ )hich the acce*tor is a ban( or ban(er engaged generall+ in the business o$ granting ban(erLs acce*tance credit' >hie$l+ used $or international trade $inancing' ;re bills considered 5assignment o$ $unds6 i$ it is in the hands o$ the dra)ee? "ection #27: ; bill o$ itsel$ does not o*erate as an assignment o$ the $unds in the hands o$ the dra)ee a1ailable $or the *a+ment thereo$, and the dra)ee is not liable on the bill unless and until he acce*ts the same' R"ection #27S What are the statuses o$ the dra)ee: a' *rior to acce*tance or b' *a+mentPa$ter *a+ment? BE8+RE A>>EP3AN>E1 #' 3 e %rawee is a mere stranger to t e bill (unless he acce*ts the same)' Magiging ;>>E!/04 ang dra)ee (a*ag na:acce*t na ni+a' 2' 6rawee is not boun% to accept( (/a(e note na (a*ag hindi *a na:acce*t ang bill, 042E4 *a si+a)' ,' 6rawee is not liable to a ol%er in %ue course' ((asi hindi *a ni+a na:acce*t ang bill' Hindi *)edeng maningil ang holder in due course sa (an+a, sa dra)e and indorsers lang si+a *)edeng maningil, not sa dra)ee)' PA?MEN3'A83ER PA?MEN31 %o contractual relation created bet)een a dra)ee:ban( and the *a+ee' Ia+a (a*ag nadishonor ang chec( the *a+ee cannot sue the ban( *ero *)ede ni+ang issue ang dra)er $or lac( o$ *ri1it+' Ma+ a bill be addressed to more than one dra)ee? "ection #28: ?es' ; bill ma+ be addressed to t)o or more dra)ees Gointl+, )hether the+ are *artners or notB but not to two
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or more %rawees in t e alternati2e or in succession ' E-am*le: ;LL0WE2: 5/o ; and 36 5/o ;, 3 and >6 %0/ ;LL0WE2: 5/o ; or 36 5/o ;, and his absence, to 36 0bGection is due to: di$$icult+ in determining the e-act date o$ dishonor' What is an &nland 3ill? What is a =oreign 3ill? "ection #29: ;n inland bill o$ e-change is a bill )hich is, or on its $ace *ur*orts to be, both dra)n and *a+able )ithin the !hili**ines' ;n+ other bill is a $oreign bill' nless the contrar+ a**ears on the $ace o$ the bill, the holder ma+ treat it as an inland bill' &denti$+ instances )here a bill can be treated as *romissor+ note' "ection #,0: #' Where in a bill the dra)er and dra)ee are the same *erson 2' Where the dra)ee is a $ictitious *erson ,' Where the dra)ee is a *erson not ha1ing ca*acit+ to contract, i'e', minor What is a re$eree? "ection #,#: /he dra)er o$ a bill and an+ indorser ma+ insert thereon the name o$ a *erson to )hom the holder ma+ resort in case o$ needB that is to sa+, in case the bill is dishonored b+ non:acce*tance or non:*a+ment' "uch *erson is called a re$eree in case o$ need' &t is in the o*tion o$ the holder to resort to the re$eree in case o$ dishonor' &s the re$eree liable to the holder in case o$ dishonor? /he re$eree is not bound to *a+ the holder but he ma+ be made liable to the *art+ )ho named him' E-am*le:

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!a+ to ! or order ! #,000'00 &n case o$ need, a**l+ to J "gd' 4 /o W &$ the bill is dishonored b+ W in the hands o$ !, ! ma+ a**l+ it to J $or *a+ment' !E40, he must $irst ha1e the bill *rotested' &$ J *a+s it, J ma+ reco1er $rom 4 (the one )ho named him as re$eree)' What is ;cce*tance? "ection #,2: /he acce*tance o$ a bill is the signi$ication b+ the dra)ee o$ his assent to the order o$ the dra)er' /;IE %0/E: ;>>E!/;%>E ;!!L&E" 0%L? /0 3&LL" 0= EJ>H;%KE' What are the $ormal requisites o$ acce*tance? /he acce*tance must be in )riting and signed b+ the dra)ee' &t must not e-*ress that the dra)ee )ill *er$orm his *romise b+ an+ other means than the *a+ment o$ mone+' #' &n )riting 2' "igned b+ the dra)ee ,' E-*ress a *romise to *a+ mone+ 4' 2eli1ered to the holder ! &n a certain sense it ma+ be said that there can be no acce*tance o$ a chec( )hich is a demand instrument' #' /he obGect o$ acce*tance is to bind the dra)ee and ma(e him an actual *art+ liable to the instrument' E$$ects: 2' 3+ acce*ting a bill, the dra)ee admits e1er+thing essential to its 1alidit+' (Ia+a, (ahit na )ithout consideration cannot be sho)n in a suit)' ,' ntil the bill has been acce*ted, the dra)er is the
),

Ma+ a chec( be acce*ted? What is the obGecti1e and e$$ect o$ acce*tance?

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*rinci*al debtor' *on acce*tance, the bill, in e$$ect becomes a note and the dra)ee becomes *rimaril+ liable' Ho) to e-ecute acce*tance? /he acce*tance must be communicated or deli1ered to the holder' /he holder o$ a bill *resenting the same $or acce*tance ma+ require that the acce*tance be )ritten on the bill, and, i$ such request is re$used, ma+ treat the bill as dishonored' R"ection #,,S Where an acce*tance is )ritten on a *a*er other than the bill itsel$, it does not bind the acce*tor except in )a or o) a person to whom it is shown and who, on the )aith thereo), recei es the !ill )or alue' R"ection #,4S Ma+ an acce*tance be made through a telegram? What does "ection #,4 *ro1ides? Ho) about "ection #,.? ?es, as long as it states a *romise to *a+' "ection #,4 *ro1ides that an e-trinsic acce*tance (acce*tance b+ se*arate instrument) must be in )riting and is good onl+ to *erson to WH0M &/ &" "H0W%' "ection #,. *ro1ides that a *romise to acce*t is good to an+ *erson )ho !0% /HE =;&/H /HE4E0= 4E>E&@E" /HE 3&LL =04 @;L E' &s *romise to acce*t equi1alent to acce*tance? "ection #,.: ?es' ;n unconditional *romise in )riting to acce*t a bill be$ore it is dra)n is deemed an actual acce*tance in $a1or o$ e1er+ *erson )ho, u*on the $aith thereo$, recei1es the bill $or 1alue' Example1 3ago *a ma*alabas ang bill, nagsulat muna si ! to W' &*inaalam muna ni+a (ung tatangga*in ba ni+a ang dra$t ni 4 $or !h*#,000 dahil +un ang ibaba+ad ni+a sa bibilhin ni 4 na goods $rom !' "abi ni !, ?E"' Ia+a ! sells the goods to 4' W is liable to ! as acce*tor (asi +ung *ag:?es ni ! is deemed an actual acce*tance'
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!ero (ung nai:$or)ard ni ! (a+ ; ang bill (and ; neither sa) or (ne) the *romise), W )ill not be liable to ;' What is the time allo)ed $or a dra)ee to acce*t an instrument? "ection #,F: /he dra)ee is allo)ed twenty0four ours 4"&5 a$ter *resentment in )hich to decide )hether or not he )ill acce*t the billB the acce*tance, i$ gi1en, dates as o$ the da+ o$ *resentation' What is the liabilit+ o$ the dra)ee i$ he retrains or destro+s the bill ()ith res*ect to acce*tance)? "ection #,7: Where a dra)ee to )hom a bill is deli1ered $or acce*tance destro+s the same, or re$uses )ithin t)ent+: $our hours a$ter such deli1er+ or )ithin such other *eriod as the holder ma+ allo), to return the bill acce*ted or non:acce*ted to the holder, e will be %eeme% to a2e accepte% t e same' "ection #,8: ; bill may be accepte% be$ore it has been signed b+ the dra)er, or )hile other)ise incom*lete, or )hen it is o1erdue, or a$ter it has been dishonored b+ a *re1ious re$usal to acce*t, or b+ non *a+ment' 3ut )hen a bill *a+able a$ter sight is dishonored b+ non: acce*tance and the dra)ee subsequentl+ acce*ts it, the holder, in the absence o$ an+ di$$erent agreement, is entitled to ha1e the bill acce*ted as o$ the date o$ the $irst *resentment' What are the di$$erent (inds o$ acce*tance? "ection #,9: ;n acce*tance is either general or quali$ied' #' ; general acceptance assents )ithout quali$ication to the order o$ the dra)er' 2' ; 9ualifie% acceptance in e-*ress terms 1aries the e$$ect o$ the bill as dra)n' What constitutes a general acce*tance? "ection #40: ;n acce*tance to *a+ at a *articular *lace is a general acce*tance unless it e-*ressl+ states that the bill is to be
).

What are the rules on the acce*tance o$ incom*lete bill?

hanamichi:law

*aid there onl+ and not else)here' What constitutes a quali$ied acce*tance? "ection #4#: ;n acce*tance is quali$ied )hich is: #' >onditionalB that is to sa+, )hich ma(es *a+ment b+ the acce*tor de*endent on the $ul$illment o$ a condition therein stated E-am*le: 54ecei1ed $rom ; >om*an+ an order $rom ? to *a+ his note as soon as procee%s of sale of ar%ware is a2ailable )hich & )ill do'6 2' !artialB that is to sa+, an acce*tance to *a+ *art onl+ o$ the amount $or )hich the bill is dra)n E-am*le: ; bill o$ !#,000,00 is acce*ted thus: 5;cce*ted $or !700'00 onl+' ,' LocalB that is to sa+, an acce*tance to *a+ onl+ at a *articular *lace 4' Auali$ied as to time E-am*le: ; bill *a+able ,0 da+s a$ter date is acce*ted thus: 5;cce*ted F0 da+s $rom date6 .' /he acce*tance o$ some, one or more o$ the dra)ees but not o$ all' E-am*le: ; bill addressed to J, ?, and N is acce*ted b+ J and ? onl+' What are the rights o$ the *arties in quali$ied acce*tance? "ection #42 #' /he holder ma+ re$use to ta(e a quali$ied acce*tance and i$ he does not obtain an unquali$ied acce*tance, he ma+ treat the bill as dishonored b+ non:acce*tance' 2' Where a quali$ied acce*tance is ta(en, the dra)er and indorsers are discharged $rom liabilit+ on the bill unless the+ ha1e e-*ressl+ or im*liedl+ authori<ed the holder to ta(e a quali$ied acce*tance, or subsequentl+ assent thereto'
*/

hanamichi:law

,' When the dra)er or an indorser recei1es notice o$ a quali$ied acce*tance, he must, )ithin a reasonable time, e-*ress his dissent to the holder or he )ill be deemed to ha1e assented thereto' When *resentment $or acce*tance must be made? (When *resentment $or acce*tance is necessar+?) "ection #4,: !resentment $or acce*tance must be made: #' Where the bill is payable after sig t, or in an+ other case, )here *resentment $or acce*tance is necessar+ in order to $i- the maturit+ o$ the instrumentB or 2' Where the bill expressly stipulates that it shall be *resented $or acce*tanceB or ,' Where the bill is %rawn payable elsew ere than at the residence or *lace o$ business o$ the dra)ee' &n no other case is *resentment $or acce*tance necessar+ in order to render an+ *art+ to the bill liable' What is presentment for acceptance? Ki1e e-am*le o$ "ection #4,' !roduction or e-hibition o$ a bill o$ e-change to the dra)ee $or his acce*tance or *a+ment' #' Bills payable after sig t E ; bill *a+able ,0 da+s a$ter sight' Ia+a i$ +ou sa) (a$ter *resentment din) the bill on ;ugust #, 2008, +ou )ill *a+ the bill, ,0 da+s therea$ter' 2' Bill wit express stipulation E sel$:e-*lanator+, si+em*re (ung ano +ung na(asulat sa $ace ng bill,+un ang susundin' ,' Bill payable elsew ere E ; bill *a+able to ! at !%3 Manila, dra)n against W, residing and ha1ing his *lace o$ business in A>' When is *resentment $or acce*tance not necessar+? 3a#e note na (a*ag *resentment $or acce*tance it also includes !4E"E%/ME%/ =04 !;?ME%/' !resentment $or acce*tance is not necessar+ (a*ag it does not $all under "ection #4,' !ero (ailangang ma+ *resentment $or *a+ment in order to charge the dra)er or indorsers'

*!

hanamichi:law

2oes re$usal o$ the dra)ee constitutes dishonor?

?es: i$ the dra)ee re$uses to acce*t, the bill be deemed dishonored b+ non:acce*tance and the holder then must *roceed in the same manner as i$ the bill required acce*tance' "ection #44: E-ce*t as herein other)ise *ro1ided, the holder o$ a bill )hich is required b+ the ne-t *receding section to be *resented $or acce*tance must either *resent it $or acce*tance or negotiate it )ithin a reasonable time' If e fails to %o so: t e %rawer an% all in%orsers are %isc arge%(

What is the e$$ect o$ $ailure to *resent a bill $or *a+ment or acce*tance?

Ho) is *resentment made?

"ection #4.: !resentment $or acce*tance must be made b+ or on behal$ o$ the holder at a reasonable hour, on a business da+ and be$ore the bill is o1erdue, to the dra)ee or some *erson authori<ed to acce*t or re$use acce*tance on his behal$B and: #' Where a bill is addressed to t)o or more dra)ees )ho are not *artners, *resentment must be made to them all unless one has authorit+ to acce*t or re$use acce*tance $or all, in )hich case *resentment ma+ be made to him onl+B 2' Where the dra)ee is dead, *resentment ma+ be made to his *ersonal re*resentati1eB ,' Where the dra)ee has been adGudged a ban(ru*t or an insol1ent or has made an assignment $or the bene$it o$ creditors, *resentment ma+ be made to him or to his trustee or assignee'

What is the rule i$ the time $or *resentment is insu$$icient?

"ection #47: Where the holder o$ a bill dra)n *a+able else)here than at the *lace o$ business or the residence o$ the dra)ee has no time, )ith the e-ercise o$ reasonable diligence, to *resent the bill $or acce*tance be$ore *resenting it $or *a+ment on the da+ that it $alls due, the dela+ caused b+ *resenting the bill $or acce*tance be$ore *resenting it $or *a+ment is excuse% an% %oes not %isc arge t e %rawers an% in%orsers(

What are the instances )here

"ection #48:
*"

hanamichi:law

*resentment ma+ be e-cused? !resentment $or acce*tance is e-cused and a bill ma+ be treated as dishonored b+ non:acce*tance in either o$ the $ollo)ing cases: #' Where the dra)ee is dead, or has absconded, or is a $ictitious *erson or a *erson not ha1ing ca*acit+ to contract b+ bill' 2' Where, a$ter the e-ercise o$ reasonable diligence, *resentment can not be made' ,' Where, although *resentment has been irregular, acce*tance has been re$used on some other ground' When is a bill considered dishonored b+ non:acce*tance? "ection #49: ; bill is dishonored b+ non:acce*tance: 7' When it is dul+ *resented $or acce*tance and such an acce*tance as is *rescribed b+ this ;ct is re$used or can not be obtainedB or 8' When *resentment $or acce*tance is e-cused and the bill is not acce*ted' What ha**ens i$ the bill is not *resented )ithin the *rescribed time? What is the dut+ o$ holder i$ the bill is not acce*ted "ection #.0: Where a bill is dul+ *resented $or acce*tance and is not acce*ted )ithin the *rescribed time, t e person presenting it must treat t e bill as %is onore% by non0acceptance or he loses t e rig t of recourse against t e %rawer an% in%orsers'

What are the rights o$ holder i$ the bill is not acce*ted?

"ection #.#: When a bill is dishonored b+ non:acce*tance, an imme%iate rig t of recourse against t e %rawer an% in%orsers accrues to t e ol%er an% no presentment for payment is necessary'

2e$ine !rotest'

&t is a $ormal statement in )riting ma%e by a notary under his seal o$ o$$ice, at the request o$ the holder o$ a bill, in )hich it is declared that the same )as on a certain da+ *resented $or *a+ment (or acce*tance, as the case ma+ be), and such *a+ment )as re$used, )hereu*on the notar+ *rotests against all *arties to such instrument, and
*$

hanamichi:law

declares that the+ )ill be held res*onsible $or all loss or damage arising $rom its dishonor' What instances )here a *rotest is required? "ection #.2: #' 2' Where a $oreign bill a**earing on its $ace to be such is dishonored b+ non:acce*tance' Where a $oreign bill )hich has not *re1iousl+ been dishonored $or non:acce*tance is dishonored b+ non:*a+ment'

Wh+ *rotest is necessar+? What are the instances )here *rotest is not necessar+

=or securit+, (asi, i$ the bill is not *rotested, the dra)er and indorsers )ill be discharged' "ection #.2: Where a bill does not a**ear on its $ace to be a $oreign bill, *rotest thereo$ in case o$ dishonor is unnecessar+' (0= >0 4"E, (a*ag hindi si+a $oreign bill)'

!ero )hat are the e-ce*tions? What are the instances )here *rotest is necessar+ e1en i$ bill is not a $oreign bill?

#' Where the bill has been accepte% for onor, it must be *rotested $or non:*a+ment be$ore it is *resented $or *a+ment to the acce*tor $or honor' 2' Where the bill contains a referee in case of nee% , it must be *rotested $or non:*a+ment be$ore it is *resented $or *a+ment to the re$eree in case o$ need' "ection #.,: /he *rotest must be anne-ed to the bill or must contain a co*+ thereo$, and must be under the hand and seal o$ the notar+ ma(ing it and must s*eci$+: #' /he time and *lace o$ *resentmentB 2' /he $act that *resentment )as made and the manner thereo$B ,' /he cause or reason $or *rotesting the billB 4' /he demand made and the ans)er gi1en, i$ an+, or the $act that the dra)ee or acce*tor could not be $ound'

Ho) is *rotest made?

Who can e-ecute a *rotest?

"ection #.4: !rotest ma+ be made b+:

*&

hanamichi:law

#' ; notar+ *ublicB or 2' 3+ an+ res*ectable resident o$ the *lace )here the bill is dishonored, in the *resence o$ t)o or more credible )itnesses' What are the ste*s in ma(ing a *rotest? #' ;$ter the instrument is dishonored b+ non:acce*tance or non:*a+ment, as the case ma+ be, the holder ta(es it to a notar+ *ublicB 2' /he notar+ *ublic )ill *resent the instrument (again) to the *erson )ho dishonored it, and demands its acce*tance $or *a+mentB ,' &$ the acce*tance or *a+ment is re$used, the notar+ *ublic )ill ma(e a minute o$ dishonor on the instrument or on his notarial register (called %0/&%K)' 4' /he notar+ *ublic )ill dra$t a certi$ication o$ the $act o$ the *rotest and a$$i-es his notarial sealB .' /he notice o$ dishonor is sent to all *arties to the instrument' #' When a bill is *rotested, such *rotest must be made on the da+ o$ its dishonor unless dela+ is e-cused as herein *ro1ided' 2' When a bill has been dul+ noted, the *rotest ma+ be subsequentl+ e-tended as o$ the date o$ the noting' R7ection !))S ,' 52ul+ noted6 is )hen the notar+ *ublic Gots do)n a note on the bill, or *a*er a$$i-ed thereto, or in his registr+ boo(, consisting o$ his initials or signature and those matters required to be stated in "ection #.,' "ection #.7: ; bill )hich has been *rotested $or non:acce*tance ma+ be subsequentl+ *rotested $or non:*a+ment' What is the rule i$ the acce*tor has been declared insol1ent (in relation to *rotest)? "ection #.8: Where the acce*tor has been adGudged a ban(ru*t or an insol1ent or has made an assignment $or the bene$it o$ creditors be$ore the bill matures, the holder ma+ cause the bill to be *rotested $or better securit+ against the dra)er and indorsers' Iailan hindi na (ailangan ng *totest? "ection #.9: !rotest is dis*ensed )ith b+ an+ circumstances )hich
*)

When to e-ecute a *rotest?

Ma+ a *rotest be made both $or non: acce*tance and non:*a+ment?

hanamichi:law

)ould dis*ense )ith notice o$ dishonor' 2ela+ in noting or *rotesting is e-cused )hen dela+ is caused b+ circumstances be+ond the control o$ the holder and not im*utable to his de$ault, misconduct, or negligence' When the cause o$ dela+ ceases to o*erate, the bill must be noted or *rotested )ith reasonable diligence' &% "H04/: Ia*ag e-cusable ang dela+' What )ill ha**en to the *rotest i$ the bill is lost? "ection #F0: When a bill is lost or destro+ed or is )rongl+ detained $rom the *erson entitled to hold it, protest may be ma%e on a copy or written particulars t ereof( 2istinguish %otice o$ 2ishonor and !rotest' Protest ;**lies to $oreign bill ;l)a+s in )riting !rotest includes *resentment, notice o$ dishonor and all the ste*s accom*an+ing dishonor Made b+ a notar+ *ublic or a res*ectable resident in the *resence o$ )itnesses Made at the *lace )here the bill is dishonored' Made on the da+ o$ dishonor When ma+ a bill be acce*ted $or honor? "ection #F#: When a bill o$ e-change has been *rotested $or dishonor b+ non:acce*tance or *rotested $or better securit+ and is not o1erdue, an+ *erson not being a *art+ alread+ liable thereon ma+, )ith the consent o$ the holder, inter1ene and acce*t the bill su*ra *rotest $or the honor o$ an+ *art+ liable thereon or $or the honor o$ the *erson $or
**

Notice of 6is onor ;**lies to all negotiable instruments Ma+ be oral or )ritten %otice onl+

Made b+ the *art+ or his agent

!lace o$ dishonor is not necessar+ Made )ithin the times *rescribed'

hanamichi:law

)hose account the bill is dra)n' /he acce*tance $or honor ma+ be $or *art onl+ o$ the sum $or )hich the bill is dra)nB and )here there has been an acce*tance $or honor $or one *art+, there ma+ be a $urther acce*tance b+ a di$$erent *erson $or the honor o$ another *art+' What is an acce*tance $or honor? ;n underta(ing b+ a stranger to a bill a$ter *rotest $or the bene$it o$ an+ *art+ liable thereon or $or the honor or the *erson $or )hose account the bill is dra)n )hich acce*tance inures also to the bene$it o$ all *arties subsequent to the *erson $or )hose honor is acce*ted' ;L"0 I%0W% as ;>>E!/;%>E " !4; !40/E"/' What are the requisites o$ acce*tance $or honor? #' /he bill must ha1e been *rotested $or dishonor b+ non:acce*tance or $or better securit+' 2' /he acce*tor $or honor must be a *erson not a *art+ alread+ liable thereon ("/4;%KE4) ,' /he bill must not be o1erdue at the time o$ acce*tance $or honor 4' /he acce*tance $or honor must be )ith the consent o$ the holder o$ the instrument' "ection #F2: ;n acce*tance $or honor su*ra *rotest (su*ra O at an earlier *lace) a' must be in )riting b' must indicate that it is an acce*tance $or honor c' must be signed b+ the acce*tor $or honor d' must contain an e-*ress or im*lied *romise to *a+ mone+ e' the acce*ted bill must be deli1ered to the holder When is the e$$ect i$ the acce*tance $or honor does not e-*ressl+ state $or )hose honor it is made? What is the liabilit+ o$ the acce*tor $or honor? "ection #F,: - - - it is deemed to be an acce*tance $or the honor o$ the dra)er' "ection #F4: /he acce*tor $or honor is liable to the holder and to all *arties to the bill subsequent to the *art+ $or )hose honor he has acce*ted'
*,

Ho) is acce*tance $or honor su*ra *rotest made?

hanamichi:law

4 dra)s a bill against W )ith !, ;, 3, and > as successi1e indorsers' &t is $or)arded to 2, the holder' 2 *resented it to W, W dishonored it' 2 made a *rotest $or non:acce*tance' J, a stranger, )ith the consent o$ 2 acce*ted the bill $or the honor o$ 3' /here$ore: J is onl+ liable to > and 2 but not 4, W, !, ;' !ag naba+aran na ni J si 2, that is the time J )ill ha1e a right o$ recourse against 4, W, !, ; and 3' 3ut JCs right to hold W liable )ill de*end u*on )hether W is liable to 4' What are the things that the acce*tor $or honor must agree? "ection #F.: /he acce*tor $or honor, b+ such acce*tance engages that e will: on %ue presentment: pay t e bill accor%ing to t e terms of is acceptance *ro1ided a' it shall not ha1e been *aid b+ the dra)ee b' it shall ha1e been dul+ *resented $or *a+ment and *rotested $or non:*a+ment and notice o$ dishonor gi1en to him' Ho) is maturit+ calculated i$ the bill is *a+able a$ter sight is acce*ted $or honor? "ection #FF: &ts maturit+ is calculated $rom the date o$ the noting $or non:acce*tance and not $rom the date o$ the acce*tance $or honor' When to *rotest i$ the dishonored bill has been acce*ted $or honor su*ra *rotest or contains a re$eree in case o$ need? "ection #F7: &t must be *rotested $or non:*a+ment be$ore it is *resented $or *a+ment to the acce*tor $or honor or re$eree in case o$ need' "ection #F8: !resentment $or *a+ment to the acce*tor $or honor must be made as $ollo)s:
*-

Ho) is 5*resentment $or *a+ment to acce*tor $or honor made?

hanamichi:law

4' &$ it is to be *resented in the *lace )here the *rotest $or non:*a+ment )as made, it must be *resented not later than the da+ $ollo)ing its maturit+' .' &$ it is to be *resented in some other *lace than the *lace )here it )as *rotested, then it must be $or)arded )ithin the time s*eci$ied in "ection #04' When ma+ a dela+ in ma(ing *resentment be e-cused? "ection #F9: /he *ro1isions o$ "ection 8# a**l+ )here there is dela+ in ma(ing presentment to t e acceptor for onor or referee in case of nee%' ("ection 8#' -hen delay in ma/ing presentment is excused' E 2ela+ in ma(ing *resentment $or *a+ment is e-cused )hen the dela+ is caused b+ circumstances be+ond the control o$ the holder and not im*utable to his de$ault, misconduct, or negligence' When the cause o$ dela+ ceases to o*erate, *resentment must be made )ith reasonable diligence)' 2istinguish ;cce*tance $or Honor $rom 0rdinar+ ;cce*tance' Acceptance for @onor /here must be a *re1ious *rotest ;cce*tor must be a stranger >onsent o$ the holder is required ;cce*tor is secondaril+ liable /here ma+ be se1eral acce*tor $or honor $or di$$erent *arties in the bill /he bill is not discharged u*on *a+ment o$ the acce*tor $or honor What is a *a+ment $or honor? +r%inary Acceptance %ot necessar+ /he acce*tor is the dra)ee >onsent is not required ;cce*tor is *rimaril+ liable %o alternati1e or no acce*tors in succession /he bill is discharged i$ *aid b+ the acce*tor'

!a+ment made b+ a *erson (*art+ or not) a$ter it has been *rotested $or non:*a+ment, $or the bene$it o$ an+
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hanamichi:law

*art+ liable thereon or $or bene$it o$ the *erson $or )hose account it )as dra)n' ;lso called !;?ME%/ " !4; !40/E"/' %0/E: =04 3&LL" 0= EJ>H;%KE 0%L?' %ot a**lied to *romissor+ note' 2istinguish !;?ME%/ " !4; !40/E"/ $rom ;>>E!/;%>E " !4; !40/E"/ Payment 7upra Protest !rotest $or non:*a+ment Acceptance 7upra Protest !rotest $or non: acce*tance and $or better securit+ >onsent o$ the holder not required ;cce*tor is *rimaril+ liable %otarial act is not necessar+ /here ma+ be se1eral acce*tors $or honor E$$ects: "ection #F4 and #F.

>onsent o$ the holder is not required nor can the holder re$use ;cce*tor is secondaril+ liable %otarial act o$ honor is necessar+ 0nl+ one *a+er $or honor E$$ects: "ection #7. and #77 Who can ma(e a *a+ment $or honor? "ection #7#:

Where a bill has been *rotested $or non:*a+ment, any person ma+ inter1ene and *a+ it su*ra *rotest $or the honor o$ an+ *erson liable thereon or $or the honor o$ the *erson $or )hose account it )as dra)n' Ho) is *a+ment $or honor su*ra *rotest made? "ection #72: /he *a+ment $or honor su*ra *rotest, in order to o*erate as such and not as a mere 1oluntar+ *a+ment, must be atteste% by a notarial act of onor )hich ma+ be a**ended to the *rotest or $orm an e-tension to it' Where must a notarial act o$ honor begin? "ection #7,:
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hanamichi:law

What should be the content o$ the declaration o$ the *a+er $or honor?

/he notarial act o$ honor must be $ounded on a declaration made b+ the *a+er $or honor or b+ his agent in that behal$ declaring his intention to pay t e bill for onor an% for w ose onor e pays( "ection #74: Where t)o or more *ersons o$$er to *a+ a bill $or the honor o$ di$$erent *arties, t e person w ose payment will %isc arge most parties to t e bill is to be gi2en t e preference'

Who )ill be gi1en *re$erence i$ t)o or more *arties o$$er to *a+ a bill $or honor?

What is the e$$ect on subsequent *arties i$ the bill )as *aid $or honor?

"ection #7.: Where a bill has been *aid $or honor, all *arties subsequent to the *art+ $or )hose honor it is *aid are %isc arge% but the *a+er $or honor is subrogated $or, and succeeds to, both the rights and duties o$ the holder as regards the *art+ $or )hose honor he *a+s and all *arties liable to the latter'

What )ill ha**en i$ the holder re$uses to recei1e *a+ment su*ra *rotest?

"ection #7F: Where the holder o$ a bill re$uses to recei1e *a+ment su*ra *rotest, e loses is rig t of recourse against any party w o woul% a2e been %isc arge% by suc payment(

What are the rights o$ *a+er $or honor?

"ection #77: /he *a+er $or honor, on *a+ing to the holder the amount o$ the bill and the notarial e-*enses incidental to its dishonor, is entitled to recei1e both the bill itsel$ and the *rotest'

What is the e$$ect i$ the bill is dra)n in a set?

"ection #78: Where a bill is dra)n in a set, each *art o$ the set being numbered and containing a re$erence to the other *arts, the )hole o$ the *arts constitutes one bill'

What is the right o$ holders i$ di$$erent *arts o$ the instrument )ere negotiated?

"ection #79: Where t)o or more *arts o$ a set are negotiated to di$$erent holders in due course, the holder )hose title $irst
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hanamichi:law

accrues is, as bet)een such holders, the true o)ner o$ the bill' 3ut nothing in this section a$$ects the right o$ a *erson )ho, in due course, acce*ts or *a+s the *arts $irst *resented to him' Example1 &$ ! negotiates (against W) the $irst *art o$ the 3ills in "et to ; on "e*tember 20, the second *art to 3 on "e*tember 2., and the third *art to > on "e*tember ,0' ! is liable in e1er+ such *art' &$ ;, 3, > are holders in due course O ; is the true o)ner (asi si+a ang una' Halimba)a, saba+:saba+ silang *umunta (a+ W, si ; lang ang baba+aran ni W' !ero (ung mas naunang *umunta si > (a+ W, si > ang baba+aran ni W' What is the liabilit+ o$ the holder i$ he indorses t)o or more *arts o$ a set to di$$erent *ersons? "ection #80: Where the holder o$ a set indorses t)o or more *arts to di$$erent *ersons he is liable on e1er+ such *art, and e2ery in%orser subse9uent to im is liable on t e part e as imself in%orse%, as i$ such *arts )ere se*arate bills'
2 ; O #,000 (#st *art) ! 3 O #,000 (2nd *art) > O #,000 (,rd *art) E > =

In t is sample1 ! is liable $or a total o$ !,,000 (asi treated as se*arate bills' !ero (ung nai*asa na (ina 2, E, >, =, !#,000 lang ang liabilit+ ni !'

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"ection #8#: &$ ! 3E=04E negotiating the three *arts o$ the bill, *resented them $or acce*tance to W, and W )rites his acce*tance on each *art' ! negotiates it to ;, 3, and >' ;, 3 and > are deemed holders in due course' "i W na ang liable (ina ;, 3 and > $or !#,000 E;>H' 3ut i$ ! does not negotiate the three *arts, he liable $or onl+ one *art or $or !#,000'00 What is the e$$ect o$ *a+ment o$ bill b+ acce*tor o$ bills dra)n in sets? "ection #82: When the acce*tor o$ a bill dra)n in a set *a+s it )ithout requiring the *art bearing his acce*tance to be deli1ered u* to him, and the *art at maturit+ is outstanding in the hands o$ a holder in due course, he is liable to the holder thereon' What is the e$$ect i$ one *art o$ the bill in a set is discharged? 2e$ine !romissor+ %ote' E-ce*t as herein other)ise *ro1ided, )here an+ one *art o$ a bill dra)n in a set is discharged b+ *a+ment or other)ise, the )hole bill is discharged' R"ection #8,S "ection #84: ; negotiable *romissor+ note )ithin the meaning o$ this ;ct is an unconditional *romise in )riting made b+ one *erson to another, signed b+ the ma(er, engaging to *a+ on demand, or at a $i-ed or determinable $uture time, a sum certain in mone+ to order or to bearer' Where a note is dra)n to the ma(erLs o)n order, it is not com*lete until indorsed b+ him' What is a >hec( (>heque)' T T T ; chec( is a bill o$ e-change dra)n on a ban( *a+able on demand' E-ce*t as herein other)ise *ro1ided, the *ro1isions o$ this ;ct a**licable to a bill o$ e-change *a+able on demand a**l+ to a chec(' R7ection !-)S ; chec( o$ itsel$ does not o*erate as an assignment o$ an+ *art o$ the $unds to the credit o$ the dra)er )ith the ban(, and the ban(, is not liable to the holder, unless and until it acce*ts or certi$ies the chec(' ; chec( is *a+able on demand e1en )hen not so stated on its $ace' ; chec( is su**osed to be dra)n against a *re1ious
,$

T T

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de*osit o$ $unds, )hile an ordinar+ need not be dra)n against a de*osit' ; chec( need not be *resented $or acce*tance'

Ia*ag encashed na, a chec( ma+ be considered as *a+ment' &denti$+ the di$$erent (inds o$ chec(? >as ier=s c ec# : 0ne dra)n b+ the cashier o$ a ban( in the name o$ the ban( against the ban( itsel$ *a+able to a third *erson or order' ; cashierLs chec( is a *rimar+ obligation o$ the issuing ban( and acce*ted in ad1ance b+ its mere issuance' ManagerLs chec( : ; chec( dra)n b+ the manager o$ a ban( in the name o$ the ban( against the ban( itsel$ *a+able to a third *erson' &t is similar to the cashierLs chec( as to e$$ect and use' Memoran%um c ec# : ; chec( in )hich is )ritten the )ord Mmemorandum,M MmemoM and MmemM signi$+ing that the dra)er engages to *a+ the bona $ide holder absolutel+, and not u*on a condition to *a+ u*on *resentment o$ maturit+ and i$ due notice o$ *resentment and non:*a+ment should be gi1en' &t is a chec( gi1en b+ a borro)er to a lender $or the amount o$ a short loan, )ith the understanding that it is not to be *resented at the ban(, but )ill be redeemed b+ the ma(er himsel$ )hen the loan $alls due and )hich understanding is e1idenced b+ )riting the )ord Mmemorandum,M MmemoM or MmemM on the chec(' >ertifie% c ec# : ; certi$ication is an agreement )hereb+ the ban( against )hom a chec( is dra)n underta(es to *a+ it on an+ $uture time )hen *resented $or *a+ment' >erti$ication is equi1alent to acce*tance and o*erates as an assignment o$ a *art o$ the $unds to the creditors' >rosse% c ec# : nder acce*ted ban(ing *ractice, crossing a chec( is done b+ )riting t)o *arallel lines diagonall+ on the le$t to* *ortion o$ the chec(s' "a bang(o lang inindorse' Ko1erned b+ >ode o$
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>ommerce' /he crossing is s*ecial )here the name o$ the ban( or a business institution is )ritten bet)een the t)o *arallel lines, )hich means that the dra)ee should *a+ onl+ )ith the inter1ention o$ that com*an+' What are the e$$ects o$ a crossed chec(? #' /he chec( ma+ not be encashed but onl+ de*osited in the ban(' 2' /he chec( ma+ be negotiated onl+ onceUto one )ho has an account )ith a ban(' ,' /he act o$ crossing the chec( ser1es as a )arning to the holder that the chec( has been issued $or a de$inite *ur*ose, so that he must inquire i$ he has recei1ed the chec( *ursuant to that *ur*oseB other)ise, he is not a holder in due course' 0ne )hich is not *resented $or *a+ment )ithin a reasonable time a$ter its issue' #' 3! 22 and Esta$a ha1e di$$erent elements' 2' Esta$a is malum in se requiring *roo$ o$ criminal intent on the *art o$ the o$$ender' ,' @iolation o$ 3! 22 is mala *rohibitum E malice and intent are immaterial' "ection #8F: ; chec( must be *resented $or *a+ment )ithin a reasonable time a$ter its issue or the dra)er )ill be discharged $rom liabilit+ thereon to the e-tent o$ the loss caused b+ the dela+' Hence, i$ no loss or inGur+ is sho)n, the dra)er is not discharged' What is the e$$ect i$ the chec( is certi$ied b+ the ban(? "ection #87: Where a chec( is certi$ied b+ the ban( on )hich it is dra)n, the certi$ication is equi1alent to an acce*tance' Ho)e1er, a ban( is not obligated to the de*ositor to certi$+ chec(s' What is the e$$ect i$ the holder o$ chec( "ection #88:
,)

What is a "tale chec(? 2istinguish 3! 3lg' 22 (3ouncing >hec( La)) and Esta$a (;rticle ,#. o$ the 4!>)'

Within )hat time a chec( must be *resented?

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*rocures it to be certi$ied? Where the holder o$ a chec( *rocures it to be acce*ted or certi$ied, the dra)er and all indorsers are discharged $rom liabilit+ thereon' >an a chec( o*erate as an assignment? "ection #89: ; chec( o$ itsel$ %oes not operate as an assignment o$ an+ *art o$ the $unds to the credit o$ the dra)er )ith the ban(, and the ban( is not liable to the holder unless and until it acce*ts or certi$ies the chec(' <ENERAL PR+AI7I+N7 2e$ine and gi1e the meaning o$ the $ollo)ing terms' T T T M;cce*tanceM means an acce*tance com*leted b+ deli1er+ or noti$ication' M;ctionM includes counterclaim and set:o$$' M3an(M includes an+ *erson or association o$ *ersons carr+ing on the business o$ ban(ing, )hether incor*orated or not' M3earerM means the *erson in *ossession o$ a bill or note )hich is *a+able to bearer' M3illM means bill o$ e-change, and MnoteM means negotiable *romissor+ note' M2eli1er+M means trans$er o$ *ossession, actual or constructi1e, $rom one *erson to another' MHolderM means the *a+ee or indorsee o$ a bill or note )ho is in *ossession o$ it, or the bearer thereo$' M&ndorsementM means an indorsement com*leted b+ deli1er+' M&nstrumentM means negotiable instrument' M&ssueM means the $irst deli1er+ o$ the instrument, com*lete in $orm, to a *erson )ho ta(es it as a holder' M!ersonM includes a bod+ o$ *ersons, )hether incor*orated or not' M@alueM means 1aluable consideration'
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T Who are *rimaril+ liable )ith the terms o$ the instrument?

MWrittenM includes *rinted, and M)ritingM includes *rint'

"ection #92: /he *erson M*rimaril+M liable on an instrument is the *erson )ho, b+ the terms o$ the instrument, is absolutel+ required to *a+ the same' ;ll other *arties are Msecondaril+M liable'

Ho) to determine )hether or not the time is reasonable?

"ection #9,: &n determining )hat is a Mreasonable timeM regard is to be had to the nature o$ the instrument, the usage o$ trade or business )ith res*ect to such instruments, and the $acts o$ the *articular case'

Ho) is time com*uted? What is the rule i$ the last da+ $alls on holida+

"ection #94: Where the da+, or the last da+ $or doing an+ act herein required or *ermitted to be done $alls on a "unda+ or on a holida+, the act ma+ be done on the ne-t succeeding secular or business da+'

3onus Auestion: When )as %&L enacted? When it )as *ublished? /he e$$ecti1it+? What is a 5document o$ title?6

Enacted on , =ebruar+ #9## !ublished on 4 March #9## /oo( e$$ect on 2 Hune #9## &t re$ers to goods and not to mone+ (a non:negotiable instrument)' &t is a s+mbol o$ the goods co1ered b+ it, ser1ing as e1idence o$ trans$er o$ title and trans$er o$ *ossession'

What are most common $orms o$ documents o$ title?

#' Bill of la%ing E contract or recei*t $or the trans*ort o$ goods and their deli1er+ to the *erson named therein, to his order, or to bearer' 2' 6oc# warrant E an instrument gi1en b+ doc( o)ners to an im*orter o$ goods )arehouse on the doc( recogni<ing the im*orterCs title to the said goods' ,' Ware ouse receipt E contract or recei*t $or goods de*osited )ith a )arehouseman containing the latterCs underta(ing to hold or deli1er the goods to a s*eci$ic *erson, to his order, or to bearer'

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