NEGOTIABLE INSTRUMENTS NOTES

BASED ON AGBAYANIS BOOK AND ATTY. MERCADOS LECTURES

Page 90 of 190


BY: MA. ANGELA LEONOR C. AGUINALDO
ATENEO LAW 2D BATCH 2010
Deals with the liability or warranties of one negotiating by general
indorsement, as distinguished from qualified indorsers or persons
negotiating by mere delivery
It has been held that this section includes an indorser for collection

LIABILITY OF GENERAL INDORSER
1. That the instrument is genuine and in all respects what it purports
to be
2. That he has a good title to it
3. That all prior parties had capacity to contract
4. And that the instrument is, at the time of his indorsement, valid
and subsisting

FOURTH WARRANTY OF GENERAL INDORSER AND QUALIFIED INDORSER,
DISTINGUISHED
While the qualified indorser or person negotiating by delivery warrants
that he is ignorant of any fact that will render the instrument valueless
or impair its validity, the general indorser warrants that the instrument
he is indorsing is valid and subsisting regardless of whether he is
ignorant of that fact or not

THE WARRANTIES OF A GENERAL INDORSER EXTEND TO THE FOLLOWING
1. Holders in due course
2. Persons who derive their title from holders in due course
3. Immediate transferees even if they are not holders in due course

WARRANTIES DONT EXTEND TO DRAWEE
The indorser of a check doesnt warrant the genuineness of the
drawers signature to the drawee who pays it since the drawee is not a
holder in due course
The warranties provided do not run in favor of the drawee in respect to
the genuineness of the drawers signature but only in favor of
subsequent holders in due course

A ! B ! C ! D (FORGED) ! E ! F


*Is C liable? No.

OTHER LIABILITTY OF GENERAL INDORSER
He engages that, on due presentment, it shall be accepted or paid, or
both, as the case may be, according to its tenor, and that if it be
dishonored and the necessary proceedings of dishonor be duly taken,
he will pay the amount to the holder, or to any subsequent indorser
who may be compelled to pay it

GENERAL INDORSER IS SECONDARILY LIABLE
Secondary liability not confined to the four warranties
He is liable if for any reason, the person primarily liable cannot pay, as
distinguished from the limited secondary liability of the qualified
indorser or of the person negotiating by mere delivery
The reason for dishonor need not be established. As long as there was
dishonor, this is sufficient.

SUMMARY OF DISTINCTIONS BETWEEN LIABILITIES OF PERSONS
NEGOTIATING
GENERAL
INDORSER
QUALIFIED
INDORSER
NEGOTIATING
BY MERE
DELIVERY
EXTENSION OF
WARRANTY
All subsequent
parties
All subsequent
partieswho
acquire title
through their
indorsement
Immediate
transferee
FOURTH
WARRANTY
Warrants that
the instrument
is valid and
subsisting
Warrants that the instrument is
valid and subsisting
WHEN DOES HE
PAY?
Engages to pay
the holder or
any intervening
party who may
be compelled to
pay if the
instrument is
dishonored
either by non-
acceptance or
non-payment
Doesnt engage to pay the
instrument if it is dishonored by
non-acceptance or non-payment
except when such dishonor arises
from his four warranties

LIABILITY OF ASSIGNOR
The vendor in good faith shall be responsible for the existence and
legality of the credit at the time of the sale unless it should have been
sold as doubtful but not for the solvency of the debtor unless it has
been so expressly stipulated or unless the insolvency was prior to the
sale and of common knowledge