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UP 2008 Commercial Law (Negotiable Instruments Law)
UP 2008 Commercial Law (Negotiable Instruments Law)
UP 2008 Commercial Law (Negotiable Instruments Law)
COMMERCIAL LAW
Non-negotiable
Transferee
has
right of recourse
against
intermediate
parties
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
issue
negotiation
presentment for acceptance in certain bills
acceptance
dishonor by or acceptance
presentment for payment
dishonor by nonpayment
notice of dishonor
protest in certain cases
discharge
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Bill of Exchange
Unconditional order
Involves 3 parties
Drawer
only
secondarily liable
Generally
2
presentments - for
acceptance and for
payment
5. Parties
5.1. As regards promissory note:
1. Promissor/maker
2. Payee - person to whom the promise to pay
is made.
5.2. As regards bill of exchange:
1. Drawer - person who gives the order to
pay.
2. Drawee - addressee of the order.
3. Payee - person to whom the payment is to
be made.
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UNCONDITIONAL:
Mere
recital of the transaction or
consideration for which the
instrument was issued
CONDITIONAL:
when
reference to the fund clearly
indicates an intention that such
fund alone should be the source
of payment
Chapter II.
NEGOTIABILITY
1 Requisites of Negotiability4
1.1. Must be in Writing and Signed by the
Maker
1. No person liable on the instrument whose
signature does not appear thereon.
2. One who signs in a trade or assumed
name liable to same extent as if he had
signed in his own name. (Sec. 18, NIL)
3. Signature of party may be made by duly
authorized agent; no particular form of
appointment necessary. (Sec. 19, NIL)
4. "In writing" - includes print; written or
typed
5. Signature, binding so long it is intended or
adopted as the signature of the signer or
made with his authority.
1.2. Must contain an Unconditional Order or
Promise to Pay
1. ORDER OR PROMISE TO PAY
a. PROMISSORY NOTE:
i.
PROMISE TO PAY: should be
express on the face of the
instrument
ii. Word "promise" is not absolutely
necessary.
Any
expression
equivalent
to
a
promise
is
sufficient.
iii. Mere acknowledgment of a debt
insufficient
b. BILLS OF EXCHANGE:
i.
Order - command or imperative
direction; the instrument, by its
nature, demanding a right.
ii. Words which are equivalent to an
order are sufficient.
iii. A mere request or authority to
pay does not constitute an order.
iv. Although the mere use of polite
words like "please" does not of
itself deprive the instrument of its
characteristics as an order, its
language must clearly indicate a
demand upon the drawee to pay.
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2. UNCONDITIONAL
a. The promise or order to pay, to be
unconditional, must be unqualified.
b. Sec. 3, NIL: An unqualified order or
promise to pay is unconditionalthough
coupled with:
An indication of a particular fund out
of which reimbursement is to be
made, or a particular account to be
debited with the amount
UNCONDITIONAL: Mere
indication of the particular fund
4
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Purpose:
Informing the holder of the
instrument of the date when he may
enforce payment thereof.
5.
at a fixed time
o Only on the stipulated date, and not
before, may the holder demand its
payment.
o Should he fail to demand payment, the
instrument
becomes
overdue
but
remains valid and negotiable.
It is
merely
converted
to
a
demand
instrument.
3.
Determinable
future
time,
if
expressed to be payable (Sec. 4, NIL):
1.) At a fixed period after date of sight;
2.) On
or
before
a
fixed
or
determinable future time specified
therein;
3.) On or at a fixed period after the
occurrence of a specified event
which is certain to happen, though
the time of happening be uncertain.
4.
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control
(conditional),
still
NEGOTIABLE.
Acceleration,
automatic
upon
default.
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COMMERCIAL LAW
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Chapter III.
TRANSFER
3. Indorsement
b.
GEMPESAW v CA (1993)
Every contract on a negotiable instrument is
incomplete and revocable until delivery of the
instrument to the payee for the purpose of giving
effect thereto. The first delivery of the instrument,
complete in form, to the payee who takes it as a
holder, is called issuance of the instrument.
Without the initial delivery of the instrument from
the drawer of the check to the payee, there can be
no valid and binding contract and no liability on the
instrument.
2. Negotiation
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method
of
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o
b.
unconditional
5. other classifications:
a.
b.
c.
2)
b.
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Chapter IV.
HOLDER IN DUE COURSE
1. Holder (Sec. 191)
6. Presumption as to Indorsement
o Time (Sec.45, NIL) - Every negotiation
deemed prima facie effected before
instrument was overdue, except where
indorsement bears date after maturity of
the instrument.
o Place (Sec.46, NIL) - Every indorsement is
presumed prima facie made at place where
instrument is dated
o Where instrument drawn or indorsed to
person as cashier (Sec.42, NIL) - deemed
prima facie to be payable to the bank or
corporation of which he is such officer; may
be negotiated by either the indorsement
(1) of the bank or corporation or (2) of the
officer.
c.
SALAS v. CA (1990)
COMPLETE
o
An instrument is complete if it contains
all the requisites for making it a
negotiable one, even if it may have
blanks as to non-essentials.
o
It is incomplete when it is wanting in
any material particular or particular
proper to be inserted in a NI without
w/c the same will not be complete.
2.
Material Particulars
o
What are material particulars? A
change in the ff. is considered a
material alteration (Sec. 125, NIL):
i.
The date;
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COMMERCIAL LAW
ii.
3.
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SEC
56.
WHAT
CONSTITUTES NOTICE
OF
DEFECTTo
constitute notice of an
infirmity
in
the
instrument or defect in
the title of the person
negotiating the same,
the person to whom it
is negotiated must have
had actual knowledge
of the infirmity or
defect, or knowledge of
such facts that his
action in taking the
instrument
amounted
to bad faith.
It is therefore sufficient
that the buyer of a note
had
notice
or
knowledge
that
the
note was in some way
tainted with fraud. It is
not necessary that he
should
know
the
particulars of the fraud.
2) SUSPICIOUS
CIRCUMSTANCES
a. BAD FAITH - does not
require
actual
knowledge of the exact
fraud
that
was
practiced;
knowledge
that
there
was
something wrong about
the
assignors
acquisition of title is
sufficient.
b. The burden is upon the
defendant to show that
notwithstanding
the
SUSPICIOUS
CIRCUMSTANCES,
it
acquired the check in
actual good faith. (De
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2.
NOTE: The instrument in this case was nonnegotiable, so the active participation discussion
was merely obiter.
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Just as a purchaser of a
negotiable instrument is not
put on inquiry, neither is he
charged with notice of
defenses
or
equities
disclosed by public records,
nor is he affected by the
doctrine of lis pendens.
However, notice to an
agent is chargeable against
the principal.
ii.
Notice of an ACCOMODATION
PARTY is not notice of a defect.
Thus,
an
accomodation
party (one who has signed
the instrument as maker,
drawer,
acceptor
or
endorser,
without
receiveing value therefor,
and for the purpose of
lending his name to some
other person) is liable on
the
instrument,
notwithstanding the fact
that the holder knew him to
be an accomodation party.
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COMMERCIAL LAW
B.
C.
B.
C.
A.
3.
4.
5.
B.
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Chapter V.
DEFENSES & EQUITIES
1. Defenses in General
1.1. REAL defense attaches to instrument
on the principle that there was no contract at
all; available against ALL holders including
holders in due course. They are those which
attach to the instrument itself and generally,
disclose an absence of one of the essential
elements of a contract.
1.2. PERSONAL defense grows out of the
agreement or conduct of a particular person in
regard to the instrument which renders it
inequitable FOR HIM, though holding the legal
title, to enforce it against the party sought to
be made liable; not available against a
HDC.can be raised only against holders not on
due course. Here, the true contract appears ,
but for some reason , the defendant is excused
from the obligation to perform.
1.3. Equities or Claims of Ownership are of
2 Kinds
5.
6.
7.
3. Personal Defenses
3.1. Complete, Undelivered Instrument
a. CONCLUSIVE presumption of a valid
delivery where the instrument is in the
hands of a HDC
b. PRIMA FACIE presumption of a valid
delivery where the instrument is no
longer in the possession of a party whose
sig appears thereon (Sec. 16, NIL)
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PRECLUDED
from
setting
forgery/want of authority;
3.4. Illegality
1. In general, a PERSONAL defense even if
CC1409 provides that a contract with an
illegal cause is void.
a.
b.
3.5. Duress
1. In general, PERSONAL defense.
2. REAL if duress so serious as to give
rise to a real defense for lack of
contractual intent
3. CAMPOS: There may be cases where
the duress employed is so serious that
it will give rise to a real defense
because of the lack of contractual
intent . Although the signer may know
what he is signing, there may be
wanting the intent or willingness to be
bound. Then it becomes a real defense.
c.
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COMMERCIAL LAW
drawer whose signature was forged, and the
need arises to weigh the comparative negligence
between the drawer and the drawee to determine
who should bear the burden of loss.
Still, even if the bank performed with utmost
diligence, the drawer whose signature was forged
may still recover from the bank as long as he or
she is not precluded from setting up the defense
of forgery. After all, Section 23 of the Negotiable
Instruments Law plainly states that no right to
enforce the payment of a check can arise out of a
forged signature. Since the drawer, Samsung
Construction, is not precluded by negligence from
setting up the forgery, the general rule should
apply.
b.
Effect
Of
Negligence
Of
Depositor - If proximate cause
of loss, the bank (drawee) is
not liable
1) It
REPUBLIC v EBRADA
Drawee can recover. It is not supposed to be the
duty of the drawee to ascertain whether the
signatures of the payee or indorsers are genuine
or not.
ii.
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Indorsement:
i.
When it is the signature of
the indorser that is forged,
the drawee and drawer CAN
recover vs holder
1) The drawee can recover the
amount paid by him in
cases
where
only
an
indorsement
has been
forged . This is because
drawee makes no warranty
as to the genuineness of
any indorsement.
2) Generally, the drawee may
only recover from the
holder. Should he fail to do
so(for instance due to
insolvency)
he
cannot
recoup his loss by charging
it to the drawers account
3) Although
a
depositor/drawer owes a
duty to his drawee bank to
examine
his
cancelled
checks, he has no similar
duty
as
to
forged
indorsements.
4) The drawer, as soon as he
comes to know of the a
forged indorsement should
promptly notify the drawee
bank
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COMMERCIAL LAW
iv.
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When
drawee
may
recover from holder
not
BPI v CA (1992)
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PCIB v. CA (2001)
A bank which cashes a check drawn upon
another bank, without requiring proof as to the
identity of persons presenting it, or making
inquiries with regard to them, cannot hold the
proceeds against the drawee when the proceeds of
the checks were afterwards diverted to the hands
of a third party. In such cases the drawee bank
has a right to believe that the cashing bank (or the
collecting bank) had, by the usual proper
investigation, satisfied itself of the authenticity of
the negotiation of the checks.
Thus, one who encashed a check which had been
forged or diverted and in turn received payment
thereon from the drawee, is guilty of negligence
which proximately contributed to the success of the
fraud practiced on the drawee bank.
c.
b.
Jurispridence
i.
An alteration is said to be
material if it changes the effect
of the instrument. It means
that an unauthorized change in
an instrument that purports to
modify in any respect the
obligation of a party or an
unauthorized addition of words
or numbers or other change to
an
incomplete
instrument
relating to the obligation of a
party. (PNB v CA, 1996)
ii. A material alteration is one
which changes the items which
are required to be stated under
Section 1 of the Negotiable
Instruments Law. (Metrobank v
Cabilzo, 2006)
c.
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5. DRAWERS NEGLIGENCE
a. The general rule is that the drawee
cannot charge against the drawers
account the amount of an altered
check.
b. BUT,
the drawers negligence,
before or after the alteration, may
3. IMMATERIAL ALTERATION
a. Campos:
Any other alteration
would be non-material and would
not affect the liability of any prior
party . Note that #7 is a catch-all
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c.
d.
COMMERCIAL LAW
estop
him
from
setting
up
alteration as a defense.
However, the drawer is not bound
to so prepare the check that
nobody
else
can
successfully
tamper with it (ex. a drawer cannot
be expected to foresee that his
clerk will use acid to alter his
checks, Critten v. Chemical Natl
Bank)
Where the negligence of the drawer
consists in failing to discover
alterations previously made which
he could have discovered by a
comparison of the cancelled checks
and check stubs or by diligent
observation of his records and
could thus have prevented the
drawee bank from subsequently
cashing other altered checks , the
drawee can charge the subsequent
check
against
the
negligent
drawers account.
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COMMERCIAL LAW
Chapter VI.
LIABILITY OF PARTIES
1. In General
1.1. Parties primarily liable:
1. person who by the terms of the instrument
is absolutely required to pay the same.
a. Maker of promissory note
b. Acceptor of bill of exchange
2. unconditionally liable; duty bound to pay
the holder at date of maturity, WON holder
demands payment from him, and he is not
relieved from liability even if the instrument
should become overdue due to failure of
holder to make such demand.
1.2. Parties secondarily liable:
1. SECONDARY PARTIES:
Indorsers, both note and bill
Drawer of bill
2. Conditionally liable; not bound to pay unless
the following has been fulfilled
a.
b.
4.3. Fraud
c.
1. REAL DEFENSE
a. fraud in execution / fraud in
factum: did not know that paper
was a NI when it was signed
b. not liable to ANY holder
2. PERSONAL DEFENSE
a. Fraud in inducement: knows it is NI
but deceived as to value/terms
i. Available as a defense against
non-HDC
b. Fraud in factum accompanied by
NEGLIGENCE of maker or signer
i. Where the signor does not
know
the
nature
of
the
instrument he signs, but where,
by the exercise of ordinary
care, he could have discovered
it.
ii. Three factors are typically used
in determining the existence of
negligence:
1) legal
character
of
the
instrument which the signer
thinks he is signing
2) the physical condition of
the signer and his ability to
read
3) whether the signer had the
opportunity at the time of
signing, to ascertain the
legal nature of the paper he
is executing
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2. Primary Parties
2.1. PAYMENT: Presentment and Tender
1. Presentment for payment not necessary
to charge primary party
2. if the instrument is, by its terms, payable
at a special place, and he is able and willing
to pay it there at maturity, such ability and
willingness are equivalent to a tender of
payment upon his part. (Sec. 70, NIL)
2.2. Liability of MAKER
1. Promises to pay it according to its tenor
2. Admits existence of payee and his then
capacity to indorse.
a.
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3. Drawer
1) Payment despite Stop Payment
Order
a) Before
payment
or
certification by the bank,
the
drawer
may
countermand the order,
and payment thereafter to
the payee by the bank is
wrongful.
b) Since a check is not an
assignment of the drawers
fund, the bank is liable for
paying it in disregard of the
countermand.
c) Moreover, drawee can no
longer recover what it
voluntarily paid to the
holder of the uncertified
and unaccepted instrument.
2) Refusal to Accept
a) Under some circumstances,
the drawee who refuses to
accept may be made liable for
breach of contract or for
damages based on a tort either
to the drawer (refer to Araneta
v. Bank of America) or to the
holder (refer to HSBC v.
Catalan)
ARANETA V. BANK OF AMERICA(1971)
3. Acceptor: Liability
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a.
b.
2.4. Acceptance
1. IN GENERAL:
a. Definition:
i. "Acceptance" means an acceptance
completed by delivery or notification
(Sec. 19, NIL)
ii. The signification by the drawee of his
assent to the order of the drawer (Sec
132, NIL)
b.
REQUISITES for a valid acceptance
(Sec 132, NIL)
i. It must be in writing and signed by
the drawee;
1) Thus there is no valid or
implied acceptance except as
provided by Sec. 137 relating
to constructive acceptance
ii. It must not express that the drawee
will perform his promise by any other
means than the payment of money.
iii. does not change the implied
promise of acceptor to pay only in
money
c. MANNER of acceptance
i. Campos: Usually made by writing
the word accepted and signing
immediately below
1) BUT, drawees signature alone
is sufficient (Campos citing
Lawless v. Temple)
ii. Sec 133, NIL: The holder of a bill
presenting the same for acceptance
may require that the acceptance be
written on the bill and if such
request is denied, may treat the bill
as dishonored
1) Effect: holder may go against
the partys secondarily liable
the drawer and the indorsers
iii. Acceptance of an INCOMPLETE bill
(Sec 138, NIL)
1) A bill may be accepted:
a) before it has been signed
by the drawer, or
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SUMCAD v. PROVINCE OF SAMAR (1956)
There was implied acceptance in view of the
circumstances of the case (furnishing of
photostatic
copies,
presentment
for
certification) by voluntary assuming the
obligation of holding so much deposit as would
be sufficient to cover the amount of the check.
3. ACCEPTANCE ON A SEPARATE
INSTRUMENT
e. Extrinsic acceptance - acceptance is
written on a paper other than the bill
itself; doesnt bind the acceptor except
in favor of a person to whom it is
shown and who, on the faith thereof,
receives the bill for value. (Sec. 134,
NIL); acceptance of an existing bill
f. Virtual acceptance - unconditional
promise in writing to accept a bill
before it is drawn; deemed an actual
acceptance in favor of every person
who, upon the faith thereof, receives
the bill for value. (Sec. 135, NIL);
acceptance of future bill
g. In both cases, the acceptance must
clearly and unequivocally identify
the bill to which the acceptance refers.
4. KINDS
OF
ACCEPTANCE:
An
acceptance is either (1) general or (2)
qualified.
a. GENERAL
assents
without
qualification to the order of the drawer.
(Sec.139, NIL); Includes acceptance
to pay at a particular place; unless
expressly states that bill is to be paid
there only and not elsewhere. (Sec.
140, NIL)
b. QUALIFIED - in express terms varies
the effect of the bill as drawn. (Sec.
139, NIL)
i. Conditional; payment by the
acceptor
dependent
on
the
fulfillment of a condition therein
stated;
ii. Partial; to pay part only of the
amount for which the bill is drawn;
iii. Local; to pay only at a particular
place;
iv. Qualified as to time;
v. The acceptance of some, one or
more of the drawees but not of all.
(Sec. 141, NIL)
1) The holder may refuse to take
a qualified acceptance; may
treat the bill as dishonored by
non-acceptance.
2) Where a qualified acceptance is
taken, the drawer and indorsers
are discharged from liability
on the bill unless they have
authorized the holder to take
a qualified acceptance, or
subsequently assent thereto.
3) When the drawer or an indorser
receives notice of a qualified
acceptance, he must, within a
reasonable time, express his
dissent to the holder or he will
be deemed to have assented
thereto. (Sec. 142, NIL)
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3. Clearing
a. Clearing - check collection process
b.
Clearing
house
where
representatives of different banks meet
every afternoon of every business day to
receive the envelopes containing checks
drawn against the bank he represents for
examination and clearance.
4. Certification
a.Definition
i. an agreement by which a bank
promises to pay the check at any
time it is presented for payment
ii. When check certified by bank on
which it is drawn, equivalent to
acceptance
b. Requisites for a Valid Certification
i. Must be in writing
ii. Made on the check or another
instrument
RP v. PNB (1961)
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credited to his account shall apply in this case x x
x.
5. Surrender of Check
a. The surrender of the check by the
holder to the drawee bank upon its
payment is not negotiation.
By
paying the check, the drawee bank
extinguishes
it
as
a
negotiable
instrument and converts it into a mere
voucher.
b. Distinction between surrender of check
upon payment thereof and negotiation
i. The delivery of the check by the
holder to the drawee bank upon its
payment is not negotiation.
By
paying the check, the drawee bank
extinguishes it as a negotiable
instrument and converts it into a
mere voucher.
ii. In the case of a deposit of a check
by the holder thereof in a bank
other than the drawee bank, the
signature at the back of the check
would constitute an indorsement,
unless otherwise indicated.
The
holder in negotiating the check to
the depositary bank, which in turn
will collect on the check from the
drawee
bank,
through
the
clearinghouse.
BPI vs CA (2000)
3. Secondary Parties
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b.
PACHECO v CA (1999)
The essential elements in order to sustain a
conviction under the above paragraph are:
1. that the offender postdated or issued a check in
payment of an obligation contracted at the time the
check was issued;
2. that such postdating or issuing a check was
done when the offender had no funds in the bank,
or his funds deposited therein were not sufficient to
cover the amount of the check;
3. deceit or damage to the payee thereof.
PEOPLE v REYES (2005)
There is no estafa through bouncing checks when it
is shown that private complainant knew that the
drawer did not have sufficient funds in the bank at
the time the check was issued to him. Such
knowledge negates the element of deceit and
constitutes a defense in estafa through bouncing
checks.
3.2. Liability of INDORSERS:
1. Indorser
a. Sec. 63, NIL: A person placing his
signature upon an instrument other than as
a maker, drawer, or acceptor unless he
indicates by appropriate words his intention
to be bound in some other capacity
i
SAPIERA vs CA (1999). It is
undisputed that the four (4) checks
issued by de Guzman were signed
by petitioner at the back without
any indication as to how she should
be bound thereby and, therefore,
she is deemed to be an indorser
thereof.
b. Sec. 67, NIL: A person, who places his
signature on an instrument negotiable by
delivery, incurs all the liabilities of an
indorser.
c.
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w/o receiving value thereof, for the purpose of
lending his name to some other person
2. Liability : Liable on the instrument to HFV
even if holder knew he was only an AP
MAULINI v. SERRANO (1914)
In accommodation indorsement, the indorser
makes the indorsement for the accommodation of
the maker. Such an indorsement is generally for
the purpose of better securing the payment of the
note, i.e. he lends his name to the maker not to
the holder. An accommodation note is one which
the accommodation party has put his name,
without consideration, for the purpose of
accommodation some other party who is to use it
and is expected to pay it.
Note: Campos disagrees with this ruling, referring
to the case of Goodman v Gaul where an
accommodation indorsement may be made for the
accommodation of the payee or holder.
ANG TIONG v. TING (1968)
It is not a valid defense that the accommodation
party did not receive any valuable consideration
when he executed the instrument. Nor is it correct
to say that the holder for value is not a holder in
due course merely because at the time he acquired
the instrument, he knew that the indorser was only
an accommodation party.
The fact that the accommodation party stands only
as a surety in relation to the maker is a matter of
concern
exclusively
between
accommodation
indorser & accommodated party. It is immaterial
to the claim of a holder for value. The liability of
the accommodation party remains primary &
unconditional.
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4. Presentment
4.1. Definition:
1. the production of a BE to the drawee for his
ACCEPTANCE, or to the drawer or acceptor
for PAYMENT; or
2. the production of a PN to the party liable
for payment
1. AGENCY:
a. Signature of any party may be made by
duly authorized agent, established as in
ordinary agency
b.
c.
2. LIABILITY
a. GEN RULE: Where person adds to his
signature words indicating that he signs on
behalf of a principal, not liable if he was
duly authorized
b. WHEN LIABLE:
i. mere addition of words describing
him as an agent without disclosing his
principal
ii. Where a broker or agent negotiates
an instrument without indorsement, he
incurs all liabilities in Sec. 65, unless he
discloses name of principal and fact
that hes only acting as agent. (Sec.
69, NIL)
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d.
nature of instrument
usage of trade or business with
respect to instrument
iii facts of each case
3. How made (Sec. 145, NIL)
a. BY or ON BEHALF of the holder
2008
AT a reasonable hour,
ON a business day and before the bill is
overdue,
TO the drawee or some person
authorized
to
accept
or
refuse
acceptance on his behalf; and
i
bill addressed to drawees not
partners, MUST be made to them
all unless one has authority to
accept or refuse acceptance for all;
ii drawee is dead, MAY be made to
his personal representative;
iii drawee has been adjudged a
bankrupt or an insolvent or has
made an assignment for the benefit
of creditors, MAY be made:
1) to him or
2) to his trustee or assignee.
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c.
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iv
4. Manner of Presentment
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iv. TO WHOM: (1) person primarily
liable on the instrument, or if he is
absent or inaccessible, (2) to any
person found at the place where
the presentment is made.
5. Dishonor by Nonpayment
a. Sec 83, NIL The instrument when:
i. duly presented for payment and
payment refused or cannot be
obtained; or
ii. presentment is excused and the
instrument is overdue and unpaid.
b. Effect:: [subject to NIL provs] an
immediate right of recourse to all parties
secondarily liable accrues to the holder.
(Sec. 84, NIL)
5. Notice of Dishonor
5.1.Definition
1. To bring either verbally or by writing, to the
knowledge of the drawer or indorser of an
instrument, the fact that a specified NI,
upon proper proceedings taken, has not
been accepted or has not been paid, and
that the party notified is expected to pay it
2. General rule: MUST be given to drawer
and to each indorser, and any drawer or
indorser to whom such notice is not given
is discharged
5.2. When necessary
1. Sec 89, NIL Except as herein provided,
when a negotiable instrument has been
dishonored by non-acceptance or nonpayment, notice of dishonor must be given to
the drawer and to each indorser
2. Parties entitled to notice:
a. Drawer
b. Indorser
c. Accomodation Indorsers
i
Joint maker excluded if not an
indorser
3. Acceleration Clause
a. If clause is optional on holder:
i
The bringing of an action against
the maker and indorsers constitutes
a valid exercise of option and a
valid notice of dishonor
b. Clause is automatic:
i
Notice of dishonor must be givem
at once
ii Not sufficient to give it upon
commencement of action
GULLAS v. PNB (1935)
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ii
1. Form of Notice:
a. may either be in writing, or oral
3.Mode of delivery
a. Personal service
c.
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1. In general
2.
3.
4.
5.
6.
If given by an agent
a. to his principal, in case of an
instrument dishonored in the hands of
an agent (Sec. 94, NIL), or
b. to the parties liable thereon
c. ex: collecting bank
IN GENERAL (Sec. 97)
a. Party himself
b. Or his agent in that behalf
If party is dead and death known to the
party giving notice (Sec. 98, NIL)
a. MUST
be
given to a
personal
representative, if there be one, and if
with reasonable diligence, he can be
found;
b. If no personal representative MAY be
sent to the last residence or last place
of business of the deceased.
To partners : to any one partner, even
though there has been a dissolution. (Sec.
99, NIL)
To joint parties(Sec. 100, NIL)
a. to each of the party
b. unless one of them has authority to
receive such notice for the others.
to bankrupt (Sec. 101, NIL)
a. to the party himself or
b. to his trustee or assignee
a. holder
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7. Protest
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A. Acceptance
1. Practice of accepting for honor is obsolete
2. When bill may be accepted for honor.
When a BE has been (1) protested for
dishonor by non-acceptance or protested
for better security and (2) is not overdue
any person not being a party already liable
may, with the CONSENT of the holder,
intervene and accept the bill supra protest
for the honor of any party liable thereon or
for the honor of the person for whose
account the bill is drawn.
3. The acceptance for honor may be for part
only of the sum for which the bill is drawn;
4. where there has been an acceptance for
honor for one party, there may be a further
acceptance by a different person for the
honor of another party. (Sec. 161, NIL)
5. Referee in case of need person whose
name is inserted by the drawer of a bill and
any indorser to whom the holder may
resort in case bill is dishonored by nonacceptance or non-payment; option of the
holder to resort to the referee (Sec. 131,
NIL)
B. PAYMENT FOR HONOR - any person may
intervene and pay bill protested for nonpayment supra protest (Sec. 171, NIL)
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Chapter VII
DISCHARGE
1. Definition: Discharge
The release of all parties, whether primary or
secondary, from the obligation on the instrument;
renders the instrument non-negotiable
9. Bills in Set
A.
B.
C.
D.
E.
F.
composed
of
various
parts
being
numbered, and containing a reference to
the other parts, all of which parts constitute
one bill of lading
Bills in set constitute one bill. (Sec. 178,
NIL)
Right of HDCs where different parts are
negotiated. the holder whose title first
accrues is the true owner of the bill. But
nothing in this section affects the right of a
person who, in due course, accepts or pays
the parts first presented to him. (Sec.
179., NIL)
Liability of holder who indorses two or
more parts of a set to different persons.
liable on every such part, and every
indorser subsequent to him is liable on the
part he has himself indorsed, as if such
parts were separate bills. (Sec. 180, NIL)
Acceptance - may be written on any part
and it must be written on one part only. If
the drawee accepts more than one part and
such accepted parts negotiated to different
holders in due course, he is liable on every
such part as if it were a separate bill. (Sec.
181, NIL)
Payment - When the acceptor of a bill
drawn in a set pays it without requiring the
part bearing his acceptance to be delivered
up to him, and the part at maturity is
outstanding in the hands of a holder in due
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10
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a.
3. OF SECONDARY
120, NIL)11
PARTIES
(Sec.
A.
B.
C.
D.
E.
by discharge of instrument
intentional cancellation of signature by holder
discharge of prior party
valid tender of payment by prior party
release of principal debtor, unless holders right
of recourse vs. 2ndary party reserved
F. any agreement binding upon holder to extend
time of payment, or to postpone holders right
to enforce instrument, UNLESS
1. made with assent of party secondarily
liable, or
2. right of recourse reserved.
G. Failure to make due presentment (Secs. 70,
144, NIL)
H. failure to give notice of dishonor
I. certification of check at instance of holder
J. reacquisition by prior party
1. where instrument negotiated back to a
prior party, such party may reissue and
further negotiate, but not entitled to
enforce payment vs. any intervening party
to whom he was personally liable
2. where instrument is paid by party
secondarily liable, its not discharged, but
a. the party so paying it is remitted to his
former rights as regard to all prior
parties
b. and he may strike out his own and all
subsequent indorsements, and again
negotiate instrument, except
i
where its payable to order of 3rd
party and has been paid by drawer
ii where
its
made/accepted
for
accommodation and has been paid
by party accommodated
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Chapter VIII
OTHER FORMS OF COMMERCIAL
PAPER
1. In General
1.1. Commercial papers
1. also Negotiable instruments;
2. merely special forms of either PNs or BEs;
3. also governed by the NIL
1.2. Quasi-negotiable includes commercial paper
which though not governed by the NIL, have
certain attributes of negotiability.
2. Bonds and Debentures
2.1. Bonds
1. evidences of indebtedness, in the nature of
a PNs
2. usually accompanied by a mortgage of the
property of the issuer
3. issued by the government (municipal &
other public corporations) & private
corporations;
a. though not to mature for a long time,
assure
some
regular income
to
bondholders in the form of interest*,
usually payable annually
b. bonds and interest coupons (evidences
interest obligations)*
2.2. Debentures
1.
2.
3.
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5. Pertinent Code of Commerce provisions:
a. Art 567. Letters of credit - issued by
one merchant to another for the
purpose of attending to a commercial
transaction.
b. Art 568. The essential conditions of
letter of credit shall be:
i
issued in favor of a definite person,
and not to order.
ii limited to a fixed and specified
amount, or to one or more
undetermined amount, but all
within a maximum the limit of
which has to be stated exactly.
Note: Those which do not have any of
these last circumstances shall be
considered
as
mere
letters
of
recommendation.
c. Art 569. The drawer of a letter of
credit shall be liable to the person on
whom it was issued, for the amount
paid by virtue thereof, within the
maximum fixed therein.
Letters of credit may not be protested
even if not be paid; bearer cannot
acquire any right of action by reason of
non-payment against the person who
issued it.
The person paying has right to demand
the proof of the identity of the person
in whose favor the letter of credit was
issued.
d. Art 570. The drawer of a letter of
credit may annul it, informing the
bearer and the person to whom it is
addressed
e. Art 571. The bearer of a letter or
credit shall pay the amount received to
the drawer without delay. Should he
not do so, an action involving execution
may be brought to recover it, with legal
interest and the current exchange in
the place where it is repaid.
f. Art 572. If the bearer of a letter of
credit does not make use thereof within
the (1) period agreed upon with the
drawer, or in default of a period fixed,
(2) within 6 months, counted from its
date, in any point in the Philippines,
and within 12 months anywhere
outside thereof, it shall be void in fact
and in law.
BPI v. DE RENY FABRIC (1970)
The company and its officers cannot shift the
burden of loss to the bank because of the terms of
their Commercial Letter of Credit Agreement with
the bank provides that latter shall not be
responsible for the any difference in character or
condition of the property. Furthermore, the bank
was able to prove the existence of a custom in
international banking and financing circles negating
any duty of the bank to verify whether what has
been described in letters of credits or drafts or
shipping documents actually tallies with what was
loaded aboard ship. Banks, in providing financing
in international business transactions do not deal
with the property to be exported or shipped to the
importer, but deal only with documents.
LEE v CA (2002)
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5.1. In General
1. as
distinguished
from
negotiable
instruments, refer to goods and not to
money; the sale of goods covered is
effected by the transfer of said document
2. not governed by the NIL but by the Civil
Code.
3. includes any bill of lading, dock warrant,
quedan, or warehouse receipt or order for
the delivery of goods, or any other
document used in the ordinary course of
business in the sale or transfer of goods, as
proof of the possession or control of the
goods, or authorizing or purporting to
authorize the possessor of the document to
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4.
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fraud, accident, mistake, duress or
conversion.
b. Note Art 1518s conflict with Art 1512.
(see p 915)
2. What title acquired (NOTE:
see Arts
1513, 1514 and 1519 Civil Code)
a. A person to whom a negotiable
document of title has been duly
negotiated acquires the title of the
person NEGOTIATING it as well as the
title of the ORIGINAL BAILOR or
depositor of the goods.
ex. if the original bailor had no
authority from such owner to deposit
the goods, then the holder of the
negotiable document, even if the
negotiation to him was valid, cannot
acquire title to the goods; AND even if
the original bailor had authority, if the
negotiation to the present holders
transferor was not valid, such holder,
even if in good faith and for value, does
not acquire any right to the goods.
the holders remedy if any, is against
his transferor and/or the guilty party.
i
Thus, if the original bailor or
depositor of the goods was not the
owner thereof or had no authority
from such owner to deposit the
goods, then the holder of the
negotiable document, even if the
negotiation to him was valid,
cannot acquire title to the goods.
ii On the other hand, even if the
original bailor or depositor was the
owner or had authority from the
owner, if the negotiation to the
present holders transferor was not
valid, such holder, even if in good
faith and for value, does not
acquire any right to the goods.
iii In both cases, the holders remedy
if any, is against his transferor
and/or the guilty party.
b. The person to whom the document has
been
negotiated
acquires
the
obligation of the bailee to make
delivery to him, as if they had
contracted directly with each other.
i
By issuing a negotiable document
of title, such bailee had given in
advance his consent to hold the
goods for any person to whom such
document is negotiated.
ii If document non-negotiable, notice
of any transfer should be given to
the bailee otherwise bailee or any
other person other than the
transferor not bound
iii Thus, the transferees rights may
be
defeated
by
a
levy
of
attachment on the goods or by a
notification to the bailee of a sale of
the goods to another purchaser.
iv A sale of the goods without the
document will not prejudice a
subsequent purchaser who takes
the document in good faith and for
value.
v The bailees delivery to the legal
holder of the document would
relieve
him
of
any
further
responsibility for the goods.
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