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Notes On Negotiable Instruments 04
Notes On Negotiable Instruments 04
1. Acceptor;
2. Accommodation acceptor;
1. General endorsers;
2. Acceptor for honor;
3. Accommodation drawer.
This is because the accommodating party, by lending his name, becomes a surety
for the accommodated party. Therefore, the capacity with which he signs, determines
his liabilities. These may be either primary or secondary. The same principle goes for
persons signing as agents, if they fail to sign in accordance to Section 20, of the
Negotiable Instruments Law.
The Negotiable Instruments Law has special rules for the liability of irregular
endorsers. The rules are:
Are the primary and secondary liabilities under the Negotiable Instruments Law, the
same as the liabilities under warranties?
No, the primary and secondary liabilities of the parties, arise from their
obligations to pay, a sum certain in money, as stated in the instrument.
The liabilities for warranties, arise from warranties made by the parties to an
instrument, which warranties are separate and ancillary contracts, to the principal one,
involving the sum payable stated in the instrument.
Under Section 62, of the Negotiable Instruments Law, the acceptor warrants that:
1. The existence of the drawer, the genuineness of his signature, and his
capacity and authority to draw the instrument.
2. The existence of the payee, and his then capacity to endorse.
What are the warranties of the general endorser, and the endorser of a bearer
instrument?
Under Sections 66 and 67, of the Negotiable Instruments Law, the general
endorser, and the endorser of a bearer instrument warrant that:
What are the warranties of the qualified endorser, and the person negotiating by
mere delivery?
Under Section 65, of the Negotiable Instruments Law, the qualified endorser, and
the person negotiating the instrument by mere delivery warrant that:
1. That the instrument is genuine, and all respects what it purports to be;
2. That he has good title to it;
3. That all prior parties had capacity to contract;
4. That he has no knowledge of any fact, which would impair the validity
of the instrument, or render it useless.
May a corporation be held liable, when one of its officers signs as an accommodation
party?
The agent is not personally liable if he signs in the manner prescribed by Section
20 of the Negotiable Instruments Law; that is:
1. Adds to his signature, words that indicate that he signs for or on behalf
of a principal, or in a representative capacity; and
2. Discloses his principal.
According to Section 21, it operates as notice that agent has, but a limited
authority to sign, and the principal is bound only in case the agent so signing, acted
within the actual limits of his authority.
May a person who has not signed the instrument, be held liable?
A person who has not signed the instrument, cannot be held liable therefor,
except:
In case of acceptor for honor, or referee in case of need, there must be protest for
non-payment.
No, the drawer is only discharged, from the liability to the extent cause by the
delay, or non-presentment. Failure to present on time, does not total wipe out all
liability.
What is acceptance?
Acceptance is the signification by the drawee of his assent to the order of the
drawer, to pay a sum certain in money, as provided in the bill of exchange.
1. It must be in writing;
2. It must be signed by the drawee;
3. The drawee must assent to paying a sum certain in money, and not by
any other means.
1. Where the bill is payable after sight, or in any other case. Where the
presentment for acceptance, is necessary in order to fix the maturity of
the instrument;
2. Where the bill expressly stipulates, that it shall be presented for
acceptance;
3. Where the bill drawn payable elsewhere, than at the residence, or place
of business of the drawee.
1. The bill was delivered to the drawee, and he destroys the same;
2. The bill was delivered to the drawee, but he refuses to pay within 24
hours, or within such other period, as the holder may allow to return
the bill, either as accepted or non-accepted, i.e. when there is undue
retention of the bill.
A notice of dishonor, informs the secondary parties, that the instrument was
either dishonored by non-acceptance, or non-payment, and that the holder of the
instrument so dishonored, intends to enforce the liabilities of the persons so notified.
Does the payee have a legal obligation to inform the drawer, that the instrument was
dishonored?
No, the payee is under no obligation to inform the drawer, that the instrument
was dishonored. The notice is only required to preserve the payees right to recover on
the dishonored instrument. The failure to give notice to the drawer, or endorsers
operates to discharge them of their respective liabilities on the instrument.
If no notice was given, is the drawer completely absolved of liability to the payee?
No, mere failure to give notice to the drawer does not operate to absolve all
liability. The contractual obligation persists.
May a person give notice of dishonor to prior parties, even if he was not authorized
to do so?
To whom should notice be given to the endorsers, in a case where the endorser are
partners?
Notice to either of them, pursuant to the principle of mutual agency, between and
among partners, as provided by Article 1818 of the New Civil Code.
When is notice of dishonor excused or unnecessary for the drawer?
Sec 114 of the Negotiable Instruments Law provides that, notice need not be
given to the drawer, or notice is excused when:
1. Where the drawer and the drawee are the same person;
2. When the drawee is a fictitious person, or a person not having the
capacity to contract;
3. When the drawer is the person, to whom the instrument is presented
for payment;
4. Where the drawer has no right to expect, or require that the drawee or
acceptor will honor the instrument;
5. Where the drawer has countermanded, or cancelled payment.
Section 115 of the Negotiable Instruments Law provides that, notice of dishonor
upon the endorser is excused when:
Section 110 of the Negotiable Instruments Law provides that, if the instrument
itself contains the waiver, all parties thereto are bound. If on the other hand, the waiver
is written above the signature of a particular endorser, only that endorser is bound.
Does the failure to give notice of dishonor affect the rights of a subsequent holder in
due course?
What is protest?
Sections 152 and 118 provide that, although the Negotiable Instruments Law
requires protests for foreign bills, there is no prohibition against making a protest for
the dishonor of inland, or local bills of exchange.
Acceptance for honor happens when, the original drawee refuses to accept a bill
of exchange, and there is a need to save the credit of certain parties. A third person, or a
stranger to bill of exchange accepts the instrument for honor. The acceptor then makes
himself liable to all parties to the bill, subsequent to the party, for whose honor he
accepted.
The liability of the acceptor for honor is secondary. His engagement is to pay,
only if the bill is not paid by the drawer; and provided that it has been duly presented
for payment, and protested for non-payment and that notice of dishonor is given to him.
According to Section 171 of the Negotiable Instruments Law, payment for honor
may be made by any person, for the honor of any person liable on the instrument, or for
the honor of the drawer.