Meeting ID: 767 7258 1552

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LIABILITIES OF PARTIES

-2 classifications of liabilities on negotiable instruments

1. Primary
2. Secondary

PRIMARY LIABILITY

Sec. 192. Persons primarily liable on instrument. - The

person "primarily" liable on an instrument is the person who, by the terms
of the instrument, is absolutely required to pay the same. All other parties
are "secondarily" liable.

-Primary liable
PN – maker
Boe – acceptor(when accepted BE)/drawee

*No liability attaches to dwee unless accepts BoE; no acceptance, no

liability (non-acceptance must not be in bad faith, otherwise liable for
dmgs)

Why called primarily liable

- Because they are unconditionally bound or liable on the nego
inst.; liability not subject to any condition; bound to pay nego
even without demand

Sec 192 and Sec 70 Effect of want of demand on principal debtor.

Presentment for payment is not necessary in order to charge the person
primarily liable on the instrument (persons primarily liable); but 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. But except as herein
otherwise provided, presentment for payment is necessary in order to
charge the drawer and indorsers (persons secondarily liable).

DISTINCTIONS:
Prima liable – unconditianlly bound on the inst
Party 2ndary liable – not bound to pay unless certain conditions are
complied with such as:

1. due presentment or demand

2. dishonor
3. taking of Necessary proceedings on dishonor or protest

LIABILITY v. WARRANTY
Liability – who is bound to pay?
Warranty – statement/affirmation of fact/warrants

Sec. 60 Liability of maker. The maker of a negotiable instrument, by

making it, engages that he will pay it according to its tenor, and admits the
existence of the payee and his then capacity to indorse.

Liability of maker – pay according to its tenor

Warranty of maker – admits existence of payee and capacity to indorse

Significance of admission of payee

- Payee exists in fact; not fictitious
- Payee has capacity to indorse
- Cannot say payee is non-existent

Relevance of warranty on capacity to indorse of payee

- Maker cannot raise defense of minority of natural person-
payee/ultra vires of corporation
- Maker cannot raise defense of incapacity to contract of payee

Status of BoE prior to acceptance by drawee

 - No liability on dee’s part
- Legal basis: Sec. 127  Bill not an assignment of funds in hands of
drawee. - A bill of itself does not operate as an assignment of the
funds in the hands of the drawee available for the payment thereof,
and the drawee is not liable on the bill unless and until he accepts
the same.
*****
Sec. 61. Liability of drawer. - The drawer by drawing the instrument admits
the existence of the payee and his then capacity to indorse; and engages
that, on due presentment, the instrument will be accepted or paid, or both,
according to its tenor, and that if it be dishonored and the necessary
proceedings on dishonor be duly taken, he will pay the amount thereof to
the holder or to any subsequent indorser who may be compelled to pay it.
But the drawer may insert in the instrument an express stipulation
negativing or limiting his own liability to the holder

***

Sec 127 and Sec. 62:

Sec. 127  Bill not an assignment of funds in hands of drawee. - A bill of

itself does not operate as an assignment of the funds in the hands of the
drawee available for the payment thereof, and the drawee is not liable on
the bill unless and until he accepts the same.

Sec. 62. Liability of acceptor. - The acceptor, by accepting the

instrument, engages that he will pay it according to the tenor of his
acceptance and admits: chanroblesvirtuallawlibrary

(a) The existence of the drawer, the genuineness of his signature,

and his capacity and authority to draw the instrument; and

(b) The existence of the payee and his then capacity to indorse.

*If dee accepts, liability is under Sec. 62 now

*If payable immediately, must be presented immediately

*If payable in the future, must be presented for acceptance before becomes overdue

*If check altered, check must not be accepted (PCHC rules)

- bank ee may be held liable

Meaning of “accdg to tenor of acceptance”

*What if BoE is altered? What is now then tenor of acceptance of dee-acceptor?
*It’s the original amount stated in the BoE even if altered
*tenor of acceptance is only to the extent of the orig amount, not to the altered amount

***Diff case: Name of payee altered

- Should not pay altered name of payee
- Should pay the original name/payee

WARRANTIES OF ACCEPTOR/DEE
- Dee canot say that signature of Dwr is fake/forged
- Dee cannot say payee is incapacitated to contract to refute validity of indorsement of payee

INDORSEMENT
- 2 contracts formed
1. Contract for transfer/assignment of the nego inst
2. Contract to pay should party primarily liable refuse to pay

WHEN IS BOE ACCEPTED; WHAT IS ACCEPTANCE BY DEE

Sec 191 - "Acceptance" means an acceptance completed by delivery or
notification;

Query: How accetance is made

- Sec 132, 133, 138

Sec. 132. Acceptance; how made, by and so forth. - The acceptance

of a bill is the signification by the drawee of his assent to the order
of the drawer (WHAT IS ACCEPTANCE). The acceptance must be in
writing and signed by the drawee. It must not express that the
drawee will perform his promise by any other means than the
payment of money (FORMAL REQUISITES OF ACCEPTANCE).

Formal Reqs of acceptance

1. In writing;
2. Signed by dee; and
3. Promise is to pay money not any other act; not change implied
promise to pay only in money

***Acceptance applies only to BoE, not PN

Purpose/relevance of acceptance: To bind dee and make him an actual
and bound party to the inst

*No oral acceptance

XPN: Circumstance provided in Sec. 137 (deemed accepted even if no
acceptance)
Sec. 137. Liability of drawee returning or destroying bill. - Where a drawee
to whom a bill is delivered for acceptance destroys the same, or refuses
within twenty-four hours after such delivery or within such other period as
the holder may allow, to return the bill accepted or non-accepted to the
holder, he will be deemed to have accepted the same.

Sec. 133. Holder entitled to acceptance on face of bill. - 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 refused, may treat the bill as
dishonored.

Sec. 138. Acceptance of incomplete bill. - A bill may be accepted before it

has been signed by the drawer, or while otherwise incomplete, or when it
is overdue, or after it has been dishonored by a previous refusal to accept,
or by non payment. But when a bill payable after sight is dishonored by
non-acceptance and the drawee subsequently accepts it, the holder, in the
absence of any different agreement, is entitled to have the bill accepted as
of the date of the first presentment.

*Bill may be accepted even if incomplete

*Warranties are relevant when it comes to Defenses

- memorize warranties
- Because after knowing warranties, can now know unavailable defenses

*Query on acceptance: Until when is dee allowed to accept BoE once presented to him for acceptance?
Is there a time frame for the dee to accept Boe? – Yes

*Dee has a limited period within wich to accept BoE (24-hour rule)
Sec. 136. Time allowed drawee to accept. - The drawee is allowed twenty-
four hours after presentment in which to decide whether or not he will
accept the bill; the acceptance, if given, dates as of the day of
presentation.

Acceptance has retroactive effect (Last clause)

Presented on May 1 @ 10AM
Must accept on May 2 @ 10AM

When should inst be paid if inst says that it must be paid 10 days from presentment
- Must pay on May 11, not May 12 due to clause on retroacrivity of acceptance on day of
presentment
Sec. 137. Liability of drawee returning or destroying bill. - Where a drawee
to whom a bill is delivered for acceptance destroys the same, or refuses
within twenty-four hours after such delivery or within such other period as
the holder may allow, to return the bill accepted or non-accepted to the
holder, he will be deemed to have accepted the same.

What if there is no acceptance or no return after 24 hours from presentment? What will happen? Will
there be implied acceptance?
- None. No implied acceptance by the mere fact that dee did not return the inst within 24 hours
- Operative word: “refuses” – there must be prior demand to return the inst so that there would
be implied acceptance (so that sec 137 2nd clause will operate); if no prior demand, and dee not
return, no implied acceptance
- Legal basis: Sec. 150. Duty of holder where bill not accepted. - Where a
bill is duly presented for acceptance and is not accepted within the
prescribed time, the person presenting it must treat the bill as
dishonored by nonacceptance or he loses the right of recourse
against the drawer and indorsers.
- Hence, inst. Is treated as dishonored by non-acceptance otherwise holder loses right to enforce
liability on secondary parties

Presented to dee on May 1 @ 10AM

Returned without notation May 1 @ 1pm
- Inst is not necessarily considered as dishonored by non-acceptance
- Because dee may still accept inst within the 24 hour period, that is, until May 2 @ 10AM; dee
may still ask that inst be returned to him for acceptance

Where should be acceptance be done? Same or separate doc?

- It may be accepted on separate
- Sec. 134. Acceptance by separate instrument. - Where an acceptance
is written on a paper other than the bill itself, it does not 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. 135. Promise to accept; when equivalent to acceptance. - An

unconditional promise in writing to accept a bill before it is drawn is
deemed an actual acceptance in favor of every person who, upon the faith
thereof, receives the bill for value.

Secs 134 and 135

- Acceptance can be made in inst itself or separate doc

Acceptance in separate doc must identify the bill being accepted; there must be cross-reference to the
bill being accepted;
- So that acceptance in separate doc will be valid acceptance
- Acceptance must be clear and unequivocal
Acceptance of existing bill in separate doc vs. acceptance of future bill in sep. doc
Existing bill – aka extrinsic acceptance
Future bill – aka virtual acceptance

2 kinds of acceptance by dee

1. General
2. Qualified

SECS. 139 140 141 142

Sec. 139. Kinds of acceptance. - An acceptance is either general or

qualified. A general acceptance assents without qualification to the
order of the drawer. A qualified acceptance in express terms varies
the effect of the bill as drawn.
 
Sec. 140. What constitutes a general acceptance. - An acceptance to
pay at a particular place is a general acceptance unless it expressly
states that the bill is to be paid there only and not elsewhere.
 
Sec. 141. Qualified acceptance. - An acceptance is qualified which
is:chanroblesvirtuallawlibrary

(a) Conditional; that is to say, which makes payment by the acceptor

dependent on the fulfillment of a condition therein stated;
 
(b) Partial; that is to say, an acceptance to pay part only of the
amount for which the bill is drawn;
 
(c) Local; that is to say, an acceptance to pay only at a particular
place;
 
(d) Qualified as to time;
 
(e) The acceptance of some, one or more of the drawees but not of
all.

Sec. 142. Rights of parties as to qualified acceptance. - The holder

may refuse to take a qualified acceptance and if he does not obtain
an unqualified acceptance, he may treat the bill as dishonored by
non-acceptance. Where a qualified acceptance is taken, the drawer
and indorsers are discharged from liability on the bill unless they
have expressly or impliedly authorized the holder to take a qualified
acceptance, or subsequently assent thereto. 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.

General acceptance – assents without qualification to dwr’s order

Qualified acceptance – acceptance with condtions (set forth In sec 141) varies effects of the BoE
Sec 141 – cases of qualified acceptance

CONDITONAL ACCEPTANCE
-condition is not on the promise, it is on the acceptance
- no bearing negotiability of the inst.
-inst remains negotiable despite condition on acceptance

PARTIAL ACCEPTANCE
-diff from partial indorsement

LOCAL ACCEPTANCE
-

AS TO TIME
- Accept on certain time/day

LAST KIND
- Not all accept

RELEVANCE OF QUALIFIED ACCEPTANCE – SEC 142

GR: Acceptance must be general

XPN: Can holder take qualified acceptance? – Yes but he must accept consequences of taking qualified
acceptance since he loses right of recourse against dwr and indorsers

RECAP OF PRIMARY LIABILITY

*Liability may be 1 or 2
*Liability of mkr and dee, who bcomes acceptor, is to pay
*Warranties of mkr and dee is the same
*Acceptance
- What is acceptance
- Form of acceptance (requisites of acceptance)
-Time within which to accept 24-hour rule
-Implied acceptance (2 scenarios)
-Where acceptance made
-2 Kinds of acceptance
-***Acceptance different from negotiability insofar as conditional acceptance is concerned
-***Partial accetance diff from partial indorsement which is invalid indorsement, a kind of spliiting
Cause of action
SECONDARY LIABILITY

-They are not liable unless conditions exist so that their liability may
arise

Conditions to enforce liability on 2ndary parties

1. Presentment
2. Dishonor
3. Necessary proceedings on dishonor/protest

2ndarily liable in PN – indorser

2ndarily liable in BoE – drawer and indorser

Sec. 70. Effect of want of demand on principal debtor. - Presentment for

payment is not necessary in order to charge the person primarily liable on
the instrument; but 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. But
except as herein otherwise provided, presentment for payment is
necessary in order to charge the drawer and indorsers.

-To enforce liability on 2ndary parties there must be presentment for payment
-Presentment meaning – presentation of inst on maturity date

LIABILITY OF DRAWER

Sec. 61. Liability of drawer. - The drawer by drawing the instrument admits

the existence of the payee and his then capacity to indorse; and engages
that, on due presentment, the instrument will be accepted or paid, or both,
according to its tenor, and that if it be dishonored and the necessary
proceedings on dishonor be duly taken, he will pay the amount thereof to
the holder or to any subsequent indorser who may be compelled to pay it.
But the drawer may insert in the instrument an express stipulation
negativing or limiting his own liability to the holder.

Liability of dwr to pay is conditional/2ndary – there must be presentment to dwee, dishonor by dwee,
and proceedings on dishonor or protest in case of foreign bills taken (so that dwr may be held liable to
pay)

Significance: There is an indorser who is not liable to pay but only liable on violation of his warranties
Dwr cannot say that payee is fictitious or that he is incapacitated to contract/indorse
***Negotiation dependent on kind of inst. whether it is bearer or order
Negotiation diff from indorsement

(Payable to juan or bearer – bearer inst, if order and bearer

words combined, exclude order, it is bearer inst.)

A party may indorse a bearer inst but indorsement not necessary to transfer title to a bearer in
st., only delivery is needed – no law prohibiting bearer to indorse

Order inst – indorsed completed by delivery

******Sec. 65. Warranty where negotiation by delivery and so

forth. — Every person negotiating an instrument by delivery or by a
qualified indorsement warrants: chanroblesvirtuallawlibrary

(a) That the instrument is genuine and in all respects what it

purports to be;

(b) That he has a good title to it;

(c) That all prior parties had capacity to contract;

(d) That he has no knowledge of any fact which would impair the
validity of the instrument or render it valueless.
But when the negotiation is by delivery only, the warranty extends
in favor of no holder other than the immediate transferee.

The provisions of subdivision (c) of this section do not apply to a

person negotiating public or corporation securities other than bills
and notes.

2 kinds of negotiation in sec 65

1. Delivery
2. Qualified
- They are not liable to pay the inst., only liable on their warranties
- Reason: Qualified indorser is one who indorses “without recourse”;

SEC 65 1ST WARRANTY – INST IS GENUINE AND IN ALL RESPECTS WHAT IT PURPORTS TO BE
-almost covers all kinds of real defenses such as forgery

***Gen Indorser SEC 65(D) – knowledge is important as a defense on violation of warranty

***Qualified Indorser SEC 66(B) – knowledge not important, the fact that Inst is invalid is
violation of warrant
Qualified vs general indorser (on warranties)
- Last warranty. Gen indorser diff from qualified indorser
- Sec. 66. Liability of general indorser. - Every indorser who
indorses without qualification, warrants to all subsequent
holders in due course: chanroblesvirtuallawlibrary

- (a) The matters and things mentioned in subdivisions (a), (b),

and (c) of the next preceding section; and

(b) That the instrument is, at the time of his indorsement, valid
and subsisting;
- And, in addition, 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 on dishonor be duly taken, he will pay the amount
thereof to the holder, or to any subsequent indorser who may
be compelled to pay it.

Sec 66/Gen Indorser has a liability to pay, unlike deliverer and qualified indorser, liability is as if,
or similar, liability of drawer
-Basis: 2nd par of sec 66 - And, in addition, 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 on dishonor be duly taken, he will pay the
amount thereof to the holder, or to any subsequent indorser who
may be compelled to pay it

Knowledge of a general indorser that inst is valid at the time of indorsement is immaterial unlike
qualified indorser. Material point: Inst. is invalid, gen indorser is liable on his warranty thereon
- Inst. here is presumed that it is valid at time of indorsement

Sec. 67. Liability of indorser where paper negotiable by delivery. — Where

a person places his indorsement on an instrument negotiable by delivery,
he incurs all the liability of an indorser.

Sec. 63. When a person deemed indorser. - A person placing his signature

upon an instrument otherwise than as maker, drawer, or acceptor, is
deemed to be indorser unless he clearly indicates by appropriate words his
intention to be bound in some other capacity.

Sec. 40. Indorsement of instrument payable to bearer. - Where an

instrument, payable to bearer, is indorsed specially, it may nevertheless be
further negotiated by delivery; but the person indorsing specially is liable
as indorser to only such holders as make title through his indorsement.
Sec. 68. Order in which indorsers are liable. - As respect one another,
indorsers are liable  prima facie in the order in which they indorse; but
evidence is admissible to show that, as between or among themselves,
they have agreed otherwise.  Joint payees or joint indorsees who indorse
are deemed to indorse jointly and severally.

ASS

ACOMODATION PARTY LIABILITY

AGENT LIABILITY

DEFENSES

DISCHARGE

RULES ON PRESENTMENT – JUST READ DAW

Present holder may enforce inst against anyone liable on the inst.

But among indorsers themselves, order of indorsement must be followed

- Must enforce first against indorser preceding him