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I
NEGOTIABLE INSTRUMENTS LAW
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~ INTRODUCTION

Q. Give the hi~tory of oUr Negotiable Instruments Law.

A.. The pres~nt Negotiable Instruments Law was copied from
the UnIform NegotIable Instruments Law of the United States of
1896 which in turn was patterned after the English Bill of Exchange
Act of 1882. Prior to the enactment of the Negotiable Instruments
Law in the Philippines on February 3, 1911, negotiable instruments
were governed by the Code of Commerce. Our present Negotiable
Instruments Law has proven to be the most stable law of the coun-
try as it has not been amended or changed since its adoption.

Q. Is the Negotiable Instruments Law applicable to

non-negotiable instruments?
A. The Negotiable Instruments Law applies to negotiable
instruments only, and excludes non-negotiable instruments from its
application (Moody v. Morris-Roberts Co., 226 P. 278, 38 Idaho 414).
Non-negotiable instruments are governed by the provisions of the
Civil Code.

Q. What is the meaning of negotiability?

A. Negotiability is the ability to transfer to' another a title
and right better than what the transferor had. Through the process
of negotiation, the instrument could pass to a holder in due cou~se
(Sec. 52) who acquires the instrument free from an! defect. of tItle
of prior parties, and free from defenses available to pnor partIes (Sec.
57).

. 1
 0'0:

:l ~lJlI,/.JIJl\ ..... . ---LAW ANI> HEI.A !L-'V L" ,"' -

NEGOTIAB
LE INSTRUMENTS LA
otiubl e instruments? Introduction W 3
tions of neg
Q . What are the (une bl "nstrul11c' nt is not a legal ten-
d 't '
the latter Was jUstifi d .
A Although a ncg otifl e \ ,titute for money, an I, In- Credit Corporation~: ~n SUspending his credit card (BPI E
". b accepted as a Sl~ ):S nmcrcial transactIOns. 260). . ourt of Appeals 98 SCAD 8 Xpress
der It has een · Ttatlng COl d't t , 99,296 SCRA
, dOt thereby facI I (: f doubted cre 1 0 carry
creases cre I II w mcn 0 un t b'll f
N l'Ui ble instruments a 0 h' promissory no es, 1 S 0 Q. Francisco Realt h
ego " e~S enterprise upon t Ctlr tIler businessmen will ac- ance of the price of the I y .ad an obligation to pay the bal.
on a b USII1 · ~ . g th a 0 h
exchange and checks. knowl~ uiv'alent of cash: Furt ermore, lic Bishop of Malolos ::ad It. bought from the Roman Catho-
hese instruments as q h d to hand In the commer- payment by certified 'p nCISCO Realty allegedly tendered
cep t t t from an . 1 grace period granted ber~~nal check on the last day of the
negotiable instrum en s go art of money in commercIa trans-
cial markets and take the p 207 Iowa 326, 222 N.W. 878). fused to accept the cert~ de ~ller. The seller allegedly re-
actions. (Townsend v. Adams, b t't t £'. cancelled the contract of lei ~ eck as payment and instead,
" gotiable instrumel
1t is only a Sll s 1 u e lor money
b .
of the price. Was there a sal~dotr ndon.payment of the balance
But smce a ne . ~f h an instrument does not, y It- va I en er of payment?
and not money, the del~v~i:.u~ :uc~leck, whether a manager'~ check A. A certified check is t I I
stipulated and th fj no a. ega tender nor the currency
self, operate as pa~men I' I; der and an offer of a check In pay- . ere ore, cannot constitute a legal te d f
or ordinary check IS not ega en , d b fl d Smce a negotiable. instrument is only a substitu~ f~~ ~~:~:~~
" t l'd tender of payment an may e re use
ment of a debt IS no a va 1 I' f h ks d t not money, the dehvery of such instrument does not by itself oper
receipt by the obligee or creditor. Mere de IVery 0 c ~c . o~s no ate as ?ayment. A check, whether a manager's check or ordina~
discharge the obligation under a judgm~nt. The oblIgatIOn IS not chec~, IS not le~al tender, and an ofTer of a check in payment of a
extinguished and remains suspended untIl the pa~ment ?y commer- debt IS .not a vahd ~ender of payment and may be refused receipt by
cial document is actually realized (Cebu InternatIOnal FInance Cor- . the oblIgee or credltor (Roman Catholic Bishop of Malolos Inc vs
poration vs. Court of Appeals, G.R. No. 123031, Oct. 12, 1999, 114 . Intermediate Appellate Court, 191 SCRA 411). ,. .
SCAD 44; Art. 1249, Civil Code).
Q. What is the importance of negotiability?
Q.Marasigan was a holder of a credit card issued by A. While negotiability is not essent.ial to the validity of an
BPI Express Credit Corporation (BPI CREDIT). When instrument, however, it is highly important that negotiable paper
Marasigan failed to pay his outstanding obligation, BPI be favored and protected in the hands of innocent holders, and the
CREDIT demanded immediate payment of the outstanding law has always been solicitous to exclude any rules calculated to
account and required Marasigan to issue a check for PI5,OOO hinder the free circulation of mercantile paper having legitimate
to include future bills. Marasigan issued a check for PI5,OOO inception, as the transfer of negot.iable instruments is, in the inter-
postdated for December 15, 1989. On November 28, 1989 and est of trade, to be facilitated since negotiable bills, checks and notes
thus, before the date of the postdated check BPI CREDIT represent money and are intended to pass from hand to hand as
suspended the credit card of Marasigan. Mar~sigan filed an " money, or as a species of currency, without inquiry (Quanah, A. and
P. Ry. Co. v, \Vichita State Bank and Trust Co., 93 S.W. 2d 701).
. . against BPI CREDIT....
action for damages liT
as the suspensIon
•
of the credit card Justified?
Q. Distinguish assignment from negotiation.
A Settled is the doctrine that a ch k' ,
for money and not mone 'ts If ec .1S only a substItute A. Assignmenlllluy be distinguished from riegoUa~ion as fol- .
ment does not by itself oY 1 e . Thus, the dehvery of such instru-
, pera t e as payme t Th' . . lows:
In assignment, the assignee; steps, into the sh~es of
in the case of a postdated ch k Th' n. IS IS espeCially true
postdated check was not effe:~' . e ISsuance by Marasigan of the
1.
the assignor and merely acquires what.ever nghts the assignor
his obligation under the arranIVe payme~t. It did not comply with
. gement wIth BPI EXPRESS, hence,
'"; °
 ; \
. ion the holder in due COurse ac. I

hile in negotult .'ght of the transferor (Security ~Ec.r..- ._

m~y have~ ~t better than the ~54 119 Or. 460).
! \
-~1l.1\BI..E l .... ~h
, "" 'I\Ul.tE~
qmres a ng 'ni 249 P. ' :. \ Introduction .. Ii':) LAW
Finance Co. v. Coml , ~ .gne e is subject to all defenses (b) Bond' . 6
In assignment~ the ~:ked, No.5, 1986 Bar Exams.)
tion when the 18 a Ptolllis
2
or
-I 1 amOunt - 1 sory no~ Us al
'1 b'l against the ass1gnd 'n due course is free from Per' peop e and extends 0 1S arge and ob . u ly iSSued b a
aval a e
'l
.
negotiatIOn, a
hoI er I 'd S
. r parties (lbr. .; ec.
57
; see Sec
- :, COrporations, p. 315 )v a PeriOd of ytained tTo m a tar:e n,~~~a.
er
wh1 e
m'
'1 ble to pno . . ears (Fis h ....... u~ of
sonal defenses aval a .(c) C oupon bond . c er's Law on St"~L ~
proVIded with inte 18 an instnun
58). t' must be given to the debtor of' te rest W::n·_._ ent PaYabl
. ent no Ice b d m rest. also paYable- CUlts called "cou .. e to bearer and ~
able and payable to be to bearer, which ~ns for each installment.
4
3. In ass1gnm 'h'l negotiation may e one eVen
(Art. 1626, Civil Code),
without notice t.o the deb
70/
(~O C.J .S. 424). ,t Asked, 1956 Bar E aI'er (SA Fletcher C en detached are negoti.
(d) xams.). yc. COt'p., Sec. 2639, p. 11.
Convertible bo . •
ki ds of negotiable instruments? tion of the holder into nd 18 One that may be
Q What are the n Cyc. Corp., Sec. 2S40 stocks of the issuing cor:n'l.erted at the op-
'. 'able instruments may be divided into two • p. 12; Asked 1956 B ratIon (SA Fletcher
A. Ba~ICally, ne~~ISec 184) and bill of exchange (Sec. 126). If the certificate f d .' at" Exams.).
groups, promISSOry ~o 'm ortance in the commercial world, a check ments of S 0 epoSlt 01' bond
ec. 1, it is negotiable, Othe .CO~pl~es with the require-
However, be~us~ of Its I ki~ d f a bill of exchange has been accepted I'Wlse, It 18 not.
(Sec 185) whIch 18 but a n 0
as the third kind of negotiable instrument. Q. Define a bill of exchange.
Under the group 0 f pro missory notes are certificates
b I dof deposit
ft A. A bill of exchange is an u ..
d h ' l ' the group of bills of exchange e ong ra sand addressed by one T\Orson ~~ a th ~condlhonal order in writing
and bon s, W 1 e 10 • , h k d t l' . . . r - " , no er Slgned b th
tra d e acceptance. Checks include cashIer s c ec an rave er s reqUlnng the person to Whom it is ~dd y e ~rson giving it,
check. at a fixed or determinable fut r ressed to pay on demand or
order or to bearer (Sec. 126), ure Ime a sum certain in money to
Q. Define promissory note.
A. A negotiable promissory note within the meaning of this th Q: Define: (a) trade acceptance, and (b) draft Are
ese Instruments negotiable? •
Act, is an unconditional promise in writing made by one person to
another, signed by the maker, engaging to pay on demand, or at a A. (a) Trade acceptance is a bill of exchange drawn by the
fixed or determinable future time, a sum certain in money to order ;\. ! seller of gOO~S on the purchaser of goods sold and a~pt.e.d hy such
or to bearer. Where a note is drawn to the maker's own order, it is pu~haser (Pierce, Butler & Pierce Mfg. Corporation v. Daniel Russell
not complete until indorsed by him (Sec. 184). , \ Boller Works, 159 N.E. 625. 262 Mass. 242).
(b) Draft is a form of a bill of exchange used principally be.
Q. Define (a) certificate of deposit, (b) bond, (c) cou- tween persons Who are physically remote from each other. When it
pon bond, and (d) convertible bond. Are these instruments is drawn by a bank on its correspondent hank. and usually issued
negotiable? at the solicitation of a stranger who purchases and -pays therefor, it
' .
A. (a) Cert~ficate of deposit is a written acknowledgment by
'... t\
:;, ' is referred to as a bank draft (Kohler v. First Nat. Bank, 289 P.41,
157 Wash. 417),
a bank ~f the receIpt of money on deposit which the bank promises The negot.iability of trade acceptance and draft.. as in any other
to pay eIthe~ on demand or at a fixed or determinable future time, instrument, d(~pends on the compliance thereof with the requi~
to the depOSItor, bearer, or order (State Nat B k f L B
con Trust Co., 166 N.E. 837). . an 0 ~nn v. ea- menta of Sec. 1 of the Negotiable Ins\l'uments Law. If it oonforms
with the requirements of Sec. 1, it is negotiahle, othcrNise. it. is not.
 FORM ANn
Requisi INTERPRETATION
tea of Negotiability 9
no other Words
(Caltex [Phil ) are to be added t .
y: ND INTERPRETATION I[a], 1992 Ba: E~:C' vs). Court of Ap~1:1:r2~~~gRAtuted in its stead
ms. . ' 448; Asked, No.
TITLE I. FORM A
cHAPTER I G) Q. How and wb
be negotiable?• ere mayan instrument b e wntten
. to
REQUISITES OF' NEGOTIABILITY . A. It may be written . .
pnnted (Reed v. Roark 14""m pencll, or lithographed engrav d
ten ' l.ex 325 65 Am D ' e ,or
upon parc~ment, cloth, le~th' . . 127). It may be writ-
.; per. However, It mu.st be writ er, or any other substitute for pa-
. 'tes of negotiability, or forms of ; ! ferred from one person to tehn on something that may be trans-
Ii ~ fr om one person to anotheranot er. To negot'late means to transfer
Q. What are the r;~~~ed, No. I[a], 1993 and No. I[a], ; ,I (8
be transferred from one pers:~' to ) antdhtherefore, where it cannot
30
i:
negotiable instruments ~ ered negotiable. ano er, it could not be consid-
1996 Bar Exams.)
. t t be negotiable must conform to the fol. tl
A. An mstrum en 0 . g
~ . Q. How may the sign a t ure 0 f a party to an instrument
lowing requirements: . l be affixed?
(n) It must be in writing and signed by the maker or
drawer; kA. A party may sign a bill or note by using an abbreviation
(b) Must contain an unconditional promise or order to mar ,or assu~ed name; his signature may be printed, lithographed
or put on t?e mstrument by means of a hand stamp when sho~
pay a sum certain in money; that such SIgnature was adopted as genuine signature of the party
(c) Must be payable on demand, or at a fixed or deter- (10 C.J.S. 505-506).
minable future time; It is ge~erally i~material where a person signs, since the in-
(d) Must be payable to order or to bearer; and tent of the SIgner ordmarily governs the nature of his liability (In
': Donohoe's Estate, 115 A. 878, 271 Pa. 554,20 A.L.R. 392). The
(e) Where the instrument is addressed to a drawee, he SIgnature of the maker or drawer is usually at the lower right-hand
must be named or otherwise indicated therein with reasonable corner of the paper. It may, however, be placed on any part of the
certainty (Sec. 1). paper if so placed as a signature (Garon v. Becker, 191 A. 546, 118
N.J. Law 98), and the signature may appear in the body of the bill
or note (In re Donohoe's Estate, supra). It may be written across the
Q. How is negotiability of an instrument determined? face of the instrument, and one may even sign as maker on the back
(Asked, No. VU], 1989 Bar Exams.) of the note (Kitchen v. Ferguson, 4 La. App. 143).
A. The negotiability or non t' b'I'
determined from the writin th -~ego Ia I lty of an in~trument is
However, while the position of the signature is not flXed by any
itself. While the writing m g, b at IS, ~n the face of the Instrument
law, all departure from the usual place of signature is liable to
misconstruction and should be avoided (10 C.J.S. 506). Thus, where
ing circumstances in order ~ e read In the light of the surround-
a signature is so placed upon the instrumen~ that it is no~ clear i~
and meaning of the parties mtore perfectly understand the intent what capacit.y the person making the same lntended to SIgn, he 15
. b ,ye as they h .
mg to e the only outward and . 'bI ave constItuted the writ- to be deemed an indorser (Sec. 17U1).
VISI e exp .
reSSlOn of their meaning,

8
 n Bb'vtF" r ,"
', Nfl Hb
,t.AT1"1' ,p'"

QUIZZf R AN LA \\ ,A. •
distingtlUoihed from a Pel'i
'ti(ln 1.1 8 ()~? FORMANl)
, con(I I ~u·' INTERPRETATION
Whitt IS II h .
. Ie of ea e .
lSltee of Negotiability 11
Q. d uncertam event, Or a
Give an ('xan1P " 's 11 future [l~1179 Civil Code), An eXa PaSt 419) but the ord .
. '1' er 18 not·
CIVI_!ty......Tb.us the' InValidated be .
A A cOJ1dJtJ~n ~~1rtjeS (Art, ination, which is uncerta~Ple I!
-c h;racter of the i 1~Sertion of the Word ~~se ~ntains words of
~nknown to t ~eg the bllT eXoIn In to does not necessa ~s ~rnent as the use of~e oes not alter th~
even t d '(on I~
" p,,;::;~:)n
12 Ca1. 92 73 ~lYDlrnpl:Y that a favor is a k dusWh
~... e Ual
tenn of civility
of a con I ) . event which is certain to h h .. . ' . . . 419). Lik' s e ( eatley v. Strohe, ,.
",.
!: ';

happen, tl e other hand, IS llnwhcn (Art. 1193, par, 3 C~p· ave IS a SUffiCIent order b eWlse, the e~pression "let the hearer
'od n 1 k own , Iv'l son, or bearer, "and I w'li ut the expressIon "credit" a named
A pen h ~t may not ~e .n the death of a person which is Ce 1 order (Biesenthall v. Wil;ia~ay you" has been held not to sta:~
pen a1tho ug I Ie of 8 perIod. IS f happening is uncertain. t'.
Sargeant, Supra). s, 1 Duv. 329,85 Am.D. 629; Woolley v.
C de) An e.xaOlP h the tune 0
~ t
" ohappen aIthoug
uun '
I 'cct to condition or period n Q. When are Words d " '
. strum cnt su )J e. promise to pay? Use suffiCient to constitute a
Q. Is an 111
gotiuble? d to pay must be absolute, uncond' A. No Particular words of pr . "
J1u';::; e or or er F' C 1· any form of expression is suffi' ~~se are reqUlred m a note, but
A The pro • l[bJ'International mnnce o. v. North. direct undertakin g Clen am which can be deduced a
. (ee Sec., ) Th .
P. 700,9 Colo 572 ) toThpa the Sum ~pecified (Cowan v. Hallack, 12
y
t ionaI.. and certaIn S
CDC. If mIl.,
1\,1' 282 F. 920. us, an Instrument
f' .
western Drug 0. , ' pon the fulfillment 0 a condItIon l'S . ' . . us, the followmg expressions have been held
t' geney or u . suffiCIent as promIses to pay' "I guarant to .. (B W
payable on a con m ak M rcantile Finance CorporatIOn v. Menitt 1 3 B ar f . 374) , "th'IS IS
, . y pay \ ruce v. estcott,
non·ne~otiable (Westl 7; 6~ A.L.R. 811; Asked, 1966 Bar Exams.: to certify that I am to pay" (Meyer v. Well, 37
269 PI. 620, 204 Cal.: ' ) But an instrument which is payabl~
La. Ann. 160), and "obliges himself to pay." (Hitchcock v. Cloutier, 7
Vt. 2~). But a mere acknowledgment of a debt does not constitute a
and No. 5, 1~86 Bafr xa~lsd'l:S negotiable as the happening of the
up~n . e
th amval 0 a peno
. Th
perwd ]8 certam. us,
person ]8
Mass. 453).
. nego t']a ble (Goodfellow v. Farn am,
h
h
an instrument payable upon t e death of a
128 N E 776
. . , 236
, I
i

'.
promISSOry note (Traders Royal Bank vs. Court of Appeals 80 SCAD
12, 269 SCRA 15).

Qo To be negotiable, how should the instrument be

'

made payable?
Q. What instrument must contain an order or prom- A. To be negotiable, the instrument must be payable either
ise to pay? to "order" or to "bearer." (Sec. ltdn. However, words of similar im-
port may be used such as "assigns" or "assignees" or "holder." (Zander
A. A bill, draft or check must contain an order for payment, v. New York Security Co., 70 N.E. 449, 178 N.Y. 208. 102 Am.S.R.
as distinguished from a mere request therefor (Waddell v. Hanover 492; Wilson County v. Nashville Third Nat. Bank. Tenn., 103 U.S.
Nat. Bank, 97 N.Y.S. 305,48 Misc. 578; Gillilan v. Myers, 31 111.525). 770, 26 L.Ed. 488). But if the instrument is payable to a specifIed
On the other hand, a note must contain a promise to pay, but it is person, the instrument is not negotiable (Guggenhime & Co. v.
not ,~ecessary that the promise be stated in express terms if it can Lamantia, 276 P. 995, 207 Cal. 96; Asked, 1966 Bar Exams. and No.
be f31rly gathered from the writing itself (Lehner v. Roth, 229 S.W. V[2], 1989 Bar Exams.).
232,211 }.{o. App. 1,243 S.\V. 91, 2951\10.174).
Q. A duly signed Certificate of Time Dep?sit ~CTl'!)
, Q. When are words u d ffi' ° t ('ertl°fy that BEARER has deposlted In tblS
states, "ThIS IS 0
o

order to pay? se su IClent to constitute an I SECU

So FOUR THOUSAND ONLY, -
Bank th e sum 0 f PESO ... • bel'
TY BANK SUCAT OFFICE P4,000 & 00 CTS Pesos, P lIP-
A. The "order" to pa in b'Il !:ne Currency, repayable to said depositor 731 days after
request for a favor (Wooll Y Sal must be more than the mere
ey V. ergeant, 8 N.J. Law 262 , 14 Am.D.
 12 1 !\\\ n"-

.. f thiS certificate, \\rltL

ndero "An
,on ~nd sUJ"l"C t pf~r annum. OffiC~h
Q

t tltl ..... cen ' 't fi .~ FoRM. ANn }N1'''' }

.Rcquilli l", U'lU:'\'Al'lON
dute upo n P rcsen t o f 164 ' perh t t h deposle or l
re erred t Q tt'l of Nl'~'Qllu.b\hty \3
in teres t a t the ra e
lk tes tl'(ied t 11
The (I )wer court ru
rd " ed th"'t
... Bank vs. Court Appe 1
( the issuing bar I de la Cru~· . after the wo Bearer" "bearer" in the inst a s, 80 SCAD 12 269 S('
? the C1'D is Ange o tl'flbl e bt~CIIl~se alO unt follow. The d Och t a mere descri . rutnent was Ptob bl JRA 1{)). (Note: The word
m
'd CTD is non-
neg •
. 'ted" a cc r
ttUn a h
'd ~s that t e amount de
.... indicate that ftt~on of Filriters the n y COnslder~-d by the court as
sal u ~ dcPO!;1 proVI C "th .. 1S payable to ~arer.)owner of t.he CUel and not to
the words has ur t further 'd depositor on e period
t th c
ment, sal'd the co ,
"'rt~pnynble 0
t sal
he lower cour, e Tn is Q. For thel bala
buyer issued in travor :;~hof t~~ price of two tractors the
posited shaH be Ii re concluded tt be the "bearer" but onh,
, . t d There 0 , ports 0 th d . J
e epO~Htort
•
mdlca e. whoever pur. cd therein, ~tated, "For value receivede se e~ ~ PI'QnU880ry note V:hich
payable not,~? d person indlcat be Angel de la Cruz. Is the Ise to pay to the Industrini ~we Jomtly and severally prom-
to the speci Ie knowledges to
whom the bank aC rt correct? Pl,093,789.71, x x x" S'd roducts Marketing, the 8um of
A . alU note Was sold to lFe Leasing and
ccep tance Corp. Th
ruling of the lower coU Tl e CTD is negotiable since it which reason the bueyse er-kPayee violnted its Warranties for
. t correct. 1 N' b er-ma er refu d
A. The ruling IS. noments 0 f Section 1 ,of ,
the egotm Ie In,
f . t maker claimed that it CQuld s '1 ,se to ~ay the note. The
J. ~
romp le~ \\ 'I'th the requIre
. b Tty or non-n egotiublhty 0 an Ins rument
. defenses aVailable aga'n t th b I ralse agamst lFe the Imme
~t ments Law. Negotw 1.1 . th t is from the face of the Illstru, 1 s
ment was non ..ntegotiable d ethseller-payee'
SInce th'
e Instru-
IS ru h wn tmg u , tl .
. determined from t e hat the 't'es
IS par 1 may have•
secre hy Intended the same rights as the paya~ W erethfo~, lFe merely acquired
mellt itself, not from w The CTD provIdes that t e amount . as . e Instrument negotiable?
but what their words exp~~sst tl1e depositor, who is the "bearer" A. The instrument Was t
bl t d
. hI
no negotla e because it was neitllcr
deposited shall be repaya e ~ that the depositor is Angel de Ia paya e 0 or er nor to bearer. To be considered negotiahle, the in-
t
thereof. The CrD does nO~es ~s~ted is repayable specifically to him. strument n:
ust
contain the "words of negotiability" _ i.e., must he
pay~ble to ord~r" or "bearer." Without the words of negotiubility,
Cruz and that the amount p yable to the bearer of the CTD or.
R<lther, t h e amoull 1
t 's to be repa . ,
be the bearer at the tIme of present- ~he mstrument lSI payable only to the person designated therein and
for that matter, w.hosoever ma~ rt of Appeals, G.R. No. 97753, Au- IS ther~fore, non-uegotiable. Any subsequent purehaser thereof will
ment (CaIt.ex [PhIls.], Inc. vs. ou not enJoy th~ advantages of being a holder of a negotiuble instru-
gust 10, 1992). ment, but WIll merely "step into the shoes" of the person designated
in the instrument and will thus be open to all defenses aguinst the
latter (Consolidated Plywood Industries, Inc. vs. IFC Leasing and
Q. The Central Bank issued "Central Bank Certificate Acceptance Corp., 149 SCRA 448).
of Indebtedness" (CBCI) wherein it "promises to pay to
bearer: or if this Certificate of Indebtedness be registered,
to Filrlters Guaranty Assurance Corporation, the registered Q. What instrument must have a drawee? How should
owner hereof." Is such CBCI negotiable? he be identifi(~d?
A. A bill of exchange must have a drawee while a note does
A. The CBCl indicates that the same is payable to Filriters
not need a drawee. Such drawee must either be named or identi-
Guaranty Assurance Corporation, and to no one else, thus, discount-
fied with reasonable certainty (Sec. lie)). Thus, the drawee may be
ing the submission that the same is negotiable instrument. As identified by h is official or representative title (Shelton v. Darling,
worded, the instrument provides a promise "to pay Filriters Guar- 2 Conn. 435). ~
t.I
anty Assurance Corporation, the registered owner hereof." Very
clearly, the instrument is payable only to Filriters the registered
~wn.e~ who~e name is inscribed thereon. It lacks th~ words of nego- Q. \Vhlllt constitutes certainty as to sum?
tIabIlIty whlCh should have served as an ex . f t th t A. The sum payable is a sum certain within the meaning of
' preSSIOn 0 cons en
the Instrument may be transferred by ne t' t' (T d R aI this Act, although it is to be paid-
go la IOn ra ers oya
 - '~'U lNTE '
-t· or
With intert:'::- , ReqU\~ite8 of NRPRETAl'lON
(a ) is' or date on th eogot1ability 15
-t'l111n('n •
tatl' d ·1I1~' ., I e occurr
(b) BYS t with a provunon t 1at up of such additio ence of a 8 .
. -tnlhnen s, . h On. (Havan nal Promis Peclfied eVent . .
I) By stated ll1~ . -t, Ihncnt or of mterest t e Whol ment inas:c~:sket~, 254 ;: ~~~essarilY rend~~:~ :~~ by re~son
,c f 'll1V In~ a e
dl{nult in payment 0 ( . th t ase 18 still ' 81 Cal A -negotiable
ere ore, negotiabl (u payable in a . pp. 653). The instru-
sha 11 beC0111e due'' or vhether at a fixed rate or at the CUr, 1, 179 Pac. 160). e tah State N sum certain in money and
(d ) With exchange, ~ at. Bank v. Smith, 180 Cal.
rent rate; or 11 tion or an a tt01"IlCY'S fiee, In
. cas Q. What is an "
(e With costs of "do eC maturity (Sec. 2). e change? Will th eXchange"? Wb
t be nUl e a t < ity? e statem.ent of an'exchat are the rate8 of ex-
payment sh n11 no ange affect negotiabil-
. t pay interest affect negotiability? A. An "exchange" m
Will stipulatIOn 0 amount of money betwee e::n s the difference in value of the
Q.
. '
. . '
terest does not, 111 general, deprIve an
c: •
Instruments, p. 68) . ~ame
n dIfferent countries (Norton, N egobable
A A proVlswn lor In 'd d th t t l
. . . e otiable character, prov } e, ~ 0 a Sunl due The rate of exchan .
mstrun~ent of lts n . g ble of accurate computatIOn at any time . th .
In e mstrument or at
ge may elther b fi
e a lXed rate which is st t d
ondthe msthru~entt Imsecnai~tself(Wh. it.e v. Wadhams, 170 N.W. 60,204
a current rate h' h' ae
of exch ange at a given d te d w IC IS the prevailing rate
t h as not been a an place.
an from t e ms' ru . t e even if the rate 0 f lnteres
.
Mich. 381 ). Th IS IS ru . The statement of an exchan e w'
· bI nk sl'nee in such case, the Interest payable shall the amount payable could b g III not affect negotiability since
~tate d or 1e ft 111 a •
be understood to be at the legal rate (Sec. 1, '!SUry Law as amended; therefrom, the rate of exch e ~scertained by computation. Aside
. ange 18 regarded as of 'al
Chelsea Exch. Bank v. Warner, 202 App. DlV. 499, 195 N.Y. SuPp. e d ge or easIly ascertainabl d th commerCl knowl-
419). computation (Bradley v. L~i ~ C I e a mo t payable is a matter of
un
473). ' . .. 11,2 F. Cas. No.1, 733,4 Biss.

Q. What is the meaning of "stated installments"?

A. "Stated installments" means that the number of Q. A promissory note provides that "if payment is not
made at mat~rity, I will pay the costs of collection and at-
in~tallm L. lts, the maturity of each installment and the amount of
~orneys' fees In.case of litigation." Is the sum payable certain
each inst allment are specifled. The time for payment of installments
In money consldering that the amount of the costs and at-
must at least be determinable (Victor v. Warner, 248 Ill. App. 35). torneys' fees are not provided?
Thus, an instrument payable in "two installments" is not negotiable
as it is not payable in "stated installments" since the amount of each A. The note is still negotiable as the said clause is equiva-
in~tallment and the maturity of each installment are not stated in lent to a promise to pay reasonable attorneys' fees (Goedhard v.
the instrument (A"ked, No. lib}, 1993 Bar Exams.). Folstad, 195 N.W. 281, 156 Minn. 453) which may be fixed by the
court (Adolph Ramish, Inc. v. Woodruff, 40 P. 2d 509, 2 Cal. 2d 509,
2 Cal. 2d 190, 96 A.L.R. 1146). Furthermore, whatever uncertainty
d f Ql' . Will an "acceleration clause" or ·s stipulation that in the total sum to be paid will occur only if payment is not made
e au t In the payment of an f th· I at maturity of the instrument at which time, it is not material to
wiU make the wh 1 y 0 e Insta Iments or interest
consider the instrument negotiable since after maturity it will not
negotiable? 0 e sum payable, render the instrument non-
pass to a holder in due course (Sec. 52) and hence, the holder thereof
is subject to the same defenses as in a non-negotiable instrument
A. Where the instrument rov' d '
ment, and also contains an add't~ }l es for a definite date of pay- (Sec. 58).
", Ilona proml' se t 0 pay at an earher
.
·rMNtLA
nF LA SALLE UN'''ERS\l't l'BRA~!__
 : ",' t -' -

, " "UI g INSTHLJMENTS

N NE(~OTI , "
. f,VmWER () 'LJ\T1W LA V\ S
QUIZZER;\ND R LAW ANIl HI',
16 FORM AND I
. to pay unconditional? Req '. NTERPRETATION
ro JUlse UISltes of Negotiability 17
rde r or P . d'
Orl.en is the 0 ' ' ~ e to pay IS uncon (tional
Q. t'l' .. L pronll~, tiable instrument th
'{j d order or
A An unquah Ie , A .t though COL P
1 led wlth:
uncon d'Ibonal
. (Sec. 3atI the promi se or or der to pay must be
VS. Auditor General '4:~ ~ntence and Sec. l[b); Abubakar
within 'the meaning of tIll S ( articular fund out of which re.
2 ' . . SuPp., p, 41, January 1950).
, dication of a P rticul ar account to be deb
(a) An 111 de of a pa - . Where the particu) f d' ,
, to be m3 " strument, not for th ar un 18 referred to in an in-
imbul'SeIllent IS t, or sively thereon but e pUlrpose of charging payment exclu-'
it.ed with the aJ110un , t l~nction which gives rise to bursement or th
, mere y t . d'
0 In lcate the Source of reim-
f the ral
L U
, e account to be deb 't d th '
(b) A st.atem ent 0 still negotiable (H bb d I e , e mstrument is
, the instrument. ut of a particular fund is not La., 256 F. 761 16~ Ca~ Bros. & Co. v. ~outhern Pac. Co.,
oJ11ise to pay 0 ment of the ins'tru . :A. 107) be,cause 10 such case, pay-
But an order or pr · . ment 18 not contmgent on the sufficiency
unconditional (Sec., 3), o f th e f un d mdlcated.

f articuJar fund in the instru. . Example: The bill states: "Pay to A or order P12,000 and
Q. Will statement ~ "~; Give examples. debit the
. amount paid . from Account No . 3452" . Th"IS IS nego t l-'
ment render it non-nego tIa e. . ab1e.smce payment IS not to be limited from the fund indicated
whether the fund indicated IS the direct but IS to be made whether it is sufficient or not (Continental
A. It depends on I a source of reimbursement. Thus, Bank ~ Trust Co. v. Miller, App., 172 So. 557) and therefore,
source of payment or mere Y . not subject to any contingency.
l'. d indicated is the dIrect source of pay-
1 Where th e lun d h'
. t f which payment is to be rna e, t e Instru-
ment or one ou 0 h . Q. Will a statement of the transaction which gives rise
, non-nego t'able
ment IS 1
because in such •case, t e promIse or to the instrument affect negotiability? Give an example.
order to pay is contingent on the sU~Clency of the fund on
which it is drawn (People's Bank of MobIle v. Moore, 78 So. 789, A. Negotiability is not affected by a statement of the
transaction which gives rise to the instrument (Sec. 3[Ut, Asked,
201 Ala. 411 ).
1970 Bar Exams.) provided, it imposes no other liability on any
Example 1: The bill of exchange signed by X and ad- party thereto other than that for the payment of a sum therein
dressed to Y states: "Pay to A or order PIO,OOO out of my Ac- specified and does not qualify the promise or obligation (First
count No, 2045." This is non-negotiable because it is subject to Nat. Bank v. Morgan, 284 P. 582, 132 Or. 515). Thus, a note re-
the implied condition that the fund indicated is sufficient to citing that it is for rent, or for a certain policy of insurance, or
cover the payment to be made (see Rector v. Strauss, 203 S. W. that it is a rent note issued pursuant to the terms of a lease of a
1024, 134 Ark. 374). stated date, or that it is given in considcration of the acquisi-
tion of a certain personal property, or part of the purchase money
Example 2: Treasury Warrants payable out of Fund 501 of a tract of land, has been held not non-negotiable because of
are not negotiable. The indication of Fund 501 as the source such statement (10 C.J.S. 528).
of the payment to be made on the Tre~sury Warrants makes
the order or promise to pay "not unconditional" and the For example, a note that states: "1 ~romise to pay to A or or-
der P10,OOO as partial payment of the pnce of the land 1 pur~hased
warrants themselves non-negotiable (Metrobank vs Court
of Appeals, 170 SeRA 169) L'k . . from him" is still negotiable. The sUltement that the payment)s ~art
"b " . I eWlse, a Treasury Warrant f th . f the land the maker purchased from the payee IS a
eanng on Its face the w d " .
tion for food d .. t ~r S, payable from the approprla~
a mIniS ratIon" . 1 ~ereer~;:~:1 ~f fact which does not affcct negotiability (Coleman v.
ment out of "part' I ~ , IS actua ly an order for pay~ Valentin, 164 S.W. 67, 39 S.D. 323).
leu ar lUnd" d' d
does not fulfill one of the e' a~ IS not unconditional an
, ssentIal requirements of a nego-
AJ ~ ~ ~ 1',' 6f
. - j a. t r b ;,H-
 18 Q£ IZZER AND R~I\~;~~ ~~~~Tr;D LAWti

t 'U negotillble if it is SUhject

QIs the instru UleDtt s cferred
I
to t h ' ? G'IVe e"n to
ereln
'
the terms of the agrreeUlen r ~Itt. FoRM AND I
~Uisite NTERPRF.TA1'ION
8 of NegotiabUity 19
pIes. . not negotiable if it conta.ins a referen A. An inst
A. A bill or note l~ h a way as to make It sUbject to Ce able, and the hap~ent PaYable upon .
to some other agree ment m suenciitions of sue h agreement (\lel"h' Or ~, last par.), In Qthe nIng of the eVent doaescontIngency is not negoti.
. h t} terms or co
burdened WIt , le ·
.
Al 5hO' St.rand Amuse ment Co v ~
• 'IeI' tmgency, it is not n r w~rds, if the instru not ~ure the defect lSe('.
v. White, 108 So. 36 9 , 214 R. v,
AL R 1121)., . . ~o" gency afterward a egotJabJe, and it is imment ~ payable on 8 COn •
87 So. 332, 205 Ala. 183, 14 . . . .
ers' State Bank of~:any happens (IllinOis~~~rlal that the COntin_
E xample· Th wark, Ill., 200 III . APp. 591). ,: ..
Example'Th e no te S tates. . "I prOIl1JSe to dpaydto A Or ord el' and Ry. Co. v. Farm.
. . ' tl terms of our contract
h ' atet January 15, PIO 000 h ' e note states "1 .
w ~n he Passes the B' pr~mlse to pay to A or order
P20 000 subject to le '
2000 " This is non-negotiable because t e promIse 0 pay IS COndj. . '
IS non-negobable because ·t. iii' exanuuotions of 1999' TI . Ie
hon
. ed' upon. or su b'ect p
to the performance of a collateral agreement 1 .IS subject to a condition E~

"·'
11 ready paSsed the Bar I.IS no
referred t.o therein (People's Bank v. Porter, 208 . 200, 203, 58 Cal. negotiable as the happex~mlllations of 1999, the note is£>~ .;~ A al.
App.41 ). defect enlllg of the Cont' SInon.
. mgency does not Cure the
On the other hand, as previously stated, ~here a reference in i....~ ~.~
t ,· · ·~
an instrument to an agreement amounts to nothmg more than a ref.
erence to the origin of the transaction or to the consideration on ac-
count of which the instrument is given, or the instrument merely
recites that it is a part of a certain agreement which does not affect
Q. What COnstitutes a detenn· hI fu
A ·
. An Instrument is pa hI Ina e ture
.
tune?
within the meaning of this A t,ya h ~ a~ a determinable future time,
c w lch IS expressed to be payable _
!
i
P
i'·. ~·
,>

the promise to pay, or where the reference clause is separate and (a) At a fixed period aft"r date or sight; or ·J·;..<.· ·

speci~be)d thOenrem;
~r before
distinct from the rest of the note, negotiability is not affected
t
(Culbreath v. Guitennan, Rosenfield & Co., 115 So. 303, 217 Ala. 259;
Pfueger v. Broadway Trust & Savings Bank, 184 N.E. 318, 351 Ill.
170; Old Colony Trust Co. v. Stumpel, 213 N. Y.S. 536, 126 Misc. 375).
or a fixed or det.erminable future time

(c) On or at a fixed period after the occurrence of .

I
1
Example: The note states, "I promise to pay to A or order ~ . fled. evebnt, which is certain to happen, though the time ::::;:
penmg e uncertain (Sec. 4).
/I
PIOO,OOO as part of Our agreement dated March 10 2000" S h'
st t· '11 , , u c Ill.
I
I
TUtemden IS sll negotiable and the statement of the origin of the
no oes not quallfy or m d'£, th . Q. Give examples of instances wben the instrument i.
known to all that th . t 0 lYe promIse to pay, It is a matter payable at a fixed or determinable future time.
e Ins ances are ra h ' .
not parts of COnnected .th re w en prOmISSOry notes are
ment... Ind~, ~r
PromissoWI , related to other contracts or agree- A. (a) "Pay to A or order P50,OOO 10 days after date; or "Pay
to A or order P20,000 10 days after sight" are both payable at a flXed
other agreement or contry nto mS are Usually the culmination of some
f rae . lO make th t te . or determinable future time as the instrument is payable at "a fixed
part
d · 0 a cont.ract, wI'tho UtsaYIng
.
m e Is a ment that a note IS period after date or sight." The term "after sight" means after it is
rno lfy the uncondition I . ore, c early cannot he held to
AJ~:~~I~e
presented to the person Supposed to make payment. Thus, "Ten days
(Utah Lake lIT. Co. v. to pay a specific sum of money after sight I promise to pay" makes the note payable ten days after
651). . '.818,820,64 Utah 511, 37 A.L.R. it is presented to the maker (Nagle v. J,L. Hanson Co., 262 Ill, App.
160).
Q. Where the
a cond·t' . paYlJlent of th b'
(eet? I lOn, Will perlOl'lJJance of
·
t:
III or note is subject to
e Condition cure the de-
(b) "I promise to pay t.o A or order P5,OOO on or before March
10, 2005" is payable at a fixed or determinable future time as it is
payable on or before a fixed or detenninable future time specified
therein. In such case, t.he maker has the option to pay before the
time fixed in the instrument but the same does not mature until
 , ', "
t , ','

COTTAIH,r, I J,; ...,u\unlc...'41 ·~ 'tt l .. ..

: " .
II,LoR ON NF. r Ws
. • l>JD R£Vll-:nn 'J..XfIW LA • 4
20 QUIZZER W ' LAW ANf) H~,
Plant.c, 50 A. 554, 95 Me. 3')9 FoRM AND
(Leader v. . u R~_ INTERPRET
",;\{uisites of N . ATION
the expiration of that time he holder cannot. reqUire payment o~ egollability 21
415). However, t, . of the tune fixed (Moore . (a) AuthOrize
85 Ant, S. R. 'I xl)lratJOn h .
. t ' an action untl e . . to pay bcfi)re t e tune fiXed b
v. Instrument be n t s .the sale of collate I ..
mam all1 . the optIOn dId t f e. o paul at tnatur't. fa secunbes in ease the
HorseJey, 42 Ark. 163) as t to the holder. ~Jl, t.1e a e 0, payment (b) Auth . 1 y, or
longs t{) the maker and ~03ble otherwise, It IS .non-negotlable, e.g., ment b onzes a confe "
e not paid at maturity~:~on of judgment if the instru-
must be at least dcterm m year of mntunty (Asked, No. X[b]
there is a day and month but no ' (c) Waives th b
vantage e enefit of an 1 .
or protection of the bl' y aw mtended for the ad-
1997 Bar Exams.).. t A or ordcr P60,OOO 10 d nys after the o 19or or
(c) "1 proml~e to pa °d r determinable future time as it i
Y (d) Gives the hold '
", ble at a filxe 0 f'fi 8
be done in lieu of payme~~ afn election to require something to
death 0 f B IS paya ' d fl the occurrence 0 a speCl led event o money.
pa~abl~ at "a ~xed pe no ath~:ugh the time of happening be uncer~ But nothing in this s t"
I a t"Ion 0 th erwise illegal (Sec.
h
ec Ion s all valid te
en 5). a any provision or stipu-
which 18 certam to ~app , t payable 10 days before the death of
ta' "However an JOstru men . .
l~. 'I fi d or determinable future time SInce the
B" IS not. payab
h fe at a lxe '1'
t be determined unh It IS
. 10 d ays overdue Q. In case the instrume t
matunty t ereo canno d . d . be done in lieu of the a e: allows an !"temative act to
Agide therefore, the Jaw provides "on or a: a fixe penD after (not ing an additional act t!:rod t o~ money,. lDstead of requir-
before) the occurrence of a specified event. (Sec. 4[c]). able? Give examples. e one, 18 such lDstrument negoti.

A. It depends on who has the option to have the alternative

Will a promise or order to do any act in addition to
Q. act per!'0r~ed. If the maker or drawee has the option to discharge
the payment of money render the instrument non-negotiable? the oblIgatIon by t~e performance of some act other than the pay-
ment of money, the mstrument is non-negotiable (Louisa Nat Bank
A. As a genera) rule, an instrument which contains an or-
v. Paintsville Nat. Bank, 85 S.W, 2d 668 260 Ky.. 327 100 A.L.R
der or promise to do any act in addition to the payment of money 819). " .
is not negotiable (Sec. 5, 1st sentence). An instrument must not con-
Where, however, the holder is given the option to receive pay-
tain an order or promise to do something in addition to the pay-
ment in money or demand the performance of some other act, the
ment of money (Piaseyk v. Malon, 165 A. 352, 116 Conn. 418). Such instrument is negotiable (Sec. 5(d]; Dinsmore v. Duncan, 57 N.Y. 573,
a provision deprives an instrument of the simplicity and unity which 15 Am. R. 534).
must characterize negotiable paper, so that it becomes, even though
Examples: (a) The note states, "1 promise to pay to A. or order
it contains a certain promise to pay money, a mere simple non-ne-
P10,OOO or deliver 100 sacks of wag-wag rice." This instrument is
gotiable contract (Midwest Collection Bureau v. Greenwald, 214 Ill. non-negotiable as the maker has the option to deliver rice inst~ad
App.468). . . of paying money (see Parker v. Baldwin, 185 N.W. 746, 216 MIch.
Example: The note states, "1 promise to pay to A or order 472). ,',
P50,000 a.nd dcli~er ~ne-half of the palay grown on my land in (b) The note states, "1 promise to pay ~o A or order Pl~,OOO
~atat n g3s ~n 2000. ~lS note is non-negotiable as there is a prom- or deliver 100 sacks of wal~-wag rice at the optlO n o~ the holder: The
Ise 0 delver
1 palay Jll addition to th . nstrument is negotiable as the holder has the ophon or election to
Thomson v. Koch 113 P. 1110
. , .
e payment of money (see
, 62 Wash. 438). ~equire either payment of money or delivery of rice (see Ashcraft v.
Bream, D.C. Pa. 2 F Supp. 344).

Q. What are the exceptions to the foregoing ~le? hat may be omitted or added in an instrum,e nt
A The negotiable character of . Q.
W . . rd· ty and negotiable character?
gotiable is not affected by a p " an. Instrument otherwise ne- without affectIng Its vu 1 1 .
rOV1SlOn wh1Ch _
 J.' r '__
I,:' ,~

A Bl, : f<; INHTJWMl';N 'l'S

QUlZZER AN n RF:V1,.;~nm C::'MNf<:m)Tl
2'2
LA \V AN V 1
4Tl'-' J) lA\\-ti
A The va II'dI'tv _ tiable dmra. ctcr of an illstru.rnent II~....~
. and tnego

not ~.
llllec IRd
( )byItthe fact tl", d (A.."ked,
is not date
. '
1966 Bllr Exams. a"d No.l{
>'o:~ ""n IN"rJ.:llPR!:"rAT10N
{. •'1 !'I ). or

(fl/, 1997 Bar Exam .. ,

(b) Does not spec jliy the va
lue bmven, or that any vallie . ...,...,... of N......b;lity ..
b1 960), When an in t
959,
'

. d ' "t b S l"U.lll is k

~
. therefor; or
pu IC, I ears the sigq"tu..., ent ac nOWledged before a notary

~nbClty
has been gH'en lace wlwre it 18 rawn Or the
"fy the p ). elfect of COnfirming the auth and of the notary, which have th•

Dictio~ah~\.
plaee (e)
wh ereDoes
1't 1'" not
pa va
L
ble (A-,ked, 1966 Bar Exams. , Or
Specl
•
Bell v. Reefe, 13 La J\ of the Signatu..., thereon (See
(d) Bears a seal; or (Moreno's La", 24), .... king it a pub!;c docu ... ent
A negotIable
•
instl"U.lllent
'J, CI Ing C.
cn,o VB. Baens, 5 Phil. 742).
(e) Deslgna:es
' t a part1CU
which payment 18 ' lar kind of current Illo ill nothing in ita character \Vh' h nEled not be Under seal, but there ..
. to be made. ney haVing a seal affuced th Ie hPrevents the "'aker or dr.wer fro ...

m~
h l.od t Jr_.
tract under seal (Grandereon eteby tendering" . 't eitect U al .B a OOn.
requmng '
certam 'n thIS sect'JOn shall alter or
ca~e8, th e na
to b statute
" repeal any
'.But 11l
.not I
L

t ure of the conslderatlO e stated Ban k 0 f Flon'da, 84 So. 528,79 Fla. 471).
!re, <"lights ofPyf.h,as of FlOrida v. Stote
in the instrument (Sec. 6), n

Q.
t'a1 ~or an instrument to be dated?
Is It essen I J4
. elgn ~~ncy
• Q. Is a stiPulation that paYtnent will be ...ade in a for.
negotJablhty?
stated in the inst"""ent "alid? Does it affect

th e InsA.rumen
It is not
IS essential, that the instrument be dated and wh ...
A. An obligation for the paYment of ",oney lIIay be die.
't t . not dated it will be consldered to be dated aseof charged by JlaYtnent in a currency Which is the legal tender in the
the time it Was iSSued (Sec. 17!c]; LeWis Hubbard and Co. v. Morton, n
92 S.E. 252; Asked, 1966 Bar Exams.), Philippines (Art. 1249, Civil COde as amended). However, a stipula.
tio to pay in a foreign CUrrency shall be "alid and the obligation
need not be con"erted to ita eqUivalent in Philippine jIeso at the rate
of eXchange prevailing at the tillle of paYment m.A. No. 529 as
Q. Why is it not necessary to specify the Value given, amended by R.A. No. 4100 and R.A. No. 8183; Asked, 1971 Bar Ex.
or that any value has been given for the instl'U.lnent?
ams.). R.A. No. 529 as amended, Was repealed by R.A. No. 8183
Which Was enacted into law on June 11, 1996. Under the said law,
A. The value given Or that value has been given therefor need all monetary obligations shall be settled in the CUrrency which i.
not be stated in the instlllment because every negotiable instrument the legal tender in the Philippines. However, the parties may agree
is deemed prima facie to have been iSSUed for a valuable Considera_ that the obligation or transaction shall be settled in any other CUr-
tion, and that every person ...hase SignatUre appears thereon to have rency at the time of paYment m.A. No. 8183.). The n •.gotiability of
become a party thereto for value (Sec. 24).
an instrument otherwise negotiable shan not be affected by a stIpu-
lation for payment in a foreign CUrrency (Sec. 6[elJ. ' .

Q. What is. a Seal and its Purpose? Give an el[atnple.

What etrect does It have on a negOtiable instru1l]ent? Q. When is an instrument payable on demand?

e~ecut·
A. A seal is a particular Sign d to A. An instrument is payable on demand_
11Jal manner the f . ' ma e attest in the 1I]08t for-
JOn 0 an lnstru1l1 en t (56 C.•
Pose is to attest in "a f01"h-.aJ J 890). Its pur- '. (a) Where it is eXPressed to be payable on demand, or
at sight, or on presentation;
~ ~ll
(Black's Law Dictionary, citin .... manner the ex t· f . tru1I]ent
eCU IOn 0 an In
s (b) In which no time of payment is expressed; .
' g ' .....ng v. GUYnes, 118 La. 344, 42 S
(c) Where the instrument is iSsued, accepted? or. lO.
d ed When overd ue,
1 , 7)
accep mg, . 't ,l'S as regards the person so ISSumg,
ors t' or indorsing it payable on demand (Sec. .
24 LA \\ t\J'I· f •• - -

instrument is payable O'h

when an ~
Q. Give exantples
demand. ble on demand - "I promise to (e) One or So
aya . . 1
) 'pn>sst'd to be P d .. Or lllstcad, It cou d be Pa\1 (0 me of several paYees; or
A. (a Ex '0000 on dt'IlllU1 . ,J-
A r order PI , ,. The holder of an office .
pay to 0 ,. .. ...entation. Where th . , for the tune being.
able on "sight or pre. . ressed _ "I promise to pay to e Instrument .
. . 'ment IS exp d' th . named or otherwise indica:sla~abl~ to ordur, Ute payee must be
(b) No tune for p.l) ent is state 111 e Instrument (Sec. 8). e t ereln with rea'3onable certainty
0" No time for paym
bearer PIO,OO ... vable on demand.
and therefore. It IS pa.. t d or indorsed - "I prom'
h issued accep e ISe Q. How could an inst
(c) Overdue Yo' en "0 n November 30, 1999." A indorsed the der? Give examples of insta rument be made payable to or-
to pay to A or order P1050~0;O. Insofar as A is concerned, it is pay_ able to order. nees When the instrument is pay-
note to B on Jan~ary 1 '. dorsed it when it was already overdue.
able on demand S1I1ce he 111 A. Th make an instrument . bi .
P ayable to· (1) ord f . paya e to order, It could be drown
. er 0 a s~lfied pers h"p
of A," or (2) to him h' rd on Sue as, ay to Ule order
. trument provides that the amount therein or IS 0 er such as "Pay to A rd" Th
Q. Tb e IDS d "It a I so states instrument could be made: ! or 0 cr. e
stated s h a II b e payab le to "bearer on deman. b
tbat tbe "encasbment of this certificate may not. e made ,,(a) ~ayable to the order of a payee who is not the maker
unh'1 a ft er fi ve (5) years from the date of the executIon
. . of the - I promIse to pay to A or order PIO,OOO. (Sgd.) B."
Deed of Sale of Hacienda de Leon." Is the said Instrument
Payable to the order of a payee who is not the drawer or
payable on demand? drawee - "Pay to A or order PIO,OUO. To: X. (Sgd.) y''!f
A The instrument is not payable on demand as it is payable (b) Payable to the order of the drawer - "Pay to A or
only after the lapse of five years from a given period. An instru- order PIO,OOO. To: X. (Sgd.) A." This is complete even without
ment payable on demand is one which: (a) is expressed to be pay- the indorsement of A (Huling v. Hugg, 1 Watts & S. 418).
able on demand, or at sight, or on presentation; or (b) expresses no
time for payment. The 5-year period within which the certificates Payable to the order of the maker - "I promise to pay A
or order PIO,OOO. (Sgd.) A."' Since this is payable to the mak-
could not be encashed was an expression of the time for payment
er's own order, it is not complete until it is indorsed by him
contrary to paragraph (b) of Section 7 of the Negotiable Instruments
(Sec. 184, last sentence). The obvious reason for this rule is that
Law (Buencamino vs. Hernandez, 8 SCRA 483).
a person could not as, promisee, sue himself as promisor
(Louisa County Nat. Bank v. Burr, 199 N.W. 359, 198 Iowa 4).
Q. When is an instrument payable to order? (c) Payable to the order of the drawee - "Pay to X or
bl A. The instrument is payable to order where it is drawn pay- order PIO,OOO. To: X. (Sgd') A."
a e to the order of a specified person or to h· h· d I (d) Payable to the order of two or more payees jointly
be d rawn payable to the order of _ Im or IS or ere t may
_ "I promise to pay to the order of A and B PIO,OOO. (Sgd.) X".
(a)
A payee Who is not m k d (e) Payahle to the order of one or some of several pay-
a er, rawer, or drawee; or
(b) ees - "I promise to pay to A or B PIO,OOO. (Sgd.) B."
The drawer or maker; or
(c) (0 Payable to the order of the holdur of an omce for the
The drawee; or
(d)
.
tune b'
emg- "I pr()JTll's'e to pay to the order of the Treasurer
Two or more payees jOintly; or of Mulvnrosa, Inc., P10,OOO. (Sgd.) B."
 ...
.":. " ' .............~
," . ,

. . ~,,\t'nt payable to beare..~

...............---...~ ' .... .... ,
" .
:. -~: ..
. the lostl ,
Q. W'ht"n IS t i~ p~lyab\e to bearer - .
. ·tn nncn " , P()R~ ANt) \ ":' '. . "

.~. The ln~ . ' x re5- sed to be so payable; Or lt~'lUl~~~~~\'R~:TA"lON ': .

Wnen It \s t>. P nble to a "flctit. g1J\\a.b\\ity
, 3) ' t .~ p ~1\' able to a p e rson named th"" hl
a e to bearer 't
lO\l.S Ot'
non~)tist'
r "
Wh('n I us , ~ ..::l"eil\. ' 1 mea t lng ?e
b ~ name d payee in n a f1ctlU !"Son- is to be .! ....
..
cause the draw a check has noo~s ~t'SQn to be o1"eg arQed as lluv-
)~

b€'~ rer: or yahl e to the order of a fictitiou.

whether the na:eof it So int.en~~t to it, or the ~~~ nh~o\lgh
. .'
c1 W11cn It \~d':: p a, \1 f<lCt was known to the per~ ot'l\()l'\
, :.'

an s ue < Qon .,. dead, or one who :f the PaYee used ':dh~t.. thel'\!foTe m:~ be.
exi~tln g pe~on. • ll)~. 123 Ark. 253) eVer e~sted IS kYl lIn be that of on"" \. . not

~
. '."
, . \ "0 pRv ~b\ e~ or . \ oe and v S v \\'ln~ Of'
H\(1 1 ~
e.
~ •
th nmne of t \ \e payee d oes no t purpo~ . torch, 185 S.W. 262,
d) \\l1en e . q. to"
'" peri-on, or ~ Q. Who is a no . .. -
n
the name 0 f a ~ . ~ . . . a fictitious person? n-elO.sting pel'Son " .. .
1h the only or last Indorselnent IS an In(lor as distinguished from
e) \\ Hen sen\~t A. A non~xistin

\,
in blank i$ec. 9). the sense that he w g p:rson is a \)et'SOn h
maker and a nam a.s not mt.ended to be a W 0 does not e1ist in
(Commonwealth e~~ "flctitious· when it ~i~ by the drawer Or
ive examples of (a), (b) and (d). v. obe Indemnity Co. 18~A.elgned or pretended
Q. G . 796.323 Pa. 2(1).
~ \l') Expressed to be so payable - "I promise to Pay ~
Q. When is an instrum t
bearer P10 ,OOO ." non-existing person and the en payable to a fictitious or
refore, payable to b earer.~
2 Payable to a person named therein or bearer -1. A . S uch an mstrum t'
promise to p~y to A or bearer P10,000." This is ~ayable to bearer tious or non-existent cham:::r ~f~yab\e to .bearer only if the fieti·
H owever, a note payable to a designated p~rson, bear,er," is a no~ by the party making it pavabl to e payee lS known ~ or intended
c
pa yab1e t.o the person designated only and IS not negotiable (Ameri. Co. v. Millikin Nat. Bank -D.C enl s;1 ; rrson (Amencan Hominy
rule is that when a nego'tiabl~' ., t . 550). The reason for this
ca n ~ at , Bank v. K erley, 220 p, 116, 109 01'. 155, 32 A,L.R. 262)
non-existent or flctitious perso~~~:ument was mad~ payable to a
Thus, a note payable to "X., bearer" is not payable to bearer as th~ b 'f h ' re was no one to mdorse it and
word "bearer" is merely a description ofX. Likewise, a note payable ence, 1 t e make~ mtended to give it negotiabi\ity, it could o~\y be
on the theory that it became payable to bearer (Grand Lodge of Kan.
"'to the ordt:!r of the bearer" is not one to bearer within the provi.
" sas, A.O.U.W. v. Emporia Nat. Bank, 166 P. 490, 101 \\an. 3(9).
sions of the Negotiable Instruments Law (American Nat, Bank v.
Kerley, supra). Example: A. was the manager of a tire company. He wanted to
l get money from the account of the company for himself. A. issued a
(3) The name of the payee does not purport to be the '. check for P50,OOO payable to the order of Jaime Zobel, purportedly
name of any person - ""Pay to cash." (Enid Bank & Trust Co. v. as payment of supplies purchased from him. In reality, A. did not
Ya ndell, 56 P. 2d 835; Ang Tek Lian vs. Court of Appeals, 48 O.G. purchase anything from Zobel. A then, forged the signature of Zobel
and encashed the check. In such case, the check was payable to
125~ A.8ked, 1960 Bar Exams; and No. Xlc1, 1997 Bar Exams.).
bearer as A, he did not intend the payee to have real interest in the
check (see Guodyear Tire & Rubber Co. of California v. Wells Fargo
Q: Who is a fictitious person within the conte~t of the Bank & Union Trust Co., 37 P. 2d 483 , 1 Cal. App.2d (94).
Negobable Instruments Law? But where the name of a fictitious pers~n is fraud\llently im-
A. A fictitious pers 'th' h posed on the maker or the drawer, as a real .person, and. afterward
tiable lnstrume ts L . on WI In t e contemplation of the Nego- ted by the fraUl\ulcnt indorser, the mstrument 18 not pay-
the word "non :xisf a~ \s no1tdmerel y a non-existing one, for, if so, ~~;:o~~'l.bearer (Shipman v. State Bank, 27 N.R. 371, 126 N.Y. 31B,
- m6 woo h~e~ ffi' 'h 22 Am. S.R. 821,12 L.R.A. 791).
It is clear then, that when th l ' en su lClent WIt out more.
e eglslature declared that a check pay-
 Ht;\' "· · · - }{bl,f\P'"
QOlZZER ANn LAW ANn .
28
loyer to Issue a check t FORM ANn
a~ke d hi~~ eI11Pds Stl}>posed to h aVe bee 0 ReqUisite lli'rERPRETATION
kkeepe r tl e goo . t'l s of Negotiabihty 29
Example: A boo 'nt " to pnY r I) any. It turned out ~hat Clark
ro Example 1: The ad ' .
the "order of ~lnrk ~~e ~l1lployer~ c~~(tnot ddive.r anythIng to the able to "order of Rand Ollntstrator of an e ta
de l1'vered by hun . to
,t an
d therefore,I C1leck belicvmg the h'
statement intending the Payee toYr Pe~ez" Out of the e:ta~,:rew a che~ pay-
Kent did not eXI:; l:,yer issued tIedelivered goods to. IS company, trator forged the indors;cel ve PaYment of the che:~count, wlt~o~t
employor. The el~~hat Clark Kent bookkeeper for dchvery to Clark and appropriated th Olent of Randy p . The admlOls_
bI b e same for h' erez, encashed the check
of the bookket'pe 1 check to the f Clark Knnt and encashed paya e to earer although lL llnself. In Such case th h k
gave t le I Hune 0 1 ', ~~ndy p , e c ec was
son, as th e a d mInlstrato d'd
J
The employer 'r signed t Ie I CIt bearer as the emp oyer did erez Was really an . t'
b kkeepc 'lb e O . . th r 1 not· te d eXIS 109 per-
I
f
Kent. The 00 I k W'IS not pay, .' s and his intention Was .. _
k T1 e c )ee fictlhou.
the chee. 1 Clark Kent waS 1 (~ e First Nat. Bank v. PrOduce
C "V
celVe e proceeds thereof (see Bo In n that the payee should re-
S.E. 605, 185 S.C. 1). Urne v. Maryland Casualty Co., 192
not know that led in the check ;~ 2d 33 338 Mo. 91). Example 2: Where an
pay the payee ~1~~ Kansas City, 89 . ' , not intending that the pers agent drew drafts on his principal but
Exchange Ban ons whose nam h . ,
shou ld h ave any interest in th es e lOserted as payees
dge of the fictitious or non_ delivered to said payees or be ~ ~afts, or that they should ever be
Who must h ave know I?e negotiation, the payees are me l~ o~s~d by them for the purpose of
Q. f the payee.
existent character 0 1 dge of the maker or drawer are payable to bearer (Bartlet~ g~~lOUS pe:sons, so that the drafts
't' the know e . hI 337, 247 Ill. 490). v. Icago FIrst Nat. Bank, 93 N.E.
A. Generally, 1 IS or not the instrument 1S paya ~ t~ a fic.
which determines whether d therefore to bearer, WIthIn the
tit.ious or non:existent :S~;~l:: Inv. Co. v. Home Say. Bank of Los . Q. . Mayan instrument payable to order be converted
meaning oft.hls rule (LoCal 601 5 A.L.R. 1193; U.S. Cold Storage Into an Instrument payable to bearer?
Angeles, 182 P. 293, .18 Bank 175 N.E. 825, 343 Ill. 503, 74 A.L.R., A. ~es, by. indorsing it in blank. When the only or last in-
Co. v. Cent.ral Mfg. DlSt. "',, aker" of an instrument and the dorsement IS an mdorsement in blank, the instrument is payable
th "drawer or m
811 ). Howev~r, . e able" can be different persons, as where the to bearer. (Sec. 9[e]). However, an instrument originally payable to
"person makmg It so pay t of the maker or drawer, and it bea:er cannot be converted into an "order" instrument. Thus. where
. . t.ed by an agen
mstrument IS exeeu. . th k wledge of the person who actually an Instrument, payable to bearer, is indorsed speciully, it may nev-
e
has been ~eld that It IS d. t' nguo ished from the nominal maker or ertheless be further negotiated by delivery (Sec. 40).
drew the mstrument, as IS In C fL A
h ' h' trolll'ng (Union Bank & Trust o. 0 os nge-
drawer: W IC IS c o n . P 2d 355 8 C 1 Q. When are terms used in an instrument sufficient?
les v. S'ecurity-First Nat. Bank of Los Angeles, 65 " ,a .
2d 303). A. The instrument need not follow the language of this Act,
but any terms are sufficient which clearly indicates an intention to
conform to the requirements thereof (Sec. 10). Thus, instead of the
Q. Mayan existing person be a fictitious person un-
word "bearer" or "order", words of simila:- import may be used such
der the Negotiable Instruments Law? Give examples. as "assigns" or "assignees" or "holder." (Foley v. Hardy, 253 P. 238,
A. A kfictitious" person does not necessarily mean a "non-ex- 122 Kan., 616, 50 AL.R. 422; Zander v. New York Security Co., 70
isting" person, and an instrument may be payable to a fictitious N.E. 449. 178 N.Y. 208, 102 Am.S.R. 492; Wilson County v. Nash-
payee, within the meaning of the law although there is an existing ville Third Nat. Bank, Tenn., 103 U.S. 770,26 L.Ed. 488).
person corresponding to the name by which the payee is designated
Q. What is the presumption as to the date appearing
and known to the parties, where it was not intended by the maker
in the instrument?
or drawer of the instrument that he should have any beneficial in-
tere~t in the instrument (Norton v. City Bank & Trust Co., C.C.A. A. Where the instrument or an accepta~ce or a~y indorse-
Va. 294 F. 839), ment thereon is dated, such ,date is deemed prz.ma fac£e to be the
 30 . 'RON NM. , '()TlAHLE
W:S INSTJU/Mf.;NTs
• AN 1J HI·:V1
C}IIIL',x,.,U LAW ANI ) 1lJ<:L.ATf:V LA •
,.;Wf,

true datt.· U r tf l' Sec

I mllkJn~.
.
1]). drawiJlg. . ptance, or illdorSelllf:)llt• fta
acce
the c.". may be (. . . : ' ", "j . ' "

Q. What IJre ante dlJt(' d. a nd post.dllted InHtrUltlellt~~f}

Give EXlJIIJp/(·s.
A . t is dlltf'd earlier thun the t,.
. 'IrumcII • . . ~.
A n .'mtednted .Jnc' trumell t is• one CCJIltlllnmg R a Ilitol' dl,t_
..,
d"o·. that
th:m ofadf'll\'er.
W'J.H'Ie .
po.-;td:lt (Clarke
v ed in S N..1 t" Rallk v. Albion unk, 62 DOfb•

22 2000, A is."""d a elJc"k dlll<!d J.'I~.

5.921.

M;;rch
Ernmplrs.· (a ) 00
",,, 15.22, j~ dat
2000The
2000. check
ed Jllll
1.
M"~:ot,:a1lfed.
1~llry 5, 2001,(h)it Ifis slIid eh"ek iNslled on
Postdllted.

Q. Is an antedate
d or postdRted instrument in"alid?
A The m
. strumell t 18 . not invalid' .for tile d
reasOIlr .thut it
pos~ T~:
Ollly • Q. What i. Ihe err .
. ' , d· t d provided, tillS IS not Olle .or all d/"/?al p
I S .nkdowd or
i or fmudulent
s delivered
J persall to Whom all illstrument So dated
the lIt. Ie th ere to as of the date of delivery (scc.
purpose.
acqUIres
a",. an e>:alll /..
ect
0' Ih......>1io.. of a ....... 11' dOle?
12). A. The insertion of a .. d
h
ment in the hallds of a Sub rong ate dOes not OVoid the inslru.
· h sequent hOlder' d .
'm, t e dale inserted is to b '. Ue «>u"'e; but Us to
2nd Bentence). e regarded as the lrue date (Sec. 13,
Q. SU/'pose the maximum rate of interest allOWed by
the Usury La", is 18% per annum. A wanted to COllect an in. Example: The undated note 8 . • .
terest beYond 18% per anllum SO when B applied for a 10lln, 01' order PlOO 000 nin t d tates, I promISe to Pay to A

~~ce
d Jafter date ."It Was ISSUed
A required B to sign a promissory note stilting that the ill. tember 27 1999 ' hut Ae yI .Ys . on Sop.
t"reNt to be paid is 15% per allnum but lDade the Jlote ante. matUrity ;f the note A uly 27, 1999 as to hORton the
80
duted by one year. The effect thereof is to dOUble the inter. B is a hOlder in d . en negOhaled the instrument to R. If
UeoCOUrse the inserti f th
~: on 0 e wrong doto dll,.,
est to be collected to 30%.18 the illstrument Valid? not aVoid it and in r, 'h • .' ~

iostrument
'Oser e e~is oine:
. as e is concerned, the mU!urity of th"
A. The antedating of the note "'as dolle Ji,r an illegal Pur. . t d (8 13) y ys from JUly 27, 1999, tho wrolll; dllte
POse which Was to evade the Usury Law. Such being the case, the
instrulIIent i8 not Valid (see Williams v. Williams, 15 N.J, taw 255). i
f!
i On tile other hand, if the hO/dor is not a holdll ill due rou rBe
t the instrum:nt is not valid since the insertion of thor wrong date 0;
J
f the antedating
Bayley v. Taber, thereof
5 Mass.Was for a fraudulont
doneAm.D.
286,.14 57). I'UI1'080 (Sec. 12j
Q. When maYa dllte be inserted? Give examples. I

.
11} the or
.ISSue fblIo cce!'ta~ce,
A. Any holder may insert in the instrument the true date of
•• wmg Instances:
and the instrumont shalI be payable aCcordingly But if the Wrong date Was inRor!cd hy mistuke or c1orkl)l 0 ...
ror, the validity Or negotiability of the instrument is not affocted

perio}~fier"::n
(Sm itit v. Citizen '8 Nat. Balik of Lubbock. Civ. Ap ., 246 S.IV, 407).
In BlI!!h case, the dllte intended will b. taken as p tho truo duto
?n. instdrument expreSsed
( ,e 18 ISSUe Undated, or to be paYable at a fixed
(Yarbrough v. MeCa"Key Register Co., 162 S.E. 828, 44 Ga. App. 6r.!).
Th UB, lin i IIntru III on t dII l<!d oil the thirty.Ii I'Ilt day of Septemhor will
120).
be eOll/li<lered aB mild. on tho thirtieth (Wa&'1Jer v. K. nnor, 2 noh.
 , 'H ON Nbl''' .. ··V,lS
.' ' f) REVIE\\ E QELA1'ED L.A
QlIZZ.E R AN LAW ANn,·
. . rnplete instrunlents 11k FORM AND
. ds of In CO -...•• Reqlll$it.e!~~I{PH~~TATION
the kIn Law? ~hablhty 33
Q What are ~trUllll~nt.s· . A. In order th t
• N .gotinbl c 111. . d f illCOlllpld.e Inst.ruments· to convert a signatUrea a Person may h .
dcr the t: the kIn S () •
and fill it up for on a blank pape .ave 8 prLma rude nuthority
~ , • are ,
The follOWIng 1 .te but duly d e I'Ivered instr any am r Into a ne r hI .
~ . . ltv HlcoIllP t: U· present: Ount, the folIo' go lao .e lHstrument
1\Iec hatl1 ('8 .
1. Wmg reqUiSites must. be
ment (Sec. 14)'. . 01 ll'te but un d 0 l'Ivere d Instrument
. 1. The blank
or drawer' Paper bears the s '
2. ~techanic311Y co p , , 19nature of the maker
(Sec. 16); and ' p l c t e and undelivered instru 2. It Was delivered by th
. lty InCOI11 - and e person making t.he signu
.
3. 1\IechaIllca turn;
ment tSec. 15). 3. It Was delivered'
. ary to complete an instrument? verted into a negotiable in;~:~t~~;e4r.aper may be con-
Q Wbat acts are neceSS •
. t' ble l'llstrument, the first act neces Example: A, the OWner of 0>1 .
1t neg o 13 ' • for an autograph. Nora A . umb18n Motors asked Nora Aunor
A. To co n1 P.e e act of writing an instrument, and the second . f unor SIgned he
pIece 0 paper and gave it to A A r name at the bottom of 8
sary is the mechaIllcalf~ the purpose of giving effect thereto (see Aunor a promissory note for PI~te abov~ the signature of NOTa
is the delivery thereo or
ity to write a promissory note ~~ Ion. A dId not have the author-
Sees. 14 and 16). had no intention of converti on e ?lank paper since Nora Aunor
blanks in the instrument be filled? ng h er SIgnature into t' b .
strument. N ora Aunor could not be d '. a nego 13 Ie m -
D1 a Y
Q. When d 19 72 Bar Exams.) Give Examples. . ruled that "if an alleged m k ma e hable thereon. It has been
(Asked, 1971 an and what purported to b a er merely. siuns
t>..
8 '
pIece 0
fbI an k paper,
A When an instrument is wanting in .any ma.terial pa~ticu- signature, no recovery :a: p~~~sory note ~as inserted above his
. . possession thereof has a pnma fac~e authorIty to Gardner. 136 N E 876 243 M d on the mstrument." (Aikey v.
Iar t }1e person m . d . , .., ass. 77).
co~plete it by filling up the blanks ther~m. Anh .a slfat~re on a
bla nk paper delivered by the person makmg ~ e sl.gna ure In order Q·? G'Yhat is the extent of the authority to fill in the
that the paper may be converted into a negotIable Instrument oper- bI an k S Ive examples.
at.es as a prima facie authority to fill it up as such for any amount
A. The implied ?ower to fill in blnnks extends to every in-
(Sec. 14, 1st sentence). complete feature of the mstrument (Linthicum v. Gabby, 102 A. 997,
Example 1: X was borrowing money from Y Bank. X signed a 131 Md. 644) such as the date, place of payment, amount and even
promissory note with the amount in blank and delivered the same the name of the payee (10 C.J.s. 586-587). Thus, the holder of the
to Y Bank. In such case, Y Bank has the prima facie authority to instrument has the implied authority to fill in the blanks in the fol-
fill up the blank. . lowing instances, among others:

Example 2: A aut.horized B to negotiate for the purchase of a (a) The date of the instrument was in blank. The holder
may fill in the blank by writing the date intended (Vane v.
speedboat. Sil~ce A di~ not know the seller nor the price, A signed a
Stanley Heating Co., 152 A. 511, 160 Md. 24).
blank check with nothmg on it other than the signature of A. A gave
the blank check to B. In such case, B has the prima facie authority (b) If the place of payment of a bill or note is left. blank,
to fill up the check for any amount. as where a blnnk space is left. after the word -at:
the holder
has implied authority to fill the blank (Cassetta v. Balma, 288
Q. What are the req . 'w . ' P. 830, 106 Cal. App. 196).
UlSI 8 In order that a signature on
a blank paper may be conv rt d . (c) The power to fill in blanks includes the power in ~he
and filled up for any e : ~nto a negotiable instrument holder to fill in a blank for the amount, and a maker leavmg
amount. GIVe an example.
 "

I
34 QUIZZER ANU H~'~~ ANi) RELATIW 1..1\»0:>

' .n g the note with te, Pl"ovid"d~_

instructions ; l_ •
k . th eno
"'I : ' : ' . '

the alllount bl"n an d dehven ently questlOn. "U

F'on~ANnlN
asonn b1y exercised2)and WIthout frau';
conlp lete it cannot subsequ "
the authorj(v. was re Pa. Dist & Co. 54 .
A ~Uisi~ 'l'EltpREl'A'J'}o
Klelllman, 8 h . . a Part
X IS . of Negotiability N 35
(Marcus v. . eft for a,e name of t e payee, a bOlla not a holder in due Y Pl10r to the CO
(d) Ifa blan~
.
IS 1. db t absolute authority to Put h' u rse
tl the authorized alll CO ,}( Will not lllbePlebon of the note If B .
/ide holder has,. IDJplw k u
p.yee or he may. '
Ulsert t he nan,18 . d OUnt beca. uab} to hi ' 18
SOil, 52 App. D.C. 168 28S lD aecor an"" With the Use the nOIe e In not...., for
own name into the blan as
(Geo rge v. TIc-lomp'
e
25
J
5 Tenn. App. 3; Vand authollty !liven (R"':: not filled Up strictly
of a third person transfer it in blank form to a thi<d
F. 902), or the hol~r n~~;. blank by writing his own nalll 0<
360, 124 Am.S.lt, 275 er PlOeg v. Van zu u I D.G. Co. v. Mitchell,
Bar Exams.). IIOWeve; 13 L.R.A., N.S., 4:: 112 N.w. 807, 1"",.
JD r. or (Simpson v. First Nat. Bank
the name of hIS trans e~r. 147).
person who may Ii e of him for P75,OOO beca ,if Il IS a hOlder in ,; Asked, No. II 135 Ibl, 1993
Roseburg, 185 P 913,94 . it had been Iill"d up s~·e ~
h?lder in due CO""·
cou"'e, X is liable to

~Oa7u:~ty
and within a reasonah7ct y m aCC'"'dance "': :::aYenfon:e it .. if
r;r
chan~~JJy
Ky.L. 1135; Asked, No. time (Stanley •. DaVis I!lVen
What are the liabilities ot the parti~s when a Ine..
incomplete instnunent has been delivered and tbe A became a party toath, 1993 Bar EXam8 .•) ' ' . 773, 32
blank has been filled up? fore, he is liable to B as h e note after its COmpletion and th
. d' II e warrants th t th ere..
A. When an instrument is a mechani~ally incompl~te but me an In a reSpects What it pu a e instl'luoent is genu.
delivered instrument, the liability of the parties when the IDBtru. !'ports to be (Sees, 65 and 66).
ment is completed, are as follows (Asked, No. IX, 1997 Bar Exams.):
Q. Is a ltlechanicaU .
strument "wid? Y InComplete and UndeUvered in.
1. Any person who became a party thereto Prior
completion shall be liable to:
to its A. When an incomplete inst
it will not, if completed and neg t. :~nt
has not been delivered
contract in the hands of any h o,~a WIthout authonty, he a valid
b~t;
(a) Person not a holder in due course, provided, the
instrument has been filled up; signatUre
B Was placed thereon er'dasl,against any person whose
ar E )
xams.. ,
ore e IVery (Sec. 15; Asked 1985
gi\'en,(i)and strictly in accordance with tbe authority

(ii) within a reasonable time; Used ~. Sec.

Ul WhatI5?is tbe meaning of the te..... "any holder" a.

. (b! Holder in due course as if it had been filled up

m accordance . A The term "any holder" includes both a person not a holder
Btnctly
a reasonable time (Sec.with
14).the authority given and within due course and a holder in due course. Henee, the defense ofme.
III

f chanically incomplete and undelivered inst<ument is a real defen..

complet~on I
2. ' . Ally person who becallle a party thereto after its which can be raised against any holder, whether a holder in due
shall be liable to any holder in accordance with hiB course or not (Ledwich v. McKim, 53 N.Y. 307).
warrantws (Bee Sees. 62, 65 and 66).
t
Q. X signed a Prolllis •
Q. A signed a promissory note payable to bearer with
B the amount in blank. He kept it in his drawer. It was stolen
blank, paYable to A Or b ory note WIth the amount in
by B who filled up the hlllnk by writing "PlOO,OOO' and ne-
blank up to P50,OOO.A fil/:a;;r. X authorized A to fill in the
and negotiated the note t B ~he
hIank by Writing P75,OOO
gotiated it to C. MIlY C, a person not a holder in due course
hold A and B liable? Would your answer be the same ifC was
a holder in due course?
parties? 0 • hat are the liabilities of the

A C cannot hold A Iiablo whether C was a holder i.n due

COurse or not since the instrument was incomplete and undehvered
 ,d and negotiated :Vithou.t
. I t jf complete ds of "any holder as aga ,a.\.t.
d therefore. it wll nt °a~t in the hand ~thereon before delive,,",p ~St
FORM ANn I
an , lid con r ' place , . 1 ld' ~.y. "'"1\ ReqUisi l'r'rERPR~A110N
thority be a va . ature waS I older IS a 10 er 10 due COl. ~ ~ of NegotlabiHty !fl
, ho~e 1 er the )
any person w ~" eans whet. 1 . d of holder
SIgn C h \.lts~
was, e cou.ld 11
thereto until its del' .
tenn "any holder .Dle whatever kIll t Sav. Bank, 38 N.Y.S. 580
i
or not and there o~ v Empire Sta e , 2
;t transfer of POSsessi~very to him. Delivery of an' t
th
ano er. W·Ithout the' n, actual
.. 01' constructive fi-Ins rument mean.
.

"
hold A liable (Dame s . . d
r~wer t e payee, there can lVery o~ the instrument from the
to h Inlttal del' • om one person to
H latter w WIthout the delivel"U of 'd he no hability On the instrume t
un.
450).
C an ho Id B liable smce the th at, • • oJ Sat checks to th n .
I other hand, C • e and in all respec SWat it Pll acqUIre any right or interest th ' e payee, the latter did not
I:' On t le '
h in~trume n
t is genum
)
L 1',
cause of action, founded on .~reU\ and cannot therefore assert any
rants that t e ~
Sima Wei or against Lee ors:~asc~ecks, whether against the drawer
d Sec. 66 .
I:
, I ports to be (Sec. 65 an
However, Sima Wei is not fr dtlc Corporation 01' Producel'S Bank.
denced by her promissory n ~D from liability under the loan evj_
I
f lack of delivery of an iustl"U_
Q. What is the effect 0 Wei, March 9, 1993), 0 evelopment Bank. of Riz.al vs. Sima

ment? otiable instrument is incomplet

t act on a neg < fi th e Q. A notice of ganu lun
A. Every con r f the instrument or e PUrpose of
ntil dehvery 0 fM ent was served on the City Fi.
0

bI
and revoea e, u S 16 1st sentence .
)
cal 0
8
andaue, directing said Fiscal not to disburse, trans-
giving effect thereto (ee. , fer, ,:"lease or Convey to any person .ltcept 10 tbe deputy
sheriff concerned the salary or other ch k b 1 . t
AsSistant City Fl~al Mabanto. As a government official, Fis-
. '. ec 8 e ong.ng 0
. ".ISSU e"?•
Q. VVhatls
cal Mabanto received compensation by check from the De.
}.
A The first d e Ivery of the instrument,
. complete
t ". din" form, is partment of Justice through the City Fiscal. May the pro.
~. " 191) And a bill or a note IS no Issue, unbl it ceeds of a check still in the hands of the drawer be gar-
nished?
called Issue. (Sec. . ho takes it as a holder. So a bill or a note
is delivered to a person w d t .
payable to t h e order 0 f the drawer or maker 'oes d no dcomeb h Into ex- A. Under Section 16 of the Negotiable Instruments Law,
o
Istence as sueh un t'l I I't l'S delivered as well as In orse
b' ypt .e payee every contract on a negotiable instrument is incomplete and revo-
( St.ouuer
rr v. Cu rt'IS, 85 No. E 180, 198 Mass. 560; Sa lne v. aIne, 151 cable until delivery of the instrument for the purpose of giving ef-
N.Y.S. 735, 166 App. Div, 9), fect thereto. Inasmuch as the checks had not yet been delivered to
Mabanto, they did not belong to him and still had the character of
public funds. The salary of a government officer or employee does
Q. In payment of a promissory note, Sima Wei issued not belong to him before it is physically delivered to him. Until that
two crossed checks payable to Development Bank of Rizal time the check belongs to the government. Accordingly, before the
or order, drawn against China Banking Corporation. These actual delivery of the check, the payee has no power over it; h,e ca~.
two checks were not delivered to the payee and for unknown not assign it without the consent of the Government (De la Vlctona
reasons, these checks came into the possession of Lee who vs. Burgos, 62 SCAD 112,245 SeRA 374).
deposited the said checks without the indorsement of the
payee to the account of Plastic Corporation at Producers
Q What is the presumption of the law whenever the
Bank. Does the payee of the checks have a cause of action •
instrument .
is no longer in the possesSion 0 f a p arty whose
against Sima Wei, Lee, Plastic Corporation and Producers
Bank? signature appears thereon?
- A In the hands of a holder in due course, a valid dhelivel~b~f
. A. A n~gotiab~e instrument must be delivered to the payee rior to him so as to make t em la e
the instrument hoy all partle~~d while in the hands of a person who
• 0

In order to eVIdence Its existence as a hindI'ng t t Thus the

f f bI . can rae . , to him is conclUSIvely presu 'l'd d intentional delivery by the
payee 0 a nego la e Instrument acquires no interest with respect is not a holder in due course, a va 1 an
 ars thereo f is presumed until the r-. . 0t).,
party whose signatur~~ppe
trary is proved (Sec. 1 . FORMANl)
~\liai~INTErl}~PR~A1'ION
t is mechanically COltlplet o " egotiahility a9
Q" Where the iDs~rumedn r that delivery may be eff :' instrument. On the th
" "te S In or e
what are the requisl e .. liable to him since ~ ~l' hand, if C is a hold . d .
livery against a hOld:1' ~~ cannot raise the ~e~n~eo~:~e~~:.
tual?
erson w
ho is not a holder in due COUr
h h s~ due ~ours~, a valid and eft ue co~. In the hands of a holder in
partIes pnor to him is COn ~,:al delivery of the instrument by all
d
A. (a) As regar s ~ P d remote party ot er t an a hOlde
(between immedIate. p~ rtles , .an rder
a to be effectua1, fiUS t b e lllader Presid~nt and Directol'S ofc.;;slV e1y presUlned (Empire Trust e.o. v.
l'n due course), the dehve TY, l~tO of the party making, drawing ar- 694; Lmbarger v. West Newanhattan Co., 162 N.Y.S. 629, 97 Mise.
tl auth on y , ....'
either by o~ unde~ le the case may be. N.J. Law 446). York Bd. of Education, 85 A. 235, 83
ce ting or mdorsmg, as
p. . b hown that: (i) there was no delivery Q. A signed a Pt'Q1lli
In such case, It may he s. ed or (iii) delivery was conditional'
.. d l' as not aut OrIZ , d fi ' for PIOO,OOO. A gave the n ~Bnote ~ayable to B or order
or (11) e Ivery w . a1 purpose only, an not or the PUr, note will be binding OnlY:hen It: and Infonn~ hUn that the
or (iv) delivery ~as fOhf a spec~y in the instrument (Sec. 16). X did not sign the note bu s P.artner, X 8lgns the note.
pose of transfernng t e prope .
C hold A liable? t B negotiated the note to C. May
(b) As regardsa holder in due course, a valid k delivery
h l' of the
mstrument
. by a11 part'Ies prior to him so as to rna e t em lable to .A. It depends on whether C is a holder in due course or not.
him is conclusively presumed (Sec. 16). If C ~s. not a holder in due course, he cannot hold A liable since the
condItion on the delivery of the note that X should sign it has not
There being a conclusive presumption of delivery in favo~ of a been fulfilled (In re Continental Engine Co., Ill., 234 F. 58, 148 C.C.A.
h old er In
. d ue course , it cannot be shown that there was no
d' dehvery,
. 74). On the other hand, if C is a holder in due course, he may hold
or that it was not authorized, or that delivery was CO? lbonal, or A liable because in the hands of a holder in due course a valid and
for a special purpose and not for the purpose of transfernng the prop- effectual delivery by all parties prior to him is conclusively presumed.
erty in the instrument. Thus, it is no defense against a holder in due course that it was
agreed by prior parties that a party to a note should not be held
liable except on a condition or a contingency such as that additional
Q. Distinguish an immediate party from a remote signature should be obtaine.d on the note before it would be deliv-
party. ered (Glenville Bank v. De L<>ach, 113 S.E. 802, 154 Ga. 218).
A. Immediate parties are transferees with notice that deliv- Q. When the language of the instrument is ambigu~us
ery was unauthorized, conditional or for a special purpose and not or there are omissions therein, what rules of con8tructlon
for the purpose of transferring the property in the instrument should apply? Give examples.
(Bosworth v. Cady, C.C.A., Wis. 72 F.2d 62). A remote party is the
opPo~i~e o~ immedi~te party, who has no knowledge of any defect or A
. omlSSlon
t11ere are
Where the language of the instrument is ambi~ous
. . s therein , the following rules of construchon ap-
or
condItIon III the dehvery of the instrument.
ply:
Where the Bum payable is expressed in words and
Q. A made and signed ~ promissory note payable to (a) . ~ a discrepancy between the two, the
bearer for PIO,~OO. A ~ept the note in his desk. It was stolen
1
also in figures and thered . the sum payable; but if the words
by B who negotIated It to C. May C hold A liable? sum denoted by the worn: ~8 eference may be had to the fig-
are ambiguous or unce m, r
amount (Sec. 17lal);
A. If C is not a holder in d ' . . ures to fiIX the t y
because the latter rna . th ue course, A 18 not lIable to hun . te states that the amoun pa -
y raIse e defense that he did not deliver the Example 1: A promls(:;1~;) .. The obligation is only for
able is "twelve doUars .p, •
 I" :; , '

, ' . ' Bnn k of

( > ,," -
: 'c···
. Chnrfleston v. .Whl'te, 128
twelve dollars (Clt.JZcns
27. 132 S.C. 295) because the amount payable In worda ah~'~'
FoRM
-..,
prevail in case of discrepaJlcy betwee~ the amount in worda llid IteqANn IN'l'ERP
the amollnt in fig1.1I'es. The amount In ,words reveals the nd t 8trument" .
\lisites orNe R~'l'ATlON
gOllability
intention of the maker, as it is more lIkely to comluit a ~~e
41
. (lIlH
fior t h'18 rule . \0. Iiart
take in the sum in figures than in the amount in words. lS .. tion of the 18 that the ~ 167 p, 710, 23 N
Party Illakj ~Ount writte ,M. 226). The reas
Example 2: A check expressed the amount in figures (e) \Vb ng It paYable n reveals the true int on
"$250 00" and in words as "Two Hundred and 50/100 Doll as a dOubt Whet~n ~he instrume " en-
• C • ' F' ars" either t h' er It is a b'l nt IS so amb'
a IS elect· 1 1or note tb h 19uOUS that there .
The amount payable IS $200.50 ( armers State Bank . E
10n (Sec. 17(e]; Ask: older may treat it ~
Dickinson v. Komer, 232 N.W. 307, 6~ N.D. 11,70 A.L.R. 122~f
xams.)j
E d, No. VU1, 1998 B
as the amount in words should prev311 over the Sunl in figu ) xample' Th ' ar
res order PlO,Oon. Toe Instrumentstates " ,
Example 3: The amount payable in figures is "$120.00~ yet it is add X. (Sgd.) Y." The ~ I prOmIse to pay to A
ressed to d re IS a prom'
and in words, "One twenty dollars. The amount payabl . whether it is a b' a rawee. There ' lse to pay and
. d' e IS at his election III Or a note, the holde beIng a ~oubt as to
$120.00 because when the amount In wor S IS ambiguous . r may treat It as either
. fi ' ref,
erence should be made to the sum In l~res to determine th
real intention of the person who made It so payable (Sec.
raj ).
1; Likewise if n d
state "P
8,
, 0 rawee is nam d .
ay to A order P120
treated as a note or
e In an instrument that
,000," the instrument ma b
N.E. 166, 156111. 408~s an accepted bill (Funk v. Babbit[ 4~
(b) \\7J1ere the instrument provides for the payment of
(1) Where a signatu .
interest, without specifying the date frOln which interest is t ment that it is not clear inr:~ so plac~d upon the instru-
run, the interest runs from the date of the instrument, and i~ ing the same intended to . at ca~aclty the person mak-
the instrument is undated, from the issue thereof (Sec. 17[b]); (Sec. 17 (fl); SIgn, he IS deemed an indorser

Example: The note dated March 22, 2000 states that the . Example: On top of a promissory note issued by A is the
sum payable is "P100,000 with interest thereon at 14% per s~gnature ~f X. There being a doubt as to what capacity X
annum." Since the notes does not state from when interest is s~gned, he IS deemed to be an indorser. This provision is de-
to run, it should begin from March 22, 2000, the date of the SIgned to meet a case where it is doubtful from the instrument
whether a person intended to become an indorser, not to make
instrument. And if it is undated, from the date of issue thereof. an indorser out of a person who, without doubt intended to sign
(c) \\'here the instrument is not dated, it will be con- as maker (Germania Nat. Bank v. Mariner, 109 N.W. 574, 129
sidered as dated as of the time it was issued (Sec. 17[c]); Wis. 544).
1·
r (g) Where an instrument containing the words "1 prom·
Example: An undated instrument was issued on March 30, ise to pay" is signed by two or more persons, they are deemed
2000. It is considered to be dated as of March 30, 2000. to be jointly and severally liable thereon (Sec. 17[g]; ~sked,
1969 Bar Exams.). The fact that the singular pronoun IS used
(d) Where there is conflict between the written and , " d' 'dual as to each other; mean-
indicates that the promIse IS m ,1V~ d to have made an in~
printed provisions of the instrument, the written provisions ing that each of the co-si~ers IS a ee~: note in full (Republic
prevail (Sec. 17[d]); r
dependent singular promlse to p G R No 93073 Dec. 21,
Planters Bank vs. Court of Appea 8, . . ' ,
Example: The printed words stated that interest "should
begin from the date of the instrument" but the word "matu- 1992). . to pay to A order
te tates "I promIse all r
rity" was written before the word "date." In such case the com- Example 1: A no "sx d
Yare jointly and sever y 1-
~utation of" ~terest should begin from "maturity d~te of the P10,OOO. (SgdJ X and Y. an
Instrument Instead of computing it from "the date of the in-
 D REVlt'--\'\ r, ll ~R"F~LATED LAWS
QUlZZER AN
H ,· " "

42 LAW AND '

( Walrath, 202 N.Y.S. 577 , 208 t\ll

able on the not.e Bronner v. f).
F'OlU,f ANn lNTE
Div. 758). t tes "We prOlnise to pay to It. ~UiSites of NRP~l'AnON
Example 2: A Y. In such case, X an d Y are C\IIIOl'qet
note sa , , of the notes Were Itle I
egOtiability 43

PI0 O~~. (Sgd.) X and ('Milner Bank & Trust Co. v. Whi el'ely William Lim. The pro:::'·Y entrusted to the-., d .
h t
'm Was the real'~lSSory
Washowe"e~ Ill:::' stat:
1
jointly • bl
lin e on the8 note
61 Colo. 252). PP1e's
t a L' db" n te.. d' d ebvery to
lor aq

not e~enl
Estute, 156 P. 109 ,
in the notes. ?day Lim beerntodr and
ho!~e signature does not apPeal' Lim cannot be In da .e liable on t b
tA.t th
. notes?
e &aid lone
Q. l\lay a per~obnl Wthe~eon? Exceptions?
t h a e habl as th '
. nt be h8 e oil not 8 . a eTh a .• Was the real debtore II e ProUUSSory no",," did
the Instrume t h thermn. ere •• no dOUbt th t th . e Was not even mentioned
. r hIe on the instrumen w Ose signut (Del Rosario Vs. Court of Apn.a~ lelspoU8es Roxas are the debtors
A. appear
No person IS :~ec 18 1st sentence), except: ure r- s, 4 seRA 159).
does not thereon . ,

lOne who signs under an assun~ed nalne ?r tl'ade Q. What is the liability of a e ".
or assumed name? P I'Son SIgning lD a trade
. 'II he I'13hIe to the same extent
name WI ) as If he had SIgned i n
. own nam e (Sec.18
hIS , 2nd sentence ; A. He will be liable to the same extent if h h d' .
In
. h'IS own name (8 ec. 18, 2nd sentence). as e a SIgned It
2, The principal whose duly authorized agent Signed
the instrument (Sec. 19);
Q. How
instrument be may the authOrity oflhe ageot who signed ao
shown?
3. A person precluded from raising the defense of for-
gery (Sec, 23);
A. The signature of any party may be made by. duly au.
4. A party who indorses in a paper attached to the in- thorized agent, No particular form of appointment is necessary fur
strument called an allonge (Osgood v. Artt, 17 Fed. 575, 577); this purpose; and the authority of the agent may he established as
in other cases of agency (Sec. 19).
5. A person negotiating by mere delivery (Sec. 65);
6. An acceptor whose acceptance is written on a paper Q. X was a salesman of a drug company authorized to
other than the hill itself is liable to a person to whom it is collect money belonging to his employer. X obtained checks
and who, on the faith thereof, receiVes the bill for value
shown134); payable to the drug company, which he indorsed and dcpo&o
(Sec.
ited in his and his wife's joint personal account. Thereafter,
X made withdrawals thereon. Were the indorsements of the
7. A drawee who destroys the bill, or refuses within 24 check payable to the principal binding on the latter?
hours to return the bill accepted or non-accepted (Sec. 137);
Any person tn k ·mg e1leeks pa"yablc to a corporation,
b'd bwhich
an~
A the
8. A person who participated in an illegal scheme .
can act only h~ agents does
· t his peril and must e y 8
so. adorses the'same is without author-
1

conSpiracy with the person Who signed the instrument (TilloqUl

VS. CU Unjieng, 104 Phil. 775). cons(~quences If the agent wh~ 1~ euts on checks made out to a
ity. When a bank accepts the 111 or~e~~ indorsements of the sales-
sulesman of the drug complln~ nU he cks to the personal account
b
J an
dQp i"0~rax:~s Ro?,a8 with the marital consent of her hus. mun's wife an c er , u~ Id credits
d 1 k
.
h
tee e. , hd
cnnitting them to mnke WIt raw-
of the sulesmnn und !lJS Wife, p ;lsiblo to the drug company for the
t
CSU88
dee IrRoosano SIgned
Or Ord U promissory notes payable
four • dto als the bunk mllkes ItHelf reslPocks unless it is plcadl'<i and provhed
manded paYment from t era Pon maturity, del RosarIO e- ' l
rcpresen ted
. by t 10'thC C\e . passed toTt e
an action forcollectio:e Ro~as
sPOU8es and thereafter filed
amounts
thnt aftor the monoy
} . h was
Irawn from the bank. It
WI mred no loss (Insulflr Drug VS, Phi Ip-
thml su ()
claimed that the real d bt aga'nst them. The Roxas spouse: drug con~puny w 11~ 58 Phil. 684).
e Or \Vas William Lirn and the amoun pine Nlltumnl Bun ,
 44
~
qUIZZER A
ND R~;V[~~WbK ~'~;LA'fED LAW;:'
LAW AND
1:\,
);
. der that the agent wiU FoRMAN!>
~ .0
or . t Il()t Requjgite INTERPRETATION ·1
aecesS1.. J t re in an Ins rument? 8 of Negotiability 45
Q. Wbat are r his signa U
oanny liuhl e fo 'II not be personally liable ~ Q. A, a Partner of
be pcrs gent WI h ( lOt note as follows: "I A, B, C and Co. si .
der that the a 't 's necessary t at: a) he is dU.I
A. In or tIle instrument,. I I~tllre words indicating that Y
pay to X or ord p a Partner of A, B C
gned a promissory
er 10,000. (Sgd.) A." ' .an~ Co., promise to
· . atufe on I' signa he
h IS S l~l d (b) he adds to lI S . . 1 and (c) he discloses his prj A. Only A is 1'r bl Who 18 liable on the note?
. If of his prtnClpa , n· rt . h" 18 e on the te An
authorIze , pa .ner m IS own name is not b~o ". instrument executed by a
signs for or on beha v. Kindel, C.C.A. Mich 41 F mdmg on the partnership (M ks
cipal (Sec. 20). .
ent sIgns
his name but nowhere in the'
. . . In.
son's .name (A, Bean"'
, . d Ca. 2~In484).
thi The mere appearance af a arper-
suffiCIent to establish r b'l:' .' . S case) on an instrument is n t
Thu ~ where t le ag
~,
l 1: . t that he is Sl!,1Jlmg In a represent
d the lac < a· . t h Ia 1 tty it IS th
a SIgna ure t at is required (~
0
e appearance of his nome as
stnlment has he disclose ofthe third party for whom he might have
can Indemn. Co., 192 N E 8 cultural Nat. Bank v. Great Ameri-
tive ca pacity or the name. ersonally liable to pay the holder of 13 Minn. 106). . . , 187 Mass. 414; Bingham v. Stewart,
acted as agent, the agent: Permitted to prove that he was merely
P
the instrument and cannot e d parol evidence or extrinsic eviden,...,
.
actlllg as a~e~ "
t of another an I I' b'l' ""
void the agent's persona lU 1 Ity (Republic Q. X signed the followin .
to pay to A or order PIO 000 (~p~mls80ry note: "I promise
is not admissible to a rt f Appeals, G.R. No. 93073, Dec. 21, 1992)
Pla nters Bank VS. Call 0 •
be is not personally Uabl' . th g .) X, agent." X claims that
e
cipal, Y should be made l~a~~e Wbno!e l~nbdlinstead, his prin-

I
• 0 IS 18 e on the note?
Q Ad- ra Francisco was authorized by HCCC to Col. A. X, t~e agent shall be liable. The undisclosed principal can-
• .8hI} f m the GSIS. Francisco collected seven not be ma~e ~18bl~. Where an instrument is executed by an agent
Ject recelva es ro . h
CCC but did not dehver t e same to the and the pnncI~al ~s undisclosed and his signature does not appear
c h ec k s paya bI e to H .
latter. Instead, Francisco signed the na~e of Ja~me Ong, t~ereon, t~e prmcipal cannot be held liable on the instrument, not-
HCCC's president and general manager wIthout hIS knowl. wlths~andmg. that the agent acted with authority (Irving Trust Co.
edge and consent, at the dorsal portion of the checks to make v. NatIonal CIty Bank of New York, C.C.A. N.Y., 78 F. 2d 665; Cragin
it appear that HCCC had indorsed the checks. Francisco then v. Lovell, La., 3 S.Ct. 132, 109 U.S. 194, 27 L.Ed. 903).
signed her name at the back of the checks and deposited the An exception arises where the principal has adopted the agent's
same in her own account. When charged with forgery, Fran- name as his own, in which case, the principal will be bound by such
cisco claimed that she was authorized to sign the said checks. contracts and this has been held to be signing in a trade or assumed
Did Francisco commit forgery? name and therefore, the principal is liable as if he had signed in
his own name (National Deposit Bank v. Ohio Oil Co., 62 S.W. 2d
A. Francisco committed forgery. The Negotiable Instruments 1048, 250 Ky. 288). Such liability exists only where it is affirmatively
~aw provides that where any person is under obligation to indorse and satisfactorily proved that the name or sibrnature thus used is
In a representative capacity, he may indorse in such terms as to
one which has been assumed and sanctioned by the principal, as
indicative of his contracts, and has been, with his knowledge and
negative peT~onal liability. An agent, when so signing, should indio
consent, adopted as a substitute for his own name and signature
c~te that he IS merely signing in behalf of the principal and must
(Turner v. Potter, 9 N.W. 208,56 Iowa 251).
disclose the name of his principal' otherw' h h II b h ld -
son ally liable. Even assu' th' F I~e, e s a e e per
HCCC t . 0 ' mmg at ranCISCO was authorized by " Q. "\Vhat is a signllture per procuration? How is it
o SIgn ngs name still F . d'd' .
strument in accord .' h ' ranCISCO 1 not Indorse the Ill- made? What are the effects thereof?
ance WIt law. Instead f ' . 0 '
Francisco should have s' dh ' 0 SIgnIng ng s name, A. A sibf]lUture by "procuration" operates as :no~ice ~hat the
that she was signing ~gne er own name and expressly indicated agent has but a limited authority to sign, and. th~ pnnclpalls b?lI~d
Appeals, G.R. No. 116320anNagent of HCCC (Francisco VS. Court of . the agel"l t in so signing acted wlthm the actual lImIts
, ov. 29, 1999). on Iy In case
 46 qlJ/ /./.r. n n.··· . LAW AN II n .. u ' "

"per procuration" is SOInflt'

o . (Sec. 21>. TJ1e, term t it is seldom,]'f eV(~r, uSed -i IIll(Js FORM ANn
of his ,,"lh nIY: 'n Eng/lind, bu k /1893) A.c. 179; 8 C.J S nth, ~Ui8'te IN'rERPRF:TATION
IIsed in A./:.III tu" S. I t v Quebec Hlln , . . 6) I a of Negotiability 47
Unitl'd Stilks (Br.~tH1 . his name (Mont
15
I 1-'1 ' 1i')Pllws. d {' cop Ins. Co 109 gOlllery Garage C M
"lid in t Ie 11 . is done by n I 109 (!r I'roc • . 't A 296 297 o. v. anufactuters' Liahilit
" ",g~ .. tt1J~
. a~ d 1"~ntifYin LIkeWIse, falsely" , 94 N.J. Law 152 22 A L R < Y

I
rocuratJOn '.) Urt\.
2~;n°ther
t
A Sipllllllr!' fer fpp " to the agents is for JlllpersOnatin t . • • 1224).

· .. or "Per Proc, or ' ld I) 'TeZ Per ProcuratIOn, ClotJJde S'1 gery (COrnelius v. State and Signing his IlaIIl.
lOll. "Rona c , , 'd h' , a Ft.
thp prinCIp" I. Thlls, Id Perez has IlImtc nut Ilrtf.y to bind hi s 3. Fraud on thevery ' n t P. 845, 846, 27 Okl.Cr. :331);
~
vudor." nlea ns that ,Ronn th t th
u e person signin it • of the paper Signed sucb
. '. I Clotilde Salvador.
pnnClpcl, I
gotJable instrument nl had no .ntentio. to of Signing a no.
Ind. 226, 236) ""-I'S . oOl}e Nat. Bank v. Hill, 74 N E 1086 165
fi . . J. n IS a So refe d to " ,
Q. h (feet of indorsement by
. tee
Whnt IS an infant 0 r raud m eSse Contractus (0 d rre as &aud in factum or
g en, p. 323);
corporation? . 4. Signature on a blank .
a promissory note th paper WhlCh Was converted into
A It or assigrnment of the l
The In(lOrscmer.
• J '
Instrulllent by a out authOrity (Hic~: ~ er apparently valid instrument with.
. . or by an In
corporatIOn . fant passes the propertyt' t lerelll,
. notwith. 87 A.L.R. 1166l. . State, 168 S.E. 899, 901, 176 Ga. 72,
d · t1 t til"'m want of capacity, the corpora IOn or Infant lllay
st;m Illg la v d S' k' 7
Incur no I'Ja b'J't
I I Y tlIereon
" (Sec. 22' Howar v, Imp InS, 0 Ga. 322).
~en
'
Q.. IS there
authOrIty, a person .ign8to
a necessity the Dame th
bn·tat of ..... other without
Q. What kind of forgery is covered by Section 23? Ia t.er
t ·lJl Ord er that forgery lDay be CO_itted
l e e SIgnatUre of N
under the the
...
gotIable Instruments Law?
A. Section 23 applies only to forgery of a signature. It does
not Cover alteration of the instrument which is covered
124 and 125.
by Sections . A. It is not necessary that the forgery so resembl. the genu.
~I.th
me sIgnature as to be likely to mislead anyone acquainted the",.
(DaVIS v. Commonwealth, 290 S.w. 702,217 Ky. SOll.lndeed,
It IS not necessary thut the signature should bear any resemblance
Q. What kind
able Im;truments of defen.e i. forgery under the Negoti.
Law? to that of the person whose signature it purports to be (Cooper v.
State, 243 N. W. 837, 840, 123 Neb. 60Sl. It is sufficient thnt there
be an intent to deceive and a possibility of deceiving one who does
A. Forgery is a real defense which means that it could be
raised against any holder, including a holder in due course (People's 702,know
not the801).
217 Ky. genuine signature. (Davis V. Commonwealth, 290 S.w.

Loa n and Finance Corp. v. Latimer, 189 S.E. 899, 183 Ga. 809).
However, for purposes of prosecution and conviction of the
crime of falSification under Art. 171 and Art. 172 ofthe Revised Pe.
InRtruDlent8
Q. What Law?
are the kind. of forgery under the Negotiable nal Code, "imitating any handWriting, signature, or rubric" is nec-
essary. Thus, where a check payable to "P. San Buenaventura" was
en cashed by Francisco San Buennventura by Signing "F. San
A. The various kinds of forgery are: Buenaventura" who claimed that he thought that it was payable
1. Simple forgery who h h to him by his American employer, the d.rawe~
who confused "F" with
"P" the accused was acquitted of falSIficatIOn on the ground that
th~re
name of another Without IC OCcurs When a person signs t e
nature it pUrports to b (sthe authonty of the person whose BIg- was no attempt to imitate or simulate a signature (U.S. vS.
e eC.23); Buenaventura, 1 Phil. 428).
2. Fraudulent i m . .h
,OCcurs when th
. e person topersonallon
wh th·leading to forgel"}\, whlcd Q Adalia Francisco a8 president of AFRDC ente~ed
IVered impersonated th om e Instrument has been e- into a· land development and construction contract WIth
e real person named as payee and signs
~l._ •. • . .•••
 cs idcnt llnd general Illbh
HCCC rCl)rcstmtcd Y it.R pr
b . wn~ financed by GSlc..
.hich ~~..,
'"4 • • 1\0'
&

Jaime ' Ong. Sui"J con tract.t \\35 housing unt't s and deVel' "'3 ..
~, FORM AND IN'rt
quircd HCCC to co. nstnlC '
. .h payment was t 0 b e Illade 0 op 3~u neqUisitea QfN~}'{~:rA1'ION
hectare. of Innd. for whlc nd developed lands deli""r"- t"~ .
SIgnatUre Illade by X ~~~ ~
I t • I houses a
ba.is of comp e .e( FRDC and the GS. IS GSIS and ~Itl) cd t 0 make the check P b Was a forgery ,
and accepted by ~
L· 1 aY3 Ie to th Slnce the inte r
ittee Account from which ch C mco n Sav. Bank of B e Person na . n lon of A Was to
opened an Exel~uhve cO~~cd by Francisco and Diltz c~k.s , t
~.o, l'Ookl Yn , 10 N.E tned In the check (Cohen Y.
b
Id b . '~ 'd and co-sig " ., q ~lc~ . when a !>Crson oi ·2d 457, 275 N.Y. 329'.
wou e Issue F 'i""o and DIBZ ',,!!ued 8C"en ch • mtentIon of havin it ,gIls the name of
pre.ident of GSIS.~ run~.pl"ted and delivered work \I. "~k8 son, forgery is CO g . fecel\'"ed as the inst a namesake with the
payable to HCTChC °hr,:~S were never deli"ered to IIce"'c er D.C.N.Y. 26 F S Illnlltted (U.S. v. Nati alruC~ent of Such other per-
the contract. e c'.
was discovered that FrancIsco too c~~~cY
and undertook to deliver the same ttO
k.t d
t
f h
t e ch~cks
k •. nstead, F
• It

.
;amets
ex.
'
~ ~ot
. uPp. 144). The
identicat but me::'~:::rinciPle
on
th~
Ity Bank of New York
'ppli.. although
. t. 1027, 159 Us 3 40L' E111d SOTlans (White v. Van Hom
.
CISCO a ffiIxe d the signature of Ong 0 . rna h e It'apPear th llt run Ex~m.ple: A lawyer by' "the na ' , 55). ,
HCCC had indorsed the checks. FrancIsco t en Indorsed the the pres. dent of San Miguel Co me of Andres Soriano knew th.t
checks by signing her name .at the back of the .checks and Andres Soriano the la'''y . rporabon (SMC) Was a nn ..... esake
' .., er, SIgned his ......u"
deposited the same in her savmgs account. Franc'!!eo claimed note payable to bearer. Pre"" ted' Own name 1n a promiSsory
't , , ..... n 1t to a bank d .
that she signed the checks pursuant to the Certification is. 1 was SIgned by Andres S . an represented that
sued by Ong authorizing her to colIe~t the recei"ahl of granted the loan and gaVe AtOtflasno~ the SMC president. The bank
fi
e8 case, orgery was committed y.and onano . . bo rrow ed . 1n such
And the money
S~C
HCCC from GSIS. Did Francisco commIt forgery?
dent could not be made liable thereon sres Sonano., the prl:lsi.
A. Francisco forged the signature of Ong to make it appear v. National Surety Co., 157 NE. 269,~: ~~~~~al Urnon Bank
as if Ong had indorsed said checks. Even assuming that Francis""

~ the !>Cl'S<ln befo... him, no forgery is committed when the

Was authorized by HCCC to sign Ollg's name, still, Francisco did (h) If the inwntion of the !>Crson making the instrument i.
not indorse the instrument in accordance with law. Instead of sign. to pay
latter ••gns the name of the payee (Simpson v. Denver etc R Co
ing Ong's na me, Francisco should have signed her own name and 134 P. 883, 43 Utah 105,46 L.R.A., N.s., 1164). ' ., . , .,
expressly indicawd that she Was signing as an agent of HCCC. Thus,
the Certification cannot be used by Francisco to validate hcr act of Examl>/e: A bought a diamond ring from X who claimed hi.
fi>rgery (Francisco vs. Court of Appeals, G.R. No. 116320). name to be Y. A issued a check payable to the onler or Y, believing
that the name of the seller was Y. Afu,r receiving the check, X sign<'d
the name of Y and encashed the check.. No forgery was committed
Q. Wh~n
will fraUdulent impersonation lead to forgery
and whcn wIll it not? Give example of each.
since the intention of A was to make the check payable to the per-
son b(~fore him (see Simpson v. Denver, etc., R. Co., supra).

, A..
pt:.rson (~) FraUdulent
Signing the lI1stru impersonation
t' te d leads to forgery when the
Q. What is the effect of fraud on the nature of the in.
able to the perso d~en In n s to make the instrument pay- strument signed? Give examl)l".
to a person he th:~~~eth~nthe instrument and delivers the same
A. Whe n the fraud, deceit, or misrepresentation committed
the instrument sign. th e payee to be. If the person who receive.: is on the nature of the inst.rument signed such that the pers~n wbo
Pac. R. Co. v. M.M. Coh ~me ofthe payee, forgery arises (Missoun si 'ns the instrument intendt'd to sign an ins~rument of a dlfrerc~t
no., 261 S.W. 895,164 Ark. 335). character,
g sllch person lEI . no t l'13bIt,' on the mstrument
,. Leh
though It
Example: A iSsued a check • .
'1 payabl~ to the order of B, In pay-
. d' t the hands of a holder in due course (EnSIgn v. mann,
ment of Purchases made by
~al 578) In such case, t h e r.lrIlU d commJ'tted goos to the very
pass e 11\.()
192 III A .
X Who imperSOnated B X from him. A delivered the check to
nntur~
. pp. . fl ' strument signed and the person Sign-
. slgned the name of B. In such case, the essonce
iug hus inand
fuct, 0 . t l ,e m
no lIlte " a negotiable instrument {Home
ntion to sign
 50
F\'W\\ r.o , n ' . --Tf!) LA"'S
Ql IZZE R AND R ~\\\', ANI> HEI.A •
.•.. . ; ,'

a
]65 Jnd. 226, 236). This is also
H'J1 74 N.r:. lOR6, d 'n CSS(' COTltractus (Ogdun 32~ FORJ.{ A~'D
"'-1'/ IN,,£
Nat, Bank v, I ,. 'actllm or frau I , 3). lteqU.i8i~ of NR.f'Rf:rATrON
ferred to as fraud III /' .. . 3~k ,d t.o sign a document p e~'Ot.tabtlity ~J
, 'on ,,<l~ • H k d
Eramplt.': A blind plni f t'r~()Jlal pnlJwrty. . .C 8S 0 the d~l.l
. ' be a dt'l\d of sale 0 p b ,in" satisfied wIth whut Was ......
d atter c t'J
llr.. A. Where a
blank paper, and wr
rson Procures the '
issory note or oth~r I hout authority fro Sl~natu.ro of another on a
Portlllg (,0 . q :&d
of forgery <Hicks v apparently valid instill t e latt('T, w.rit~ a Pl'O.!:n.
•
re'ld to hUll au d It to be a prolllISsory llote 4-
ment to be < , It turne ()l I I' · 11 h lOr 1166). . State, 168 S,E 899 rument ab"ve It. ho i8 guiltv
h · he signed It. u Id not be mIl( e lU) e on to note
to 1m. • 'e ' heco
sue11 cas ,
prolnJssory t (') Atk'
no e 8(,0
as . • 901, 175 Ga. 72.87 A.L.R
Pl OD ' 000. In
.
"
t ' 1 of Sll!llJIl#! a
III son
v, Example: If an alleged
he hRd no mten 101 S w: 276).
Kelly, Mo. App, 214 ' ' p~per,} ~nd. what Purported t:~er mere~y si~ll.s a pit~ of blullk
a ove liS Slgtlature, no recovery 8 promiSSory note was ins.(1l't.(l.d
what is the effect of fraud 0 v. Gamer, 136 ~.E. 876, 243 1.1 can be had au the instrummt V\ikc:v
th other h an, d ? G' 11 maker has no Jntention of ass.. 77), In such ca.~ the ~UPI)()"'~t'~J
Q. On e . . 'ng the instrument. Ive examPle . convertmg 1 · .
a 1)Je Instrument and the ~
I
the consideration (or SIgn) . . • us SIgnature into a ne- )\)li.
th reIOTe. not even bo fi i;:
a na de holdl'r (~a n roo
'ttcd is merely on the comHd(~ratlOn for cover ereon (Grand Hav F'
A. If the fraud contl!llblle instrument, such fraud cannot be 93 Iowa 140) Thus wh en IfSt Nat. Bank v. Zeims, 61 N W 4s~
' of the nego Ja b. P' . ,ere a person ind I . . , ,
t.he Issuan,re Id:l' due course (The ~facca ees v. leTson, 6 per containing no writing and hi h . Utes anot l(.' t t.o sigl\ a pa_
raised agalllst a ~k t. ~;~) but can be raised against a person who of identifying the signer.' wh ~ c IS ~ be used. merely as a m NU\S
contract of any kind and th 0 fi~s not mtend to ext..'Cutc a Mte f
S. W. 2d 305, 1?7 d ' e (American Sign Co. v. Electro·Lens Sign n
. t holder m ue cours . paper a note the note 'l1:e . s out the blanks so 8S to makt' the
IS no a I 211 F. 196). The fraud that can be raIsed ~gainst 8 h Id (G 'd H WI vOid even in the hands of nn inulX't'nt
Co. , D,~,Cda ., ~e must not relate merely to the qualIty, quan. o er ran aven First Nat, Bank v, Zeims, SUPTYJ),
holder m ue courlS . f h t t b
. h ter of the consideratIOn 0 t e eon rae, ut must Q. What are the effects of forgery? (Asked 1981 1983
tltY'tv,atlute, or c aratrcI'ck or devise as induces the giving of the paper 1984, and 1987 Bar Exams.; No, VII[21, i995 Bar EX8m~.)'
cons ,I u e sueh a (L h S'
I
t

under the belief that is one of a different character at am v. lilIth,

A. When a signature is forged Of made without the allthor-
45 111. 254).
Example: A bought from B a ring purporting to be a one-carat
I ity of the person whose signature it purports to be. it is wholly in.
operative, and no right to retain the instrument, or to give a dis.
charge therefor, or to enforce paymlmt thereon against any party ! .

I'
diamond ring for P200,OOO. A issued a note payabJe to B or order ,
(

for P200,OOO in payment of said ring. It turned out that ~he stone thereto, can be acquired through or undE'r su('h 8i~:l1uture. UJll('~~ '

the party against whom it is sought t.o enforce such right is pt't'dudl'<.i
on the ring was made of glass instead of diamond. B negotI~te~ the from setting up the forgery or want of authority (Sl'C. 23).
note to C, a holder in due course. May C collect from A? A IS liable
to C. "Fraud relating to the consideration for which the instrument
l By way of outlinE', the following nrc the e(ft.,'Cts of fut'J.{ory of It
was given is never a defense in an action thereon by a bona fide signnture:
holder in due course." (The Maccabees v. Pierson, supra; Homewo~d It is wholly iJloperntivo, tlnd
(1 )
People's Bank v. Simon, 123 A. 726,279 Pa. 118). However, if CIS (2) No right. against tiny party tlwrcto, can be acquired
not a holder in due course, he could not hold A liable because as through or \lnd('r such Sil,!'llutUTO:
against one who is not a holder in due course fraud in the consid- (u) To retain tIle in"trmncnt, or
eration or in the procurement of the bill or th~ note is ordinarily 8
(h) To givo fl di ~c hltrgo thomfor, or
defense (Harzfeld v. Hayne, 76 So. 973, 200 Ala. 615).
(c) To onfo/'c,(l puynwut tlwJ'eon.
i . )lIriv ngainst whom it is 80UI:ht to tmforce
• Q. What i~ the effect if a p~rson writes a bin or note
1
EX('('plioll: Wlwn t It. ,'"(!Hin e! up tho forgery or want I)f uu-
WJthout authorIty, above a genu' . t ade on 8 . I1t I'f:l
Sueh rJU IlreC'ludNl from
2'1)
8 , D

bJ an k
paper
? Ine sIgna ure m y . L'
tJwrity OR a dd(!Il8U (occ. < •
52 ~ l: tL.L. t. l\ ~l "'" "'LAWAl'\jDH t.u... ~ -

. ture 0 f X as maker t inAa Pl'olllis..

d the slb'lUl mise to pay 0 or or-de PO~AND
Q. A forge e 88 follows: "' proment to B, a person "'h •
sory note"payab~otiated the in.t~
..y B hold X liable? W : ~\U$l~~~RPRl'TATION
I~:r
A t\,~a.bJ.hty 5..l
in due course. Olll neceldsshary and the forgery ,
PI
was 00,000.
not a h 0 if B was a holder in due course? cou aVe been ne . of hiS signat
your answer
be the same , t f ""
. bI because the sIgna ure 0 4'\., th... is payable to beare gohal.€d by rne~ d ~ Was a needless 8('t as it
•
B cannot ho
Id X h'l e ' t' h -= indorsement lllade ~and therefore, ne~:~:J' :hen an in~trument
A t was wholly lIlopera IVe Wether
ker ".vas forged and therefore. ~e or not, Forgery is a real defense
L '

gery therefore . ereon COuld e\"en L . e Y fllel"'8 dC'hvery. the

rna d 'n due courl:' 1 ' Lo
an an d Fi nance
,18 not the appro ri ~ stncken out (Sec. 4H). 1"0,,"
th e holder is a hoI. ed
er agamst
I .
any holder (Peop e S (b) The appro ' p ate defense ava ilable to A.
which could be r31S S E 899, 183 Ga. 809).
CI livery of a lllech . PTIate dE.'fense that A ' .
Corp. v. LatmH'r, 189 . . I f h' anirally complete · could raise IS IUt'k of de--
en rom 1m (Sec, 161. Ro...."" illS1rurn."t sinC\> the not. Wa. 5 10.
mechanically C<Jmplete ' er. the defense of lack of d r f
h __lUstrument COuld not be rais"'ll' IV~~y 0 a
d , ory note payable to B or order.•
promlss
Q. A mn e a in the note was forged by C who in_ holder in due COu,....,,,
f h · .~ ~use as to h'
The indoniement o~ ~'ho
indorsed it to E. (a) May Ii: hold A. ery 0 dt (8e Instrument b II .
Y a parties '
.. ( aga10st a
lIn a Valid and efTl'Ctual d I'
dorsed the note to, d D liable? sume ec, 16), Ren", 'f B ' Pnor to un IS "'nelusively ('P......
h" IV.

COver from A but if he i~ ~ot ~s h:l~old~r in due course, he luny reo

liable? (b) May E hold C an
as the latter Could raise th d fi er 10 due cou~e, A is not li 'lblc
ro~
t h Id A liable. The instrument was paYable
(a) an
A. order
to B or E dcatnhno
erell , it could not be validly negotiated
b with. who is not a holder in' due eco:r:nse of lack of d~1ivery a~ain~t'o.l e
Bar Exams.). e (Sec. 16; A.."<ked, No. Xllal, 19~17
h
outht e genume
to t e paper passe
l~S
. . dorsement of B (Sec. 30). Forgery y a stranger
no title thereto (A. Paul Goodall Real Estate &
. B k 144 S (c) B is not liable as he Id .
Insurance Co. v. North Birmingham Amencan an, 0, 7, 225 nature is forged and therefi co~ II ~lse the ~l'fense that his sig-
Ala. 507). E's right over the instrument was broken b! the forgery forger and Dabs ~re. W 0 Y lnoperutwe. (Sec. 23.).. C, thtl i
rom nuslll~ th t)
' su equent mdorser are pred dt'd f i
of B's signature. Since B's signature was forged, no vahd transfer of defense of forgery and th fi 1 ' u i

title was effected to subsequent holders and hence, parties whose No . XI [b) , 1997 Bat' E xams.).
ere ore, t ley are hable to E (Sec. 66-• Asklxi ,
indorsement was forged and those prior to him are not liable to the
holder. Consequently, the maker of such a note, when sued by al-
leged transferee, may avail himself of the defense that the alleged • Q. Wilson, the Principal employee of San Carloa Mill.
tra ns fer by the payee was not genuine (Fourth Nat. Bank v. 109 requested for the transfer of $100,000 to the company'.
account at the China Banking Corporation. The muney Woo
Lattimore, 148 S.E. 396, 168 Ga. 547; Carter v. Haralson, 91 S.E. 88, 146
Ga. 282; Asked, No. V, 1990, and No. VIl[I], 1995 Bar Exams.). tran.ferred by cable. The sil!hature of the authorized .il!ha.
tory, Baldwin Was forged in a request for the human"" of a
(b) E may hold E, the forger and D, an indorser subsequent cashier's check payable to San Carlos Milling. China Bonk.
to the forgery liable since they are precluded from raiSing the defense ing is.ued a manager'. check for P20l,ooO puyuble to San
of forgery (Sec. 66; As ked, No. VI[21, 1989 Bar Exams.), Carlos or order. Suid check Was dfJpo,sit.ed in the account of
the said company with the Bunk of the Philippine Ildund"
(BPI) by forging the signature of Baldwin. BPI received a
.\
~as s~len
Q. A made a promissory note payable to B or hearer. )
request purporting to be signed by Bnldwin, directing thnt
The note by C who forged the indorsement of B P200,OOO in bills of vnriou8 dtmominntioJltl be packed for Sllip-
ahnddnegObut.,d It to C, C to D, and D to E. (a) May A raise ment and delivery the nt~xt day, D()lol"t~8 witllcSHed the Count.
t e efense of forgery? ,b) M .
ing and pnckiJlg of the money and then came back with a
against E? (c) M E h ) ay A raise any other defense check for P:WO,()()O purporti"" to be signed by Bnldwin. The
ay 0 d B, C and D liable?
A. (0) Being payable to be bank asked for PI to cover the cost of pncking the money
by mere delivery (Sec 30 2 darer, the note may be negotiated from Dolores who left and later came bnck with another
. , n sentence), Indorsement of B is un- check for PI, purporting to be siJCned by BuJdwin. The money
Was turned over to Dolurcs, who in turn gave the money to

--'.=
-' ------------_- \
..
' .
 , 1 " ,
A ULE INSIJ(.UMr.NTS
NFGOTlt>
"~D REVIl'~WER ~LATED LAWS
QUIZZER~' LAW AND
FORM AND
PIO 000. The signature of &q " INTERPRETATION
of Negotiability
~ his shtlre d BPI dehited the amount
1.U81ta

ive d a· f, rge . fS
Wilson and rece} ks were 0 the account 0 an Carlos Q. The signatUre f
Baldwin on both c 1~ and pI froI1l k'ng and BPI. Discuss the upon the First National: the drawer in 18 check. drawn
of the checks, P200. ed Chilla Ban 1 checks were negotiated to ank. of Portland was forged. These
Milling. San Carlos ~u to the case. same in their respect' Various persons who deposited the
. b'I'ty of the partIes t liable. The manager's check tiona) Bank of Portlan~::~co,!nts with United States Na-
I la 1 1 waS no . h . d
.
a ) China BankIng Carlos even If t e 111 orsement of house, collected from th ~Ch in turn, through the clearing
A. ( . fact paid to San. t suffer any damage from the ered and the drawe e awee. The forgeries were discov-
n
it issued was: ed San Carlos didd n? as the only result was the drawee recover fromeUw~:otified immediately. May the
B Idwin was lorg . f Bal WIn • h land? DI States National Bank of Pon.
a f the indorsement 0 • China Banking to t e BPI ac·
forgery 0 f money flom
removal of that sum 0 A. ".Where a holder for value in due course presents to the
n Carlos. . l' \
count 0 f Sa 't aid out money m re lance upon drawee a bIll of exchange to which the name of the drawer has been
because IfPBaldwin. The signatures on the
(b ) BPI was liable'gnature
forged,
' and the drawee pays the instrument , the h 0 Id er an d d rav.' ee
l'k'
I
the genuineness oftI1e SI
0 . S C
t be charged agatnst an arlos.
b emg ale l~?rant that the signature of the ostensibly drawer was II
. atures of its customers, an d'If It
.
d they can no forged, and It IS subsequently discovered that the signature of the
Checks being forge , k w the SIgn . drawer wa.s fo~ge.d, th~ drawee cannot recover payment made to the
"A bank is bound to no\ b nsidered as maktng the payment holder. If III SImIlar CIrcumstances a drawee accepts a bill of ex.
k 't must e co
pays a forged ch ec ,1 t ordinarily charge the amount so change and then permits it to go into circulation he cannot avoid
out of its own funds, anddcann'~r whose name was forged." There· the obligation to pay, even though the forgery is di~covered after the
paid to the ac~ount of the ef~~1 loss was the negligence of BPI in acceptance and before presentment for payment." In other words,
fore, the proxlma~ cau~e ~ ~orged checks for which it must be "the drawee named in a bill of exchange is bound to know the sig-
honoring and caShl~g t~ll~o Co Ltd. vs. Bank of the Philippine nature of the drawer, and hence, accepts or pays the instrument at
held li able (San Car os 1 lI1~ d 'N I[al 1987 and No XI 1992 his peril." Said principle is not available to a holder who (1 ) is guilty
Islands, et aZ., 50 Phil. 59; As e, o. " ., of bad faith, or (2) has been negligent. There being no showing of
Bar Exams.). bad faith of negligence on the part of United States National Bank
of Portland, the drawee cannot recover the amounts of the check
from 'the former (First National Bank of Portland v. United States
Q. A bill purporting to be drawn by sut!on on Pri~e
National Bank of Portland, 100 Or. 264, 196 Pac. 547, 14 A.L.R.
was negotiated to Neal. Neal presented it to Prlc~ w~o p~ld 479; Asked, No. l[a], 1987, and No. XI, 1992 Bar Exams.).
the same without accepting the hill. Another bIll bkewlse
purporting to be drawn by Sutton was negotia~ed to Ne~l.
The second bill was accepted by the drawee, Price. The sIg- Q. Who are precluded from raising the defense of for-
natures of Sutton on these bills were forged. Neal acted in- gery?
nocently and bona /ick, without the least privity or suspicion A. The following cannot raise the defense of forgery:
of the said forgeries and paid the whole value of said bills. 1. The forger as he cannot raise his own malfeasance
May Price recover from Neal the amounts of said bills?
as a defense;
A. Price cannot recover the amounts he paid'to Neal. It was . 2 The indorsers and persons np.g~tiating the. instru-
incumbent upon Price, the drawee to be satisfied 'that "the bill drawn b d l ' ry as they warra nt that the mstrument 1S genu-
upon him was the drawer's hand" before he accepted it or paid it. ~ent dY' C Itvlerespects what it purports to be (Secs. 65 and 66;
me an m a 987B E
and No. V, 1990 ar xams.,).
Whatever neglect there was, was on the side of Price and assuming d N o. I[]
As k e, c, 1
there was no negl~ct on his part, "there is no reason to throw off 3 The acceptor with respect to the signature of .the
the loss from one mnocent man upon snoth "(P . Neal, . h d ·ts the existence of the drawer, the genume-
3 Burr. 1354 [1762]). er man. rIce v. drawer as e a ml
 . :: ....
... ',.. , "
' ,
, . " . ' . '," ,, ~ :.: '

'. ,- ~ - "
', j ' ," ••

TJAHI E INSTHUMENTS
• N N t-~ (~() "'
NO R£\'n:\\'ER (~n i\TE D LAWb
QVl ZZ ER Ai LAW ,v~ Il J J ~

. . 'lcitv Hnd authority to dr n FORM AND 1

lnd hiS c.lP· ~ ...w ~Ui.i~~;F.RPR"~TATION
. • . tTlUltu re • I , Negot1ahib\y 67
n ess of Ius ~l i" 6 ':1 )·
~
the instrument
(St>c. .. , ,I b h'
d by estoppc or y t Clf Ow
er sh~ame, the loss is lhr
re barre f Ii ~ (R bl' 11 on IS part in aece f OWn upon h'
Those w h.0. a the dt'fcnse 0 orgcry to be genuine." Buf}n g or paying, ~l~i~~ the ground o~ neg\i~0n~
4.
.
n eglIge nce
from r:1ls 1n g
C poratIOn,
.. bl Banking or
. C I
.
., Motor ServIce 0., nc., 63 Phil
cpu IC 'Is.
10 seRA 8; PNB VS. Court of presenter of the t ItdfoilOW8 obViously u: h~s 8soortumed the bill
himself been guil~rg~ paper has himself: If t~e payee. ho\d~r, or
Eqlut,l e RA 693' pNB \~. . by any act of his: 0 a n~gligence prior to en In default, if he hili
Appeal~, 25 SC ' er's neg1' Wn he has at all . that of the banker, or if
711 ); mit the genuineness. of the sibTfiature > "lgence, then he Ina 10 .co~tnbuted to induce Ule bank-
Otl.1ers :~IO a:uch as those who f~~lled to deny sPe_
banker. . The actual negl'1gence
Y se hIS nght to cast lh 1
fM e 088 upon the
5.
structlVe fault of the drawee i~ otor Se:,ice as against the con-
expressly or lnlph y, enuinenes s of an actIOnable document
dr?wer and detecting the for e ~ot knowmg the signature of the
cifically under °Rat~ th~tcourt). pnor number is issued on f ry 18 shown by: (a) the check with a
(Sec. 8, Rule 8, u es least the CUriosity of M to a Sate~ date. This must have aroused at
f to motive tires purchased fro III checks from unknown :er:on:r:v1ce; (b) Motor Service accepted the
by a sub-agent of the pa 'd(C) one of the checks was indor~ed
Q. In payment 0 aUrsons negotiated two checks Pur. yee an Motor S ' d .
Motor Service, unkno~n p~ by "Pangasinan Transportation to t h e extent of the autho't f h ervlce me. . e no mquiry as
been M1SSUeager and Treasurer" against Phil. the checks is crossed gen::' ~lo t ~se unknown persons; (d) one of
porting to have Kl collected through a bankin a. y thl~h means that it could only be
Inc by J L ar, an t' I
C
. o.~ ' . . ~ai Bank (PNB) in favor of Interna Iona Auto the check in payment of g InS ~tub~n yet, Motor Service accepted
IPPIO~ NatlO Ch e c k no 637023-D was dated April 6, 1933 should be allowed to merc andlse. Hence, the drawee bank
Rc,?alrhSbo P ' 63 7020_n was dated April 7, 1933. One of the Bank VS. National Cr:o~er ~m Motor Service (Philippine National
whIle c ec k no. .
1l.Iotor Service Indorse d t h e sal'd checks Inc., 63 Phil. 711). y an of New York and Motor Servic:.e Co.,
c h cc k s was crossed . n v •
.or d CPOS)'t WI'th the National City Bank of New
I
•
.I.ork (CIty
Bank). The checks were cleared at the clearIng house and ~. A check dra~ against PNB and suppo8~d to have
PNB credited City Bank for the amounts thereof. It turned ~een Issued by ~SIS wlth Pulido as payee, was purportcdly
out that the signatures of J.L. Klar on said checks were Indor~ed by Pulido to Go who in turn, indorsed it to Lim. Lim
forged. (a) Is payment of the check by the drawee bank deposited said check in his current account with PCIB. pelB
equivalent to acceptance? (b) May the drawee bank recover stamped at the back of the check: "All prior indol'8cmenl8
from Motor Service? and/or Lack of Indorsements Guaranteed, Philippine Com.
mercial and Industrial Bank." The check was forwarded for
A. (a) The contention that payment of a check is equivalent clearing through the Central Bank, to PNB which did not
to acceptanee so as to preclude the drawee bank from setting up for- return the check on the next day, or at any other time, but
gery is without merit. A check unlike a bill of exchange is not pre- retained it and paid its amount to PCIB 8S well 8S dc\)iled
sented for acceptance. Acceptance implies subsequent negotiation of the account of GSIS. It turned out that the signatures or the
GSIS signatories were forged and two months before, GSIS '.-
the instrument, which is not true in the case of the payment of a
check because from the moment a check is paid it is withdrawn from notified PNB that the said check had been 10Kt and requested
circulation., ~e~ the drawee bank cashes or 'pays a check, the cy- that its payment be stopped. Upon demand by GSIS, PNB re·
credited the amount of the ch(~ck to the account of GSIS. (8)
cle of negotIatIOn 18 terminated, and it is illogical thereafter to speak
of subsequent holders who . k h Did PCIB acquire the warranties of an indorser? (b) May
S hb ' h can mvo e t e warranty of an acceptor. PNB obtain a refund from PCIB?
uCe emg t e case, the drawee bank is not precluded from setting
up lorgery. A. (a) pelB glluranteed only "all prior indorse~cnts" an~ not
the authenticity of the signatures of the officers ~f GSIS who lugned
(b) "In a11 cases which h ld th d
by acceptance or payment fr °d ~ rawe e. absolutely estopped in its bohulf. GSIS signed as drawer and not as mdorser and there-
om enymg genUIneness of the draw-
 f reID is irrelevant to the PNB's I
fore , the warranty
pelB t COli ld h'lve
0 I been availed ofb a leged
Ya s l:'i
(. FORMANt>
to recover frolll j ' : due course, subsequent to pelB IlbseqlJ.ght ~UisitealNrtRPRETAT
indorser or a hol( : r l~~ent by pNB as drawee, the check bll t , I>~4t finally on JJlft QfNegotiabilitION
is neither, UpOI~ P'tY nent and became a mere vouche ceased ~
04&'ua..... y 59
were returned ' 3 16, 1953
be a negotiable Jl}S .rut h~ . to
r Or .t'~Qof •109 was mad Onthe a-. ,the l"ellln: '
. e Pu &- uUnd -.qnlng·
payment. ,of ~hlCh required d7';:nt to th:~rg.d sign":.';'leen ""1l1Tant.
recover from PCIB. Assumlng that p ours from cle ,s onOl"ed -hour cle ~ The clear..
(b) P NB canna t " Clb apply to the rr:rtng. It \\tas C~ecks to be rea;mged
house rule"
, •of negligence in not dIscovering that the cl l ) had
been g~Il~y d "lble that PNB had also been gUilty leek \Va for the Treas easUl'er heca !ned that saidu: within 24
fiorged It IS un eOl( ,of S rants. May th:~r to verify ~:: it Was PhysicaU; ~hOuId ,not
' f gll'grenCe because it had a preVlOUS and form 19reuter- overnlllent e genUineness f lDlPOSSlble
fid GSIS that the check had been 1os t , WI'th t IIe request an·
egree 0 n e '
tllatohce A. The Tre recover from BPI~ all the war-
asury
rom t tllereof be stopped, Thus, by not returning the h the rule being a memb Was bound b h •
. er of th CI ' y t e 24-h '
paymen , ' P N B h' d fj d ' C eck t h e saId rule to be . e eanng om If h our cleanng house
pelB, bv thereby indlcatIl1g that (1 oun nothIng Wron ' to un WIse th ce, t e Treas
the che~k and would honor the same, and by actually P!\Yi~ W~th proper remedy through t ' e Treasurer could h W'er thought
the Treasury and th C he President of the Ph'!' a~'e s~ured the
B PNB induced the latter, not only to bel' g Its e entral Bank ' I Ippmes smce both
amoun t to peI
. " '. leVe th The Treasury h d are agenCies of the Government
the check was genume and good In e~e1 y respect, but, also, to at a not only bee . '
its amount to Lim, When one of two Innocent persons must Pay warrants ~ut had also thereb ' n neglIgent in clearing its own
er thereof to Its depositor. 'The y ~nduced BPI to pay the amounts
by the wrongful act of a third person, the loss must be borne :utr Treasury becomes more gro s nature of the negligence of the
one whose negligence was the proximate cause of the loss 0 Ythe apparent when '
' d t r who 24 warrants was for over P5 000 we conSIder that each of the
put it into the power of t~e t hIr perso,n 0 perpetrate the wron of the auditor of the Trea ' I , ~nd, h~nce beyond the authority
PNB was therefore , the pnmary or prOXImate cause of the loss ,angd' forged, to approve. In oth:~~;;;d; t~:etgnatu~ thereon h~d been
hence, may not recover from the PCIB (PNB vs, Court of Appeals rants ~as apparent on the face th;reof ~~~~:t~:: :::a~~d\\:~
advertIsed, the loss of genuine forms of its warr'ants, Neither had
25 SCRA 693). '
BPI been ~nformed of any irregularity in connection with the war-
rants, until after December 23, 1952 - or after the warrants had
Q. From July to December, 1952, Corporacion de los been cleared and honored - when the Treasury gave notice of the
Padres Dominicos (Corporacion) 'acquired 24 treasury war·
rants purporting to be issued by the Government of the Phil·
ippines by accommodating its former employee, Carranza.
I
~

r
forgeries,.Ai; a consequence, the loss of the amounts thereof is mainly
imputable to acts and omissions of the Treasury, for which BPI
should not and cannot be penalized, "Where a loss, which must be
borne by one of two parties alike innocent of forgery. can be traced
The warrants were deposited by Corporacion in its account
with the Bank of Philippine Islands (BPI) which in turn, pre·
scoted the same for payment to the drawee thereof, the Gov-
I
!

'
to the neglect or fault of either, it is reasonable that it would be borne
by him, even if innocent of any intentional f~~ud~ through whose
means it had succeeded," (Republic of the Phlhppmes vs. Bank of
ernment, through the clearing office. After being cleared, the the Philippine Islands, 10 SeRA 8).
warrants were paid by the Treasurer of the Philippines and ~ . of the failure of the
accordingly, BPI credited the proceeds of said warrants to Q. What is the CO~Se(I>~e:rc:1tered check to the col-
Corpor8~ion, which, in turn withdrew said proceeds by drawee bunk to, rc~urn 8 2~~::ur clearing rule on clearing
means of Its own checks and paid the corresponding amounts lccting blink wlthan tho
• ?
to Carranza. It turned out that the signatures thereon of the hOUtoie operatIOn. ., I'd rule applicable to com-
Tre~surer of the Philippines and the representative of the
. rule IS a va 1 h
A . The 24-hour cIearmg .h n endorsement is forged, t e
. It ' true that w en a I bears the loss,
Auditor General, whose authority to sign was only up to morcial bunks. IS d rser: as a general ru e,
P5,OOO, were forged. All the warrants were in excess of IUf.lt en 0 ,
colJecting bank or ~
f .d On December 23 " 1952 th e Treasurer re turned threed
P5,OOO.
o sal . warrants. Four days later, two more warrants, all
60 QVIZi. I·; H r UW ·' -U\W ANI) lU' .... •· ·

f the collecting bank on the ch FORM ANn

'fled
B t the unqun I\ l '
endorsement. 0 24-ho ur regulation on cle e(;k
'th tle 'I arill ~i~ltPRETATION
!tequisites
u . ,d together WI d ']wee bank fat s to return a fI g egQt1ability 61
should be rt~a.n Thus, when the If1'-"cting bank within the 240rgeQ . However, if due to
h ' e opem 10 ' the co e -hou dlscovered until it is too the drawer's l'
ou~ altered check to, bank is absolved from liability (b t- or t.he forger, the draw late for the bar:: 1gence, the forgery is not
chec or , the collectIng (. SCRA 100). ..~,
clt!aring penod, ' fAppeals, 196 agamst the drawer's ee may properl tohrecov er from the holder
public. Bank v. s Court 0 County & Home Savi~ccount (see DetroYt ~:ge t?e amount paid
drawee may likeWise r gs Bank, 252 Mich, 16~; Rmg Co. v. Wayne
erects of payment of a bill Or ch ligence is the proxi ecover from the draw ,33 NW 1856). The
Q What are the e ec'k.
. d' d rsem ent?
under forge iO 0 . . ' d
(Gempesaw vs. Co=~~ ~pupse 0lf the loss ore~~~:~~~~:~~~ negto-
1 Ie one who acts on an In ors e l11ent ea s, SUpra) ere
A. (a) As a gener~ r~ai~l it.s genuine ness at his Own risk of
But where both the d .
. bl
negot1U e pape
r must a:scer h k
t ' 19 from one person a c ec payabl to
as genc~, they. should share [:~~: and the drawee are guilty of negli- j,
l '
1,1
neghgence IS the proximate loss Suffered even if the draw '
it is his duty bef~re accePdldletermine whether it bears the genu .
e
(Gempesaw vs. Court of A caUselofe th 1oss or contributed thereto
er s
. t gate an . llle
another, to mves 1 '- ' 1 (United Motor Car Co. v. Mortgage & S (d) An' d ppea s, G.R. No. 92244, Feb. 9, 1993).
ind?~sement of th;t o~~;r 309, 13 La. App. 385; Walsh v. Americ e· m orser SUbsequent to th l'
cunhes Co., 128 o. 'c 1 A p 2d 654). an could be made liable on the' t
. h e warrants it toms
e lorgery of an indorsement
Trust Co., 47 P. 2d 323, 7 a, p. mstrument be rument. because bY negOtiatmg
' . the
(b) With respect to the drawee who accepts or pays a bill or purports to be (Sees. 65 and 66.g~ume.and in all respects what it
Produce Exch. Trust Co v B' b' b PhUbhc Bank vs. Ebrada, supra;
ch eck where an I'ndorsement has been forged, such drawee can not . , Ie er ac , 58 N.E. 162, 176 Mass. 577). 1 ,
''\

charge or debit the amount paid from the account of t?e drawer
(Great Eastern Life Ins. CO. VS. Ho~gkong .and S~anghaI Bank, 43
(e) Insofar as the payee is concerned '
or note passes by a fo d' d
.
' smce no tItle to a bill
't
Phil. 679 ) except when the drawer s neglIgence IS the proximate signature has been fi rge d 1n orsement, theepaye 0 f a ch eck wh ose 1
,1
cause of the loss (Gempesaw vs. Court of Appeals, G.R. No. 92244, . . ?rge may recover from the drawer if, the payee
IS not neghgent. and 1f there is no estoppel on his part (Shepart Lum-
Feb. 9, 1993). ber Co. v. EldrIdge, 51 N.E. 9, 171 Mass. 516, 68 Am.S.H. 446, 41
But the drawee can recover the amount paid from the person L.R.A. ~17), or he may recover from an indorsee to whom the check
to whom payment was made (Republic Bank vs. Ebrada, 65 SCRA
was paId by the drawee bank (Buckley v. Jersey City Second Nat.
Bank, 35 N.J. Law 400, 10 Am.R. 249), or from the drawee who paid
680; La Fayette v. Merchants' Bank, 73 Ark. 561, 84 S.W. 700) since the amount of the check to one claiming under a forged indorsement
the drawee makes no warranty as to the genuineness of any indorse- (Dodge v. National Exch. Bank, 20 Ohio St. 234, 5 Am.R. 648, 30
ment. Even an acceptor (drawee who has accepted the bill) warrants Ohio St. 1), or from the collecting bank responsible for the encash-
only the genuineness of the drawer's signature (Sec. 63) and not an ment of the check (Associated Bank vs. Court of Appeals, G.R. No.
indorser's signature. 89802, May 7, 1992).
(c) With regards to the drawer, there is no privity between However, if the check was never delivered to the payee, he does
the drawer of a check and a subsequent holder: and the drawer owes not acquire any right or interest therein and cannot assert any cause
the holder ?o duty of vigilance (Maryland Cas~alty Co. v. Chase Nat. of action, founded on said checks (Development Bank of Rizal VS.
Bank of CIty of New York, 275 N.Y.S. 311 153 M' 538) Th Sima W~i, et al., G.R. No. 85419, March 9, 1993).
where the dra f h . ' ISC. . us,
vestigating for;e~e: :n~ eck exercI~es reasonable diligence in in- (£) . A collecting bank that guarantees all prior indorsements
notifies, with reaso 'bi after the dIScovery of a particular forgery shall be liable to the drawee for money paid on such indorsements
ment was drawn na be promptness, the bank on which the instru- should they prove to be forgeries (Philip Gruner & Bros. Lumber
Co. v. First Nat. Bank, 109 So. 274, 143 Miss. 454), or to the payee
cannot recover f;o~ St~ sedquent holder under a forged indorsement of the the illegally en cashed check (Associate~ Bank vs. Court of
& S ecurity Co., 128 So.e307rawer (United M to C C
13 L o r ar o. v. ortgage
M
, a. App. 385). A ppea1s, G .R, N o. 988 02 , Mary 7, 1992). But 1t may recover from
 QC1 ZZ ER .I\.'JD HEVIEWER ON N Er~)TIAnLE INSTRUMEN1'~
L.xW AN D HELATI-.D LAWS

the p(1 rson who forged the indorse me nt on the check and dPI . FORM
ftc ANI) INl'PI{
or enca~hed the HIll e (Jai -Alni Corp. VB, Bank of PI., 66 SC~~l~d qUltu!.(l, of N. PIH:TA1'ION
original oblig!:l t,
A~k d, No, IfbJ, 1987 Bar Exams.). 29; ... lon to
latter never fee . Pay 1\1,,),
cgotiabdity

. c1ved '" leOr h

However in case the collecting bank ifi guilty of neglig I IHsory notes paYabl paYment It. ·' d ad not bee.n d' h
, I J 't d e to
Cnee '
ca nnot recove r from innocent per:;on ~ 1~ ( ~~pmH c or c~~aHhed It t ') d '~l e th ISe an d
tl e ocument,s sh II order or b'\ erefrom th d l' 15(' as the
a p ".,J , I Is f , t (' lVery f
check ( ~Ietrohank v ~. Court of Appeals, (,.R. No. 888Gb, Feb he have been cash~d
hi b '
rUlJuce the rr 0 exchange 0 tl 0 prom-
• Or \Vh e1lect of
19911. But in ca -'e the collecting bank and the. drawe.e banks a 'll~,
r 0 ler rnt'rea ll
,lYe cen lmpaired (Art en thrOugh lh paYment only wt t ·
,Ib k t '} re lulh " 12 e( I
F mance Corp. Vs Co rt' 49, par 2 C' 'I au t of the crudlllen lwy
g uilty of neglige nce, such that S(ll< an fi con n mted equnlly t or th
114 SCAD 44). ' u of Appeals," G,RIVlNCode,'Cebu InternatIOnal cy
succ~s~ of the forg~r in ~ncashing the proceeds of the forged ch~c~1(! . 0, 123031, Oct, 12, 1999,
both bank. shall share In the loss (Bank of P.1. vs. Court of Ap )(', s,
G,R. No. 102383, Nov. 26, 1992). J ,.118, Q. What is the
bank are guilty of c~ect it both the d
caused by forgery nfegh~ence in failing ;awer and drawee
Q. Great Eastern drew a che(~k on }Iongko ng a A B .
° an Indorsemen.t? 0 prevent dam ago
Shanghai Bank (HSB) payable to the order of Mer, nd , ankmg business is .
. d . ICOr where the trust and confid' so lmpressed with public inter' t
l\Iaasim fraudule.ntly 0 b talne possession of the cheek' . ence of the bI" L:<\
mount Importance such th t th pu. IC m gC'neral is of p;1 ra.
forged l\feHcor's signature as an Indorser, and presented" must be a high degree ofdil~ e aif!>propnate standard of diligenec
to Philippine National Bank (PNB) where the amount of thlt 1genr.e not the t d' ,
the drawee bank cannot c1ai 't' , u most illgt'nce, Whl?ff'.
check was placed to his credit. PNB ilndorsed the check t e -. . m 1 exercised such ad fd 'j'
t h at IS reql1Jred of it , l't ca nno t escape liabTt r egI'eeh0 1 19f'llfe
'
HSB, which paid it, and charged the amount of the check to even where the drawer' r ' 11 Y lor sue nf'.gllgE'llce
the account of Great Eastern. What arf~ the rights and liahil~ 1 d t fI S ~eg 1gence 18 the proximate cause of the
.oss ue 0 orgery of an mdorsement. The drawee bank's liability
ties of the parties? IS based on law and substantial J'ustl'ce ' and not 0n mere E'qUJ't y, In
such case, the drawer and the drawee bank must share fifty -fifty
A_ (a ) Great Eastern may recover from the drawee, lISB the the loss suffered (Gempesaw vs, Court of Appeals, G,R. No. 9:224 4,
amoun t of the check, It was payable to thle order of Melicor which Feb. 9, 1993).
meant that the drawer did not authorize the drawee bank to pay
the check to any other person than Melicor, or his order. The legal Q. Gempesaw owned and operated (our grocery stores.
pre. umpti on is that the bank would not honor the check without She paid her suppliers by checks. Her customary practice of
the genuine end or~e ment of Melicor. Since the amount of the check issuing checks was that the checks were prepared and filled
up by hcr tru,;tcd bookkeeper. After the checD had b(,'e~ pre-
w<u; actually paid by the drawee to !vfaasim and not to Melicor whose
pured the same were submitted to Gempcsaw for h(.'1' liJ~na­
endofs<:mcnt wag a forgery, it must follow that HSB was liable to turc tog(.thcr with the corresponding invoice rcccll!b•.
Grea t EaHt.ern. G' ' . I ch and every check without botlumng
cmpesaw slgnce ea the ch('cks aJCainst the correspond.
(h) HSB may recover the amount of the check from PNB. As to verify the a(:curacy of " ·ry the corrcctntli18
. N . h d' d G<'mpcsaw verI
an indorst~r, P!':B warranted the instrument to be genuine in all re- ing inVOH!CS. (~I. t er I ,hi ' heck if the payeclil actu-
k mtu' C~lJ c ,
spcct.~ what it purportJ4 to be. Since the indorsement of !vI eli cor was of the returm~ d c h cc S, , .
c' nt for the .uppliCi fihe re-
nUy rc(·(·ivcd th(! checks in pllym ., tul of 82 queHtionable
forged, P~B had no authority to pay Maasim (A"ked, No. XI[h), 1997 ,, . d r two years, a I.d • Th •
B(;1r Exams.}. cdvcd. In a perw . 0 'the aforesaid practice. cHe
checks were h'l!lucd f()lJow~ngheck" The indorsements of the
{c) P~B may go after Maasirn (Great Eastern Life Ins. CO. chccks were JTlo~tly cro88C ere c forged then indoncd and ~e-
CCH of the lJuld checks w •d with the drawee bank Y
V )$, Hongk~ng and Shanghai Bank, 43 Phil. 679). It may be added pUY. ' in art account o~enc lrul~o(thedraweebank
that !tfaaRlm should be criminally and civilly liahle. POHI t ( , d The tntern a
Romero and/or Lam.
fd) It was n.(Jt discu8tffid in th e Gn~at E<H~tcrn case, but it may
Ll! fitHted t,h at Mehcor may demand paynwn l from the drawer whOse
 he brunch manager before It (!h
, d the tlppro v1l1 of t could be accepted. No sU(!n ~lt lo'ORM.~n
re~ulre d indorscnu·nt d'ting the amount of the (!h Itll. IteqUisi~~lU>RE'rATION
wlth secon Aft r ere I - th d ~~ the payee. The law' egotiability 65
va 1 'as mude, e f the depOSitors, e rawee h ~
pro ~ he account 0 . with the payments all", t' , unPoseg
to scru lnIze checks d . a duty of dil'
dd{'Pb?tsi~e~h~o:cc~unt of GCtnhl::S~::unis
debited frolU h::,ad~. ing their genuineness ePoslt.ed With it ~~nce on the collecting hank
C I e
l\luv Gempes-aW re
cover ' It....... payee would have a nand l'egu}anty, No~~!h~ pu~ of detennin_
could go against th ' ght of action ag' Nlng received the checks.,
co~nts? dr'lwee bank who hus paid a h
~ c ~ ,L b res~:
sue the collecting e1r ~nst the dra
""'-!.lVe dr-awee b ~er, wh 0 m
'
tUtu
illegally encashed c~To Simplify p~, which m turn could
, 1 ule a .
A As a gel1l'ra r , b en forged cannot charge the d (1\
, , ~" ent has e ,raw the bank responsibl ~ shOuld be allOWed tongs. the ~yee of the
on which an mdofSi:' III t of said check. An excepilon to this r 1- or
er's account for the 31:,oun,lt of such neglige nce which causes ~e not the checks Were :ct slulch encashment reg=ver dflrechtly from
C f Ua y deliv red ess 0 wether or
is where the drawer IS guk 1 Yche"ks Gempesaw was guilty of n t le vs. ourt 0 Appeals, G.R. N e to the payee (Associated Bank
. h hee' or \.', eg i. 0, 89802, May 7, 1992).
bank to honor t:'uc C .' prudent bmHllcssman would. Sh d'
f '1 d to act a~ a e Id
gence as she al EO' • f tl e amounts of the checks she signed ' Q. Ramirez, a sales
' f th accurac) 0 1 hI d'l' , nel_
not "en,! e c . ' h ecords with reasona e 1 1gence wheth several checks which we::e~t of Inter-Island Gas collected
ther did she, ex.a[dm~e ~::ks or aRer receiving her bank statetnen~r Gas Service, Inc. or order" :lther payable to "Inter-Island
before she slgne tee k 1'0 gu1'lt f I' ' Inc. or bearer." Three of' .: to "Inter-Island Gas Service,
h d tl e drawee ban was a s
On th~ other adn , s~ed checks on a second indorsement. While ~
Y 0 neg 1gen
Ramirez who was a reguI sa;,
checks were crossed checks.
when It accepte cro~~ . bl " h s- indorsements of the cash ~ e~~r at the jai-alai. forged the
sumg, a cros~e . d ch eck imposes no legal 0 .IgatlOn h onh t e drawee not checks and cashed the lers 0 • nter-Island Gas in the said
to honor sueh ch eck , 110wever, it is a warmng " th at t e crossed
' chef''- same With Jai-Alai Corp. (Jai-Alai)
appare~tly. to purchase jai·alai tickets. Jai.Alai deposited th;
"l\.
,
1S not I'lor paym ent ~n cash
LA> ~ but for deposlt 1n t e payees account
" ,

And when the drawee bank violated Its own 1nternal rules and ac- checks In Its account with Bank of the Philippine Islands
cepted second indorsement checks with,out the approv~l of its bank (BPI). !he drawers of the checks, having been notified of the
forgerles, demanded reimbursement to their respective ac-
manager, it was actually guilty of neglIgence. Such bClng the case,
counts from the drawee.banks, which in turn demanded from
the drawer and the drawee bank should share on a fiftY-fifty ratio
BPI, as collecting bank, the return of the amounts they had
the loss suffered (Gempesaw vs. Court of Appeals, G.R. No. 92244, , ,
paid on account thereof. When the drawee-banks returned
February 9, 1993), the checks to BPI, the latter paid their value which the
former in turn, paid to the Inter-Island Gas. BPI, for its part,
debited the current account of Jai·Alai and forwarded to the
Q. The indorsements on several crossed checks pay.
latter the checks containing the forged indorsements. May
able to Melissa's RTW were forged and delivered to Sayson
Jai-Alai recover from BPI the amounts of the checks which
who in turn, indorsed and deposited the same in his account were debited from the former's current account?
with Associat.ed Bank. Associated Bank stamped on the
checks its guarantee that "all prior endorsements and/or lack A. . J ai-Alai cannot recover from BPI. BPI acted within legal
of endorsements (were) guaranteed," and collected the bounds when it debited the Jai-Alai's account, When Jai-Alai depos-
ited the checks with BPI, the nature of the relationship created at
amo~nts thereof from the drawee bank. Associated Bank
credIted and paid Sayso ft h ' that stage was one of agency, that is, th~ bank was to ,collect from
. n a er t e checks were cleared. May the drawees of the checks the correspondmg p~eeds, S~nce,a forged
the payee hold Associated Bank, the collecting bank liable? . t ' negotiable instrument is wholly moperative, lt stands
A. Associated Bank sho ld h fi . .. " SIgna ure m a I s collecting bank which indorsed the checks to
right to' d th
morse e crossed ch ks f
u ave lrst venfied the depOSItor s
' to reason that BP a . should be liable to the latter for re-
and to depos't th ec ,0 whlch he was not the payee, ~he drawee-banks for ~leanng:nents on the checks had been forged
1 e proceeds of th h ks
nrc to inquire int S '
I'. 'I
e c ec to his own account. Its lal- Imbursement, fo,l', the md~r~ , Th payments made by the drawee-
prior to their dehvery to Jru- m, e
~ aysons authority was a breach of duty owed to
66 QUIZZER AN D REV1EWt.~
LAW AN R"ELATED LAw::;

fO~ged "I\~
, checks were ineffective. 1'h h
banks w. BPI onc~eck depos~nyone
ccount of saId ·ted had no right to Pay the e
-..--IIi*s~:i:.:; ~'~~:··~_·:..._·~
;~~
·I;.:-; ,~ :.~..:<f~'i:/k~
th~
was else upon the @js\JIq lttt --...z.........L.o..-....
- - .... .t.......- . ....
;
FO ":NllIN'l'
the forger or to the payee's endorsement "'as 11rl",
with whICh
tha~ ~\liSitea ~ltpn~l'A.'fION
Of
It a~ Its u e o~
~ejnlb\Jn~e
stated there,m d ty to know Alai must in turn shoulder thgeltlQ, ready dead 11 Years b
uPon re,,~' ~fore the che k
k Jm- ( h d egutlability ;1

ca~s
ture. w , hing the chee . ·ts collecting agent, a to • mediately 67
~lVll1g
d
ine before which BPI, as I having indorsed the checks to th C Was i d
mO~nt
turne Over the said a e cash Pr SSUe. The fnct that illl.
of the 8dmou:e.banks. Moreover, the warranty in Section 66 Of tLt,
~
f h the amOUnt to Tinio w to llomin;:"'ed s of the check, Ebrada
ee~
to the raw h ve gwen 'I lle

(Repub~"""mmOdation
. deemed to a Law th a t every smg e one 0 t oSe ch L
Jai·Alt .., IS doing so, she acted as .'::' d not e"'mpt h:: ;ho t".'" handed OVer
Nego,. . all respec ts what it purports to. be." "'Id.
· ble Instruments A , 8 she is also liable p rom lIabIlIty because by
"is genuine and In f all the checks was a corporalion _ Inter, Ie Bank Vs Eb arty III the check for Which
therefrom, the S payee 0 '\.T t Jai-Alai cashed these checks to a Ill'" Q. OVer a Peli d . rada, 65 SCnA 680).
, Im' games WI'th Out llluki"'t~
i:: ".,

Island Gas 1 hervlc,. e Inc 'b't

Ie , e at its jm-a o or two
.'~ ..

indi\'idua W 0 was a ha 't to exchange ch ec k s b e I

I U .
ong.ng l1g
to tLlIe treasury ":arranta "'ere dr mOntho, 38 non.negotiable
Au~t'Iln~
j.
. h ' authon y d ing Authol'lty lind PUrporteci:.""'. b)' PhiliPPine Fish Market.. .1
inqUIry as to . IS on taking checks ll1a e paYable to a Co b). ito General Manager :
t n Any pers h' r, and countersilllled b)' ito
payee-corpor.a 10, t Illy by agents, does so at IS peril, and llluot
b . 'hleh can ae 0 I . d h " payable to Gomez whUe th tor, SIX of the.. were direct!)'
·d b \\the consequence S if the agent w 10 In korsesh t e saIUe IS .
~
poratIOn, indorsed hy their reape t· e others appellred to have been
without
a ley authonty. ' (J ··Alai Corporation vs. Ban of t e PhiliPPin •
al second indorser. These IVe payees, foUo by Go"'e..... ,i
1

Islands, 66 SeRA 29). wed ,I

with Colden Savings "'hie0anto "'ere depo.il<>d by Gomez
aCCOunt with Metrobank ;:, tUrn depOSited the ......e in ito
d ,k
Q On January 15, 1963, the Treasury of the Philip.
pines issued a check payable to Marti,:, Lorenzo on d~aWn
Metrobank and fO""'1lrd
than two Week. arter th: d t ~
t o e, "'ere .ent for clearing by
Burea... of Tre....ury. More 1\1
', t
Golden Savings asked l\t t ebPOslts, CastIllo, the cashier of ~
'..,
IWpublic Bank. The back side of the saId check had the fol. been cleared.
h She Was told Wal°t.
e roto ank A
Whether dOthe1wllrranto
G had "

lowing signatures: (I) Martin Lorenzo; (2) Ramon It. Lorenzo; 'f,
~
h
meanw I"I e not allOWed to Withdraw fro- h' t. L '\Vas
CCor 109 y, Olllez
(3) Delia Dominguez; and (4) Maurieia T. Ebrada. The said :i
owever, " exasperatedH Over Castillo', repeal<>d inqUiries ater
IS aecoun and
check was delivered to Ehrada by Adelaida Dominguez for also a8 an .accommodation for a "valued Client,H Mctrobank
the purpose of encashment. Immediately after receiving the finally deCIded to allow Golden SavingS to withdraw from the
eash proceed. of the check, Ebrada turned OVer the same to proceeds of the warrants. In tUrn, Golden SaVing••ubse.
Dominguez who in turn handed the amOunt to JU8tina 11nio. quently allOWed Gomez to make witbdrawal. from hi. OWn
It turned out that the SignatUre of the paYee, Martin Lorenzo account. Later, Metrobank informed Golden Savings that 32

before ~he
Was 8 forgery because he Was already dead almost 11 years
check was issued. The Bureau of Treasury asked
of the warrants were dishonored by the Bureau of Treasury
and demanded a refUnd by Golden Savings of the a"'Ount it
Repuhhcthat
grOUnd Bankthetos·reimhurse
t h amOunt of the check on the
f the had previOUsly withdrawn. Metrobank claimed that it Was
rennbUrSlng the B merely acting a. a collecting agent for Golden SaVings for
. . Igna Ure 0 t e paYee was a forgery.. After
Which it shOuld not be made to suffer the 10 ••• May
Illanded paYment
' ureau
front Ebof dTreasury,
1l..- RepUblic
" Bank de. Metrobank recover from Golden SaVings?
Ebrada liable? fa a. •.. ay Repubbc Bank hold
A. Although Ebrada 1.0 h A. It is not correct to stale that the agent cannot be liable
to the Principal. Under Article 1909 of the Civil Code, ";he agent IS
Was not proven to be tb
of the cheCk, Ebrada w ~au~
h w 01)} Republic Bank paid the check
Or of the forgery, Yet as last indorser
responsible
Was
t ·
not only for fraud, but also for negligence.. Metrobank
neg1Igen In g i l '
t· 'vI'ng Golden Savings the ImpressIon that the
in fact she did not hav: .:';,. d tbat sbe had good title to it even if ts had been cleared and that,
reasury warran ' I consequent
Ih f £ my, his
It wag
ae
safe to allow Gomez to withdraw the procee,s ereo ro ld no;
I cause the PaYee of the check was ai,
COunt with it. Without such assuran~e,
Golden SavIngs wOu was
have allowed the Withdrawals; and WIth such assurance, there
 If\B LE INSTRUMt.:NTS
N NEGO'f
D REVICI.... "¥ER 0RELATL'D
D
LAWS
QUIZZER AN LAW AND
68
I Hence, Metrobank cannot
to allow
the withdrawn
(Metroban
k
vs. Court of Appeals, G.n.
no reason nO~lden Savings seRA 169).
recover from 18 1991,170
No. 88866, Feb. , 'th PNB. By spec'}
count WI In
a current aC d personalized checks in CHAPTER II
MWSS h a d ...nl1SS use .
Q " t h pNB, In. H h checks were printed for
h
0

ment WI t WhlC
arrange
. g from 1 'ts accoun ,the sam e numbers 8S t ose paid
dra;~ 23 checks bearIng arently issued by MWSS. Said CONSIDERATION
0

MW I' d by pNB were app yees thereof with PCIB and

and c eare d by the pa
0 h k 1

C t at Bank Clearing, these

cbeckg \\'ere deposlte c ec 8 Were .," .

1
,
PBC. Through the en ~ pem and PBC whl~h were cleared
presented for payment bOt d the same against the MWSS
Q. What is the pres
· bl .
t' "
UDlp Ion as to conSideration when-
.
·i,

.i
n g t
ever a e 0 la e Instrument has been issued? 1 '
and paid by pNB and e 1 ed out to be fictitious. MWSS I .'

account. Th e pa Yees hturne

0 ks were forged an d d emand e d that A. ~very negotiable instrument is deemed prima facie to
claimed that the said c ec t of the checks to its account. The have been
. Issued for a val ua bI e conSl' d '
erabon; and every person
PNB credit b.ac~ the :;:~::;the anomalous encashment of the whose signature appears thereon to have become a party thereto for
NBI reports md:~at~d . btl or due to negligence of MWSS. value (Sec. 24).
c
hecks was an IDSI e JO
. .'
MWSS 10 usmg Its own
k f 'I d t
personalized chec s, al e
f·tsproVl°
'd
e
't
adequate secun Y me asures to prevent
.
.
forgenes 1 ° h
C ecks
hi b Q. Miranda issued six postdated checks to Travel-
and did not make prompt reconciliatIOn of the o:'0ot yank On. Said checks were dishonored, Miranda refused to pay
statements. Should PNB return the amount debited from the the value of the check. At the trial, Travel-On was unable
account of MWSS? to prove the consideration for the issuance of the checks.
Miranda, on the other hand was not able to prove that the
A. :MWSS was barred from setting up forgery because it was
checks were issued without sufficient consideration. Can
guilty of negligence not only before the questioned checks were ne-
Travel-On recover from Miranda the amounts of the
gotiated but even after the same had been negotiated. Hence, MWSS checks?
cannot recover from PNB (MWSS vs. Court of Appeals, 143 SCRA
20). A. A check is deemed prima facie to have been issued for 1
a valuable consideration and every person whose signature ap- I I

pears thereon is deemed to have become a party thereto for value. }

\.
Thus, the mere introduction of the instrument sued on in evi-
dence prima facie entitles Travel·On to recovery. It is settled that
a negotiable instrument is presumed to have been given or in-
dorsed for a sufficient consideration unless otherwise contra-
dicted and overcome by other competent evidence. It was up to
Miranda to show that he had issued the checks without sufficient
consideration. Miranda was unable to rebut the legal presump~
tion of consideration and therefore, he is liable to Travel-On
(Travel-On, Inc. vs. Court of Appeals, G.R. L-56169, June 26,
1992).

69
70

't tes va1u e?•

FOlU.{ANn 1
.
What consh u . ill .ent to support a sunple con. C ~RPRE'rATION
onslderation 71
Q. t .on sU ICI . t 1
• ' s a considera 1 . ' T debt constl tu ,es va ue; and is ure of consideration .
A. \'alue~. t or pre-existll1g .. payable on demand or at a an ascertained and l' IS ~ defense pro t
tract. An antece en the instrument IS
No. II[b], 1996 B ElqUldated amOunt anto, wh~ther the failure is
d eemed such whether
u )
. (Sec. 25 . ar Xams.). or otheJ'Wise (Sec. 28; Asked,
future tIme . distinguished from valu..
n . 1 or note?
I good conSI'd eratlO as upport a hll Q. What is the d'ff
Q. .S tion sufficient to s eration and failure of :o:r.ence ~et\Veen absence of consid..
able consldera . bill or note must be a valuahle 81 d eratton? G'
A The considerat~on fldorr.a a good consideration. In other h
A. Want of con'd '
81 eratIon emb
• Ive example of each.
. .'
sideration as dlstmgu • .
Ishe lorn h h'
r gratitude or ot er t Ings Com_ w . ere none Was intended to as ~aces transactions or instances
con
words natural love an
d affectIOn 0
.
I 'd
. hed from valuab e, conSI erations phes that valuable consid t~ s, while failure of consideration im-
era Ion movi fro .
monl~' called good, as distmgu~ an undertaking on a bill or note contemp1ated (In re Killeen's E ng rn obhgee to obligor, was
will not alone suffice to ~iP908 36 Ga. App. 156). Thus, a promise Homer BUilding & Loan As' state, 165 A. 34, 35, 310, Pa. 182;
(Newton v. Roberts, 13.~ . . nd without valuable consideration is
153). s n. v. Noble, 181 A. 848, 120 Pa. Super.
which is purely grbatu~ OUSt~e immediate parties, although it is in Thus, in case of absence of c 'd .
unenforceable, as etv; een . 80 S 406 202 Al 32
4). eration has been agreed U . ?n~l erabon, no valuable eonsid-
the form 0 f a b1'll or note (Conwell v. RIce, 0., a.
N at. Bank v. McKown 1~~n;r;t IS Illegal and therefore, void (First
1993 Bar Exams) Ab' 'f 45,?3 Oklo 310; Asked, No. llIlbl,
Q. Is a lien on the instrument sufficient to constitute th f .' . sence 0 conSIderation is also manifested by
a holder for value? . e presence 0 ~~~oral, or fraudulent consideration like a note
gIVen for future IllIclt cohabitation (Massey V. Wallace 32 S C 149
A. Where the holder has a lien on the i~strument, arising 10 S.E. 937; Potter V. Gracie, 58 Ala. 303,29 Am.Rep. 748). A~othe;
either from contract or by implication of law, he IS deemed a holder exa"!ple: A .made .a promissory note for P100,OOO payable to B or or-
der In conSIderatIOn ~or killing A's wife. The consideration is illegal
for value to the extent of his lien (Sec. 27).
and therefore, there IS absence of consideration.
Q. X issued a promissory note for PIOO,OOO payable to
A or order. A borrowed money from B and to secure the loan On the other hand, there is failure of consideration when a
of P20,OOO, the former pledged the note issued by X in favor valid consideration has been agreed upon but there was failure to
of the latter. Is B a holder for value? execute or give the consideration contemplated by the parties (In re
Continental Engine Co., 111., 234 F. 58, 148 C.C.A. 74). Example:
A. B is a holder for value to the extent of P20 000 because Where a note is given to a payee in consideration of his undertak-
th at is the extent of his lien on the promissory note is~ued by X. It ing to surrender prior notes given by the maker to the payee, fail-
may be added that since a holder to be considered as a holder in ure of the payee to surrender prior notes establishes a failure or con-
due Course, must have taken the instrument in good faith and for sideration for the new note, regardless of whether there was any
value (Sec. 52, par. (c]), B could be a holder in due course only to consideration for the prior notes (Holley v. Smalley, 269 F. 694, 50
the extent
extent (Sec.of27).
P20,000 because he is a holder for value only to that App.D.C. 178). Likewise. there is failure of consideration for a note
given in consideration of an agreement to construct works which
were not constructed (see Sheppard Inv: Co. v. Roscoe, 283 P. 519,
Q. What is the errCl!t f 48 Idaho 405).
1978 Bar Exams.) 0 want of consideration? (Asked,

A. Absence or failure of c ' ' . Q. What kind of defense is absence or failure of con-
as against any person not a h l~nSI.deratIon IS a matter of defense sideration? (Asked, No. VUl, 1989; No. Vila}, 1991; Ill{b), 1993;
. 0 er In due course; and partial fail- No. III[3), 1994; No. V, 1995; No. II[b}, 1996; and No. V[2], 1998
Bar Exams.)
72 QUI ZZER AND Kt.V l1··:·~l-D
LAWN~
RELAT1W ~" ...

because it is not availabl FonM. ANn llfrE

defense . d e ~nEl'ATlON
. persona I h a holder 111 ue course Inn COllS ' d
A It IS a -e T us, h' h "'Y 1 eration 73
. .t hIder in due couns. nsideration w IC maYor Ina. ing of Criminal ch
agallls tahn;eon regardless of the .CgOl·n~l maker or drawer and th~ case against p for ~ges against P. Late .
recover .:- the on.: 193 N W 6
not h ave P (a~sed
~ between tsburg Nat c"
Bank, • d " 27, 195 issory note. Is P Ii b~ ColleCtion of tb r, Bald lawyer filed a
(Wegener v. Emme 'nst a holder In ue course, Want a e on the note? e amount of the prom-
payee ~ e as ngm ~ . f b'l A. The presumption
Iow a 1267 ) , and there or . ~ 1 original executlon 0 a l l , note
.
or failure of consldera 10
'
t' n lfl t le
. bl 'nstrumen
l"
t is not a delense
(M
H'
orriss v
'
~yr :r:~~~~ considerationt~~n~yneg?tiable
r
~strument is issued
or other negotla e 1 • Al 542' St.ate Investment ouse, Inc . e contrary as i . p mla facte. It can be rebutted
O'Connor, 90 So. 3 , -
04 'J06 a. ,
N L-101163, Jan. 11, 1 93).
9 . was Issued for an illegal ~ thlS case, where the pro . te
" conslde t' mlssory no
vs Court of Appeals, G.R. 1 o. l11egahty of the considerat'10n ~a IOn. Since the lawyer knew of the
. . oDd defense against a person who is not a (Pineda vs. De la Cruz 121 S , e can not hold P the maker: liable
But it conshtutes a g 28' Bataan Cigar and Cigarette Factory ' eRA 671). ' ,
holder in due course (~ec'G No. 93048, March 3, 1994. 49 SCAD
Ii Q. What is the effect of a
Inc. vs. Court of APhPea ~:nn~l'parties thereto, such as in an action tion?
. .
156) r between t e ono, b partial failure of considera.
.' 0 h k or drawer by the payee, or Y a person standing
agamst t e ma er h . " t (B
. hIS
m . between whom t ere IS pnVl y.
. S hoes, or by Parties obier v. . A. AI3 against a person not a h Id . .
faIlure of consideration may k 0 er m due course, a partial
Horn, 222 P. 238, 95 Oklo 8).
avOl'dance or discharge of an wor u nas d a' pro tanto. or proportionate
Roberts ' 261 p . 664 , 82 C0 IO. 572).ertakmg on a blU or note (Fort v.
Q. A was borrowing money from X Bank. A signed a
promissory note payable to X Bank or order for P200,OOO Example: A iss~ed a promissory note payable to B or order
without receiving the amount of the loan because X Bank for PIOO,O?O. m conSideration of a loan being obtained by A. In-
undertook to release the loan after the documentation had stead of gIVmg the full amount of the loan of P100,OOO, only
been completed. X Bank did not release the loan and in. P60,OOO was released by B to A. B indorsed the instrument to
stead, negotiated the instrument to Y, a person who is not C, a pe~son who is not a holder in due course. In such case, A
a holder in due course. (a) May Y recover from A? (b) may raIse the defense of partial failure of consideration against
Would your answer be the same if Y was a holder in due C, a person who is not a holder in due course so that he will be
course? liable for only P60,000. But if C is a holder in due course, A will
be liable for the full amount of P100,OOO as the defense of par.
A. (a) Since Y was not holder in due Course as he was aware tial or total failure of consideration cun not be raised against a
of t~le defect of the promissory note, he cannot recover from A. As holder in due course (see Nichols v. Leach, 300 P. 103, 114 Cal.
ag~unst a person who is not a holder in due course such as Y A can App.545).
rUl se the defense of failure of consideration (Gibson v. Gilles~ie, 152
A. 589, 4 W. W. Harr. 331; A-;ked, No. VI, 1998 Bar Exams.). Q. Who is an accommodation party? What is the liabil-
(b) If Y is a holder in d h ity of an accommodation party? (Asked, 1952, 1963, 1964, 1973,
cause the defense of failure of ue ~ourse? e can recover from A be. 1974, 1975, 1976, 1982, 1985 and 1986 Bar Exams; No. IU{a},
a hold . d conSideration cannot be raised against
er In ue course. (Atlant' &G .. 1993 Bar Exams.)
So. 149, 105 Fla. 324). . Ie ulf Fertihzer Co. v. Coats, 141
A. An accommodation party is one who ha~ signed th~ ~n­
strurnent as Jl'),uker, drawer, acceptor, or i~dor~er. Without reCelVIng
Q. P gave a promisso value therefor, and for the purpose oflendmg hlS name to some other
eration of the amount t b ~ note to his lawyer in consid. person S uch person , . is
' liable on the instrument to. a holder
h ' for
t value,
t
e
Some government offic:ls sgIven by ?is lawyer as a bribe to notwithstanding such holder, at the ~ime of takmg t e IDS rumen •
o they wIll stop or delay the fila knew him to be only an accommodatIon party (See. 29).

i. ,
 IABl E INSTRUMENTS
ON NEGOT. . ~
HEVJl';WER 'LATI~D LAWS
74 QlJIZZERAND LAWANDHh FoRMANDlN
cons,TE ~RETATION
d party? Must he be a partb Idelation 75
com
modate J
. the ac A. An accommodat'io .
Q Who IS accommodated party to b ?, Party lends hi
tl e instrument? . oIle to whom th e credit of thn . 0 taln d' s name to enable the
to l d arty IS d DC P ., of t h edessential elements 0 f accocre it or to raise money. I n f act, one
ommod[lte P'- d (1' re Redmon, . . a., 15 F '
A An a cc . I ne T. • loane or signed by one part ~modation paper is that it must be
. d t ' n party IS oa . ty need not be a party to the in.
accommo a 10 dated par h' d for another person generall y or the Purpose of procuring credit
3) The acco nllno . , d by one for IS accommo utio n State Bank v. Rollestone io~r:or a specific purpose (Cripple Creek
Supp, 92 ~rovided, it was Slg~~9 N.W. 350, 198 Iowa 306). part of the consideration' for th ' ~15, 70 Colo. 434). He receives no
strumen t , , I 0 Sav, Bank,
(Smouse v. \-\ater 0 q ity to the other parties the tlJe ~strument but he assumes liabil-
,,'tes in order that a party IllUb another. <Gardose vs. Tarr::a G ~ause he wants to accommodate
Q. What are
the requlSl
modHtion party
? J SCAD 371). Wh~ther his liabiiit . i~ N~. 130570, May 19, 1998, 94
m on whether he SIgns as mak Y pnmary or secondary depends
be considered as an acco . d h t
, the requis ites 10 or er t a a party may No. V[b], 1991 Bar Exams.).er, acceptor, drawer or indorser (Asked,
A The followmg are , art·
" d n acconunodatlO n p. y. If he signs as a maker he . . . .
be consldere as a . 1l Carr 36 P 2d 555) d th' l' 15 pnmanly liable on the note (Young
e signed the Instrument as maker . ,. an e lact that a part . d .
(a) He mus t h av , maker gives rise to a d t hi y 18 an accommo atlOn
drawer, acceptor or indorser; . u Y on s part tIJ a holder for value no greater
or less
. from
T that Imposed on a maker wh0 receIve . d va1ue.
' (C osmo-
( b ) He signed without receiving value therefor;
pohtan rust Co. v. S. Vorenberg Co., 139 N.E. 482,245 Mass. 317).
(c) He signed for the purpose of lending his name to
In ~ase he signs as an acceptor, he is likewise primarily liable
some other person (Sec. 29). on the hill. (lng~ns v. Marston, 121 Me. 182, 116 AU. 216).
Should he sign as an indorser, he is only secondarily liable
Q. Miranda issued six postdated checks ~ayable to the thereon (Heinzelman v. L'Amerous, 3 Nev. 377). Furthermore, ac-
order of Travel.On aJJegedly as an accommodation to the lat- commodation indorsers are entitled to the rights and immunities of
ter so that its General Manager can show to the board of di- indorsers and are liable for the amount of the instrument if the le-
rectors that its account receivables were still good. The gal requisite steps are taken by the holder (Wrenn v. Lawrence Cot-
checks were alJ dishonored. Was Travel-On an accommodated ton Mills, 150 S.E. 67 6, 198 N .C. 89). Thus, indolsers must be given
1

party? notice of dishonor, otherwise, he shan not be liable thereon. (Phi\,

, l
Bank of Commerce VB. Aruego, 102 SCRA 530). , ~
A. Travel-On was not an accommodated party; it realized no
value on the checks which bounced. In accommodation transaction, Like an accommodation indorser, an accommodation drawer is
an accommodating party lends his credit to the accommodated party liable on the check when it has been dishonored, on the basis of his

I
warranties under Section 61. (Gardose vs. Tarro'l.a, G.R. No. 130570,
by issuing or indorsing a check which is held by the payee or indorsee
May 19, 1998, 94 SCAD 371). Notice of dishonor, however, must be
as a holder in due course, who gave full value therefor to the ac-
commodated party. The latter in other words receives or realizes given to him (Sec. 89).
full value w!lich the accommodated party th~n must re a to the ~
accommodatmg party,, un1.ess
. 0 f Course the accommodatingP party
y .m- i
':j
Q. Can an accommodution party be liable to a person
tended to make a donation t th ~ who is not a holder for value?
Inc. vs. Court of A eals G ~ e accommodated party. (Travel-On,
No. Vial, 1991 Ba/lxam~.).· . No. L-56169, June 26, 1992; Asked, A An accommodation party is only liable to a hol?er for
. t 'th tandl'ng that "such holder, at the time of takmg the
va1ue no WI 8 < . ' rt " (Stelco
•
. t t k ew him to be only an accommodation pa y.
Ins rumen
· C n VS. Court 0
f A 1 GR
ppea s, . . '
No 96160 , June. 17,
Q. What is the purpose of Mar k etmg orp. d N V11l11 1998 Bar Exams.). . ' :;
lending his name? the accommodation party in 1992, citing Sec. 29; Aske, 0 . , .
 RON Nr,U'-' ~- -WS
D REVlEWE RELAn: D LA
76 QUIZZER AN LAW AND
FORM AND
and G•.I , Wire to RYL Const....
~ "l~.. INTERPRETATl
ld steel bars L' m President of RYL CO Consideration ON 77
Q. Stelcobestso f Romeo Y. 1 'd a check on behalf 1\.. ney-in-fact of the c
0 issue . Of Otnpan
tion. At tbe ~e son and Torre y of accommodatIon "olll co-m aker and Dlortg . Y, requested Pru ' .
structlo " R ~ L
. n , Lun bI to beare r by \Vaything...1... "'
1m Indors~(}
Y the company Was age l?a
ProPerty to denclO to Sign as
Steel weld paya t ~ot to pay for an g Industries which in tu.l't\ the note as CO-Ill nkegotlating With P1'I..~ure the loan which \

1
.
y u
ve it to ArJOstr : in its account, The ehec~
o
8S guarant :
the check and dgaeposited the sam tl' on against Steelweld th • i
a er of th
property to secUre the Bam: "'0. Prudencio signed
COlllpany and mortgaged his
company,. Th.e Company, in t • The loan \Vas released to the
\

. d d an fil dan ac , ~
10 orse d Stelco 1 e I' hIe by Stelco? ment assigning aU Pav-. urn executed a Deed f A _ •
was dishonore , Id be made 18 l' W J AU.ents to b 0 ZUJSlgn.
we Pub IC orks on account 0 f h e Illade by the Bureau of
drawer. Can Steel S lweld liable there being no sho'"
h Id tee k P , "", favor of PNB. Notwithsta d~ e Contract for construction in
A ' StelCO cannot 0 r alue of the chec. ossesslon b\1 with approval of PNB nd lng the assignment. the Bureau
1 older lor v . 1 J
. d f
ftoo
' AU.a e three -
. that Stelco was aft 1 r presen tment and d1s 10nor or payment i' <>
mg <l
Instea 0 applYing the same paYlllents to the company
Stelco of the check a. e ' d not make the possessor a holder for favor of PNB. Can PNB h ld Pto the paYlllent of the loan in
utterly inconsequentml'inIt ofoes .'
the law; it gwes nse t 0 ,?O l'iab'l'
1 Ity on maker liable? 0 rudencio, the accommodation
value within the mean J and indorsers. There IS even no evi.
the part of the maker orI drawte~es to whom R,Y, Lim negotiated the A. Not only Was PNB' .
i,'.

trong n us n . . promissory note, knowing fUl~nw~~ediate party ~r a Pri",!, to the

dence that Arms , t and attempted to encash It In he- accommodation maker but Y, hat Prudenclo only Signed as
ted the mstrumen , C
check, accep
half of and as agent 0
f Ste1co (Ste\co Marketmg orp. vs, Court of signment executed by th more Im~rt.ant, it was the Deed of As-
Appeals, supra ). pally moved Prudencio toe ~ompany in ~avor of PN~ which princi-
This notwithstand' p;~gn the promissory note 10 favor of PNB.
, , . mg, approved the Bureau's release of throe
Q Can an acco mm odation· party be made liable• by a payments dlrectly to the company instead f 'th h
person. w h0 'IS a holder for value but not a holder In due b an. · . ,
k Th IS approval was in VIolation 0 paYlng e same to t e
• re P , . of the De d f Ass'
e 0 19nment an d
course? In euect, NB wruved payments of the first th~ 1 F th
tI . . •"'''' re eases. rom e
A While Section 29 makes an accommodation party liable .oregOlng ~lrcu~sta?ces, PNB cannot be regarded as having acted
to a holder for value, it has been held that such liability exists only In good fal~h wh1ch IS one of the requisites of a holder in due course
in favor of a holder in due course. A holder for value under Section under SectIon 52, PNB knew that the promissory note which it took
from the accommodation maker was signed by the latter because of
29 is one who must meet all the requirements of a holder in due
fun reliance on the Deed of Agsignment, which, PNB had no inten-
course under Section 52 except notice of want of consideration, If
tion to comply with strictly, Hence, PNB is not a holder in due course
he does not qualify as a holder in due course then he holds the in- and cannot hold Prudencio, an accommodation maker liable as the
strument subject to the same defenses as if it were non-negotiable latter can validly set up his personal defense against PNB
(Sec, 58; Prudencio vs, Court of Appeals, 143 SeRA 7; Asked, No. (Prudencio vs. Court of Appeals, 143 SCRA 7).
VIllI]' 1998 Bar Exams.), The accommodation party is therefore,
?ound on the check to the holder in due course, Having issued or
1Odorse,d the check, the accommodation party has warranted to the Q. Can an accommodation party raise the defense of
absence or failure of consideration?
holder 10 due course that he will pay the Bame according to its tenor
(Travel-On, Inc. vs. Court of Appeals, G.R, L-56169, June 26, 1992). A. An accommodation party cannot raise the defense of ab-
sence or failure of consideration because such kind of party does not
Q. A construction com (h' really receive value fur lending his name. He shu:!1 be lia~le to a
the company) obta' d pany . erelnafter referred to as holder for value, notwithstanding that such holder knew hIm to be
lic Works To ral' slenef adcontract with the Bureau of Pub- only an accommodntiun party (Se~. 29). Thus, where. on~ of the
• un s said • signers of a joint and several pronussory note affixes hiS SIgnature
money from PNB. Toribio ' .company was borrowlng
, a relative of Prudencio and attor- thereto for the accommodation of his co-maker and the payee ad·
 , 'OTIABLE INSTRUMENTS
. ON NE(,
AND REVr"~WE R RELATED LAWS FORM AND IN I ·'
78 QUi ZZE R LAW AND ,.
ConsiJ!RatPRETATION
lOn 79 ~ I
t the accommodated party at th signed. B is then!fore 1i b !}
J'. e value of the not.e t'O e consideration for the note e vs. Maza, 48 Phil. 20·h a le to X Bank a ho
va nces t II e lac h note. I d th ' as
.
t lIne 0
f tile creation of t e ey so advance to e accommodate.:!
. tI e mon . . ) k" . \.I.
to A and therefore said ~owe~er, if X Bank~:~ for value (see PNB
, ds both makers. IS I'd tl nt the note IS DC mg In consIder", be liable to X Bank be auk 18 not a h ld er released the loan
to a holder for value (;~us2e9an aCCOmm~d::i::rpVaartlue: B .shba1ll no1t
r('gu r b S3l h. 1 h' :> If '" ..... I.
J l't cannot e rt because l e lITISe r eceIved no ne
part v' ano
f n ~~ to the ac.coJ11J1loda Ill,
. t' g pa Y
t v~lue wa s given for the note at th
~the money. It is enough t Hl Velo so. 50 Phil. 241; Asked, No. xV
. ; Asked 1971
,
y 18 lla e on y
and 1985 Bar Exams.).
I'

\
\\
~me of its crea tion (AC~:~~.' VH(1) , 1998 Bar Exams.). ' Q. To be an acconun d .
1990, No. III/al. 1996, a the instrument "without 0 a!l~n party, he must have signed
·
B sJgne d as a co-maker in
recelVIng
a al
~ ue therefor". Suppose
.' a check payable to bearer. Ang indorsed because A, the principal b prollllSSory note for PIOO,OOO
Q.Tmg Issued An Tiong who presented the check t is B an accommodation p~wer, gave him a fee of P5,OOO,
. blank to g • An T' , 0
the same m h b nk dishonored It. g long fIled an
the drawee ban~. T e daAng Ang claimed that he cannot b A. Even if B received Ii
maker in the note he l'S stl'll a ee of P5,OOO for signing as a co-
. t Tmg an . e
action ~galDs h heck because he did not receive the , an accom od f
"without receiving value therefor" Whic~ a ~on part:y. The p~rase,
made liable on t e c he was merelyd an accornmo' ahon in.
f an d instrument as an accom d t' quahfies a SIgnatory in the
amount thereo
. h known to the hoI er. I S An g I·lahI e to the
d . . . ~o a Ion party does not mean "without re-
dorser, W h IC was ceIvmg payment. for Iendmg his name" (Cl k S 11 .
"-. 1 " . ar vs. e ner, 42 Phil.
holder? 3 86) t. Th us, va ue referred to in Section 29 d
d b tt t t'
oes no reler to a pay-
A A. ommodation party is liable to a holder for value as men m~ e ~ le party accommodated to the accommodating party
."1.. rulacc . I ' I'd for lendmg hIS name (McGhee Inv. Co. v. Kirsher, 71 Colo. 137,204
if th e contract was not for accommodatIOn .. t IS not a va 1 defense
tha t the accommodation party did not receIVe any valuable consid-
P. 891; Asked, 1971 and 1985 Bar Exams.).
era tion when he executed the instrument, nor is it correct to say
th a t th e holder for value is not a holder in due course merely be- Q. Padern, Moreno & Co. was borrowing money from
ca use a t the time he acquired the instrument he knew that the in- Maulini throUI~h a loan broker, Serrano. Maulini did not wish
dor:ser was only an accommodation party, An accommodation party his name to appear in the books of the borrower as a lender
is li a ble to a holder for value even if he knew that the former was of the money and so he requested the loan broker, Serrano
only a n accommodation party, Ang is therefore liable to the holder. to take the note of Padem, Moreno and Co. in his name as
(Ang Tiong VB. Ting, 22 SeRA 713). payee and transfer the title to the note to Maulini by indorse-
ment. This was done and so the note was made payable to
the order of Serrano who immediately indorsed the same to
Q. A was borrowing money from X Bank but because Maulini. Can Maulini hold Serrano as an accommodation in-
of his poor credit standing, he was asked to get a co-maker dorser?
to the not~ that he had to issue upon getting the loan. A re-
A. Maulini cannot hold S~rrano liable for lack of considera-
quested hJS friend, B to sign with him as a co-maker of the
tion. Serrano was not an ac.commodation indorser who could be made
note. B agreed and signed the note. The loan was released liable even if he did not receive value for the note,. In cases of ac-
n1y
°h to A, while B had no share therein. Later. can B claim i t' n indorsement the indorser makes the mdorsement for
t ut he was not Hab) th ' cthommo( a 10 d t' n' of th·e n'rlker Such an indorsement is generally
eon e note because he did not receive e accommo alD ' ( .. h '
any part of loan?
for the purpose of better securing the payment of the note - t atdls,
A. B cannot raise th d ~ '
h e Ien dS h IS n
lle to tlle maker not to the holder. In other wor s,
d t'
was given only to A b e ~ ense that the proceeds of the loan . m '
t be made in favor of the debtor an no In
able even if he did no:caus~ emg an accommodation party, B is Ii-
b the acconunoda tlOn U1US . ' S 28 Phil 640) In this case,
favor of the credit.or (Mauhm VS. errano, .'
receIve value fo th
to A is enough consideraf to h r e note.
Th 1 d
e loan re ease
IOn old A and B liable on the note they
 o REYlt-V't '-".- RELATtN ~ .. -
QUIZZER ~ LAW AND 81
80
. or Maulini and therefore, th~
the credIt , Not being an accomlllod others a share in the credo .
ano lent hlS ne
. an1e to . party.
n10dation '-
f' d
of lack 0 conS1 eration
a· been m~d~ in virtue of a i~t~d by him only if ~he payment has
S err t an accotn . tl e defense . debtor 1S 1nsolvent." Said ~~l demand or unless the principal
former waS no can raISe 1 '
. Serrano • partles, as they are but co.ProVlSlon '\S appllcable
l '
to accommodation
twn party, d t' on party and the Part Thus, a joint and guarantors of the principal debtor,
11\010 a 1 • ht d "S
tbe a Cco d btor. What rIg oes 01\ .d ' several accom d .
Q. Between . h real e ~ the sal prOm1ssory note m ~ rno ahon maker who pays on
bo 1S t e
accommodated, w ? his co-accommodation In ~ . ly demand ~imbursement from
ba
ve over the other COl
nmodated and the accOlbnl0_ against the principal deb~ er w.lthout rust directing his action
etween the p.. arty h \-ligations wh'lCh the 1atter as,
ac by virtue of a judicial de 1', P~Vlde,~, that (1) he made the payment
A. AS b be t e Ou . f" vent. Sadaya's payment to~~ b or (11) the principal debtor is insol-
. art'! whatever lnay he relation \S that 0 pnnclpal and
dation Ptowa~d third persons, tl 33 P.2d 163,2 Cal. App. 2d 436) out any judicial demand d ~h ank was made voluntarily and with-
sumes L

(First Nat. Ban

k Kuns OW,
~'. 1 nd
t H
the latter, the sure y. ence, b~.
' insolvent. Therefo~ S dan ere was no evidence that Varona was
surety , \
the former being tI\e ~
\ nllClpa a . d' t\ d b
t accommodate 1S le e tor and Sevilla, 19 SCRA. 92.4)~ aya cannot recover from Sevilla (Sadaya vs.
rtles the par y
tween these ~wo paIt
accommodatIOn pa y
i; the credit.or.
11 d
d t' party has been conlpe e to pay th~
Where the accom mo a ,lon becomes, in consequence of the
rty accom modated .
instrument, thepa. d "t a debtor of the accommodatIon party
implied contract of 1U ~~~~taction against the former (Leonard ~.
g
and the latter has a n Elk C'ty Oklo 236 F. 316, 149 C.C.A. 448'
State Exchange Bank 0 f 1, , . h h'
~ N Vll\21 1998 Bar Exams.). Such ng t accr~es, ow ever,
Ask ed~ ~ o. 'tby the accommodation party (Grygleli v, Marcille
onl y all.A::r paymen f' d . '
152 A. 44 , 51 R.l. 109), and not on mere recovery 0 JU gment ag31nst
him (Mosely v. Armstrong, 2. T.B. Mon. 287),

Q. Varona, Sevilla and Sadaya executed a promissory

jointly and severally in favor of Bank of PI or order. The en·
tire amount of the loan was released to Varona alone. Sevilla
and Sadaya signed as co-makers as a favor to Varona. Varona
did not pay the loan. Sadaya voluntarily paid Bank of PI even
if there was no showing that Varona was insolvent. Varona
failed to reimburse Sadaya despite repeated demands. May
Sadaya recover from Varona and Sevilla the amount he paid
the bank?
. A. (a) A joint and several accommodation maker of a prom-
iSSOry
f th
note may recover fr om the pnnclpal
" debtor reimbursement
or e amount that he paid to th H
cover from Varona th e ~ayee. ence, Sadaya may re-
e amount he pmd to Bank of Pl.
(b) The Civil Code which' . .
a~ter t:o matters not covered b th~ apph~able 1n a suppletory cbar-
vldes m Article 2073 th f Yh Negotiable Instruments Law pro-
ereo t at a guarantor may demand fro~ the
 F()lt~
~1l'frERP
~egotiat' ltE'l'A'l'lO~
lOn 83
ApP· 147 So. 115); (2) b
able to bearer, Or Ina Y tnere deli\7e .
strument is not payatI~~stitute a ~e~l~O~t indorsement, if pay-
on a separate paper <10 bearer; and (3) slgnme.n t where the m-
roent and delivery or b C·J.S. 6S3}. If t by a Wl"ltten assignment
CIIAPTER III the instrument is 'pay ~ltnere deli\7ery ....;;~ tr~sfer is by indorse-
a e to bearer 't I ?ut mdorsement where
,I constitutes negotiation.
NEGOTL~TION Q. In case a be
for a loan, is Illere del~rer instrulllent is pled d .
d ·t ? Ivery ShU:! • ge as secunty
the ere I or . 'UllClent to Vest title thereon to
A. Under ordinary .
. egotiation? How is negotiation bearer instrument is surnCI.rcUrnstances, delivery of a negotiable
Q. \\'nat constitutes n lClent to n f
~ 1\
done? where t h e negotiation is t th ego late the same. However,
. neg otiated when it is transferred as a mere security for pu~~ e PUrpose of gi\7ing the instrument
I' . t ment IS . h from sufficient since the terms th ase~ to be made, mere delivery is not
A. An inS ru. h manner as to constitute t e trans_
one person to another In I~uca :ble to bearer, it is negotiated by de- such security, in the eVent e;eo and the subsequent disposition of
feree the holder thereof. ·f· Ynegotiated by the indorsement of the tion, must be contractu 11 0 no~-payment of the principal obliga-
livery; if payable to ordd~~, I 1S(Sec 30' Asked, 1969 Bar Exams.). point is that Where th ah yIdprOVided for . ' Th e pert'ment 1aw on this
holder completed by e lvery . , . e 0 er has a hen on the instrument arising
f:om contract, he 18 deemed a holder for value to the extent of his
hen. As ~uch holder of collateral security, he would be a pledgee but
Q. Who is a bolder? the reqUIrements therefor and the effects thereof not being provided
fo~ ~y the Neg~t~able Instruments Law, shall be governed by the
ClVIl C~de prOVISIOns on pledge of incorporeal rights, which provides
A. "Holder" means the payee or indorsee of a bill or not:
. In
who IS . posseSSIon
. 0 f't
1 , or the bearer thereof (Sec. 190).
. dThe requl-
in ArtIcle 2095 thereof that "The instrument proving the right
.
SIteS to b h Id
e a 0 er are'. (a) he must be the payee
" or In orsee
h of a pledged shall be delivered to the creditor, and if negotiable, must
bill or note, and (b) he must be in posseSSIOn of It or t e bearer be indorsed." Indorsement therefore, is necessary in such case
thereof. (Caltex lPhils.l, Inc. vs. Court of Appeals, G.R. No. 97753, August
10,1992).
Q. What are the kinds and modes of transfer of a ne-
gotiable instrument as distinguished from the method of Q. Angel de 1a Cruz made a time d~posit with.Security
transfer of an ordinary chose in action or non-negotiable in- Bank which issued 280 Certificates of Time DepOSIt (CTDs)
strument? payable to bearer to de la Cruz. To secure pu~chase~ of fuel
products from Caltex, de la Cruz delivered Wl.thoul'lnd?rse-
A. The method of transfer of ordinary choses in action is by ment the said CTDs to the former. Later, de la Cru~ claimed
assignment, and in such case, the assignee takes only the title of said eTDs to be lost Bnd so he executed an a!fldavlt of lo~s.
the assignor 00 C.J.S. 683).
. B k' d 280 replacement CTDs In favor of said
Securlty an lssue . d a loan from Security Bank and
In case of negotiable instruments, the modes of transfer are: depositor. De Ia C~z obt:~~e of Assignment of Time Deposit
(1) by indorsement and delivery (Mullen v. E.n. Green Realty Co., executed a notarized D " h uthorized the bank to pre-ter-
" . d CTDs w h IC a . h
coverlng Sal , I the said time depOSits to t e p~y. ,
minate, set-off and app y be due on the loan upon Its
82 ment of whatever amounts may
 ~' L' IN;:,JHV .... ·• no
NF(;OT rAJ7,(".
AND ()~
H", LA l'l'~n LAW~
Ii:)
QlJIlZER AND. R"UW
'VIEW,.:R

Cal~,;~;
't Bunk of its POHHelfHion of
. formed Seeun 'Yion to pre-terminate tI,
, " ". -----.. . ._--
demande:~;
maturity. and of its declH of the agreement ev'"
8aDlc Opy
cxecu~~ter: Cru.~ "'it~
the origina\ Bank de 18 Cruz, which Cal .,"
d
: SgCCthU;lguY aranty the loan of de la t
cncln hi t 'd Therelll' , I' 'd th t' 't
o proV) e. d nd t e h lutter afJp Ieb t e lltle Qh
Cltlte~~
Swas una e '0"

'ty Bank mature a tured loan. As e Wecn

ccun
POS)'ts to the
• paymcn
t 0 f the
. k who hasrna ,
a b e tter right to th e Cl'h
us? Q. May indorSe
and Secunty Ban, . fCal lex wern only delivered but there i8 stiU a sPac ....nt b. "'rilteQ . . -. ' .
D . possessIOn 0 t f I . ll . ..
A. The CT S din ument eVI'dencing any contrac 0 P edge 0 l' doraement can beat the ""ck of th .on an allonge "'h .....
not indorsed and no oc C llex alld de I. Cruz Was presenf.eQ e
1(~gnlly j~ confl'?
A. There is•a"'ad • 'n.t .......ent "'here in-
o~ allo'!~f:Pinion.
guarantee agreement h betw}e.en 30fthe CTDs did not VeRt
Consequently, t e me re. de Ivery . upon S . lIank.,
elTecllv~:::~~vidC5 tak~
. 5t and billdlllg eeunty use the allonge Was The first ok., is that the
Ca lte. any right
Article 2096. tofth' thed CIvIl
persons 1'f a de"'cription
..,
that "A pledge shan not
of the thing pledged a"d .J ience or necessity reqUired
h
(Clark
a~dlrev,oU8
ment Itsel f was.., covered w' th Only when Ihe back of the instru.

v. Thompson 69 S 9 I lonal sPace for further indorsemen'~

indorseIllents that COnven_
elTect agams tr d t appear in a public document." On the . d ' 0 . 25 194 AI 5 loO

th:·m~
the date
other handof the
thepledge 0 no 0 f th e CTDs .in favor d
assIgnment of Security
h' Bank t at 10 orsement may b d' a. 04). The second ok., is -~ : .'
bod space at the back of e On an allong. even if there is still a
: d In' public instrument. Withc')5rega r to t IS mode of back of the instrum.nt is ' : ruIllent. An indorsement made at the
was em t h eIe
transfer,
slgnment 0
CIV a 0
ere
' il C de declares in Art. 16..
I , ' .
1 th ereoffif tht a t , "A_
. ,
.
CU1 as.
.
space above the Said indor "'vah~Silllply because there is still a
,. .

"hl at~Ched
th. f d't right or action shall proc uce no e ec as agUlflst rial when indorsements '::ot, t en Why should space be Illate.
Ir persons, u . h
' d nless it appears m a publIc mstrument, Or the In. ther case does the leaVing of a PI_. of !>aper? In n.i-
strument is recorded in the Registry of Property III case t e assign_
~ng
nobody Would gain any ad ta ban. space facIlItate fraud, since
ment involves real property." SecUrity lIank duly comphed WIth this Vanto geh Y Insert' h'IS nallle In
and rendering himself liable . the SPace

Fg~
s tatuwry requirement. Contrarily, Caltex, whether as purchaser, the note or the allon (8'18h 0 t Ose Who mdoraed below him upon
a.'s ignee Or lien holder of the CTDs, neither proved the amOUnt of OsgOod v. Ant. 17
P
575. B v. Chase, 156 Mo. 158,56 S.W. 1080;
its credit or the extent of its lien nor the execution of any puhlic in- , e. ,rannan, 7th ed., p. 601).
strument which could alTect or hind SeCUrity Bank. NeceSSarily,
therefore. as between Caltex and Security lIank, the latter has defi. Q. Who has the POWer to indorse?

d~hver
nitely the better right OVer the CTDs in question (Caltex [Phils.J,
Inc. vs. Court of Appea ls, G.R. No. 97753, August 10, 1992). A. The POWer to negotiate a hill or note is the POwor to in. ~. ~ '~'~
dorse and to another, So that the right of action thereon shall
pas. to the lOdoraer or holder, and such transfer can be made only ;~ :~:
~ r. ,-
Q. How is indorsement made? by the payee or the legal holder, Or by his agent (Scott v. Wilkinson, 't; ~
110 So. 34, 215 Ala. 235). Where the instrument is payable to jOint '"
I
A. The indo,,",ment must he Written on the instrument it- paYees, SUch as "A and lI", an indorsement of only one ofthem will ~.
self or U/lOn a paper attached thereto. The SignatUre of the indorser, not COnstitute a valid indorsement unles. the one indorsing has the
WIthout addItIOnal Words. IS SUfficient indorsement (Sec. 31). authority of the other (Fanner'sllank of Downs v. Ryan, 223 III. App.
491), But Where the instrument is payahle to paye•• in the alterna.
Q, What is an allonge? tive Such as "A Or 1I; either one of them may negotiate the instru.
ment (In re Kamrath'. Estate, 206 N.W. 770, 114 Neb. 230).
A. Allonge is a paper att h I

\vri~~crnent81
on which Subsequent ind ae e, Or annexed to the instrument
the same effect as if may be written Which will have Q. May indorsement be partial? Give .xamples.

o On t 'e instrument itself, Such paper A. The indorsement must be an indorsement of the .ntire
in"trument. An indorsement which purport. to transfer to the

~---"g--
indorsee a part only of the amount payable, or Which purports to
. . . . .- - - - transfer the instrument to two or more indorsees severally, does not
 86 QUlur.,n rL>' - LAV" ;U~..,. -
FORM ANn iNTERPR.
. trun1en. t But where the h
inst.....
& 0..(, Negotiati.on ETA110N &1
. f the InS . dorsed as to t e residu
tiatlo n 0 ay be III 't
operate as a nego ' in part, it III w will not perDn an en~lI'e in.,
d
. e A. An'mdorsment
also be either restrict' may be either
. ;
ment has been pal . 1~hat the 10 to subject the party lIable tQ lVe Or qualified Special or bl~ and it ~ay
(Sec. 32). The re.a~on;~nto parts sO as hair, 280 P. 174, 100 Cal or conditional (Soc. 33).
t to be dlVlde 1 W 'ght v. Shoen .
strumen . thereon ( n Q. Distinguish . r l
several actIOns t dorsement. Give an speCial indorse
163). f art of aDloun payable._ eXample of h alent from blank in-
App. , a) Indor'SCDlC nt 0 o~OO was indorsed by X as fol, A. A ' ind
speCIal eae .
Exampl~s, ~ X or order for p~ "'Such indorsement is not valid whose order the instruorsement specifies the T'oQ to h
A note payab ep60 000 only. (SgdJ, t payable only. However if h . ment is to he r-rson w om, or to
of sue mdors~e is necessary to payable, and the indorsement
lows: '1'o,Y for for' a part of t,he amto1unmaker, then it could be
because It was paId by Ie K II C' A
in- strument. An lndorsement · bl the further negotiation of the in-
P40,000 had already b;;;'60,OOO (see Adams v. e y, IV. pp. 196 instrument so indorsed is In ank specifies no indorsee and an
by delivery (Sec. 34). payable to bearer, and may be n~gotiated
dorsed for the balan:UbY 24 Ind. 418).
S.w, 576; Groves v. more indorsees severally. _ Examples: (a) Special' d
(b) Indorsemen . d
t to two or A c. P5
d as follows: "To lor
•
,000 and or order was indorsed as ti ;~ orsement. - The note payable to X
I,
'I
The note for PIO,OOO w~s 1; ors;ent is not valid as it purports to
to B for P5,OOO." Such In( o;se indorse es severally (Sec. 32), and
ment could be, "Pay to A," ~pows, "To A. (Sgd.) x." Or, the indorse-
of A," with the signature of t~Y ~ A or order," or "Pay to the order
transfer the instrom~nt to wOt into parts so as to subject the party State Bank, C.C. Ohio 15 F ~ mdorsel' (Lee v. Chillicothe Branch
r. d' 'd s the mstrumen ) H indorsements are speei~l ' . ~se No ..8, 187, 1 Biss. 325). These
therefore, lVl e . (Adams v. Kelly, supra. owever, the in-
A special indorsement hsmce ey SpecIfy the name of the indorsee.
liable to several actIOns rsons directing the payment of half
t der," since the indorse' °twtever'l'does not.require the words, "or or-
dorsement of a no~:Ch :~c~~panied by a delivery of the note to . . . . men ranslers the blU or note with all its on. ._
the ~mount due to. t'horized to act for the benefit of both, has nalinCldents, mcludmg its negotiabTt feh dl
2223 147 G 637) T i l Y\ an er v. mlth, 95 S.E.
S' gJ.
one mdorsee wh 0 IS au t th k ' fA' a. . 0 further negotiate the instrument the indorse-
'd' dorsement the claim as respec serna er not ment 0
been he ld a va I1 m , . (Fl' Fl' IS necessary. '
· d" 'bI ' to two seT)arate causes of actIon lnt v. Int, 6
bcmg IVl SI e 1Il
(b)" On ~he other ha~d, if .the indorsement was ~s follows,
.I"

Allen 34, 83 Am,D. 615). "

(Sgd.) .X, the Indorsement IS an mdorsement in blank as the name
of the Indorsee has not been specified. Such indorsement converts
Q.Ramos was the payee of a check for PIOO,OOO. He the instrument into a bearer instrument since the only indorsement
wrote at the back an instruction for the bank to pay P30,OOO is an indorsement in blank (Sec. 9; Asked, 1958 Bar Exams.), and
to Montinola and deposit the balance of P70,OOO to Ramos' may be negotiated by mere delivery (Sec. 34). , . '.
account. Was the check validly negotiated?
A. The check was not: validly negotiated because an indorse- Q. How may a blank indorsement be changed to spe..
cial indorsement?
ment which purports to transfer to the indorsee a part only of the
amount payable does not operate as negotiation of the instrument. A. The holder may convert a blank indorsement into a spe·
Montinola may not therefore, be regarded as an indorsee. At most, cial indorsement by writing over the signature of the indorser in
he may .be re~arded as an assignee of the P30,OOO sold to him by blank any contract consist.ent with the character of the indorsement
Ramos, III wh~ch case, he is subject to all defenses available to the (Sec. 35).
drawer (Montll1ola VS. PNB, B8 Phil. 178', Asked , 1963 Bar E xams)..
Q. An instrument was indorsed by A in blank and de-
Q· Wh) at are the kinds of indorsements? (Asked 1969 livered to B. B wrote above the signature of A the follow-
Bar E xarns. , ing: "To B." Thereafter, is the indorsement still a blank in-
dorsement? .
 ~ Vltt.{ ANn
er a blank indorsement sin IN'I'En
's no 1on g B . Ce Negot;at..PlU."l'A'l'ION
A. The indorsel11en t 1 . d .etnent when Inserted "To b " ... lOn
'al111 or~ d 0 Q. Give eXa
it was converted into a spech h acter of the in orsement (Sec. 35)
tnPles of~
which is consist.ent with the ~ ~r rsed in blank may write OVer th ' A. (a) Proh'b' 8trictiv~ .
The holder of a bill or note 111. 0 nsistent with the undertaking e _ The indorsemen~ Its further . Uldorsementa.
t t not 1I1CO 0f
is restrictive as it p s~~, "To B ::fO~lation of the instrument
J}
indorsement any con rae . fthe parties (In re armu OW sky, N 'Y
n o
the indorser or the intentlO R.A. 1918 E 634). . " and restricts paYln fO Iblts fUrther y. Sgd. X)." Such indorsement
249 F. 319, 161 C.C.A. 327, L . Baker, 17 A. 516, l;~t;r transfer to :egOti~tion of the instrument,
. a. 624, 11 Am PartIcular person (Temple v.
, r 'tation on the right of the holder t (b). COnsbtutes the' . S.R. 926 , 3 L "R A. 709) .
Q, What IS, the 1m! nt into a special indorsement? 0 - The mdorsement tndol'8ee th
convert a blank Indorseme X)." This is a restri~.ta~, "To B, for can: :gent of the indorser
as a mere agent ofthlV~ Indorsement as it Ion ~n my behalf. (Sgd.
C
. , t ntraet may be inserted above a blank
A Any conslsten co ' . . h} 1
' . ntract inconsIstent WIt t le ega} mean Blanton Co A e lQdorser (see C· consbtutes the indorsee
" indorsement, but not a co . h rt' (D - 't 1" pp., 287 S.W. 839) ltd aIro Nat. Bank of Cairo, Ill. v.
; ~! ing of the indorsement or the intentIOn of tepa les awsey v, as 1 mere y makes him an . oes not vest title in the ind
38 203 Ala. 446, 7 A.L.R. 165, 8). Thus, the hOlder
Ki rven, 83 S o. 3 , of the instrument (Nys ~~t of the indorser to collect th orsee
I,
(H d R bb' sa-OJ."l:O.dia D ' . e amount
'! cannot enlarge the liability of the indorser . 00 v. 0 Ins, 13 So. D.C, Or., 3 F.2d 648) . He nee, the b l'alnage r...
Dlst. v. First Nat •
Bank,
574,98 Ala. 484), as by filling up the blank ~llth an a~eemen.t which dorse d fior collection re . . enellClal ownership of a check m'
mams m th d . -
will discharge him from the obligation of usmg due dlh~ence In mak- dorsement by the deposito e eposltor, notWithstanding in.
ing demand and in giving notice of nonpayment (DavIs v. Epler, 16 v. City Nat. Bank Tex Civi' and correspondent banks (Behringer
, , . Pp., 296 S.W. 674).
P. 793, 38 Kan. 629). Or, writing "Protest waived" over the signa_
(c) Vests title in the ind .
ture of an accommodation indorser is inconsistent with the nature person - The indorsement . orsee lD trust for some other
of his indorsement and constitutes a material alteration since the X)," is a restrictive indorsem:~ch ~tates, wro B, in trust for C. (Sgd.
effect is to change the nature of the contract, in that it converts the other person C H n as It vests title in B in trust for an-
contingent liability of the indorser into an absolute liability , . owever to const' t te '"
the same must ' 1 U • a restncbve mdorsement,
(Schwartz v. Wilmer, 44 A. 1059, 90 Md. 136). The same may be said to th f go to the extent of vestmg title in the indorsee for.
where "Presentment for payment and notice of dishonor are waived" ~r th e .u~ 0 , some other person, naming such person and there:
has been inserted (see Davis v. Epler, supra). o~e e m ~rsement of a negotiable note to a corporation or person
~lth .words as trustee" after the name of the indorsee is not restric-
tive lndorsement (Knight v. Equitable Bank & Trust Co. of Miami,
Q, When is an indorsement restrictive? 136 So. 248, 102 Fla. 453). In such case, the person for whose ben-
efit the trust was created must be named so the indorsement can
A. An indorsement is restrictive which either _ be considered as restrictive.
(a) Prohibits the further negotiation of the instrument., (d) Absence of words implying power to negotiate - An
or indorsement which states, "To B. (Sgd. X)," does not include the
(b) words "or order," or "or bearer" but such indorsement is not restric-
Constitutes the indorsee the agent of the indorser', tive by the mere fact that words of negotiability are not included in
or
the indorsement (Chandler v. Smith, 95 S.E. 2223,147 Ga. 637; see
(c) Vests the title in th . d . discussion above).
use of some other pers e In orsee In trust for or to the
on.
But the mere absence of words . . Q. What are the rights of an indorsee i~ ~ re~trictive
does not make an indorseme t . 1.mplYIng power to negotiate indorsement, or what are the effects of restnctlve Indorse-
n restnctIve (Sec. 36).
ment?
 QVIZ;(,f, C\J"L" - LAW j\J'/J..' •• -
90
..... ent confers upon the indo
, indorse... . l's~ FoIU.tANT-.
A restrictIve th~ u IN'I'ERPaE
Negotiati TA.TlON
A- on 91
nt of the instrument; (c) Right to t
right - ceive payI11e strictive indorsee ranster his..: h
(a) To re , t'on thereon that the indol's er,..~ may tr "I.g ts
ya c I the tiorm of the indorseme Ilnsfer his ng' has
ts such indo..... --. - A. re-
.. ~
(b) To brJIlg an "Vtl1<:l,
Thus, were h the rest· , llt authon' ~ such indorsee where
. f th . nctwe . zes hun to d
bring; and h' rights as such indorsee, wh tIO~ 0 e mstrtunent, it llldol'8emellt , , 0 so (Sec. 37tcn .

(d To tr3n~
.. fer t ISauthorizes h'lin t 0 d 0 so. ere the of mdorsement does may 110 lOllger beprohi~lts further negotia-
, dorseJ11en strument in such ca n~t authOrize him ~egotiated since this fonn.
(onn of the In ' d sees acquire only the title of th se lecomes 11011 do so (Sec. 37) The in
B t all subsequelIt ,JI1 ' or indorsement
. (Sec. 3) 7. e fi rst On the other hand wh -negotiable (Sec. 47). . -
u under the restflctlve tutes the indorsee as ' ere the restricti '
indorsee the benefit of anoth an agent of the ind ve mdorsement consti-
er perso h' orser, or as a t tee f,
Q. Ex-pJal n.
the rights of the JD
.
t::
r
ffeets of restrictive indorsement
: ee in a restrictive indorsement. 'Or
•
but all subsequent ind n, t e Indorsee may t
. d orsees'
l"

10 orsee under the restrictive . acquIre only the title of the first
reason why all subseque t· mdorsement (Sec. 37 last
" n mdorsees '
TUh,S , or
ranSler IS nghts
) Th
par. . e
. payment of the Instrument - If th filrst restnctIve indorsee' th' merely acquire the title of th
I, A, a () To receIve
h ·bit.s further negotw Ion 0 fl
. t' '
t Ie instIUrnere- . d IS at In cas th .
10 orsee as an agent of th ' d e e mdorser constitutes the
e
" stricti\'e indorsement P~e:triction as to the person to receive ent, instrument remain in th e. Ind orser, the beneficial interest in the
it is treated a~ :. mer:yn;ent to a particular person CNicholst -
ay . e m orser wh'l
benefiIt of a third person transfe ' ,1 e
'
:m
mdorsement for the
ment by restLnc ~~g P222) but the indorsee has the right to rec ~ v, indorsee only for the b
. ki
fi rs the title m the instrument to the
ene It of the b fi' (
Chapman 1 a. nJ1Il·
, h'
1 th' d
'n behalf. However, W lere e In orsee is a In
eWe DIC nson Co. v. Hopkins 175 NW ene ~cIary ,Gulbranson-
payment on IS 0\\ f th th' ere , ' . 93, 170 WIS. 326).
agent of the indorser or a trust.ee o. ano er person, e Indorsee is
liable to his principal or the beneficI~ry of the trust, for the proceeds Q. May a restrictive indorsement be revoked? If 80,
of the instrument when collect.ed (FIrst Nat. Bank v. John Morrel & bow?
Co" 221 N.W 95, 53 S.D. 496, 670 A.L.R. 863).
A. A restrictive .indorsement may be revoked by a later in-
(b) Hight to bring any action that the indorser could dorsement by t?e preVIOUS restrictive indorser (Atkins v. Cobb, 56
bring - A person t.o whom an instrument has been restrictively in- Ga. ~6). Thus, title o~e][' the instrument has been held to pass where
dorsed for coIIect.ion only (or vests title in the indorsee as trustee of the. Indo~ser, after hIS restrictive indorsement, takes the paper and
some other person) may nevertheless sue thereon in his own name dehvers It to another without striking out the restrictive indorse-
(Rhoades v, Silvius, 269 P. 749,93 Cal. App. 509), subject to defenses ment, or reindorsing the paper (Brook v. Vannest, 33 A. 382, 58 N.J.
Law 162). "
which might have been imposed against the indorser (Home Bank
& Trust Co. v. Bogorad, 242 Ill. App. 16). Likewise and with more Where the indorsement is for collection, such restrictive in-
~eason, where the restrictive indorsement transfers title over the dorsement is revocable at the pleasure of either party and is revoked
mst;ument to the illdo.rsee but merely restricts further indorsement, by a return of the paper uncollected or by a recall of the paper by
the mdorsee has the nght to sue thereon in his own name. the indorser before collection (Vermont Evaporator Co. v. Taft, 181
A. 100, 107 Vt. 400), or by the restrictive indorser's subsequent in-
. But where the indorsee is made as a mere agent of the indorser. dorsement to other indorsees for value (Atkin& v. Cobb, 56 Ga. 86),
.the ~ndorsee cannot sue the indorser on his indorsement (Asia Bank~ but it is not revoked by the indorser's death (Moore v. HaU, 11 N.W.
~~~ J.~. ;~8T~~ SLenE'd442Phi1. 511; White v. Miners Nat. Bank, Colo., 844, 48 Mich. 143).
, ' . 50) But he rna th . t
force payment althou h su h' . . y sue 0 er partIes 0 en-
could have been made~n th: actIOn IS op~n to the same defenses as Q. What 'is a qualified indorsement? How is it done?
3 S.E. 900, 79 Ga. 137). hands of the Indorser (Wilson v. Tolson, (Asked, 1958 Bar Exams.)
 Nf,G()TlJ\.D~U A > ' - - - - - - - -_. A V

. EVIEWF.H ON LATED LAWti

QUIZZEH AND H LAW AND HE
'tutes the indorser a FoIU.t ANn INT£
nt cons t I
?h
.d b ".l..le~
, d 'ndorseJlle It nlay be rna c y adding f._ .
~~ti"\:ion
~RETATION
A. A uahfie
q,
I
the inS tTtlment. "
'thout recourse or any word"U negotIated will hold th
93
'
assignor 0 fthe ,
title to
t re the ","0
rds "WI "
t does not ImpaIr th e negot,S rights of the person' e 8a.ll\e, 01' th
' d rser's signa u , dorsemen 1, 1ndors' e P~d
t h e In 0 , Such an 10 38). A condition in th Ing conditionally ~sthereof, subject to the
of similar Import, , tTtl1Uent (Sec, e Pro . ec. 39).
character of the lOS I'tied indorsement does not i"" men t non-negotiable (Sec ll\lse or order to
a bI e that a qua 1 1 A .... ,
not affect the negotiab T' 1), but a COndi ' ?ay renders the instru-
It will be observed h 'nstTtlment. 1 lty of the inst tion lI\ the indorsement does
pair the negotia b I'I'tvoft
I ~
eI rutnent.
Q. A issued a Pro .
d f similar import as "withOut B indorsed the note IlliSSory note p
What are the wo s r 0
Q.
recourse.?"
emen t "sans re course"
h . d
, or "at t e 111 orsee's own
(b) When shoul: yet. (a) What
• paYlllent b
kin:
D are not marri d ,"To C, UPon h' ayable to B or order.
n;~age to D." C and
0 Indorsement is this?
A, An indors d' the sam e nlanner as may have heen by payment pnor to fulfubnen: ~a:e and what is the effect of
risk" or "to be enjoye l~ u.."ithout recourse" and render the A. (a) Th ' d o t e condition?
' eanmg as vv ( . e tn orsement . .,
me" have the same, m fhis title to the instrument see 10 C,J,S. the marnage of C to D an 1S conditional since it is subiect to
' /'. indorser a mere assIgnor 0 , event which' fu J '
(b) A, th ak 18 ture and uncertain.
703). em ermaydi
to his marriage to D Howe s~gard the condition and pay C prior
b ffects of a qualified indorsement? subject to the righ~ of B :~' shall hold the proceeds of the note
Q. What are tee Or, the maker may refuse to 0 made ~e tonditional indorsement.
· dorsement is "without recourse" does not
ha t III filled (Sec. 39). pay unbl the condit.ion has been ful-
A, Thefactt 1 r h'I'
1"fj d' dorser has absolute y no more la I Ityon
mea.n that the qua hI Je. Ill ' chargeable with the implied warran_
the m strument as e IS s t 1l1 . d' C W. d & Q. What is: the effect of sp • II . d ' .
' f 11 f the paper (CommercIal Cre It o. v. ar
tws 0 a se er 0 e I r b T t hSon ment payabI e t 0 b earer? eClQ y in ors1ng an Instru-
Auto Co. , 109 50. 574,215 Ala, 34), bu.t hd has a etsser Ia. 1 1 YI' t .an
t raIns, Imits
. dorser, sl'nee a qua1ified III .orsemen resd'.a'.
a genera I m ' . A.. Where an instrument, payable to bearer, is indorsed spe-
'fj th
or qua IlIes e I I'abl'll'ty of the indorser
. '
In a manner
.'
Iuerent
.
from CIally, It. may ~e~eItheless be further negotiated by delivery; but the
what the law generaJIy imports as hIS true lIabIlIty as Indorser. person Indorsmg specially is liable as indorser to only such holders
(Stover Bank v. Welpman, 284 S. W. 177). as make title through his indorsement (Sec. 40; Asked, 1965, 1975
A qualified indorser has the same warranties as a person ne- and 1979 Bar Exams.; No. VIU, 1998 Bar Exams.).
gotiating by delivery (Sec. 65). But since the qualified indorser is a
mere assignor of the title in the instrument, the transferee acquires Q. Is the foregoing rule applicable to aU kinds of
no greater right or interest than the transferor then holds (Fecko v. bearer instruments?
Tarczynski, 275 N. W. 502, 281 Mich. 590) and he is liable on his in- A. Section 40 is applicable only to instruments originally
dorsement only when he violates anyone of his warranties under payable to bearer (Brannan, pp. 449·450). Thus, this section does
Section 65. h
1,1
" not apply to an instrument originally payahle .to order and became
a bearer instrument only by reason of a blank mdorsement. In such
Q. What is the effect of conditional indorsement? case, the instrument will remain as payable to bear~r only for as
long as the only or last indorsement is an indorsement m blank (Sec.
A.. Where an indorsement is conditional, a party required to 9).
pay the lnstrument may disregard the condition and make payment
I {feet therefore an instrument originally pa~able to bearer
to the indorsee or his transferee whether the condition has been ful- . 1 ne
1S a ways pay,
able, to be~rer even when indorsed speCially and there-
filled or not. But any person to whom an instrument so indorsed is
, 94
...m Rl';V Jl',", L' "
QUIZZER jUW'

o ([lted
l.A W AND

by me
RFI.A'fEV LA VH:>

bIe
'

'verY (Sec, 40). On the oth

re d c l 1 • b
to order can e convert d
fore , may be neg 1 t originally pay~ . dorsemcnt (Sec. 9).
hand an ins tr"um en t by a bl[lnk III
e
el'
Q. Is the ind
FOl{M.ANl)

indorsees Void and orsetnent b

(]Ifn
INTERPRET
Negotiation ATION

y only 0
95
. ~.

f_i~
, , ~trumen A. Where th' 0 effect \Vhatso ne of the payees or
into a bearer m .
e Illst eVer? .~\ ' .'

bl e to A. or .bearer. A delivered
.
Q. .sX rnu
de a no t e P aya
.
d of mere Y
1 delIverIng th e 'Ins t rUlllent
d 't ",.., D" D '
ees, who are not Part . rument is pa abl
tran.sfer the interest o~era, and neith:r : to the order of two pay. -\ '~i :
t to B 'ns tea d " C indorse I .0. deliv ees IS not void but ' the other an ind P yee has the authority to J!i
h
t ~ ndo edit '''To C or or cr' E What are the liabilities or- , operate' orseme t b
terest of the assi a as an ass' n y one of the pay-
.~crnent t 0
159, 38 A.L.R. 79~or (Edgar 'V. Raine l~:ent of the equitable in.
B III orsc . •
ered it without mdo l ~
. a, 1 N.E. 837, 109 Ohio St,
A, B, C and D? 'nted the instrument by mere. delivery, he
A.Since A negotJ<, ' . the instrument by dehvery only to Q. What is the eff
is liable as a person negotwtIllg
(S 65). B shall be l'Ja bl e as an mdorse
. dorsed to a person a ect of an instrument d .
, t ~feree ec, . t r s cashier? rawn or In-
B his immedwte r:1D u . t title over the IllS rument through
, dD the latter go ' D . d A. Where an inst .
; ~, ollly to C all as, 'k ' li'lble only to as an In orser for "cash'"
~

B's indorsement '

el" II eWlse (.
~ bI
. . th'
person negotIatll1g e Instrument ler or oth er fiscal am
rument lS draw n or ill
. d orsed to a person as
I'
j. Dis lia e as a . fc '
pnma aCle to be payable to the b
leer of a bank '
or COrpo~tlOn, it is deemed
the same reason, t h ld A liable because a person negotiat_
'
by dC/Ivery #
,,0:E E canno 0
' l I t o his immedIate . r
tranSleree (8
ec. 65) such officer, and may be n t' ank or COrporation of which he is
ego lated b 'th h'
ing by delivery IS 11~bce ~n y the former did not get his title to th~ bank or corporation or th . d
,
Yel er t e mdorsement of the
e In orsement of the officer (Sec, 42).
/I
/'
E callnot hold B 31; th Sl'::~~rsement of Band C but through the
instrument throug 1 e I )
delivery of D (Sec, 40, 2nd phrase. Q. How should th . d
f th e In orsement be made where the
name 0 e payee or indorsee is misspelled?
Q. Who should indorse the instru~ent where it is pay- A. ':'here the name of a payee or indorsee is wrongly desig-
able to two or more payees or indorsees. na~ed or nu.sspelled, he may indorse the instrument as therein de- "

A. \Vhere an instrument is payable to the ,order o~ two or SCrIbed addmg, if he thinks fit, his proper signature (Sec. 43). "

more payees or indorsees who are. not p.artners, all must Indorse,
unless the on(-' indursing has authorIty to mdorse for the others (Sec. Q. How should indorsement in representative capac-
41). ity be made?
However, the foregoing rule does not apply where the instru- A. Where any person is under obligation to indorse in a rep-
ment is made payable in the alternative to either one of two payees resentative capacity, he may indorse in such terms as to negative
(In re Kamrath's Estate, 206 N.W. 770, 114 Neb. 230) in which case, personal liability (Sec. 44). Thus, ifhe indorses as an agent, he must
it may be indorsed by either one alone so as to pass title to the in- not only be authorized but he must likewise explicitly state that he
strument (Union Bank v. Spies, 130 N.W 928, 151 Iowa 178). is a mere agent and identify his principal (Sec. 19).

Q. What is the reason for the foregoing rule? Q. What is the presumption as to the time of indorse-
ment?
. A. \V11ere the instrument is payable to two or more payees
or mdorsees and only one of them indorses the instrument at most AExcept where an indorsement bears date afte~ the m~tu-
only the interest of the indorser passes (Cary v. Byunum: 136 So. rit of 'the instrument, every negotiation is deemed pnma (aew to
y b ~ t d before the instrument was overdue (Sec. 45).
877, 24 Ala.App. 510), and hence, the principle that the entire in- have .cen euec e
strument must be indorsed (Sec. 32) is violated.
 96 Q t:1ZZER A..'<D t\r.' .~' ~~"lD
L.I\W~·
REl~lD" _. ~

tioO as to the place of indors

. the preSU1llP e ..
Q. Wbat IS payable to bear
ment'? ry appears. every indorsement· er and
(see Sec. 30). Yet, indo
t he con t ra \ 1- h
A. Except wh ere b n made at tile pace Were in t"L
IS
rs~ instead
. . to have ee 'll~ Example: X m. of merely deliverin .
presumed pruna (ac/£ note in blank and ade a note g It 1-,
ered the instrum. delivered ~raYable to A or ord A'
instrument is dated (SeC. 46).
ent to C ""U~ sam er. md~ th
the negotiable character of because B Could ha . C Illa ~ to B. B indorsed .e
Q. For how long d oes Ill\. since Ns ind Ve negot' y Btrike out th' and deliv-
• ? . orsem.ent w lated the i e mdorsement of B
instrument contInue. . . . the Instrument into as an indo-- nstrument by mere d li
. t negotiable in its ongln conbnues to be n ab . aement· b every
nveA_~..lI
4

A An m~trunlen . d d d' h e· necessary to. the t 1'tle of C

carer lnstr,,_
b
10 lank which co
~ '-UUent. B's .
" ~ h s been restrictively In orse or ISC arged b
\oeU
.' ment of A Since at th .' uO\Vever C indorsement was t
gobable unhllt ~ 47' A~ked. 1981 Bar Exam.s.). Y payable to order and ~~une of Ns ~docannot strike out the indo'::_
payment or other.Vlse (Sec. , ~ ment
pleted by delivery ( erefore, negotia: • the instrument Was
The restnc 't' ' ldorsernent which puts
Ive 11 . .
an end to the negot·1· see Sec. 30). e only by indorsement com-
ability of the instrument is one that prohIbIts further negotiation
ofth~ instrument (Sec. 36\a1; 10 C,J.S. 683). Q. What is the h .
euect of strikin
A. The indorser whose' g out an indorsement?
Q. Is an overdue instrument still negotiable? dorsers subsequent to him Indorsement is st k
instrument (Sec. 48 2 d ' are thereby relieved ~m ~utb' il~d all in-
! ' A. The character of a bil~ or note as .a ?e?otia':le instrument , n sentence). a Ity on the
continues even after its maturIty and unbl It IS paid (Bernsein v.
Pacific States Savings & Loan Co., App., 66 P. 2d 699). An indorse_ Q. X made a note
ment after maturity therefore, does not change the character of the the note to B who indors!:~~ble to A or bearer. A indorsed
original contract as to its negotiability, however, the holder after ment of A.. (a) Does C have 1 t~ C. C struck out the indorse-
maturity takes the instrument subject to defenses and equities be- ment of A? (b) What· th the nght to strike out the indorse-
m.ent of A? IS e effect of striking out the indorse-
tween prior parties (Capwell v. Machon. 45 A. 259, 21 R.I. 520) be-
cause he is not a holder in due course as he took the instrument A. (a) C has the right w st 'k .
after it is overdue (Sec. 52tb)). the instrument is payabl to b n e out. the mdorsement of A since
delivery (see Sees. 40 an~ 30)e~;:: ~: therefore ne.gotiable by mere
sary to the title of the holder: n orsement. of A was not neces-
Q. When may the holder strike out an indorsement?
. A: The holder may at any time strike out any indorsement . . ~b) A whose indorsement was stricken out is discharged from
~lllch IS not n ecessary to his title. The indorser whose indorsement lIabIlity. B, a party subsequent to A is also relieved from liability
(Sec. 48; Sec. 120).
;~ str~~k out~ a~~ an indorsers subsequent to him, are thereby re-
leve rom ha\)lht.y on the instrument (Sec. 48).
Q. What is the effect of transfer without indorsement
Q. When is an indo .. of an instrument payable to order'?
of the holder and the f rsement not necessary to the title
ample. re ore, may be stricken out? Give Ex- A. Where the holder of nn inst.rument payable to his order
transfers it for vnlue without indorsing it, the transfer vests in Ule
transferee 8uc,h title as the transferor had therein, and the trans-
A. An indorsement is not nece . ', '
when the instrument may b . ssary to the title of the holder feree acquires in addition. the right t.o have the indorsement of the
e negotlated by m()re dolivery for being transferor. But for the purpose of determining whether the trnns-
 ---...0 mtf C

PolU.{.\Nn
go tiation takes effect as of th Il-rrtRPRET
. Id'n due course, the neIly mnde (Sec. 49) . e . .
babon takes effect
t-legotiation ATlON
feree ]s a ho er] . 1t is actun 99
time when the indors emeJ made (Sec. 49 last as of the thn.
, senten e when the .
ble to A or order. A delivered the ce). Indorsement is actually
Q X made a note p~y~ rsemcnt. (a) Was t!tere a Valid Q. When tnay
instru~ent to B with:~t(::; ;hat right, i~ any, did B acquire What is the effect thIt Prior Part
negotiation of the n?t. f the note to hIm? A.
el'eOf? y negotiate the instl"Um.ent?
f the dehvery 0 Where an'
by reason 0 lid negotiation to B. because the note such party may, SUbj:trument is negotia
A. (a) There wasd no va Jore
r. ncgotiable by mdorsement com. ther negotiate th to the Proviso ted back to a prior party
thcrc , e same B h IOns of this At · ,
was payable to order an 0) Indorsement of the payee ~o ~hose or. thereof against any in . ut. e is not entitl C , relSSue and fur-
P letcd by deli\'ery (Sec .. 3. ~ ry to constitute negotIatIOn (First ed
liable (Sec. 50; Ask d tervenlIlg party to h to enforce payment
bl IS neces:;a e t 1973 Bar Ex W om he was personally
der the note is paya e C tton Mfg. Co. , 101 So. 186,211 Ala. 551). ams.).
N t Bank v. Montgomery 0 . .
a . n 0 valid negotHltIOn of the note to B Q. A note payable t A
(b) Although. there was by A without any indorsement con~ B, B to C, and C to D D . °d or order was indorsed by A to
t
the delivery of ~he lI1stru.men nt thereof (Maddox v. 'Robbert, 115 right does B have? . In orsed the instrument to B. What
. Ultable asslg nme . A ki
Stltutes an eq E' nt Finance CorporatIOn v. t ns, 139 A. B has the right to ne .
So. 905, 165 La. 694~34jutn~~ch case, however, B merely steps into ever, B cannot later hold C an~o~a~ the instrument further. How-
So. 154, 19 La.APPh .d n of transfer to him is not by negotiation he was an indorser subseq t to liable on the instrument even if
the shoes of A a~ t e mOt :nd therefore, B cannot be considered a intervening parties to who~e~ . C and D because the latter are
but by mere asslgnmen , . d . b low B to hold C and D r bl himself was personally liable. To al·
. Aside from being consldere an equlta Ie as·
holder In due course. . h . t t h' suits. la e would only result in a multiplicity of
. B h th . ht to compel A to mdorse t e Ins rUInen to 1m
SIgnee, as e ng K II C CAN Y
(Quens boro NTa. t Ba nk of City of New York v. e y, . . . . ., 48
F.2d 574, 87 A.L.R. 1172). Q. . What a~e the limitations on the right to reiss~e or
renegotiate the Instrument?
Q. X made a note payable to A or order. On April 18, ~. A prior party cannot renegotiate the instrument in the
2000 A delivered the note without indorsement to B who followmg cases: (a) where it is payable to the order of a third per-
acted in good faith and for value. On Apr~127, ~OOO, B found son, and has been paid by the drawer; and (b) where it was made
out that A did not give the agreed consIderatIon to X, the or accepted for accommodation and has been paid by the party ac-
maker. Upon demand, A indorsed the note to B on April 30, commodated (Sec. 121).
2000. Is B a holder in due course?
A. B is not a holder in due course because at the time the
indorsement was made to him, B was no longer acting in good faith
as he was aware that A did not give the agreed consideration to X
and therefore, B had notice of the infirmity in the instrument or the
defect in the title of A. Among the requisites to be a holder in du~
course are that the holder must have taken the instrument in good
faith and for value, and that at the time it was negotiated to him
he had no notice of any infirmity in the instrument or defect in the
title of the person negotiating it (Sec. 52). For the purpose of deter-
mining whether the transferee is a holder in due course, the nego-

". , ..
' ':'.:'
 F()lU.\AN1}
lUght8~~~~R.F.'r A'rlON
~ n()ld~r 101
it has been held th
t' at an. .
nego lated to the p Instrument
in due course (Walk~:e 80 as to COnfer~n?t be said to have been

cHAPTER IV 220). One of the re .avlngs Bank v Le:

12 F. 2d 382; Marion ;. rr:raylor Engmee .hUn the status of a holder
g
& Mfg. Co., C.CA. Okl.,
the time it was ne q~ments of a hOlde y: 204 N.W. 456, 200 lowa
. th . t gOhated to \...:-- h r In due CQurse is that -at
In e Ins l"Ument 0 d l.Ulll e had no .
RIGHTS OF THE HOLDER (Sec. 52~dn which r erect in the title of th notice of any inflrmity
tiated to h? B presupposes that th . e person negotiating it"
". Im~ ut then, the deliv e mstnunent had been nego-
~u~ an ISsue as it is "the fu-st de~ry to a payee is not negotiation
der have the right to sue on the instru. In orm, to a person who takes . t very of the instrument, complete
Q . Doe~ the hOffl t of payment to the holder? (Asked On the other h . 1 as a holder." (Sec. 191).
ment? What IS the e ec , h 1 and, In other cases 't ' h
b e a Older in due cour (M ,1 IS eld that the payee may
1969 Bar Exams.).
egot iable instrument may sue thereon Ala. 474; Drumm Cons:.cC alcomb v. 'Robinson, 161 So. 510,230
A The h 0 lder 0 f a n . . d' h after all, when the instrumo. :'. Forbes, 137 N.R. 225, 305 In. 3(3)
. . ' . d yment to him In due course ISC arges the
In hls own name, an pa a holder thereof as he is :n IS deliv.ered to the payee, he becomes
instrument (Sec. 51). is in possession of it." (8~. i;i~e~ m~orsee of a b~n or note, who
, ., meets the requirements f 8 '. us, if the payee IS a holder who
Q. What constitutes a holder in due course? (Asked, course. 0 ectlon 52., then he is a holder in due
1962,1963,1966,1980 and 1987 Bar Exams.; No. l[b], 1992 and
But of Course the p ' .
No. l{cl, 1996 Bar Exams.) . . te h ' ayee IS not a holder In due course if the
requlsl . s t erefor are not present, as where he does not take it in
A. A holder in due course is a holder who has taken the in- : , good faIth for value (Westmont Nat. Bank v. Payne, 156 A.. 652, 108
strument under the fonowing conditions: N.J. Law 133), or has actual notice of the failure of consideration
(a ) That it is complete and regular upon its face; (Yost .v. Yost, 247 N.W. 583) or knowledge of an infumity (Portland
Morns Plan Bank v. Winckler, 143 A. 173, 12.7 Me. 3(6).
(b ) That he became the holder of it before it was over-
due , and without notice that it had been previously dishonored,
Q. Give examples of instruments which are not com-
if such was the fact;
plete and regular upon its face.
(c) That he took it in good faith and for value; and
A. Instruments with unfilled blanks such as the name of the
(d) That at the time it was negotiated to him, he had payee is in blank (Moore v. Vaughn, 150 80. 372., 167 Miss. 758), or
no notice of any infirmity in the instrument or defect in the the amount payable is left. blank (Stout v. Eastern Rock Island Plow
title of the person negotiating it (Sec. 52). Co., 176 N.B. 844, 2.02. Ind. 517 , 75 A..L.'R. 1386), or the drawee ofa
bin has not been identified (Clay & Funkhouser "Banking Co. v.
Dobyns, 255 S.W. 946, 213 Mo. A.pp. 4(8) are incomplete instru·
Q. Can a payee be a holder in due course?
ments.
A. There .is a conflict of authority as to whether the payee An instrument with material alterations apparent on the face
may be a holder In due course or not (10 C .J "S 789) . I n some cas es , thereof will deprive the holder of the status of a holder in due course
(Graham v. Sinderman, 213 N.W. 2.00,2.38 Mich. 210, 51 A..L.R. 12.25)
100
 ER ON l'HN " - -
102 QUlZZER AND REVIEW D RELATED LAWS ,
LAW AN
. \\ \
FORMAtfn
t dually no
tice the alteration (Dunbar 'I
. . . ~RPRETATION
Rights
(
~ :
even though he does no a 35m 221 Mo. Ap~, 979) as It Is.not regu~ the Holder 103 1: ,
i . '?
Iowa State Bank, 295 S.W. ~ lteration IS not so mamfest as to Q. Maya hold
lar upon its face . Howe\,'er If thela' nstrument f rom appearmg. COlll_ was dishonored b er '9who acqUired th .
. . . d to prevent t le I b h Id . e a hOlder in d e wstrument after it
excIte SUSpICIon an. the transferor may e a 0 cr In due A. A holder . ue course?
plcte and regular on I.ts faceS W 2d 987, 179 Ark. 415). . IS not h
takmg the instrument th a . older in due course .f h kn
course (Saxon v. McGIll, 16 . . . . Wan vs Tan Ki at It has 1 d I e ows upon
hich has been indorsed mstead of betng de- . t' m, 1.-15380, Se t 3a rea y been dishonored (Chan
A crossed check W • f d the indorsee thereof is not ~en: h:~:re. ofdthe prior disho~~r ~i ;;:6?). However, if the holder ,
posited is not regular upon Its ace a~ n Kim 50 O.G. 1554' Ask : r in ue course provi e lfistrument, he could still t
law are present (Sec. 52). ' ded, the other requirements of the \
holder in due course (Chan Wan vs. a E . ' ) ,e , . r,
No. VIlal, 1991 and No. llIl21, 1994 Bar xams ..

..., May the transferee of an instrument after maturity

Q.
Q. What i8 the In •
holder in due course? eamng of "good faith" as applied to a
'·;
t"
r
I
be a holder in due course? A. By "good faith" . "
and honestly in regard to Is m e~t that the holder must deal fairly
l ••
A. A transferee of a negotiable instrument who purchases it a1l pnor Parties . " h
men t (Fe h r v. Campbell 137 A 11 m acqumng t e instru·
after maturity from one who is not an innocent holder does not ac- in other words the holder mu~ 3, 288 Pa. ~49, 52 A.L.R. 506), or, 1
quire the status of a holder in due course, and he takes no better l'
right of the maker and th' . t punhase WIth due regard for the H ~
title and is in no better position than his transferor (Ott v. Thurston . ' e Clfcumstances S d' h , f !,
I'
. bon must not show bad f 'th urroun mg t e transac- ~H
C.C.A. Cal., 76 F. 2d 368; In re Thompson, C.C.A. Pa., 284 F. 65)~ (Haschenberger v. Dennis 22a~ N ~r 2~ant of honesty on his part
~

Thus, where the holder received an instrument 2 years after it be- The term "good faith'" ' rts h' · 118 Neb. 411,63 A.L.R. 493). \;:
· f d kn unpo t at the transaction was without col \~
came overdue, the holder cannot be considered a holder in due Course 1USlOn, rau owl edge of fr d . - ~,

(Montinola vs. Philippine National Bank, L-2861, Feb. 26, 1951; lent or oth '. au , Of mtent to assist in a fraudu- ~
erwlse unlawful design (Heney v. Sutro & Co 153 P 972
Asked, 1963 Bar Exams,). 28 Cal. App. 698). ., . , t
The rule is likewise stated that, if from the face of the paper it Good faith referred to herein means the good faith of the trans-
~ppears that the whole or a part of the amount represented thereon feree, the good or bad faith of the transferor being immaterial (Shultz
IS p~st ~ue, that fact is of itself sufficient notice to put a purchaser v. Crewdson, 163 P. 734, 95 Wash. 266).
on mqUlry and to ~reclude him from claiming as a holder in due
course should he fall to make such inquiry (Melton v. State 10 S W Q. Gonzales offered a car belonging to Ocampo Clinic
2d 500, 177 Ark. 1194). Hence, a pledgee of a note after maturit . 0; to Gatc,?alian. Being satisfied with the car and its price,
7~~eaennswferlele reHceivdin g it after maturity is not a holder in due co~rse Gatchahan requested Gonzales to bring the car the day fol-
lowing with the certificate of registration. Gonzales asked
e v. ay on 78 Ky 332 39 Am R
Civ. App., 7 S.W. 2d 1095)." " 234; Leoloff v. Werner, Gatchalian to issue a check to be shown to the owner to prove
good faith in the intention to buy the car. Gatchalian drew a
However, where the transfere . . check payable to Ocampo Clinic on the assurance of Gonzales
status is not changed by I ~ e IS a holder In due course his that said check will be returned the following day when the
the note although the a a r ag~eement under which he retains car and its certificate of registration are brought by Gonzales.
N agreement IS sub
at. Bank v. Kelly, 151 P. 1172 5 sequent to maturity (City Gonzales used the check to pay the hospitalization bill of his
Course who retains the i t ' 1 Okl. 445). Thus, a holder in due wife. When Gonzales failed to appear on the following day,
th ns rument afte . Gatchnlian who had no account with Ocampo Clinic, issued
o er notes does not the reb 1 . r matunty as a collateral for
(Evans v. Colorado Sav B Ykose hIS status as a h older In
. due course a "Stop Payment Order" on the check. The check was conse·
. an, 19 P. 2d 1062). quently, dishonored. May Ocampo Clinic hold the drawer,
Gatchalian liable?
 N "'u ~ · LAWS
'0, _ .. _
WER ON
~ ~

104 QUIZZER AND REI~~ AND RELATED

FORMAlin
. un h a d no account with the paYee
~RPRE:rATION
Rtghts
A f
The ac.st h · lder (G0 nzales) . did not
that Gutchuh
d show
h hOr tell e lioLier 105
. . ' and that the o. is ossessIOn an w Y e was Q. What is the
(Ocampo Climc) h d the check 111 h ~ nal account - show that in the instrument b effect of acqu..
hy he a . 1 per:so
. t l': w the payme~nt of Ins OWl SPICIOUS,
\
t 1e. payee •• to say the least. As the consideration of th e!Ol"e paYlnent 7~ notice of infirmity
usmg 1 lor . d fective or su. . 't cannot be stated th e 1nstl'Utnent? 0 e full amount of the
the holder's htle was c. SUSPlClOUS, 1 at A. When the tran E
er:e
.
holders , t'tl 1 e
was defectwe h or
k Wlt . h OU t knowledge of sUld. . defect in instrument or defect in t~ receiVes notice of infi . .
the payee acquired the. c r:~son the presumption .that It IS. ~ hOlder before he has paid the f ~l title ofthe person n : ' /rm~~ 10 the
h old er'8 title , and for dus . d tIle instrument. III good will be deemed a hold u. amount agreed to he I~dlnthg efisamhe
. qUIre t f31th does t th er In due pal ere or, e
in due course or that It a~ ed t.he check under Clrcums ances which amoun eretofore paid by hi COurse only to the extent of the
not exist. The payee ~Cq\~: why the holder had the check and used In (Sec. 54).

should have put. it to mqUl y, t The duty devolved upon Ocampo Q. A issued a pro!ll'
a1 accoun . . dr. h
it to pay his own person 1 uired said check In goo lalt and for PIOO,OOO. B who did I:S~ry note payable to B or order
Clinic to prove that it actual Y act,qbe deemed a holder in due course A, negotiated the instr::;: gIve the &greed consideration to
I: i
. .
havmg fatled to 0 s,
d 0 it can no
(Vicente R. de Ocampo an
.
d Co. vs. Gatchahan, 3 S
eRA 59
6; Asked, \ tion of P90,OOO. Upon nege~t !?
C for the agreed considera-
B only P50,000 with th 0 la Ion of the instrument, C paid
f .'
1962 and 1977 Bar Exams.). P40 000 will be paod e agreement that the balance of
\ '
of P50 000 and b 1t one month later. One week after payment
e ore paYment of the balance A informed C
. a person not deemed to be a holder in due t tha~ B dId not give him the consideration sta~ in the note
' 0

Q. When IS
course? he Issued. Is C a holder in due course?

. t ru ment payable on demand his ldnegotiated A. C is ~ holde.r in due course only to the extent of P50,OOO,
A
.
\\There an 111S
bl I
an unreason a e en gth of time after its issue, the 0
.
er IS not th~ a~ount.paid by hIm at the time he acquired notice of the infir--
deemed a holder in due course (Sec. 53). roity In the ll1strument or defect in the title of B (Sec. 54; Title Bond
& Mortgage Co. v. Carpenter, 215 N.W. 300, 240 Mich. 319). The sta-
tus of C will not improve even if he paid the balance of P40,OOO af-
Q. What is the reason for the foregoing rule? ter acquiring notice of the infirmity of the instrument (see People's
Finance & Thrift Co. of Pomona Valley v. Mathews Fruit Co., 286 P.
A. A demand note, negotiated at an unreasonable time after 710, 104 Cal. App. 630).
its date, proclaims to all the world, "I have been dishonored, take
me at your peril." (In re Estate of Philpott, 166 Ia. 555, 151 N.W. Q. When is title to the instrument defective?
825, Ann. Cas. 1019B, 839). The rule is likewise applicable to checks, A. The title of a person who negotiates the instrument is
and one to whom a check is transferred an unreasonable length of defective within the meaning of this Act when he obtained the in-
time after issuance is not a holder in due course (Fayette Nat. Bank strument, or any signature thereto, by fraud, du~ess, ~r force and
v. Meyers, 277 S.W. 292, 211 Ky. 185). fear or other unlawful means, or for an il1eg~ consideratIon, or when
he ~egotiates it in breach of faith, or other circumstances as amount
to a fraud (Sec. 55).
Q. . What constitutes reasonable time?
hat constitutcs notice of infinnity in t~e ~nst~.
A. In determining what is a "reasonable time" or an "unrea- t .In the title of the person negotlatmg d?
DlentQ.or W
de fec
sonable time," regard is to be had to the nature of the instruments,
the usage of trade or business (if any) with respect to such instru- (Asked, 1966 Bar Exams.) .., or
ments and the facts of the particular case (Sec. 193).
defec~in t~: ~i~~:~:~~: ~~~::no~::o:~~~l~~;::~ee~~~~r;::~ to
 106

~~ ..... . ' .. , '''~' :~

~1l.6g"
~
J ve had actuul knowledge of the'
whom it is negotiated DllIs t IOf such facts thnt hi. action in t
mityinstrumen
or def('ct, an
or knowledge
d t bad
0 faitll (Sec, 56). a~qll --~~~ ~
the t lOun te ,0 c:
Fo~ ANn IN'rE
~noN
I

Il;g"" "tho "" 1 ,!

(b) IIe hOlds th '
vestignte
Q. Must.the
h ser of a negotiuble instrultlellt .
the CJrcu!;;::n:es attending ,its negotiation? 'I). tIe of Prior Part;. e Illstru", nt
e
free '-_ : r~
I .... .
.

i~ elemen .clry awt

:, .'~

t
' -

(e) lIe hOldse., th . uum any defect of li-

A
.
It , ( a purclwser
1 'h '1IS not
t bOUnd
'bi at his pe111,
. " r. 'rcllmstlmces w uc nug J POSSI Ye'<cite to Prior P!1IM' e lIlstl1..t.tnent f.... ~
to' be the a,Jeri.
, nson(Harri S v. Sor
allis p. 360, 50
,CI bury, 298
, }Idaho
' 502), and \.Vh ere• ..... LIes amOng th elOselveg, ..and t!e <l1.lIn defense.s aVailable
; {,<.
'... '.·i
:": - ,

SllS (d) lIe n1ay enforce ' ..

there
plew IS
, notlllng
"l a OOll t th e paper ,itself
, or t le h '
cIrCUmstances atte nd. \ ,..

mg
" Its k negotl8
" t lOn
' f IS hnot called on
th . ascI'
to excite SUSPICIOn, ,a purc
the full amOunt thereof .PaYment of the instrument for
(Sec. 57). ·galn't aU partie, liable thereon
L'
I'
to 111a e ' ,
mqlllry
tlOn lor W lIC I .. c ,
oncerning, the executIOn h
ereo or't , '" a.
e conBid_l' "i
1'

' I'. 1 ' h 't "'as gil'en 1IJ order to avert t e 11IJputat,on of bad
e~nt
faith !Bank of East Chattanooga v. Clayton, 90 So. 8899, 206 N •.
518).

However, the ract that the drawer had no aCCOunt With the
I
i
Q. What is the
course to hold the instru
of prior Parties?
of

ment
. '
:::: right of a bolder in due
from any defect of title
I
,
~ ,

paYme~t f '

/
payee; that the person using the check as did not show Or
,L
. 1;
,
,,
tell the payee Why he had the check III h,s possesSlOn and Why he is l,
I
. A . A hOlder in due course of a negotiable instrument holds
It by a tItle vahd agllJnst aU the World (McDonald v. Harkness, B4
Using it for the payment or his own personal aCCOunt _ show that So. 205, 146 La. 920), Without "'gard to defects of title of prior par-
the title of the transferor is defectiVe or suspiCious, to say the least. ties (Garns v. Caleehman, 179 A. 789,118 Co .1!2).
nn
In such case, it cannot be said that the payee acquired the check
witho"t knowledge of said defective title, and for this reason, he is Q. Section 57 Provides that a holder in due COurse ia
not a holder in due COurse (Vicente R. de Ocampo and Co. v: "free from defenses available to Prior Parties among them.
Gatchalian, 3 SCRA 604; Asked, 1962 and 1977 Bar Exams.). selves.· Does it lIlean that no defense whatsoever could be
raised against a holder in due course?

Q. What are the rights of a hOlder in due eourse? , A A holder in due course is free only from personal defenses
Bar Exams.)
(Asked, 1970, 1980, 1981 and 1986 Bar Exams.; No. VI, 1998 available to prior parties among themselves. However, he i. still
subject to real or absolute defenses. Personal defenses or equities

re~ders
are those which grow out of the agreement Or conduct of a particu-
A. A holder in due course holds the instrument free from any
a~alllst
lar person in regard to the instrument Which it equiu,ble
defect of tItleamong
of prior parties, and tree from Iidefenses available to for him, though holding the legal title, to enforce It
~ue
pnor partIes themselves and the de-
fendant but which a", not available ag-J inst a holder III course.
ins trument for th
thereon (Sec. 57).
r. 11
;;id~ th:~ount thereof against all parties liable
' may en orce paYment of the
They are called personlll defenses b""ause they an! ~vada?le o~ly
against that person or subsequent holder who slunds III pnVJty WIth
to Sue in his OWn narne an d paYment
efrom, be bas the basic rights of a holder
t h' . d him (Ogden, p, 292),
the instrument (Sec. 51). 0 un m lie COUl'Se discharges
Thus, the rigbts of a hold . d ,'~ Real or absolute defenses are those that attach to thhe thin:.~
" of the \
partlt.s .t01. 't In. other words, they all t ose wthUll
arepersons, 1

3J~d
er In Ue course respective ood a ainst
(a) 7b SUe On the inst ' . are: attach to thedinstrument ltseJf udre gcours! They are called real
ment to him in due COUI'S /Uhment m hIS OWn name; and pay-
. Rt a holder m n e , . .
l'1' ~rit8
they are goo ltg-a Ill.. } t tl res that is the instrument .t.
e
e ISC arges the instrument (Sec. 51); defenses
self, because0 fthey
regnrdless tJ, 1e uttac.}
. 0 ld of ;hc holder (Ogden,
merits or tH , .
p. 291).
'---.'~'-.'.--.~.
... . '. . . - ' "

t- .
 _ . ' . ' " ! " J.:. ,-I"-' ........ . ... ...... __ . -.1 - _.,"",,& • • UJ.~ 1 '~
QmZZERAND RE\ H . \\t;K l . LATlW LAWS
IU8 LAWANDR£
FolU{ A»n llfIr:
f ersonal defenses which could he Rights ofth ~IU.'TATION
(3) e older 109
Q. Give examples 0 ~on who is not a holder in d
Fraudul
raised only agains.t a peroldcr in due course. lie (Montgomery Gent itnp
109 arag ersonat '
course, but not agalD st a h A. 296, 297, 94 ~ yO, v. Manufa~on letad.in~ .to forgery
. del"en.;;es are examples of personal defens
A The fo II owIllg II ~ h ('s (4) Fraud' '. Law 152, 22 ~~ Llablhty Ins. Co.,
which ~ould
be raised only against a person not a older in due
P
. 323)'
,
lrl factu....
". or fraud'lrl esse
. . 1224);
. t hIder in due course:
oon t ractu8 (Ogden
course, but not agaIllS a 0
(1) Mechanically incomplete but duly delivered instru_
(5) S.
~~~
a negotiable instrumon a b~ank paper whi
.
ment (Sec. 14 ); S.E. 899, 901, 176 Gent wlthout authori ch w~ convertro into
a. 72, 87 A.L R ty (Hlcks v. State 168
(2) Mechanically complet.e but undelivered instrument (6) An' .. 1166)' '
Instrument decl '
pressI y or by nece .
(Sec. 16);
(3) Absence or failure of consideration (Sec. 28);
J
are<! void b
D.C.Ga. 297 F 8 ssary lIIlplication (In re statute! elther ex-
ity of an i t ' 42), however, an ind
.
otel Eqwpment Co.,
(4) Material alteration of an instrument (Sees. 124 and . t n~ rument as a defe .orser cannot raise illegal-
, ms rument 18 valid and subs' ~se Since he warrants that the
( . 125); v. Crafton, 107 S.E. 316 18;S~Ing <Wachovia Bank & Trust Co
(5 ) Simple fraud or fraud in inducement, as distin- (7) L al' '. .C. 404, 16 A.L.R. 1375); .
guished from fraud in factum or fraud in esse contractus . eg IncapaCIty of a .
(Anglo-Cahfornian Bank Am party to enter Into a contract
(American Sign Co. v. Electro-Lens Sing Co., D.C.Cal., 211 F 8) . v. est C.C.Neb., 27 F. 727);
196~ . ( Matenal alteration t
in due course may enforce th . 0 the extent only that a holder
(6) Duress, unless waived (Union Nat. Bank of Greele nal tenor (Sec. 124); and e mstrument according to its origi-
v. Wright, 247 P. 453, 79 Colo. 574); y
Code).(9) Prescription of ae t'Ions (Artlcles
.
1140-1147, Civil
. (~)
Non-performance of collateral agreement expressed
In the Instrument (Brown v. Cruise, 168 P. 1112, 101 Kan. 583);
or
. d Q. What are the exceptions to the rule that a holder
Non-performance of a condition in the indorsement
(8) m ue course "may enforce payment of the instrument for
(Merchants' Nat. Bank v. Marden, Orth & Hastings Co 125 the full amount thereof against all parties liable thereon"?
N.E. 384, 234 Mass. 161). .,
A. When a valid defen::\e even if merely ' personal, is avail-
able to a party being held liable, even a holder in due course cannot
Q. Give examples of I enforce the instrument for the full alUount thereof in the following
could be raised ag. t rea or absolute defenses which
course. alns any hold er, IDC
. Iu d·mg a holder in due cases: '
(1) When the holder is a holder for value only to the ex-
A. The following are exam I tent of his lien since he is a holder in due course only to that
which could be raised aga' t pes of real or absolute defenses extent (Sees. 27 and 52);
course: lUS any holder, including a holder in due
(2) When the holder acquired notice of any infinnity in
the instnllncnt or defect in the title of the person negotiating
(1) ~fechanical1y incom I
ment (Sec. 15); pete and undelivered instru- the same before he hus paid the full amount agreed to be paid
therefor sinee he is a holder in due course only to the extent
(2) Forgery of a signature (Sec. 23); of the a;nount theretofore paid by him (Sec. 54);
.,
, (3) In case 0 f a
n1i rce pavn1e
o as to amount when a holder'
ltera t IOn In
nt. of the instromcnt only aCCord
due course ~~y e 0 r (S~cs. 124 and 125).
-
due course (Sec. 28) Ii
strument was a hOld" ?Wever, if B c
cause C wh 0 IS · not .er In dUe Course!fOrn whom C acquired th
III

ing to its ongmal teno em

0

instrument, has the a Party to the fr' then C may hold X liabl e be--
. . struJIlcnt subject to original defellSes? D same . aud 0 '11
58; .I.' ossurn v. Fernand nghts as B h r 1 egality affecting the
Q \\-11en IS the 111 Th ez, 44 Phil. 713)a older in due course (Sec
. f holder other than a holder in du e e answer w o u l d ' .
A. In the hands 0 an Yt I'S subiect to the same defenses a stroment to A. A Woul not be the sarne i
o bI O n ,trumen ~ . ..
~o~lrse, a nego t13 ~ 1 ::; But a holder who derIves hIS tItle through
s
course even if B Was t
not acquire th ~ ~ renegotiated the in- ~

lflt wereonon-negot~~ble. d who is not himself a party to any fraud the person who did a older in due coe ng ts of a holder in due
not gi h urse be .
\
fore, A was a part to ve t e a.greoo consi ca~ A hImself was \.
a holder tin the instrument, has a 11 th e rIg
10 due COUl ::;e, an . hts of such ;
(Sec. 58; Chelsea ~xc~heBfraud or illegality :ratt~on tothx, and there-
o 0 ,.

or IllegalIty a~ec ~ g t of all parties prior to the latter (Sec. 58) 238 C· . ank v La R ec mg e Instrument
I'
former holder In re::;pec
The defenses that may be raised against a person who is not a
. S upp. ; olhs v. Kraft, 235 p Iff, 219 App. Div. 434, 220 N.Y.
. 862, 118 Kan. 531).
. d 'e are both real and personal defenses, and hl' s
h oId er In ue coun; . Q. Who is deemed a hold .
0t ' 0 Illy the same as in the case of an assIgnee of a non er in due course?
POS ) IOn IS ega . -
negotiable instruments that is, he merely steps m~o the shoes of the A. Every holder is deemed
cours~; but when it is shown that;lma. facr.e to be a holder in due
0 •

transferor (Annis v. Pfeiffer, 271 N.W 568, 278 MIch. 692).

negotIated the instnlment was det ~e title of ru;y ~rson who has
Q.When does a person not a holder in due course have to prove that he or some pers ~hve, the buroen 18 on the holder
title as holder in due course o~ u;t~r ~hom he ~laims acquired the
the same rights as a holder in due course? apply in favor of a party h'b u east mentioned rule does not
W 0 ecame bound on the'
« t t'
A. When a holder (a) derives his title through a holder in due to the acquisition of such defective title (Sec. 59). inS rumen , pnor
course, and (b) he is not himself a party to any fraud or illegality
affecting the instrument, he has all the rights of a holder in due
• course in respect of all parties prior to the latter (Sec. 58). Q.. A issued a promissory note payable to the order of
B who Indorsed and delivered the same to C C to D and D
This rule applies, notwithstanding that, when taking the pa- to E. Is E a holder in due course? Exception. '
per, th e tr:1 l1sferee has actual notice of defenses or knowledge of acts
wllich wn uJtl defeat recovery by the payee (Toll v. Monitor Binding A. E is presumed to be a holder in due course but such pre-
& Printing Coo, e.e. Mo. 26 F.2d 51), or the transferee is not a pur- sumption is merely prima facie or rebuttable and may be overcome
by proof to the contrary. Thus, when the evidence presented shows
chaser for value (Farr.-Barnes Lumber Co. v. Town of St. George,
that E does not possess any of the qualifications of a holder in due
122 S.E. 24, 128 S.C. 67), or that the transfer to him is after matu-
course, the presumption that he is a holder in due course no longer
rity of the instrument (First Nat. Bank v. Landreth App. 16 P.2d
1010). ' applies.
Also if it was shown that C or any party prior to E failed to
give the ;greed consideration for acquiring the instrument,.E is no
Q. X made a note payable to A or order. A failed to give longer presumed to be a holder in due course because the title of a
the ~greed consideration to X. A negotiated the note to B person who has negotiated the instrument has been. proven to be
who
. d In turn
' negotiated th e same to C, a person not a holder )1')t' S th t E will have the rights of a holder m due course,
In ue course. d £lIce lVe. 0 a . f' h Id . d
th 'f B May. ChId0
X)'la b Ie? Would your answer be h h' th b lrden of proving that he hlmsel IS a 0 cr m ue
e same J negotIated the instrument back to A? e now ,~~ . t e ~ ()m whom he acquired the instrument is a holder
~oudrse or a (8 D r , State v Emery, 73 Okla. 36, 174 P. 770).
A. C cannot hold X bl b
of failure of eonsideraf
r
la. e eeause X may raise the defense
III ue course 59
ee.,
1

.
IOn agamst a person who is not a holder in
 ~ INull."'-J~"·a...,· ...... o
ON NE('.oTlA~S
REVIEWER REL.<\Tf~O LA
112 QUIZZER AND LAW AND
hat of C because he did
was t d
. (tie shown E's still presume to be a
In case the defectlv~d~r3tion to S, se A became bound on the
l

t the agreed econSl A bec au . I b C (8 ce. 59

no .rive
b' as against.. n 0 f del'rcctive tIt C Y ,
holder in due ~ou~ the acquislhO
instrument poor
last sentence).

Q. What is the liability f h

and 1984 Bar Exams.) 0 t e m.aker? <Asked, 1969, 1981
,
.
A. The ~aker o~ a negotiable instrument by making it en-
(

gages that he will pay It aCCOrding to its tenor, and admits the ex-
istence of the payee ~d his then capacity to indorse (Sec. 60).
:
, f

Q. What is the nature of the liability of the maker?

A. The maker is primarily and unconditionally liable (Harris
v. King, 298 P. 100, 113 Cal.App. 357) as his liability is not comli-
tioned on presentment to any other party for payment or otherwise
(Hall v. Burton, 29 Ill. 321,81 Am.D. 310). Even where a note was .,
~
"

made payable "to the order of myself," and was indorsed by the t.~
't _
maker, such indorsement did not change his obligation from that of o .~

a maker to one of an indorser (Louisa County Nat. Bank v. Burr,

199 N.W. 359, 198 Iowa 4) and thus, he is still primarily and un-
conditionally liable on the note (Consolidated Motors Co. v. Urschel,
222 P. 745, 115 Kan. 147).

Q. What are the admissions of the maker'?

A. The maker admits the existence of the payee and his then
capacity to indorse (Sec. 60).

Q A made a note payable to the order of B. B indorsed

the n~te to C. May A later on refuse to pay C on the ground

113
 II

ON NEGOTIABLE INSTRUMENTS - ....... ...... " • _ ;fi{;.,'

_ -'"-'"=~~,P"
• JoJD REVIEWER RELATED LAWS
114 R
QUIZZE~' LAW AN D
FORM ANn I
'ty to indorse the instrurn
d'd not have the ea:;:;. V(2), 1998 Bar Exams.) ettt? Liabil't~RPRETATlON
I lea of Parties 115
that B I 1 1989, an ,
(Asked, No. VICI , k annot questIOn the capacity f Q. May the draw
n111 er c < . . 0 B er l"estrict h' .
A As 8 rule A, t1Ie k' g of a proIllIssory note IS an adlll' A. The drawer" 18 hability on the bill?
, d ' the not.e. The roa JIl t only of the existence of the Pa IS.
to morse h a ker no . Yee stipulation negativing ~ay insert in the'
SlOn on the part of, t te roreceIve
,
b t l 0 his capacIty 0
:
and indorse tthe Instrument
' (Sto l. ~
482) Thus where a no e IS made P
Ct\S 61), andt~erefore, the~r!:~,:g.~ ~wn lia~~~!~~: h:d:~;~
terms (HICks v. Hinde 9 B liablhty may be q l'fi db '
~n:e~ 168 So. 877,232 Ah'a, eby ~dmit~ the capacity of the payay, , arg N y ua 1 e y express
drawer may state in the b'll'J ", 528, 6 How. Pr 1) Thu th
, i
v. • I
able to order, t Ie ro
aker t erthe validity 0 f t h e t'tl t ee
J e ransmitted t , , t t' d 1 that h will ' . s, e
"
ins rumen 18 ishonored b th e not be liable in case the
to indorse, and cannot ded'l1arhide 24 Ca1. 195). However, an e 0 , Y e drawee or aCCeptor.
the indorsee (Hastings v., ~ple that a maker is estopped from d}C'
ception to the general1Pnncylee to indorse a note made to his ord e· Q. Distinguish the liab' .
, 'ty oft le pa k All er the drawer. Ihty of the maker from that of
nymg the capaCI , here the payee is insane (Bur e v. en, 29 N.lI.
seems to be taken w
.... 106, 61 Am.D. 642). A. The liability of the maker ".
,.' " . of the drawer as follows: may be distmgmshed from that
Q. What is the liability of the drawer? (Asked, 1969 and (1) The maker is p . '1
the note while tl d n~an y and unconditionally liable on
1986 Bar Exams.) , Ie rawer IS only secondarily liable on the bill;
,. A. The drawer by drawing t~e ins:rument admits the exist. (2). Presentment for payment is not necessary to hold the
t! , ence of the payee and his then capacI~y to mdorse; and en.gages that maker lIable while pr
,
t r .
esen ment lor payment IS necessary to
~.' I ,
on d ue presen tment' the instrument WIll be accepted or paId, or both , hold the drawer liable (Sec. 70);
aecordm' to l'tsgtenor.
, and that if it be dishonored. and the neces. (3) Notice of dishonor need not be given to the maker
sary proceedings on dishonor be duly taken, he wIll pay the amount
as he is the one who dishonored the instrument but notice of
thereof to the holder, or to any subsequent indorser who may be com.
dishonor must be given to the drawer to hold him liable (Sec.
pelled to pay it. ~t) the drawer may insert in the instrument an 89);
"' express sLipulati¥negativing or limiting his own liability to the
llOlder (Sec. 61). (4) The maker cannot negative or limit his liability on
the note, while the drawer may insert in the instrument an
express stipulation negativing or limiting his own liability to
Q. What is the nature of the liability of the drawer? the holder (Sec. 61).
A. The drawer is only secondarily and conditionally liable on
the instrument (Korte v. Lang, 248 N. W. 256), as he only becomes Q. May the drawer revoke the bill or cbe~k?
liuble for the payment of the bilI on its non-payment or non-accept-
a.n~e by. the acceptor or the drawee, as the case may be, and after , A. A bill of exchange or draft ean be revoked by the drawer
gIvmg hIm notice of dishonor (Shepard, etc., Lumber Co. v. Eldridge, before its acceptance (Harian v. Gladding, 92 P. 400, 7 Cal.~p:, ~!)
51 N.E. 9, 171 Mass. 516, 68 Am.S.R. 446, 41 L.R.A. 617). th t ment of a check can be stoppe y e
in the same manner a pay b k b ffying the bank-but such
~
d rawer,. b elore p ayment by the an , Yno ,1 ,
'. ' the liability of the drawer to the payee
Q. What are the admissions of the drawer? revocatIon does not dlscharge fIt \ 248 P 947 78 Cal.App. 362).
' h' un v Bank 0 a y, . , d
or holder (H n'os 11 ' • biU that has been accepte
~. T?e drawer admits the existence of the payee and his th~n
1.
h r cannot revo~e a 28
The drawer, oweve, d r in due 'course (Sansone v. Alexander,
capaCIty to mdorse (Sec. 61). The drawer has the same admissions and transferred to a hoI e
as the maker (Sec, 60).
N.Y.S. 66, Misc. 268).
 116 QUIZZER AND RE~~~1D l~-ELATED LAw:,;

., of the drawee?
t 's the liability
Q. Wha I I' ble on the bill unless and Until h ' Fon~i\Nbl~
A. . notand
The drawee IS Ul k th e d rawee hank~
in case ofa chec, l..iabi1lti~1I o~ll.F~A'l1.0N
Q. 'rhe d t'1t\\re artie. 117
accepts
is the same
not liahle to t.he(Sec. 127),
holder, ~ and until it accepts Or Certifies th e
un I.s. aCCOUnt of a tnel'ch e aCcep~d h
check (Sec, 189).
}
. r bTtytaerefiore , berrins
, } }. '
"C 6 nd acceptor
~
The bill "'as negott..t!i... Oolt! e bill d......" agal"et hitu
--I!... ated to a h }Yd the drawer to the ..1 __
0"
b' WIt 1 liS acceptan,."" d later "~·U8e ~Wee.
The drawees In.1 II to the holder of the poper, and if it h
groun that the",
t 0 er' d
0 Pay the I"Ue co........ May the

la~- ~ount 0'

buntil then he not ha hfie. accept'wce the drawee is ohliged 6
IS
~ b
th~haCCePtor 0"
tc Hied be ore }" ()S A .... a ....."" Or the hill the
een COlln rm.. a Y it (Gellert v. Bank of Cn lli.rnul, Nutional
t gr
ound' cannot di allUre of Consideration?
~r SOWn li bT
A~s'n
"~nt
refu se 214
to accept
p. 377,or10P7 O r. 162). The drawe
, r,1however,
k may hold th e ere Was
drawer where the hOld of COnsiderati a I lty on the bill on the
- ., hable
drawee . for no.t h 0,noring
, th10e C.J.S.
bIll or 458).
c ICC pursuant I<l their tion brought by a h Id er" • hold. r in d on between him lind the
contract, express or unpil ed (see
a defense that the 0 er in due course a u.e course. Thus, in an ao..
. ,
I I stituted the cons'd lller~handi8e Sent by g~nsdt the accePtor, it is not
I ••
t, Q. Who is an acceptor? I' 1 eratlon for th , e raWer and Which COn-
qua Ity than WaR Ordered by thee drawl ng of the bill. i. of inferior
not wortb the valUe of the bili (P drawee to Such a degree that it is
A. An acceptor is a drawee who has assented I<l the order of ever, absence or failure of ,NB. \1. PICOl'Ilell 46 Phil 716) H
the drawer (see Sec. 132).
son not a holder in due COll_~
couslde
~~
(Sraf IOU may be raised
eC.28),
' '
against ow-
. a per--

Q. What is the Iiahility of an acceptor? (Asked, 1971

Bar Exams.) Q. X drew It bin addre
to the order of A.A p"'&enle:"d 10. Y for P1OO,000, payabl.
wrote on the bill " the bIn to Y rot' acceptance. y
A. The acceptor by accepting the instrument engages that h.
will pay it according to the tenor of his acceptance and admits:
signed the saine accepthe~ for PSO,OOO" and thereafter
Ii
I', • ow BlUe 18 the liability of the aCCeptor?
(a) The existence of the drawer, the genuineness of hi. A. The Ii.ability ofY, the acceptor i. only for P60.0oo because
an acceptor
(8 IS hable only aCcording to th te f h'
Signature,
ment; and and his capacity and authority to draw the instru. ec. 62 , par. 1).
e nor 0 IS acceptance

(b) (Sec.
indorse The62),
existence of the payee and his then capacity to
Q. What are the admiSSions of the acceptor?
A. Th. acceptor admits: (a) the existence of the drawer, the
gen uineness of his SignatUre, lind hi. capacity and authority to draw i,
~;
Q. What is the nature of tbe liability of an acceptor? the instrument; and (b) the .xistence of the payee and h.. then ea.
r A. The acceptor, by his acceptance becomes the primary ob. pacity to indorse (Sec. 62, pars, Ial and Ib}),
ligo of the bill (Cuesta, Rcy & Co. v. Newsom, 136 So. 551, 102 Fla.
Thus, the acceptor is preduded from saying that the person
853) or a Pttrson primarily liable on the bill (PNB vs. Union Books, Whose name appears on the bill as drawer is fictitious (Traders' Se-
Inc., L-8490, AugUst 30, 1957). An accepted bill is similar to a note curities Co. v. Dutsch, 140 So. 75, 19 La.App. 576, affirming 137 So.
the acceptor being the maker and the drawer standing in the rei a: 75, 19 La.App. 576) and ho cannot "'fuse payment on Ih. ground
bon of an Indorser (Schirone v. lfochheiser & Weisberg, 262 N.Y.S. that the drawer's signuture is forg('d (National Bunk VB.. ,NatIOnal
763,237 App. Dlv. 723) and the accepl<lr'sliability isl<l be govemed City Bank and Motor Service Co., 63 Phil. 711; State v. Broadway
by the same general rules applicahle to the liability of a maker of a N t B
· . k 282 S W }94 153 Tenn. 113). The acceptor, I F"however,
As docs
note (Cuesta, Roy & Co. v. Newsom, 8Up a). a an L . , • , Co
r not .guarantee
, , dOrHc mel) lts on the bill (Genera AIre D'sur,740).
the ll1
f P . F ' v State Bank, 1(j4 N,y'S. 871, 177 pp. IV. )
()and ans,
does not Bel1m
ram:e . "t the genuineness of the sibrnature of the payee
 118
QUIZZERAN D REnF.WJ<;
UWANV U ~"-'LATEL>
l ,~ " " ' , , . .LAws
. . ~~. ~ .... ''''''lICUMI<;tv'l's

;~
.~"c.~ . :.;;~

or of any s." bsequent Ocean. Accident &. GUarantee

Nat. ;ndorseri2
Bank. A. 45, 112 N.J.La", 550). Co.... t

...... tion v. Lmcoln

".
l ' admissIOn regardIng the cap!> '
a nsequence 0 [ liS ,
'ee I 1'e acceptor IS' estoppe
d '<CIt
. , frOll} i" e",Y of
l "6.
As • co
Ihe drawer nd the paj,
. Ihe de fense t"""fer
mg
h dra
that I e the Ule
to draw, hold or 4 270kl. 764). ,
w
r or
to tI,e "'s'mmen,
"cop
e . lS an Jnlant Or i...
payee
.,
h

(Crutc~fj'el~
b
-J,Jolj.
t a le
,.
I
Mart;n, 117 P 19 , .

b'l/ addressed to Y and paYa"let~

Q. X drew ath ; bill for acceptance and Yaeeepte</ o.
4
"

,. . to
same. A lost

Pn;sen~
t~e
order. A presented

C. CY d,seo, ered that

Later,
d his indorsement "'a. fOl'ge</ b the
::;:i';,,::1t and thereafter, indol'.e</ the
...bo indorsed':; the bill for payment to Y "'ho P"id the. '11
the
aid signature
ITom ::.!'>..
c? of A",,,. fOl'ge</. "'a",
t,ll ;;f0
. • .....
,:' . ~: ; '
Y recover the amount p

, J
e
h If an aCeeptOl'
a~
f. A Y may recov r the amount paid, d from
. 1 C.
a Ps a .bIll
, to W hlC' h the holder •has denve
Ii tIt e t rough a EoOl"ged
pJ
indorsement, e may, On disco"enng the do'1rery,
hto fSt trecover
B the 4"lOUllt
from the Party whom payment was IDa h de ,. a e V. droad",
' .... ,
J l'Vat.
Bank, 282 S. W. 194, 153 Tenn. 113) as e Oes not a mit the genu.
;neness of the signature of the payee and ofany Subsequent indorSer
(Na tional Union Fire Ins. Co. v. Mellon Nat. Bank, 119 A 0, 6
Pa.212).
91
27
Q. When i. a person deemed an indorser?

A. A ]Jerson placing his signature upon an instrUlnent oth.

erwise than as maker, dra",er, or acceptor is deemed to be an in.
dorser, unless he dearly indicates by approPriate words his inten.
tion 10 be bound in some other capacity (Sec. 63).

~.
And where a signature is so placed upon the instrument that
Q, %0 i. an irregular indo....r ? Give an eXalIlple,
it is not dear in What capacity the [Jerson making the Same intended An "irregular indorser" also referred to as "anolllalous in.
to S Ign, he IS 10 bo deemed an indorser (Sec. 17{tJ). dorser, .IS one who indorses ror some purpose other than to trans_
rer the Instrument Oialllill v. Meealla, 153 So. 412, 415, 228 Ala.
281). lIe is called an irregular Or anolllalous indorser because h.
Q, IYhen is a person signing the instrument
maker, draWer or acceptor not deemed to b . d ?
not as a indorses the instrument in an unusual Or peculiar Illanner _ hi.
Give examples, e an In orser, (Ogden, Pp. 226-229).
name appears "'here We Would naturally expect anolher nallle

~lg?e
A When the PersOn wb . d h .
indicated by apProPriate wOrd °h t e lOstrument has clearly Example: An instrument is made payable to "A Or order." Be-
ing the payee, A would naturully be expected to be the first indorser
s 1S lOtentJon to be bound in some but instead, B's signature is roulld as the first indorser. B in such
case is an irregular or anomalous indorser. Thus, When at the in.
ception of the note, a porson other tlIa,n the ?ayee write. hi. nallle
upon its back, Such "n indorsement IS an Irregular mdorsement
(C"rt~r
g
d _...
"8 So. 74, 125 ~nmeLikewise, "an indorsetnetht
AIr (80). of the pnyee, Or when
~7
v. Lon ' on nbo\'e t \e 'rregulnr indorsement manit e
F'o~ ANn fl..r..-.
Payee
in blank by not
dOl's ~ t at
tim111 Xorse all" \sCo"
Marble nn A. 42, 43, SI Vt. lOS), Of
l.i bu":' It;nPREl'A1'JON
Bellows Fa l l ~ v. Dorst:' ,
a .tie" of P"""" 121
• Q. E"Plain the ........ .
Q • the liability a f an
What IS . irregular indol'sel'~,
~Ilt
dehvery Or qUalified bid antIe. of a Pel'llon negotiating by
• r.: Bar Exams.} °l"8elllen t.
A. (a) the in.t.... .

pe~n
(Asked, 198a tl rwise a party to an instlllll1eht spect. \Vhllt It Purports to lIteut 18 geulline and in aU re.
A. \\bere
not 0 , le . h ', ..
e 18 habl a. strument by delivery Or ind he. - A negotiating the in.
I' a "gnature
person, m . blnnk before
. dehvery,
I.
places th.."",n ordnnc.e
us.. WI'th the followmg ru es. warrants the genuinene .. :;':Illent Whether qUalified Or general,
e a
Scharf Asphalt P \" Co .. C e hill Or note negotiated (Warren.
Na. t B
27~8plIl
1 'n ~trumen t is payable to theb order of a third oIllInerC1a}
~
• Y,
indorser: m acr 38 C.C.A. 108), and that it·· I auk, Mich., 97 F. 181,
erson (Spiegelman v. Eastlllan a I resPects What it Pllrports to be
(a)h.Ifis tliable
\e \"to t I1e payee and to 81\ Su sequent Partie• ,.
of genuineness extends h, II .761 ,.95 Cal.A.pP. 205>. The Warranty
(b)
p , If the mstrum . ent is payablehto ' the order
t of the
that the Signatures !:II .... fi a Pnor SignatUres and, where it appears
~~
I' hI
maker or drawer, or \s
ties subsequent to the
pa~ker or drawer;
. rna'able to bearer, .e 18 1a e a all Par. under his warranty (Stateorgenes ' .the P!:l_y
fDlIlg
_ , negot la
' t'Ing I't 18
· },'ahI e
Iowa 338). v. CO Sav. Bank, Us N.W. 937,139

is liable
(c) toIf}} Srtl~lS
a h epa . les- for the accommodatIon of the paYee, he
subsequent to the payee (Sec. 64).
ExamPle: A forged the Signature of X as maker in a note pay.
able to A or order. A negotiated it to B by indorsement in hlank com.
pleted by delivery. B in turn delivered the instrument to C. X reo

dCliv~~
fused to pay Can the grnuod that his Signature Was forged. In SUch
WIt t the warranties of a person negotiating by case, C can hold B who negotiated the instrument by delivery liable
or h: :'::lified indorsement? (Asked, 1978 and 1981 because the What
latteritWarrants
Purports that
to bethe instrument
65[a]). is genuine and in
Bar Exams.)
all respects (Sec.

(b) That he has a gOod title to it. _ This warranty is vja.

a quaA.
lifiedEvery person negotiating
indorsement warrants: an instrument by delivery Or by lated when the person negotiating the instrument dnea not have
merelytitle
valid stolen.
to the instrument Such as When the instrument Wa"
what (ait)purports
That the instrument is genuine and in all respects
to be;

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

I

!
(c) That all Prior Partie. had capacity to Contract._
The person negotiating an instrument Warrants that. the au~.
ent {>arties are legally capable of binding themselves In the capaCl.
(c) That all prior parties had capacity to Contract; and i! ties in which they have sigoed. and this warranty \8 apphcable

~!S;
Whether the instrument is negotiated by delivery or by a quahfied
(d) That he has no knOWledge of any fact Which Would or unqualified (general) indorsement (Inl<!rstate Trust Co.
Co.~.
impair the validity of the instrument Or render it valueless. Nat Bank, 185 P. 260, 67 Colo. 6, 10 A.L.R. 705; CommercJa) ,
Wart! & Son Auto Co., 109 So. 574, 215 Ala. 34).
tendsBut when the negOtiation is by delivery only,
d' the
te t warranty ex-
\11 favor of no hOlder other than the' co.
~
~arty;;~
Example: A person negotiating the instrument is liable if
The ProViSions of SUbdivjsion (c) Ofth'nnme t'la d ransleree.
t I to !urns out that a pnor , re aBird
h ' h is corporabon
Transferhas
Co,no POwer 3
D.C.DeI.,
persons negOtiating p bl' . IS Sec Ion 0 no app y
and notes (Sec. 65). 1.1 IC Or COl'porabon seCUrities other than bills
F. 2d 506), or that the in(~';7~e~t C~k ~
execute a note, or to m orse \. n b a co ration is an Jdlra vires
App.D.C. 237). or that
act of said corporatlOn ( t' (;OUSI v. Ble,ri"s, 43 S.W. 2d 1078, 184
Ark. 897)
a prior because
Party IS anofIOfan
hls warran t y that all prior Parties have capac-
ity to Contract.
 122 QUlZZER Al'lD REVIE\....J:;X u ,'Y , .... .., - -
LAW AND RELATED LAWS

However. there IS, no warran ty that tlle, persons Who eXecul-_

, ' , ' ~ tative capacIty had author't ~d Po~A1-ln
the Instrument m theJr repre::;en ,
so ( Ull.. 't
tv III ,e v.
R 0 b'Jnson, 14 N'V. 704 , 50 "-1Ich , 73),
I Y to d
0 . Liabili~RPRETATJON
,t ' negotiation is b Parties
(d ) That he has no knowledge of any fact ~hich WO U} holder other tb Y delivery 0111 123
,JmpBJr
'th e va I'd't f the instrument or render It valueJ es d v. Grand Forks anh
the '
llnInn..!:
Ule""",_ '-"'-late t
Y, th
e \Varrant' les exte d .
I I y o " s
_ This warranty arises only wllen the person negotlatmg by del' • N.S., 246). The ~"<l.llti1e Co 1 ransferee (Sec. 65 n In favor of no
ery or qualified indorser has such lwowledge of a fact that impa .IV_ ery from negotia~. tute thereby : ~. w. 725, 24 N DP6ar. 6; McAdam
and impliedly pro~~ by a Qualifie:~Ulguishes n~otia~:~4~ L,R.~,
the validity of the instrument or render it valueless and fraudulen:~s all subsequent h ld es that as to thIndorsernent (with Y deliv-
conceals or withl101ds the same from tlle transferee (Leekley v. Shori o era (Voelk e latter. th out recourse)
249 N. W: 363, 216 Iowa 376,91 A.L.R. 394). ' 23
er v. Arras, o~\Varranties apply to
Q. V' • 0 N,P', N.s., 69).
Example: If the person negotiat.ing a promissory note by del'IV b earer. A~ an lIlsolve t
with p. n J>el'8on d
ery or qualified indorsement knows at the time bf the negotiat· - d orsed the instrunor lenOWledg ..., ...
-8 e 8 note
h . l' bl ,IOn
e of th' payable to A or
that the security tllerefor has been lost, e IS la e to the Indorsee delivered the· lIlent without rec e Insolvency of X, in.
" : ' Instrument ourse to B wh
or transferee (Citizens' Bank & Trust Co. of Ruston v. Cook, 121 S knew of the insoJv to C, without' d 0 Dlerely

306, 9 La. App. 540). Also an indorsement without recourse (or n:" who did not knowe:;y of ~ at the tiDle ~: h~;s::en.t. ~ also
gotiation by mere delivery) ~y one who knew, when the note Was strument to D \Vb the IllSOIvency of X, d I' gobaiIon, C
• en D e e Ivered the in
cause of the Jatte~s . Jannot obtain payment fro X L_ •
. executed or at the time of the mdorsement, .that ~he note was invalid tAB IllSO veneyj h
o ~ and C. May D hoJd A B' e ~ave notice of dishonor
Dl lie-

,,
7 ;
I
. for want of consideration, makes the qualIfied lndorser (or person
negotiating by deli\ ery) liable t.o the indorsee or transferee for a
breach of his warranty (Cressler v. Brown, 192 P. 417, 79 Okl. 170).
A A, the qualified indo
<Of or C lIable?
'.
his warranty that he has knrser IS liable to D because he violated
pair the validity of the ins~o owl edge of an! fact which would im-
gotiated the instrument b rumen~ o~ rend~r It valueless. B who ne-
he violated his Warrant y mere .e very IS not liable to D even if
Q. Do persons negotiating the instrument by delivery
or by qualified indorsement warrant the solvency of prior
parties? C did not violate his w .
::t
of his immediate transfe~~: w~antYdi~xtends only in favor
. an un~e ate transferee of B.
arranty because he dId not know of the insol-
A. In the absence of misrepresentation or fraud, a person v~n~y of X. and therefore, he is not liable to D even if the latter is
hIS ImmedIate transferee.
negotiating by delivery or by qualified indorsement does not war-
rant the solvency of the parties to it, However, if the transferor
knows at the time of the transfer that the parties to it are insol- Q. Who is 8 general indorser?
vent, the tran sferee may hold the transferor liable (Spiegelman v. A. A general indorser is one who indorses without qualifica-
Eastman, 272 P. 761, 95 Cal,App. 205), In such case, it may be said tion (Sec. 66). In other words, every indorser other than a qualified
that the transferor has knowledge of a fact which would impair the indorser is a general indorser. The term "general indorser" there-
r, .
fore includes a restrictive indorser such as one who indorses "for
validity of the instrument or render it valueless for which reason,
coll~ction." (In re Ziegenhein, App., 187 S.W 892). '!'h~ w~rranties
he is liable to the transferee (Sec. 65[dJ). under Section 66 therefore, are applicable to a restnct!ve, mdorser.

Q. "'hat is the difference between the warranties of 8 Wh t e the warranties of a general indorser?
person negotiating by delivery and those of a person indors- (Ask!, 1959,819~~, 1981, 1982, 1984, 1985, 1986 and 1987 B~
ing the instrument without recourse (qualified indorsement)? Exams.) . .
. d 'er wllO indorses without quahficatlOn, war-
A. A person negotiating by delivery and by a qualified in- A Every III ors
. b t holders in due course:
dorser have the same warranties. However. in accordance with the rants to all su sequen
express provisions of the Negotiable Inst:uments Law, when the
'!
 .. " ~

'c,OTIABLE INSTJUJM}t~NTS
. 'WFR ON N~: LAWS
124 QlJIZZER AND H~~ ~D RgLAT~D FORM AND IN'l'E
, genuine and in all respect Liabilities ~RPpRE.TATION
. " tTU I11Cnt IS 8 artie. 125
(0) That the 10:; It should not be re '
, ports to be; ' qUlred th
of a h 0 I der In due at SUch i d
what It pur
That he has a gOO
d title to it; (Campos and CamplCourse, otherwi~ o;~ee fulfill all the requisites
wise would reach thos, p. 488, citingeB' e result would be unjust
,
(b) , t i e s had capacIty to contract;
That all prIor par " . fled indorser would .~ grotesque result ~~ton, 1024), To hold other,
(c) t is at the tUlle of hIS mdorse qualified indorser (Brave greater rights t:t a transferee of a quali-
(d) That the instnJlneIl ' , annan, p. 747) an a transferee of an un-
ment valid and subsisting, . Thus, If an indo .
I And. In, a dd't' n heboth,
engage S
that on due presentment. It shall
as the case may be, accord'mg to its
. t
InS rument after mat'
. rsee for al
v Ue and in d '
cover from the mak un~y from a fraudule~~ faith acquired the

.~
I ,10,
be accepted or paId, or , h red and the necessary proceedings
d h t 'f 't be dI~ ono , against him for he i:rn:ltncehthle defense of f:a~:~ohueldcabnno~ re-
teno~, an t a J J 'lke~ he will pay the amount thereof to the .
I d th a t sueh mdorsee ca
cue
a 0 der' d e raised
In ue COurse, Is it fair to
!
on dIshonor be duly t. 't indorser who may be compelled to pay fraudulently liable despite hi~ot hold the general indorse h con-
holder, or to any subsequen db' '" s warrant .\.. r w 0 acted
,, it (Sec, 66), an 8U slsbng, because the indo ~ \.ouat the instrument is "valid

~!
. .'
, I
(Campos and Campos, p. 488 't' rsee l~ not a holder in due course?
ClIng Bntton, 1024). .

~
I re the implied warranties under Sections 65
Q. Wh ena
and 66 not applicable? Q. While the first thre
and Section 66 are the e. warranties under Section 65
A The implied warranties are necessarily founded on good ~ same 18 the d"
t h e J.ourth warranty und h' re a Istmction between
f.'lith, ~nd will not attach except where the party relying on such er t ese two sections?
warranties has acted in good faith (Strauss v, Hensey, 7 App. D.C.
289, 36 L.R.A. 92). Thus, the transferee's knowledge of defects in
A. Under Section 65 a ' .
qualified indorsement warr~nts ~~so~ negotIatmg by delive.ry or \i
fact which would impair the validi: ;e h~s no knowledge of any
t
.the instrument negatives the application of the usual warranties as
..
• • II
to such defects (Burke v, Smith, 75 A. 114, 111 Md. 624). valueless." Their warranty i . 1 yo the Instrument or render it
edge and withhold the Sf VlO ated only if they have such knowl-
• I App. 252 S W 243) 0 s~;;e ~m the transferee (LUBe v. Beard, eiv. .
• I,
Q. Are the warranties of a general indorser only in indorser w" . n e ~t er hand, under Section 66, a general
<

favor of holders in due course? ment validarra;ts ~~t ':he Instrument is at the time of his indorse-
. an su slstmg." Knowledge on the part of the general
A It seems that under the first paragraph of Section 66 a md.orlser of a fact affecting the validity of the instrument is imma-
general indorser would be liable only to "all subsequent holders 'in t erIa.
due course" but t~en it would lead to unreasonable consequence be-
cause under SectIOn 65, a qualified indorser is impliedly liable to Q. Maya general indorser be mlu\e lillble if the instru-
all s~bse~uent holders. Such being the case, it would appear that a ment is dishonored for 8 reason that is not valid? ,\ .
quahfied. mdorser will be liable to more subsequent parties than a
general mdorser which should not be the case (Mood v. Morris- A. A general indorser will be made liable whenever the in-
Roberts Co., 226 P. 278, 38 Idaho 414). y strument is dishonored for any reason whether valid or not, because
as stated in the last paragraph of Section 66, "he engages that on
It is significant that the word I ". ..
J:
"0 due presentment, it shall be accepted or paid, or both, as the case
in providing that the w t' n y IS not used In SectIon 66
ers in due course. Hence a7~n are available to subsequent hold- 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
rants to all subsequent h~ld as . e; suggested that the phrase "war-
to merely mean that the in:
rs
In ue course" should be interpreted
breach of warranty at the ti orset~ s~ould have no knowledge of the
amount thereof to the holder, or to any subsequent indorser who may
be compelled to pay it." It means that a general indorser also war-
me e Instrument is indorsed to him. rants that the instrument shan be t>aid and, if dishonored. that he

So2& .
 , TIAHLE INSTRUMENTS
ON NB('O Ws
REVIEWER lELA'f}W LA F'ORMANn
126 q UIZZER AND LAW AND 1
, Co v. Sebastian, 121 So. 664
Liabu·lN'rEt·,RPRETATION
1 lea of Partiell 127 1\
I
l\1erc<ln tl1c . , Example 1: X lllad '
\
'J
. it (De Soto e a note b
himself will pay B Bt C
10 La App, 419 ). to, 0 and C to D. D paYa Ie to A or order. A indorsed it
't d' h d presented th
1 ~as IS onore . After .V1ng. , . e note to X for payment but
, .' of aO indorser where the Pa. .i·
. the Hnl)lhty ? Give ao example.
agamst A, B or C in any gird notice of dishonor, D may Proceed
. h t' 1 d' 0 er he III h ,
'.
Q. What IS b nlere delivery. " . WIt ou mc u mg X in th
.
.
e actIon a s '
ay c oose. He may do so even
.
per 1's n('gotinble Y 1 , ~ hls ' dorsement
. 111 ~ on an• mstrul11ent pert~ms to the ~older against r an Immedla~e ri,g ht of recourse
Where Ii perso~ pact . 11 the liabilities of an mdorser (Sec. the mstrument 18 dishonored (SI>e sons secondanly lIable whenever
A. 1 1l1('urs a ee. 84; Sec. 151).
negoti able by delivery 1C Example 2: In the exam 'Ie . .
amount of the note Bean Pn gIVen above, m case B paid D the
67), ble to A or bearer. Instead of ne- ~

against C because ~s res~: ect from A ~ut he cannot proceed

I

Exa mple' X made a note paYildell'very A indorsed the note "1'0

. ' , , t by mere - '. . the order in which they' d one another, mdorsers are liable in
g otiating the instrul1l~n d ' t to B The liabihty of A IS that of an In orse It mea ns th at an In
' dorser may hold
a prior indorser liable but t · .
B~ and thereafter de11vere l ' gotiating by de 1"Ivery SInce h e in-
, .
( indorser and not as
a person ne , d l'
h it is negotIable by m ere e IVery.
'l Wainwright C CAN J n 0 Fan Indorser subsequent to him (Carr
. ) . . . . ., 43 .2d 507).
'" I t. dorsed the instrument althoug
~ .:
Q. • May evidence be presented to show that indorsers
Q. What is the ord er 1'0 which indorsers "
are liable? agreed In the order of their liability othe th th d .
W h Ie . d orse?
· h they In r an e or er 10
A As respects one an other , , indorsers are d . pnma
, lIable 'bl facie
A. . T~~ order of ~ndorsement establishes only a prima facie
. . h'
in the order m W ICh th 'ndorse'
ey I ' d th but evidence IS a mlSSl e to show
.
that as between or amo ng th emselves
, ~ they have agree 0 ,erwlse, order of lIabIhty among mdorsers but evidence is admissible to show
" ,I. " payees or Jom
Jomt , , t'Indorsees who indorse are deemed to mdorse that as between or among themselves, they have agreed otherwise
.; jointly and severally (Sec, 68). . (Easves v. Keeton, 193 S.W. 629, 196 Mo.App. 424).

.' Q. Distinguish the order of liability .of the indo~se~s Q. What is the nature of the liability of joint payees
who indorse the instrument?
..
I,
insofar as the holder is concerned from theIr order of habIl- II
II
ity among themselves. Give examples. I'
A. They are deemed to indorse jointly and severally and
A. Insofar as the holder is concerned, once the instrument therefore, they are not regarded as successive indorsers (Bunker v.
is dishon ored and notice of dishonor is given, the indorsers are li- Osborn, 64 P. 853, 132 Cal. 480) and each one of them could be made
able in any order that the holder may choose. The holder may even liable as indorser. However, where joint payees indorse an instru-
prefer to collect from any of the indorsers instead of collecting from ment and one is called on to pay it, he may recover a proportionate
the maker or acceptor. The reason is that "when the instrument is part of the amount paid from the other joint indorsers (In re Wingert,
dishonored by nonpayment, an immediate right of recourse to all C,C.A.Md., 89 F.2d 305) unless the parties have agreed otherwise
parties secondarily liable thereon accrues to the holder." (Sec. 84). or one joint payee transfers his interest to the other who made the
The same principle applies when the instrument is dishonored by payment to the holder <Bond v. Holloway, 47 N.E. 838, 18 Ind.App.
non-acceptance i e "an' m d' . h ' . 251).
. ' ' ., 1 me lUte rlg t of recourse agamst the
drawers and mdorsers accrues to the holder." (Sec. 151).
On the other hand " Q. May the indorser who pays the instrument obtain
prima facie Habl . th ' adS r~spec~s one another, indorsers are contribution from the other indorsers?
that each indorser emi r e hIor er m whlch th ey morse.
. d " Th'IS means
S la e to all SUcceed' . d b t t A. If an indorser pays the instrument, he cannot obtni~ e~n-
preceeding ones <Barry W'n d mg In orsers, ut no 0 tribution from the other indorsers for the reason that succeSSlVe 111-
v. 1 ar ,163 So. 689, 121 Fla. 348).
 .• YfIABLE lNSTRUMENTs
128 Q[ IZZER A.'\{[) RE"rl
LAWAND
' ON NF.(.( "
EWF. R RELATEll LAn~ ... ~

t ies of one another (Willi

bror ,h. "'IatJo~ Harrah
. •of
. sure v. Doherty, 69 "AT. W. S 2\''
do"",,.. do no' -1 5 42 \f.1;'. 522. ement . dso bound.li
to be ," '
th~r;
WilIi, 26 N.K 0 • i' an agre '. 21
111 Alicb.
h 175 J unless ;;here join t payees m ors.e .an .lnst",.o
e,·or.
m ent as
and e",to
one. pay he may ""'" 'er from the other JOint
s I.,,statt'f.l.
abol-e .~
IJ)do_

ers. 'ght to see k contribut.ion, an

. indorser lll ..y
n
. i hold aWhile
prior there is no.
indorser lwbn Ie for the amount of the mstrument Paid
(see Sec.. 68).

C~a.\7I
~
Wb of an agent /
t is tbe l1a , b'l'ty
I 1 ' ?orAbrokerk d Who l1e•
, gotiates
Q. tbe lnstrumen t by mere dclIVery ( s e • 11 •
Exam .. )
b k
. . 1984 a
PlU;S~N'r FOIl p~
A l\'nere a ro er or other agent . negotlat.es
'1" an 'b
InstruIlleot
db
WJ.thout. mdorsemen
. • t , he incurs all the
. !Jabl
1 lites th prescn f eh' Y sec.
tlOn slXtv-fi ....e 0 IS , S Q. What is the effect f
'. f th ' Act unless he dISC oses e name 0 IS Plio-
c
{! , A;
cipa1 and the fact that he is acting only as agent ( ec. 69), paJ dehtor? 0 "'....t of de"' ....d 0 .. the princi.
•• j
A. Pz-esentznent for a .
charge the person PrimBriI p. YIllent IS not n~ in order to

·~S,
stnunent is by its tehh Y liabbjle on the inslnunent; but if the in.
. . 'to pay it the,.. paYa
and WI/hng at mate at. a sJlCcia/ pI
. ace, and .he IS
. abIe
are equivalent to a te d f Urity, SUch abilIty and WIllIngness
o er
herein otherwise Pl'01rid d 0 paYInent upon his Part. Bu, t exCept as
" order to charge the drawere 'Pand
....the
ntment for !laYment
indorse", _~y
is n-.... _ in
(Sec. 70).

. Q: ~o is a Person Primarily liahle on the instrwnent

as d,stIngu,shed fro... a peroo.. secondarily liable71s present..
Dlent tor paYlnent necessary to hold the... liable?

A. The person "PrimBriIy" liable on an instrument is the pe",

son Who by the terms of the instrument is absolutely required to
pay the same. All other parti.. are "secondarily" liable (Sec. 192).
In a promissory note, the person primarily liable is the maker,
hence. a presentment or a demand for !laYlllent by the holder is not
necessary to Charge him on such instrument (Hostutler v. Alldredge,
Civ.App., 235 S.w. 953). In a bill of exchange, the a"""ptor i8 pri.
lDarily liable thereon, ror "'hich reason he is not entitled to present..
lDent any 1D0re than is the maker of a PromiSSory note (Cashion Gin
Co, v. Reisch, 289 p. 701, 144 Okl. 169).

The indorsers and dra",ers are secondarily liable on the note

Or bill and Presentment ror payment must be made so that they could

129
 130 N N E(,n
, TTABI ,"; INSTRllMF;NTs
Q m ZZ /-:R AND R~ W ANDR O.
' VI1:·;WE RI<. I..A Tk:U LAWS

d [ Nllt.. Bank, 116 N.€.

be rn a e ,.'able (SimlllOfT
Fuller, C,C,A., Ark.
v., Gramte
City, 63 F.2d 280).
6
•
2 79 W , 248: Vovay v. ' 63
PaRA{.-\NO IN'rF.

B
Q A rna
de
a note payR
bl to B or order on 8 speCitle<f
t C. eV p on maturity of the ~ ~.
B ill ,...
The foregOing ~I'ltlbent f~FtPRpE'rt\TrON
.' .
r aYtnellt
'''I
....
.,:' . da.e.
ment, C
. dorsed tile
• JR
fi
e
• note .0 t A and B. Both A mad
agums
no demand lor
and I"a;se<t
st 'he failure of the ho';;;'.. ..'o. has boer. co., .
d":: lns'~,:,en'
J
l dthat
an action
prope r? 6' payment Was e OQ the igna ted for Pa n Or to P"'Sent h " tru", '" "'ean tha,. "hile
tbe d efense
t h defense b
k
preclude Teco.:'e , at "'a,Uri'y at the Pia", d...
A
maker. Is e fA U,e nJJ. k er js not proper eeause beill{? 0
ma er or a""'Ptor to
ry """'nst the "'alt.,.
ornot
aC<epto d Illoney due
'une" 'tthe , or
Set up as • ".t"'r of defer.... perm,t
e"~le t, presentment for an d damages a", Conce,.".,j , asoe.far 'he
.. ""'to
' The defense h '0 stromen
, . dpaYllle.nt is llot
,.,.. funds and ....dy to"""e Pa ,th. fact that he ..... prepared with
~ :rr;s,
primarily liable on.' TIle defense ofB, the m oTScr '. proPer
spec'tied and tha, a the holdYIn""t of the PaPer at the Ii"", and pia..
ess~ry
I bec aril
B~
necessary to hold h,m ha ' liable on the ins tnllnent, presenbnent
r
: I
:'
for. :a
paymen t toonly
use being
(Sec. 70).
ten
h second . J nee
laker IS •~<
to hold the lndo liable•
(Hanover Nat. B • k Ii er "'as .", there to receive the lDoney
Intermediate Credit 1(8 S.€. 718, 151 S.C. 135; F<'<le""
rser
the hOlder of 'he bote by h!7'f' 1-18 S.t. 713. 151 S.C. 67). Th....
"'alt
I'
the maker at the pIa", des'
Jgn~~
a, Ure 10 due P.....nt..
at .. atuntye.. Considered to h.""
to

. fOrfeited the COst of COllect

" f/

;: Q. What are the purpo .

I' " t. ses ofpresentment for P8Ylnent? 196 Ala. 153), and to have '::!rei e debt (lII" v. Alto"" 71 So.ent 681,
re
"
A The presen tmen t 0 1 ney's fees P-ded Jbr in th Ie led aU "''''am", lllterest lind .......

~
il fa negotiable lIlstrument for paYment ing Co., 146 So. 107 166 1'."."
no (Adler "lnte",ta", Trust lind Bank.
. . aril liable thereon serves severa purpOSes; one
. ~ to a person pnm I ceive payment therefor, and other pUrposes ' ...... 215, Wahler .. Collins, 4 La.App. 7(2).
purpose ,s ob"ous
to afford y reun der the obligation of paying
f tb the instru.
h e
are the person . . Q. 8
Is present"'ent Cor paYDtent to the ""-0 Primarily
t
m en t an oppor um Y 0
amount due tJlereon, 't at ascertain the gellumeness 0
k' tb
e paper, t e
habl n""e ,,,.1'»
"'heo it i. st.'puJ ted' th .
D_ ?
nd
sentmen~ the authority of the One ma mg e pre. " V a I n e Instrument,
and also to permit the surrender of the paper on paYment ry
sa A Even if a note sPecifiCOllYP"'>ides for such P....entatioQ,
as between the maker and the paYee. no such presentation is nee.
of the amount
152 Md. 81, 50 due it (Robinson
A.L.R. 1196). v. Lancaster Foundry Co., 136 A 58, es (WdklQs v. IIIcGllire, 2 ApP.D.C. 4(8). The srune principle
applies to 91
Guernsey, thePa.
aCCeptor
SUPer.of a bi]] of e'«hange Or draft (lIIcChesnve
(90). • •.

Q. In case the instrument is payable at a sPecial place,

"'bat is the effect of the ability and willingness of the per. Q. Wheo should presentment Cor paYment be made?
Son primarily liable to pay it tbere at maturity?
A Where the instrument i, not payable on demand, present.
ment must be made on the day it fUlls due. Where it is payahle on
A If the instrument is, by its terms, payable at a special demand, presentment must be mude within a reasonahle time after
place, and he is able and willing to pay it there at maturity, such its issue, eXcept that in the case of a bill af eXchange, presentment
his partand
ability (Sec.willingness
70). are equivalent to a tender of paYment upon for the
paYment will be Sufficient
ter last negotiation tllereufif(Sec.
made Within a reasonable time af.
71).

A note payable at a Specified bank, e.g., "AIlied Bank, Balangas

City" is payable at a sPecial place (Maddock Yo McDonald, 111 Ore. Q. What coo,titutes 8 Sufficient presentment?
148,227 P. 463). But a note payable at a Specified city, e.g., Quezon made_
A. Presentment for paym ent, to be SUfficient, mus t be
Co., is not
City,190 N. Tv.payable at a specjal
75,24 AL.R. 1047).place (Corbett Yo Wasker Printing
holder, Or by 80me person authorized", reo
ceive (a) By the
paynwnt on his behalf;

- St. (h) At a reasonable hour on a business day;

 •. ' ;oTJARLE INSTRUMENTs
RON NEG Ws
132 Ql IZZER A...·m RE~!~D RELATED LA

s herein defined; FOIt" ANI) Ili'r

r place a . ~- 't _ _ ERPRETATJON I , ......
(c) At a prope . '} liable on the InstruInent, Or - •caen~t for PaYIZlent _
P.nrnan Y Iioun d a t th e Pla~ there is a refusal to
(d ) 'II0 the .person
ess 1b1e , t,0 a ny person
) y
ifhe is absent or wacC t is made (Sec. 72 . the place where the Pda and no Objection ia offered at the ..;___ _
th e presentI11en Th d ernand is d
were
h us, emand by the hOlder
w.u..: ....
Ina e (Hume v. \\-·att. 5 Kan.. 34 ).
the street (Parker v. I("ll of. nm., may be made on the maIte. in
ote provl'des that presentment for maker refuses to pay on thaQgg, 32 N.E. 1038, 158 Mass. 90) unless the
Q A promissory D h residence of the maker at 27
' mu.st be rna.de at e day of maturl'ty, th e h older t ground (l(.~_ U-l_ Pa."
456,..
pavment Ont the But if
presentment is not
' ''&4l1f; v. nuuuE'S. 11
d
Jade St., Batangas CltY'f the maker to make a presentltlent ceptor, then presentment lIla e personally to the maker or ac- "t

went to the residence Ok was abroad at that time and So instrument, the address ~ust be made at the place specified in the
for
presentment
b t the rna er
payment was
U
I '
rna d e to the wife of the maker. s Such pre. 555).
n
t
of the maker or aCCePtor r;·e r the place of business or residence
1ge ow v. Kellar, 6 La.Ann. 59, 54 Am.D.
sentment valid? .
• A Yes the presen t m ent is valid. WhIle . li blpresentment
th ' t for pay,
, Q. What must tbe bolder do to tb ' t '
. . 'made to the person primanly a e on e fis rument,
ment
however m~t if be · a bse nt or inaccessible, presentment
he IS h tcouldt be
. made
lng presentment? e lI18 rtunent lD mak-
to any person
' loun
C'. d at the place where t e presen men IS made
:!~r:pp~h:nptartlS dem~de~.
(Sec. 72 [dJ). A. The instrument must be exhibiU!d to the person from
and When it is paid, must be deliv,
y paYIng It (Sec. 74).
Q, What is the proper place of presentment?
A Presentment for payment is made at the proper place _
Q. What is the Pllrpose of exhibition of the instrument?
(a ) Where a place of payment is specified in the instru, . A. Exhibition is necessary to alford the person under obli.
ment and it is there presented;
gatlOn to pay an oPPOrtunity to ascertain the genuineness of the in.
stru'."ent, the amount due thereon, and the authority of the one
(b) Where no place is specified, but the address of the
makmg the presentment, and also to permit the surrender of the
person to make payment is given in the instrument and it is
there presented; paper upon payment of the amount due <Robinson v. Lancaster Foun,
dry Co., 136 A. 58,152 Md. 81, 50 A.L.R. 1196).
(c) \V'here no place of payment is specified and no ad,
Thus, a demand by telephone is not sufficient presentment on
dress is given and the instrument is presented at the usual
place of business or residence of the person to make payment;
the theory that presentment and demand mu~t
be made by actual
and exhibition of the instrument itself, 01' at least that the dcmnnd should
be accompanied by some clear indication that the instrument is at
Cd ) In any other case, if presented to the person to make hand, ready to be delivered, and such must re,ally be the case (Cowlt's
payment wherever he c b l' d . . v. Matthews, 36 P.2d 537, 179 Wash. 154).
kn . an e 10Un , or if presented at hIS last
OWn place of bus mess Or residence (Sec. 73).
Q, When should presentment be made if tbe instru.
Q. Is the place of pr ment is payable at a bank?
made personally to th esentment material Where it is
e person to make payment? A. Where the instrument is pay~blc at a bonk, pt'(\sentmrnt
A. If presentment is mad for payment must be made during banking hours, unless the PQl"-
person, it need not be at his .d e on a party to make payment in son to make payment has no funds there to meet it at any timo dm"
reSl ence or place of bUSiness, provided, ing the day, in which case presentment at any hour befure the bank
is closed on that day is sufficient (Sec. 75).
 ~ - . - - -- . - - LAW ANU n D U " ' - -

d presen tment be made where the FoRM ANn

To whom shou l Pre INTERPRETATION
Q. . dead? . 8entrnent for PaYment 135
principal debtor IS _ 'I liable on the Instrument is Mass., 13 F.Supp 850)
t ~
of the drawee, a~ in thor Where the drawer has no f d' th h
pnman Y , t
A Where the person 'specified, prescn men or pay~
, tment IS " f
1 epresentabve, I suc there be
h . h osecas h un m e ands
d d
ea t,an
d no place of presen
h' ersona r h b l'. d( , reqUlre t at the drawee 'u es, t e drawer as no right to expect or
men m ust " be made to IS P , na bl e diligence, e can e 10Un Sec.
'freaso P. 793,49 Cal.Ap p. 453). WI honor the bill (Demateis v. Vezu, 193
and if, with the exercIse 0
However, presentm .
76). t is specified, the holder is not able even if he has no fue~t 1~ still necessary to hold the drawer li ..
I
In case a pace 0
f present.men
.~ k ' 1
tl deceased rna er s persona rep~ drawer has reasonable n s In the hands of the drawee where the
t h note to le I h h
required to present e h ' cs' Bank of Brook yn, 135 Misc. w en t e drawee has agrground d to e xpect t he b'III to be 'honored as
' (F' dberg v. Mec am
resentatlve ne
t t
. 270) in which case, presen men may be (Knauss v. Aleck 209 N ~ 4expressly or impliedly to honor the bill
PP
Rep. 194, 237 N.Y. SU ' t the place specified (Sec. 73[a)). has been in the habit of . 44" 20 Iowa 91), or When the drawee
made to any person foun d a gard to the state of h' accepting bills of the drawer without re-
IS aCCOunt (Muzuki' H
of City of New York 148 N E 5 eWICZ v. anover Nat. Bank
in his hands securit~ s b I' '. 35,240 N.Y. 317), or the drawee has
Q. Howsh 0 uld p resentment be made to persons liable
as partners? of the bill (C b :t e onglll.g to the drawer equal to the amount
amp e v. PettengIll, 7 Me. 126, 20 Am.D. 349).
A. Where the persons primarily lia~le on t~e instrument are
liable as partners and no place of payment 18 specified, presentment
for payment may be made to anyone of them, even though there
has been a dissolution of the firm (Sec. 77).
/
. Q. When is
Indorser?
A.
i fu
presentme~t not required to charge the
~C4M.t eltn ~18 ~ (J..
:res ntment for payment is not required in order to
•• Iii c~arge an mdo ~er where the instrument was made or accepted for
Q. How should presentment be made to joint debtors?
.., hIS accommodatIOn and he has no reason to expect that the instru-
':1 ment will be paid if presented (Sec. 80),
l ,~ A. Where there are several persons, not partners, primarily
liable on the instrument, and no place of payment is specified, pre- An indorser is also secondarily liable on the instrument and
sentment must be made to them all (Sec. 78). therefore, presentment for payment must be made to make him li-
.'
"
able. However, presentment is not necessary to hold and indorser
liable where the instrument was made or accepted for his accom-
Q. When is presentment not required in order to
charge the drawer? modation and he has no reason to expect that the instrument will
be paid if presented.
A. Presentment for payment is not required in order to
charge the drawer where he has no right to expect or require that Example: Upon the request of A and for the purpose of lending
the drawee or acceptor will pay the instrument (Sec. 79). his name to enable A to raise funds, X signed a promissory note with-
out receiving value payable to A or order. A indorsed the note to B.
The drawer is secondarily liable and therefore, as a general I, Presentment need not be made so that A could be ma~e liabl~ since
rule, presentment, for payment must be made to the acceptor or the note was made or accepted for his accommodation (DIllon v.
drawee before the drawer could be charg d th' t t Brion, 96 Kan. 189, 150 P. 533).
s·
( nnono/Tv.
' Gr~ntte
.
less he has no Tight to ex t .
e on
,.
e Ins rumen
CIty Nat. Bank, 116 N.E. 636 279 III 248) n-
u.
th . t rument (Sec. pee
pay e 1118 79). or requIre the drawee or acceptor Wlll Q. Wh en is delay in making presentment excused?
Thus, presentment for paYment . A D I in making presentment for payment is excused
lS
~o~ necessary where the . e a~ used by circumstances beyond the control of the
~s
drawer stopped payment of the b'll (n
1 eltnck v. MacCarthy, D.C. when
holder, and not ImputahIe to his default, misconduct, or negligence.
the delay ea
 136
FoR.~~
1
ceases to
operate, presentment must b~ ~t~RPR.ETATION
~orPaYm 137
.
{'

When the cause of de a!. enee (Sec. 81)· result fro ent
. m words and
made with reasonable dlhg bon are of such a h acts which b .
. te c ara 4-- y faU' and
tl11 for payment be dispensed ~as In nded, or whie c~r as will sa . reasonable construc-
esen ent Indorser intended to d~ WlU justify th tisfy the mind that a waiv
e hold . ef
Q. When may pr 18
P . 1097 , 80 Colo. 293 pense with Prese er ln assuming that the
with? nt is dispensed with - drawer or indors ). For eX.ample ntment (James v. Ward, 250
er, mad ' an admis . " .
A. Presentment for paYlne f lnble dl'l' act
f . that there h d e after mat't . Slon ofbablhty by the
ft,er the exercise 0 reasOl , 1gence pre- a bee un y Wlth th kn 1
waIver of present n no demand t e ow edge of the
(a) Where ~ d b this Act cannot be made; 242, 244 ApP.Div.~:nt (Banco Di Napo~f p!~ent. constitutes a
sentment as reqUlre Y 4). v. ~Wl:Senbaum. 280 N.Y.S.
rawee is a fictitious person;
(b) Where t h e d
. of presentment, express or implied (Sec Q. When is an .
(c) By waIVer . ment? 1nstrument d'1Sh onored by non-pay-
. 82).
..'
I
,
I
I"
'~
· ondlor crive example of the instances when
Q. E xp1aln fCt·
OA • h
presentment for payment is dispensed WIt •
A.

fu d
The instrument is di h
(a) It' d
s onored by
18 uly presented £
nonpayment when -
se or can not be obta· d or payment and payment is re-
me ; or
A. (a) Where after the exercise of reasonable dili- (b) Pre
d sen ment .IS excused- d th .
t
gence presentment cannot be made. - The holder is not ex- ue and unpaid (Sec. 83). an e Instrument is over-
pected to perform the impossible hence, presentment or demand
for payment is dispensed with where, after the exercise of rea-
Q. Explain and/or give e
sonable diligence, such act cannot be performed (Bost v. Rexine an instrument is dish d bxample of the instances when
Co., App.D.C., 8 F.2d 795). Thus, where the person to whom pre- onore y nonpayment.
sentment is to be made cannot be located despite the exercise of A. (a) Duly presented for a

.,
. , ,I
• • • 11

fused or can not be obta' d p yment and payment is re-

.11 reasonable diligence, presentment is dispensed with. But it is
this subsection: (i) the ins:': . --; ~re are two requisites under
f~
,
necessary for the holder to give willing, earnest, active and real and (ii) payment . fu d men IS uly pr~sented for payment;
• .l energy and effort to make presentment (Polk v. Spinks, 5 Dolds . • IS re se or can not be obtamed. Thus, when the
Tenn. 431,433, 98 Am.D. 426). ' ~ote IS presented to the maker who fails to pay but promises to pay
ve days later, the note is dishonored by nonpayment (Bredow v.
. (~~
Where the drawee is fictitious. - Where the drawee I Wall, 108 Conn. 489, 143 AtL 849,62 A.L.R. 293). .
~s fi~tltlous,
presentment cannot possibly be made and therefore it
IS dIspensed with. ' (b) Presentment is excused and the instrument is over-
~ue a~d unpaid. - There are three requisites under this subsec-
. h (c) Waiver of presentment, express or implied - The tIon: (1) presentment is excused; (ii) the instrument is overdue' and
ng t of any party to adem d •
condition for his benefit m:nbeo:p~esentrne.nt for payment being a (iii) it is unpaid. •
v. Johnson, 185 N.E. 19,28/Mass alVed by h1m (Attleboro Trust Co. Example: X drew a bill addressed to a fictitious drawee, pay-
is waived, it is consequentl d' .463). And whenever presentment able on May 16, 2000 to A or order. A indorsed the bill to B. B did
y lspensed with. not make a presentment for payment as it was impossible to do so
A waiver is express when th . as the drawee is fictitious. As of May 27,2000, the bill has not been
parties to the effect that th h ld ere 1S an agreement between the paid. In such case, it is dishonored by nonpayment, as presentment
sent ment £'.lor payment (Brookl
e 0 F' ak
er need not mea d emand or pre-
is excused because the drawee is fictitious, the instrument is over-
445,112 App. Div. 398). An i~li;~t N.at. Bank v. Gridley, 98 N.Y.S. due and still unpaid.
walVer on the other hand, may
 FOltAiANn
.' of a person secondarily liable
What is the liab~htY red? I't\t~~ltPRETATlON
Q. t' dls ho no Q u.n.. Qr PaYIllent. , 139
. "nat is th
when the instrumen IS . ' . £this Act, when the instrurne t at a bank? e 'e ffect wh
OVISJOns 0 . h f n ere the burt.l'UInent 18
.
A Subject to the pr . )lnediate rIg t 0 recourse to all A Wh payable
.
is di shonored by nonpaym , ent an In h · Id'
accrues to the 0 cr ec. 84)(S . l' ere the inst
parties secondarily liable thereon . eqUlva ent to an ord rument is m d
of the principal d b~r to the hank to a e payable at a bank it is
.n g of "an immediate right of re e r thereon (Sec. 8~~Y the same for the account
Q. What is the meadna ·ly lillble thereon accrues to th~
course to aU parties seco n llrl Q. A made a Pro .
Far East Bank Bran htn1880ry note payable to B
holder." . d' h d C't Wh t . c at PSE BId or order at
r. the instrument 18 IS onore by non. I Y· a IS the aUlt horit g., Ortigas Center: Pasi
A It means that aner . t th note is concerned? Y of the said bank insofar t as th!
. . f d'} nor has been gIVen 0 e persons sec.
P ayment and notIce 0 IS 10 . I d' '1
. ' h Id may inuuedmte Y procee agamst thern A. The PSE Bldg. branch of F
ondanly hable, th~ of e~ng after the person primarily liable. Thus issued by A and deduct the ar East Bank may pay the note
without th e necessIty 0 gO! . d . h ' (see Thomas v. Citizens' B ? ; n t from the account of the maker
after a note h as been dIS· honored at matunty . and ue notIce as been
h 1915A, 1728). Howeve~ ana. 't 7 Md. 597, 147 N.W. 388, L.R.A.
. }' d the Jatter becomes lIable to the older, not as
gI ven to t le In orser, C f h I' . b'I'
a surety, b u t a bso lute ly and independently. 0 tela 1 Ity of the
to
equivalent to an order th~~~ment payable at a bank is only
of the principal debtor and 't . to pay t~e same for the account
maker (Carn egie Trust Co. v. Kistler, 89 MISC. Rep: 404, 1.52 N.Y. h h d of 1 IS not an asslgnment of the funds in
Supp. 240). In other words, after dis honor and notIce o~ dIshonor, t e ban sd tl~e bank (see Sees. 127 and 189) hence, such bank can.
no t e rna e lable by the holder when't f to th
th e holder need not proceed against the maker before sUIng the in. 1 re uses pay e same.
dorser (Kopf. v. Yordy, 200 Ill. App. 109).
Q. What constitutes payment in due course?
Q. What is the time of maturity of the instrument? A. Payment is made in due course when it is made at or af- ·· ft
" ~.
ter the maturity of the instrument to the holder thereof in good faith Ii 1\
A. E very negotiable instrument is payable at the time and without notice that his title is defective (Sec. 88). .~\
fix ed th erein without grace. When the day of maturity falls Upon '\ \~
'. j
Sunday, or a holid ay, the instrument is payable on the next suc- I 4
Q. What are the requisites of payment in due course? " , '.~
ceeding bu sin ess day. In s trument falling due or become payable
on Saturday are to be presented for payment on the next suc- A. The requisites of payment in due course are:
ceeding bus iness day, except that instruments[payable on demand] (a) Payment is made at or after the maturity of the in-
may, at th e option of th e holder, be presented for payment be- strument;
fore twe lve o'c1ock noon on Saturday when that entire day is not
(b) Payment is made to the holder of the instrument;
a holiday (Sec. 8.5).
Payment is made in gOO? faith and without notice
(c)
that the title of the holder is defective.
Q. How is time computed?
A. Wher~ the instrument is payable at a fixed period af- What is the materinlity of payment in due course? 1
ter date, after SJght, or after the happenI'ng f t Q.
h . . . 0 a specI'fiIe d even, . d e course by or on behalf of the principa
t e tIme of payment IS determined by e I d' th e d ay f rom A. Payment 10 u d ted discharges the instrument (Sec.
·h h . . xc u Ing
h
w lC t e tIme IS to begin to run and b . 'I d' h d f debtor or the party acc?~~o at a payment in due course does not
payment (Sec. 86). ' Y Inc U Ing t e ate 0 119). Any payment whle 1S no
 NEGOTIABLE INSTRUMENTS
140 QUlZZER AND RE~~~~~LATED LAWS
V Gallagher, 49 Ill. 182, ~5 Am.n.
. trument (Rodgers . thcr than the holder 18 at the
discharge the ms t to any person 0 was not authorized by the
583). Thus, payme: paving if the peKn:s~~ht and Sons v. ShaU, 9 La \ .
risk of the party s . nt (Henry 19 . 1

holder to receive payme \ • I

App. 98, 119 So. 80).

C~Rvn

NOTICE OF DISHONOR

Q. What is notice of dishonor?

A. Notice of dishonor is b" .
ing, to the knowledge of the dr nngIng, ~lther verbally or in writ-
the fact that a specified negoti:;l:r. or ~e mdorser of an instrument,
ings taken, has not been aCCePte~ns ruhment, upon pro~r Proceed , _
t44e2 PTa. y ?OtBl led 18 expected to pay it (Martin v. Bro~, 75 Ala
h rt ' · fj . ,or as not been paId and that
; IconIC an k v. Stockpole, 41 Me. 321,66 Am. Dec. 246). .

Q. To Whom. must notice of dishonor be given?

. A. Except as herein otherwise provided, when a negotiable
Ins~rumen~ has been dishonored by nonacceptance or nonpayment
notice of,dlshonor ~ust be given to th~drawer ~ to each indorser,t
and any Ldrawer or mdorser to whom such notice is not given is dis-
charged (Sec. 89; Asked, 1958, 1963 and 1986 Bar Exams.).
Being indorsers, notice of dishonor must be given also to an
irregular indorser (Copeland v. Keller, 129 So. 571, 221 Ala. 533),
restrictive indorser (Lynn First Nat. Bank v. Smith, 132 Mass. 227),
and accommodation indorser (Donnelly v. Garvan, 151 AU. 168; U.S.
Guardian Corp. v. Foreman, 281 Pac, 1090).

Q. Who need not be given a notice of dishonor?

A Notice of dishonor is not necessary to hold parties prim~~l
rily liable such as theLmaker of the note or the acceptor of a bil!.!
(Morrison v. Citizens' and Southern Bank, 91 S.E. 509, 19 Ga. App.

141
 . •u. ~ L.1 '" £"uJ.u£.N ·rs
L' l ' 1I1 U UU-'L:>
ON N '" r Ws
REV1EWER RELATED LA
142 QUIZZE R AND LAWAND PORM ANn lNTE
Notice fDRPRETATION
e nt is required to be lllad o lShonor
lAO)
....,
th jo;; that presentm
' 0;; , ~trument (Sec. 72) and theree the same as he Went to Man'
434 ) The reason for 'I k11'able on th~ 1hn~nored the instrumentl lIa..'
Y 'h dIS 0~on prllnan ' } I' hI ~ received the notice and pai~' Upon his return to Ceb~ he
to the, person pn'man
, the one \\ 0
,
Y In e need not
v'

fore suc h person IS, .;:tru well t , the per:s warrant. Was PNB correct inh~ 8Jnount of the dishonored
,, red the JO~ amount of the disho no d IDlJ:nediately deducting the
ing dlshono d ' ~l 011 or, ' ~ t .
'
be gI\'en notice of I~ 1 ote WI'tllout Uldor~emen d , not beIng Gull as? re warrant from the account of
. f a bill or n , f dishonor an cannot escaPe A. . The action of PNB in '
An assJ~ort °entitled to notIce 0 te was a ssigned by reason of dishonored warrant from the deducting the amount of the
liabIlIty for t ,
:'0
an i~,d orser. ~en~ebt for which } he Eastman, 295 P. 63, 110 Cal.
h notice (Kane .
. aCCOunt of Gullas
cause as an Indorser, GUllas Was t'tl . ~as pr~mature be-
failure to recewe sue the right of action against h' den 1 ed to notice of dishonor and
. to the mailing of
given. PrIor 1mtheGes not accrue
not' f di huntil the nof lee IS
.
A pp, 753 ), • ?
waiting for any action by Gullas the ~canke0 sd onor, and. without
f n otice of dishonor.
What is the pu rpose 0 . stan d mg
' . h IS
m ' aCCOunt to make, good ~or ma th et use of the money
Q. ' , f dishonor is to lIlform the party h fi l' e reasury warrant
, fthe notIce 0 h h . Gullas, t ere ore, should be awarded nominal damag b PNB
"'. ' A. The obj ect 0 dishonored and t at e IS looked (Gullas vs. PNB, 62 Phil. 519). es y
/ 1
",
notified th at the p~per h~S~e~~nk, Ohio, 11 'Vh~at. 431, 6 L.E~.
to for payment (1\1111s v. , . g it is to enable hun to protect hls
~e of requmn I . t Q. Who has the burden of proving that notice of
5 12) and the purpo::. n tecedent to him on t le Ins rument dishonor has been given?
rights against others who arCe aV. Hyde 8 N.E. 2d 38, 274 N.Y. 1),
Ii I I E hange Trust 0.. , . . fil
(Lockport xc 't to discharge it before SUIt IS ed to A. It is incumbent upon those seeking to hold the indorsers
a nd afford him an oPPo~U;~t~ consequent costs (Winn v. Batton, and drawer liable to prove that notice of dishonor was given to the
enforce payment th ereo ,
said indorsers and drawer within the time and in the manner re,
App., 152 50,349 ),
quired by law. If this is not proven, the indorsers and drawer can-
not be made liable on the instrument (Asia Banking Corporation vs.
Q. What is the effect of failure to give notice of dis- Javier, 44 Phil. 778).
honor?
Q. Who may give notice of dishonor?
A. Except as otherwise provided by law, failure to give, or
laches iT brj \'in ~, notice of dishonor operates under the express ter~l1s A. The notice may be given by or on behalf of the holder, or
of th e Negotiable Inst ruments Law, to dischaTge any drawer or m- by or on behalf of any party to the instrumen~ w~o might be com-
dorse r to whom s uch notice is not givenj Sec. 89; Jaronko v. pelled to pay it to the holder, and who! upon takmg It up, ~ou~d ~ave
Czerwin ski, 166 A. 388, 117 Conn. 15, 90 A.L.R. 299). a right to reimbursement from the party to whom the notice IS ~lVen
(Sec. 90).

Q. GuJJas indorsed a treasury warrant. It was cashed Thus, notice of dishonor may be given by:
by the Philippine National Bank (PNB). Thereafter, the war- (1) The holder;
rant was dishonored by the drawer, the Insular Treasurer.
GulJas had a deposit with the PNB and upon learning of the (2) Someone acting on behalf of the holder;
dishonor of the treasury warrant, PNB deducted from the to the instrument (a) who migh~ be.com-
account of GUl1as the amount of the dishonored treasury (3) Any party , d (b) who upon takmg It up,
pelled to pay it to the h~ld:r, anment from the party to whom
warra.nt. !n
the meantime, GUllas issued checks against his would have a right to renn urse ,
depos WIth ~NB. The said checks were dishonored because
!
J
the notice is given;
Gullas depOSIt was sequestered by PNB L t - t'ce of
d· h • a er, no 1 (4) Someone act ing on behalf of
. such party.
IS onor was sent by PNB by mail but Gullas did not receive
 QUlZZER AND RE~~~~~ R';:LATED LAWS
. LlUItt : '
144

ote payable to A or order. A FORl.\ ANn IN'l'E

omissory n h Id • £1.. ~oti RPRETAnoN !
Q. X issue d a pr and C to D. D, the ~ er presente(\ ce of Dishonor
us ,
Mass. 116, 7 Am D
>; "

indorsed it to B, B to C ent but it was dishonored. Who ·

the instrument to X ~or pa~ h older an d gIVe n'.198)
t' unless th
o Ice of d' e drawe
rna give notice of dlShono Ishonor in the 1 t e ~cts as agent of the
y one acting on his behalf may give no \'
\
Q Ma a ter s behalf (Sec. 90)
A. , D the holder or any S
f the indorsers (ec.
90) . . • Y notice f d' .
tice of dishonor to anyone 0 instrument? 0 lshonor be .
gIven by a stranger to the
. the preceding question, D gave notice
A. Notice of dish
stranger to the inst onor cannot be .
any party (Jagger v. ~:::nt, and such noti~v:nb~ onfe who ~s a
Q. Suppose In I e may give notice of dishonor aside
of dishonor to B, who e sone acting on behalf of the holder? 53 Minn. 386) Th lOnal German-Am . 0 no aVaIl to
from the holder or some . e part " encan Bank 55 N W
is a the time when the not' Y, gl~g notice, or his p' .' al . .545,
A B may give . A since the former
. n otice of dishonor to h "f h lee 18 glve b nnClp ,must at
. . b mpelled to pay the mstrument to t e holder It, 1 not t e holder thereof (P n, e at least contingently li bl'
party whho may ta~,C;:g it up would have a right to reimbursement oultney v H 1 a e on
. as ett, 1 Nott and M. 466).
and w 0, upon I , K t 193 S W
from A to whom the notice is given (Ea~es v. ee on,. . : 629, Q. Is notice of dishon '
196 Mo. App. 424). In other words, an mdorser may glve notIce of or gIven by
A. Noti f' an agent effective?
dishonor to an antecedent indorser from ~hom, on payme~~ of the ce 0 dishonor may b .
instrument, he would have the right of relmbursement (Wllhams v. own name or in the name f e gwen by an agent either in his
Paintsville Nat. Bank, 137 S.W. 535, 143 Ky. 781, Ann. Cas. 1912D
whether that party be hi ~ ~ny party entitled to give notice
s pnnclpal or not (Sec. 91). '
350). Thus, notice may be given b
Matthews, 3 Cow. 252) b a Y ~n attorney (Williams v.
B, however, cannot give notice of dishonor to C because while
(Bank. of Alpena v. Me;er! 6 ~~da~~mg as agent of the holder
B may be compelled to pay the instrument to the holder, he did not 17
give the notice to a party from whom he has a right of reimburse- a sub-agent (Cowpethwai~ v. Sh~ffeld N y7 Arsk. 214), or even by
3
<# " ..rI
, " uper. 416).
.' ~ ,I ment. He has no right of reimbursement from C because indorsers
fl ,J among themselves are liable in order in which they indorse (Sec. 68)
i Q. What is the effect of notice given on behalf of the
which means that B can hold a prior party liable but not a party bolder?
subsequent to him like C.
A. Where notice is given by or on behalf of the holder it
C is not entitled to give notice of dishonor because he is not a inures to the benefit of aU subsequent holders and all prior parties
party who may be compelled to pay the instrument to the holder who have a right of recourse against the party to whom notice is
because failure to give him notice of dishonor discharges him from given (Sec. 92).
liability (Sec. 89).
Q. A issued a promissory note payable to B or order.
Q. May the maker or drawee who refuses to accept B indorsed the note to C, C to D, and D to E. E, the holder
give notice of dishonor? presented the instrument for payment but A dishonored the
note. E gave notice of dishonor to B, C and D. Later, E in·
A. ,The maker is not authorized to give notice of dishonor to dorsed the note to F. May F bold B, C and D liable even if he
an indorser unless he acts on behalf of the holder as the latter's himself did not give them notice of dishonor?
a~ent (Jagger v. National German-American Bank, 55 N.W. 545,53
A. F can hold B, C and D liable because the notice of dishonor
Mum. 386), ~d a drawe~ who refuses to accept is not a party charge-
able on the bIll, and nobce from him of non-acceptance is in no de- preVIOUS1y m
. b aV
en by E to B, C and D inures to the benefit.
of F, a
gree better than from any other stranger (Stanton v. Blossom, 14 subsequent holder (Sec. 92).
 FoR..\\A....~D
, the ~,oregoing question, E 8U p
p ()~ Not' INTERPRETATION lA7
U ' g the facts 10 d" honor given by to B and h. lee of Dishonor
Q, sm ' o f IS ~ ..
'U the notice
C paid F, WI fit of C? . his principal, he mUst d .
' ure to the bene 1 n by the holder Inures to th holder, and the Princip~ so Wlthin the same time as if he were the .-
d' ~honor give
~
.
. e
self the same time for giv~n t~e receipt of such notice has him-
In
Th notice of 1:; • ht of recourse agamst the paN-..
A. e partIes
.or . wh o have·
aThus
ng notice . gIVen
. b y E to B'tnur-- "y dependent holder (Sec. 94). g nObce as if the agent hud been an in.
benefit 0 f pn . ' . (Sec. 92). , . h f . es
h notice IS g1\ en . 1. tOOr has a ng t 0 recourse agaInst
~ ~heo:nefit of C because:!~v:s are liable in the .order of indorse. Q. When i8 notice s.. ft!
. • ')

Bas indorsers among then. e 'ven to D does not Inur~ to the ben. .......UClent.
A. A Written notice n d . .
ment (Sec. 68 ). But the not~as~o right of recourse agamst D. written notice may be s 1~ not be SlgI\E!U. and an 10suflkient
efito f C because the latter ~ munication. A misdesc .uP.p emen~ and validatt>d by verbal com.
notice unless the part ~ttO'n of the mst~en~ doe~ ~ot vitiate the
Q,What IS•
the euec
H t of notice of dishonor given by a. thereby (Sec. 95). y Whom the notice lS gwen 18 10 fact misled
?
party entitled thereto,
. IS
Where notice . aiven by or on behalf
h ldof a party
d 11entitled
A. b' Q. In what fonn must notice of dishonor be?
. . ,
to gl've notIce It mures to the benefit of the
. 0 er an a
(8 93) parties
'h
subsequent to tepa y wrt hom notice is given ec. . . A.,. The notice m.ay be in writing
merely oral and may be
0'1'
g1.V~n ill ~ny ~~~ ~~l1ch ~~tly identify the instrument .!\Ild
indicate tl1at1Snasbeen dishonored by non-acceptance O'r non-pay-
Q A de a promissory note payable to B or order. B m~n!;Jt may in aU cases be given by delivering it personaHyor
indors'ed th::ote to C, C to D and D to E. E, the holder pre- through the mails (Sec. 96).
sented the instrument to A f~r payment but th~ latter Notice by telephone is sufficient, provided, that it is clearly
dishonored it. E gave notice of dishonor to Conly. C In turn, shown that the party to be notified was really communicated with,
gave notice of dishonor to B. (a) May E, the holder hold B that is fully identified as the party atthe-recei\rinifirid of the line
liahle? (b) Suppose D waived notice of dishonor by voluntar_
597).
v:
(American·Nat. Bank N~i~Fertilizer Co.-. 125-Temi.-328, 143 S.W.
ily paying E, may D hold B liable?
A. (a) Even if E did not give B a notice of dishonor, he still
can hold the latter liable because the notice given by C to B inures Q. To whom may notice of dishonor be given?
to the benefit of the holder. A. Notice of dishonor ma~be given~ther to the party him-
self or to his agent in that behal.!JSee. 97).
(b) The notice of dishonor given by C to B inures to the ben-
efit of all parties subsequent to the party to whom notice is given
(Sec. 93). Hence, notice given to B. inures to the benefit of all par- Q. Must the agent to whom notice is given be autbor-
ties subsequent to him and therefore, it inures to the benefit of D, a ized to receive notice of dishonor?
party subsequent to B.
A It be shown that it wasb,ithin the scope of the
. ~~"
receIve not\'ce of dishonor (New York Contract-
.
B' k 51 Ala. 305) although such notIce ~ay
, I

agents authon 0
Q. When the instrument is dishonored in the hands of ;ng Co. v. Se1ma avo an ~ (Ki g v. Griggs, 85 N.W. 162,82 Mmn.
lbe implied as well as expr~s:l 'f n. to ~agent charged with the
• I~

an agent, to Whom may he give notice of dishonor?

387). Such notice is sufficl.en: 1 fV~:sines.s\(lsben v'Lewis, 13 So.
f A. '~en the i~strument has been dishonored in the hands
~h an agent'h e may ~lther ?imself give notice to the parties liable
(general conduct of his kI::reao; the party entiUed,there she acts
335, 98 Ala. 550), o~ to t.• J cially where the notice actually comes
ereon, or e may glVe notice to his principal. If he gives notice to as his clerk and asSistant, espe
 QUIZZER ANU nl".l~~V·AND RELATEU Ll\Wi:)
.. \.~ .. '
148 . ~ ..,

. d within the time allowed by 1

into the han ds- of the part1007,
y entitle
107 App. DlV.. 144)
. . .
a"" FOa.." ANn
(
N.Y.S. . ~ . lNTEa,PRETATION
Reed v. Spear, 94 h t he is specIally authonzed to otlce of Dishonor 149
l . h wn t a 8ta t e B ank \1. Ell l'~ to the notary giVing th . r .
Thus, un ess it IS S 0 ttomey (Louisiana
the indorser at his last e Inoti~, no~ice addressed to the drawer or
B el),
-in-fact (Planters, etc:, ank 'V. !\.ill )
attorn~Y ,
" . notice to a mere a
cel\e It'N S 87) to an Nat. Bank v. Nabonal Fertili g,
.
ficient (Franklin Nat. ~~ of resl~ence Of of business will he sui'.
4 Mart.2 . '
AI
,
79) to a cler
k (Amencan t f h'
328) or to an agen 0 t e Indoy.,.,
Zet First Nat. Bank v. Cal"Tu-. ~_ v. Frella, 173 A. 93, 116 N.J.Eq. 278;
9
C 143 a. S , 125 Tenn., d d II < el' - t"'nlo\:f, 130 A. 435, 3 N.J. Mise. 779).
. . . ted to po,...Her to gell goo s an co ect there/:'l0t
W.597, i3
o. . L ' .

whose authority IS hml 13 N.E. 447, 62 Ind. App. 312), 18 'nsUfli. Q. Where the Parti
(SWI·ft. an d Co.~' ~hller, 1 whom should not' . es to be notified are Partners, to
cient. lee of dishonor be given?
A. Where the part' to be .
Wh t' the d lue
' N renee between the authority
• Ofthe
. notlce
any partner 18
solution (Sec. 99).
. to thelesfinn. even
notified
thou h
g
arethPartners
h
ere as
bee
noticed'to
n a IS-
agentQ.to givea notice
18 • and his authority to receIve notice of
dishonor? . This provision means that whe", the indorsers are Partners,
notice of disho~or .glv~~ to one is Sufficient to bind all, including both
A When no t Ice . dagent,. such no-
· of dishonor is given hby an
the finn and Its indiVIdUal members (Bank of America v. Shaw, "1
. . ' ive whether the agent was aut orlze to gI\1e notice N .E. 779, 142 Mass. 290) even though the partnership was dissolved
tlcenot
or IS effeet h th that party be his principal
or weer h .or dnot (Sec. 91). after indorsement and before maturity (St. Louis Fourth Nat. Bank
' . gIVen
But notIce . t 0 an agent who is not aut• onze (N expressly
v Or v. Altheimer, 3 S.W. 858,91 Mo. 190).
impliedly to receive the same is not sufficIent . ew Iork Co -
C o. v. Selma Say" Bank The n And where one of the partners dies after indorsement and be-
.
tractmg .supra).
. . bObVIOUSfi reason
h . for
h d 'f'C: nee is that the act of gIvmg notIce ene ItS t e prmci_ fore maturity, it is sufficient if notice is given to the Surviving part_
t e l ,ere I' b'I't h ner, (Slocomb v. De Lizardi, 21 La. Ann. 355,99 Am.D. 740).
pal while receiving notice of dishonor creates 13 1 1 yon t .e part
of the principal. The principal could not be expected to object to However, the mere fact that the parties are partners does not
acts done for his benefit. dispense with the necessity for notice of dishonor to all of the~,
where the negotiable instrument in question is not a partnership
matter (Derner v. Loudenback, 233 Ill. App. 240).
Q. When a party is dead, to whom should notice of
dishonor be given?
Q. To whom should notice of dishonor be given in case
A. When a party is dead, and his death is known to the party the parties are jointly liable?
giving notice, the notice must be given to a personal representative A Notice toJ'oint parties who are not partners must ~ given
if there be one, and if with reasonable diligence he can be found. If
there be no personal representativ~, notice may be sent to the last
to each. of them, unless one of them has au th' ont y to recelVe sueh
notice for the others (Sec. 100).
residence or last place of business of the deceased (Sec. 98).
. . h where the liability of the two or more
Thus, Where an indorser of a note dies before the note matures, This proViSIOn means t at be . n notice of dishonor in order
' . . t ly all must glVe .\ C
notice of dishonor to his personal representative is sufficient to sup- indorsers 18 Jom on '. B nk Michigan-Arkansas 01 or-
port a claim on the indorsement against his heirs and devisees even to fix their liability (Flrst Na~i' ~ 59;' Shepard v. Hawley, 1 Conn.
:7~~.ere is no notice to the latter (Smalley v. Wright, 40 N.J. Law
poration 204 N.W. 719, 231 le. t . .' t liability of joint indorsers
367, 6 ~.D. 244). The conti~:: n~~: of dishonoT is given ro OT
does not become abs~lute un of such joint parties is notified, all
Where, however, at th~
time of the dishonor of the paper, the ' d by an.. Thus,
waIve
of them are dISC h urgeIf.donly one
(Case . 213 P . 422 , 107 Or. 223,
v. MeKinms,
death of the drawer or the Indorser is unknown to the holder and
32 A.L.R. 167).
 ' II' ability is joint and several
d 'fth elr , '~h'l
On the other h a~ ,1 f d' honor to all dIscharges aU &Oll\ th l,~
the failure to give notIce °h IS who did not receive such notic ell' 151
'bTl only t ose . .\. d e ~
contingent hn 1 1 y, . nt several habt lty an the Contin (b) If given at. .
usual hours of rest o~resldence, it must be given before the
tl 'r conhnge '. gent
discharged from . 1el h did receive such notIce IS tranBfo
several liability of those W °eralliability (Case v. McKinnis 8J~p e<l (c) If . e day following;
. bsolute sev . ' &4 rQ) fi Bent by lllail '
thereby mto an a
, t nly one 0
f them is sufficient to charge the n .
oti ce in time to reach him '. It must be deposited in the pos~.
Thus, a notIce 0 0
. d
f '1 re to notify the others, although it
d the at u
'u·
\\11
(Sec. 103). in usual course on the day following

fied 10 orser an 'n ot discharge the former (Eaves v. Reato This Provision mean th
discharge the latter, WI n 9) n, son to receive notice of d,sh at When the person giving and the per-
196 Mo. App. 424,193 S.W. 62 .
\ ~, tice of dishonor must he '
IS onor are
glVen
.di
resl ng at the same place, no-
o~ se~t in time to be received on the
\
day following the day th
To whom should notice of dish?nor be given if the e paper IS dishonored or, m
cessive notices the d £, 11 '
. th of
e case sue-
Q. b d'udged a bankrupt or Insolvent? " .' ay 0 owmg the receipt of the notice by the
party has een a J party glvmg It (O'Neal v. Mason, 155 So. 567,229 Ala. 142),
A. \\Tbere a party has been adjudged bankrupt ?r an jnsol. Thus, an indorser of a dishonored check, residing at the same
~~l' gn ment for the benefit
vent, or h as rna de an a ~~ . of creditors ' notl'ce
. place as the company giving notice, who was not notified until over
may be given either to the I arty h imself or to hiS tru st ee or a ssignee thirty days thereafter, is discharged (Yearta v. Industrial Loan and
Investment Co., 150 S.E. 917, 40 Ga.App, 644; see also Gullas vs.
(Sec, 101 ).
PNB, supra). Likewise, notice of dishonor given to indorsers on Sep-
tember 15, after exercising option to declare installment note due
Q. Within what time should notice of dishonor be on July 30, was too late (Anderson v, Speery, 284 P. 102, 155 Wash.
given? (Asked, 1984 Bar Exams.) 300).

A. Notice may be given as soon as the instrument is

Q. When should notice of dishonor be given where the
dishonored , and unless delay is excused as hereinafter provided,
parties reside in different places? (Asked, 1984 Bar Exams.)
must be given within the time fixed by this Act (Sec. 102).
A. Where the person giving and the pe~n to ~.ive notice
Notice of dishonor cannot be given prior to dishonor, but may reside in different places, the notice must be gwen wlthin the fol·
be given as soon as the instrument is dishonored; and the fact that lowing times:
it was given earlier than required does not, as long as it was not
( a) If sent by mail, it must be deposited in thfedi~h t of-
premature, invalidate it (M~cShane v. Dingley, 172 A. 264, 132 Me. , ~ 11 . the day 0 s onor,
fiee in time to go by mall the day 10 owmg th t day by the
429). However, a notice given before the instrument becomes due, or if there be no mail at a convenient hour on a ,
is premature (Clark v, O'Neal, 231 Ala. 577, 165 So. 353).
next mail thereafter; h
, huh
ro the post office, t en
(b) If given otherw.lse thandt h ,g been received in due
Q. When should notice of dishonor be given where the . th t notlc.e woul a'o: e , h·
within the bme a ·ted 'n the post office WIt 10
parties reside in the same place? (Asked, 1984 Bar Exams.) .f" t h d been deposl 1
course of mail, 1 1 a h I t Ubdl' vision (Sec. 104). .
·fi d' teas s
A. When the person giving and the person to receive notice the time specl Ie lD d' h nored on Novem-
note was IS 0
reside in the same place, notice must be given within the following E xa mp les: (a) ¥lhere
.
a
f d· honor to an 1
'ndorser at another
times: ber 18, mailing of notIce ~ ~:lated (West Virginia Co~l C~. v.
November 20, was ) Notice is not Ul tlIDe
(a) If given at the place of business of the person to re- place, on 416 112 Pa, Super. 158 . ail on the first
Gano, 170 A. , '1 fter the time for the m
ceive notice, it mu..'it be given before the close of business hours where it is not sent untl a
on the day following;
 N ~lN 1U~lJL'.L" •• . - - - .- •. - ...... ~J..::3
AND REVIEWER O~LATED LAWS
152 QUIZZER LAW AND R '
FORMM1)
Firs t Nat. Bank v. Miller 120 NOb INTERPRETATION
(Shawano 1040) , ce of Dishonor 153
dav after disho~or tJ6 131 AnI. S.R. .
. "'0 139 \VIS. 1aJ , . . Q Q. Bow Dluch t·
N.\V.8 ... , 've notice resides In uezon Cit . t' lIne do
to gIve no Ice of diShonor es a party receiving notice have
(b) If the person. t.o gt tice resides in Batangas Cit~ andY f.. A Wh to any antecedent party? -
while the person .0
t receIve no
'} t 'lkes two
days t 0 d r'
elVer Illail to r' . ere a party rece'
the receipt of such notice th IVes no~ice of dishonor, he has, after
th e due course of the mal l"service of notice should be Illad
. I persona e cedent parties that the h 'Id e same time for giving notice to ante.
Batangas CIty t len o er has after the dishonor (Sec. 107).
within two dayS.
.!
Q. Where must n t' .
t fnotice of dishonor sent by Illail o Ice of dishonor be sent?
Q. "nat is the !ffe~ s:fficient postage? A. Where a party has added ddre "
which was returned lOr 10 .
tice of dishonor must be an a ss to his SIgnature, no-
sent to that address, but if he has not given
. f d' honor is sent by mall, but because of such a ddress, then the notice must be sent ~ fohows:
A Wbere notice 0 IS h f: t'
. hItter is returned, suc ac IS no excuse for
(a) Either to the post-office nearest to his place of residence
insuffi.cie~t ?osta : : :f ~ishonor. At any event, the lapse of several
g
or to the post-office where he is accustomed to receive his letters', or
delay In gIvmg notIc 1 . g notice of dishonor is returned from the
days after a letter enc OSlO • h d I . . (b) If.he lives in one place, and has his place of business in
b f .nsufficient postage IS suc a e ay m gIving
pos~-omce eca use °th 1 l'ndorser (Shawano First Nat. Bank v. Mille~ another, notIce may be sent to either place; or
notlce as to re1ease e ,
(c) If he is sojourning in another place, notice may be sent
supra ). to the place where he is so sojourning.
But where the notice is actually received by the party within
Q. 'When is the sender deemed to have given due no-
the time specified in this Act, it will be sufficient, though not sent
tice of dishonor? in accordance with the requirements of this section (Sec. 108).
A. \\Ther~otice of dishonor is':9uly addres~~d and d.ep..Q§j.te.d It will be observed that where notice is actually received by the
!i
in the post-offic~(l,he s.ender. is d~emed to a ve given due notice, party within the time specified by law, the place of sending the no-
notwithstandin gany mlscarnage In the malls (Sec. 105). tice is not material (Sec. 108, last par.).
Thus, where the notice by letter is duly stamped, addressed and
mailed, the sender is deemed to have given due notice as the ad- Q. How may notice of dishonor be waived?
dressee is presumed to have received the same notwithstanding any
A Notice of dishouor Qlay be waived either~~fore the t~
miscarriage in the mails and the indorser's evidence that he has not I h . ' to gIVe due notice(
of giving notice has arriv~.9 Oli afte~ t e.oml;SlOn )
• 1

received the notice will be excluded (First Nat. Bank v. Daloney, 254 and the waiver may be expres's or Implied ( e e 109
.· .
Pa. 409, 98 Atl. 1042). The non-receipt of a duly mailed notice of . , 't y be said that a wruver
1
In view of the foregoing proVlslon'fi mar after maturity of the
dishonor does not discharge an indorser and evidence of such non-
· h Y be rna de be ore 0
receipt is only competent when the notice was not properly or actu- of notice of d 1S on or m~ 7 hin n Horse Exeh. Co. v. Bonner,
ally mailed (Union Bank of Brooklyn v. Dossel, 139 App. Div. 217, instrument or at matunty (\\~be gto McConnell, 213 N.W. 313,
123, N.Y. Supp. 585). 103 S.E. 907, 180 N.C. 20; Wem er~:i:~ion to give him notice of
192 Wis. 539), or even after th . aiver of notice and discharge
dishonor (Sec. 109). Th~S, ~erea~sd:charged from liability for want
Q. What constitutes deposit in the post-office? where an indorser, know1ng e wised that, if the maker does Dot
of proper notice of ~ish(~~:~~~~~: v. Kulp, 81 N.J.L. 123, 78 AU.
A. Notice is deemecLto have been deposited in the post of-
pay th e no te , he wIll
fice when deposited in anYLbranch post office or in any letter box
under the control of the post office departmen~ec. 106). 1062).
 Q , tis of waiver of notice of dish
What are the kID o tlot'?
• . example.
E lain and/or gIVe b
xp . of dishonor may e express Or iIllPli ro~ ~l) llfrE
A 'an agree ment between the p e d, J\ ~()ti.~ r nIU>RETATION
' ~hen holder
Waiver of notIce l~
', there IS 't' artie v. Hand, 107 S t'l? 2d () Ulhonor
waiver IS express W n eed not give no lee of disho • 285
to the effect that the k Gridley, 98 N.Y.S. 445, 112 .l\pp
(Brooklyn First Nat, Ban v. . lv,O
b
'
205 Iowa 399).
'\'Y.
, 269 l\y. 342' W

t\ltU: ~1tAl ..., IiI-Wl 1iI'~ ~1lIlAO, ~

, 00d \to Roe, 218 N,W. 51
398), h' , t Q. Who ,
E 'd orse r wrote above" IS
Ie' The 111 fte the foIl Ow
sIgna Ure
d th
Ill'e aff~ted b . "!V'\"
W'

A. Where th . Y 9iatvel" of notice?

• xamp . '.
iog: Notice d,"ho~
or is hereby waived an erea r, Signed th' is binding uPon all e V'i~ver is embodied in the . .
same, Such of
indorser s wal.ver of notice of dishonor is express. e
ture of an indo ~artles; but Where it ' . mstrument itself, it
rser, It hinds h:_ 18 'WrItten abo\te the signa-
, }'Ie d W31V
An IInp 'er may result from any f words
h hand acts Wh'Ieh ~ only (Sec. 110).
. d
by fatr an reasona ble construction are
. 0 suc
d d a c h ' as w'll
h'aracter I Q. Explain the eft
satis fy the mind that a waiver was mten. e ,~r dW IC . wIll justify st~ent, and that \\1hic~~ of .9iaiver embodied in the in.
"i
"
'
r
, the holder in assuming that the indorser mten e to d ISpense with
notice, or which will induce the holder to forego the Usual steps nec.
an mdorser. Give an \Vritten above the signature of
ex.ample of each.
A. (a) Where the waiver' bodi .
itself, it is binding upon all 18 e~
.-
"
J essary to fix the liability of the indorsers (James v. Ward, 250 P. 7,
80 Colo. 293) or drawer. 109 ed In the instrument
~ , "Pay to A or order PIO 000 PresParties., Example: The bill states:
l .i 'r hereby waived" The '. . f entment and notice of dishonor are
~. 1'; Examples: The indorser's payment of the note Upon failure of . dW81ver . or deman~
b'0 presentment ~ or 0 f notice
.
-<.I ' .' the maker t~ do so operates as a waiver of notice of dishonor (Citi. of dishonor embod.' .

..-"'
. Ie In a III or note 18 binding on all parties to
-j t , zens' Nat. Bank v. Jennings, 127 S.E. 656, 33 Ga.App. 659). An ad. the mstrument (Sowell v. Federal Res.rv. Bank of Dallas Tex 45
., mission or acknowledgment ofliability by a drawer or indorser, made S.Ct. 528, 268 U.S. 449, 69 L.Ed. 10(1). This waiver affects"the
....,.
'
' after CIa turi ty of the instrument constitu tes a waiver of notice. (Rubl drawer and alllDdorse", and the fact that the indoner signed with.
:! out nottcmg the Pl"OVlslon of waiver (Bryant v. Merchant.' Bank, 8
..~; J
,I
I; ,
v. Schlichtemeier, C.C.A. Neb., 14 F.2d 593). When the indorser ad.
mitted liability to the holder after dishonor, he is deemed to have Bush (3) or that he was unable to read and write (First Nat. Bank
v. Soltz, App., 183 S.W. 675) does not Prevent him being bound by
r
,.
waived the omission to give him notice of dishonor (First Nat. Bank such provison.
v. Tomaque Mfg. Co., 71 Pa. Super. Ct. 39). The issuance by the
drawer of a new check to replace the dishonored check constitutes However, if an indorser signs with a contrary qualification or
a waiver of notice of dishonor (Wen v. Corn Exch. Bank, 116 N.Y.S. restrictions, the waiver contained in the instrument does not bind
665, 63 Misc. 300). The indorser's request of the holder to Sue is such him (Bank of Frederickhurg v. Knopp, Civ. App., 656 S.W, 319; Lewis ..
a COnd uet as to put the holder off his guard as induce him to omit v. Small, 215 N.W. 785, 172 Minn. 405). Thus, where the waiver is
demand and notice of dishonor, and hence, constitutes a waiver of contained on the face of the instrument but upon signing, the in-
dorser wrote above his signature "Presentment and notice of
N.P.N.S. and
demand 288).notice of dishonor (Sessions and Co. v. Isabel, 2 Ohio dishonor are not waived," the waiver on the face of the instrument
does not bind the indorser.

strued? (b) A waiver written above the signature of the in.

Q. How should waiver. of notice of dishonor be con. dorse r binds him only. Example: The indorser wrote at thedback
of the instrument and .ahov!' T~~s
h ' sl~:i~:~
. t "Presentment
of an no-
waiver appearing at
. d orser
III
A. orw'daivers,
rawer being t · I of the admitted rights of an
in derogation
are rath tice of dishonor .are waIved. hove fhe indorsement is not a waiver
extended beyond th' ~. . er S rIct Y Construed and are not to be the back of an Instrument a d 'U not bind all parties to the in-
WI
inferred from doubtful e laIr I of the te ~ms Use d , and WI'11 not be
actsImport embodied in the instrumeI,lt an b e the signature of the indorser
S h 'ver wnttcn a ov fi t'
Or anguage (Llberty Bank and Trust Co. strument. UC wm . d
binds him only and In orsers signing successively
. to the irs m-

i'
156

dor-er nre not bound by a provision of waiver app.earing above t FORM ANI) IN'rE
Notice of oRpRETAT!ON
first sib'llllture unless by expr:"S words or .otherwlse, the waiverhe A holder . ~honor
adopted by such 8 subsequent mdorser 8S IllS owu (Moores v. Stalk IS n r
o Ice of dish
IS not
requir d .
157
h' h . onOl to ' e in 0 d
191 N.\V. 175, 194 Iowa 1354). er, w IC IS incident. ' inCUr da
r er to make
v. Gray, 13 Mich al to the Usualmage or inconv:~sentment or giv
HOWf've~, where t.he waiver
I

.
, . is so expresscd
tl as
11 . d to
un int.ended to be bound by Its terms lCn n III orsers are b
indicute that sen.tlllent or noti~91).
Obstacles""';" Ofbu8in':~~~
beyond Iha~ I

by s uch waiver (First Nut. Blink v. Wolfson, 171 N.E. 460 271 ~;U"d whIch mnke tr
It .
of dlsho no 0 the kind whi h .oemx Ins. Co
avel i t e r , need I,
."

waiv~r i~ priI~ted Of~~s.

C WIll .
IS enough if U ,n rcourse not be of th d excuse pre-
292). Thus, wl",re th;- in a form at the back of ordinury prud1ey be of the de' presentment or ~ t~gr~ or e~tent
. I ence gree and h 0 lee Imnn"o'bI

dors~r ~9
in"trultlcnt, s uch waIVer WIll bmd all ahke, not merely the first· 1e III t le prosecut' ' energy and c ararter wt . 'h yvuSl e.
t' Ion of b' COurag (; 11(' deter

print~d
W. Va. 782,91 S.E. 80"8 -
difficult~Y' and feel'an:r;:t O!IVhkh lbey O::g8~1~~
(Central Nut. Bunk v. Sciotoville, IVe and earnest d usmess in e, rom encounte· men
Said waiver on the back of the Ulstrument and abov 1)' dangors, i~ .
'd . d b d' d' t} . e t le enough to excuse d 8 , obstructions of an" earnest interest Th C
14:~
indorsclll('nts is conSI ere us em 0 1C III le Instrument so d e ay Th d a sIght ch ,US,
bind all indorser:; signing below it (Cos tello Bros. v. Buckley, to orser, requires of th1 h' e uty which th h sracter, are not
energy and effort to e °k1der to give willl'ngee older owes to the in-
414 ). tl. t'une prescribed b I rna e presentment to 'thamest ,acflVe and rt'al
98 Am.D. 426). y aw (Polk v. Spinks, 5 CoW" ~payor,Tl'nn.
at the proper
431, 433,
Q. \\'nat is the effect of waiver of protest?
After the cause of the d I
must make presentment and ~eay has cea~d to operate, the holder
waiv~r
A. A waiver of protest, whether in the case of a foreign b'll
of exchange or other negotiable instrument, is deemed to be a reasonable diligence (Windh m;nd or give notice of dishonor with
AIn.D. 397), am ank v. Norton, 22 Conn. 213, 56
not only of a formal protest but also of presentment and notice f
dishonor (Sec. 111). 0 ~

to
Q.drawer?
the When is Dotice of d'ISh ODor not required to be given j.

Q. When is notice of dishonor dispensed with?

. ,A. Notice of dishonor is not required to be given to the d
A. Notice of dishonor is dispensed with when, after the ex- III eIther of the following cases (Asked, No. l[b], 1996 Bar Ex~:~~
ercit;e of reasonable diligence, it can not be given to or does not reach
(a) Where the drawer and drawee are the same person;
the part ies sought to be charged (Sec. 112).
(b) When the drawee is a fictitious person or 8 person
Exumple: Where the holder inquired of the payee as to the ad- not having ct\pacity to contract;
dress of the indorsers Slnd mailed the notices to the address given (c) When the drawer is the person to whom the instru-
and Inter on, when he learned or the indorsers' new address, mailed ment is presented for payment;
a second set of notices, he is deemed to have exercised reasonable (d) Where the drawer has no right to expect or require
diligence and therefore, notice of dishonor is dispensed with if such that the drawee or acceptor will honor the instrument;
notice does not reach the indorsers (First Nat. Bank of Belmar v. (e) Where the drawer has counterm anded payment
Grey, 101 N.J. Law 179, 127 Atl. 201).
(Sec, 114),
Q E I · andlor give eXllmpl.s ortb. in.tnn.,.. when
notice. of .i~.s.::::'r i. not required to be given 10 tbe drawer.
Q. When is delay in giving notice of dishonor excused?
A. Delay in giving notice of dishonor is excused when the nd drawee are the same person. -
delay is caused by circumstances beyond the control of the holder, A, (a) Drll weraI d awee elre the same person, the instru-
and not imputable to his default, misconduct, or negligence. When Where the drawer and t le r
the cause of delay ceases to operate, notice must be given with rea-
sonable diligence. (Sec. 113).
158 QLl ZZ ER A..... u t\r~~~\;AND RELATEU W\\\0

r either as a bill or a note (Se F()RM ANt> IN'rERP

the ho Id e b k c. ~ .~
b treated bY } drawer ecomes a rna er who' Notil:e of DishRETA110N '(;'.'..~
~;~t ~~~n ~",ated note~~~~ n~~
~'.
onor lfJ9
as a to whom notice of dishonor i. it may likewise he .
1 sald
. . '1 liable on the mstfU d awer is also the drawee, then h dishonor as he has that the drawe
pmnan v 'f the r d h e
. FurthernlOre.
neceS.5ary. I
. h onored
l".

t I1e I'nstrument an t orelore, n0ti, ~ be pm'd (Deitrick vno11right to ex})ect Orr need .not be gWen
. nOt.lc~
. of
ls . acCarthy. n c 1 requIre the bill or check to
was the one who d · ct of dishonor. ' . . ;tass., 13 F.S upp , 850>.
b 'wn of h IS a
need n ot e gt .' s person or a person not ha~. ~. When is notice .
. a fictltlOU b'll y_ to an Indorser? of dishonor not re ,,:-....1 to be "
(b) Drawee IS _ In such case, the 1 may be treated
. t on tract. b .·d q-......'CU gIYen
"ng capacity
1 . 130) and hence, the drawer may e conSI ered as a
0 c
d
A. Notice of di h
'.
.
s Onor lS n t
as a note (Sec. . ' not necessary. orser In eIther of the fon. 0 required to he given to an .
maker to whom notIce IS ' . OWIng cases: m-
. h rson to whom (a) Where the drawe .
) D awer IS t e pe h Instrument
h' 18 pre_
(cd r · . the person to w om t e mstrument is not having capacity to elSa fictitious person or a person
sente . -
If the drawer IS h'
t 't ~ Hows that he IS the one w 0 dIshonored
.
that fact at the time h ~ntdract, and the indorser Was aware of
present ed for pa~'ll~en , 1 0 ssary to give him notice of what he him_ em orsed the instrument.
the instrument. It IS unnece ~ (b) Where the indorser is th '
self did. ment is presented £or paYment; e person to Whom the instru-
(d Where the drawer has no right to ex~ect or require (c) Where the instrument was made or a ted r hi
that the d rawee 0 r acceptor will honor the Instrument. _ accommodation (See. 115). ccep lor s
\\nere t h e d rawer has n o money with the drawee,. .the former can-
not reasona J hJ u expect the latter to. honor a bIll (Kimball v. Bryan• '
. Q. Explain and/or give examples When notice of
10 N.\\. 218, 56 Iowa 632). Or, a wlthdrawal of the funds on whIch dishonor need not be given to the indorser.
b Oll 0 a check is drawn, without arrangement for payment of such
ahill1 or check,
r d
will dispense with presentment an ' notice 0 fd'IS h onor . A. (a) ~ra\Vee is a fictitious person or a person not
t.o the drawer (Gilman v. F.O. Bailey Carriage Co., 141 A. 321, 127 haVing capacity to contract which fact was known to the in-
Me. 91 ). dorser. - The indorser need not be given notice of dishonor only
when he was aware that the drawee is a fictitious person or a per-
However, notice of dishonor to the drawer will not be dispensed son not having capacity to contract (10 C.J.S. 903-904).
with where, although he has no money or effects in the hands of (b) Indorser is the person to whom the instrument is
th e drawee, he has reasonable ground to expect that his bill will be presented. - If the indorser is the person to whom the instrument
honored (Si monoffv. Granite City Nat. Bank, 116 N.E. 636,279 Ill. is presented for payment and therefore. he is the one who dishonored
248 ). Thus, the drawer has reasonable ground for such expectation the instrument, notice to him of his own act of dishonor is not nec-
where the drawee has agreed expressly or impliedly to honor the essary. Thus, if the corporation is the maker of a note which was
bill (Mazukiewicz v. Hanover Nat. Bank of City of New York, 148 indorsed by its President, and presentment for paym:nt wa~ made
N.E. 535,240 N.Y. 317 ), or has in his hands securities and other to said President who dishonored the instrument, notIce of dIshonoT
evidences of debt belonging to the drawer equal to the amount of need not be given to the latter (Bercer v. St.erling Oil & Refining
the bill (Campbell v. Pettengill, 7 Me. 126, 20 Am.D. 349). Co., 89 Okla. 114, 113 Pac. 863).
(c) Instrument was made or acc~pted ~or his accom~~
(e ) Where the drawer has countermanded payment. _
d t" Thp accommodation indorser IS consldered as a pnncl-
\\Then the drawer stops or countermands payment of a bill or check, a Ion. - -. .' avment by him in due course discharges the
the relation between the parties become the same as if the inst.ru- pal debtor and 111 fact, p. . . . . 1 debtor the accommoda-
instnlment (Sec. 119Ib}). Bemg a p~nclfPad' h , "
ment has been dishonored and notice given to the drawer (Patterson ' .mdorser ' d no t be o'
. nee ctiven notIce 0 IS onor.
bon
v. Oakes, 181 N.W. 787, 191 Iowa 78, 14 A.L.R. 559). In such case,
 IOU
LAW ANu Jl.1M o
- - -

~ ,
FORMAN{)
. h nor by non-acceptance h
(dis 0 I' ad N lNTERPRETAU
Where notice 0 to subsequent y gtve a notice () otite of Dishonor ON 161
Q. " t necessary f may be; but protest. '
been given, IS I ment? (Sec. 118). .IS not reqUired exce t· h
'I
\l J

dishonor by non-pay d' ,honor by non-acceptance has be Pint e case of foreign hills
t' e of l!:i • ell Only a foreign bill ,,
,
A' Where due no IC d' -honor by non-payment IS not n },

b uent l!:i t h b ec. as a foreign bill (Cas (Sec. 118) and checks of a . I
, tice of a su seq , the instrumen as een accept d be protested h ~r v. Kuhne 140 Ny nature conSldered
given. no . the meantune e
essary, unless II1 w en dIshonOred b' . .S. 86; 76 Mise. 411) must
w hil e 0 ther negotiable' t y non-acceptance or
d Th Ins nun non-payment
(Sec. 116), '11 ddres sed to Y for PlOO,OOO, paYabl teste. us, a promissory ~nts may, but not required to be pro:
dr>w a bl a Y l' e
ExampI e: X e dt} e instrument to lor acceptance but order to hold persons liable no may, but need not be protested in
A
to A or order. P ~ re~ente 1 t'
. t the same, A gave no Ice 0 f d' h
IS onor b 148 So. 864, 25 Ala A ~hereon (Mallory v. Dairy Products C i
i
Miss., 8 How. 234 i2l~d 1 ). An inland bill (Wanzer v. Tup~;
2
the latter refused to achce P wer, It is no longer necessary to rri Y ~ I
non-acceptance
t.o X t e d ra
~.
' . e,. ve
VTllent to X as prevIous notIce of disho land bill (De Soto' Me~t:l 060) and a check. classified as an in~ t i
t '

. d"h by non-paJ a
• nor App.) likewise may, but need I e Co·bev. Sebastian, 121 So. 664, 10 La.
notice of l :s Ollor had already been given. However, If Y changed , not protested. ! .

b~ non-acceptance t d the bill but was subsequently unable to pay

a~d ac~p e f dishonor by non-payment to X.
"t
I I

;' , hI S stand
it, A must give no Ice 0 ~
I

What is the effect of the omission to give notice of

Q.
f
dishonor by non-acceptance?
A. An omission to give notice of dishonor by non-acceptance
does not prejudice the rights of a holder in due course subsequent
to the omission (Sec. 117).
Example: A drew a bilI addressed to B and payable to C or or-
der. C presented the bilI to B for acceptance but B dishonored the
bill. C failed to give notice of dishonor to A. C then negotiated the
instrument to D, a holder in due course who did not know that the
instrument was previously dishonored. The failure to give A notice
of dishonor will not prejudice D, a holder in due course. D may
present the bill to B for acceptance and if dishonored give ' notice of
dishonor to A

The implication of Section 117 is that where the instrument

was nt1gotiated subsequent to the omission to give notice of dishonor
by .ac~epta~ce, to a person who is not a holder in due course, such
onUSSlOn wIll prejudice such holder.

Q. 'Vhen is protest necessary and when l·S

quired?
it not re-

A. Where a negotiabl . t .
may be protested for non- e illS rument has been dishonored It
acceptance or non-payment, as the case
 FORMANDr
Disthar~ ofN NTERPRETATlON "ji
egOtiable In~trumenta 163
Q. Whose PaYln ,!
l'
.j
gotiable instrument? ent in due course w'll d' h ,;
• 1 lSC arge a De- !!
A, Payment in d Ii
pal debtor, or (b) by the ~~~~rse: (a) by Or on behalf of the princi.
,I
ClIAPTER VIII if
. i \
ment (Sec. 119[a} and lb]). CCommodated discharges the instru- I'
,
I
The principal debtor "is i.
of the instrument." (Trietel v a~~y appeari~g as such on the face
I

I
DISCHARGE OF NEGOTIABLE INSTRUMEN'l's
", I
I

') Supp. 603). He is considered'. SOn, 131 Mise. Rep. 377, 226 N.Y.
liable on the instrument H In some cases as a person ultimately
behalf of, a party to a ne' et~cebl' a.payment in due COurse by, or on
"
nly .
lIable discharges th .go la e Instrument u It'Imately or pnma-
.
Q. How may a ne gotiable instrument be discharged? thereon (Virginia SecUri~i:s~rutnent ~nd the li~bility of the parties
(Asked, 1981 Bar Exams.) Va., 20 F.2d 78). oTporabon v. Patnck Orchards, C.C.A.

A. A negotiable instrument is discharged:

FollOWing the foregOing principle, payment in due course by the
;., .. (a) By payment in due course by or on behalf of the prin. maker (Meeker v. Halsey, C.C.A. N.Y., 87 F.2d 299) or by the accep-
~ :t cipal debtor; tor ~Brander v. Phillips, Ala., 16 Pet. 121, 10 L.Ed. 909) discharges
...,.
t .l· ~
~ ~, I
(b) By payment in due course by the party accommo.
the Instrument as they are primarily liable on the instrument. Pay-
ment of a check or draft in due COurse by the drawee, likewise, ex.
dated, where the instrument is made or accepted for accom-
...'l·,-~. modation;
tinguishes the instrument and discharges the drawer and indors-
ers from liability (Wells Fargo Bank and Union Trust Co. v. Bank of
•A
,."
.' 1
I
~J
(c) By intentional cancellation thereof by the holder;
Italy, 4 P.2d 781, 214 Cal. 156).

On the other hand, unless payment is made on behalf of the

(d) By any other act which will discharge a simple con. party primarily liable (Grouf v. State Nat. Bank of St. Louis,
.' tract for the payment of money; C.C.A.Mo., 76 F.2d 726), payment by a party secondarily liable on
: I

• ,J the instrument thereon does not discharge the instrument (Sec. 121),
(e) When the principal debtor becomes the holder of the
t .. so as to release the party primarily liable (Bank or U.S. v, Abrahams,
instrument at or after maturity in his own right (Sec. 119). 257 N.Y.S. 620, 144 Misc. 308) although it docs discharge 1iabilit~
on the instrument of the party making the payment (Assets Rea~l.
Q. What kind of payment will discharge a negotiable zation Co. v. Mercantile Nat. Bank, 153 N.Y.S. 156, 167 App.Dlv.
instrument? 757).
Th , art accommodated is in effed a principal ?t::btor and
A. For payment to operate as a discharge of a negotiable in- y t b y h'lJn in due course dischurg(~s the m strument
e ppaymcn
therefore,
strument, it must have been made in due course (Rogers v.
(Sec. 119[bJ).
?allagher, 49 Ill. 182, 95 Am.D. 583). To be a payment in due course,
It must be made at or after maturity of the instrument to the holder
thereof QHowmnym . tcntionnl cancellation of the instrument
88).in good faith and without notice that his title is defective
(Sec.
be do~e and whut is the effect thereof! 'd
' 1-' to annul or d estroy, rna ke void or set as} e.
A. "To enucc l~ b the holder or with his consent
The canccllntion of a bIll or ~ote {the instrument (MacDonald v,
162
may be effected by destrucbon 0

I
 164 QUIZZER AND HEVIEWEH ON NE(~~~n~'1~A~B~L~hl11N~SbTUf[{UU
· MMfEE~NVirr~S~---l---------IIIIIIIIIIC;:;:~---__~___________
' LAW AND HELATi:n LAWS

Loomis, 206 N.W. 348, 233 l\fich. 174),.orby writing or starn .

words or lines on it.s fnce, provided the Jrlstrument, by its cond!}~ng PORA!
DiSch ANn IN"'"
shows that it has been cancelled (Algeo v. Stewart, 7 S. W. 2d, ~~on argo ofN 'r"nPRETAT
sation; (6) ... l!gottable lnstru ION
220 1\10. App. 1003). 0, . .~~~ ~~ 165
tIons are annul n. The oth
\\There the holder of a negotiahle instrument cancels th a n d prescripti rnent ' resciss' er Cau ses of ext" '
.
with the lIltent ~ h urgmg
and for the pm.pose 0 f d'ISC . t he SUnIe
e sum e on. lOn, fUlfillment o;:gulshment of obliga_
Example· resolutory COod 't'
there is no fraud or mh;take, stich cancellation operates as a ~i and
ll"-
· . n nen th I Ion
set aSIde and e deed f
and a discharge of the instnmwnt and the liability thereon (T(:~~~se f h
o t e lot cannot
cancell d 'or a lot
e I the assi pUrchased by th
v. Tomkins, 243 P. 632, 78 Colo. 574), even though without Con \].~s ity on th recover ther gnee of the note' e.maker Was
e note Was d' eon against th glVen In payment
eration. (1\fanker v.l\fanker, 249 Ill. App. 161). However, becau HI • (Wheeler v. Presto IScharged by th e maker, since his liab'l-
e
intention to discharge the instnlmcnt is an essential elenlen: ~n of consideration n, 107 S.w. 274 32 KeLcancellation of the de;d
. caUsed b ' Y" 791) H
mere cancellation of a negotiable instrument does not ncces ' t.le agamst a holder in d y rescission th f' owever, absence
. . sardy (b) ue COurse (Sec. 28). ereo, cannot be raised
constitute, or conclusIvely show such a dIscharge, there being n d'
When the prj •
charge where such was not the intention of the parties (Bro~d l~ the instrument at nClpa} debtor becom
l\-farket Nat. Bank of Newark v. New York & Eastern Realty C Civil Law. th' or after maturity' h' e8 the holder of
, IS ground for d' In 18 own right I
168 N.Y.S. 149, 102 1\fisc. 82; Drake Lumber Co. v. Smnple, 130 So., called confusion or mer IScharge of a negotiable instrum· -t ,n
de btor of one obligation ger Where th ' . en 18
577, 100 Fla. 1757, 1771, 75 A.L.R. 687). Accordingly, a discharge?' ,e quahtIes of the creditor and
not effected by cancellation of the instrument which is the result l~
E are merged In one and the samE.' person
xample: A issued a promisso .
fraud, duress or mistake (Thompson v. Fourth Nat. Bank, 111 S~
29, 215 Ala. 476; Drake Lumber Co. v. Semple, supra). .
i )
D indorsed said not'e on J~l t
on or before June 1 2000" B ' d ry note payable to "B or order
orsed the nO,te to C, and C to D.
is primarily liable on th ,y 2, 2000 to A. Smce the maker who ~
A discharge under Sec. 119(c) can only be effected by the holder 1 . e mstrument became the holder of the ,

of the instrument (Campbell v. Wilcoxen, 7 P.2d 46, 134 Kan. 500).

l~sthrumendt after maturity in his own right, the instrument is
d ISC arge .
Cancellation of a note made without the authority of the holder is '4 I

inoperative (Union Bank v. Sullivan, 108 N.E. 558, 214 N.Y. 332).
Q. When is a person secondarily liable on the instru-
Thus, a person to whom the instrument has been delivered in es- i I
ment discharged?
crow is not such a holder for the purpose of canceling the same and
discharging the debt (Campbell v. Wilcoxen, supra). Or, the fact that A. A person secondarily liable on the instrument is dis-
one of the makers of a note drew lines through the signatures of charged:
other makers without the consent of the payee does not constitute (a) By any act which discharges the instrument;
a cancellation of the note as to them (Foster County State Bank v. (b) By the intentional cancellation of his signature by
Lammers, 134 N.W. 501,117 Minn. 94). the holder;
(c) By discharge of a prior party;
Q. Explain and/or give example of the last two grounds (d) Bya valid tender of payment made by a prior party;
for discharge of an instrument under Section 119. 'nei aI debtol unless the hold-
(e) Bya release o~th: t:~ pa~y secondarily ~iable is ex- (.

A, (a) Any other act which will discharge a simple con- er's right of recourse agams . '
tract lor the payment of money. - The Civil Code is applica.bl.e pressly reserved; , . u n the holder to extend
to negotiable instruments in a suppletory character (Art. 18, ~lVII
(0 By any agreemen~~;::~e ~older's right to enforce
Code) and Article 1231 thereof provides the grounds for extinguIsh-
ment of obligations, such as: (1) payment or performance; (2) loss of
the time of payment or
the instrument unless
:a':e
with the assent of the party see-

the thing due; (3) condonation or remission of the debt; (4) confu- ~,
i,
sion or merger of the rights of the creditor and debtor; (5) cOInpen" I,
'\
 ~ U ll""-''''''' '-'- LAWANPJ(I·.I.J\JDU . u "' -
lbb
rf FoRMAN
e right of recourse against sUch Discharge Of~~ERPRETATION 167
unless th ) gotiable Instruments
rily liable. or ed (Sec. 120 .
on da• I res en' this rule is that when th .
party is express y
the subsequent party' edlIld?rsement of a prior party is cancell d
. e examples of the grounds for £, h . IS epnved f . e ,
. ndlor glv . ormer ence, In fairness thO a nght of recourse against the
Q Explain a dnrily liable. charged. 0 t e latter, he must likewise be dis-
. {ersons seco n
discharge 0 p . d' charges the instrument. - An Example (2): (i ) A made
t which IS
A. (a) Any 8C t' . ble instrument WI'11 d'ISCh.srge all Par.Y the. note to C, and C to D. B~note payable.to B or order. B indorsed
t which discharges a n~go J~] or secondarily liable thereon (IO a dIscharge in insolvency Th as declared Insolvent and was given
ac h ther prJll1aTl Y
ties thereto wed 470 pp. 1018-1019). charge C as the fonner'~ di:c~eleas~ of B from liability will not dis-
C J.S .• Sees. 469 an , . .. . by the act of the holder (H' I arge IS by operation of law and not
. k f a negotiable proIlllssOry note paId the pra). Ig eyman v. McDowell Motor C~r Co., sUo
Examp le'. The rna 'ter 0Upon such payment, tlle mstrument .
is
t or after rnatun y. k t th . d (ii) Failure on the p rt f h h
same a . II rt ' s thereto from the rna er 0 e In orsers within the statuto . d a ,0 t e older to present his claim
discharge~ and a dP; :: liability. "Where a negotiable instrument ry ~eno agamst the estate of the deceased maker
",'f are also dls~~~rg~ -:urse by the party ultimately liable thereon of the note resu~ted m the discharge in favor of the estate of the
i:;
, has been pal dInd ~ne,trument and may not ordinarjly be reissued maker by operation oflaw. Such release of a prior party will not dis-
;
I'
, it becomes a ea IS , l' b'l' h h
' d ther parties thereto whose 13 I lty t ereon as been
~harge ~ party se~ondarily liable because the discharge referred to
U, so as to bIn 0 111 SectIon 120(c) 1S by some act of the creditor and does not con-

., .
; J discharged." (Spengler v. Drouet, 6 La.App. 624). template a discharge effected by the operation of law (Roberts v.
-: ; (b) Intentional cancellat~on of his si~ature by the Chappell, 63 Ohio App. 397, 26 N.E. 2d 930).
.'
holder. - The cancellation of the sIgnature of an Indorser must be (iii) Likewise, an indorser remains liable on his indorsement
!; intentional to effect discharge of such party and cancellation of a to subsequent holder, even though the maker is released from liabil-
signature which was unintentional ~r unauthorized,. did not affect ity because of a failure of consideration (Everding & Farrell v. Toft,
the validity of the indorsement (Umon Bank v. SullIvan, 108 N.E. 160 P. 1160,82 01'.1). ':.

558,214 N.Y. 332). (iv) Failure of the holder to hold a prior indorser does not also
, The cancellation of an indorsement aside from being intention- discharge a subsequent indorser (Devoy & Kuhn Coal & Coke Co.
I' .
ally done by the holder, is subject to the restriction that the indorse- v. Huttig, 156 N~W. 412, 174 Iowa 357) for the reason that the holder
ment may be stricken out only if it is not necessary to the title of may hold the indorsers liable in any order he may choose (see Sec.
the holder as when it is negotiable by mere delivery (Sec. 48 and 84) or hold only some of them liable (Devoy & Kuhn Coal & Coke
discussions th ereunder). Co. v. Huttig, supra).
(c) Discharge of a prior party. - Discharge of a prior Cd) Valid tender of payment made by a prior ~arty.­
?arty as a ground to discharge a person secondarily liable from the When a valid tender of payment has been made by a .pnor part!
mstrument must be by an act of the holder (Howard v. First Nat. but it was refused, a party secondarily liable is discharged. from 11-
Ba,nk, 110 S.W. 2d 293, 270 Ky. 586), and not by operation of law ability.
~~~flcyma.n v. McDowell Motor Car Co., 216 S.W. 52, 202 Mo.App. Examples: (i) If the instrument is, .by it~ terms paya~l~ at a
. d he crson primarily hallIe IS able and WillIng to
specl.al place, an t t ~t such ability and willingness are equiva-
Example (1): A made a t bi ' pay It there at ~a un y, t pon his part (Sec 70). Therefore, if the
t1le note to C d C ' d ~ n~ e paya e to B or bearer. B indorsed
strikjng out hi:nind In orsed It ~ D. D released B from liability by lent to a ~nder 0 payn~n i:strument at such 'special place, and the
indorsement has be~nrsernentl'l B IS released from liability since his holder fUlls to pres~nt t.e bi and willing to pay it there at matu~
cance ed and C i 1 d' h d ~ r person primarily habl~lls ; ~e on the instrument are discharged
ability because of the dischar' s. a so ISC arge lrom 1- rity, persons secondarl y 1a .
ge of B, a prIOr party. The reason for

J
 ' b'}'t there bemg , a valid tender of payment , by a Prior PartY.
from 1m I I y, t efuses to receive part Pa""l'h Pon..\iANn
(iil If the ho or~. refusal releases the m orser fro", liahU
Id f a no e r , d .7
4tell t
&

Disch~ of N~ftplU:rATION
thereof from the maker, IS t refused, although the hOlder do • 120[£1), To be effect' egutiahle lnstruJnent.a 100
ity tob the' extent 0 f the ~amoun
T
ard <Hight.ower v. I vy, 2 P or.
t 3 08), e~ the agreement bet~ve as a disch~ of th
the ~ame aft-ern
not tum. f th principal debtor, unless the hold sideration and he o~:
the Parties tnust ~~
secondarilY .liable,
supra; Converse v D' ~ Valid and ent \l.nbded on a valid Con-
0
(e) By release 0 ~nst the party secondarily liable"
pa~y • lC~, 151 So, 75, 178 ~~l~~~ (Gould v, Keith.
'h f ourse ag81 th, IS
er's rig to rec _ The relation between e. pn"'nri]
expressly reserved.,
t · hIe ms t rutllent and one secondanly lIable is "'1, Sl'~} Q.. What are the li b
liable on a nego
larh' toh that
" Hl between prl'ncipal
eXIstmg Ii r will
. and surety, hence, mOst act8
discharge the latter
who paId the in.truxnent~ ts of a Party 8econdllri\y liable
d' harge the orme d I' (Passman h
Y, A. Where the instru "
W IC. , ISC 1 N.E. 2d 707). Accordingly, any ea mgs between able thereon, it is not di chtnent IS paid by a \lOUty secondarily Ii.
Budmzky,
the holder App. . . I dehtor or any act
and the pnnClpa h' of the holder whi Ch mitted to his fonner righ~ "'1led; but the \lOUty so paying it ia re-
.
mcreases tens d' h lin to
h 'k 0 f the indorser or. exposes tha 'greater
d liahil_ strike out his oWn and aU a.;,
r.gards aU pnor PBrties, and he may
' h' h th ise prejudice hun ISC arge e In orser frOll} gotiate the instrument t ""'x. cep:
su t8equent lIldorsements, and again ne-
Ity or W Ie 0 erw S E 1059 144 G 703) I
liability (Philipps v. Bridges, 87 . . ' . a. . n aCCord
(a) Where it is payabi
. h thOIS, a re lea~e of the principal debtor hdischarges
WIt f h I the person and has been °d b h e to the order of a third person,
secon d an"I y I'la hIe because it affects
L •

'the . rIg ts 0 t e atter to go P81 y t e drawer. and

against the principal debtor (Tomkins v. Tomkins, 243 P. 632, 78 Colo.
~
574). . (b) Where it has been mad. or accepted for IIC<x>mm..
dabon and has been paid by the IIC<x>tnmodated tSec. 121).
However. if the holder expressly reserved his right of recourse
against the p~rty secondarily liable, release of the principal debtor Q. EXPlain and/or give examples of the effects of pay.
ment made by a person secondarily liable.
will nut discharge the person secondarily liable. SUch reservation
of right of recourse against a person secondarily liable carries with A. (a) Where the instrument is paid by the indorser. _
it by implication, a reservation of the latter's right against the Prin. Where a bill or a note is paid by an indorser at or after maturity,
cipal debtor <Boatmen's Savings Bank v. Johnson, 24 Mo. App. 317). the instrument is not discharged and the latter may reissue it, and
thereby give to his indorsee a right of action against prior parties
(0 By any agreement binding upon the holder to ex.. UvlcCarty v, Roots, Ind" 21 How. 432, 16 L.Ed, 162), including the
tend the time of payment or to postpone the holder's right acceptor of a bill (Havens v, Huntington, 1 Cow, 387), The ~rty 80
to enforce the instrument unless made with the assent of the paying it is remitted t.o his fanner rights as regards ,all pnor par.
party secondarily liable, or unless the right of reCOurse ties, and he may strike out his own and all sub..~ut\nt mdorsements,
against such party is expressly waived. _ The party secondar- and again renegotint.e the instrument (Sec. 121, first par.).
ily linble is discharged from liability by any binding arrangement
Example: A i..ued a note payable to B or order. B nogotiate~
between the holder and the party primarily liable which materially h te to C C to D and D tt) E. C paid the Instrument to ~ an
challges Or alters the terms of the original obligation on the instru-
reacquired the 1Il8tnm1t'nt. \~,e .
t e no . " . TI ffeet>; of surh payment are: til the
. h' £ mer rights as
n~
ment, provided, the parties intended a modification (Gould v. Keith, t. t d'scharg~d (u) C reacqUIres lS or
instrumen IS t. d A (iii) Cmay strike out his own indorse-
r~)
49 P.2d 623, 9 Cal.App.2d 284; BerkOWitz v. Kasparewicz , 183 A.
693),
holder as agnm::;t
mont and B an
thnt of D, an d 1 . C may further renegotiate the mstru-

whe~
~
Thus, by agreement, the time for payment has been ex-
mcnt, . t '. paid by tbe drawer, _ (i)
tellded or the rIght enforce the illstrument has been postponed, (b) Wht~re the iustrumen a~er's own order, that is, where
the person secondanly habl. on the instrument is discharged (Sec. Where the bill is payable t~h~l~r~~er and he paid the instrument,
he is the payee l\S well as
 d h e may reissue the instrulh Po~ANn
. not discharged 83a n699.
) (") '~ellt
11 \Vb ere the h' .
the instrument IS d 7 Allen 456,
Am,D.
on the drawer cannot reI'" III D~()fN~~ATlON
Maynar , I'd pers , '38\1.
the instrument (~-~ 1 tnuneuta 171
(Gardner v.' der of at ur uld have to make title thro e
is payab
'
I to the or
.e uc h a C3"e
~ , the. ho
lder wo . .
d' sc h a r ged and hiS mdorsement I'n ef
ugh. ~. 22)
equate consideration w:'
'th
(Beauvais v. Kish"-, Was gIven 01' ~.
Out regard to Vi
hether or not an ad.
it, Smce 10 s t the latter IS 1" ym (Gardner v. MaYnard _
the drawer s pa ent ' ... y, 175 A. 82 '''~lVed for such re
the payee; bu , Su. tion does not affect . 6, 54 Rl. 494 nunClati~n
"
feet stricken out by tice (Sec. 122) the nghts of a hold ')d·However, a ~nuncla.
pra ). • made by the party accOllllll . er in ue COurse WIthout n()..
() Where payIll ent ISd ted is a prmclpa , , I d e b tor and p O.
119[b]) \Vb ay. Q. What is the e b t
d t dc
a e . - The , party ac . ~trument , (Sec.
COIlU110
es the IIl~
a
t . . dere the I'n. the in t ........ -. UeC of UUinte t'
IS en ed and 11
8 - ~ent or any si n lonal cancellation of
men t by . him dlscharg
, ed the l'e:
He
of such. mstrumen
. .,... S . . a den of proof? gnature thereon? Who bas the bur-.
strument is dlscharg . rn their liabilItIes (\ lrgtma ecunbes COr. ' ,.
Parties are discharged fro .A. A cancellation made' .
po ' k Orchards, C.C.A. Va. 20 F.2d 78) hence , it can. or WIthout the authority of the :mten~~nallY, or. under a mistake
ration v. Patne •. h can the party accommodated recOher
' t d Nelt er
not be renegotia e.
y instrument or any signature th !del', 18 inoperative, but whe-re an
' .
party, as between the two of them , th e
.g . from the accomm
odatlOn
former is the real debtor se
(e discussions under Sec. 29).
the burden of Proof lies on th el'eQn appears to have been can~lled,
tion was made unintent' ~ party Who alleges that the cancella.
thority (Sec. 123). lon y, or under a mistake or without au-
\
Accordi~gly, a discharge is not effected by cancellation or S~.
I
Q. What are the effects of the renunciation by the
holder of his rights? render of the mstrument which is the result f fra d d
8 i
tak (Th 0 u. uress, or mlS-
A.The holder may expressly renounce. his righ~ against any e ompson v. Fourth Nat. Bank, 111 So. 29, 215 Ala. 476; Drake
party to the instrument before, at, or a~r .lts matu~ty. An abso- Lumber Co. v. Semple, 130 So. 577, 100 Fla. 1757, 1771, 75 A.L.R.
lute a'1d unconditional renunciation of h~s nghts a?aInst the prin.
6~7). So the fact that the makers of a note drew lines through the
sIgnature.s of other makers without the consent of the payee does
cipal debtor made at or aft.er the maturIty of the Instrument dis. not constitute a cancellation of the note as to them (Foster County
charges the in trument. But a renunciation does not affect the rights State Bank v. Lammers, 134 N.W. 501, 117 Minn. 94). Cancellation
of a holder in due course without notice. A renunciation must be in of a note made without the authority of the holder is inoperative
writing, unless the instrument is delivered up to the person prima- (Union Bank v. Sullivan, 108 N.R. 558,214 N.Y. 332).
rily liable thereon (Sec. 122).

Q. What is the effect of alteration of an instrument?

(Asked, 1971,1983 Bar Exams.)
What are the requisites in order that the renuncia-
Q.
tion of rights by the holder against the principal debtor will A. Where a negotiable instrument is materially altered with-
discharge the instrument?
out the assent or all parties liable thereon. it is avoided, except as
. A. In ~rd~r that the renunciation of rights by the holder
against a party who has himself made, tluthorized, or assented to
agaI~st .the pnncipal debtor will discharge the instrument, said re-
the alteration and subsequent indoTSer8.

nunCIatIOn must be: (a) express, (b) absolute and unconditional (c) But when an instrument has been materially altered and i~ in
made at or aft.er the mat 't f h . .~ th h d f holder in due course, not 8 party to the alteratlOn,
1 e an s 0 a . . . 1 te (Sec
un ess th e instrument
' . is un yo td e Instrument,
deHv h and (d) in wrltmg,
. bi he may enforce payment thereof according to Its ongma nor .
thereon (Sec. 122). ere up to t e person primarily ha e 124).
A valid renunciation of . hts b . The effect of material alteration of a negotiable instru~en~
pal debtor made at 0 fie ng . y the holder against the prinel. without the assent of all parties liable thereon~ may be summanze
r a r matunty of the instrument discharges " 11ows (Ask
as 10 ' ed, No . XVI , 1995 Bar Exams.).
 N NEGOTI ABJEINSTR~ENTS
J

172 QtJIZZERANT> RFi.AW AND 0RELATED LAWS

VIEWER

ho is not a holder in due F'ORMANnn._

he hands of a ~ersdo:x;ept as against the fOllow. DiScharge of N'!' 1~RPRETAll0N
(1 )
co urse I~
the In tStrumentthe
is altere
avoIded tenor of the instrument:
Q. If the Illaterj n 1
egotlable Instrutnent8 173
' I' ble on .
jng who are la d the alteratIOn; t <q a1terat.
homa e paren , may a hOlder in d Ion of the Instrument i. ap.
(a) Person who au th 0 rized the alteration; ment? ne co_ stil! enforce the instru.
(b) Person W ted to the alteration; and A. The PrinciPle that aU
(c) Person who assen
(d) Subsequent indorsers. force the original tenor of . ow. the holder in due COurse to en.
altered does not apply wh~: ';;;'trumentthat has been materially
(2)
f h lder in due course, not a party
In the han?s 0 a :t may be enforced according to City Bank of St. LoUis Mo w· alteratIon 18 apparent (National
. the mstrume 11' h where it is obvious that the'·'" t 1thUS, 237 Ill. App. 217), after all,
. the..
to I tenor except as against the fot owmg w 0 are Ii,
alteratIOn, ~
. lace,
on Its t h e holder could hardl l' is n 0 t Comp1ete and regular
Ins rument
Its ongma
able on the altere d tc nor of the instrumen : . (see Sec. 52 [a)). y c 81m to be a holder in due COurse
",
"j (a) Person who made the alteratIon; .
'iI
(b) Person w ho a uthorized the alteratIon; Q. A issued a check for $1 07
d
!i (c) Person who a ,~sented to the alteration; and der. B deposited ·t· h' , 9.49 payable to B or or-
(d) Subsequent indorsers. was• hdIshonored
•
d
• In '8the
becaUse account
drawe with
h d·C Bank.
uffi' Thefun
check
the an 8 of the drawee bank. C Bank, r a lOS Clent hank
a. collecting d in

Th~
Q. A made a promissory note for PIO,OOO payable to B
altered the check to $1,059.74, the size of the deposit of A wilb
or order. B indorsed the note to C who altered the amOunt the drawee. drawee bank paid the check. May the
of the note to PIOO,OOO with the consent of B, ~nd thereafter drawee bank deb.t the aecount of A with the payment made?
indorsed it to D, who in turn negotiated the Instrument to A. The alteration made by C Bank avoided the check and the
E. May E hold A, B, C and D liable on the instrument? If so, payment Was not valid and could not be debited from the aCCOunt of
(or how much?
A, the drawer (KelIer v. State Bank of Rock Island, 292 III. 553, 127
.. N.C. 99, 9 A.L.R. 1082; Asked, No. XVI, 1995 Bar Exams.). .
'
A. If E is a holder in due course, he may hold A liable ac-
1,1
I. COrding I<> its original tenor, and collect from the latter PI0,OOO (see
Commercial Credit Co. v. Parks, 112 So. 237, 215 Ala. 648). E may Q. Lay&, a Provincial Treasurer of Misami. Oriental
hold B liable for PIOO,OOO since B consented to the alteration (see and ex o/icio agent of Philippine Nationul Bank (PNB), iSSUed
Clapper v. Gamble, C.C.A. Mo., 28 F.2d 755), or E may collect from a check drawn against PNB and payable to Ramos. After the
C PIOO,OOO inasmuch as C i8 the person Who altered the instrument issuance ofthe check, the words "Agent, Phil. National Bank"
(Commercial & Fanners' Bank v. Patterson, D.C. 6 F.Cas. No. 3.056, were inserted below the signature of Laya. The check was

Inddor~l·el'r
2 Cranch C.C. 346), or E may COllect PI00,OOO from D a subsequent indorsed to Montinola after 2·years. Montinola tried to en-
becausewhatthe latter warrants the instrument'to be genuine cash the check. Can Montinola encash the check?
an a respects it rt to b
107 N'E: 395 ' 220 Mass. purpo
10). 8 e (Sec. 66; Andrews v. Sibley, A. The insertion of the words" Agent, Phil. N ation~i Bank"
which converts the Bank from a mere drawee to a drawer and there-
If E is a person not a hold . d
from A since the material lte e~
10 Ue course, he cannot collect
fore changes its liability, constitutes a material alteration of the in-
strument without the consent of the parties liable thereon; and so
a party or privy without tha rabon of a negotiable instrument by
,
ates the Instrument e aSsent &
(Commercial of all part' 1~8 r
la hI e t h ereon VltI-
' . discharges the instnlment, Montinola was not a holder in due course
since he became the holder after it was overdue or after th~ check
SUpra). E may hold B C and Dr II Farmers Bank v. Patterson,
became stale (Monti nola VB. Philippine National Bank, 88 PhIl. 178).
above. ' 18) e for the 8ame amount stated
It may be added that in the hands of Montinola who was not a holder
in due course, the check materially altered without the assent of all
parties liable thereon, was avoided (Sec. 124).
 GOTIABLE INSTRUMENTS
EWER ON NE .~ LAWS
174 QUIZZER AND RE~~W AND RELATED

k a check for P50,OOO dra\\rtt

~RMANDINT
Q A deposit.ed wit~ B Bad"' ately sent the check to th
DISCharge ofN ERPRf;'J'ATION
egotlable Inst--._ 175
. B k unme 1 h k I e Ul.l.Illents
. t C Bank B a" I Bank The c ec was c eared Q. What constitut
a~all'.s If house ~f the centrsk with"the amount of P50,OOO ,es a tnate • I
c eda"CInBank credited B Ba~fi d B Bank that the check \Va •
A. Any alteration'll' I"la alteration?
an . B k notI Ie d d d S ( ) hich changes:
Nine days luter, C an P50 to P50,OOO, an emun ed reilll_ a The date;
materially altered from As between the collecting bank.
. h one 0 f th em s h ould' (b) The SUIll paYable, eith '.
bursement f rom the latter. C Bank, whlC
B Bank and the drawee, (c) The f er for pnnclpal or interest.
Illle or place of paYment. '
bear the loss? b (d) The ntunber 0 th '
e C Bank should bear the loss ecause under (e) Th r e relations of the parties'
A. The dra:ve 'f h ks the drawee bank must return the e medium Or curre . '
the rules on clearn~g 0 b~n~cwithin 24 hours, if the check is defe • made; ney In which payment is to he
check to the collectms~ C Bank did not return the check to the e Or which adds a place f
t" fi any rea"on lllce 1 ft . is specified, or any other ch:n paYme~t.V:here ~o place of payment
IVe or ~ . 1"" the 24-hour period but
collecting bank WIt 1111 k
on y a er nIne days
FNCB 11 ' of the instrument in any ge?r a dlhon whIch alters the effect
" cannot recover f:rom the latter (Metroban VS.
It , 8 SeRA respect, IS a material alteration (Sec. 125).
537', Asked, No. Hl[b], 1996 Bar Exams.).
Q. Is the alteration of the check number material?
Q. What is spoliation? What is the effect thereof? A: An alteration is said to he material if it alters the effect
A. Spoliation is an act of alteration made by a stranger to of the mstrument. It means an unauthorized change in an instru-
the instrument (Walsh v. Hunt, 52 P. 115, 120 Cal. 46, 39 L.R.A. 697). ment that purports to modify in any respect the obligation of a party
or an unauthorized addition of words or numbers or other changf'$
Prior to the enactment of the Negotiable Instruments Law, spolia- \,"
to an instrument relating to the obligation of a party. In other words,
tion under common law did not affect the instrument. The Negoti- a material alteration is one which changes the items which are re-
able Instruments Law, however, does not make a distinction between quired to be stated under Section 1 of the Negotiable Ill8truments
material alteration made hy a party and that made by a stranger Law. The serial number of a check is not an essent.ial requisite for
(See Brannan, p. 945) and therefore, logically, it should mean that negotiability under Section 1 of the NIL. The aforementioned altera-
the former rule has been changed, so that spoliation should have tion did not change the relations between the parties. The names of
the same effect as alteration done by one of the parties. the drawer and drawee were not altered. The intendE.'d payee was
the same. The check's serial number is not t.he sole indic.ation of its
Nonetheless, despite the enactment of the Negotiable Instru- origin. The alteration of the serinl number of a chock is immaterial
ments Law, decisions still apply the common law so it has been held or an innocent one, and therefore, th€' drawer cnnnot refuse the check
that spoliation does not affect the instrument and is not a defense in question (PNB vs. Court of Appeals. 256 SCRA 491, 70 SCAD 404;
(Swartz v. Bank of HaileYVille, 35 P.2d 701; Singer Sewing Machine Asked, No. X[a), 1999 Bar Exams.).
Co. v. Bayer, 138 N.W. 741). For instance, it has been ruled that an
alteration of the principal amount and of the rate of interest by an
~gcnt of the maker without the consent or knowledge of the maker Q. Give 'exumples of materia) alteration.
IS the act of a str~nger to the transaction, within the principle that A. The following are examples of materinl nlternt.io~ (PNB
the act of a ~ere lIlterloper without the privity of the parties should vs. Court of Appeals, supra):
not be ?enmtted. to dl!feat the contract to the extent that it would (1) Substituting the worc18 "or heaf(~r"ftor ..orc1(\ r'" I
otherwIse h.e valid. and binding, so that the instrument is enforce-
able accordmg to lts original tenor (Walsh v H t 52 P 115 120 (2) .
Writing "prote~t , rd"
WIllV above hlnnk indorsements;
Cal. 46, 39 L.R.A. 697). . un, . ,
(3) A. change In
. tl·le dnte from which interest is to ntn;
 GOTIABLE INSTHUMENTs
EVlEWER ON ~TED LAWS
176 QUIZZER AND R LA'" AND RE

. 'ina lly drawn as follows: "It- l}~~ l\Nl) IN'tE

A check was 0 ng Mich. Aug. 5, 1901 . P ay to C. 0l\
t lSchar~ at'l'I . RPRETATION
(4) k crystall Falls,,, The insertion of the figure 5 h . egot1ab\e Instrumenta 177
C nty Ban , CTR. h' h e. to the PrinCipal III
ou $ 9 fiftv cents.
or order 9 the instrul11ent being ot erwlse
".
unc anged
. . extend the ti !ike? at the ti
Ille of paYtrl.ent. me the words were written to
fore the figure , s "with interest wIth or WIthout a. (8) Where th '
(5) Adding the word filling in the hI ere Wag a blank t!
ank with. th. Or the place of payment
fixed rate; . h e maturity of a note, Whether th (9) Add' e place desired; •
(6 ) An altera fnmt
10 b rtailed or exten dd
e ; e "c h" h lUg to an ind ,
ent is there Y eu as . W en it had be orser s name the abbreviation
time for paym ~
. trument was
payable to "First N ael Bank"
,
counted by the trust en agreed. that the draft should be dis-
ier; COInpany of which the indorsee was cash-
(7 ) An IDS ord "Marion";
and plaintiff added the w . nO) The indorsement
PI . tiff WIt. h ou t consent of thed defendant,
. t d h strUck lIvery to the paYee at th for a note by a stranger after its de-
(8 ) am, fendant as payee an lnser e t e nallle plaintiff; e une the note was negotiated to the
out the name of the de.. I note.
of the maker of the ongma , . (11) An extension f t ' .
. , out the name of the payee and substituting to the Principal make 0, lme gwen by the holder of a note
(9) Stnking h tuaBy discounted the note; ak
mer. r, Wlthout the consent of the surety r0-
that of the person w 0 ae .
. t'mg the address of the maker for the name
(10) SubstItu
of a co-maker, ~. What is the effect of an immaterial or innocent al.
teratIon?

Q. . examples of immaterial alterations.

Give A. An innocent 01' immaterial alteration win not avoid the
instrument, but the holder may enforce it only according to its origi-
A. The following are examples of immaterial alterations nal tenor (PNB vs. Court of Appeals, supra).
(PNB vs. Court of Appeals, 256 SeRA 491):
(1) Changing "I promise to pay" to "We promise to pay,"
where there are two makers;
.'
! .l
I~ (2) Adding the word "annual" after the interest clause;
(3) Adding the date of maturity as a marginal notation;
(4) Filling in the date of actual delivery where the mak-
ers of a note gave it with the date in blank, "July _";
(5) An alteration of the marginal figures of a note where
the sum stated in words in the body remained unchanged;
(6) the insertion of the legal rate of interest where the
note had a provision for "interest at _ percent"; '-. '.

(7) A printed form of promissory note had on the mar-

gin the printed words, "Extended to ." The holder on
or after maturity wrote in the blank space the words "May 1,
1913," as a reference memorandum of a promise made by him
 BlLu3 OF'
POtlll and IExcliANGE
TITLE II bl'11 (8 ec. 127). In oth nterp~tion
of a bill by reason fer :Vords, the <it .
BILLS OF EXCHANGE The drawee'. liabil~
: h'>ing fun.:"~
IS !lot liable to the hOlder
is not liable to the ~ 1 IDns with his s 0 the drawer in his hands.
Ass'n., 214 P. 377, 10~ ~er (~n~rt y. ~~tance ~d until then he
CHAPTER IX However, the dr r. 16.2). of Cahfornia, National
h . h' aWer III h
ononng IS bill withou ay old the draw .
or implied that th d t legal basis if th . ee hable for not
FORM AND INTERPRETATION act· sh0 uld honor ere
the drawer's righte ofrawee the 18 COntract
billa of ex
th dr' presSs
b·
. st
accept a Ill, depends on10n again t eh drawee e awer. to0
on his ret;..--,
. b preV10Ug co.nt ' .~
bon cannot e based on the bill' rae! relations, but 8uch &c-
Gempesaw VB. Court of Appeaj ~tself
(lo C.J.S., Sec. 36, p. 458;
Q. Define a bill of exchange. (Asked, 1965 Bar EXQllls.) s., .R No. 92244. Feb. 9, 1993).
. }; Q. May a bill be addressed to
A. A bill of exchange is an Ul~conditional order in .w;riting ·1
I
I
Illore than one drawee?
addressed by one person to another, sIgned by the person gIVIng it, ~
A. A bill may be addreSsed to two ..
requmng .
.. the person to whom it is addressed to pay. on. demand or whether they are partners or not. hut t°tor Dltwore drawees Jomtly, .1
~
. h lternat ·· 'no 0 or more drawees
at a fixed or determinable future tune a sum certaIn In money to
order or to bearer (Sec. 126).
B artea
III Exams ..) we or In succession (Sec. 128' A -k d N X[dl
, n;:; e, o. , 1997 F
Thus, the bill may be addressed to •A and B" whether they .... t .
partners
B." or not, but not to "'A or B," or to "'A, or in his absence, to
Q. Is a bill an assignment of funds in the hands of the
drawee?
Q. What are inland and foreign bills?
A. A bill of it..-,elf does not operate as assignment of the funds
in the hands of the drawee available for the payment thereof, and A. An inland bill of exchange is a bill which is, or on its face
the drawee is not liable on the bill unless and until he accepts the purports to be, both drawn and payable with the Philippine Islands.
same (Sec. 127). Any other bill is a foreign bill. Unless the co~trary a~pears on the
face of the bill, the holder may treat it as an mland bIll (Sec. 129).

Q. A drew a bill of exchange addressed to B, and pay- Q. What is the materiality of the distinction between
able to C or order. C presented the bill to B for payment but an inland and foreign bill?
the latter refused to pay the same despite the fact that A has
sufficient (unds with him to cover the amount of the hill. May • .. P be rotested for non-payment or non-
~,
A. A foreIgn to blll
h m the drawer. and. tho... indorsers while in-
.geust
C hold the drawee liable? May the drawer hold the drawee
liable? acceptance so as c ar . Sees 118 and 152).,Furthermore,
land bill need not be protestcdh~s~ hali govern the bill (Brannan,
it will determine the law W Ie s
A. C cannot hold the drawee liable because the bill of itself p.984).
does not operal" 8S an assignment of funds in the hands of the
drawee and the drawee is not liable unless and until he accepts the bill be treated as a promissory
. note?
Q. When maya d drawee are the same per-
A. Where in a bill ~he dfi:~~::snperson, or a person not hav-
178 son, or where th e drawee
- 18 a 1
 180 YH;~H'J"
QUIZZER AND R~W , :.ATEV Lt-\ .. ~
AND -RbI

hlrrn~A t "eat the instrument , at h'~

. to co"tTllct,
ing capaCIty exchange
.1/ ofthe ho e or a promissory note . (Sec. 0).
13
. either as a bl h tIle instrumont
' f w en t tl JS hSoI a01bifl'u.
opt.lOn,
Aside from the fo ....hether . .IS a bill or a no e, Ie 0 her
gomg, It
ous that there is do~~t :~ectjon (Sec. 17[0]).
J
"'a
f:>
y

treat it as either at IS. ' may treat the instrument either

Th th ~ optIOn r. II . ,
us, tI1e holder aa, promls.o
k " .
ry note in the 10 OWing Instances_
I
as a bill of(1) Whereorthe drawer a nd tJ,e drawee are the 8ame Per.
exchange
son;
(2) Where th e d r awee is a fictitious person;
t. ClIAPn:ax
::
Where t.h e d raw ,
"

(3)
or ee does not have capacity to Contract.

(4) When tl Ie I ,
. ...: . .'.
:' .~ .
'nstrument is so ambiguous that there is
doubt whether it is a bIll or a note,
Q. What i. aCceptance and bow i. it lIUlde?
A. The accePtance of. bill is the signification by the draw..
Q. asWhat
the hill are the consequences when the hOlder treat.
8 note? of hi. Bssent to tbe order of the draw.r. The acceptance must be in
writing and Signed by the drawee. It must not .xp..... that the
A. When the holder opts to hold the b!U as a note, prese~t. drawee will perfonn his promise by any other means than the pay.
ment of money (Sec. 132). , '11 ,.-

no~ice
m nt for acceptance is not necessary, nelther IS It necessary to gIVe
of dishonor to the drawer to make him liable on the instru.
rnent (Watauga Co. Bank v. McQ ueen,130 Tenn. 382,170 S.W.1025). Q.
. r..",.
,1· : ,
What are the requisite. of accePtance?
,

In such case, the drawer becomes liable as a maker.

A. The acceptance must be: (a) in writing, (h) signed by the
drawee, and (c) must not eXprtl" that the drawee will perfonn hi,
Q. Who is a referee in case of need? . promise by any other means U'an the payment of money (Sec. 132).

A. The drawer of a bill and any indorser may insert thereon

the name of a person to wholl) the holder ll)ay resort in case of need; Q. Is the holder entitled to IlCC"plonce on lhe face of
the bill?
that is to say, in case the bill is dishonored by non'acceptance or
non,paYment. SUch person is called the referee in case of need. It is A. The holder of a bill P....enting the same for acceptance
not, as OPtion
in the he mayofSee
thefit (Sec, to
holder reSort to the referee in case of need or
131), may require that the a"""ptnneo be writwn on Ihe bdl, nnd, If such
request is refused, may trent the bill us di~honorl'd (Sec. 133),

Q. What is the
strument? Give an example.
cffc(~t of 8CC('ptunce on a separate in-
A Where an OOCt'lltnnce .. , Wn'tt< I onn . n
8 pnl)cr other than the
. . .. b·,d the acceptor except 10 favor of. perso
bdlltself, It docs not n I
to whom it IS shown and ~ ,~,on .,
the fnith thereof, rece;v"s the bIll
( .. ". \
for vu)ue (Sec. 1:.14). ~.; ," ,.".; :" i _ .
t
.
\ ,

181

"- -... ~.-- ....~

 182
QUIZZER AND REVlRWE R RELATED
ON NE(;OTIABLE
LAWS INSTRlIMENl's
LA W AND

. addressed to B, and payable to C 01' .

'.,:,.~.~1M"?~
~ta ~nfhe
Example.. A drew a blllt · that he is accepting the bill dr ""
der. B wrote a letter to C bill W D. The accePtanCe In..... .. -. ~ .'.

by A. There.ll.er, C negotJ8t;; shall not bind the fonner in favo ad.

B by means
Dbyunless the said letter was sown W D , who on the faith th r Of
of a letter W h
"reof, · · ;;a-·~ "5~
receives the bill for value. . :~. ~. ; ' :. . ' -:-" :t' :

, ;.~' .J ' .~ '. ,,<' . .

. 'j,:.:- ,:' .::.~
Q Wb
.
ance? Give auenexample.
. a promise to accept equivalent to
IS .., •
8CCCht .. .
Q. When lIlay 8t bill . :', '

A. An unconditional promise in writing to. aCCept a bill be_ A. A b1·11 lllay be be aCcepted? .
fore it is drawn is deemed an actual acceptance 10 favor of. drawer, or "'hile oth . aC<:ePIed before '1 h
person Who, upon the faith thereof, rereives the
135). bill
for value v (8:7. n
tor it has hee disho':'''''',e inCOIllPlete, O.''''h':: been 'igned by the
payment. But when a ted by a Pl'e\oioUs refusaIn It IS OVerdue, Or af.

Example.. A wrote the fOl/owing letter to B, "1 ,,:"ould like to draw

acceptance and the dr~~ PaYable after sight is ~a;:pt, or by non_
the absence
ted of any djt'r ee SUbsequently aCCepts 't nth0 by non.
a bill addressed w you for PlO,OOO. May 1 .know )f You will ho red
said bill?" B replied by writing a letter to A advising him that h
aecep agr .
as of the date of the firseelllent IS entitled to have the in
!lerent 1, e bill
hOlder:
n
would honor the bill. A showed C the said letter of B, and then dre or • t presentment (Sec. 138).
a bill addressed to B for PlO,OOO, payable to C Or order. C reCe'v w Q. A drew a bill With B
the bill for value on the faith of the letter of B which A showed ed h' der "30 dayS after a _ptan
but~' ~
!"
drawee PaYable 10 C Or or.

Late~
In such case, B is bound as an acceptor in favor of C. )1)). acceptance on June G Presented the bill 10 B for

~""':Pted
changed her blind and . dIshonored the hill. B
What date should the I)) the bill on June 30. F";'",
Q- What is the tiDJe allowed to the drawee to a A. Unless otherwisea atlritydof the bill be counted?
th~
the hill? ccep!
have the bill accepted as of
~ at~
upon, the holder is entitled to
A.
ment m WhlCh I~ d·d
The drawee is allowed twenty-four hours after p
h h resent,
138), and hence the maturity th of the first presentment (Sec.
" ~
from June 5. ' 0 e lDS!rmnent should be Computed
aCCe ee, e w et er or not he will accept the bilJ. the
'Ptance, If /J1ven, dates as of the day ofpresentation (Sec. 136).
p Ie 0 Qfeac
• . at are the kinds of accePtance? Give an elrant.
WIth
Q. What is the liability of th d . ,', '
;
destroYing the hilI? e rawee for retaining Or
A. An acceptance is either general or qualified, A general
A. Where a drawee to who b'll . . acceptance assents without qualification to the order of the drawer.
ddestroyS
/ the same or r Ii 'hIn. a 1 IS dellvered for acceptance
. ' e Uses WIt 10 twenty fl h A qualified
as 139). in express tenns varies the effect of the bill
acceptance
drawn (Sec.
e lvelY, or Within such t ] . - Our Ours after such
turn the bilI accepted :r ler Penod as the holder may allow, to reo
deemed to have accepted tl non-accepted to the holder, he will be Example of general acceptance: An acceptance which merely
le same (Sec. 137). states, "Accepted" is a general acceptance as there is no qualifica.
.This is a constructive aCCeptanCe of .
tion to the order of the drawer.
.
. ah bIll
0f . ofexchanue
b' , alth DUgh not expli 1 blll wherein the drawee
the Example of qualified acceptance: A bill for PlOO,OOO was ac-

.Par~Iak,
Wlt .It that the law will infer a
n
~cceptanCe
ess y aCCepting it, may so deal cepted as follows: "Accepted for P70,OOO," It is a qualified accept-

6~).
109 A. 725, 94 Co on his Part (Hibbard v. ance as it varies the effect of the bilI as drawn .
nn
ImplIedly accePted when th d . The bill may likewise be
e rawee IS estopped to deny that there Q. What is the effect of an acceptance to pay at a par.
ticular place? Give examples.

A. An acceptance to pay at a particular place is a general

 184
N NE'('''()TIABLE
QllIZZER AND m ;VIF.WEDR °L'LATJ<.'D LAWS INSTRUMENTS
LAWAN R '" ,

aCceptance, unless it express y ~ n t ....

only and not elsewhere (Sec. I14 t). tes that the bill is to be Paid h
E
M
etro
· k. I l'. The acceptance . states,
b.tarnpte
an braneh ID · Batanuas
"s h"Accepted,
t '
• CItY. uc accep ance 1S shll a g.~.
. at th e
paYable
SItts OF F;)cCh.~.
era] acceptance. him constitute., ~DL..~~GE
. ...... '"
45 Am.D. 768). a qUalified aCcePtan

bran~h in Batangas City only' is a qualilied accepta~c.~

Example 2· The accept"nce states, 'Accepted, paYable at th
Metrob_nk Cd) QUQlifi d
The drawee accep.~d
.Ils to time: ""- ,
ce (Clarke \': r~,
. 3 Rid,. 311~",on,
•
d " UT1 ~ it fi • ~ lle bill .
Q. When is acceptance qUalified? W oy. " ne", a bill is as olI..,s, 'Ace. Is PaYable 'uPon sight.
ume IS a qUalified PaYable.t Sight Pled, PaYable 120 da.. &0'
A. An accept.ance is qualified which is: 287 F 306) b ' accePtance (Jr. ' a Prolllise to III
.
'e"'g qUal 'fi . . FargOson Co pay at a Cutu",
AcceP..... I ed as t., ti"e.
Ce) . v. F.....,. C.C.A..\rk.•
""~
Conditional, th.t is to say, which makes paYment b
(a )
the aCcepror dependent on the fullillment ofa condition th Y addressed to A, II Ollly by..,,,,. or tb dr
stated" n
.
I J . I . .
Band C did not S h as drawees. OnIy A e 8\\'ees: 1be bill is
' • J •
.. erei
(b) Partial, that is ro say, an acceptance to Pay Part I
'.
. . Uc thaccept
t h e d raWees aCCePted accePted. the bill \V h'd.
. an", of A is qllalified
of the amount for which the bill is drawn; on y the bill will be bound b e bIll. In SUch case onI ASlIlce not all of
U•
I
!' J
'0 ' (e) Local, that is to say, an acceplance to Pay anIY at a
369)
B th u~d
I y the aCCe tan
ess A has authOrity to
a ce er, 3 Pinn. 281 3 Ch
a~ ~eti(Slllith
' y "ho aCCePIed
v. Milton, 133 Mass
P or all of thelll (1\1: ch .
particular place;
i(, ' and}. 316). ea llIn v.
(d) Qualified as to time; Q. What are the ri h
[/ ceptanCe? g to or tb. Pllrli.s W a quaJified ...
; j, (e) The acceptance of someone or more of the d
but not all (Sec. 141). rawees,
A. The hOlder lllay refuse
~
I
It ,

ifhe does not obtain an un ualiJi take a qUalified aCCePtance, and

"
Q. Gjve examples of qUalified acceptance. as dishonOred by non-acce~t
e %CCePtanCe he lIIay treat the bill
taken, the drawer ""d ind ""Ce. . ere a quahfied aCCeptance is

qual~e:ve
A. (a) Conditional aCCePtance' The acee t bill unless the h orsers are dischllrged frolllliahiIity OIl the
cePled, payable upon receipt of the de • . P ance states, "Ac. to take a expressly Or impliedly authOrized the holder
the amOunt of this bill • Th d" P?Slt of the drawer equal to When the dr acceptanCe, Or subsequ.ntly assented thereto.
drawer must make a . . e "'>n ItlOn 1D the accePtance that the awer or an "'dorser receives notice of a qualified ac-
the bill will be paid m:;:as:i equal to the amOunt of the bill before ceptance, he must,. within a re'SOnable time, .xp..... his dissent to
Bates Mach Co 55'N E e6s9 e aceeptance conditional (see Smith v. the hOlder, or he will be d.em.d to h,ve assented th.reto (Sec. 142).
'., " , 182 Ill. 166). . .
• (h) Partial: The bilI for PIO

~nce
'Accepted for P70 000 "B . 0,000 was aCcepted as fallows. Q. A drew a biII addressed to B for P1OO,OOO and pay.
' . emg an Be t .

N~
ws
amOUnt PaYable in the bilI this' cep only of a Part of the able to C or order. C negotiated tbe biII to D ....ho Presented
'8 a it to B for acceptance. B ........te 00 the bill, "Accepted for
Do , C.C.N.y., 5 F.Cas. 2 502 qUall/ied accePtance (Cassel v.
., , 1 Flatchf. 335). . PsO,OOO." What are the consequences if: (a) D refuse. to take
(c) Local: The bill is add
state~, ~:sed at Batangas City. The accept. Such acceptance, Or (b) if he agree. to .uch kind of accept-
ance?

~h '~g ?~ t~e
ance 'accepted, paYable
Tower, Paslg City.· An undert k' at my ollice at West Tektite
Only at a place different from drawee of a bill to pay it A. (a) D may refuse to take the partial acceptance made by
B, and if the fanner cannot obtain an unqualified acceptanCe, he may
a a whleh the bilI is addressed to treat the bill as dishonored by non-acceptance (Sec. 142). Thereaf.
te~ D should give notice of dishonor to A, the drawer. and C, the
indorser to hold them liable on the bill (Sec. 89).

.• - - • -. - -- _ . .... '~ . 0. _' . ~ _ •. _ .' __ •_ _ _ _ . _ _ _ _ ~~. !~

 N NIWOTIAnLE INSTRUMENTs
186 LAWANV ~";LATED LAWS
QlJlZZERAN [) REVIEWER

. d ceptance mentioned abo~

t~e quahfieC) ~~ged from Iinbility, unl ••:t~J",
t~ ~'orser
(b) If D
k s
nd the m
l~zed
are dlS
dl Ilut Ilor
the holder to toke a q 'ley
U tlllli
::'. "

drawer a ,I' or implie Y I ."."led th ereto. Pon being n .'

subseqllentI~fi d and~tl'
"r?:, '~' . ~ ', ~..'
fih ave expre. s.> or acceptance, the drawer \ ....
d acceptance. k qu'] I Ie tJ . d' It}
,'. ',:
If'
fied that t e h holder too a
sona ) e , express lCJr
"11 time ted ISsent
h to tl..lle•
dors.r
1 mus,. reaLbe dee med to have aBSel)
t withinhea will t erelo (s"<.
holder. otherwIse, t ,Y

142). J _ !i~i,j
JI • j U.,·

" '. ,: ' -

..
' ,'

;.1
.
r,
"
) 1)
,
",,-
it" mentQ.
for Distinguish
acceptance. P"-nlluent tor paYlllent from preoent.

"~·I
;:j.<J., A. Presentment for PllYtnent and presentment for accop(anoo
«J , are two different acts; presentment for payment connot be made
' a", until the instrument presented for payment is due While present.
i; I
ment for acceptance must be made before the instrument presented
I: for acceptance is due (Omaha First Nat. Bank v. Whitmore, Neb.,
177 F. 397, 101 C.C.A. 401).

Q. When must presentment for acceptance be made?

A. Presentment for acceptance must. be made:

. (a) Where the bill is payable after sight, or in any other

case Where presentment for acceptance is necessary in order
to fix the maturity of the instrument; or
(b) Where the bill expressly stipulates that it shall be
presented for acceptance; or
(c) vv ncre tl, \e
un.. bill is drawn payahle elsewhere than at
the residence or place of business of the drawee.

187
 • 'OTIABLE
WFRON NM, S
INSTHlJMENTS
]88 qUIZZER AND R"i1~ AND IU:LATlm lAW

.
. Ptore~entmen t for acceptnnce necessary in ~lLLs Or l".JCCliAN '
. .....

In no other case IS ;he bill is liable (Sec. 143). IItlnlhlentI t. E .. . . .,

order to render any party lOr Acc.-Ptan
ce la~
2 Am. St. Rep. 268) 0 '
t h b'll . . . T, 1n the 1
ate e I wlthin a re o 8 telbaUve th h " : '. , ';

Give examples 0 f instances when presentment tOI'

Q.
acceptance is necessary. . b'
ceptance (Sec. 144). 8s nahle tiIlle in8te~d 0;
older ~a~ negoti. ,
Ii
°

Presentmg lt for nc- ! -

t nt for acce pt.-ance apphes only to Ills of ex- Q. How is Pre

A. PreseI~me . the following instances: sentntent t
change and reqmred only III •
A. Presentment fI or acceptance mad e?
ntment for acceptance 18 neceSS8r-y If f th h
(a) When ~reseturity. The bill provides that it is pay-
or accePtan
ha 0 e older at a rea hI ce Illust be Illade by or on be-
toblrlX"30
the dateft°
days ~aht". In this case, presentment for accept_
a er Sig fore the bill is overdue, to :h;~r:vhour, on a business day and be-
a e must be rna d e S 0 as to determine when the
ance fi 3D-day period
accept or refuse acceptance a h o l-~. or SOme person authOrized to
n IS ~half; and
will commence. In other words, presentment .or aCfcehPtab~ce in (a) Where a bill is add
thIs case IS necess ary to fIx the date of maturIty
° • °
t e Ill. who are not partners p ressed to two or more drawees
unless one has authorit;~sentment must be Illade to them all,
Bill expressly stipulates that it ~han be . pre.
in which case presentmen~ accePbetor refuse a~cePtance for aU,
(b)
t d ~or acceptance: The bill expressly provIdes, "TIus bill
sen e JI " I h' t may made to hIm only;
must be presented for acceptance. ntIs case, presen ment (b) Where the dr . d
for acceptance is necessary. made to h :s al aWee IS ead, presentlllent may be
person representalive;
(c) Bill is drawn payable elsewhere than the resi. . (c) Where the drawee has been adjudged a bankropt or
dence or place of business of the drawee: The bill provides an Insolvent or has made an assignment for the benefit of credi-
' ,, ;:'
that the instrument is payable at Insular Hotel, Davao City,
while the drawee is a resident of Batangas City with a place slgnee (Sec. 145). may be made to him or to his trustee or 8.8-
t?rs, presentment

of business located at Pasig City. In this case, presentment for

a cceptance must be made.
Q. On what days may presentment be made?

Q. What is the effect of failure to make presentment A. A bill may be presented for acceptance on any doy on
for acceptance when required by law? which negotiable instruments may b(' pf('se ntt'd for payment under
the provisions of Section seventy-two and eighty.five of this Act.
A. Except as herein otherwise provided, the holder of a bill When Saturday is not otherwise a holiday, pn~~entment for accept-
which is required by the next preceding section to be presented for ance may be made before twelve o'do(~k, noon, on that day (Sec.
146).
acceptance mu::;t either present it for acceptance, or negotiate it
within a reasonable time. If he fails to do so, the drawer and all in-
, ,
dorsers are discharged (Sec. 144).
Q. When is de)uy in mnldng 11TCscntmcnt for accept.
. . The drawer and indorsers are discharged from liability if the ance excuRcd? '
bill IS not presented for a"'."Optanee when required by law, within a
reasonab!e ~ime
because they have an interest in having the
bill ac- A, Wht:1re the holder ofn bill drl\wn pnYllhle elsewhere t~nn
at the plftCfl of busin (l~s or the r(J~id(Jnce of the drawee hu~ no tIme
cept.ed wlthlD a reasonable time so as to h rte th' . d f I'
with the exurcise of r(,f.l~orlllbl(l diligence to present the bill ,rOt ac-
bT
a I I~y. and enabl~ s 0 'n Clr peno 0 1-
them ,to protect themselves by other means be-
ce tanco buCore proscntin~7, it for payment ,on the day thn~ It fnllt'J
fore It IS too late, If the bIll i. not a=pted and paid within the time d Phd 1
contemplated by them (see Nimocks v. Woody, 97 N.C. 1, 2 S.E. 249, ue. tel! ituyfor
presenting (~uuse d by prosentmg the bIll for acceptull(.e before
paynwnt 18 " eXCUliIl
"d , ,
nnd does not. discharge the
drawers and indonlOfS (Sec. 147).
 . .. \ ,< V
NEGOTIA BLE INSTRUMENTS
EVIEWER ON LATED LAWS
190 J I •
QUIZZERAND R
.;J
AND RE UW

When io pres
entmen
t for acceptance eXCUsed?
. excused, an a • llIay b.
d b'Il p BILts OF EXCliANCE
........,., r", Ao".."",,,, 19.
.
',,(
,
i

A
Q.. Presentmen t for acceptance IS in either of the fOlloWing to the holder and no p
-acceptance, 15
treated as dishonored by non . 1) resentment fi
cases. d ee IS ea , . . In other Words wh or paYment is necessary (See.
' . ) . d d or has absconded, Or IS a
(a person raw no t having capacIty to Contract by
r a person
Where0 the
tan th .' ere the instru '.
fictitious accep ce, ere IS no nlled to ment 18 dIShonored by non.
h holder may inlInediatel h make a P"'sentment for paYment and
the
. d 'to.T Y aVe a l'ecou .
t e m orsers. "otice of d' h roe BgllUlst the drawer and
bill. Where, afler the exercls
. e of reasonable diligence, Pre. drawer and indorsers. IS onor, however. mUst be giVen to the
(b) n not be made. I :.
l/'tc~ ' f\
I :

senttre,n,t fWhere, alt.hougdh prese ntment

1' ~/.~L :~\ \t~!ll" "' I~~ /flfltC11~/>{'4.,f ~(I.I.1'1;

.,
I tt'\1tl t1 ri'Ll 'U' ; pth rbas been (Sec.
ground irregular,
148).ac.
\ " . III 11 h b n refuse on so me ; • _ ,
l
V " "/,,
t I ceptance as e1f'hI1t,1 (II ttl.
~
In(J q I I " 1- ill l.' II1'A ,-", . ' WI
i I"
.. .\

Q. When 10 . the /-li'dishonored

I
by non.acceptance? dj'<iJA~1v

A. A bill is dishonored by non·acceptance - d lAW'" .

f.'
:11. (a) When It . IS
. d U ly presented for
'acceptance
. Ii and such
I'. ' an acceptance as IS I pr
-" .
not be obtained; or 't escribed by thIS Act IS re Use or can
i~'

IY·
.... 1 (b) \\Then presentment for acceptance is excused, and
the bill is not accepted (Sec. 149).
·i~ ·
I, ' Q.
.1.
. , ~

accepted?What io the duty of the holder Where tbe bill is not

c A. Where a bill'is duly presented for acceptance and is not

a cep1.<'d within the prescribed time, the person presenting it ~ust
treat the bill as dishonored by non· acceptance or he loses the nght
uf recourse against the drawer and indorsers (Sec. 150),
The foregOing Provision means that When the bill is duly pre.
sented and is not aecepted Within twentY.four hours from present.
ment (Sec. 136), the holder must treat the bill as dishonored (Sec.
150) by giving notice of dishonor to the drawer and indorsers other-
Wise. the drawer and indorsers are discharged frOIlI liability on the
bilI (Sec. 89). " " t I., "" 1 . ,_

not accepted?
\ l., ' " '. . I .. ' \ . II(' , ,c! . ~
• I i f, , , ,, .., v .
'~
.,- " . .I ~

Q. Wbat are the rights of th.l hOlder Where tbe hill i.

. A: When the bill is dishonored by non'acceptance, an imme.

dlate nght of recourse against the drawers and indorsers accrues
 .~ . ' "

193
(c) Where a b'll '
1 ~'Il11 be
preVIOUS Y e Protested. for ' a~pt.ed supra protest, it must
:.j'
. 1 b
tested for better sec' d,shonor by non-aCCeptance or pro.
Unty (Sec, 161)'
.(d) Where a bill wil .'
preVIOusly Protested 11 1 be PaId 8Upra protest. it must be
cHAPTER XII (e) When the or' non-paYment (Sec. 171); and
~ IS a ~feree in case of need (Sec. 131). t,

PROTEST Q. Who can lIlake a Protest?

A. Protest may be Illade by:
(a) A notary public; or
. protest? . (b) By any re'P<ctable resident of the place the bill il!
Q. What IS I decIara t'on of the fact of non-pay_ dlshonored,
fi 1 (Sec. 154). m the Presence of two or more credible witn.....
A Protest is the orma b'll executed by the notary (Maury
men
t ' of
W· or
non-acceptanc~
L
of a Rl C 269 P. 815, 148 Wash. 572)
g& 0., . I' d' h
v. In lock & Toledo oggm
'd nt of the .paceI where the bIl IS IS onored
Q. When and Where should protest be made?
or by 8 respectable reSl e he formal instrument, executed by
(Se
c.154)
, It is also defined
tent person, certifv-ing
as t J'
that the facts neces_ A. Protest must be made on the day of dishonor unlE'~ss
de-
a notary or other compe, nt by non-acceptance or non- lay is excused (Sec. 155) at the place where it is dishonored unless , "
,
. f the mstrume h Ed it is drawn payable elsewhere than the place of business or Fe8idence
sary have taken place (N 0 rton on Bills and Notes, 5t
to the dIshonor 0 ., pp.
of the drawee, in which case, it must he prot(~sted for non-payment
payment
517-518), at the place where it is expressed to be payable (Sec. 156),

Q. I n what cases is protest necessary?

A. Th e bill must be protested in the following cases:

(a) Where a foreign bill appearing on its face to be such

is dishonored by non-acceptance, it must be duly protested for
non-acceptance;

(b) Where a foreign bill appearing on its face to be such

which has not been previously dishonored by non-acceptance,
is dishonored by non-payment, it must be duly protested for
non-payment (Sec. 152);

However, where the bill does not appear on its face to be

a foreign bill, protest thereof in case of dishonor is unneces-
sary (Sec. 152, last sentence) except as hereinafter stated;

192
 ,I, "·l..~OFE
A~Pt xC~GE
anoe for lionQr
Q. What i8 th
e altl'eetn
A. The acce to ent of an
he will on due preP r for honor b acceptor for honor?
. t sentlllent' y such a
his accep anee, Provid d' Pay the bill ccePtance engages that
cIJAPTER XIII and provided also tha~ It shall not haveaCCordin~ to the tenns of
i
ment and protested fi t shall have l.._ been paId by the drawer:
· (S or non ueen duly , ,
to h 1m ec. 165). -paYlnent and . presented for pay~ l.

TCE FOR HONOR Th notIce of dishonor given

ACCEPT~~
I ......
e acceptor for h
the instrument becaus onof, therefore is on1
presented for paYInen: hd~ will be liable ouli:;:.onhdari~y liable on
' lshonored b r t e bIll has been
. b accepted for honor? non-payment and notice of d' h y non-paYment prote ~~d ti
IS onaf giv h • s~ or
Q When maya bill e . An acceptor for hon " en to im (Sec, 165),
. h e has been protested for dIshonor . . '1 I' or IS differe t fro
A. Where a b 'nIofexc ang . d .
d fi r better secunty, an 1S not Over-
IS pnman y lable on the inst n m a regular acceptor who
or proteste 1 h . sentment and notice of dish l'Urnent (Sec. 62) and therefore pre
by non-accep tance
0 .
. ' a arty already bab e t ereon may, wIth ter liable (Sees. 70 and 89). anor are not necessary to hold the lat~
i
due, any person not bemg, rvene and accept the bill supra pro-
the consent of the holder'a~yeliable thereon, or for the honor of the
test for the honor of any fthe bill is drawn. The acceptance for honor Q. Distinguish acce t
ceptance. p ance for honor from regular ac.
person for whose acrunf th sum for which the bill is drawn; and
n
may be for Phart °b y 0 :cceptance for honor of one party, there
where there as een an fi th h
may be a furth er aecep t a n ee by a different person or e onor of A. Acceptance for honor
Regular acceptance
another party (Sec. 161).
(1) Must be previously pro- (1) Protest not necessary;
tested;
Q. What is the liability of the acceptor for honor? (2) Acceptor for hon~r (2) Acceptor must be the
A. The acceptor for honor is liable to the holder and to all must be a stranger to drawee;
parties to the bill subsequent to the party for whose honor he has the bill;
accepted (Sec, 164). (3) Consent of the holder
(3) Requires consent of the not needed;
Example: A drew a bill against B, payable to C or order. C in- holder;
(4) Acceptor is primarily lie
dorsed the bill to D, and D to E. E presented the bill to B for ac- (4) Acceptor is secondarily able;
ceptance but B dishonored the same. Notice of dishonor was given liable;
to the drawer and indorsers and the bill was protested for non-ac- (5) Benefits the holder and
(5) Benefits parties subse- aU prior parties is ac·
ceptance. X, a stranger to the bill, with the consent of E, intervened
quent to party for cepted,
and accepted the bill supra protest fo.r the honor of C. In such case,
whose honor the bill.
X, the a~ceptor for honor is liable to D and E, the parties subsequent
to C for whose honor the bill was accepted.

194
 IH~
p OFEXc
aYtn.ent t IiANGE
Q. Stat Or Honor
honor. Give e the PI ~fe 197
an el(arnpl renee of p .. w04.'
A
.
Where t e. ......"les ~
ollering to
cJ-IAPTER XIV of different ,wo Or lllo pay for
, partIes th re Perso
partIes to the b'll " toebePerso
I IS ' n whOSe pa to pay a bill for the h
ns offer
PAYMENT FOR HONOR Example' A d gIven the Pre£ Yment will discharg onol'
der, C indors~d .t few a bill add erence (Sec. 174) e most
1 to D D ressed '
ment to B for pa ' to E and to B and payable to
given to all Part,Yment but B dish E to F, F presen.~.1 th ~ 01' ar-
Q. Who may make payment (or honor? Ies se(:o d onored .t N \oCU e mstru
non-payment, X ' n arily liabl I. otice of dish -
A , Wh ere 8 bill h as been , protes te d for non-payment ,any of C, while Y off~~~r;ened and offe~~ the bill was pro:~w;S
pe rson may in ten 'ene and p ay It supra protest for the honor of an payment for hono f;o pay it for the h pay the bill for the h 01'
d r 0 X sh 11 anal' of D In onor
pe rs on lia hle th ereon or for the honor of the person for whos e y an E, while the pa a be preferred' : such case, the
YInent for han b SInce It will disch
count it wa s drawn (Sec, 171), ac- or y Y will di h
sc arge only E,
arge D

Q. What is the
Q. Dis tinguish acceptance (or honor from payment for bill is paid for honor;~~:! 0::. subsequent parties where th
example. e
honor.
A. Where a bill has bee . .
Payment for honor quent to the party fior h n paId for honor aU part' b
A. A cceptance for honor th w ose hon ·t · ' les su se-
e paye~ for honor is subrogated £or 1 IS paid are discharged, but
Prevjously prot.ested for (1) Previously protested for and
. duties of the holder as regardor, and succeeds to,
both th ng'hts
(1 ) S h e
non-acceptance or for non-payment; pays and all parties liable to th 1 t t e party for whose honor he
eater (Sec. 175).
better security; Example: In the example .
offered to pay the bill for the h gIven above where X intervened and
(2) BilJ must not be over- (2) Bill may be overdue',
and E are discharged frOl I' ~~~r of C, upon payment for honor, D
due; n la 1 lty and X acquires the right of F
(3) Made by any person the holder as a ain
g, st C, the party for whose honor the bill . ·d'
(3) Made by a stranger or whether a party or an d A, a party pnor to C. IS pal
party not liable on the stranger to the bill',
bill;
Q. What is the effect of the holder's refusal to receive
(4) Consent of the holder is (4) Consent of the holder is payment supra protest? Give exumple.
necessary. not necessary.
A. Where the holder of a bill refuses to receive payment su-
Q. How is payment for honor made? pra protest, he loses his right of recourse against any party who
would have been discharged by such payment (Sec, 176).
A, The payment of honor .
as such and not as a m I supra protest In order to operate Example: In the example given above where X intervened and
, ere vo untary
a notanal act of honor wh' h payment must be attested by offered to pay the bill for the honor of C, if the holder refuses to ac-
, IC may be app d d
an extentlOn to it (Sec. 172). en e to the protest or from cept the said payment supra protest, he loses his right of recout'8e
against D and E since the latter would have been discharged if such
payment was accepted by the holder.
196
 BILLs
OFEXcu.~.
Bills in Q~~GE
~t 199
But in such ca .
bill that he indorse~~C IS liable to X, Y
liable for every Part h them, and ev .and Z for every Part of th
separate bills (Sec. 18~ has himself ~1~~dorser ~ubsequent to C ~
). sed, as If such parts were
I n th1S case, the acee
O

cIIAPTERXV must be written on 0 ne Ptance may be wn'tte

one part, and such a Part only. If the dr n on any Part but it
. ccepted aWee accept h
BILLS INSET ers m ~ue Course, he is li parts are negotiated to . s more t an
rate b111 (Sec. 181) able on every such art . ?ifTerent hold·
. p as If It were a sepa.

Q. What is the effect f

Q, What IS, a b'lI
I
in set?• Give an example. bill in set without reqm" 0 paYlIlent by an acceptor of
·1 ; :- · a.cceptance?
b ears h IS nng the surre d a
A. Bill in set is a bill drawn in a set, each part of the set n er of the copy that
- I"
t
, ,
l

bemg num bere d a nd containing a reference

. . ) to the other parts, the A. "There the acceptor of a b' .
1
~'1
;1 whole of the parts constituting one bIll (Sec. 178 . out requiring the part bean hi III drawn ill a set pays it with.
'r , him, and that part at mat:r~ty :sa=tanc~ to ?e delivered up to
Example: A drew a bi1l of exchange c?nsisting of three identi. holder in due course he is liable to th htanlding m the hands of a
caJ copies, except their number, each one beI~g ~umbere~ as follows: , e 0 der thereon (Sec. 182).
"First of 'Three Copies," "Second of Three CopIes and "ThIrd of Three
Copies." The said bill in set which is addressed to B and payable to . . Q. What is the effect of discharging one of a set in a
bIll In set?'
C or order, is only one bill of exchange although consisting of three
copies. p:-. Exce~t as herein otherwise provided, where anyone part
of a bIll drawn m a set is discharged by payment or otherwise the
whole bill is discharged (Sec. 183). '
Q. What is the right of the holders where different
'. parts of the bill in set are negotiated? Give an example. The exceptions are: (a) where the holder of a set indorses two
,
.
,}
,-
J ' or more parts to different persons (Sec. 180); (b) where the drawee
A. Where two or more parts of a set are negotiated to differ- accepts more than one part (Sec. 181); and (c) where the acceptor
ent holders in due course, the holder whose title first accrues is as making payment did not require the surrender of the copy that bears
between such holders the true owner of the bill. But nothing in this his acceptance which is negotiated to a holder in due course (Sec.
section affects the rights of a person who in due course accepts or 182).
pays the part first presented to him (Sec. 179),

. Example: In the example given above where the bill in set con-
~tItt.lte~ three copies, if C, the holder negotiated the "First of Three
oPJesC to. X, "the "Second of Three Copies" to Y and the "Third of
Th Tee opws to Z, Y was the fi t to b . .
copy of the bill. Amon X y Jrs 0 tam the acceptance of hIS
and Z. g , and Z, Y has a preferred right over X

198
, accept it for depOsit (Ass .
Asked, No. VI, 1995 B O<:lated Bank
ar Ex.arns.).
.
\Ts. Court of Appeals, 8Upra~
TITLE III
Q. What a~ tb
e effects of c .
A. The effects of . I'Osslng a cbeck?
CHAPTER XVI crOSSing h
(1) Th a c eck are:
. e check rna
In a bank; y not be encashed b t d .
U eposlted only
PROMISSORY NOTES AND CIIECKS (2) The check rnay be ne .
(3) Th gotIated only once~ and
e act of crossin h
the holder that the check h g a c ec~ sef\Tes as a warning to
Q. Define promissory note. (Asked, 1965 Bar Exams.) pose so that he must inqu' ~fbheen Issued for a definite pur-
suan t to th at purpose (StateIre I
I e has ~,,'. "vo;;l\Ted the check pur-
A. A negotiable promissory no~ ~ithin the meaning of this SCRA 310; Asociated Bank n\Testment House \TS. lAC, 175
Act is an unconditional promise in wfltmg made by one person to Asked, No. 111[1], 1994 and\T~ Co1urt{dl of Appeals, 208 SCRA 465;
another, signed by the maker, engaging to pay. o~ demand, or at a o. , 1996 Bar Exams.).
fixed or determinable future time, a sum certam In money to order However, issuing a crossed check i . .
on the drawee not to h h m~s no legal obligatIon
or to bearer. Where a note is drawn to the maker's own order, it is onor sue a check. It IS more of a warning to
not complete until indorsed by him (Sec. 184). the holder th.at the check cannot be presented to the drawee bank
for paym~nt In ca.se .. In~tead, the check can only be deposited with
the payee s bank ~hlch 10 tum must present it for payment against
Q. Define a check. (Asked, 1965 Bar Exams.) the drawee bank 10 the Course of normal banking transactions be-
tween banks. The crossed checks cannot be presented for payment
A. A check is a bill of exchange drawn on a bank payable on but it can only be deposited and the drawee bank may only to an-
demand. Except as herein otherwise provided, the provisions of this other bank in the payee's or indorser's account (Gempesaw VS. Court
Act applicable to a biH of exchange payable on demand apply to a of Appeals, G.R. No. 92244, Feb. 9, 1993).
check (Sec. 185).

Q. Six crossed checks were made payable to the order

Q. \\7JJat are crossed checks? What are the kinds of of Melissa's RTW. The checks were not received by the payee
crossed checks? and it was discovered that said checks were deposited with
the Associated Bank by Sayson in his account. Melissa did
. A. A crossed check is one with two parallel lines diagonally not authorize Sayson to deposit said checks. As~ciated Bank
wnttcn on the left top portion of the check. The crossing is special stam ed at the back of the checks the follOWing guaranty:
where the name of a bank or a b ' ". . .
tween t h e two parallel line
usmess mstItutIOn IS wntten be-
h' h "all :rior endorsements and/or lack of endorsementst(wfet~)
'th th . . s, W IC means the drawee should pay " . t d Bank collected the amoun 0 e
on 1y WI e mterventIOn of that T 1 guaranteed. Assoc18 e thereof. The said checks were
where the words w 'tt be
n en tween the two
company. he crossing is genera
11 1I· "d C "
checks from. the d~awees ee's account only." May Melissa
or "for payee's account onI "(As' para e Ines are an o. crossed and Issued for:::hecks from Associated Bank?
208 SCRA 495) or noth' ~ .Soclated Bank vs. Court of Appeals, recover the amount of t " .
, mg IS wntten betw
means that the drawee bank 1 Id
th II II·
een e para e Ines.
Th·IS Red "for payee's account only. ThlS
not encash the check but merely
A. The checks were eros.. h d intended the same for de-
could only signify that t~e d~r.a;::sto ~it, Melissa's RTW. The sub-
S lOU

200 posit only by the person 10 lea ,

 , > .!\."ol J n o-LA" 'ANIJ
QPI,,zEh 1\1.• ' ... .. -

' l't by the Bank for the a.c ,...

k cept~d r dt'pos,
ch~cks h V%t
l~Cl. ~
c as 11 Of
~ ~
lur _. ,d and t e paYee",
. ,t cht'(' ·s "t tIH:'Y Wl're cro::;::;eUte Bank pal'd th}
. 'ft'1 ae !Jt
~a\' ~'" ~ 'a'~~
e c
1 ug 1 WhL'n d
.s~t
Jt't: l\.S So
.. on alt 10 }' RT\ , '1 llad not pnsse to the end .. . 1),.
" . ' IS> t Itt e .
~ ~l ~e Q. What is the eft
d
Sayson but 'tl -t'wding thn IJ'(lhic to the payee for the 'Va]1> ' It
tW1 1::.. b ame ( h o f
dofSl" no. ' Til 3nd t>r .' ed whether or not t e Ban () making presentlOent forect On the i ..do....,
. 3t It:; pte '}'ty nttde 1 . t d B k t\ \>v a
the che~kth~'
a w;\rt' f
O
Appeals, e.201;
c~~'k
did so .. < This liabII. ,duf8clllcnt (Ass ocla .e
~
" ~C RA '"t165'
unuuthofl ~,
zed d
e ,
No, IHn], 1996 Bar
an "a. LC &
E
,,
) 0~J1 A' Wh'}1 e t h e draWer Pay",
only to the e"tent of the I
is d. ...t? r of Ihe delay in
ISCbarged from I' b" .
o~s d'~
of
XUlllS wholly discharged by dela caUSed by the lIIIyO? the check
Q h irrespective of whether he ~ '~
preSentment ande :;ian ...do.... it!
e drawn against EqUitable llbqllt\.
~et}
Eight c e cks werhecks were crosse d an d In" bet", L 87 W. Va. 243, 104 S Ii: 587 u ered 10.. Or not CN ee or,dishonor,
r
'
. Corporation., These c 'tten "non-nego t"la hie- Ch'Ina na I. '. , 11 A.L.1t. 1024). IlzUtn '. ShepPard,
mg I' es were w r l , h 'd h Ilt\.
Q, What i. the eff of .
two parallel ': n • Chan presented t e Sal C eek,s to ttl eet
drawee
ing b a nk wh,c
Corporah "h d'IShonored the same. !\fay the drQ", ••
A. Where a check i. cern';
eqUival~ '~
be held liable? e db
certification or a check?
drawn, the certification if to y the bank On Which it i.
k
' B k'and Ccould be' colIeC'-d
A The rher s \\'ere drawn specially 'k'
n an aCCePtance (Sec. 187).
. • he inwrvention of Chma an mg orporatlo . Sin"" Q. What is the effect whe.... tb h
only throughht
Chan was t e one who presented the check
drawee mstea
. h h k
.
d 0 fChina Banking, Corporahon,
th paYmentn by the
for
d h no"proPer
ere was
cures it to be certified? (Asked, 1965 "n,:,I~:!~ check, Pro.
present men t , The 'h b A. Where the bolder of a check procure 't to be d
t t drawer in drawmg t e c ec engage t at on due
' d ,t
cerufie
thereon h e d188).
(Sec. . rsers are discharged
raWer and all Indo S! froaCcepte
... liabilitory
presen men, • the check would be paid. In tea
I' hI (ChSence
'"IT of a valid
preS<'nhnent, the drawer did not become la e
Kim , L-15380, Sept. 30, 1960),
an .. an Vs. Tan
But the drawer and indorsers are not discharged Where the
certification i. ProcUred by a person other than the holder (Stat..
Q, Within Bank v. Mid-City Trust & Sa\,. Bank, 295 Ill. 599, 129 N.E. 498,12
paYment? (Asked,what
1986time
Bar should
Exams,)a check, be presented for A.L.R. 989), or When the drawer Was the One Who ProcUred the ee"
796),
tification (Davenport v. Palmer, 152 App. Div. 761, 137 N.Y. SuPP.
A. A check must be presented for paYment within a reaSOn.
able time after its iSSue or the drawer wiII be discharged from Ii.
186).
ability thereon to the extent of the loss caUsed by the delay. (See. Q- When doe... check operale a. an assignment of
funds? (Asked, 1971 and 1979 Bar Ex.ams.)

The drawer will be discharged from liability on the check only A A check of itself does not operate as an aSSignment of any
themere
ore,
tofi extent of the
delay loss dcaUsed by
Without h delay (Sec. 186) and there_
to the Part of the fund. to the credit of the drawer with .the bank, and the
bank is not liable to Il,e holder, unless and unttllt accepts or certi_
fies the check (Sec, 189).
la tter of Ii bT t' (B II amage123 tU.S.
e drawer
n I I Y u v. Bank, 105). sh all not relieve the
The only instance the d 'I

drawe.:r.:.~n~
not Presented for p raWer w, I Suffer a loss if the check is
, d PI 00,000
Q- A deposlte k inP20 ~rO:rde;
his 000
CUrrent acco~nt with ~
is when the
lay (Maryland Title Guara:
WIthin. a reasonable time after its issue
me
....olvent dUring the period of de-
200; Asked, No, 1V[2] 1994 B e Co. y. Alter, 167 Md. 144, 173 At!.
Bank. A then drew chec
with
to B Bank,
B Bank butpayahle
II
~
against h .. depo81t
C presented the check
to d<:l S onored the check? May C hold
the latter
' ar Ex.ams.),
B Bank liahle? ' f th drawer had sum-
S B k liable even 1 e
cient A
deposit
, C cannot
WItll
, 1. th
e
hold an
drawee becaul:Se a check of itoelf does not op.
 ZU4 lqUIU- Ln fl." ~ "UW
" ' T r"lI
AND RbLA ' t.ftHoJ

part 0 f the funds to theI credit of th e

" ment of
te as an assIgn " any " Ie to the holder, ReI
t hab un esst' and UntU'
era he drawee IS no 189; PNB vs. a IVa, G.It ~
drawer and t rtifies the check (Sec' No Xfbj, 1999 Bar Exams)
it accepts or ce 62' Asked, 1986, an d . ..
5298, Oct. 29, 19 ,

. the drawee? bank liable for not honorin g

TiTLE IV
hom IS
IT'0
Q. W
.J II'd reason
k 'thout va . GENERAL PROVISIONS
the chec WI h Id the drawee bank hable for re.
A The holder ma~ nO~h e0 drawee "bank is not liable to the
to
fusl"ng pay the check sInce ts or certifies the check." (Sec. 189)
d til it accep d .
ClIAPn:a XVII
holder, unless an un f a check cannot compel a rawee bank to
"
(

Although the holder 0 , privity between them, as far as the

honor it because .there IS nOd such bank may not legally refuse to DEFINrnONS
d 'to IS concerne , . .
drawer- epos~ r . f hange or a check drawn agamst It with
,,
r~ honor a negotIable
h
bIll 0 extc l'f there is nothing irregular with the
indorsemen Q. Define acceptance, beare~ deli .
more t an one d r has sufficient funds. The drawee can. ment, issue and Written. ,very, holder, mdorse.
J
I
bill or check and the rawteor pay the check by the drawer or any
t be ompelled to accep . .. h h A. In this Act, unless the COntext otherwise requires:
no c d wee he incurs no lIabIlIty
k . If l' bIe c eck un.
on t
. "Ac~eptance" means an acceptance completed by delivery or
hIder because as a ra ,
o he accepts 1.
less 't B U t the drawee will rna~ e Itse gfilaI d'e to h a suit notIfication;
for damages a t th e l l G R N onor
'nstance of the drawer lor wron u IS 9 of
the bill or check (Gempesaw VS. Court of Appea s, . . o. 2244, "Bearer" means the person in POSSession of a bill or note which
re
D bruary, 9 1993', Asked , No. VI[bJ, 1991 Bar Exams.). is payable to bearer;

"Delivery" means transfer of possession, actual or constructive,

Q. A drew a check for PI06,666 agains~ his de~osit but from one person to another;
the drawee bank dishonored the check for InsufficIency of "Holder" means the payee or indorsee of a bill or note, who is
fund. A claimed that he was embarrassed when the draw~e in possession of it, or the bearer thereof;
bank dishonored the check and said bank should have paId
the check to the extent of amount of the deposit. Is the con- "Indorsement" means an indorsement completed by delivery;
tention of A correct? "Issue" means the first delivery of the instrument, complete in
form to a person who takes it as a holder;
A. The drawee bank is under no obligation to make part pay-
ment on a check, up to only the amount of the drawer's fund, where '''Written'' includes printed, and ~riting" includes print (See.
the check drawn for an amount larger than what the drawer has 191).
on deposit. Such a practice of paying check in part has never ex-
isted. Upon partial payment, the check holder could not be called . of a negotiable instrument to a payee
upon to surrender the check, and the bank would be without a Q. Does d~hv.ery? (" ~k d 2000 Bur ·Exanls.)
°t t egobnbon. ~ e ,
voucher affording a certain means of showing the payment. The rule constI u en h d rvery of a negoUo
, " n~ to whet er e 1 . ,
is based on commercial convenience, and any rule that would work A . There are two Vlews . .. tes n()gotintion or nt)t. Said VleWS
such manifest inconvenience should not be recognized (Moran VB. able instrument to a payee con~. t 1tu . "
Court of Appeals, 49 SCAD 311, 230 SCRA 799). are as follows:
205
 , ;oTIARLE INSTRUMENTS
R ON NEG
206
QUlZZER AND RE0:~~D RELATED LAWS

P ayee constitutes negotiatio

(a) t Irs' t view'' Delivery
. t umen tOta IS.p negotiated
. n.
whent it is tl'Uh<lS_
Under Sec lon, · 30 'An lOS r nother In.
. such manner as 0 constitltL '"

d from one person to a . f" Hence, what IS necessary So that

~
ferre
dtheI trans fie ree the holdertt.hereo · onsidered as negotiation is thnt
may be c h h ld th .,
f!
d~livery
,
e l\e• ry of an instrumen 1
t't te(s) tIe transferee
<: t e o• d er creof." Cl,
A
't/.
"cons 1 u .
191 a s "the payee or f" lInof a bill
thIn orsee
h h
sue d' SectIOn
oIder is define 111
"-(>5\8IOn 0 1, • f 't or the bearerb ereo, h YVhnen th e t
or note who ' ISdInI' pOSs red, to a payee , the latter ecomes h t ' e, older of
instrument IS t e lve he IS. a paye e of the bill or note I' w 0 IS In POSSes _
f
the instrumen
. . as th
the bearer ere , of Therefore, de f th to' a t paYee Con.
IVery
stitutes
sion 0 It,negotlahon
or .. . as h e becomes the holder 0 e Ins rUllIent by
reason thereof.
)Q. What is Ii \\1n--h
g
OhatlOn
. (b) butSecon uJew~
d . . Delivery to a payee does not constitute ne.
an ,.ISsue which is defined by Section t h first
191 as "the ams. .
~
-- oUse l'ece' t?
.p . <Asked, 1967 Bar Ex.
t thw 0 takes A. Warehouse receipt is a .
th~t ~cknoWledgment
delivery
' 0 ft} Ie 'I n trument
S , complete in form, h ' t0 a person
. r to the delivery ofd t 'tse 'InS rumen,
. as a h 0 ld er. • P no
It . I t
e sallIe is warehouseman he holds cena;:"tten by a
IDcomp1eto~ and revocable (Sec. 16), anI . t.
I':'::::~t
. ISsue IS on y a par of its to Whom the WlIbng is iSSUed (V goods ID store for the person
completion and does not constitute negotm lon,
i~ued
Co., 173 N.W. 466, 42 N.D. 607) >. l!eillY'Herz Automobile
a warehouseman for gOOds receiVed b so defined as One by
house (Black's Law Dictiona YIlJm on storage IIJ hIS W......
Q. Who is a person Primarily liable on the instrument? CO. v. McClain, C.C.Pa., 112 i\~~~~'
Clhng Merchant's Warehouse
A. The person 'primarily" liable on an instrument is the per.
son who by the terms of the instrument is absolutely required to Q. Who is Ii warehouseman?
pay the same. All other parties are "secondarily" liable (Sec. 192).
JI

Q. What Constitutes reasonable time?

A. Warehouse~an is one who receives and stores goods of
another for COmpensatIon (COmmissioner of Internal Re. Vs. Ha.
waiian-Philippine Co., 120 Phil. 261). He is engaged in the
enuebUSiness
A. In determining what is a "reasonable time" or an "unrea. of receiVing and storing goods of others for compensation or profit;
son able time," regard is to he had to the nature of the instruments, a person who receiVes goods and merchandise to be stored in his
the Usage of trade or business (if any) with respect to such instru. warehouse for hire; one Who, as a business and for hire, keeps and
[II,
ments andBar
1994 facts of the particular case (Sec. 193; Asked, No. IV
tlieExams.). stores goods of others (Black's Law Dictionary, 1756, citing State ex
reI. and for Use and Benefit of CaWrse >. American Surety Co. of
New York, 148 Or. 1,35 P.2d 487, 491),
Act?
Q. What law governs any case not provided for by this
Q. What
documents law governs warehouse receipts and other
of title?
A. AllY case not provided for in this Act shall be governed
amend~d
bYlthe
ru es 0 rPtrhOVlSllOns of eXISting
e aw merChant legislation
(Sec. 196). Or in defa,t1t thereof, by the . A Warehouse receipts are gOVc<ned by Act No. 2137, as
otherwise known as the Warehouse l!eceipts Law. Other
documents
gOverned
' of bUe
. ..Issued by
by Civil
the CIvIl
perso~~07
other than Warehousemen
to 1520). are
The general provi.
(Arts. ts 0 f title did not impliedly re.
sions of the CodeCode
on documen

207
 WARF.HOlJSE ,f '
1'he I8sue OfWa~ECEn~ LAW
. }IOU se Receipts LawI which are sPe '
1 t} e P . . f the Wnre
" l' ~~sl1ed by ware lOUse
/
. t!;; . I men, sinee
,
pea . 1 roVIsIOnsI' 0 hI to recelp £\hoU8e R{)t«lipta 20Q
r

a general provlslOn. ~
CI " doe~ not'I'.~1mt (Manila Rmlroa
'81 pro\'isions app I('a e . pIiedIy repeal a speCla one unles<>
. d C R
o. vs. affcrt,l1
0.3
(g) The signat 'j
~
the intent to repe 81 IS manw:s made by his auth . Ure of the wareh
oJ, .f
40 Phil. 224). oOZed agent· ouseman, Which may be .t
(h) If the l'ecei ' . I !
houseman is ow pt IS ISSued for
CHAPTER I others, the fact ~erJ either SOlely Or .:~s of ~hich the Ware-
(') J In Y or In common with
osuch ownersh.IP,. and
THE ISS UE OF WAREHOUSE RECEIPTS 1 A 8ta~ment of th
liabilities incurred for who he amount of advances made d f
Ie the wareh an 0
Q. . ~sue warehouse receipts? (Asked, 1954
Who may IS A warehousema h OUseman claims a lien.
Bar Exams.) thereby, for all damag~ :':11 hliable to any person il\iured
able receipt of any of the U,so y the omission from a negati.
A. Warehouse receipts may be i~sl1ed by any warehouseman
ons herem required (Sec. 2).
(Sec. 1). A warehouse receipt may. be Issued only by a ~erson en-

..
gaged in the business of warehousmg for profit, or by ?lS duly au-
th ' d officer or agent (Continental Can Co. v. JessamIne Canning ceipt~· What terms may be inserted in the "'&rehoWle .....
150 S. W. 2d 922, 286 Ky. 365). It cannot be va I'dl'
~
1 Y lSs~ed by
,. onze
Co., A. A warehouseman m ' .
one who is not in fact a warehouseman, although he holds hImself h
:1 Insert In th
any ot er terms and conditionsayProvided a receipt
t h' iSSued by him ,
out or signs his name as such (Harry Hall & Co. v. ConSOlidated ditions shall not: ' a suc terms and COn-
Packing Co., App., 131 P. 2d 859; Steaubli v. Baline Nat. Bank, 39
P. 814, 11 Wash. 426). (a) Be contrary to the Provisions of this Act.
(b) In any wise impair his obligation to exercise that degree
Q. What are the essential terms of a warehouse re- of care in the Bafe·keeping of the goods entrust..! to him which.
ceipt? (Asked, 1964 Bar Exams.) reasonably careful man would exercise in regard to similar goods of
his own (Sec. 3).
A. Warehouse receipts need not be in any particular form,
but every
terms: such receipt must embody within its written Or printed
Q. What is a negotiable receipt? Give examples. (Asked,
1959 Bar Exams.)
(a)
stored; The location of the warehouse where the goods are
A. A receipt in which it is stated that the goods received will
be delivered to bearer, or to the order of any person named in such
(b) The date of issue of the receipt; receipt, is a negotiable receipt.
(c) The consecutive number of the receipt; No provision shall be inserted in a negotiable ~ceipt that is
1· (d) A stau,ment Whether the goods received will be de. non-negotiable. Such provision, if inserted, shall be VOId (Sec. 5).
lvered to the bearer to a 'fi d
son or h IS
· order; ' SpeCI Ie person, or to a, specified per- E I (1) The goods described in the receipt are made de--
xamp es: " utI rd r of Gloria Macapagal Arroyo."
liverable to "bearer or. to. Ie 0 .e hI (Asked No. VIII, 1999 Bar
(e) The rate of storage charges; In either case, the receIpt IS negoba e ,
(£) A deSCription of the d h ' . Exams.). . bl"to
or t e packages con tam-
(2) The goo.ds descn '~i~receipt is non-negotiable." In ~uch
ing them; goo S 'b d' the receipts are delIvera e
bearer" but it provIdes that, . bi because where the goods receIved
case, the receipt is still negoba e

t.
 , , )TrJ\HLt'~ 1i'''''~~n.Jnll'''J.'O 1~
WFR ON NHrl WS
210 qUfZZER AND RF~~ AND RELATED LA
'NAItF;liOlJSF:
, nego t'I.'Ihle and any proviHion stat.
't IS '!'he ISSUe ofW J1eCEIPTs LAW
, b e d (l l'vered
will I . TotillbleI.IS ~VOI(J
to benrer, ' l (Sec 5 pur, 2).
" arehoUse p-- .
ing that it is non-n<,g , of the goods by the Wa h ~"'CeIPte 211
ceipt (Sec. 6). re oUselllan to the h
Q What is a . lie
C1'OtUI)
non·nc~
receipt?
' Give an example • older of the Ol'lgJ.nal
"
The wareho uselll an sh II reo
Buing a duplicate receipt h~ like\JVise ~ , ,
.
64 B . r Exams.)
(A'tked, 19 a. ' " 18 S t a. t (:.>d that the goods
h'ch It , received will
. Cl1llunaUy liable for is-
mw ~
\II lch is not 80
A.,
be de I Ivere
Ad receipt
to the depOSItor,
4) ' any ot.her specified person. IS a
or to marked <Sec, 52).
Q. A, a warehouselll .
iable receipt (Sec. . ' . receipt consisting of thre an l~sued a negotiabl
non-negot d '
Th oods e~crl e 'b d in the receIpt are dehverable
h to !iverable to "n or order.""r~OPI'" Wherein the: "';reho....,
Example:d .,eItg .s a non-ne gotl'nble• receipt because t e goods not marked as "duPlicai "e second and third 00 ~ are de-
"Joseph
are not toEstra a.
be deliveredI
or e r" or to "bearer" but to a specified
to "d andd surrendered the o~:; ~ obtained delivery :~~~:8 \Vedl"e
person. ate
th
e sec~n
d ~.n«l.l of t h . B then negoti.
COpy to C Bnd t e ~IPt.goo 8
r;, and D acted In gOod faith and ~ he third COpy to D. Both C
manded delivery of the gOods ~r value. When C and D de.
'I
;j Q. Is
strument WI .ath~egtoh~a
In
t' hI warehouse receipt a negotiable in-
meeaning of the Negotiable Instruments
to do so since he already d I' lD. A, the latter \Vas unable
rights do C and D have again::~;red the gOods to B. What
Law?
,J A. C and D may hold A the W h
A A negotiable warehouse receipt is not a negotiable instru_ ages they Suffered because A failed to3fe o~e:an ~able for all ~_
ment ~ithin the meaning of the Negotiable Instruments Law (NIL) as "duplicates." Since C and D ,mar t e COples of the receIpt
because: 'Ies, respectIve
. Iy, for value and supposing
acqulred the second
them t beand
th third
'.cop-
al.
(1) A negotiable instrument is payable in a sum.certain
h
t e ware
h o~seman . I' ,() e Ol'lgm
IS lable for damag<lS to the fonner (Sec. 6). C
,
in money, whereas in the negotiable. warehouse receIpt, the and D may hkewlse prosecute the warehouseman criminally for fail.
ure to mark the duplicates as such (Sec. 52).
obligation is to deliver the goods depOSIted (Sec. 1, NIL and Sec.
8),

.),
A general indorser of a negotiable instrument is li-
(2) Q. What marking must be placed on a non-negotiable
I. - receipt? What is the effect of the failure to do so?
able whenever the instrument is dishonored (Sec. 66, NIL),
whereas the indorser of a negotiable warehouse receipt is not A. A non-negotiable receipt shall have plainly placed upon
liable for failure of the warehouseman or previous indorsers to its face by the warehouseman issuing it "non-negotiable," or "not
fulfill their respective obligations (Sec. 45). negotiable." In case of the warehouseman's failure to do so, a holder
of the receipt who purchased it for value supposing it to be negoti-
able, may, at his option, treat such receipt as im~osing upon the
Q. What marking should be placed on the duplicate of warehouseman the same liabilities he would have mcurred had the
a negotiable receipt? What is the effect of failure to do so? receipt been negotiable. ,

A. When more than one negotiable receipt is issued for the This section shall not apply, however, to letters, memoranda,
same goods, the word "duplicate" shall be plainly placed upon the or wn'tten ackn ow ledgmellts' of an informal character (Sec, 7).

sectlO~
face of every such receipt, except the one first issued. A warehouse. '. to 've any warehouse receipt not marked
man shall be liable for all damages caused by his failure so to do to ThIS apyears gI" ble" ractically the same effect as a
"non-negotiable or not ne?otIil . t' Pble proVl'ded the holder of such
anyone who purchased the subsequent receipt for value supposing
it to be an original, even though the purchase be after the delivery receipt which, .Y I S ~
b 't te 1S 18 nego 1 3 , I
for value supposing it to be negotiable
I ,

unmarked receIpt acqUIred It t' 46 Phl'l 705 712).

(Roman vs. Asia Ban ki ng Cor pora IOn , .,

__2==::=t ,.;.1~ ""!

 212
QlJIZZER AND RL~~~~ ON NRGOTlAm,E
RELATED LAWS INSTRUMENTS

Q
. t was issued without stat.
A warehouse
. d
recelp
ere to b e delivered1 to b.carel" 01" t 011)1)0
.<5
Q
"'hether the goo s W • der. It mere Y ree.ted th.. tL
o~. ObligatiOtls w~F:;1iotJ
specified person.?r tobb,sthe depositor. I t "'a8 not .......t .'e ",,<1 Illld Righ.ts SF:; R€cE~
aoods "'ere deposited Y aotiable
• ble • or "not neft
•• Wns the "'..r "." 'e.
• Q Of\V~boUse" I~ lJl...\w
ft
"non.negotla
eeipt negotiable or non.ne
gotiable?
' . eh o the 1lI"o
'I1L
<I th\\>al"eh
• .....a.lle 0.......
(hled~ l'efu.SetJ to
lllell
....... .
Pan their rL . 213
h and th:: tthhe
issUed, del'
oU"'·l..,te~ ~e..... 'n>oIi4 th• g-. on
g"i~ ...~»oPthe....'"the""Itt." <leo.,.;...;nd
Th house reCCl'pt was a negotIable
b hreceIPt. The Ill,
.
negodt~:o;.negOliable
ware e c ....... 8 • lWeI'
e ware . bl receipt was shown y t e fact that th
the ehal'ges 0" th 8t.t that th~hou........, "'l .... not in it.y
A. in an "ctio" .. "'>-onKfuU
tentionwas
receipt to issue a
not marke .• (Bank of P.r. v•. Herridg: ,
47 Phil. 57, 67).
o <l°POSiI' .I>ooilo • <lid ..... d.r.....
depoSItor Th.not
A. d'd otthou..""", ·is"'
w.... not Off•• to Pay
CHAPTER II the ProviSions of the er 10 Pay the Ch!Ped 10 cIain. or ...... t.h
l0

OBLIGATIONS AND RIGHTS OF payment of certain chqUOd..... the P"'~

on the dePosit. 1Yh;::''::'
"""""!.:."'' '
elti"liabtlit~
';1'.~
WAREHOUSEMEN uPON THEIR RECEIPTS where the Wareho us "'lle."1 is not 10 be deG,._. y

42e~;;:r (P~
. part, Or to dellJa.n
form Its l" d · d'to tender sUrb. rbarg.,.
uPon qJ

house AssOCistion • the ProPe..y 18 not "iUing to Per.

Q. When is a ",arehouseman bound to deli"e .. tlte . 60B). 's. !'roducor's W.....
goods? (A..ked. No. XVIII. 1991 and No.
Exams.) XVIIIlhJ. 1993 lI .. Q. What i. a qUed",,?
a A, A qUedsn is anoth
(Moreno S Law Dictions ) Th er te..", for a wareh
~Go r~elPt
A. A warehouseman, in the absence of some lawful eXcuse .

f~r
Provided by this Act, is bound to deliver the goods upon a demand receipts iSsued for sug... e 10..", is USUally Used :::'::
t::,g;.
~~h
mnde either by Ihe holder of a receipt for the goods Or by the de. receipts iSSUed for COpra 345), although it i s : : : :
positor, if such demand is accompanied with:
C.a Gen. Tabacos, G.R. No. L.9277 Negro. Sugar Co., Inc...
(8) An offer to satisfy the warehouseman's lien. • u1arch 29, 1957). .

re~Bed
. Q. The "'anager DC a bonded w

depos.to~
(b) An offer to surrender the receipt. if negotiable. with h"e.. the depOSited palay COr Cail areho..... to do.
slIch
of receipt, and as would be necessary for the negotiation
the indorsements l'ende.. the O..igina! DC the ne otin'::;" oC the to '''''
the l'efusa! correct? g e "'areho rece'Pt. w..
use
(c) A readiness and willingness to sign. When the goods A. The manager of a honded warehouse has the ri ht to
negot~able
are delivert>d. an acknowledgment that they have been deliv. refuse to release. depOsited palay for fuilllrt, to 'urll.'nder theg.rig;.
ered, if such signature is requested by the warehouseman. nal of the warehouse. receipts, since &tid ll.'ceip!s may
have been negOllated for value 10 favor of innOCent third parti..
.
In ~ompl18l1ce
In case the warehouseman refuses Or fails to deliver tIle goods
With a demand by the holder or depositor so accom.
Jl8med, the burden shalJ be Upon the warehouseman to establish tIle
(Estrada VS. Court of Agrarian Relations. 2 SCRA 986).

eXlstence of a lawful excuse for such refUsal (Sec. 8). Q. Upon What grOund. may" warehouseman refuse to
t aJThe ~llolder" referred t . th . '. delj"er the goods? (Asked, 1967 Bar E'am •. )
• ~
ac u, possesslOn ofsuch receipt d . hlIlS
III IS sectlO a person who has both A. The warehouseman mlly refuse to deliver the goods COy.
ered by a warehouse receipt in the following in.tances:
58). all a ng t ofProperty therein (Sec.
(1) WJwre the holder of the receipt does not romp!y with
anyone of the following requirements (Sec. B):
(a) Satisfy the warehouseman's lien;
r I
 214
(lllIZZER AND R~~; WFR ON NEr. LAW:s IN~H(UM.ENTs
, OTIARLE
AND RELATED

(b) Surrender the

, . receipt, if negotiable, With the
. dorsements,
necessary ,~d ifreqmTe
(c)/ . SIgn
knowledgment that the «<>Ods ha".
an ae. d bv the warehouseman;
J
ObligatiOlla llrl:~liO!JS~ n
been dt:' lvere , , 1 l' 1 'ght.s Of\V E:CF.:Jf>rs l..A.
arehOllllelllell tJ \V
& tlt e On tl.l~e
h el
tJ ma
d from a transfer ware OUS lHJn acqll1res ega A. Po,
'" 16);d e by the depositor, or Oll) the "'a.... by the(b)Ie,.",. of : : "'ho is 'ith.,. h' "" ...." """ '"
4

goo s (2) . Where

lien (Sec,
. ...
or who has Writt" on'negOliahl """If "'titled .
ther indorsed II authorit" tie receipt is <>.I; tohdehvery
U,• 8U ~ .or t , I«>od
"'lll
houseman S~ the warehouseman has legally set up the tl' . h

tIe or right of thm/ person

(3) Wuere
of the goods as follows:
• s as lawfid defense for non'deli"ery or "Pon U,• teCeipt J
Pe''''. . "
Or Written entitled ei.
8()
terms(c) A. Pe taon
th ill PoSS'SSio of uPon another PaPer:
.•

h:;~ds ~~~go~iahl
of "'Nch
n

o~
,.. Wh the warehouseman has been requested bearer, 0, "'hich a,. d'Ii••
hi.,:"'......ipt byOru,.to
~

(aJ behal;:; the pelWn lawfuJJy entiUed to the /lOoQ.,

by or deli,-ery (Sec. 10), in wruch case, the "''''''hoUse. person to Who", deli'e Oen end0tsed to 0, 0rd.,.,
ceipt Or by Ns "'Odi .-ty was P'Olllised b U, r III blan. by the
man m. reqwre
may e . all claimants to ulte1plead (Sec. 17);
a~ Or lll:\ll:\ediate . dJ'
./ not (u
e tel1ns of the reo
Q. Explain and/or iii 1Il orsee (~c, 9),
(bJ Where the warehouseman had information that
the deli"ery about to be made Was to One not laWfully en.
titled to the Possession of the goods (Sec. 10);
the warehouselllall lllay d l~e
e-a"'PI. of Pe....,•• t b
h A. (a) PerSOlllalM'."I. e lVel' the gOod 8. 0 '" om
. , 'fi ," -ll! Y entrUed to p
ouse"'.an IS JUst. led In deli'er;n S .
0"""00. _ A. "'_
(c) Where the goods have been, l".wfUl!y sold to

sol~
th 'rd persons to satisfY a warehouseman s lJen, Or laWfUlly
or disposed
ous nature of because of their perishable Or hazard.
(Sec, 36); v. Miller, 43 P.2d 347, 5 Cal.A.pp.2~;':4~.lS
possesSlOn thereof "'hether SUch g toted gOOds to one entitled to

Example: A can;.,. instructed U, .

the bailo, or not (S"'ith

~arehoUse"'an
Withou~rkne~,~sledmanthlaterhreleas~d
(4) Where the warehOuseman haVing a valid lien against store liquors for X, a dealer The W • to .....i.e and
b
t~lnl ~~
the person demanding the goods refuses to deliver the goods
until the lien is satisfied (Sec, 31); goods to X in gOod faith and' t,he
d d to h ld th r "
W~rehouse"'an
e ge att e can;er lll.
1 d' 0 Th e IquOrs Until paYnlent of the draft attached to u'e
IS) Where prior to the demand for delivery, the goods 1 a 109. e is not liable to the can;.,. for COn.
verslOn (Garrett Fre,ght Lines '. Cornwall, 232 P.2d 786).
were stolen or destroyed without any negligence on the part of
the warehouseman, unless he has Contracted to be liable in (b) Person entitled to delivery under tb. lerms oroo •
Such case IBottenberg v. Nixon, 97 Ind. 106; Pope Yo Farmers' negotiable receipt Or with authority ot the p• IiO enti.
n
....,n
L,R.A.
Union,673).
etc., Co., 62 P. 384, 130 Cal. 139, 80 Am.S.R. 87, 53 tIed. - Where a non-negotiable receipt is iSSued, the wareho ..
man may deliver the goods to the perSOn to Whom such goodsusare
deliVerable by the terms of the receipt (Roanoke Banking Co. v. J.E.
ing the gOods? Dunson & Bros. Co., 117 S.E. 826, 30 GaApp. 341), Or to bis trans.
Q. To whom is the warehouseman justified in deliver_ 341),
feree (Allen, Bethune & Co. v. Maury &Co., IJ 7 S.E. 836, 30 Ga.App.
A.
who is:
A warehouseman is justified in delivering the goods to one (e) Person in possession of a negoliabl receipt under
e
which
t b the goods are deliverable 10 his order or hi. Indorsee,
or 0 earer. - The W
goods,(aJ
or hIS agent;
The perSall lawfully entitled to the POSsession of the "rn.hotlseman may deliver the h'goods
n " , d
to tho e

~oo
h to th
person ds areIIIe
whose order goodsbale
delJVera re tdeliverable
obearer. or to IS m orsee,
, to the holder of the
Or W .ere receIpt
negotlable e .,
(Asked, No. 18, 1986 Bar Exams.). .

Were Example: X or orr (, issued

A war.tohousem":;.,
to bo delivered
a receipt
. X indorsed thewherem
receipt the goods
in blank.
 LAW ANI) 1'1 ..... · · - -

t d to V, the holder of the Obligationa e.n~~~li()tJSt 1\1>"

delivered h e goo s was not }'Hl hl e for con
re, 19h~ ofWareb,""-..Et~ lAw
The warehoug~mabnl k The wareho ::; h person (Tom Boy Store., ,
u ' eman
of sale. The wafeho\ls ~~n.\]Pfnl their~?ta
. - d 'ed 10 an. d to sue SW '" \1.
celpt orsdt:' }'1\.er,v .of the
1Il for
version goo Corpora
hou.;:e S . tion, App., 179 . . 2d 145., goods to A after noti~ ~lllfanh then is not . .
Douglas-Gurd'Ian \\are .
'Bar Exams.).
d
ven ee 0
f A
even if th0 tel al
1 eg o'Wnershi J\lstlfi~ .
C\l Ul delivering the

(Mortimore v. RagSdale e62a~~~r did 110t inPdQf B, an unconditional

Asked , No. 18, 1986
UllSS 86) Qtse the receipt. to B
" of a warehouseman for Illisde. Example (b). A ' '.
. the liablhty . wa~hoUse ,
Q. Wbat IS 7 Bar Exams.) tor or the latter's transfe lllan S delivery f .,
lh'ery? (Asked, 196 delivers the goods to one who is renders him liable to ther~after 110tice that t~ gOOds \Q his deposi_ f

houseman tl 38 Ga. App. 55), e o'Wller (Bush" ~i ~ere stolen gQQdg

A
' Where a wan' . I d to'1 "M~~ion
t Ie po~~"" ~ of them, Ie, warehOU8""
n . v~ e . ~ 142 S..E. 463,
not in fact lawfully entIt e ersion to all having a rlght or prop,
man shall be liable as for oo~v of he delivered the goods otherwise Q. Where gOOds CO\fe~d b
,',

erty or possession III the gdo.. S.lns (b) and (c) of the preceding sec, livered, what DlUst be done m ~ a negOtiable "-ipt _ d
than as authonze ~. d the goods as authonze
- d by Rub 1\'ISI0 , db'
y Bald sub, A . ExcePt as ProVld"..l
. t e negOtiable ~ipt?
shallhebedeh~er;:1
,... S~, e-
lion, and he
though so Ia e, if prior to such delivery he had ei. -:- ~r'SlX, where a ware-
divisions d 1· <=\l"'1 '-\..1.10n thlr'h. _
houseman e Ivers gOOds for whi h h
ther: ceipt, the negotiation of which W~uld ~:ad ISSued ~ negotiable re-
,. Been reques te d , by or on behalf of ,the . person 1aw_ session of the goods, and fails to ta.k ansfer the nght to the t>Os-
shall be liable to anyone who PUl'ch e Up~and can~l the re~l:pt, he
(a) th
fully entitled
. to a ng
. ht of property or posseSSIOn In e goods ,
not to make such delivery, or receipt, for failure to deliver the g~~ toorhiv~ue In gQOd faith sutb
I
h . d t'tl m, whether suchofpur-
') e aseT acquIre I e to the l'Ilceipt before
VV\.U)
0, al\.,r the deliv. the
(b ) Had information that the delivery a~out to be made goods by the warehouseman (Sec. 11). ry
i. was to one not la,.•lrfiully entitled to the posseSSIOn of the goods
(Sec. 10). In other words, Where negotiable receipts h."" been issued for
stored goods, a demand rOt their delivery is insufficient unless ac.
• . Q. Explain the foregoing provision ~here the Ware_
companied by an offer to surrender the 1'eteipts properly indorsed
houseman is liable for conversion, and/or gIve example• (L.R. Sarns Co. v. Jewell-Loudermilk Co., 157 S.E. 336, 42 Ga.AIlP.

-
,
A. The warehouseman must deliver the goods held by him
only to the person entitled to the delivery thereof (Sec. 9). In case
676), and where the goods are delivered without presentation of the
negotiable receipt, the warehouseman is liable to the holder of the
receipt for his action (First Nat. Bank v. Donald Civ. App., 84 S.W.
he delivers the goods to anyone other than the person to whom he 2d 325), since it is the obligation of the warehouseman to cancel the
is justified in delivering the goods, he is liable for conversion (Sec. negotiable receipt upon delivery of the goods (Sec. 11).
10).
The warehouseman may likewise be made criminally liable for
The warehouseman must however, withhold delivery to the delivery of goods wit.hout obtaining the ne.gQtiable receipt (Sec. 54.).
person he may be jUstified in delivering the goods, where (a) he has
been requested by the person laWfully entitled to a right of prop- Q Where goods covered by a negotiable rec~i~~ are
erty of possession of the goods, not m
make delivery, or (b) he has partially delivered, what must be done to the negoba e re-
m
information that delivery is about he made one not lawfully enti. ceipt?
tled to the possession of the goods (Sec. 10).
. d' section thirty-s,x, where a ware·
~a): The warehouseman issued a receipt wherein the A. d
Except as prov1de Ill. for which he had issued a ne-
Example houseman delivers par: of ,the goo t~e up and cancel such receipt,
goods were dehverable to A Or order. Later, the warehouseman was gotiable receipt and falls :It.her t.o t of what goods or packages
m
notified by B that A sold the goods him and presented the deed '1 y up on Itha 11statemen
or to place plam be liable to anyone Wh 0 purehases
,
have been delivered, he s a
 - - - ... • ... 0

218
Obligations an:~REHODSE
ghts ofW RECEIPTs t •
, t for fnilure to deliver all the areho\1sern ~W
Q•
s ummari enU POn their Rtoc .
1 e in ,rood fltl 1 Sll.l I -uch pu rc m~cr acqUIre title t
't} "h recel}} , h . d good 219
r. S receipt. Ze the eft e!pta
Jor vau 1:'1 'whetlt'rl; 'f oth eets of a1terat.
'f! d in the recel»t, I' ry of [loy portIOn 0 the go d e
specl t f' • fl' the dl' lVe 0 Sb A. The effects of 1 IOU or a wareho
. ' t befLlre or ,1 l r Y
recelp . scI:!), follows: a teration of a rece' use
the warehOllsenllltl ( e ' Ipt may be .
instances when the warehousetn. 1. In case . summarized as
Q. What are th:' re to take up and cancel a he a" fraudulent intent t~ lmmaterial alter '
l~
will not he Iiahl e for. a:1 of the goodS, wholly Or parti g~ti. of the receipt, as'th e warehouseman .ab~ns or made with
ey Were be" 18 shU liabl out
able receipt upon deltver. a y? lOre alt ' e on the te
winO" instances, the warehouseman will not 2 . I n case th erabon' nns
Inthefoll~he "oods without taking up and canceling the and it is: e alteration is mate· '
deh\·~nng,
A. nal but not fraudulent
linble for : or placiug upon the receipt a state he
(a) Authori '
negotiable receIpt lS:;ue .' . lUent t he terms
accord in got zed, the
of the goods partially delIvered, of thwareh~useman shall be liahl
(1) Where t1~: goods have bee n lawfully sold to satisfy
(b) U e receIpt as altered' e
bI nauthorized th '
a e according to the te' e warehouseman shall be li
the warehouseman s hen, before alteration', nus of the receipt' as th ~ftre.
(2) Where the goods have been lawfully sold or disposed
of because of their perishable or hazardous nature (Sec, 36). 3. In case of mat . I
receipt, the warehousema:~~a~~~fr,audulent alteration of a
to the terms of the receipt . , hable to deliver according
as
Q. What are the effects of alteration of a receipt? will be excused from any th on I, g1~~lly issued except that he
o er labIhty to:
A.
The alteration of a receipt shall not excuse the warehouse·
(a) Person who ma de the alteration, and
man who issued it from any liability if such alteration was;
(b) Person who took it with notice of the alteration.
(1) Immaterial,
. 4. Any p~rchaser of the receipt for value without no-
(2) Authodzed, or bce of the alteration shall acquire the same rights against the
(3) Made without fraudulent intent. warehou.seman which such purchaser would have acquired if
the receIpt had not been altered at the time of the purchase
, If the a,lteration was authorized, the warehouseman shall be (Sec. 13).
l~able accordmg to the terms of the receipt as altered. If the altera·
tlOn ~as unauthorized, but made without fraudulent intent the Q. What is the remedy where the negotiable receipt
::;~eyOl~:~abne;ohalllbte lia?le according to the terms of the redeipt, has been lost or destroyed?
JI re aeratIOn, • l

A. Where a negotiable receipt has been lost or destroyed, a

Material and fraudul ent aIte · . . court of competent jurisdiction may order the delivery of the goods
the warehouseman who'd' ratIon of a receIpt shall not excuse
Issue It fro r I T upon satisfactory proof of such loss or destruction and upon the giv-
to the terms of the receipt ' , m la 11 Ity to deliver, according
it was issued but shall as ongmally issued, the goods for which ing of a bond with sufficient sureties to be approved by the court to
person who ~ade the alteeXCUt,se him from any other liability to the protect the warehouseman from any liability or expense, which he
' 0 f t h e alteration Anra IOn and to any person who took it with
no t JCe or any person injured by such delivery may incur by reason t?e ~f
out notice of the alteration ~:a~~~~as~r of the receipt for value with-
original receipt remaining outstanding. The court may .lso 10 Its
warehouseman which S h qUIre the same rights against the discretion order the paylllent of the warehouseman's reasonable costs
receipt, had not been alt~~ dPurchaser would have acquired if the and counsel fees.
e at the time of the purchase (Sec. 13).
 ' ON NE, t.' OTIABLE INSTR[IMEN'rs
R HE'LATE D l.A\-~t)
l '
Q UIZZER .W D RE
LA\'lJo:\n:
WAND

ood d an order of the coUrt A~

I~O~ ~vhom 0, t~l1~.

s unr er ve tl'e ware h Ouseman &0",
-<S Pro...
.
b
.
The del, ve;.
f the g
shaJJ not'" ,eliable receipt has been sh Obligatiolls a..nd\~liOlrS~
avided in thIs fi.sec ' 31ue \VI'tJlOU
tilet nno
egt"ce of the proceedings 0, of 'le
I'1'I t•v to B person
be negotiated o~~ (Sec, H ),
I lt~CF:JI»....
~ ~ 0"'
~\Ii"
ghts OfW
deman d ed dell v Itrehollse ....
deliv:~;;...........
deli\'ery of the g •
refused to
liable?
II,. ROo,t
r.".. tb
...." Jt..,,'' ' ' "J
. oed 8 negotiable "'areh
o~
.
Q.
The wB~hous emanthe
'd d that
ISSgoods were d e l'1 Vera hIe t lise
d iiI d o A. the
to deliver Th.gaoq
w01'eh 0 ......'"'
' "~y n e "'~lt
bOld tb............. "b.
. t W hich proVJ
recelp
de
or 0,-,.r. A claime
d the e receJp
. d livery of the goods.
an I e a Petit., 011
. t to be lostTh
efrcourt, upoQ I.,~J _ ance of a dUPliCa~' '!'h...
ra te COpy of the Or;of the
,;-not
....,irl.
be b'ld U
. . .b..........

abl, fot his "1bsaJ

Of the ""
p~ A . Th0111 any liah•'J _
d~~al ~h~at
.JD co urt to obtllJD etect t h' e warehouseman
ing of 8 bond to ry of the goods to e "'....e ....,
itv. ordered the dellve d to A. It turned out that A. did t-
uncancelled at the
ga t'IOn JS
' .Jmposed on 0",
receipt
th of 'Ssu.
. ~
the duUse: llla.n,UPoll iss .
of th 'oh " Os ProPer)
pl"eal<! .'" an ."".
o , d the goo s
DIlln d eli\1ere. t and
lose the rPCe,p
.
h.
.Jns t ea d , indorsed t eh receIpt to
od without notice of t e P .... ceedingS ill
h o ".0
h

1I.'h
.y 0
a follow the Procedure r. •
responding petition it,
".r."".......
a; • Or
dUPUeal<! but Y '''Ued and
lOst d. ;::' (Sec. lsi. 1'he
u
?bU. "::,~th.r
st
dc~andedh
took it for value a the oods from the "'arehonse"'''n "'1,0 Q °Urt (Sec, 14) Yed receipt and 6J edy 18 to
court. B
holdtothe
Bfailed
goods?
deln'er as e a
"'arehousem :0
I geady delivered the sa"'e to J\. lIfa.}'
liable for failure to delive.. th e
.
the gOodsI\f
ay tbe \l1ltreb
depOSited . 0 ........" .Set
WJth h;"'1
, • the Cor
up btl. on hUn seIf O\,e..
0

Do.~,,_~
f th A. No
h title Or right to the
~ righte~.
I a e ware ousem.n unl .. '''''''SSio of th
It The de H · 'ery 0 [the goods pursuant
fr the order of the
l'tob'l't or indirectly (a) &0", tr eSS Such title Orn on the Part
rt .does
. not reIleve
' the warehouseman am, Ja dJfcJ Y to a Person
e~c ~J:>'Jt
of or Subsequent to the d ",,"fer 1Ilade by the d "'"der"ed d,re.tJy
to Wh om the nego t'1a bIe receipt has been
COu f h
. negotJate ord value
'TlI.. With.
man's lien, shall ..... for storage. or (h) :,.,,':;:: at the tilll.
out at
edy
[ h' 0 [the
notIce proceedings or the dehvery
e "'arehousem
t eb
, 0t th
. ,
• ne rem.
goo d s . h' ing to deliver the gOods a e WdiarehoUselllan frolJJ liOhilit IV':,""""""
preCl e y pas e an is to proceed agams e on w lch was 16) «Or ng to the I<! Y Or refus.
. l(Sec,
expense td 14),to protect the warehouseman &om any lJabJ/ity Or • 1'lJJ. of the rec.ipt (See.
Q. What ......t the w.....h
n
one pe"so clai.... title Or o~lJJ."
do whe. lJJore than
I' of the gOods'".
.~~lllS the title or POsseSSion of
ceipt Q. is the warranty of a warehouseman for .. re.
What"duplicate"?
marked A. If mOre than one JlCrso
POSsesslOQ
the gOods, the warehouseman m n c
A. A receipt upon the face of which the word "dUPlicate" is
brought against him for non.delaY, eJ /h as a defense to an action
Suit, whichever is approPriate ~~ry a t lie ~0Cds, Or as an Original
terplead (Sec. 17; Asked, 1976 Bar ~::m:.). lawn c1aunants to in.
plainly placed is a representation and warranty hy the warehouse.
man that such receipt is an aCCurate COpy of an original receipt Prop.
erly iSSued and uncancel/ed at the aate of the issue of the duplicate
but shal/ impose upon him no other liability (Sec. 15). Validity
Q. ofWhat
claims?
right doe. a w.....houseman have to ascertain

A. The warehouseman has a reasonable tint. to ascertain the

goods ~ere
Q. The warehouseman issued a receipt wherein the
deliverable to A or order. A lost tbe receipt and
upon hIS request, the Warehouseman iSSUed a dUPlicate copy
validity of the adverse claim Or to bring legal Proceedings to COOtpel
a11 claimants to interplead (Sec. 18),

of th: rece!pt O!the face of which Was plainly placed the

Word dUPlIcate. A negotiated the duplicate receipt to B. B Q. What is the liability of 8 warehouseman tor bon-ex.
istence or misdescription of the goods? /. _:::;;::_ .
,.. ..
~ipt
of~.
A. A warehouseman shall be liable to the lJg(der of a ~

for damages caused by the non-ex.is!"nce goods Or by the fad.

f ,_

-' r;0
 1 222
, R (RFLATlW
QlJIZZER AND REVIEWNE'D
LAWA
l.AWS INSTRIlMgNTg
)N NEW)TJABLE
,

ure .of th e 1goods co.rrp~pon

to 'th the description
d IWr.lhowevc"
, Ihe goods
thereof in the
1 are deSCribed
.rCcClpt at. t 1e Jlne ~.
t· · ofJts lf>sue,
1 bya shtenwn t 0 f marks or lube S upon thcll} , 0 r
In a r ecc Ipt m ere y. t
. . Ig' them, or by a statement
c
that the gOodS
upon packages COli lImJl . . k' d or tllElt the packages COntu'
'd b
.ure ShUI tod e goo s'do
d fa certam Jl1 ,
. goods of a certnin kind, or by
to contam wO~d In_
S
f l"kI e goo Srtare LJch
1111< sal statements, J.£ Iru, e sllHlI not make liable th e
Ole purpo 'ISSUIng
w.1re}wuseman . s ' t'1le receipt , although .the d' goods
t h of the
aref not
kllld
. wInch. the mark s or labels• upon . (8them20) In lca e, or 0 t e kind
they Were said to be by the dt'posltor ec. .

Q. What is the liability of a warehouseman for failure

to exercise proper care and diligence?

A. A warehouseman shall be liable for any loss or iJUury 10

Ihe goods caused by his failure to exercise such care in regard 10
II",m as a reasonably careful owner of similar goods Would eXerCise, Q. May gOods d
which a De t' b epOsited With
o~
but he shall not be liable, in the absence of an agreement to the con.
. go la Ie receipt h a "arehouselIlan fo
trmy' for any loss or injury to the goods which could not have been leVIed uPon in eXecution? lIs been iSSued, be attached
avoided by the exercise of such care (Sec. 21).
A. If gOods are delivered

Q. How should the warehonseman keep the gOOds?

or by a person "hOSe act . ~
to warehouseman by the OWn
chaser
hI in good faith for lIn conveYIng the title to them to a puerr
Or

". . .. a Ue Would b' d th _

a e receIpt Is ISSUed for them th In e OWner, and a negoti.
A. A warehouseman shall keep the goods separate from goods
possession of the ..areho u ' et can not thereafter, While in the
of other depositors, and from other goods of the same depositor for
Which a separal<! receipt has been issued, as to permit at al/ times
otherwise, Or be levied U/lO:e:~~r e attach<!d by garnishment, or
be first SUrrendered 10 th
warehousemanes:~~e.
h an execution,. unless the receipt
the identification and redelivery of the goods deposited (Sec. 22). joined. The ouseman, Or Its negotiation en.
However, if authOrized by agreement or by custom, a ware- up the actual pOSsessio f a In no case be compell<!d to deliver
t h·· no the gOOds unt" the receipt is surrendered
houselllan lIIay mingle fungible goods with other goods of the same a 1m Or Impounded by the COUrt (Sec. 25. Asked 1977- No XV
1998; No. VIII, 1999 Bar Exams.). ' , , . ,
kind and grade. In Such case, the various depositors of the mingled
goods shalI Own the entire lIIass in COmmon and each depositor shall
be entltIed to such Portion thereof as the amount deposited by him
. Q. A depOSited with 1. a warehouseman good. for
~ e (Sec. 23). In Such case, the warehouseman shall
bears to the Whole whIch the latter iSsued a negotjuble warehouse receipt.
severalIy habl .to each depositor 10 the extent and under the Bame Later. A's creditor. B obtained a writ of attachment over the
CIrCUmstances as If the goods had been kept separate (Sec. 24). prOperties of A. The Sheriff garnished the good. of A which
Were deposited with1. (a) Is the attachment hinding on the
Q. What are fungible goods? Warehouseman? (h) May the warehouseman refuse to deliver
X?
the goods to A or his indorsee Who presents the receipt to
A. Fungible goods means gOods of wh' h . .
its nature or btl me ..c t"} IC any UnIt IS, from
J an 1 e custom treated th
.(, . A. (a) The attachment is not binding on the warehouseman
other unit (Sec. 57). ' as e eqUIValent of any
because goods covered by a negotiable warehouse re,:"ipt cannot be
attached by garnishment, or levied upon on execubon unless the
negotiable receipt be first surrendered to the warehouseman, or Its
 NEGOTH\Dl,.u ••. - -

224 QUIZZER AND RE~~\~~~~I~TED LAWS Obligationa e.n:~F:li.()\}SE It

19httlofWe. F:CElM's LAw
the warehouseman's delivery Q• %OU8etnen tlpo;m .
.' . . ed (Sec. 25). Thus, coder to him of the negoti_ A deposi~d thell' ~ip\& 22s
negotlUtlOn enJ~n roce sS without surr rsion (Love v. People's Co _ able receipt for the ~alay \\>ith B
of the goods un er p h'm liable for conv~k d No. XIV, 1998 and Nm A. May the palay d Said Palay C who iSSued a non
able receipts rende;;5 1
press Co., 102 So. . :
137
Miss. 622; As e , o. execution even Wit~posited b~ AOb~ainf!d judgment g.oti_
ceipt? Out 8~nd ~lth B be levied gal1lst
-:e
VIII 1999 Bar Exam:s.). t refuse to deliver the goods to f!t1.ng the UPon by
' n can no . hI A. The P 1 non.negotiable re-
(b) The warchousema h goods are dehvera e Or his a ay dePo 'te
itor to whose the rdpr t e A
. t to the former. ware h ouseman without the BUl"rend 51 d by A with B
t 1le d epo S
. d ee who surrenders '
In ors . .
0

althoug
'
reCCIP . 1
h the goods were prevIOUS y seIzed
6 Al 4
. the receipt must be s~ of the ~ceipt beca lllay be leVied Upon even
to attachment 01' levy l'rende~ first or itsUse t~e ~uirelllent that
\
. }' ble for non-dehvery R b' on & Ledyard, 7 8. 23). The
18 lU
under legal process ( 0
P well v 0 108 • h'
. d l' er the goods only m t e mstances
(Sec. 25), and does n:~ exeeution applies ~~ation e~oined prior
warehouseman may refuse . L~ to. e IVunder Sees. 9, an d 10 ;.n:>
A "k d
e , No. 42). apply to non-negoti~bl nego~lable receipts
'd d bv law (see dISCUSSions e receIpts (see Sec.
prOVl e oJ
VIII, 1999 Bar Exams.).
Q. What are the credo
gotiable receipt? ltor'S remedies to reach the ne-
. d t len TV sets with B, the warehouse_
Q. A ~eposlte t~e: issued a negotiable warehouse re- A. A creditor Whose debto .
man for whIch the la
.
cmpt.
Wb C the owner 0
f the TV sets found out that the
en, . d 'th B the former filed an action for
• c~ip~ shall ?e. enti~led to such aid
r
::a::
e owner of a neg~tiab~e re-
diction, by InJuncbon and othe . . courts. of appropnate Juris-
.:
,
me were depoSIte W I , TV t J d
sa . . st the latter to recover the se s. u gment satisfying the claim by means ~se, ~n a~taching such receipt. or in
replevlD agadI~ r of C May B the warehouseman refuse uity in these Islands, in regard:O as 18 allo~ed at law or in eq_
was rendere In a v o r . t h h
· th TV sets to· (a) A on the ground t at t e goods be attached or levied upon by a d' prorrty whIch can not readily
to de IIver e · th t· bl No. XVIll[bl, 1993 Bar Exam5~. mary egal process (See.. 26~Asked,
are sto 1en, or t 0 (b) C on the ground that e nego la e re-
ceipt is not surrendered to him?
A warehouse receipt is a symbol f rt .
A. (a) B. the warehouseman is justified in refusing to de- th d db' 0 prope y or owuet'shlp of
e goo s covere. y 1~ (Collins v. Bowles, EmApp. 152 F.2d 760)
liver the goods to the depositor where the warehouseman has no- and where negobab~e, It may be negotiated so as to pass title to the
tice that they were stolen. The delivery of the goods by t?e ware- goods or merchandIse mentioned therein (Mason v. Exporters &
houseman notwit.hstanding notice that they were stolen WIll render Traders Compress Co., Civ. App., 94 S.W. 2d 758). While the goods
him liable to the true owner (Bush v. Ogletree, 142 S.E. 463,38 Ga. covered by a negotiable receipt cannot be attached or levied upon
App. 55; Sec. 10). without surrendering the negotiable receipt or enjoining its nego-
(b) The warehouseman is justified in delivering the goods to tiation (Sec. 25), the negotiable receipt itself, which is the symbol
C, the person lawfully entitled to the possession of the goods (Sec. ownership of the goods therein described, may be attached so as to
9). and the production of the receipt is not necessary to entitle the satisfy the claim of the creditor of the owner of t'1e negotiable re-
ceipt (Sec. 26).
warehouseman to deliver the property to the person legally entitled
to it (Mortimore v. Ragsdale, 62 Miss. 86; Rudin v. King-Richardson
Co., 143 N.E. 198, 311 Ill. 513). The rule that goods covered by a Q. What claims are included in the warehouseman's
negotiable rpceipt cannot be attached by garnishment or levied upon lien?
~~ecution unless the receipt is surrendered or the negotiation is en- A. A warehouseman shall have a lien on goods deposited or
Jomed, doe~ not apply to actions by replevin by the owner of the
on the proceeds thereof in his hands, for:
goods, who IS not precluded from seeking to recover the goods stored
b~ anot.h er who was not authorized to convey title thereto (Rudin v. 1. All lawful charges for storage and preseTVation of the
King-RIchardson Co., supra).
goods;
, 226 'lIl/ Z;I, EU A NI)

2
Hl'i~'~'Wf
, ' 01'1/\/1/.1<; INSTIU JMI<;N1'S
U ON NI',(, Ws
ANI) /iE/A T /.;/) LA •

J ' l SI for 1110 lI OY udvlIJJced,

cjJThjl}~,
, interes t, in,
All Imvflll , c ;1/11Ilihor,
'
SUrIlII Ce,tl"IIISportlltJOll,
. . , 'n rclHt/lln
•
w . COOpcTlllg and other
d .
' to s lIch goo s ,
Obligations an:~J~.hFa"oUSE n ECF.IJyy,o L
<\Ig ts of \V •• If, A\V
d l)(' n~es I Q
A SI e frOIll arehou&ernen UPon their b __ . 227
charges nn ex , . • IIl1d e xpIlIlHCR fur notico •
'd
I 1(' clil" ~cs , what other reltted' . enforcing the
<"'<:elilts
3 ' All reaSOIlIl
alld arivl'rtise
dt'filldt ' been
has
of ' ' lilt!.
. fill d fi.r Rlilo of th J e good. ""'ere
,
miltIf' in S II t'IS f.yillg tlw wure )OlJ Scmul} 8 Ji(,O
mellts .
"'hatever "'ay he ~.a
dOea the \Vareho:arehouaeman" He.
A. Whether Ue him? ..m.... bave 10 Colt";
good., he i. Ontitle; 7arehouseman h.. Or h.. oot .
(Sec, 27), ' t' H'f(Otlll), lIe" the waml!nuHc OilIn shnli have
t~:11 ~n
~I ~Itor
against hi. debtor, for remedies allOwed by la: Upon the
Ifthe reC(',pexcept , ch'IT"
.. , JUr , ~ "8 fiIT s torage subseque
1 nt l<J
and adVances Which th ;'lIech on from the de"""itor of
no lien thereon, . . t UIl/"SS the receipt expreR" y e numor.
the 'IlIC
. h a liell is cllliJllcd (Sec. 30). traeted with the wareh 0 e"""ltor ha. e,pressly or impr..;'1 arg..
ut os dllt
othere ofcharges
the r ewp
for W OU8eman to pay (Sec. 32), 1 Y COn-
Q. What are the inst
Q. Agmnst
, W II pr
h t operty mlly the lien be enforced? may.cause the good. dOPooi:,:;,ea. wh~n
the 19arehou""'aa
A, A wurOllousema
aucbon? e With hI'" to be sold at puhli.
I.. " , n's lien lllRy be enforced:
A. The warehouseman m
~YII a~e t~e goods deposited with
h
Against all goods, whenever deposi~ed, ?elonging to
(1 ) him sold at public auction in th
tile
I..
person Wl/O 1 <
- I.. 's liable as debtor for the c1HJlns 10 regard to e 10 OWIng Instances:
which the lien is asserted, and (I) 'Ib satisty the warehouselDan'slien (Sec. 33);
(2) Against all goods belonging to ot~e~s which have 34); (2) In case of failure to remOVe perishable goods (Se•.
been deposited at any time by the person who IS hable as debtor (3)
for the claims in regard to which the lien is asserted if such 34),
In case of failure to remove haZardous gOOds (S..,
person had been so entrus ted with the possession of the goods
that a pledge of the same by him at the time of the deposit to
One who
valid (Sec. 28),the goods in good faith for value would have been
took Q. How may the WarehouselDan's lien be satisfied?
A. The ",arehouseman's lion may be satisfied by the sale of
the goods by auction conducted after notice to all known persons
Q. How may the warehouseman's lien be lost? interested in the goods, and publication of the advertisement of sale
for once a "'eek for t",o consecutive weeks in a newspaper published
A. A warehouseman loses his lien upon goods: in the place of the sale, or if there is no newspaper published in such
place, by posting the advertisement at least ten days before the sale
(1J By sUrrendering POSsession thereof, or
in not less than six conspicuous places therein, The sale shall be held
(2) By refusing to doliver the goods When a demand is not less than 15 days from the time of the first publication in the
newspaper (Sec. 33).
of this with
made which
Act (Sec, 29).he is bound to Comply under the provisions

l The warehouseman may refuse to d I' th d t'1 h's Q. What are perishable and hazardous goods?
' IS. satls
blen . IiJed (Sec, 31) but ifhe dell'V thelver d e goo
. h s unh I l' I A, Perishable ,goods are those which will deteriorate greatly
. satlsfied,
elOg . the warehouseman los ers h' I'e gOO S With out dt e(SJen in value by keeping the same (Sec. 34),
29). es IS len upon t e goo sec,
H azard goods are those that by their odor, leakage, in flam-
rna b1'l·t
I Y, or ex
oUpSlosive'nature, will be liable to injure other property
(Sec. 34).
 t:"(' OTIABLE INSTRUMENTS
~ j ~- " --~~,2."::'; ·'~'~i'~:;; . ;--,

' WE'R ON N r , l ',-,-:: ';":.:-

R~ij~ AND RELATIW LAWS
"-,'

QUIZZER AND t... '" ~

228 .~ " ~. ~ ~
N' wAREuou
egotiat' SE RECEIPTs
e to perishable or hazardo Ion and 1'rans LAW
Whnt may be d on Us
1l..
Q • U1.aYa
fer ofR,eee'
tpta
Q.
liverable to b negotiable...... .
goods? h' eare b .'Ccelpt h .
W lch requires ind: e conVerted'W' ~reln the goods are d
erishable or hazardous, the VVa
th good~ are P . re.
A. Wh ere, e ice ~ the owner or the person In whose name A rselllent? G' In 0 an "order" e-
houseman may gwe not t ' f the lien upon the goods and remo . Where b . lYe an exa receipt
t d to sa IS Y . Ve deliverable to be' y the terms of a ' mple.
the goods are sore , d in the event of faIlure to satisfy th . hI arer or wh negotiable'
them from the warehouse,:nwithin the time specified by the VVa e In ank or to bearer ere a negotiable ~lPt, the goods are
recelPt
lien and to remove the goo s or to any other spe 'f'. any holder may 10'd has been indorsed
eman mayI sell td
le goo s a t pu b he
. or po'
re· Cl led pe orse the
houseman the wareh ouS h ft . th erea fte r be negotia rson, and in such same to. himself
, 'h t d 'ertising, If the ware ouseman, a er reason (Sec. 37, last par) ted only by the ind case, the receIpt shall
vate sale WIt ou a , d ' · .. orsement of such'10dorsee
able effort, is unable to seH such goods, ~e ~~y Ispose of them in
shaH incur no lIabIhty by reason thereof Example 1, Th
any Iaw Iiu I manner, and t o "b earer." It was
. e negotiabl
deli
.
e receIpt made the '
(Sec. 34). may ne~otiate the rec~e~ed by A, the depositor t!~~~live~ble
the receIpt to himself h P by mere delivery but in ca B ~anly, B
Q. What is the effect of the sale of the goods pursuant the receipt. ' e may negotiate the same onlysebym .mddor~ed
orsmg
to Sections 33 and 34?
Example 2: The negotiable .
A. After goods have been lawfully sold to satisfy a ware· ~o "A or order." A indorsed the r:C~lP~ made the goods deliverable
houseman 's lien, or have been lawfully sold or disposed of because mserted his name above th . d elpt In blank and gave it to B B
. e m orsement f A B .
of their perishable or hazardous nature, the warehouseman shall not mstrument only by indorsement. o . can negotiate the
thereafter be liable for failure to deliver the goods to the depositor.
or owner of the goods, or to a holder of the receipt given for the good~
Q. When may
dorsement? . 8 n egot'18hie receipt be negotiated by in-
wh en they were deposited, even if such receipt be negotiable (Sec.
36).
th A. A negotiable
h receipt may be negotIated
. by indorsement of
el' persbon t(oSw ose order the goods are, by the terms of the receipt
CHAPTER III d e Ivera 1e ee. 38). '
NEGOTIATION AND TRANSFER OF RECEIPTS Indorsement is likewise necessary where the holder converted
a "bearer receipt" into an "order receipt" by indorsing it to himself
d I' Q. When 8 negotiable receipt be negotiated by mere (Sec. 37).
e Ivery? (Asked, 1959 Bar Exams.)

A. A negotiable receipt may be negotIated

. Q. What is the effect of forgery of 8n indorsement of 8
by delivery:
receipt which provides that the goods are deliverable to or- l
(a) Where, by the terms f h ' ' I
man undertakes to d ]. 0 t e receIpt, the warehouse-
der? (Asked, No. XV, 1989 Bar Exams.) \ i
\ '
18[aJ, 1986 Bar Exa e Iv)er the goods to the bearer (Asked, No. A. Where the negotiable receipt is an "order receipt," proper
ms., or
indorsement thereof by the person to whose order the goods are de·
(b) Where, by the terms f h . liverable is necessary to its negotiation (John S. Hale & Co. v. Beley
man undertakes to deliver the 0 t e receIpt, the warehouse-
Cotton Co., 290 S.W. 944, 154 Tenn. 689). A. forged i~d?rsement
person, and such person goods to the order of a specified
. or a subsequ t ' d therefore does not constitute valid and etTectlVe negotIabon of the
has mdorsed it in blank to en In orsee of the receipt , '

or bearer (Sec. 37). receipt.

 N NFX-:OTIAm :E INSTHUMENTS
230 QUI ZZER AND REVIEWERD~ELATED
LAW AN LAWS

. a receJ'pt mere IY transferred or assigned WAnEIiOlJS~

Q When • t d?
IS Negotiation RECEIPrs LAW
Insten
. 0 , mere:> Iy transferred or assigned
d' f being negohn e , t IS and 1J.ansfer of Receipts 231
The warehouse recel~ g instances: receipt as funy as 'f h
A. , he followm 'th h' 1 t e Wateh

and not negotiated m t . st'lres thnt the goods are deliver_ WI 1m (Sec. 41)_ ouseman had contract"<! directly
(1) Where the
hI to .recel~~ the receipt without .indorsement Q. Maingat depo 't
a et order' the r or assIgn ment of the recCIpt
dehvery , r
(Sec.
h 39.'
nndert':;'~se
('ons I'tutes tranSler86 Bar E xa ms) " The tranSlcree,
. OWeVer:, machine in the w""'h SI ed her personal Computer (PC)
tiable receipt og of Ilocteguero Who i"ued a oego.
acqui~s ~on::.ek
Asked No. 18[b1. 19 I the transferor to Indorse the re-
Mayaman Or hearer. M the delivery of the computer to
the right ,to
ceipt but th e ne, gotIahon
the indorsement IS ae u
t ally
s effect only as of the time when
made (Sec. 43) .
Lil e

"
Secretario, his se"""tory, aY:m~o eotru.t~d the receipt to
to BUDlibili a pUrch ,W 0, In tUrn, delivered the receipt
'
Secretario needed th aSer lor value a0 d '10 goo d I aitb.
Wh ' t is non-negotIable,h It can
the recelp f 'only be Who has a better till ':., m~ney
to pay hi. gambling debts. (a)
transferred or ass~~e ri ht (Sec. 39),
i Explain. (b) Would t~ t e computer, MaYa.n.ao or BtunibiU?
I • (2) ere . d and the indorsement t ereo gIves the
transferee no addltIona g
' e anSWer be tbe Sante, If, by the tenns
of Bodeguero. receipt, the computer i. deli"erable to tbe
Q. Who may nego t J'ate a receipt? (Asked, 1957 Bar E,,_ order of MaY_an. Explain. (Asked, No. 18, 1986 Bar Exam..)
arns.)
A. - (a) Bumibili. a Purchaser for value and in good faith has
A.
t~e
A negotiable receipt may be negotiated: a hetter nght to the c<>mputer. Since the receipt is negotiable by de-
livery, computer being deliverable to bearer. When Maingat en-
(a) By the owner thereof, or trusted Its custody to Seeretario. the former placed the latter in a
(b) By the person in possession of the receipt ~o whose
position to make a binding negotiation (Sec. 40[bJ). Moreover. the
validity of the negotiation of the receipt is not impaired by the fact
order the goods are deliverable or the bearer of a receIpt nego- that such negotiation Was a breach of duty on the part of the pel'
tiable by mere delivery (Sec. 40; Asked. No. 18[a). 1986 Bar
Exams.), 80n making negotiation. if the person to whom the receipt Was ne-
gotiated
(Sec. 47, paid
infra),value therefore. without notice of the breach of duty
Q. What are the rights of a person to whom a receipt
has been negotiated? (Asked, 1984, No. 18[a), 1986 Bar Ex-
ams.) (h) Where the receipt provide.s that the computer is deliver-
able to order the receipt may be negotiated only by indorsement of
the receipt (See. 38). The delivery of the receipt by Secretario :will
A. acquires
gotiated A person to whom a negotiable receipt has been duly ne-
thereby: not operate as a negotia lion but. a mere assi gament of whatever ,:,ght
that Secretario may have OVer the computer (See .. 41). SInce
. (a) Such utle to the goods as the person negotiating the Secreta rio does not have any right over the, computer, It must fol-
receIpt to hun had Or had ability to convey to a Purchaser in low that Bumibili does not acquire a better nght. over the computer
as against the owner thereof,
gOod faIth
PosItor for value.
or person to and
wh also Such
d title to the g oods as the de-
,
d b th te
ere Y e rms of the ose r or h the gOods Were to be dchv-
' t Cr
a Purchaser in good f: ' h ecelp ad or had ability to convey to Q
warehouse
What i. the effect of indorsement of a
recClp
negoti~ble
Exams.). and alt for value (Asked. 1957 and 1974 Bar . . t by way of pledge to secure payment 0 an
obligation? . ed
(h) The direct obJi atio
Possession of the gOOds r.g h' n of the warehouseman to hold C otiable warehouse receipt has been mdo~s
A. Where
h a nntg of an olga
bl ' t' or pledged to the hcredItor,
un according to the terms of the to secure t e paymc to r lly lOn, ods
I~~
Or become the owner of t e go
the indorsee
covered by thedoes not au recelp
warehouse rna u t merely retains the right to keep
 "R ON NEGOTIABLE INSTRUMENTS
232 QUIZZF.R AND REVIEWE
J
RL"LATFD LAWS
LAW AND J,". '
I

WAREaou
Negotiation an~~ECEIPrs LAW
to sell them so as to satisfy th IUlsfer of 1) ___ .
233
t of the owner, h" t h' e '~IPta
and with the consen d~ of the sale. Owners Ip no aVIng been to the levy or attach
obligation from the procee 1 .sk of loss of the goods is retained . th . ment hi .
L
qUlre e obhgation f ' S title aver th
t.ransferred to the pl~dgee,, : ;~~ 93 Phil. 765; PNB vs. Atendido any subsequent atta ~ the warehouseman e goods and right to ac-
by the pledgor (l\1art,mez \19:;'63 nd1978 Bar Exams.; No. XIV, 1992 10 P. 122,68 Cal. 6;7)rnent or levy on execu;:ar' n~t be defeated by
94 Phil. 254; A.,ked, 1960, n . Ion (BIshop v. Fulkerth,
Bur Exams.).
Q: What are the warr .
'ghts of a person to whom a receipt or assIgns a receipt? antIes of a person wb .
onegobates
Q What are th' e rl k d
• l ' . d but not negotiated? (As e , 1957 and . A. A person Who for value n .
has been tranSlen e ms )
1984 Bar Exams.; No. 18[b], 1986 Bar Exa • by lndorsement or delive . I . egotlates or transfers a rece' t
' ryt lnC udmg a h' Ip
C1aIm secured by a receipt 1 ne w 0 asSIgns for value 8
~ n to whom a receipt has been transferred but not rants:
, un ess a contrary' te .
m ntion appears, war.
A . A per~o 1 t r th' 1
negotiated, acquires thereby, as against t lC ran~leror, e tit e of
b,iect
tl1e goo d S , :;U J
n to the terms of any agreement wIth the transferor. (a) That the receipt is genuine,
If the receipt is non-negotiable, such person als~ acquires the (b) That he has a legal right to negotiate or transfer it
right to nC'tify the warehouseman of the t~ans~er to hInl of such re- . (c) ~~t he has knowledge of no fact which would im~
ceipt, and thereby to acquire the direct ob~lgatlOn o~the warehouse- palr the valIdIty or worth of the receipt, and
Inan to hold possession of the goods for hIm accordlng to the terms (d) That he has a right to transfer the title to the goods
of the rece i~)t. and that the goods are merchantable or fit for a particular pur-
Prior to the notification of the warehouseman by the transferor pose whenever such warranties would have been implied, if the
or transferee of a non-negotiable receipt, the title of the transferee contract of the parties had been to transfer without a receipt
to the goods and the right to acquire the obligation of the warehouse- the goods represented thereby (Sec. 44).
man may be defeated by the levy of an attachment or execution upon
the goods by a creditor of the transferor, or by a notification to the Q. Will an indorser be liable for the failure of the ware-
warehouseman by the transferor or a subsequent purchaser from houseman or previous indorser to comply with their respec-
the transfer of a subsequent sale of the goods by the transferor. (Sec. tive obligations? (Asked, 1968 and 1975 Bar Exams.)
42).
A. The indorsement of a receipt shall not make the indo~er I '

liable for any failure on the )art of the warehou~Ill~ or preVIOUS

I

Q. A deposited goods with B who issued a non-negoti- . f th . t to l'..llfill their respective obligatIons (Sec. 45).
Indorsers 0 e recelp 1l
able receipt for the said goods. On June 20 A transferred
the rec~ipt to C. On June 25, D obtainedjud~ent against A Thus, in case the
~ 1
warehous~mdan lail~~: ~=;~~rc~~~ ::~~
th part of the In orser, .
and l~vled upon the goods deposited by A with B. On June out any lau t on e .' the indorser is not a guar·
30, C Informed the warehouseman that the receipt had been liable by the holder of the receIpt ~mc~ man's obligations (Sec. 45).
t~ansferred to him. As between C and D. who has a better antor of the fulfillment of the ware ouse
right over the goods stored with B?
. ' lied from accepting payment ,
IS 1I1~P 'ty? (Asked, 1970 Bar
A. Th~ receipt is a non-negotiable receipt and therefore, D Q• Wh at warranty
. t IS a secun .
has a .better nght over the goods because the rights of C, the trans- of a debt for which a recelp .
feree 18 defeated by a levy on execution u th d b d' . t
f h 11' pon e goo s y a ere 1- Exams.) Id for security of a recelP
~r 0 t ~ tr~ns e~or pnor to a notification to the warehouseman that A. A mortgagee, pledge:e~:!Opa~~ent of the debt for which
t e'fjrecel Pt as heen transferred to C (Sec. 42, par. 3) But had C . d t'. • th demands or re
notI le d t h e ware ouseman of the transfer to h'1m 0 f'h' . . who In goo 131
t e receIpt pnor
 --
234 ~lJI:ttt,tt f\.I W "iA-W AND HE'LATt;U LJH'¥O

I r fro111 a P arty to a draft

. drawn l'lOt N:"AltE:liOtJSE 1),.,
. . security, whet le~ n shaH not by so domg be de gotiatio n and <"CCEIPrs l.Aw
such receIpt IS thd
ly other perso , 'neness of such receipt OreIne of the price to A (Sec 4
~fer of Recei
Pta
bt from af I genlll . S e
such de · or to warrant t 1e J erein dcscnbcd ( ec. 46; Asked
to represent or, of the goods t 1 , son who negotiated the 7). S~ce A has vol '
quantity or qualIty . and upon ~hich C Bank :~lPt Wi.~h all th~~ly clothed the per-
1970 Bar Exams.). has a vahd title to th hed.: he IS estoPped, nbutes of ownership
Hongkong & Shanghai ~ rec~lPt (Siy Co ~::ny that said bank
ng
When is neg I
.
o CatIOn 0
f a receipt E
k d 1986 Bar xams.)
not impaired by
ankin g Co~
-1"',
56 p\..:, g & Co., Inc. \'8
uu.598). .
Q. r duress? (As e ,
Q. What is the eft t
fraud, mistake 0 ' f the nego t'ntion of a receipt is not impaired
1<.
A The validIty 0 . . was a breach of duty on the Part gotiable receipt, on the ~ °h~~Ubsequent negotiation f
b f
b t he .fact that sueh n egotIatIOIl h h or uyer 0 the gOods Co.. I.g "8 of a Pnor . mortgagee 0led a ne-
y k' the nego t'IB tl'on , or by the fact t at t e• oWner vered by the receipt? ' p gee
of the person ma f~g d b fraud, mistake, or duress to Intrust A. Where a person ha .
which are m a warehouse and for whi' 0 a~ed, or pledged goods
VlIlg Sold m rtg
of the receipt was mduce f ~he receipt to such person, if the per-
. •

the possession or CUs~O~Yw:s negotiated, or a person to Whom the issued, or having sold, mortgag d cht
negotIable receipt has been
son to whom th~e recelp ne otiated, paid value therefore, without representing Such goods cont' e ,or. p edged the negotiable receipt
receipt was sub::.equefn~Yt gr fraud, mistake or duress (Sec. 47).
' fb ss~n 0 f the negotIable
Inuesth1Il posse'
receipt, the subsequent negotiation .
notice of the breach 0 u y, 0 ' . sale, or other disposition thereof to:n,reo y t at pe:a?n under any
d f: fi va1ue and without notice
in goo al'th ,or y person
of the retelVlng
. sal the same
e~~dity of previous negotiation shall not be
wh the holder of the receIpt acted In good
1d
In other words'h e gage or p e ge, sha~l have the Same effect as ifpreVlOUS e, mort-
va~uet' ;~~ch negotiation was a breach of duty Or
the first purchaser
faith andbyforthe Jac tth a
affected of the goods or receipt had expressly authOrized the subsequent ne-
gotiation (Sec. 48).
induced by fraud, mistake, or duress.
"l ' 1 " is any consideration sufficient to support a simple con-
va ue .. h th so. Q. A deposited goods for which a negotiable ware.
tract. A n an tece d en t or Pre-existing oblIgatIOn, weer
. . lor money
.
house receipt has been issued. A sold the goods covered by
or not, constitut.es value where a receipt is taken eIther In satIsfac-
said receipt to B but did not negotiate the receipt to him. A
tion thereof or as security therefor (Sec. 58). .
then sold the goods to C in whose favor the former negoti.
ated the receipt. As between Band C, who has a better right
over the goods?
Q. A sold the hemp covered by a warehouse receipt to
B and negotiated the receipt to the latter even if the price A C has a better right over the goods provided that he ~cted
had not been paid yet. B, on the same day, negotiated the . ood faith and for value. Where goods covered by a negotiable
receipt to C Bank to secure the payment of his pre-existing In g. t ld but the receipt is not negotiat~d
to the bu~er,
the
obligations. In the evening of that day, B died. As between A recmp are so .. of to another buyer who acted m good
subsequent negobabon there fli:. t as if the first purchaser of
faith and for value has th\sa~edet:: subsequent negotiation (See.
and C Bank, who has a better right over the hemp covered
by the receipt?
the goods has expressly aut onze '
48).
A. .C Bank has a better right over the goods. Said bank has
a 'perfec~ nght to ~ccept the receipt as security of pre-existing debts . defeat the rights of a person to
Without mvestlgatIon oft.he authority of the person negotiating them. Q. May seller's h~n b been negotiated?
Assuml~g that B ~ommltted fraud in negotiating the receipt to C . hI receIpt a8
B~nk Without paYIng for the Price of the goods covered by the re-
whom a negoba e . been issued for goods, no

ceipt, su~h fraud does not affect the validity of the negotiation to C
A Wh ere a negotiuble re:elpt ha.stu shall defeat the right of
. f t age m tranSl . t has been
seller's lien or right 0 S ,oPPood f 'th tQ whom such recelp
Bank whICh acted for value and Without notice of the non-payment any purchaser l',lor value m g a l . .
 236 QUIZZER AND REVIEWER O~'LAru1~;;U'LAWS-
LAwANDRr,
'WAIttli()tJSE:
' t'1on be prior or subsequent
ch nego t 13 to the I~t.e ltECtlPTs
negotiated, whet h er su
•
who issued such rece1pt of the sell (5), l'pr~tion ' l...A.w
nob' fcat.lOn
i'
to th ~ warehouseman
, f toppage in transttu.
. N or shall th ~ . Dehve
ht celpt (Sec. 54)' ry of gOods '
er's claim to a hen or,ng 0 d sr er or justified in delivering the , WIthout
warehouseman be obliged to} C tl}Ve receipt is first surrendered ~ e (6) Ne ' Obtaining ne '
'd lIer un ess 1 · lOr goods to whi gh°tJation of gOhable reo
goods t.o an unpat se N XVIU[a] 1993 Bar Exams.). c he h negot' b
cancellation (Sec. 49; Asked, 0, , mortgage (S"",c. 56) as no tl'lle Orla Ie fec..,,.;;lllt
'
by d
. 'u}lQn wh'Ieh th"epositor 0 f
ere 18 a lienOl
h p to B for which the latter paid balr
Q. A so ld . em 'th th
of the price upon delivery of the hemp WI . e ~greel1lent ClIAPrreRV
th t th ther half of the price would be paid SIX months
a e o . h h IN'rERPRETAnON
later. B deposited the hemp Wit a ware ouseman for
which a negotiable receipt was issued. B pledged the hemp Q. Define the
to C Bank to secure the payment of a debt and indorsed "value," and "good fa~~hn~Wing: "Funihbl
a
the receipt covering the hemp to said bank. B failed to pay • tt e goods" "h
A • "Fun gI"ble gOQds" m ' ~d~"
the balance of the price to A. A filed an action against B '
its nature or by merca n cans gOOds of hi
and attached the hemp covered by the receipt, claiming a other unit. n I e CUstom, treated ~ t~h any, unit is, from
vendor's lien thereon. Who has a better right OVer the e equiValent of any
hemp, A or C Bank? "Holder" of a receipt
.
seSSIOn f h
0 sue receipt ' a person Who has both
dDleans
A. C Bank has a better right over the hemp. Where a nego. ". an a nght of property ther' actual pas..
tiable receipt has been issued, no vendor's lien shall defeat the rights "Value 18 any con 'd " em,
SI eratIon s ffi '
of a person who acted in good faith and for value to whom such re. tract. An antecedent or ", u IClent to supPOrt as' 1
. pre~X1sbng bl' '. Imp e con-
ceipt has been negotiated (Sec. 49; Asked, No. XVIII[a], 1993 Bar or not, constitutes value wh 0, 19atlOn, whether for m
Exams,). . h ere a receIpt" tak' oney
bon t ereof or as security therefor. is en eIther in satisfac-
"Good faith" is when it is" f
I . CHAPTER IV done negligently or not (Sec. 58~ act done honestly, whether it be

CRIMINAL OFFENSES

~. What offenses are punishable under the Warehouse

Re celpts Law?

houseARe' 'I?tse fiLollowin

celp aw:
g offenses are punishable under the Ware-

(1)Issuance f 'fi
o receIpt or goods not received (Sec. 50);
(2) Fraudulent issuance f .
ment (Sec. 51); 0 receIpt containing false state-

(3) Issuance of d l' te .

up lea recelpt not so marked (Sec. 52);
(4 ) Issuance of recei t fi
does not state that fact (Se~. 5~~;warehouseman's goods which
 t"" :/:i~r: ,' ; " '\_ •
.. ~

. (2) Any CQn

delIvered is to h t.ract Ot tr
e Il1ill d anSactio
ED WAREHOUSE ACT (3) Any c e for and on aCe: Wherein the comrn '
GENERAL BOND delivered is "" on~rac.t Ot tr~... . unt of the OWner thod1ty
1 . "Vlllnlln 1 -lsactlon h ereof;
(Act No. 3983, as amended) be ongmg to oth g ed With th W ereiu th
to return COIn er Pe
. rsons, and th
e COm tnodity d re C0In.mod·t
I y
lllodity of th e wareh e lVered by or
2, as amended b R e Satne ":-d OUSeman is obli
y .A N' 2 lUll or t o . gated
. o. 47; Asked, 1974PBay Its value tSec.
Q . I s a Contract ar~~)
Q What are t h e saI·1ent features of the
)
General Bonded ..
'Vareh~use Act? (Asked, 1958 Bar Exams. livered is to milled for or transaction wh .
A. The following are the salient features of the General
within the Coverage ot~d on a~ount of ~r:ln the ~alay de.
e General B oWner, Included
Bonded \Varehouse Ant: A. It is included within th onded WlU'(:house Act?
(1) Prior license of a bonded warehouseman must be ob-
Warehouse Act. The regul t· e COverage of the i" - a1 B
. . a lOn of the b . ~ner onded
tained from the Bureau of Domestic Trade (Sec. 3); tty for storage, 1S sUfficientl b USlness of recei'ling co od
Y road to . mm-
palay w h er~ the palay is delivered to cover .the bUSIness of milling
(2) A bond equivalent to 33 .1/3 of the ma~ket value of a constructIon which serves th the null operator and kept in
the maximum quantity of commodIty to be receIved must be Limjoco vs. Director of Com me e PU1'po15Sse of a warehouse (vda. de
posted by the warehouseman (Sec. 4); ree, eRA. 326).
(3) All goods must be insured against fire (Sec. 6); Q. Is the inadequacy of the b 'ld' f
. Ul mg or storage a valid
reason t 0 remove It from the coverage of the law?
(4) Any person injured by breach of any obligation of the
warehouseman may sue on the bond (Sec. 7); A. The inadequ~ey of the construction for storage insofar as
the safety of th~ palay IS concerned is not a valid reason to remove
(5) Warehouseman shall not discriminate between per-
from t~e oper~tlOn of the Statute, for otherwi.se the very fact of non-
sons desiring to avail themselves of warehouse facilities (Sec.
8); comphance WIth the legal requirements in this respect would be its
own excuse from the liabilities imposed (Vda. de Limjoco vs. Direc-
(6) Th e warehouseman shall keep a complete record of tor of Commerce, supra).
hi s business and make reports to the Bureau of Domestic Trade
(Sec. 9). Q. What is necessary to enable a person to engage in
the business of receiving commodity for storage?
Q. For purposes of the General Bonded Warehouse Act, A. No person shall engage in the business 01 receiving com-
what are included in the business of receiving commodity for modity for storage without first securing license therefore fr~m ~h~
storage? Bureau of Domestic Trade. Said license shan be annual an d sd ~
.
expue on th e thl'fty -first day of December (Sec. 3, AE amen e y
A. For purposes of this Act, the business of receiving com- P.D. No. 721 and R.A. No. 247).
modity for storage shall include:

(1) Any contract or transaction wherein the warehouse- to obtain a license to engage in
man is obligated to return the very same commodity delivered Q. . What are n~c.ess::;mmoditY for storage? ,'
to him or to pay its value; , the business of recelvmg 1..t' a license to engage
. . e necessary to Ou am ,
i
A. The foUowm.g .ar mmodity for storage: . .
238 ;. in the business of recewmg co ,
<.'
 ABLE INSTlWMENTS
RON NEGOTJ ~
240 QUIZZER AND R~~~D RELATED LAW~

Id be filed stating the:

lication shou 241
( 1) An app ' ~ d location of the warehouse; Q. A, a bonded
(a) Place ofbuslfle~s an posit from B. A i Warehouseman rec' d
~nstead of a ware~:e:! an o.rdinary recei:~v;or ~~ydon d~
and t'ty of commodity to be re. Its contents Werle b receIpt. The w&.reho tog th epOslt
(b) Maximum quan I urned• MaY B e USee r With
posted by A? proceed against the bond
ceived, , d by'
, ' h n be accompal11e . A. Since B the de "
The applIcatIOn s a
ure o~ A, t?e warehousem:%tor Suffered damages, due to the fail.
(2)
(a) Cash bond, or of obhgatlon of the Wareh return the p~ay which Was a breach
the said bond, notwithsta:~m~, t~e sald depositor may sue on
(b) Property bon d ..~ecured by real estate, or issue the prescribed rece' t ~ e faIlure of the warehouseman to
bond issued by a duly authorized bond. special law on the busines~of re~:al Bonded ~:u-ehouse Act is a
(c) Su~ety h ount fixed by the Bureau of Do- defining the rights and obl" t' ng commodibes for storage and
, mpany; 111 suc am 1I30l f . Iga Ions of a bonded h
1I1g ~ ' h ' h hall not be less than 33 -;0 0 the depOSIt made with A, as a bonded wareho ware ouseman,~y
mes tlC Trade W IC S 'f d't
f th aximum quantity 0 commo 1 y to be governed by the Bonded Warehouse Ac~S:~mw:t necessanly
marke~ vadlu(eSoeC .4, ea:amended by R.A. No. 247).
be receIve
of the receipt issued by a bonded wareh' ,e kind or nature
" h' . ouseman IS not very mate.
nal, muc less deCISIve (Gonzales vs. Luzon Surety Co t l G R
(3) The commo d I'ty received for storage must be insured No. L-11776, Aug. 30, 1958). 'Je a 'J ' •

aga1l1s t fiIre (Sec" 6 as amended by R.A. No. 247).

,
Q. What are the acts punishable under the General
Bonded Warehouse Act?
Q. What is the purpose of the bond required to be
posted by the warehouseman? A. The following are the punishable acts under the General
Bonded Warehouse Act:
A. The bond shall respond for the market value of the com-
modity actuaJly delivered and received at any tim~ the warehouse- (1) Engaging in the business of receiving commodity for
man is unable to return the commodity or to pay Its value (Sec. 4, storage without the necessary license from the Bureau of Do-
mestic Trade (Sec. 11);
as amended by R.A. No. 247).
(2) Receiving a quantity of commodity greater than that
Any person injured by the breach of any obligation to ~ecu~e
specified in the application and license of any warehouseman
which a bond is given, shall be entitled to sue on the bond In hIS
(Sec. 12);
own name to recover the damages he may have sustained by such
breach. In case the bond is not sufficient, other properties of the (3) Entering into connivance or combination with any
warehouseman not exempt from execution may be sued on to re- warehouseman that is not licensed with the purpose of evad-
spond for the market value of the commodity received by such ware- ing the provision requiring a license (Sec. 13);
houseman (Sec. 7, as amended by R.A. No. 247; Asked, 1968 Bar (4) Violation of or failure to comply with the provisions
Exams.). of the General Bonded Warehouse Act or of the rules and regu·
lations made by virtue thereof (Sec. 14).
The purpose of the requirement regarding the posting of nec-
essary bond is to give protection to the owner of the commodity . . are exempt ed from the require-
against possible abuses of the person to whom the physical control
Q' What associations
ments·of the General Bonded Warehouse Act? ,
of his properties is delivered. The bond answers for the m 'a rket value
h Act shan not be apphca-
of the commodity stored (Philippine Tobacco Flue Curing and A. The General Bonded War~ ?use f commodity producers
Redrying Corporation vs. Pablo, 66 SCRA 136). . hIe to cooperative marketing aSSOCIations 0 .' . .
242 QU IZZE R AND HF:VJEWEH ON NE(~OT1ABLR INSTH UMENTS
LAW AND HJ·;I.ATt:n LAW8

(}~gnnizod undor tho COOpt~rntive Marke ting Law, provided Much 88-
sociations shuH not receive, fc)r storage, commodity from non - mom~
born which is l,1l"ealer in qunntity than one -half of tho total Quantity
of commodity rec(~ivad from membe rs at Rny time (Snc. 15, 88
amended by R.A. No. 247).