Part III
Part III
Part III
Sec. 26. What constitutes holder for value. - Where value has at any time been
given for the instrument, the holder is deemed a holder for value in respect to
all parties who become such prior to that time.
Sec. 27. When lien on instrument constitutes holder for value. — Where the
holder has a lien on the instrument arising either from contract or by implication
of law, he is deemed a holder for value to the extent of his lien.
1) The holder is a holder for value only to the extent that the consideration
agreed upon has been paid, delivered, or performed. Non-performance of
the obligation will give rise to partial or full defense of failure of consideration as
the case may be. (Sundiang and Aquino)
2) Where the transferee receives notice of any infirmity in the instrument or
defect in the title of the person negotiating the same before he has paid the
full amount agreed to be paid therefor, he will be deemed a holder In due
course only to the extent of the amount paid therefor by him.
Example: If the holder took the instrument on the strength of his promise to
deliver P200,000.00, but he had only delivered P I00,000.00, he is a holder in
due course only up to P I00,000.00 if he receives notice of infirmity before he
could fully pay the consideration. (Sundiang and Aquino)
Pro tanto - [Latin, For so much; for as much as one is able; as far as it can go.]
A term that refers to a partial payment made on a claim.
(https://legal-dictionary.thefreedictionary.com/Pro+Tanto)
“Value” is the proper term when a holder sues any party to the instrument with
whom he himself has not dealt, the term “value" is more appropriate.
An antecedent or pre-existing debt constitutes value; and is deemed such
whether the instrument is payable on demand or at a future time. [Sec. 25, NIL]
Value need not be full and a holder will be one for value even if he gave less
than the face value of the instrument, provided the intention of the transferor is
to transfer the full amount represented by the instrument.
Accommodation Party
(1) Must be a party to the instrument, signing as maker, drawer, acceptor, or
indorser;
(2) Must not have received value therefor; and
(3) Signed for the purpose of lending his name to some other person.
(Mercantile Reviewer, UP 2016)
A c c o m m o d a t io n P a rty | R e g u la r P a rty
P u rp o se
S ig n s I n s tr u m e n t fo r
th e p u r p o s e o f D o e s n o t s ig n t h e
le n d in g h is n a m e o r in s t r u m e n t f o r th e
c r e d it to s o m e o th e r s a m e p u rp o se
p e rs o n
V alu e R e c e iv e d
S ig n s t h e in t r u m e n t S ig n s th e in s t r u m e n t
w it h o u t re ce iv in g f o r v a lu e
v a lu e th e r e fo r
A b s e n c e o r F a ilu r e o f C o n s id e r a tio n as D e fe n se
C a n n o t a v a il o f th e C a n a v a il o f s a id
d e fe n s e o f a b s e n c e o r d e f e n s e a g a in s t a
fa ilu r e o f p e rs o n n o t a h o ld e r in
c o n s id e r a t io n a g a in s t d u e c o u rs e
a h o ld e r n o t in d u e
c o u rs e
R ig h t to S u e
A f t e r p a y in g th e M a y not sue any
h oLder, m a y s u e th e s u b s e q u e n t p a rty for
a c c o m m o d a t e d p a rty r e im b u r s e m e n t
fo r r e im b u r s e m e n t
If the instrument is merely assigned, the transferee does not become a holder
and he merely steps into the shoes of the transferor. (Salas v. CA, G.R. No.
76788, Jan. 22, 1990). Any defense available against the transferor is available
against the transferee.
Example: Where the instrument that is payable to order was merely delivered
without indorsement. (Sundiang and Aquino)
MODES OF NEGOTIATION
Sec. 30, NIL. What constitutes negotiation. - An instrument is negotiated when it
is transferred from one person to another in such manner as to constitute the
transferee the holder thereof. If payable to bearer, it is negotiated by delivery;
if payable to order, it is negotiated by the indorsement of the holder and
completed by delivery.
BY DELIVERY - IF PAYABLE TO BEARER
Sec. 191, NIL. Definition and meaning of terms. - In this Act, unless the contract
otherwise requires: x—x "Delivery" means transfer of possession, actual or
constructive, from one person to another; x—x
"Issue" means the first delivery of the instrument, complete in form, to a person
who takes it as a holder; x—x
Requisites:
(1) Mechanical act of writing the instrument completely and in accordance
with the requirements of Section 1 of the NIL; and
(2) The delivery of the complete instrument by the maker or drawer, with the
intention of giving effect to it, to the payee or holder.
Presumption of delivery
• Where the instrument is no longer in the possession of a party whose
signature appears thereon, a valid and intentional delivery by him is presumed
until the contrary is proved [Sec. 16, NIL]
• If it is in the hands of a holder in due course, the presumption of a valid
delivery is conclusive [Sec. 16, NIL]
conclusive - (of evidence or argument) serving to prove a case; decisive or convincing.
Presumption as to date
• Date is not an essential element of negotiability; it is not included in the
requirements for an instrument to be negotiable under Sec. 1 of the NIL.
• An undated instrument is considered to be dated as of the time it was issued
[Sec. 17 (c), NIL]
BY INDORSEMENT COMPLETED BY DELIVERY - IF PAYABLE TO ORDER
Sec. 191, NIL. Definition and meaning of terms. - In this Act, unless the contract
otherwise requires: x—x "Indorsement" means an indorsement completed by
delivery: x—x (Mercantile Reviewer, UP 2016)
Sec. 32, NIL. Indorsement must be of entire instrument. - The indorsement must
be an indorsement of the entire instrument. An indorsement which purports to
transfer to the indorsee a part only of the amount payable, or which purports
to transfer the instrument to two or more indorsees severally, does not operate
as a negotiation of the instrument. But where the instrument has been paid in
part, it may be indorsed as to the residue.
• CANNOT indorse a part only of the amount payable; BUT if the instrument has
been paid in part, then the instrument may be indorsed as to th residue [Sec.
32, NIL] (2012 Bar Question) JOINT payees or SOLIDARY payees = allowed
• CANNOT transfer the instrument to two or more indorsees severally [Sec. 32,
NIL]
• If not an indorsement of the entire instrument, the transfer remains valid, but
as a mere assignment which subjects the holder to all defenses on the
instrument (Campos)
Sec. 43, NIL. Indorsement where name is misspelled, and so forth. - Where the
name of a payee or indorsee is wrongly designated or misspelled, he may
indorse the instrument as therein described adding, if he thinks fit, his proper
signature.
• The indorsement should be made by the holder in the manner he was
designated, otherwise the signature will prima facie not be a valid indorsement
of the instrument [Sec 43, NIL]
• Where the instrument is payable or indorsed to “A and B,” they are joint
payees and an indorsement by either A or B only will not constitute a valid
negotiation, UNLESS the one indorsing is authorized by the other. (Campos)
• But where the instrument is payable to “A or B", they payees are merely in
the alternative, and either one may validly negotiate the same. (Campos)
(Mercantile Reviewer, UP 2016)
Sec. 35. Blank indorsement; how changed to special indorsement. - The holder
may convert a blank indorsement into a special indorsement by writing over
the signature of the indorser in blank any contract consistent with the
character of the indorsement.
Suppose the P1000 note is indorsed as “Pay to B for deposit only. (Sgd.) A” and that B owes Y P1000, B cannot transfer the note to Y for said debt. Or suppose B transfers the note to another
person for P1000, B cannot use the P1000 for his own personal expenses. He must safely keep the money for the benefit of A. “Pay to A for account of B”—gives notice that the instrument
cannot be negotiated by A for his own debt or benefit.
(b) to bring any action thereon that the indorser could bring;
(c) to transfer his rights as such indorsee, where the form of the indorsement
authorizes him to do so.
But all subsequent indorsees acquire only the title of the first indorsee under the
restrictive indorsement.
Kinds of Indorsement
1) Blank indorsement- no indorsee is specified and it is done by affixing the
indorser's signature.
4) Conditional Indorsement (Sec. 39, NIL) — the party required to pay the
instrument may disregard the condition and make payment to the-indorsee or
his-transferee whether the condition has been fulfilled or not.
All of the four bases of classification coexist with each other; thus, an
indorsement may be special and qualified at the same time. It may also be
special and unqualified, special and restrictive, special, unrestrictive and
unqualified and so on. (Campos)
SPECIAL
• Specifies the person to whom/to whose order the instrument is to be
payable; and the indorsement of such indorsee is necessary to further
negotiation.
• A special indorser is liable to all subsequent holders, unless the instrument is
an originally bearer instrument, in which case he is liable only to those who
take title through his indorsement. [Sec. 40, NIL]
• An instrument, payable to bearer, and indorsed specially, may nevertheless
be further negotiated by delivery. [Sec 40, NIL]
• Originally bearer instrument always remains a bearer instrument. (Sundian
and Aquino)
Blank
• Specifies no indorsee, instrument so indorsed is payable to bearer, and may
be negotiated by delivery
• The holder may convert a blank indorsement into a special indorsement by
writing over the signature of the indorser in blank any contract consistent with
the character of the indorsement. [Sec 35, NIL]
• An order instrument may be converted into a bearer instrument by means of
a blank indorsement, and may be later reconverted into an order instrument
by a subsequent special indorsement
AS TO TITLE TRANSFERRED
Sec. 36, NIL. When indorsement restrictive. -
An indorsement is restrictive which either:
(a) Prohibits the further negotiation of the instrument; or
(b) Constitutes the indorsee the agent of the indorser; or
(c) Vests the title in the indorsee in trust for or to the use of some other persons.
But the mere absence of words implying power to negotiate does not make
an indorsement restrictive.
(2) Non-restrictive
(1) Qualified
• Constitutes indorser as mere assignor of title
• Made by adding the words "without recourse", "sans recourse," "indorser not
holder,” "at the indorser's own risk," and other terms of similar import. [Sec. 38,
NIL],
• But this does not mean that the transferee only has fhe rights of an assignee;
transfer remains a negotiation and transferee can sfill be a holder capable of
acquiring a fifle free from defenses of prior parties.
Effects:
1. Relieves the qualified indorser of his liability to pay the instrument should the
maker be unable to pay
2. The qualified indorser does not guarantee the solvency of the maker, but
merely his legal title to the instrument
3. A qualified indorsement does not impair the negotiable character of the
instrument
(2) Non-qualified
(1) Conditional
• Additional condition annexed to indorser’s liability; such condition must be
expressed
• Where an indorsement is conditional, a party required to pay the instrument
may disregard the condition, and make payment to the indorsee or his
transferee, whether condition has been fulfilled or not.
• But any person to whom an instrument so indorsed is negotiated, will hold the
same, or the proceeds thereof, subject to the rights of the person indorsing
conditionally. [Sec. 39, NIL]
(2) Unconditional
(2) Joint - All must indorse when an instrument is payable to the order of two or
more payees or indorsees who are not partners. [Sec. 41, NIL]
Exceptions:
• Where the payee or indorsee are partners; and
• Where the payee or indorsee indorsing has authority to indorse for the others.