Professional Documents
Culture Documents
S1 is impt bec it indicates whether the instrument is negotiable & therefore falls
under the NIL
o
If not negotiable, its governed by exiting legislation (law on contracts) or the
law merchant
If the instrument dsnt comply w the reqs under s1, it is governed by the law on
contracts
Once a NI is indorsed or negotiated, the orig parties to the instruments cant invoke
the defenses they have against each to a holder in due course
o
If its not a NI, the holder of the instrument is subject to all the defenses that
the orig parties have against each other
2 KINDS OF NI:
Promissory note: is a promise to pay
Drawer: maker of the instrument, signs it & indicates the name of the payee
& addresses it to the drawee
Rel btwn the drawer & drawee: presumably theres a rel where the drawer tells the
drawee to pay
Thus, the holder can sue the drawee for the amnt (primarily liable)
And the drawer is only liable if the drawee cannot pay he default,
refuses to accept or fails to accept (2ndarily liable)
Never been amended in the Phils (bec Congress dsnt understand it)
o
Amended several times in the US
Law Merchant: set of practices adhered to by businessmen & recognized by the Cts
NEGOTIABLE INSTRUMENTS
Instrument may be transferred from person to person = its a medium for exchange
Law dsnt compel one to enter into these transactions but ppl want to enter into these
transactions
o
Bec if one accepts a NI, its possible for the holder to acquire a better title
than his transferor
Determine if the instrument is worth anything and the viability of the person who
makes the promise on the instrument
o
Its a question of worthiness,
o
The eco value of the instrument & indep of the legal value of the instrument
o
Legal value = legal advantages given to the instrument
Ex) gets an instrument for 10M from Lucio Tan wc is endorsed to you youll
probably take it bec Tan is probably good for it
the mrkt has determined that the chances Tan will pay is 10%, so
instead of buying land for 10M, you buy land for 1M
Every signature is impt & has a meaning even if its in the wrong place
INDORSER
B indorsed the instrument to you, you arent paid by the original maker you can go
after the indorser (B) who is now liable
Uncond: unqualified
S3: such statements in the instruments dont affect the unconditional order or
promise
a) Indication of a particular fund out of wc reimbursement is to be made or a
particular accnt to be debited w the amnt
b) Statement of the transaxn wc gives rise to the instrument
Mention of the contract & agreement in the NI cldve affected negotiability if the order
or promise to pay were subj to this condition
o
Irving Trust Co v Leff
void unless & until title to the premises ____, is taken by Joe Leff
o
Referred to the payment of the $4,933 payment on the $10k PN
It is in itself value
Instrument was dated in new Jersey & made payable at the Bank Italia Co. =
presumed payable in New Jersey since no address was indicated
Ct expanded the word money to include coins of anthr country as leg tender
Ct:
o
Money isnt limited to legal tender/lawful currency
o
Money has value by law & not by nature
S7: Payable on demand
S52: to be a holder in due course, you shldve taken the inst b4 it was overdue
o
Thus, wont be a holder in due course under S52
o
However, vis a vis the indorser, you are a holder in due course
Ex) A B C D E F
o
F X a holder in due course as to A-D bec acquired it when overdue
o
But under s7, 2nd parF is a holder in due course as to E, wherein the inst is
payable on demand
But an acceleration prov per se dsnt affect N bec the inst is due on
the date the parties designated that payment is due (found on the
inst)
Puget
Lang of the note: this note shall become due & payable on demand at the option of
the payee when it seems itself insecure
Non-N
In this case, there was time for payment expressed so cant declare
it to be a demand inst
Lang of the note: For failure to pay any installments as the sme becomes due shall
render the entire oblig then due & payable
They paid subsequent installments & the bank ddnt give any indication that the inst
was due & demandable due to the acceleration prov
Drilon 3
Were claiming they werent in default since they paid in subsequent installments so
that the past breaches were forgiven & therefore the entire amnt is not due &
demandable
Bank: it is due & demandable already
Ct: the entire oblig is due & demandable bec there was default
o
Even if there was no ack from the bank that it was due & demandable by
virtue of the acceleration prov, it ddnt militate against the fact the the oblig
is due & demandable
o
The subsequent payments of the drawer was applied to the entire oblig
Here: paid subsequent installments and bank didnt indicate due and payable
(overdue)
Payor: not in default cause paid subsequent installments so past breach forgiven
entire amt not due and demandable
Bank: due and demandable cause of acceleration prov
Ct: In favor of bank acceleration prov didnt affect negotiability so entire oblig due
and demandable at time of default
Stll a determinate future time since originally on the inst there was a date due only
that there was a cond that if the crops fall below a certain amnt, there wld be an
extension
It becomes uncertain bec you dnt know what theyll agree upon
o
That theyll create an extension
o
Therefore it becomes an uncertain future time thus its non-N
You dont know if theyll agree on an extension, thus you wont know the inst will fall
due
The prov was intended to not release the parties secondarily liable bec they alrdy
gave their consent originally
o
But this has nothing to do w the fact of N
Bec the time when the inst falls due isnt changed
Words of Negotiability
S8 & s9
Ex) X has a wife in Mla, hes in Davao & he has a gf who dsnt know hes married
o
Gf & X gets married & she says she needs money for expenses
o
He rights a check payable to Mrs. X (they arent married yt)
o
Is this payable to order or bearer?
o
Payable to bearer
What matters is what the maker knows & not what the payee knows
TRB
Non-N
Freedom of negotiability
o
The lang of negotiability wc characterize a negotiable paper as a credit
instrument is its freedom to circulate as a substitute for money
o
Hence, freedom of negotiability is the foundation for the protection wc the
law throws arnd a holder in due course
o
This freedom in negotiability is totally absent in a certification of
indebtedness as its merely to pay a sum of money to a spcfcd person or
entity for a pd of time
o
Its to facilitate transactions
Wettlaufer
Tek Lian
Is a check payable to cash N or Non-N? its N, payable to bearer
Bec it dsnt purport to be the name of any person ergo, its payable to bearer
Banking practice: a check payable to cash can be honored by the bank wo asking for
the indorsement of the maker
drawer = draweecant treat it as PN cause in that ins, hes both drawer and payee
130: drawer and drawee
checks are drawn v. whom? Bank (drawee)order to bank to pay
drawer Jim
payee Jim
drawee bank
PNB
Here: doesnt
Drilon 4
Disadv:
1. commission of fraud (lolokohin)abuse and oppression
also rt to appeal
Is the N charc of the inst subj to the agreement of the parties of the inst? NO
I = signed by 2 ppl
o
Means each of them
o
Their liablilty is solidary
we = signed by 2 ppl
o
Liability is joint
Ct said it was solidary since the words used were in the singular
X delivery
Methods of N:
o
By indorsement
o
By delivery
Assignment:
o
Assignee just steps into the shoes of the assingnor & is subj to all the
defenses the orig parties have against ea other
o
Transfer of an inst wo negotiation
Allonge:
o
Paper attached to an inst where an indorsement is written
o
Used only when the inst itself is full of indorsement
o
Shld be attached so that it forms part of the inst
o
What if you use this b4 the inst is filled up w signatures what is the leg
effect?
June 21
Young v Hembree
If the face value is 50k, can you just indorse 25k? NO, s32
Whats the leg effect if the I is only part of the face value?
o
Its not a N but a mere assignment
What if the face value is 100k and you I 100k but you rcve 25k for the inst?
o
Theres a discount
o
Valid I bec the discount you rcve is for the consideration that holder has to
wait b4 collecting
Blake v Weiden
Why ddnt it operate as a negotiation if s41 allows the inst to be indorsed to several
ppl?
o
Why did the Ct just consider the transaxn here as assignment
Kinds of indorsements
Payable to bearer
Fay v Witte
Def: by having assigned the note transferring title, impliedly excluded the 2nd cond or
implication the promise to pay upon default
o
How ds the word assign here make them blve this defense?
o
What abt the I makes it a QI?
Sir: Where from the inst, can you imply that its a QI?
Copeland v Burke
I: for value rcvd we hereby guarantee payment of the w/in note, including interest &
cost at maturity or nay time thereafter demanded
Thru tradition/delivery
o
Sir: what allows you to imply that this is an indorsement?
o
Ct wasnt clear on this ptwhats written is a guaranty, nothing wc indicates
transfer
What leads the Ct to conclude that its a transfer & not a mere guaranty?
Conditional I
What is conditional?
o
The indorsement
Leg effect of the I: any person to whom the inst is indorsed holds the proceeds subj
to the rights of the person indorsing conditionally
Ex) A-B-C-(ci)-D-E-F-G-H
o
ci: whether armi will pass the bar
Restrictive I
Words: for the accnt of = indicates that White is an agent of the bank for the
collection of money
Sir: isnt it true that bth parties to the I intended that it ws to be a sale?
o
Yes, so why didnt the Ct look into this?
o
Do the words of the I trump the intention of the parties?
I to or by collecting bank
When you deposit a check to your accnt, youre indorsing it to the bank
I if the check is deposited to a bank wc isnt the drawee bank or is deposited in anthr
bank
o
A restrictive I: you constitute your bank as agent to collect from the other
bank
Leonardi
Bank of Bay Biscayne: bank of the P where the check was deposited
But if money is held in trust by Chase for L, they can convert the money
Inst payable to order, & its transferred wo I, what are the holders rights?
o
The holder gets the leg title & can compel the transferor to indorse such
(ss49)
Ds this affect the fact the youre a HDC?
o
Yes, transferee isnt a HDC yet
Inst was handed wo I, so how can there be words indicating a diff kind of I?
o
An inst w a qualified I is still negotiable
Griffths did the fraud, how ds this affect the rights of Whistler?
o
Fraud is a personal defense, not a real defense
o
Thus if Whistler was a HDC this wldnt hold
W wsnt a HDC bec when the I was made, he alrdy had knowledge of the fraud
BPI v Berwin
Ct: cant be forced to pay if cant show that the Co is still in possession of the PNs
The consideration is
But the law says its an act bec of Napoleon who said it was
an act
June 26
Elgin Natl Bank v Goecke
Bec the bank ddnt part w any value for the demand notes indorsed to it
o
Bec mere voluntary delivery by the brewing Co of the note as collateral secu
for the Goecke note & the acceptance of the note as collateral for the preexisting debt & ow agreement for further extension of time or other
agreement dsnt make the bank a HFV
the 2 notes were given as collateral for the initial loan of the brewing Co & the other
was indorsed to it
Holder for Value
One who has no knowledge of an infirmity in the inst or a defect in the title
o
Defect in title: s55
W&F encashed the check they rcvd the check from a customer in payment for goods
Drilon 7
De Ocampo
Gonzales gave the check to Ocampo Clinic for the hospitalization of his wife
Check was written by Gatchalian, not for payment but only for safekeeping to show
that she was interested in the car of Ocampo Clinic
Suspicious Circums:
o
X for the sme amnt
o
Crossed checks
o
Gatchalian had no oblig or liability to Ocampo Clinic = no contract btwn them
wc wld give rise to the issuance of the check
For failing to inquire, they were guilty of gross neglect for not finding out the nature
tile & possession, amntg to legal absence of gf
o
Is this equivalent to actual knowledge?
Bec of the presence of these suspicious circums, burden was on them to show that it
acquired the check in gf
o
Who do you prove a negative fact?
Sir:
o
Even if ocampo & Gatchalian had a pre-existing contract, he wldnt have
applied it to to Gonzales debt but to Gatchalians
Ex) borrowed from Yvette for 5k, sir buys an ipod from lem & lem
says dont pay me nlng, I owe Yvette, so just write the check to her
He cldve argued tht he wanted to get his wife out alrdy & cant wait
for the check to clear
o
Amnts are diff?
Eh di nya alam kng magkano ang utang nya sa hospital, pero alam
nya magkano ang utang ni Gatchalian sa kanya
o
These suspicious circums can be explained & not necessarily leads to bf
Bataan Cigar
Atrium inquired to Hi-Cement as to the purpose of the checks were were told that it
was payment for the sale of petrol products
If a bank pays a forged check, it must be considered as paying out of tis funds & cant
charge such amnts to the depositor
Yang v CA
No, Chandiramani was 1st, then, David is only an indorsee = this shldt be
allowed
o
Check was payable to his order, the payee, the effects of crossing a check
means the drawer had intended the check for deposit only by the rightful
person the payee
Wc David did
David is the payee, so there seems to be no violation of the rules, but in reality he
was an indorsee coz he acquired it from sm1 else, and there shld be a duty to inquire
then..so strictly speaking hes not a HDC
o
o
Fraud is a personal defense = if youre a HDC you can collect
By itself, a huge discount, isnt conclusive of bf
S54:
You buy an inst, you havent paid in full, they you find a defect, whats youre
defense?
o
HDC wrt the amnt you paid for
o
X a HDC wrt to the amnt not yet paid
Commercial Credit
Pennoyer
Pennoyer: Dubois isnt a HDC bec he had notice of the fraud after the issuance of the
cert of deposit, but b4 effecting the payment of the cert of deposit
o
Why will this deny Dubois a status of a HDC?
S54: if rcvs notice, prior to full payment, hes deemed a HDC only to
the extent of the alrdy paid
Sir: s54 if you pay any amtn after youre aware of the infirmity/defect
o
P: D paid nothing, he paid 100% after he became awarethus as to the full
amnt, hes not a HDC
Ct: in order for D to be a HDC, full payment shldve been made b4 it acquired
knowledge
o
Mere delivery of the cert of deposit was payment thus even if only
exchange of paper, there was alrdy full payment
o
D parted w the certs b4 it had knowledge, thus its a HDC
P: why ddnt D refuse to pay 1st Natl if it alrdy knew of the fraud?
o
Ct: if the cert was negotiated & 1st natl is a HDC, D cant refuse to pay
o
But cldnt have D raised the issue of fraud on a sep inst?
o
Ct: bec the defense of fraud belonged to P, D cldnt have imposed that
defense
Ham
I wont pay you bec I was defrauded when I issued you the inst
Foster
Consolidate Plywood
IFC a HDC? NO
o
Bec they had actual knowledge that the PN was subj to the cond that the
tractors werent defective
They had knowledge that the sellers right to collect the price wasnt
uncond
o
They knew it wld be subj to the defense of failure of consideration & cant
recover the purchase price
o
But it took axn in taking the inst wc amntd to bf = so not a HDC
Salas
Drilon 9
Just bec a docum is executed btwn the owner & debtor, means theres constructive
notice?
How ds the doctrine of constructive notice apply to this case?
o
When a transaxn is recorded in the pub registry, theres presumption that the
world is given notice of the transaxn
o
Theres no need for actual notice
Ct: constructive notice dsnt apply in this case since constructive notice only applies
when one is dealing w land, dsnt apply to N notes
It was recorded b4 the note was ..
When does doctrine of constructive notice apply? Only real prop (land, bldg, not
mort and lease)
Ruling: constructive notice on land doesnt apply to PN to secure a
How could doctrine of constructive notice apply in this case? Claim constructive
notice cause mort recorded before note was
Doctrine of constructive notice if transaxns recorded in pub reg = law gives rise
to presumption: serves as notice to whole world (every1) so doesnt need actual
notice
Party to the inst, but has not rcved any value but only signed for the purpose of
lending his name
HDC who takes the inst, wo knowledge that the person is merely an accommodation
party, dsnt prevent him from being a HDC
Knowledge that the anparty is an accommodation party, isnt knowledge that theres a
defect in the title
Liab vis a vis HDCtakes ins accomm ps merely accomm p = still liable
S29 accomm still liable to HDC even though aware merely accomm p
Complete inst
What if that person lies and says that he had auth? Are you still a
HDC?
S14: law contemplates that even if the inst is incomplete, it may be filled up
and the person may still be deemed a HDC
o
S14 last sent: law contemplates even if ins not filled up even in
Case was remanded bec the jury has to det when the matl alteration tk place
o
If altered after execution & delivery, & not a party to the alteration = HDC
o
But if the alteration is obvious as to impart notice Ps axn amntd to bf
Not a HDC bec Mears exceeded his auth in filling in the name of the payee
Vis a vis the blank or completion, what is the legal effect if Stetson is a HDC?
o
If she was a HDC, she can enforce payment accdg to s14
S14: even if auth not ffed/breach, in hands of HDC = presumed auth given as seen
filled upindependent WON Stetsons a HDC (if she is, that part of the prov will
apply)
HDC as to a certain part of the note (installment not yet matured); not installment
overdue
Partially HDC and partially not? Any subsequent H hold it in same status? (not to
whole ins)
Inquire ins need to inquire WON past installments are paid: matter WON?
What abt the instl that wasnt paid, is he a HDC as to that? Since its still demandable?
o
No, hes not a HDC
Ct: purchaser of a note who has knowledge that a past due instl was unpaid when he
acquired the note, he cant be a HDC
Drilon 10
Dissent:
Cant deny status of HDC cause installment has several maturities, doensnt mean
entire note overdue cause when law speaks of dishonor = entire ins
2 Knowledge installment not paid = not notice of defect, not infirmity in ins
Partially a HDC as to those that arent yet due, and hes not a HDC as to the instls that
were overdue
o
And any subsequent holder will hold the sme status as well
o
So, if you acquire the inst, do you need to inquire if past instls were paid
Even if the holder knew the 1st instl wsnt paid, you cant deny him the status of a HDC
bec an instl has several maturities, it dsnt make the entire note overdue
Bec when the law speaks of dishonor, it talks abt the entire inst & an instl note has
several maturity date
Notice of nonpayment of an instl cld be at most evidence of bf, but on its own its not
tantamount to bf
o
Why? Bec 2things constitute bf:
Barbour knew default in int payment doesnt make entire note overdue and
Barbours still a HDC
Le Due
Demand ins relevant cause abt WON its overdue: w/in reasonable time
Reasonable time fr date of I ct has to fill in reasonable time otherwise wont know
when its due; when take as H, how know if HDC on a demand ins? Unlike ins
payable on a fixed date after falls due = not HDC
Ex. 1yr after issued, automatically overdue? Depend on bus usages and purpose
Prov in law that says that in the case of an ins payable on demand = wont be
overdue if its negotiated w/in a reasonable time fr its issuance/last nego
Idaho
When does ins fall due? How long? 6mos negotiated a yr after I
Leg basis: ins payable on demand S7: indorsed after overdue = becomes payable
on demand (as to person who Is/indorses it after overdue)
Dunn
Ct: O Keefe HDC even after dishonor cause she had notive of dishonor only after
she purchased the ins
Triponoff
Payee: Howard
Whats the rel bet Wilson and Elliot? Elliot asked Wilson to make note for him
Rel bet payee and Elliot: Elliot had accts there and there was an overdraft by Elliot
and the note made by Wilson covered that overdraft
Whats the right of a person who derives his title from a HDC?
o
He has all the rights of a former holder wrt the prior parties
o
Theres a diff from derives title & acquires title:
There are diff kinds of HDC s52 HDC & s58 HDC
S58 HDC dsnt necessarily take the inst from a HDC, so long as he derives his rights
from 1
o
But rights are only as to the parties prior to the HDC
To be a s58 HDC you shld:
o
Derive title from a HDC
o
Cant be a party to the fraud or illegality
Reacquirer: so long as he reacquire from a HDC, you take his rights
If youre aware of the infirmity,
Ex) note was for a gambling debt, youre aware of that, but you can be a HDC if you
tk it from a HDC
o
But you arent a HDC under s52 bec you had knowledge of a infirmity
Reacquirer: 1st time held the inst, had knowledge of defect/infirmity or participated,
then N to a HDC, then reacquired it = X a HDC
o
1st time he held the inst, had no knowledge or participation, N to a HDC,
then reacquired it = HDC
When you acquire an inst, even w knowledge, so long as not a party to it & you
acquire it from a HDC, then youre a HDC under s58
When is a reacquirer denied the status of a HDC under s58:
o
If participated in the fraud/illegality
Pierce
Allegation: the 1st time P held title, he was aware of the defect in title
o
Agreed to by the CT
No, cant compel payment from the maker bec was a party to the fraud
Lill
Payment by a party other than the principal debtor dsnt discharge the parties prior to
the 1making the payment
o
Payment operates as a transfer of the inst to the party paying
Bank was a HDC & he was a HDC even if he knew that it was overdue & unpaid bec of
s58
Fossum
When he acquired the inst he had knowledge that the prod wsnt wat it was suppose
to be
Ct said here that he wasnt a HDC under s58 bec didnt prove that he derived title
from a HDC
o
Ddnt prove that the bank was a HDC
o
He relied on the presumption under s59 but s59 means holder under s191
(payee, indorsee in possession or bearer)
Initially hes a HDC & he tries to collect from the party primarily liable, party dsnt
want to pay, indorser dsnt want to pay (hes a prior party to the holder now
Ex) a b c d e f - j f g k
o
K trying to collect from J
o
J says that C had defective tilte
o
K wld have to prove that you derive title from a HDC prove G is a HDC
o
If can prove that G is a HDC, then you are a HDC & K can collect from J
Last sentence:
o
B & A are parties prior to the defective title & cant shift the burden
o
So if K is collecting from A, saying I have a presumption under s59, A cant
say that C had defective title bec hes a prior party & he cant shift the burden
back to K/holder
If 1 shifts the burden back to the holder, it assumes that the holder isnt a s52 HDC
o
Bec if youre a s52 HDC everything dsnt matter
o
S58: HDC as to certain ppl, only to those persons prior to the fraud/illegality
o
S52: youre free to all attacks
o
S58 & s59 assume that you arent a s52 HDC wc is why they only apply to
certain ppl
Snows I the BOE to Asian Banking wc was accepted b4 they inspected the cargo wc
wsnt batiste but burlap
S59 cant apply bec bank wasnt a HDC, they were merely collecting
Bank failed to prove it was a S52 HDC so they were trying to invoke the presumption
under s59
o
Lets assume that ABC is entitled to the presumption in s59, if so, what can
TSG do to refuse payment
Drilon 12
TSG cant rely on the presumption bec you acquired from a person w
defective title
o
So ABC wld have to prove that it acquired from a HDC, wc they cant bec
Snows wsnt a HDC since they had knowledge of the fraud (knew it was
burlap)
Isnt TSG prohibited from shifting the burden?
o
Who is prohibited from attacking the presumption?
o
Snows cant avail of s59
o
TSG never became a holder of the inst but hes a party to the inst as a
drawee
He became a party to the inst after the inst was alrdy w the
payeetherefore it became a party after the occurrence of the
defective title/fraud
o
Yang
David/payee is claiming to be a HDC, can Yang invoke s59 in order to assail the due
course holding presumption enjoyed by David? No
o
Bec Yang was a prior party to the defective title, thus cant shift the burden
Van Syckel
Ct: no, he has to 1st prove that the I was genuine since the notes werent payable to
bearer they were order notes & title didnt pass until indorsed by the payee
o
Thus, proof of the payees sig is impt
If theres no allegation of forgery/if you dnt raise the sig as an issue, then you dont
have to prove the genuineness of the sigs?
o
No, wrong reasoning
Farmers State Bank
Check payable to the order of Davis, no negotiation as to the persons who cashed the
check
K wanted to rely on the inference that since it was lost, title of whoever cashed it is
therefore defective
Ct: defense of defective title isnt available to K bec hes the maker & was party prior
to the defect
o
And he was trying to avail of a defense that was only available only to Davis
o
Davis is a party prior to defective title, bec after he lost is whoever tk the
inst had defective title so he shldve been prohibited from raising this
defense right?
S49 HDC
Even b4 I hes a HDC bec the transferee acquires the title of the transferor & the
transferor is a HDC & he passes on these rights to the transferee even before I
Commercial Bank of Lafayette
Even if its not I, bec the law says the transferee acquires all the rights of the
transferor so if the transferor is a HDC, transferee is a HDC as well
4 kinds of HDC:
S59: presumptions, can overcome attack by proving you acquired from a HDC
o
Can be enforced against all parties but ned to prove that youre a HDC
Real defense:
o
Available against all Hs, even against a HDC
Personal defense:
o
Available only against Hs not in due course
o
Cant be invoked against a HDC
If person is incapacitated, can pass/vest title to the inst but cant be held liable on the
inst
Murray
But Ct said that when Rodriguez acquired the inst, he was a HDC & illegality was a
personal defense
What if the inst was payment for services for appearing in a porn film, H is a HDC, is
it personal or real defense? Personal defenses
o
What if its a child porno? Depends if it void for all purposes, then its a real
defense
S23: Forgery
2 kidns:
o
Sig isfalsified
o
Sig made wo auth
Ex) a b c d e f g
o
Forged sig of C
o
G cant enforce payment against A,B,C
o
But he can make D,E,F liable on the warranty that they made on the inst
(that its genuine)
Gluckman
Darling was claiming his sig is forged & if it wasnt, he isnt liable on the inst under
s53
Ct: but hes estopped bec he represented that the sig is valid
Strader
Person whose sig is forged, claims that her sig is forged & raises it as a defense
Ct: precluded from using the defense bec she rcvd the proceeds of the checks in cash
& merchandise
She benefitted from the encashment of the checks so she impliedly ratified the
forgeries
In order for you to be precluded from raising the defense of forgery must it raise to
the level of estoppels? Must you be estopped from raising the defense of forgery?
o
Shes not estopped, she ratified the acts but shes not estopped
o
Estoppel: if you make a statement & anthr relies on that statement, you cant
change that statement if itll cause prejudice on the person who relief on it
o
Ct: precluded isnt equivalent to estoppel
San Carlos Milling
Wstn applied bec the money was paid to the proper payee, San Carlos, & thru the
forgery, he payee was actually paid
Gozon says PNB shld return his money since PNB ddnt follow his order wc is to pay
w a valid sig thus, for paying under a forged sig, his accnt shld be credited
Is PNB precluded from raising the defense of forgery since they paid the inst? By
paying, youre precluded from raising the defense that the sig is forged?
July 9
Price v Neal
His other defense: Neal not a HDC bec its was forged
Gen rule: person who pays under mistake can generally recover
But in NI: payment under mistake, drawee cant recover bec shld know the sig of the
drawer
o
But there are exceptions
Neal = indorsee
Price = drawee
Sutton = drawer
Why did the Ct rule in favor of the H? why not in favor of the drawee?
WON 1st natl bank cld recover the amnt from US Natl
Ct: no duty to the drawee bank to ascertain the genuineness of the sig of the drawer
o
As opposed to the duty of the drawee bank to know the genuineness of the
drawers sig
Case is a good case for the drawee bec he can argue that the collecting bank was
negligent too bec the drawer also had an accnt w them
o
Also, if the negligence of the collecting bank is earlier than the neg of the
drawee bec he didnt see the forgery
o
In fact, the drawee banks loss is bec of the collecting bank
Thus, so its necessary to determine why theres a duty on the drawee bank
2 exceptions of the Price v Neal doctrine:
o
He guilty of bf
= shld refund & drawee will be able to assert forgery against the H
States the liab of the acceptor & that if the drawee pays for the inst,
he cant recover
Drawee: PNB
Unknown persons indorsed checks to MSC, wc were drawn against the accnt of
Pangasinan in PNB
*Price v Neal:
o
1st bill not accepted, other bill was accepted = bth were paid
o
Ct ddnt make a distinction btwn the accepted/not accepted bills
o
Just said that drawee cant recover
If paid but not accepted: drawee can recover (s62 dsnt apply)
PNB v CA
GSIS issued a check payable to Polido, I to Go, I to Lim, Lim deposited the money in
PCIB
Therefore, under s62 PNB can recover bec PNB cant disown the drawers sigs
o
This was the final reason
the prevailing view is that the same rule applies in the case of a drawee who pays a
bill wo having previously accepted it
o
Did this reverse the previous PNB ruling?
o
No, rule here refers to bills whereas the PNB ruling refers to checks
Samsung v FEBTC
Samsung demanded that the bank re-credit their amnt wc they refused
Drilon 15
Need to weight the comparative neg btwn the drawer & drawee to
det who shld bear the loss
Bec:
o
No privity btwn the payee & the bank
July 12
PNB v Natl City Bank NY & Motor Service
Gen rule: If sig of Pangasisnan is forged, no 1 after him have the right to retain the
inst/enforce payment/discharge the inst
o
PNB can recover for NCB NY then move down the line backward
o
They can collect on ea other under warranties
Is stop order isnt followed & drawee bank pays, this cant be debited from the
drawers accnt
o
Exception: unless payment discharges a legit debt of the drawer
Can the bank deduct the amnt of the check from your accnt? Can you demand
recredit?
o
No, cant debit the amnt of the check & drawer can recover
o
Exception: if drawer was negligent, if it discharges a legit debt of the drawer,
if stop payment order is issued after the bank certified/paid the check
Drawee: PNB
But if PNB accepted, hes precluded from raising the defense of forgery
Ilusorio v CA
Initially check was dishonored but when presented again, it was honored
1st natl bank seeking to recover from US natl bank since 1st natl bank paid by mistake
since Kellecks accnt had insufficient funds
1st natl bank cant recover bec it was negligent in encashing the check
Drawer issues the inst to drawee, payable to payee payees sig is forged
Drawee accepted & paid the H
If drawee wants to collect from the H, can he?
o
Gen rule: drawee can recover bec of s23
Great Eastern
Bec of HSBCs neg, GE can recover what was deducted from their accnt
Amnts were originally credited to the amnt of jai-alai, when discovered the forgery,
they debited the amnt again
Suit btwn the collecting bank & H/depositor
S23 applied here:
o
Forged sig is the indorsers
o
Rights of jai-alai wrt the inst: X right to retain, Xenforce payment, X give
discharge
Canal Bank
Canal bank when accepted the inst, he became a party to the inst & Albany cant
enforce payment to them
o
Any payment made by canal bank can be recover bec its unenforceable, bec
it paid by mistake
Rep
Bank v Ebrada
BTR M Lorenzo Ebrada RB (drawee)
Lorenzo alrdy dead when check was issued
S23: since the sig of the payee was forged, Ebrada has no right to the inst
S66: ebrada being the last indorser, she guarantees that the inst is genuine in all
respects
o
Significance of this warranty, is that she is precluded from raising the
defense of forgery
o
But she ddnt want to raise the defense of forgery why? Bec shes trying to
collect from the inst!
Banco de Oro
S23 applied:
o
Can E recover from BDO? Yes, Trencio acquired no title bec the forged sigs
were wholly inoperative, thus when deposited w BDO, cldnt enforce
payment/retain/discharge
o
Therefore, Equitable, having paid may recover the amnt paid
Drilon 17
Furthermore, E isnt precluded from setting up the defense of forgery since they only
warrant the sig of the drawer & not that of the other parties
BPI
v CA
BPI (drawer) Fernando deposited to China Bank BPI (drawee)
X Fernando, but was an imposter
Preterminated a money market placement
forged: the sig of Fernando
accnt opened in China bank w the sme forged sig
s23: since fernandos sig is forged, BPI can recover from china bank
o
china bank ddnt acquire any title on the inst bec of s23
BPI was neg
but china bank was made to share in the loss bec china bank was also negligent
o
they shldve be suspicious by the huge over the counter wdrawals
immediately after the accnt was open = but whats the teller suppose to do?
o
misrep when imposter opened an accnt
o
bank tk the word of its own depositor they tk the identity of Fernando on
the basis of a clients word = is this neg?
BPI released it on the strength of the representation of CBC that it was Fernando
As far as bpi is concerned, they paid it to the person itself thus wasnt neg on part
of bpi
For sir: no neg on bth parties
July 17
Natividad v Gempesaw
Galang knew that even if Gempesaw checked the invoices against the amtns on the
checks, wldnt discover anything
Did Gempesaw have a right to recover from PBCom who paid the amnt of the checks?
Yes, but she shares in the loss bec she was also negligent
Drawee bank is liable bec it contravened the tenor of its oblig by honoring a check w
more than 1 I
o
Bank rules prohibit acceptance of 2nd I wo being cleared by bank officials
o
Bank was held liable based on the CC A1170
o
Drawer entitled to recredit bec of contract law
But the drawers sig isnt the 1 thats forged its the indorsers sig
Ct employed s23 in saying that Gempesaw is precluded from using forgery to prevent
the banks debiting of her accnt
S23: GR a forged sig, being in wholly inoperative, the holder has no right to retain,
enforce payment or give discharge to the inst
o
Unless the party against whom its sought to be enforced is precluded form
setting up forgery/want of auth
Assuming that Gempesaw is invoking the forgery as a defense wc is why the Ct said
that she was precluded but what gives her the right to invoke forgery when it
wasnt her sig wc was forged?
Associated bank v CA
WON TRB shld be solely liable for the amnt of the checks
Duty of TRB to det that the check was duly in order by the orig payee
Westmony v Ong
Westmont: since Ong never had possession of the checks nor did he auhtorie
anybody, he ddnt become a H thereof hence he cant sue in his own name
o
Legal basis of Westmont: S51, s191
o
Ct: even in the absence of delivery, such consideration isnt matl = what P is
dng is a shortcut
When Westmont collects form the drawee bank, it makes a representation that the I
are genuine under s65 & 66
The warranties under s65 & 66 are directed to whom? When they make these
warranties, to who do they make them to?
o
To the drawee bank
o
Is On the drawee bank? No
o
Is there any privity btwn Ong & the drawee bank? No
What is Ongs basis for trying to collect the amnt of the check from Westmont?
o
He can collect, hes the payee, if he has the check but here, hes not in
possession of the inst
o
Bec of the forgery of Tanlimco, hes entitled to possession of the inst but he
still dnst have it
Pacific Bank can say that Westmont cldve detected the forgery, therefore, if you cldve
detected it we wouldnt have to pay
o
But this argument isnt available to Ong
o
In fact, Ong isnt even a party to he inst
If anyone shld complain, it shld be Island Secu who wld demand that PBC re-credit
their acctn & PBC can recover from Westmont
Drilon 18
Westmont is saying dnt sue use, sue Island Secur we arent privy to that, you cant
make us liable to it
Ex) sm1 stole the inst, forged your sig & I it can you sue just coz your name is the
inst bec your name appears there? NO, you arent a party to the inst
o
SIR: Westmont is correct, Ong cant claim from them he can only claim
from Island or Tanlimcos family
The 1 ultimately liable is Island Secu
Ultimately liable on the check Pacific bank bec its the drawee bank
Whos liable for the forgery? Ultimately who is liable is Tanlimco
Ct: sig of the payee (Ong) was forged & the collecting bank erred in making payment
by virtue of the forged sig thus, Ong shld be allowed to recover from the collecting
bank (Westmont) (based it on s23, sig is wholly inoperative)
PBC has a COA against Westmont for breach of warranty
Sir: the short cut is suing Island Secu
o
What the Ct said was the long way hes reaching/suing some1 whos not
liable to him
What if Westmont had defenses?
o
Ex) if PBC was neg can Westmont invoke these defenses against Ong
o
What if there is defenses btwn the parties, can they invoke this against the 1
taking the short cut
Lets assume that Island Secu owed money to Tanlimco & the inst, tho it was diverted
to it, & the inst settled a valid oblig btwn Island Secu & Tanlimco
o
Can Westmont raise this as a defense that they may not have followed your
order, but it settled a valid oblig of yours & you werent hurt by it
SIR: defenses are available to the 1 taking the short cut?
July 19
Tolman v American Natl Bank
Drawer: tolman
Ct: Tolman can recover since bank has the duty to pay to the order of the drawer
o
And his order was to pay Haskell wc wasnt followed
Check wasnt payable to bearer bec Tolman intended the check to go to Haskell who
wasnt a fictitious person
o
Basis: s9 NIL the inst wldnt need an indorsement if it was payable by
bearer
o
Why did this defense fail? Bec Haskell was not known to be a fictitious payee
to the drawer Tolman when he made the check (S9)
Greenfield was the agent of Snyder so the intent of the agent controls?
o
In this case yes, bec of the POA issued by Snyder to the bank, authorizing
Greenfield to draw checks for him on his accnt
o
So s23 cant apply
If Greenfield acted wo auth, isnt his sig forged? Did he have auth to issue a check to
Niemann?
o
He was given gen auth to issue checks to ne1
Clearfield Trust Co v US
Drawer: US
Payee: EE
Sued in 1938
Delay was from when Barnes told the US that he didnt rcve the check May 10,
1936
o
Nov 10 1936 he executed an affidavit that there was a forgery
Delay in giving notice wont precluded the drawer from collecting unless it also proves
damages
Clearfield wasnt able to prove the loss since it cld recover from JC Penny
So why does delay preclude you from raising the defense of forgery?
o
One can only shift the loss to the drawee only on a clear showing that the
drawees delay in notifying him of the forgery caused him damage
Ct remanded the case bec couldnt det if Detroit exerd due care when they discovered
that their production cost was higher than usually
What are the facts necessary to det WON Detroit was negligent?
PCIB
If theres contributory neg, then the drawer shld bear the loss
o
Premise is that the EE acted w the auth given by the principal
o
But Ct said the EE didnt act under the auth given to them by the principal
Sec. 125. What constitutes a material alteration. - Any alteration which changes:
(a) The date;
(b) The sum payable, either for principal or interest;
(c) The time or place of payment:
(d) The number or the relations of the parties;
(e) The medium or currency in which payment is to be made;
(f) Or which adds a place of payment where no place of payment is specified, or any other
change or addition which alters the effect of the instrument in any respect, is a material
alteration.
PNB v CA
o
An alteration is material if it alters the effect of the inst
o
Its an unauth change in an inst that purports to modify in any respect the
oblig of a party or an unauth addtn of words/numbers/other change to an
incomplete inst relating to the oblig of a party
o
It changes items wc are reqd to be stated under s1, NIL
exception: a HDC not a party to the alteration, may enforce payment accdg to the
orig tenor
o
addcg to the orig terms of the inst & not to the altered terms
Montinola v PNB
Was a matl alteration bec it changes the nature of the resp of PNB from a mere
drawee to a drawer & drawee
Whats the effect if the same party is the drawer & drawee of the inst?
o
Hes ordering himself to pay
o
Law says that the H has the option of treating it as a PN making the bank
directly & primarily liable
Whats the effect of matl alteration? The inst is void thus Montinola cant collect
Montinola was a mere assignee of the P30k sold to him by Ramos thus hes subj to
all the defenses available to the drawer Provincial Treasurer & Ramos
o
o
o
Ramos only indorsed part of the inst 30k only not the whole 100k
Thus hes subj to all available defenses available to the prior parties
PNB v CA
Issue: Won the alteration of the serial # of the check is a matl alteration? NO
Not a matl alteration bec its not an essential req for negotiability under s1
If it were detected, the drawee wld be made to pay bec its only an immatl alteration?
If alter the serial # of the check, you can collect on the check?
If the alteration dsnt change any of the reqs under s1, the alteration is immatl &
drawee can still be compelled to pay
Ct said matl alterations are only those in s1? Only those wc affect its negotiability?
So if the isnt contains 5 Is on the back & sir deletes 4 of them matl alteration? If he
adds a sig on the back matl alteration?
If sir holds an order inst wo a blank I and he deletes all the Is, then he has no title to
the inst bec theres no I & the inst goes back to the payee? Bec it has no impact on
s1?
The addtl sig changed the relations of the parties so its a matl alteration
Bec theres a matl alteration, the H isnt entitled to anything bec the inst is avoided
Therefore Foutch can only recover the diff btwn the orig & altered terms
Foutchs neg:
o
He allowed the payee to fill in the entire check
Negligent bec its in the payees handwriting & any alteration cld be
made wo detection by the bank
o
It was written in pencil
Thus, Foutch is liable for the full amnt the altered terms? No, just the orig amnt
Drilon 20
Was there neg on the part of Norwood? Yes, the draft used was on plain white paper
wo safety devices
o
Plus it was the banks procedure to use these safety devices
o
Drafts were issued outside banking hours
Bank was also negligent in paying bec the alterations were apparent on the check
July 26
Marine Natl Bank
S124 NIL says an altered inst avoids the inst but a HDC can recver on the orig tenor
Since its an altered check, payee can only recover the orig amnt
Certification only holds the bank for the truth of the facts presumed w/in his
knowledge only certifies the sig of the drawer
Wells Fargo (barbs)
HSBC entitled to recover from Ppls bank? No, bec of the CB Circular 9
In all instances of matl alteration, the drawee bank shld be able to recover bec of the
warranties but this isnt true in all instances (why?)
Is there a contrary citation of the law? Contrary to the holding of the Ct?
Ct is saying he shld warrant the entire inst thus if theres an alteration, hes resp for
the alteration bec by accepting it, the drawee admits the altered inst
o
S62 is contrary to this bec theres nothing in s62 wc states that the drawee
guarantees the body of the inst
o
S66 is contrary to this is well bec nthng in it states that the drawee has this
duty
FRAUD
CLT Corp v Panac et al
TC: there was no neg on the part of the Sps, thus s15 still applies as a real defense
o
Its a real defense
Real defense of fraud was still available to the Sps bec of fraud in the execution
ddnt know they were signing a NI
Under what circums wld the party primarily liable be obliged to pay?
o
If they had the means of discovering the fraud
o
If he ratifies
Personal defense
Cohn was a HDC & bec of s16 theres a conclusive presumption of delivery
o
Conclusive presumption of delivery: if the H of the inst is a HDC
party
Smith v Dotterwiech
Invalid against any person whose sig is on the inst b4 delivery = drawer or maker
o
Theyre released
o
Possible that some indorsers signed theyre released also
Whys there a limitation that the inst is only invalid as against those who signed b4
delivery? Whats the diff btwn those who signed b4 & after delivery?
o
What if the date is blank? What if you dont know, cant det the date of the
inst its non-negotiable bec not at a determinable, future time
Pavilis v Farmers Union Livestock Commission
How were the insts incomplete? Bec the manager signed the checks wo any
particulars
Pavilis is trying to recover from the drawer he gt the checks from Hoard & gave
Hoard $102 in consideration
Act of signing the check in blank contributed to her loss she was deemed neg for
dng this
Other theory: weighing of the neg of the drawee bank & drawer
Strict application of s15: inst is invalid & Weiner wldnt be able to recover
o
S15 says H or person whos sig was placed b4 delivery but a H takes the
inst b4 presentation of payment thus, not a H
o
Drawee bank isnt such a H
o
Bec a H is some1 who takes an inst prior to presentment of payment & a
drawee takes it when its paid thus its not a H
Linick v AJ Nutting & Co
Blanks in the inst may be filled in by a person in possession to complete the inst =
has prima facie auth to complete the inst
But in order for a person to be bound, party prior to completion shld be filled up
strictly accdg to auth given & w/in reasonable time
o
If not, parties prior to completion arent bound
o
But if HDC can enforce the inst
Under s13: insertion of a wrong date wont avoid the inst
o
Why ds it say void when s14 says its void only against certain parties (those
prior to completion)?
o
Basis for saying inst is void, when a date inserted is wrong? As if if s13
wasnt there, the inst is void?
Bec the alteration of a date is a matl alteration under s125 & under
s124 the inst is avoided
Simpson
She put in the name of the bank & then asked the bank for an indorsement
Since the inst was given in blank, there was no name of the payee
Ct said the maker intended that the banks name be placed as payee
Ds she have auth to fill in the blank even if she wasnt the H?
o
Yes , bec law gives auth to the person in possession...not necessarily the
holder
Auth shld be strictly followed in accordance w the auth given & w/in reasonable time
July31
CONSIDERATION: S28
Contract when a maker gives the inst to a payee, in exchange for nothing isnt this
a contract of donation?
o
Donation is an act, not a contract
o
But its really a contract (sir)
o
Since its a contract of donation, it must be valid!
o
So its a valid donation but not a valid NI?
o
If a NI is issued wo consideration, whats the effect?
If a check is issued for no consideration, bec its a gift, it cant be enforced unless HDC
thus if in the hands of any other person, its ineffectual, thus how can it give rise to
criminal liab?
o
This is the weird thing about it
Drilon 22
Exemplified by Ty v Ppl
A contract of donation is valid, theres sufficient cause/consideration
o
But if you give a check for nothing, were saying theres no consideration
o
Theres sufficient cause gratuity = thus its a valid contract
o
But theres no consideration
o
In a contract of donation, theres cause but no consideration
o
In contract law, gratuity is a valid causa, but theres no consideration!!
Consideration: from AM contract law
o
Ty v Ppl
Defense: no consideration, bec she wasnt the 1 sick it was her mom & sis who
were sick
Dougherty v Salt
Why was the note given? Bec the aunt loved her nephew, wanted to take care of the
boy
Barco & Son v Forbes
Thus, H shld be able to recover from the inst but Forbes executed a renewal note
Drilon 23
S60 Engages to pay accdg to its tenor & Admits existence of payee & capacity to
indorse
Ct: Utterback is precluded from raising such defense bec of his warranty
He cant deny the existence of the payee (Davis Co) & its capacity to indorse
STATUS OF DRAWEE PRIOR TO ACCEPTANCE/PAYMENT; EFFECT OF STOP ORDER
banks defense: araneta cldnt prove any loss to him, thus cant be awarded temperate
damages
o
evidence of the injury
Granted nominal damages since the bank remedied the wrong as soon as it was
discovered
*Presence of a contract dsnt preclude the finding of a tort & a breach of contract may
itself be a tort (Air France v Carrascoso)
Speroff v 1st Central Trust Co
Ct: clause was void for being against pub policy & want of consideration
o
Pub policy:
Sir: is it against pub policy for 1 to contract w anthr, that the other
dsnt need to exer care & if theres damage its the other who is held
liable?
SC: banks shld exer EOD bec of the pub interest involved in their
business
*as a GR, not illegal for a party to enter into a contract w anthr for
1 not to exer any care & other is held liable
Ct: by paying the check to the payee, he was unjustly enriched bec Caracanda had no
leg right to the money
Mere failure to accept w/in the prescribed time even wo demand for
return constitutes constructive acceptance
Word refuses implies previous demand for return such that under
s150 if no acceptance is given w/in the time, its the duty of the H
to consider it as dishonor
Wisner v 1st Nalt Bank of Gallitzin
Bec the prov on constructive acceptance is for the benefit of the H to make it easier
to collect & to req him to demand, isnt to his benefit
Urwiller v Platte Valley State Bank
Bec checks are presented for payment & not for acceptance, thus prov dsnt apply
Sumcad v Province of Samar
There was constructive acceptance bec of the acts of the bank wc asked for copies &
when they reqd its presentation
Bank ddnt ask for the orig but this resulted in acceptance?
All these axns wld be empty gestures if they were taken as not acceptance
Ct recogd that there was constructive acceptance here more of virtual acceptance
actually
But a check isnt presented for acceptance, thus s137 shldnt apply? Yes but it
wasnt applied by the Ct
Aug2
S134: Acceptance in sep inst wont bind the acceptor unless acceptance is shown to a
person who tk the inst for value & in reliance on the acceptance = extrinsic
acceptance
o
If embodied in the inst, then its a normal acceptance
S135: virtual acceptance bill is uncond accepted b4 its drawn & its binding on the
acceptor & is in favor of a person who tk it for value & in reliance on the acceptance
o
Also sep, but pertains to a future bill
o
Acceptance dsnt need to be shown to the person taking the bill
Bec the reliance on the acceptance is more impt than the actual
physical exhibition
Coolidge said it wld honor the draft if Williams deemed the bond to comply w the law
of the state of Coolidge
Was a virtual acceptance bec made prior to the actual drawing of the draft
Gen A: wo qualification
o
Acceptance is absolute no conds
Accept it
Treat it as dishonored
Take the QA but send a notice to the QA from the parties 2ndarily
liable
Drawer & indorsers are discharged unless notice is given to them &
they authorized the H to take the QD or gave assent to such
Are they liable for the whole amnt or the amnt under the
QA?
o
Theyre liable for the amnt under the QA
o
Why?
CHECK
Wc is why jurisprudence states that not all the rules of the BOE
apply to checks
o
*Check if refused, dsnt amnt to dishonor bec payable on demand
RP v PNB
Under what circums wld escheat be successful? They were looking a diff inst & state
had to prove it was entitled to them so wc insts?
Whats the standard they adopted to det if the inst is subj to escheat? ]
o
Demand drafts: need to be accepted
o
Cashier/mangers checks: can be escheated
Standard adopted by the Ct: that theres a C-D relationship btwn the bank &
depositor!!
Managers checks: bank is the DR & DEE once issued, its alrdy accepted in advance,
thus, the H may treat the inst may be treated as a PN & the DR/DEE is considered a
party primarily liable & thus a C-D rel arose
PAL v Hon CA
Bec it was payable to the sheriff & not to the judgment creditor
o
Ct was saying check shldve been in the name of Tan
Say PAL gave the check in Tans name, wld the judgment debt have been paid? No
o
Payment of a check dsnt amnt to payment until its encashed (A1249 CC)
A1249 contemplates a sit that if the inst is impaired in anthr hands (ex. sheriff),
payment is considered effected OR if its encahsed
What if PAL paid cashed to the sheriff? This wldve had the effect of payment
But when the check is encashed by him, it wld be as if they delivered him cash when
they delivered him the check based on A1249
o
Ct said this shld differentiated from payment in cash since Ct dsnt go into
logical extremes = ergo, if theres a ruling & apply it & it results in illogical
extremes/absurdity we shldnt apply it!
A decision is a decision
(sir laughsmwahahahahahahahaha!!)
Bec if you say that a check isnt proper, then theyre nullifying A1249
Bec the moment they delivered the check its no diff from giving money
And yet the maj is saying they have diff effect but how can this be
if theyre the same?!?
Ct was doing a complete denial here
After thisthe Ct starts to argue the facts (bec they were weak in the law)
o
PAL ddnt pay in cash, but in check; payment in cash carries w it cautions
So Ct was saying they shldve paid in the name of the PEE
o
o
Narvasa, dissent:
State shld carry the risk of the sheriff carrying out his duties
Feliciano, dissent:
Pub isnt the insurer of the sheriffs integrity its the resp of the State
CIFC v CA & Alegre
Check was dishonored by BPI & deducted the proceeds of the check from the acctn of
CIFC & they ddnt return the check
2 lawsuits:
o
Alegre v CIFC
CIFC said theyd pay him, but return the check 1 st = impossible
cond bec its w BPI
o
CIFC v BPI
After Ct decisions: Money alrdy deducted from its accnt & now CIFC also owes Alegre
the same amnt of money = unfair!!
CIFC: NIL shld apply! Acceptance of BPI of the check made it primarily liable on it &
BPI hadnt validly dishonored the check & that the debiting of BPI the amnt
constituted payment/discharge of CIFCs liab
o
Deducting the amnt of the check amntd to payment
o
Were citing the prov on constructive acceptance
Tho estab that the bank has a right to debit, this dsnt apply here bec of BF on the
part of Associate Bank wc allowed him to w/draw the amnt tho the check wasnt
cleared yet
Fortunado v CA
Ds this case support PAL v CA? NO, delivery of the check here had the effect of
payment
Diff from PAL bec redemption case wc is a right & tender of payment wld still amnt to
payment
A1249 was abandoned & not applied bec the check wasnt encashed
o
If say tender of payment constitutes the right, there was no tender of
payment bec the check wasnt encashed
Bottomline: liberal stance when it comes to payment of checks bec its redemption &
the policy of the law is to aid in redemption
Mesina v IAC
Defective title was from Lim bec it was stolen thus, can no longer rely on the
presumption that hes a HDC
o
Thus, Mesina shld prove the elems of S52 wc he ddnt so hes not a HDC
Since not a HDC , he cant enforce the check against the bank wc dishonors the same
o
Can raise the ff defenses: forgery, complete & undelivered (disputable
presumption of delivery can prove that it wasnt made, etc)
o
Since not a HDC, delivery isnt conclusively presumed, fact that the check
was never delivered to Go, hes not entitled
Aug 21
CERTIFICATION & its effects
Certification (C): when the bank certifies that itll pay the check
New Pacific tried to stop the auction sale by depositing the amnt cashiers check &
cash
Thru C, the funds represented by the check are transferred from the credit of the
DWR to that of the PEE/H
A1249: says the deliver of the check shall have the effect of payment only
when encashed
o
Ct: said that a certified check is equivalent to cash
o
Conflict!!
Checks are cash & cash are leg tender so checks are leg tender = sir this is WRONG!!!
Sir: C of the check is not equivalent to cash
o
Wachtel v Rosen
Bec in C the 2ndary parties are discharged while in acceptance they arent
Roman Catholic Archbishop
Bank cant raise the defense wc belonging to the DWR since here it was the H who
procured C
Sutter v Security Trust Co
No fraud when she got the check so the bank had an oblig to pay to her & the H
Bank cant follow the stop payment order if the H holds a certified check if the H is
bona fide HFV or HDC
DWR procures C then the stop payment order can be followed by the bank if NOT a
HDC/bona fide HFV
o
But if a HDC/bona fide HFV, he cant follow the stop payment order = has to
pay
GR: In a certified check, the bank must ignore the stop payment order bec
alrdy accepted it (s62 applies)
Drilon 27
In this case, they interposed the defense against the person who procured the fraud
(this is pure case law- NIL says nothing abt the effect of a DWR procuring C [only thing it
says abt it is that money is set aside s189])
o
Refusal to accept
By agreement, the DWR can say I make no warranties & im not 2ndarily liable
o
Neutralizes his liab
o
On inst itself, says all parties 2ndarily liable hereby waive all the reqs in
this case, they can immediately be held liable if the primarily liable dsnt pay
Why dd the bill make sense in this case? Why the way the bill is structured makes
sense?
o
DEE: Hyndman, Tavera & Ventura Co
o
PEE: PNB
o
DWR: Picornell
PNB was suing the party 2ndarily liable the DWR = Picornell
1st defense: since there was acceptance alrdy, the DWR is discharged!
o
Ct: NO, acceptance only applies to checks, not to BOE
Defense: agency!
o
If he was the agent of the HTV, then HTV is the DWR of the inst
o
And if the DWR & DEE is the sme person, H can treat it as a bill or note
o
But Ct ruled that he was an agent, bec nothing in the inst wc indicated that
he was signing in representative capacity
She raised the amnts of the check = matl alteration wc shldve avoided the inst
BA wld only be able to recover if it was a HDC only as to the orig tenor of the
inst
Is BA a HDC? NO
o
There was notice of defect in the title or infirmity in the inst = 3rd check
o
1st & 2nd check:
Ct: BA wstn sure it cld collect from the govt so not a HDC = but this isnt 1 of the
reqs of a HDC
Sir: but isnt it better if youre dealing w a stranger? Bec if stranger then all the more
youre probably a HDC
o
Banks defense: since PEE is fictitious, then the inst is a bearer inst
Ct: No, DWR ddnt know that the PEE was fictitious so not a bearer inst
Other defense: s61 said McCornack admitted the existence of the PEE & his capacity
to indorseso he cant deny the existence of the PEE
WON you know you dont have sufficient funds, if you send notice & w/in 5 dyas dont
pay liable!
No need to prove knowledge in BP22, just need to send notice & after a certain pd of
time if dnt pay, not liable
Lozano v Martinez
BP22 is constitutional
EP:
o
Pets: penalizes the DWR but not the PEE PEE is also responsible for the
crime bec wo its indispensable participation, by his acceptance of the check
there wld be no crime
*but possible that its the PEE wc gets the check knowing that
theres no funds, then they deposit it to hold the DWR liable
o
Ct: No, arguments says law shld punish the swindler & swindled
Impairment of contracts:
Drilon 28
o
Checks arent contracts theyre substitutes for money
Imprisonment of debt:
o
Pet: its a bad debt law punishes ppl for not paying the check & not the
issuance
o
Ct: no, gravamen of the offense is the act of making & issuing a worthless
check
Estafa: shld issue the check when the thing is delivered to you
(simultaneous)
Aug 23
QUALIFIED INDORSEMENT
Qualified indorsers:
o
Warranty extends to all subsequent Hs
GENERAL INDORSER
Is there a diff btwn the liab of a gen I wrt his liab under warranties & his 2ndary liab:
o
Warranties:
Since the sig had in addt these words its really not an I
o
Was arguing this bec there was nothing in the words written that there was
an intention to transfer title & an I necessarily includes transfer of title =
therefore it was merely a guaranty
So how dd the Ct arrive at the conclusion that he was an indorser? How do you
conclude that its an I or a QI?
o
Words of guaranty dsnt negative the fact of an I if dsnt negative the fact
bec theyre words of enlargement
o
Thus, can be inferred that the intent was to assumed the burdens of I & the
uncond liab of 1 who guarantees payment
o
Why are they words of enlargement?
Sapiera v CA
BPI v CA
Napiza is being made liab for his 2ndary liab as an indorser bec he signed the back
of the check
Ct: hes liab as an indorser but certain circums negative his liab
o
BPI was grossly negligent
Wasnt Napiza neg in signing the w/drawal slip? Yes, but Ct said this wsnt the
proximate cause of the loss
Ct: neg of the indorsee is a defense for the indorser/neg of indorsee negatives the
liab of the indorser
o
Sir: on what ground? bec theres nthn in the NIL wc says that the liab of the
indorser can be negative by the neg of the indorsee/nthn wc says that it was
dependent upon the diligence of the indorsee so whyd the Ct rule this way?
o
Ct cldve said: 2 diff rulings
Yes, youre liable as indorser (&proceedings were taken, notice was
given to him by his son)
Drilon 29
Cldve ruled that Napiza cldve reimbursed the amnt from the bank
BPI must recredit the amnt to Napizas amnt & this money cldve
been used to pay back BPI = so quits lang
This wldve been btr than their ruling that the neg of the indorsee negatives
the liab of the indorser
I: WON Wachovia cld recover from the indorser Crafton, even if the note is void.
Bank cant recover from the 2ndary liab of the indorser since the 2ndary liab cant
exist sep from the inst so if the inst is void, so is the 2ndary liab
BUT Ct said that the warranties survive so hes liable based on his warranties
He warranted that the inst was valid & subsisting so he cant now raise that its invalid
Horowitz v Wollowitz
Goodman v Gaul
Is Sellner an AP?
Ct: yes, when he lent his name, he became primarily liable w the other signers & was
like a joint surety
Lim
RESTRICTIVE INDORSER
ORDER OF LIABILITY AMONG INDORSERS s68
S68: liab in the order they signed but only applies as among themselves
o
Dsnt apply to Hs they can go after any indorser
LIABITLITY OF ACCOMODATION PARTY s29
Liable to a HFV
o
HFV has been interpreted as a HDC
If you know that hes an AP & not a HDC, youre precluded from recovering?
IRREGULAR INDORSERS S64
Ingalls v Marston
2 signed the note on its face, the other 2 signed at the back = all dne when the note
was created & b4 delivery
I: WON Smith & Foss (who signed at the back) were indorsers? YES
Defense: note was given as mere collateral secu & their obligs is only that of sureties
Ct: if they gave the note as a semblance of collateral secu, then their actually trying
to deceive the examined this is an illegal transaxn wc is against pub policy
They were accom makers who are primarily & absolutely liable on the inst to a HFV
v Saban
Lim buyer of the lot
Ybanez seller of the lot
Saban agent of Ybanez
WON Lim was an AP. NO
o
Bec lacks reqs for a person to be an AP:
Maulin v Serrano
Moreno made the note, Serrano was the PEE was intended for payment of the debt
incurred
Serrano indorsed to Maulini (they had an agreement abt this coz Maulini ddnt want
his name on the books, so he had Serrano make Moreno make the note out in
Serranos name & he wld then indorse it to Maulini)
Serranos defense: that he only lent his name for the transaxn
Yes, bec Mesina tk the inst w the belief that she cld collect
Maulini ddnt take the inst from Serrano, knowing he cldnt recover from him bec he
merely accommodated Maulini
Drilon 30
Sir: (dsnt agree w the Ct) he is an accommodation party but there can be no
recovery bec the accommodated party cant recover from the accommodation party
PNB v MAZA
Bec they signed the note as Mkr & their liab is primary
Acuna v Veloso
Bec the accommodating party (Veloso) & accommodated party (Xavier) signed the
note together making a joint & several note
o
As to the creditor, bth of them are joint & several makers
Tiong v Ting
Defense: was an accommodation indorser
Nothing in the check indicates Ang isnt a gen indorser
So Ang is liable to Ang Tiong
Sadaya v Sevilla
Are they liable as accommodation makers of the inst? NO, bec PNB isnt a HDC
Not a HDC bec they were immediate parties & they ddnt follow the agreement
No liability
o
If fails to do either = A is personally liable & he cant present PE to indicate
that hes merely acting as an A
PE inadmissible
PE admissible
If theres a name there, youre not sure what he is when you say
hes my principal are you modifying the agreement or clarifying?
If prohibited from presenting PE, then putting the name on the inst
wld be useless
*PER: bars intro of parol or extrinsic E to vary the terms of a written agreement to vary
the terms of the parties (only applies to Ks); not allow to modify or add, once youve put
an agreement in writing
o
Can you present PE to clarify an agreement? Yes
Austin, Nichols & Co v Gross
Name of the P was indicated (State St Grocery Co) but check ddnt contain the
presence of an agency relationship
o
New Georgia Natl Bank of Albany v J&G Lippman
P was alleging that the A signed wo auth therefore the H has no COA so it shld be
dismissed
I: WON you can sue the A in the alternative if youre suing the P
o
Bec if youre suing the P, youre saying the A has no liab
Pratt v Hopper
Mayer is liab even tho an A in reality, bec ddnt name the P & ddnt say that he was
signing in a rep capacity
I:WON Foerster had implied auth to indorse the checks made out in the name of
Insular Drug Co
o
Ct: he ddnt
Insular sued PNB bec the check payable to them were deposited to Foersters accnt &
paid to him
PNB: was claiming that Foerster had implied auth to indorse the checks made out to
Insular Drug
o
Leg basis: if you deal w an A, who has no auth, the P isnt liable
Foerster ddnt have the auth to collect & dsnt have implied auth to indorse the checks
PBC v Aruego
So PE isnt admissible
PRESENTMENT FOR ACCEPTANCE
What are your options if youre the H of the inst? If the inst isnt presented w/in
reasonable time from ISSUANCE, whats the effect?
o
DWRS & indorsers (2ndary parties) are discharged (s144)
If theyre discharged & the DEE refuses to accept, theres no1 the H
can run after (the penalty is heavy)
o
Is this an absolute rule? NO
Bec if given w/in reasonable time from the last N of the inst, can
still present if for acceptance & 2ndary parties arent discharged
WHEN IS PRESENTMENT EXCUSED (memorize)
When the H of a bill is drawn payable other than the place of business or
residence of the DEE, & the H has no time, w the exer of reasonable dil to
present the bill
If demand inst w/in reasonable time AFTER ITS ISSUE (for notes)
o
Except: if BOE presentment for payment shld be made w/in reasonable
time after its last N
Intl Corp Bank v Sps Gueco
Were presenting a Managers check as payment for a car bec Dr Gueco ddnt sign the
joint MTD
Sps Gueco: banks fault thats why the check became stale
SC: the check was a BOE wc was drawn by the bank on itself & accepted in advance
= thus, can be treated as a PN
So presentment is no longer necessary bec the bank became primarily liable on the
check & is a written promise to pay on demand
o
Presentment for acceptance no longer necessary bec the bank was primarily
liable on the check
Drilon 32
Was there delay here? None, so Bowen isnt discharged, still liab on the draft
To det whether theres delay, it shld be considered from the last N to presentment
Why cldnt the DWR raise the defense that he was discharged?
There was delay, bec the presentment wsnt w/in a reasonable time
Morrison v McCartney
But since the DWR ddnt show any loss, Morrison & Hackland cld recover
PNB v Seeto
Seetos defense: PNB delayed, if ddnt, there were still sufficient funds in the DWRs
accnt
Whats the basis of Seeto being discharged, as an indorser? S84 & s66
o
S84: used this to det if presentment for payment w/in a reasonable time
after its issue
o
S66: that due presentment is a cond to the indorsers liab
Ct said that unreasonable delay in the presentation of the check for payment fully
discharges the indorsers
o
Facts of this case justify this conclusion bec there was unreasonable time
alrdy not only from time of issue but also from the date of Seetos I
Aug30
Crystal v CA
Deliver of the NI will have the effect of payment once its encashed,
or if thru the fault of the creditor it has been impaired
A81
Bec the checks on their face stated that the PEE was
Melissa RTW & not Sayson = but this order from the DWR
is directed to the DEE bank & not the CB
o
So AB as the CB had no duty to pay her
o
Breach: AB paid the checks to someone else/had no right to rcve the
proceeds of the checks
ABs duty is to pay the person who endorsed the inst to them
Wc they did!
Sir: why is there no privity of contract?
o
The inst was never delivered to her so shes NOT a party to the inst,
so how can she sue!
Other defense: A1249 wsnt complied w
o
In order for payment to be effective, the checks shldve been
delivered to her & encashed
o
The mistake in the delivery resulted in her not being paid so her
COA was against the DWRs & not the CB
So whyd she win this case?
o
SC it was a shortcut against save every1 the time & expense of litigation
o
Sir: what if there are defenses btwn them? Btwn the DWR & the DEE? Btwn
indorsers? Cant these defenses be raised?
PROVS:
Where? (s73)
o
If specified place = pay there
o
If no place, but add of the person liable for payment is there = pay at the
add
o
No place or add = usual place of business or residence
o
Any other case = wherever he can be found, or last know place of business
or residence
Shld state:
o
Due presentment
o
Dishonor
Gullas v PNB
In the absence of notice theres no C-D rel btwn Gullas & PNB so
PNB must make sure that notice was rcvd
Once notice is rcvd, then they become C-D of ea other & leg
compensation may take place
PROVS:
Shld sufficiently identify the inst & indicate that it has been dishonored
Is notice to the DWR to charge him for his 2ndary liable? YES (s89)
Ct here says: that a bank wont dishonor a check that theres no insufficient funds, so
you can assume that the DEE wont pay, therefore no need to send the DWR of the
check notice of dishonor
o
Theyre making a very broad exception
o
Wc exempts the H from sending notice to the DWR
o
o
o
S108
To his principal
o
o
Sept 4
Cont of notice of dishonor
To whom is a notice of dishonor sent?
Party dead:
o
If he knows hes dead, send to his rep
o
But how can a dead person have a personal rep?
No!
No req in the law that you have to send notice to all of the creditors
It inures to the benefit of all the H & all parties subsequent to whom
notice is given
Diff btwn s92 & s93?
o
Notice inures to the benefit of all subsequent Hs & all prior parties who have
a right of recourse
o
What is meant by it inures to the benefit?
Why is this a benefit? Bec those who dont rcve notice are
discharged/no longer liab
No, cant be liable bec merely indorsers who werent bound by the printed waiver
What ds the law req when it comes to waivers, if you want all the indorsers, all
parties to be bound to it?
Drilon 35
It shld be on the face of the inst = those on the face are considered as
embodied in the inst (s110)
The case explains what embodied in the inst means wc is why the case interprets
it
Ct said it means: embodied in the inst means if its on the face of the inst
If the waiver is at the back, then it shld be above the sig of the person to bind him
If on the face of the inst:
o
Regardless of where the party signs, then all parties are bound
If at the back of the inst:
o
If its above the sig of the indorser, that only binds him
What ds it mean, in that part of the statute, wc refers to the location of the waiver on
the inst in relation to the parties?
An indorser signs at the back
o
Therefore, when s110 says the waiver is above the sig of the indorser = hes
bound
o
What abt subsequent indorsers?
o
DWR has no right to expect or req that the DEE or acceptor will honor the inst
MKR is the person primarily liab, so he dsnt need notice bec he knows that hell pay
As DWR she had no right to expect that the DEE wld pay the checks bec she w/drew
the funds so no notice needed
Notice to not reqd to be given to the indorser: S115
Whats the leg effect if notice of dishonor isnt given? Parties are discharged
Are you reqd to give notice of dishonor of non-payment, if you alrdy sent notice of
non-acceptance? Only if after 1st notice is sent, its accepted & not paid
Effect of notice on non-acceptance isnt given?
o
Dsnt prejudice the rights of a HDC subsequent to the omission
o
Why not have a similar rule in failure to send notice of non-payment?
*Skip protest
PAYMENT FOR HONOR
S171
Related to when an inst is dishonored for non-acceptance, the person cant be a HDC
anymore
New bill doctrine:
o
The indorser, issuer or acceptor at maturity = theyre considered to have
drawn an entirely new bill
o
Who are the 2ndary parties who arent liable on the new bill? DWR
o
So what abt the old bill?
Whatever rights the H has wrt to the old bill, the parties there are
still liable & 2ndary parties arent discharge is given notice
Any party to whom notice is given, all subsequent Hs, even after
maturity, hes not bound/not discharged (bec the sending of the
notice inures to the benefit of subsequtn parties)
o
H of inst, negotiated to you (5th ka na), after maturity, can you run after the
X,Y,Z who are parties b4 maturity who are 2ndarily liable, bec notices were
sent to them Can he run after the parties 2ndarily liable under the old bill?
Youre now the H of the new bill so are you the H of the old bill
still?
o
A (dwr of the new bill), when A payshe can run after the parties liable prior
to him? Bec hes still a party liable to the old bill?
NO!
o
Are the parties to the new bill, parties to the old bill? Yes
o
Theyre all the same parties to the same bill
o
The only effect of a new bill is theres an addtl right
Theyre parties to the old bill except that insofar as the old
bill, they arent HDC, they can collect on the parties 2ndarily
liable on the old bill
OR they can collect on those who are parties to the new bill
& its payable on demand
o
Consequence of the new bill doctrine:
The party who indorsed after maturity bec the dwr of the
new bill
Bishop v Dexter
Dexter (pee) indorsed the note to converse (bishop ws the 3r indorsee alrdy) when it
was alrdy due
Ct: indorsement of a bill/note after its equivalent to drawing a new bill payable at
sight & the indorsee shld make a demand & notice given
Drilon 36
No demand was made to the MKR nor notice of non-payment to Dexter so dexter is
discharged
Ex) sir indorses a PN after maturity to mae, that means that sir is the DWR of the
new bill? Then whos the DEE? The mkr
If Dexter here is the DWR & the note is put into suit by Dexter or some1 else, then
Dexter knows that the inst wld be honored so no expectation for it to be paid, so no
notice is reqd (s114) = bec you alrdy had a suit on the inst b4 he negotiated on the
inst & he wsnt able to recover = so notice shldnt be necessary right?
Binghampton: were saying at the day of maturity, they had sufficient amtn of credit
in Chickasaw bank
o
This is impt bec Chicksaw failed to pay
o
So they were contending that theyre released frm liab bec they ddnt present
the note for payment to the bank
The oblig of the MRK isnt a conditional promise to pay only at a spcl place, but is a
promise to pay generally, even tho a place of payment is made
Chickasaw isnt regarded as a DEE bank just coz it was payable at a bank, it ddnt
convert the MKR to a DWR
S87 only gave the bank the right to pay the amnt of the notice (it authorizes him to
pay)
Bighamptons other defense: when they made the inst payable to the bank, it became
an order to the bank to pay it for them
Why dd the Ct have to say that s87 dsnt make the MKR into a DWR?
o
Bec they were raising defenses of a DWR the need for presentment for
payment & that if theres delay in presenting a BOE or check then the DWR is
discharged, to the extent of the loss he suffered
o
But theyre not DWRs, theyre MKRS
o
If on the back, if yopure sig is below youre bound
S119
Renunciation by the H
Renunciation shld be in writing or not in writing but by surrender of the inst to the
primary party
McGlynn v Granstorm
McGlynns defense was 122 on renunciation since the K wsnt in writing, no delivery
of inst to the primary party = Granstorm is discharged
Ct: No
S122 dsnt apply bec the renunciation wsnt in writing, there was no deliver to the inst
What abt s120? S120a applies wc said that if an inst is discharged under s119, it
ceases to have no force & effect so all parties are discharged
Rule: the burden of proving a cancellation was made unintentionally, under mistake,
or wo auth, is on the party alleging such
Roberts v Chappel
Discharge of a prior party refers to a discharge by some act or neglect of the C & dsnt
contemplate a discharge effected by operation of law
No consideration:
F
Renunciation
F
Drilon 37
Ds it presuppose that that prior party paid, after you rcvd notice?
o
Yes, its a pre-cond
Drilon 38