Sec.
63 When a person deemed
indorser. - A person placing his
signature upon an instrument otherwise
than as maker, drawer, or acceptor, is
deemed to be indorser unless he clearly
indicates by appropriate words his
intention to be bound in some other
capacity.
When a person deemed an indorser:
1. Signature on the back of
instrument
2. Evidence of intention to be bound
in some other capacity
WHEN PERSON DEEMED INDORSER
In the absence of any indication
in what capacity a person whose
signature is written on the
instrument intends to be bound,
he shall be deemed as an
indorser
INDICATION TO BE BOUND OTHERWISE
THAN INDORSER
Will not be deemed as an
indorser if he indicates by
appropriate words his intention to
be bound in some other capacity
But anyone who assumes the
responsibility of identifying the
payee of a check is answerable to
the bank cashing the check if the
bank pays its amount to such
payee so identified
Example: X placed his signature upon an
instrument without indicating in what
capacity he was signing. Later, X sought
to show, by parole evidence, his
intention to be bound merely as an
agent. Can X be allowed to do this?
X cannot be allowed to show by parole
evidence that he did not intend to be
bound as an indorser. The law requires
that he indicate by appropriate words
his intention to be bound in some other
capacity on the instrument itself. In the
absence of this indication, X is deemed
an indorser.
ADMISSIBILITY OF PAROL EVIDENCE
The statutory command that the
legal effect of a blank instrument
cannot be changed by parole
proof or by evidence from other
source
The intent to be bound in some
other capacity than as an indorse
must be indicated in the
indorsement or on the face of the
instrument and cannot be shown
by parole
When a person liable as guarantor or
surety:
1. Liability as guarantor
The guarantor cannot be compelled to
pay the creditor unless the latter has
exhausted all the property of the debtor,
and has resorted to all the legal
remedies against the debtor. (1830a)
Below are some points to explain the
liabilities of a guarantor:
The extent of the liability of a
guarantor will be as specified in
the guarantee document.
A guarantor may be held liable
for the liabilities of the borrower
in accordance with the terms of
the guarantee document.
A guarantor can only be rendered
liable under a guarantee if the
borrower is in default of any
payment to the financial
institution and the financial
institution makes a demand on
the guarantor.
2. Liability as surety
Surety - is the accommodation partya
third person who becomes responsible
for the payment of the obligation if the
principal is unable to pay or perform.
The following are examples of words
indicating that the person who signs on
the instrument does not intend to be
bound as an indorser.
a) I hereby guarantee payment of
this instrument.
b) As surety, as guarantor,
c) For identification only
SURETY VS GUARANTOR
The primary difference between a surety
and a guarantor is the time at which a
creditor can collect from each. With
regard to suretyship, the creditor can
look to the surety for immediate
payment upon the occurrence of a
default by the principal obligor or debtor
However, where an individual is a
guarantor, the creditor must first
attempt to collect the debt from the
principal debtor/obligor before
demanding performance from the
guarantor.
Sec. 64 Liability of irregular indorser.
Irregular indorsement - refers to an
indorsement signed by a person who
does not hold the title. The irregular
indorser is not a maker, drawer,
acceptor or regular indorser thereon.
Rules as to liability of irregular or
anomalous indorser:
a) if payable to order of a third
person liable to the payee and
to all subsequent parties
b) if payable to order of the maker
or drawer liable to all parties
subsequent to the maker or
drawer
c) if payable to bearer liable to all
parties subsequent to the maker
or drawer
d) if signs for an accommodation
party liable to all parties
subsequent to the payee
Sec. 65 Warranty; where negotiation by
delivery, etc.
Every indorser makes certain warranties
or guarantees about the instrument, he
is negotiating.
LIABILITY DISTINGUISHED FROM
WARRANTIES
The primary and secondary liability
makes the parties liable to pay the sum
certain in money stated in the
instrument. While warranties are
affirmations of fact on the part of the
parties that impose no direct obligation
to pay in the absence of breach thereof.
In case of breach of warranties, the
person who breached the same may (1)
either be liable; or (2) he may be barred
from asserting a particular defense.
Unlike secondary liability which requires
a notice of dishonor, an action based on
breach of warranty is not so conditioned,
the latter occurring as it does at the
time of the transfer, may be brought at
any time.
Warranties where negotiating by
delivery or qualified endorsement:
1) the instrument is genuine and in
all respect what it purports to be
2) the indorser has good title to it
3) all prior parties had the capacity
to contract
4) Indorser has no knowledge of any
fact that would impair the validity
or the value of the instrument.
Negotiation by delivery
A person negotiating by mere delivery
becomes liable to the holder only when
the holder cannot obtain payment by
reason of the fact that any of the
warranties of the person negotiating by
delivery is or becomes false.
E is not liable to G. Gs right
didnt derive from the
indorsement of F
F is liable to G.
The liability of a person negotiating a
bearer instrument by mere delivery is
the same as the person who negotiates
by qualified indorsement. Both do not
assume to pay the instrument in the
event of its dishonor unless the dishonor
is based on the four implied warranties
enumerated in section 65.
Notes:
A. a qualified indorser is one who
indorses without recourse or sans
recourse
B. a qualified indorser cannot raise
the defense of
forgery
defect of his title or that it
is void
the incapacity of the
maker, drawer or previous
indorsers
C. a qualified Indorsement makes
the indorser mere assignor of title
of instrument ,relieves him of
general obligation to pay if
instrument is dishonored, but he
is still liable for the warranties
arising from instrument only up
to warranties of general indorser
D. the warranty is to the capacity of
prior parties at the time the
instrument was negotiated.
Subsequent incapacity does not
breach the warranty.
E. lack of knowledge of the indorser
as to any fact that would impair
the validity or the value of the
instrument must be subsisting all
throughout.
Example: M makes a promissory note
payable to bearer and delivers the same
to P, who negotiates it to either by
delivery or by qualified indorsement.
If the note is dishonored in the hands of
A due to the insolvency of M, A cannot
recover from P because P does not
warrant Ms solvency.
However, P is liable if the instrument is
forged for he warrants that the
instrument is genuine
Or if P has stolen the note from P for he
warrant he has a good title to it
If M is a minor for he warrants that all
prior parties had capacity to contract
Or if P knew that the instrument was
invalid for want or failure of
consideration or that M was insolvent
but concealed the fact from A for he
warrants that he has no knowledge of
any fact which would impair the validity
of the instrument or render it useless.
F. a person Negotiating by Delivery
warrants same as those of
qualified indorser and extends to
immediate transferees only
M P (by delivery) A (by
delivery) B
Is P liable to B liable to B for
violation of any of the 4
warranties?
No because the warranties of P
extend only to A, his immediate
transferee. A is liable to B.
While a general indorser warrants that
the instrument is valid and subsisting
at the time of his indorsement, the
qualified indorser warrants that he has
no knowledge of any fact which would
impair the validity of the instrument or
render it valueless, and the qualified
indorser does not breach his warranty
even if the instrument was already
impaired at the time he negotiated it,
as long as he has no knowledge of
such fact. A qualified indorser neither
warrants payment nor binds himself to
pay, nevertheless, if judgment for the
amount of the note is defeated by the
maker on the ground that the indorser,
as payee, obtained it by fraud or
without consideration, the holder may
recover from the qualified indorser the
consideration paid by him with interest
(Cressler vs. Brown).
Sale of public or corporate securities
Brokers and other persons
negotiating public or corporation
securities, other than bills and notes
do not warrant the capacity of prior
parties.
X bank sells Municipal bonds to P. Na
void ang bonds by Supreme Court but
X bank is not liable to P. (See Babb &
Martin op cit pp 212-213)
Without recourse
Accommodation Party Sec. 29, p. 20.
The accommodation party lends his parties thereto. He is liable to a holder
name to the accommodated party, to for value as if the contract was not for
enable the latter to obtain credit or to accommodation. It is not a valid
raise money. He receives no part of defense that the accommodation party
the consideration for the instrument did not receive any valuable
but assumes liability to the other consideration. Nor is it correct to say