7/16/2016 SelfMadeRevieweronLawonNegotiableInstruments

SelfMadeRevieweronLawonNegotiableInstruments

NIL(ActNo.2031)
CHAPTER1FORMANDINTERPRETATION
APPLICABILITYOFNIL
ActappliesonlytonegotiableinstrumentsandthosemeetrequirementsinSection1.
AnycasenotprovidedinthisAct,governbyexistinglegislationorindefault rulesoflawmerchant.
3FUNCTIONS&IMPORTANCEOFNI
1.Usedasasubstituteformoney
*NIdiffersfrommoneyNIisvaluable/worthlessdependingonfinancialabilityofpartiestothem
2.Mediaofexchange
3.Mediaofcredittransaction
PURPOSEOFNEGOTIABILITY
AllowmenofUNDOUBTEDcredittocarryonbusinessenterprisewiththeuseofinstrumentsknowingthat
otherbusinessmenwilltreatthispromisesasCASH.
Checkforimmediatepayment
BofE&PNforcirculationofcredits
2CHARACTERISTICS/FEATURESOFNI
1.Negotiabilityquality/attributewhereNIgivetheHDCtherighttoholdNI&collectsumpayableforhimself
FREEfromdefences
*Abonafideholder,FREEfromPERSONALDEFENSES,butmaybesubjecttoREALDEFENSES.
2.AccumulationofSecondaryContracts(astheyaretransferredfromonepersontoanother)
10COMMONFORMSOFNI(bbbbddcpt)
1.BofE
2.Bankcheck
3.Banknotes
4.Bankersacceptance
5.Bonds
6.Drafts
7.Duebills
8.Check
9.PromissoryNotes
10.Tradeacceptance
6INSTRUMENTSW/LIMITEDNEGOTIABILITY
1.LETTEROFCREDIT
letterfrommerchant/bank/bankerinoneplace,addressedtoanother(place/country)requestingthe
addresseetopaymoney/delivergoodsto3rdparty
letterrequestingonepersontomakeadvancesto3rdpersononthecreditofwriter
2.TREASURYWARRANT
govtwarrantforpaymentofmoneycoveringpayment/replenishmentofcashadvancesforofficial
expenditures
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3.POSTALMONEYORDER
4.BILLOFLADING
NOunconditionalpromise/ordertopayasumcertaininmoney
5.CERTIFICATEOFSTOCK
writteninstrumentsignedbyproperofficerofcorporationstatingnameofperson(ownerofdesignated#of
sharesofitsstock)
NOunconditionalpromise/ordertopayasumcertaininmoney
6.WAREHOUSERECEIPT
NOunconditionalpromise/ordertopayasumcertaininmoney
Section1Memorize
NIcontractualobligationtopaymoney
Todeterminethenegotiabilityofaninstrument,considertheff:
1.wholeoftheinstrument
2.onlywhatappearsonFACEoftheinstrument
3.provisionsofNILesp.Section1
MAKERpersonissuingPN
DRAWERpersonissuingBofE
UNCONDITIONALPROMISEPN
UNCONDITIONALORDERBofE
*Wherethemeaningisdoubtful,thecourtsadoptedthepolicyofresolvingINFAVOROFNEGOTIABILITYof
theinstrument.
*ThereisNOORALNI.
*Thesignature(ofmaker/drawer)isaprimafacieevidenceofhisintentiontobebound.
*Ifthesignatureplacedininstrument,UNCLEARwhatcapacitypersonintendedtosigh,heisdeemed
INDORSERnotmaker/drawer.
*NICEASEStobenegotiableiftheINDORSEMENTprohibitsFURTHERnegotiationofinstrument.
Eg.PaytoPedroCruz.
*PLACE&DATENOTESSENTIALtonegotiabilityofinstrumentEXCEPTincases,dateISnecessarytoknow
thedue/interest.
*Insteadofpromisetopay,otheracceptabletermscanbeused:
Iagreetopay
Iwillpay
Ibindmyselftopay
goodtoAororder
duetoAororder
Iacknowledgetobeindebted
*MEREacknowledgmentofdebtw/othewordORDERorBEARER(wordsofnegotiability)DOESNOTsatisfy
negotiability.
*ThewordTOTHEORDEROFandORORDERisapromisetopayasordered/commandedbyPAYEEbutmay
bepayabletoBEARER.
*WhenNOTIMEofpaymentisexpressed,aninstrumentispayableONDEMAND.
*AnotemaybesignedbySEVERALpersonseitherJOINTLYorJOINTLYANDSEVERALLY.

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PNmaker,payee
BofEdrawer,drawee,payee(partiesneedNOTALLbedistinctpersons.Thus,drawermaydrawonhimself
payabletohisownorder.)
December29,2013
Manila
P1000
Thirtydaysafterdate,payto(unconditionalordertopay)toAororderthesumofOneThousand
(P1000)Pesos.Valuereceivedandchargethesameaccountof
(Sgd.)B
ToC
College,Sampaloc
Manila
LEGEND:
Bdrawer
Cdraweenotreallyapartytothebill,assumesliabilityONLYwhenheacceptsthebillusuallybywritingthe
wordACCEPTEDandsignshisnameonthefacewherehebecomesACCEPTORandNOTADRAWEE.By
beingthis(acceptor),hebecomesprimarilyliableliketheMAKERofanoteDRAWERisONLYASURETY
then.
*Thewords(inBofE)CHARGETHESAMETOTHEACCOUNTOFmeansamounttobepaidbyDRAWEEisto
bechargedagainstthefundsofDRAWER.Butthismaybeomitted.
2IDEA&PURPOSEOFBofE
1.DRAWERsfundsinhandsofDRAWEE
2.LiabilityofDRAWEEfornonpayment
IfDRAWEErefusestoacceptwhenhehasfundsforpurpose,heisLIABLETODRAWER(nottoPAYEE)for
resultingdamages&harmdonetohis(DRAWER)credit.
IfDRAWERnofundsinDRAWEE,presumedthatDRAWERmadearrangementswithDRAWEEsohewill
honorthebill.Insuchcase,DRAWEEmustlooktotheDRAWERforreimbursementandNOTTOBONAFIDE
HOLDER.
Section2Certaintyastosum,whatconstitutes
SumpayableisSUMCERTAINalthoughpaid:
w/interest
bystatedinstallments
bystatedinstallmentsw/provisionthatupondefaultinpaymentofanyinstallment/interest,thewholeshall
becomedue
w/exchange,fixed/currentrate
w/costsofcollection/attorneysfeeincasepaymentnotmadeatmaturity
*IfinstrumentcallsforanACTOTHERTHANpaymentofmoneyNOTNEGOTIABLE
*AnotegivingtheMAKERtherighttoascertaintheAMOUNTpayableNONNEGOTIABLE
*ApromisetopayP1000intwoinstallmentsorininstallmentsNONNEGOTIABLE
*AccelerationatoptionofHOLDERNONNEGOTIABLE
*AccelerationatoptionofMAKERNEGOTIABLE
(TheMAKERcanavoidaccelerationbypayingtheinstallmentsontheirduedate)

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*Thepromise/ordertopayw/exchangeNEGOTIABLE
(EXCHANGEchargeforprovidingfunds,maybefixed/currentrateeg.compensatingbalance)
*PaymentinFOREIGNCURRENCYNEGOTIABLE
*Paymentw/EXCHANGERATENEGOTIABLE
applicableonlytoforeignbills
*Ifpaymentnotmadeatmaturity,thenthereisADDEDamountdue(eg.Costofcollection,attorneysfee)
NEGOTIABLE
*AttorneysfeemaybeREDUCEDbycourtsiffoundUNREASONABLEifattorneysfeeNOTspecified,itshall
beinREASONABLESUM.
*AprovisionoftopayALLcosts,chargesandexpensesincurredbyPAYEEinANYlegalproceedingsfor
collectionofdebtNONNEGOTIABLE
*AcquisitionofinstrumentAFTERMATURITY
atransfereeacquiringaninstrumentwhenitisOVERDUEwouldNOTBEHDC&wouldholdinstrument
subjecttodefenses,asifitwereNONNEGOTIABLE.
Section3PromiseisUNCONDITIONALwhen:
INDICATIONofaparticularfundoutofw/creimbursementistobemadeorparticularaccounttobedebitedw/
theamount(NOTdirectsourceofpayment,onlysourceofreimbursement)NEGOTIABLE
statementoftransactionw/cgivesrisetoinstrumentNEGOTIABLE
PromiseisNOTUNCONDITIONALanorder/promisetopayOUTOFparticularfund(directsourceof
payment)NONNEGOTIABLE
*ThetestofNEGOTIABILITYiswhethertheinstrumentcarriestheGENERALPERSONALCREDITof
MAKER/DRAWER.
*ABAREacknowledgmentofindebtedness(eg.IOU,dueAP1000,forvaluereceived)ALONENON
NEGOTIABLE.ButifwordslikeDUEAORORDER,DUEBORBEARERNEGOTIABLEalthoughNOexpress
promissorywords
*InBofE,theremustbeanORDERTOPAYonepartytoanother,OTHERWISE,itisNONNEGOTIABLE.
ORDERcommand/imperativedirection
*AMERErequestISNOTanORDER.
(eg.Irequestyoutopay,Iwishyouwouldpay,Iauthorizeyoutopay)
*TheMEREuseofPOLITEwordslikePLEASEdoesNOTconvertORDERintoREQUEST.
*TheNOTE/BILLmustbepayableABSOLUTELY.
*ItisIMMATERIALwhethertheDRAWEEobeystheordertopayornot.TheNEGOTIABILITYofabill
DEPENDSupontheTERMSOFORDER.TheDRAWERhashisliabilityunderthelaw.
*IfthereisCONDITIONorsubjecttoCONTINGENCYNONNEGOTIABLE
*IflanguageusedisAMBIGUOUSorOBSCURE,courtsusuallydecideINFAVOROFNEGOTIABILITY.
*AMERErecitalofconsiderationforinstrumentisSTILLUNCONDITIONALNEGOTIABLE(statementmerely
identifiesthetransactionw/cgivesrisetoinstrument)
(eg.IpromisetopaytoorderofP1000beingthepriceofthecarthisdaysoldanddeliveredtomeasperour
contractaccordancew/ourcontract)
*Ifpromise/orderissubjecttoTERMSANDCONDITIONSNONNEGOTIABLE
(Asalreadystated,thenegotiabilityofinstrumentistobedeterminedbywhatappearsonitsFACEANDNOT
ELSEWHERE.)

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Section4Determinablefuturetime,whatconstitutes
fixedperiodafterdate/sightNEGOTIABLE
on/beforeafixedordeterminablefuturetimespecifiedNEGOTIABLE
ON/AFTER(fixedperiod)theoccurrenceofaspecifiedeventw/cisCERTAINtohappen,notknownwhen
NEGOTIABLE(eg.Deathoffather)ifBEFORENONNEGOTIABLE
*Aninstrumentpayablew/CONTINGENCY(anuncertainfutureevent,oraneventw/cmayormaynothappen)
isNONNEGOTIABLE,andthehappeningoftheeventDOESNOTcurethedefect.
DEMANDINSTRUMENTpaymentatanytime
TERMINSTRUMENTpayabeonlyUPONARRIVALoftimeforpayment
AFTERSIGHTmeansAFTERtheinstrumentisSEENbytheDRAWEEuponpresentmentofacceptance
DETERMINABLEFUTURETIMEmeansatimethatcanbeDETERMINEDW/CERTAINTYAFTERexecution
ofinstrument
Section5AdditionalprovisionsstillNEGOTIABLE:
authorizesSALEOFCOLLATERALsecurities
authorizesaCONFESSIONOFJUDGMENT(writtenacknowledgmentbydefendantofhis
indebtedness/liabilitytoplaintiff)ifnotpaidatmaturity
waivestheBENEFITOFANYLAWintendedforadvantage/protectionofobligor.
(eg.PaybearerP1000.Noticeofdishonorwaived.)
givesHOLDERtheelectiontorequiresomethingtobedoneinlieuofpaymentofmoney
(eg.IpromisetopayP1000toAororderoranairconditionerattheoptionoftheholderNEGOTIABLE
IpromisetopayP1000toAororderorairconditionerNONNEGOTIABLEbecauseHOLDERcannot
COMPELhimtomakepaymentinMONEY)
Section6OMISSIONSSEALPARTICULARINMONEY
StillNEGOTIABLE:
NODATE
(Ifthereisadatestatedbutthereisnosuchdateincalendar,thelawwilldeemtheNEARESTDATEofthe
monththedateintendedeg.NotedatedApr31willbeconstruedtobeintendedforApr30)
NOVALUEgiven
(eg.NOwrittenforvaluereceived)
NOPLACEwhereitisdrawnorispayable
(Aninstrumentthatdoesnotspecifytheplaceofpaymentispresumedtobepayableatthe
place/residence/businessofMAKER/DRAWER.)
WITHSEAL
DesignatesaPARTICULARKINDofcurrentmoneyaspayment
(eg.IpromisetopayAororderP1000inCentralBankoffiftypesobills.)
Section7PayableonDEMANDwhen:
EXPRESSEDtobepayableONDEMAND,atsight,oronpresentation
NOTIMEforpaymentisexpressed
(eg.PaytoAororderP1000)
Wheretheinstrumentisissued,accepted,orindorsedwhenOVERDUE,itis,asregardsthepersonsoissuing,
accepting,orindorsingit,PAYABLEONDEMAND.
*AnOVERDUEinstrumentisaDEMANDpaper.AHOLDERhasimmediaterightofpaymentformoney

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promised/orderedtobepaid.
InsteadofONDEMAND,otheracceptabletermscanbeused:
atsight(usedinBofE)
onpresentation
oncall
atanytimecalledfor
*PAYABLEONDEMANDasregardstheMAKER(lateissuance),theACCEPTOR(latereceived),the
INDORSER(lateindorsed)
Section8InstrumentmaybedrawnPAYABLETOTHEORDERof:
PAYEEnotmaker/drawer/drawee
drawer
(eg.PaytotheorderofmyselfP1000)
ormaker
(eg.IpromisetopaytotheorderofmyselfP1000)
2ormorePAYEESjointly
(eg.PaytotheorderofAandBP1000)
1ormoreofseveralPAYEES
(eg.PaytotheorderofAorBP1000)
HOLDEROFANOFFICEatthetimebeing
(eg.PaytotheorderoftheCommissionerofBIR)
*AninstrumentisPAYABLETOORDERwhereitisdrawnpayable:
1.totheorderofaspecifiedperson
2.tohimorhisorder
Consequently,aninstrumentpayabletoaSPECIFIEDperson(eg.PaytoA)isNONNEGOTIABLEasthe
promise/orderisLIMITEDtopayingoneperson.
*totheorderof,ororder,toAandhisassignscanbeused.
*NOPAYEE,notnamed,notdescribedNONNEGOTIABLEbecausetherewouldbenobodywhocould
indorsetheinstrumentandnobodywhocouldgivetheorderorauthoritytocollect.
Section9PAYABLETOBEARERWHEN:
ExpressedtobeSOPAYABLE.
(Butaninstrumentpayabletobearer,AisNONNEGOTIABLE,sincethewordBEARERinsuchcase
describesA,therefore,payabletoADEFINITEPERSONONLY)
PayabletopersonnamedthereinorBEARER.
(eg.PaytoAorbearerP1000PaytoBorholderP1000)
PayabletoorderofFICTITIOUSPERSONandsuchfactwasKNOWNtopersonmakingitsopayable.
(eg.PaytoKingKongororderP1000)
*ThebillisPAYABLETOBEARERandNOTTOORDERbecauseKingKongisafictitious(feigned/pretended)
person.
NameofPAYEEisnotnameofanyperson.
(eg.PaytotheorderofQueenofPlanetVenus)
(eg.Paytocash,Paytomoney,Paytosundries)
*TheintentionoftheDRAWERistomaketheinstrumentaBEARERPAPERnegotiablebydelivery.

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Only/lastINDORSEMENTisindorsementinBLANK.
*ThewordINDORSEMENT,asusedinthelaw,refersonlytoNI.
Section10Terms,sufficientwhen:
CLEARLYINDICATETHEINTENTIONtoconformtherequirementsthereof.
*AMEREdefectinlanguage/grammaticalerrorstillNEGOTIABLE
Section11Presumptionastodate
IfinstrumentBEARSADATE,itisPRESUMEDtobetheTRUEDATE(primafacie)madebymaker,drawnby
drawer,acceptedbydrawee,orindorsedbypayee/holder.
*HewhoclaimsthatsomeotherdateisthetruedatehastheburdentoESTABLISHtheCLAIM.
Section12AntedatedandPostdated
InstrumentisVALIDalthoughitisANTEDATED(earlierthantruedate)orPOSTDATED(laterthantruedate),
providedthatitisNOTDONEforillegal/fraudulentpurpose(eg.Bouncingcheck,NSF).
ThepersonTOWHOManinstrumentisdatedisdeliveredacquirestheTITLEtheretoasofthedateofdelivery.
TheANTEDATED/POSTDATEDmaybenegotiatedBEFORE/AFTERthedategivenaslongasitisNOT
NEGOTIATEDAFTERITSMATURITY.
Section13Datemaybeinsertedwhen:
1.aninstrumentispayableatafixedperiodAFTERDATEbutisISSUEDUNDATED,
2.aninstrumentispayableatafixedperiodAFTERSIGHTbuttheACCEPTANCEisUNDATED
ANYHOLDERmayinsertthereinthetruedateofissue/acceptanceandtheinstrumentshallbepayable
accordingly.
TheinsertionofaWRONGDATEDOESNOTavoidtheinstrumentinthehandsoftheSUBSEQUENTHDCbut
astohimthedatesoinsertedistoberegardedastheTRUEDATE.
*TheinsertionofWRONGDATEconstitutesMATERIALATERATION.
Section14INCOMPLETEandDELIVERED(personaldefense)
(4)RULES
1.AUTHORITYTOFILLUPTHEBLANKS
TheHOLDER/personinpossessionhasprimafacieauthorityTOCOMPLETEanINCOMPLETE
INSTRUMENTbyfillinguptheblankstherein
ThelawspeaksofMATERIALPARTICULAR(blanksfordate,duedate,nameofPAYEE,amount,rateof
interest)maybefilledin.IthasbeenheldthateventheblankforthenameoftheDRAWERmaybefilledup.
*Theauthoritytocompleteisnotanauthoritytoalter.So,theHOLDERhasNOAUTHORITYtochangethe
amountafterithasbeenfilledin,ortoinsertthewordsORORDERorORBEARERafterthenameofthe
PAYEE.
2.AUTHORITYTOPUTANYAMOUNT
AsignatureonaBLANKpaperdeliveredinordertobeconvertedintoaNIisaprimafacieauthoritytofillitup
assuchforanyamount.
3.RIGHTAGAINSTPARTYPRIORTOCOMPLETION
Ifaninstrumentisincompletewhendelivered,theHOLDERhasprimafacieauthoritytofilluptheblanks
thereon.
Ifablankpaperisdeliveredbythepersonmakingthesignature,theHOLDERhasprimafacieauthoritytofillit
upforanyamountifthepersonmakingthesignatureINTENDEDTOCONVERTitintoNI.
Ineithercaseoftheabove(2)situations,thepresumptionisthattheBLANKwasfilledinACCORDANCEW/

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THEAUTHORITYGIVENandW/INREASONABLETIME.
4.RIGHTOFHDC
notenforceablepersonaldefenses
Theruleisfoundedupontheprinciplethatwhereoneof2personsmustsufferbythebadfaithofanother,the
lossmustfallupontheonewhoFIRSTREPOSEDconfidenceandmadeitpossibleforthelosstooccur.
Section15INCOMPLETEandUNDELIVERED(realdefense)
WhenanINCOMPLETEinstrumentisUNDELIVERED,ifcompleted&negotiatedw/oauthority,beaVALID
CONTRACTinthehandsofANYHOLDER,asagainstanypersonwhosesignaturewasplacedthereonbefore
delivery.
Intheabsenceofanydelivery,theinstrumentthoughcompleteinallparticulars,thereisNOCONTRACT.
(2)RULES
1.DEFENSEEVENAGAINSTHDC
LawisspecificthatinstrumentisNOTaVALIDCONTRACTinthehandsofanyHOLDERevenHDC.
2.DEFENSEAVAILABLETOPARTIESPRIORTODELIVERY
Theinvalidityoftheinstrumentisonlyw/referencetothepartieswhosesignaturesappearontheinstrument
BEFOREandNOTAFTERDELIVERY.
(eg.A(maker)P(steals)BCDInstrumentcanbeenforcedagainstP,B,Cbecause,asindorsers,they
warrantthattheinstrumentisGENUINEandinallrespectswhatitpurportstobe,etc.Astheirsignatures
appearontheinstrumentafterdelivery,theinstrumentisvalidastothemIncaseofP,heisliablenotmerely
becauseheisanindorserbutalsobecauseheistheoneresponsibleforthetheft,andthecompletionand
negotiationoftheinstrument.)
Section16COMPLETEandUNDELIVERED(personaldefenses)
(4)RULES
1.UNDELIVEREDEverycontractonNIevenifitiscompletelywrittenisINCOMPLETEANDREVOCABLE
UNTILitisdeliveryforthepurposeofgivingiteffect.
a.DELIVERYtransferofpossession,actual/constructive,fromonepersontoanother.Itmaybemadeeither
bythemaker/drawerhimselforthroughadulyauthorizedagent.
b.ISSUEFIRSTdeliveryoftheinstrument,completeinform,toapersonwhotakesitasHOLDER.
C.HOLDERPAYEE/INDORSEEofbill/notewhoisinpossessionofit,ortheBEARERthereof.
2.INPOSSESSIONOFPARTYOTHERTHANHDC
IfacompleteinstrumentisfoundinthepossessionofanIMMEDIATEPARTY(knowtheconditions/limitations
placedupondeliveryofinstrument)oraREMOTEPARTY(indirectcontractualrelationtoeachother)otherthan
HDC,thereisprimafaciepresumptionofdeliverybutsubjecttorebuttal.
AnUNDELIVEREDinstrumentisINOPERATIVEbecauseDELIVERYisaPREREQUISITEtoLIABILITY.
However,ifinstrumentisNOLONGERinthepossessionofthepersonwhosigneditanditisCOMPLETEinits
terms,aVALIDANDINTENTIONALdeliverybyhimisPRESUMEDuntilthecontraryisproved.
3.DELIVEREDUNCONDITIONALLYORFORASPECIALPURPOSE
Ifdeliverywasmade/authorized,itmaybeshowntohavebeenconditional,orforaspecialpurposeonlyand
notforthepurposeoftransferringtheproperty(title)totheinstrument.
Whendeliveryismade,itispresumedtobemadew/theintentiontotransferownershipoftheinstrumentto
thepayee.
(eg.AdeliversthenotetoBonconditionthatitwillnotbebindingonhimUNTILcomakerhasbeenprocured

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orforsafekeeping,orforcollectiononly.
BcannotenforcetheinstrumentagainstAbecauseAcansetupthedefensethatthedeliverywasconditionalor
foraspecialpurposeonlyandnotforthepurposeoftransferringtitletotheinstrument.
4.INTHEHANDSOFHDC
IfaCOMPLETEinstrumentisinthehandsofHDC,avaliddeliverythereofbyallpartiesPRIORtohimis
CONCLUSIVELYPRESUMED.
ApresumptionissaidtobeCONCLUSIVEwhenitadmitsofnoevidencetothecontrary
Section17ConstructionwhereinstrumentisAMBIGUOUS
a.SumpayableexpressedbothinWORDSandinFIGURES,andthereisdiscrepancybetweenthetwo,SUMin
WORDSisSUMPAYABLEbutifWORDSareAMBIGUOUS/UNCERTAIN,FIGURESmaybethereference.
b.Instrumentw/interestbutNODATEspecifies,interestrunsfromthedateofinstrumentifinstrumentis
UNDATED,fromissuethereof.
c.InstrumentUNDATED,consideredtobedatedasoftimeitwasISSUED.
d.ConflictbetweenWRITTENandPRINTEDprovisionsofinstrument,WRITTENprovisionsprevail.
*Thereasonfortheruleisthatthewrittenwordsaredeemedtoexpressthetrueintentionofthe
MAKER/DRAWERbecausetheyareplacedtherebyhimselfw/oanyparticularcontractinview.
e.InstrumentisAMBIGUOUSwhethernoteorbill,theHOLDERmaytreatitasEITHERatHISELECTION.
f.SignatureplacedininstrumentUNCLEARwhatcapacitypersonmakingthesameintendedtosign,heis
deemedINDORSER.
*Signatureof:(usually)
MAKERlowerrighthandcorner
DRAWEElowerlefthandcorner
HOLDERback
g.InstrumentcontainwordsIpromisetopaysignedbyTWOORMOREPERSONS,theyaredeemedtobe
JOINTLYANDSEVERALLYLIABLEthereon.
*Ipromisetopaysignedby2ormorepersonsSOLIDARYLIABILITY(anyoneofthesignersmaybeheld
liableforthewholeamountofinstrument)
*Wepromisetopaysignedby2ormorepersonsJOINTLIABILITY(thereareasmanydebtsarethereare
debtors,eachdebtbeingconsidereddistinctandseparatefromeachother)
Section18Liabilityofpersonsigningintradeorassumedname
GENERALRULE:OnlypersonswhosesignaturesappearonaninstrumentARELIABLEthereon.
EXCEPTIONS:
a.Whereapersonsignsinatradeorassumedname.
b.ThePRINCIPALisliableifadulyauthorizedagentsignsonhisownbehalf.
c.Incaseofforgery,theFORGERisLIABLEevenifhissignaturedoesnotappearontheinstrument.
d.WhentheACCEPTORmakeshisacceptanceofabillonaSEPARATEpaper.
e.WhereapersonmakesaWRITTENpromisetoACCEPTaBILLBEFOREitisdrawn.
Section19Signaturebyagentauthorityhowshown
TheMAKER/DRAWERmaysigntheinstrumentPERSONALLYorbyanotherDULYAUTHORIZEDbyhim.
TheauthorityoftheAGENTmaybeshown,asinothercasesofagency,tohavebeengivenORALLYorin
WRITINGsubjecttotheprovisionsoftheSTATUTEOFFRAUDS.IthasbeenheldcompetentfortheAGENTto
signsimplythePRINCIPALSNAMEandtoshowhisauthoritytodosobyotherevidence.

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Section20Liabilityofpersonsigningasagent,etc.
(3)WhenagentMAYESCAPEpersonalliability:
1.Heisdulyauthorized
2.HeaddwordstohissignatureindicatingthathesignsASANAGENT,thatis,fororonbehalfofaprincipal,or
Iarepresentativecapacity
3.HediscloseshisPRINCIPAL.
*TheMEREadditionofDESCRIPTIVEWORDSw/oDISCLOSINGthePRINCIPALwillnotrelievesignerfrom
personalliability,althoughheaddtohissignaturethewordAGENT,TRUSTEE,ADMINISTRATOR,GUARDIAN,
orDIRECTOR(wordsaddedarebutdescriptionpersonaedescribingthepersonwhosignedtheinstrument)
Section21EffectofsignaturebyPROCURATION
PROCURATIONactbyw/caPRINCIPALgivespowertoanothertoactinHISPLACEashecouldhimself.
hasspecialandtechnicalmeaninggivesaWARNINGthattheAGENThasbutaLIMITEDAUTHORITYso
thatITISthedutyofthepersondealingw/himtoINQUIREintotheextentofhis(AGENT)authority.
*ThePRINCIPALisNOTBOUNDiftheagenthasexceededtheACTUALLIMITSofhisauthority,althoughhe
mayactedw/inthegeneralscopeoftheagency.
(eg.Asignaturebyprocurationmaybemadeasfollows:
AMercado
PerProcuration:BSanMiguel
Insteadofperprocuration,perproc.,P.P.,orppmaybeused.
Section22EffectofindorsementbyINFANTorCORPORATION
Theindorsement/assignmentoftheinstrumentbyacorporationorbyaninfantPASSESthepropertytherein,
notwithstandingthatfromwantofcapacity,thecorporationorinfantmayincurNOLIABILITYthereon.
EFFECTOFINDORSEMENTBYINCAPACITATEDPERSONS
1.MINORS
Asageneralrule,contractsenteredintobyaminorAREVOIDABLEathisinstanceorattheinstanceofhis
guardian.
a.WhileMINORNOTBOUNDbyhisindorsementforlackofcapacity,heCANTRANSFERcertain
RIGHTS.MinorityisarealdefenseavailabletoMINOR.
b.AMINORmaybeBOUNDwhereheisguiltyofACTUALFRAUDcommittedbyspecificallystating
thatheisofage,when,infactheisnot.
2.OTHERINCAPACITATEDPERSONS
Asfarassuchpersons(incapacitated,insane,demented,deafmutes,etc)areconcerned,THEIRCAPACITY
ISAREALDEFENSE,thatis,availableevenagainstHDC.
EFFECTOFINDORSEMENTBYACORPORATION
Asregardscorporations,Section22appliestocaseswherecorporationhascommittedultraviresacts(acts
beyonditspowers).
IthasbeenheldthatacorporationISNOTLIABLEonnotesinasuitthereonbyanindorsee,wherethe
corporationisWITHOUTCAPACITYtomakethecontractinfulfilmentofw/ctheyareexecuted.
Section23EffectofFORGEDsignature
FORGERYcounterfeitmakingorfraudulentalterationofanywritingw/INTENTTODEFRAUD(eg.Signingof
anothersnamealterationofaninstrumentinthename,amount,descriptionofpersonandthelike)
aREALDEFENSEevenagainstHDC

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(2)CaseswhereSIGNATUREiswhollyINOPERATIVEandNORIGHTcanbeacquiredthroughthe
FORGEDSIGNATURE:
1.WheresignatureoninstrumentisaffixedbyonewhoDOESNOTclaimtoactasanagentandwhohasNO
AUTHORITYtobindthepersonwhosesignaturehehasforgedand
2.WheresignatureisaffixedbyonewhopurportstobeanAGENTBUTNOAUTHORITYtobindtheALLEGED
principal.
(2)CASESOFFORGERYINGENERAL
1.ForgeryofPROMISSORYNOTES
indorsementofthenote
MAKERssignature
2.ForgeryofBILLSOFEXCHANGE
indorsementofthebill
DRAWERssignature(eitherw/acceptancebyDRAWEEorw/osuchacceptancebutthebillispaidby
DRAWEE)
*Section23DOESNOTpurporttodeclaretheinstrumentTOTALLYVOIDnortheGENUINEsignaturesthereon
INOPERATIVE.ITISONLYTHEFORGED/UNAUTHORIZEDSIGANTUREthatisdeclaredtobeINOPERATIVE.
Inotherwords,RIGHTSMAYSTILLEXISTandbeenforcedbyvirtueofsuchinstrumentastothosewhose
signaturetheretoarefoundtobegenuine.
MPA,X(obtainspossessionofnoteandforgedAssignature)BC
CcannotenforcetheinstrumentagainstMandPbecauseCsrightsagainstthemareCUTOFFbythe
FORGEDSIGNATUREofAw/cisWHOLLYINOPERATIVE.
NeithercanCenforcethenoteagainstAbecauseAssignatureiswhollyinoperative.ChasNORIGHT
toretain,discharge,orENFORCEPAYMENTOF,thenoteUNDERtheforgedsignatureofA.
ButCmaygoagainstBwhosesignatureisGENUINEandtherefore,OPERATIVE.BisaGENERAL
INDORSERwhowarrantedtoCthattheinstrumentisGENUINEandwasVALIDandSUBSISTING
(existing)atthetimeofBsindorsement.
Ofcourse,BorChasarightofrecourseagainstX,theforger.
AcanrecoverfromMandPbecausehisrightsagainstthemWERENOTaffectedbyforgery.The
signatureofMandParegenuineandtheyareliabletoAontheircontract.
2EXCEPTIONSTOTHEGENERALRULETHATNORIGHT/TITLECANBEACQUIREDTOANNITHROUGH
ORUNDERAFORGED/UNAUTHORIZEDSIGNATURE
1.IfthepartyagainstwhomitissoughttoenforcesuchrightisPRECLUDED(stopped)fromsettingupforgery
orwantofauthorityand
2.WhereforgedsignatureisNOTnecessarytotheHOLDERSTITLEinw/ccasetheforgerymaybe
DISREGARDED.
(2)PERSONSPRECLUDEDFROMSETTINGUPTHEDEFENSEOFFORGERY
1.Thosewhobytheiracts,silence,ornegligenceareestoppedfromsettingupthedefenseofforgeryand
2.Thosewhowarrant/admitthegenuinenessofthesignaturesinquestion,namely:
a.indorsers
b.acceptors
c.personsnegotiatingbydelivery
READpp.7677

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(4)RIGHTSOFPARTIESINCASESOFFORGEDINSTRUMENTS
1.Wherenotepayabletoorder
WherethenoteispayabletoORDER,thepartywhoseindorsement(inoperative)isforgedISNOTLIABLEto
anyholderevenHDC.
Theotherparties(includingtheMAKER)priortothepartywhosesignatureisforgedARENOTALSOLIABLE
toANYHOLDER.Theinstrumentbeingpayabletoorder,canbenegotiatedONLYBYINDORSEMENT
COMPLETEDBYDELIVERY.Butsincetheindorsementisforged,itisINOPERATIVE,andtherefore,cannot
operatetotransferANYRIGHT/TITLEovertheinstrument.
2.Wherenotepayabletobearer
Wherethenote,mechanicallycomplete,isoriginallypayabletobearer,thepartywhoseindorsementisforged
isLIABLEtoHDCbutNOTtoonewhoISNOTHDC.
Theotherparties(includingtheMAKER)priortothepartywhosesignatureisforged,MAYALSOBEHELD
LIABLEbyonewhoisNOTHDC.
Thereasonisthattheinstrumentbeingoriginallypayabletobearer,itcanbenegotiatedbyMEREDELIVERY
evenw/oindorsement.Hence,eveniftheindorsementisforged,theFORGERYMAYBEDISREGARDED.
3.Wherebillpayabletoorder
WherethebillispayabletoORDER,thepartywhoseindorsement(inoperative)isforgedISNOTLIABLEto
anyholderevenHDC.
a.IfDRAWEEpaysunderaforgedindorsement,DRAWERNOTLIABLEonthebillandDRAWEE
maynotdebittheDRAWERsaccount.
b.Where,however,checksreceivedMERELYFORCOLLECTIONanddeposit,thebank,asagent,
CANNOTBEEXPECTEDtoknow/ascertaintheGENUINENESSofallPRIORindorsements.
4.Wherebillpayabletobearer
IncasethebillisoriginallypayabletoBEARER,theDRAWEEmaydebittheDRAWERsaccountinspiteofthe
forgedindorsement.ThereasonisthattheforgedinstrumentisNOTNECESSARYtothetitleoftheholder.The
DRAWEEcannotrecoverfromtheHOLDER.
Section30Whatconstitutesnegotiation
NegotiationtoconstitutethetransfereetheHOLDERthereof
2METHODSOFNEGOTIATION
1.BEARERdelivery
2.ORDERindorsementthendelivery
*ANYpersoninpossessionofBEARERinstrumentisALWAYSthebearerthereof,althoughhemayhaveNO
legalRIGHTthereto.Meaning,ifinstrumentisnegotiatedtoHDC,thelattermayacquireBETTERRIGHTthan
transferor.
*NONEGOTIATIONifthetransferdoesNOTmakethetransfereetheHOLDERofinstrument.
(eg.IfMmakesanotepayabletoPororder,thenPdeliversw/oindorsementtoA,negotiationisNOTaffected
becauseA,bysuchtransfer,DOESNOTbecometheHOLDER.)justanordinaryASSIGNMENTbecauseitis
ORDERinstrumentbutNOTindorsed.
*PAYMENTofcheck(orotherbill)bydraweebankisNOTNEGOTIATIONanddoesNOTmakebankthe
HOLDERBANKisnotthepayeeorindorseecheckisEXTINGUISHEDandCANNOTbeputincirculation
againtobindthedrawerorindorser.
*ThewritingofHOLDERsnameonthebackofthecheckbeforesurrenderingforPAYMENTtodraweebankis

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NOTINDORSEMENT.SignaturemerelyservesasRECEIPTOFMONEY.Uponpayment,theCHECKbecomes
merelyaVOUCHER,NOTatransferofTITLEthereto.
3BASICMETHODSTOTRANSFERNI
1.ISSUE1stDELIVERYofinstrumentCOMPLETEinformtoapersonwhotakesitasHOLDER
1stTRANSFERofinstrumenttoPAYEE
2.NEGOTIATIONtoconstitutethetransfereetheHOLDERthereof
3.ASSIGNMENTassigneeisplacedinthepositionofassignorassigneeacquiresinstrumentsubjectto
personalandrealdefensesavailableagainstassignor
*NIcanbeNEGOTIATEDorASSIGNEDNONNIcanonlybeASSIGNED/TRANSFERRED,NOTnegotiated.

*IndorsementNOTONLYmodeoftransferbutalsoinvolvesNEWCONTRACTandOBLIGATIONonpartof
INDORSERanIMPLIEDguarantythatinstrumentbepaidaccordingtotermsthereof.

NEGOTIATION ASSIGNMENT

OnlytoNI Allcontracts

TransfereeisHOLDER Transfereeis
ASSIGNEE

HDCREALdefenses ASSIGNEE
PERSONALandREAL
defenses

MayacquireBETTER Merelystepsinshoes
titlethanPRIORparty ofASSIGNOR

GENERALINDORSER ASSIGNORdoesNOT
warrantsSOLVENCYof warrantSOLVENCYof
PRIORparties priorparties(unless
stipulatedor
INSOLVENCYknownto
him)

INDORSERNOT ASSIGNORISLIABLE
LIABLE(unlessthereis evenw/oNOTICEOF
PRESENTMENTand DISHONOR
NOTICEofDISHONOR)

GovernedbyNIL GovernedbyCIVIL
CODEonassignmentof
credits

CantherebenegotiationtoaPAYEE?
MAKER/DRAWERPAYEEpayeeacquirestitlebyISSUANCE,NOTnegotiation

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MAKER/DRAWERAGENTofMAKER/DRAWERPAYEEpayeeacquirestitlebyNEGOTIATION
*Ifnegotiationreferstoinstrumentalreadycompletelyexecuted/ISSUED,thenONLYHOLDERSSUBSEQUENT
TOPAYEEcanacquiretitlebyNEGOTIATION.
*ThereisNEGOTIATIONalsotoPAYEEwheninstrumentdeliveredBACKtohimbyLASTHOLDER.(Insuch
case,indorsementofLASTHOLDERnotnecessarybecausePAYEEisremittedtohisFORMERRIGHTS,and
allinterveningpartiesareDISCHARGEDfromLIABILITY.)
Section31Indorsementhowmade
IndorsementbewrittenonINSTRUMENTitselforuponpaperattached(allonge)thereto.
SignatureofINDORSER,w/oadditionalwords,isSUFFICIENTINDORSEMENT.
INDORSEMENT(fromLatinindorsawritingontheback)writingofindorsersnameontheinstrumentw/
theintentEITHER1.)totransferTITLEtothesame,or2.)toSTRENGTHENsecurityofHOLDERbyassuming
contingentliabilityforitsfuturepayment,ORBOTH.
*Indorsementw/odeliveryconveysNOTITLEandNOHOLDER.
NECESSITY(SIGNIFICANCE)OFINDORSEMENTS
1.EssentialtotheexecutionandforFURTHERNEGOTATIONofORDERinstrument.
(eg.Notepayable:totheorderofP,PmustindorseitBEFOREitcanbefurthernegotiated)
2.NotnecessarytoamereASSIGNMENT.
(Thus,onecanacquiretitlew/oindorsementofORDERinstrumentbutheCANNOTbeHDCthereofalthough
entitledtoindorsementmade.)
3.DeterminesSUBSEQUENTnegotiationsortransferofinstrument.
(Indorsementmaydeterminewhetheranotherindorsementcanbefurthernegotiated[specialindorsement]
w/indorseename
orNOfurtherindorsementrequiredfornegotiationbecauseitisconvertedintoaBEARERinstrument
negotiatedbyDELIVERY[blankinstrument]w/indorseesignatureonly
orRESTRICTEDforfurthernegotiation[restrictiveindorsement]w/additionalwordsw/cprohibit/limit
furthernegotiation)
FORMOFINDORSEMENT
LawdoesNOTrequireEXCLUSIVEFORMbyw/cindorsementbeaccomplishedbutitmustbeINWRITING.
Justlikesignatureofmaker/drawer,INDORSEMENTmaybewritteninINK,PRINTED,(RUBBER)STAMPED,
TYPEWRITTEN,oranymeansthatwillcreateamark.
LOCATIONOFINSTRUMENT
1.Oninstrumentitself
*Asamatterofpractice,indorsementisWRITTENATTHEBACKofinstrument(referredtoasdorsalportionof
instrument)butitmaybewrittenontheface(althoughitwouldentailriskofbeingheldliableascomaker[PN]
orcodrawer[BofE].
2.Uponpaperattachedthereto(allonge)
*Apaperthatismerelyclipped/pinnedtoaninstrumentisNOTanALLONGE,andanythingwrittenonit
CANNOTbeconsideredasINDORSEMENT.Accordingly,personinpossessionofinstrumentisNOTthe
HOLDER.
*Ifthereisstillspaceforindorsements,theuseofALLONGEshouldbeavoidedsoasnottocause
CONFUSIONonORDEROFLIABILITYofindorsers.
Section32Indorsementmustbeofentireinstrument

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(objectofprovision:toavoidmultiplicityofsuits/actionsincourt)
NONEGOTIATIONifindorsementtransferONLYPARTofAMOUNTpayable(notHOLDERbutmerelyisan
ASSIGNEErendersinstrumentNONNEGOTIABLE,NOTPAYEE/BEARERofnote,NOTINDORSEE.
(eg.ThetotalpayableisP10000,PaytoAP8000NOTVALIDNEGOTIATION)
Exceptiontoentirety:Whereinstrumenthasbeenpaidinpart,itmaybeindorsedastotheRESIDUE.
(eg.ThetotalpayableisP10000,P2000isalreadypaid.PaytoAP8000VALIDNEGOTIATION)
NONEGOTIATIONifindorsementtransferinstrumentto2ormoreindorseesseverally.
(eg.PaytoAP8000andpaytoBP2000NOTVALIDNEGOTIATION)
However,thereisVALIDNEGOTIATIONifindorseesareJOINT.
(eg.PaytoAandBP1000VALIDNEGOTIATION)AandBmustBOTHindorseUNLESStheyare
PARTNERS,oroneisauthorizedtoindorseforbothofthem,inw/ccase,onlyonemayindorse.
Section33KindsofIndorsement
5CLASSIFICATIONSOFINDORSEMENT
1.AstotheMETHODSOFNEGOTIATION
Special
Blank
2.AstotheKINDOFTITLETRANSFERRED
Restrictive
Nonrestrictive
3.AstotheSCOPEOFLIABILITYOFINDORSER
Qualified
Unqualified(general)
4.AstothePRESENCE/ABSENCEOFLIMITATIONS
Conditional
Unconditional
5.Otherkindsofindorsements
JOINTpayabletotwoormorepersonsjointly
SUCCESSIVEinsuccessionbyseveralindorserswhoareliableprimafacieinORDERinw/ctheyindorse
REGULARDeliveryIndorsement
IRREGULAR(ANOMALOUS)(placedsignatureinblankbeforedelivery)IndorsementDelivery
FACULTATIVEindorserENLARGEShisliabilitybywritingoverhissignatureaWAIVERofusualdemand
(formalprotest)andNOTICEOFNONPAYMENT(dishonor).
Section34Special,andblankindorsement
SPECIALindorsementw/indorseenamecanbefurthernegotiated.
[eg.PaytoAPaytotheorderofAPaytoAororder(Sgd.)B]
*IfinstrumentoriginallypayabletoORDER,INDORSEMENTNECESSARYforFURTHERnegotiationof
instrument.
*IfinstrumentoriginallypayabletoBEARER,itmaybefurthernegotiatedbyindorsementorevenbymere
deliverybutREMAINSaBEARERinstrumentevenifspeciallyindorsed.(BEARERALWAYSABEARER.)
BLANKindorsementspecifiesnoindorseecanbenegotiatedbyDELIVERYbecauseitbecomesaBEARER
instrument.
[eg.IpromisetopayAororderP10000(Sgd.)B

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A(payee)mayindorsetheinstrumentinblankbySIMPLYwritinghissignatureatBACKofinstrument:
(Sgd.)A]
*IfinstrumentispayabletoORDERonitsfaceandtheONLYorLASTindorsementisinBLANK,itis
CONVERTEDintoBEARERinstrument.
*IfinstrumentispayabletoBEARERonitsface,ANYindorsement,whetherSPECIALorBLANK,doesNOT
changeasBEARERinstrument.(BEARERALWAYSABEARER.)
*ABLANKINDORSEMENTmaybenegotiatedbydelivery,orbyindorsementanddelivery.
However,ORDERinstrumentSPECIALLYINDORSEDAFTERBLANKINDORSEMENTreacquiresstatusas
ORDERINSTRUMENT.
(eg.ORDERinstrumentindorsed:SPECIALSPECIALBLANK(becomesaBEARERinstrument)
SPECIAL(becomesORDERinstrument,again)SPECIAL)
Section35BlankSPECIAL
DonebywritingAPPROPRIATEwordsOVERthesignatureofindorserinblank.
TheINDORSEECANNOTaddtotheindorsementANYcontractINCONSISTENTw/characterofindorsement.
(eg.AddingprotestwaivedDemandandnoticewaivedWithoutrecourseifsuchwasNOTTHE
INTENTIONofparties.Also,addingIherebyguarantypaymentwillmakeINDORSERLIABLEas
GUARANTORandthusNOTENTITLEDtoNOTICEincaseofDISHONOR.)
*TheINSERTIONofUNATHORIZEDcontractsconstitutesMATERIALALTERATIONandAVOIDS
INDORSEMENT.
[eg.BLANKSPECIAL
MP(special)A(blank)B(beomesBEARER)(ifindorsespecially,negotiationwillbeeffectedonly
indorsement)C(specialindorsee)
Inexample,theindorsementbyPAandABmayappear:
PaytoA
(Sgd.)P
(sgd.)A
B,asHOLDERofinstrumentw/BLANKindorsement,mayPROTECThimselfbyconvertingitintoSPECIAL
indorsement,asforexample,bywritingPaytoB,therebyindorsingittohimself.Thus,theffwillappear:
PaytoA
(Sgd.)P
PaytoB
(sgd.)A
Section36Restrictiveindorsement:
RESTRICTIVEINDORSEMENTRESTRAINSthenegotiabilityofinstrumentforpurposeortotheperson
statedtherein.
a.Prohibitsfurthernegotiationofinstrument.
(becomesNONNEGOTIABLE)
PaytoAonly
PaytoAandtonootherperson
Here,Aistheonlyoneauthorizedtoreceivepayment.
b.ConstitutesINDORSEEtheAGENTOFINDORSER(AGENCYtype:AGENTNOTITLEtoinstrumentholds
instrumentasAGENTofprincipal,therestrictiveindorsersubjecttorestrictiveindorsement.)

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PaytoBforcollection
PaytoBforcollectionandremittance
PaytoBforcollectiononly
PaytoBfordeposit
c.VeststitleinINDORSEEinTRUSTfororuseofsomeotherperson
(TRUSTtype:transfersTITLEtoINDORSEENOTFORHIMSELFbutintrustofforBENEFITofanotherperson
includingINDORSER.TheINDORSEECANNOTNEGOTIATEinstrumentforOWNBENEFITBUTFOR
BENEFICIALOWNER.)
PaytoCintrustforD
PaytoCastrusteeforD
PaytoAformyuse
PaytoCfortheuseofD
MereabsenceofwordsofnegotiabilitydoesNOTmaketheindorsementrestrictive.
*BUTiftherearerestrictivewordsstatedlikeonly,itpreventsfurthernegotiation,becomerestrictive
indorsement,andNONNEGOTIABLE.
Note:Thisisonlyahandfulofreviewer.Ihopethishelps.:)

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