Law On Nego Sundiang Notes

RECITATIONS AND LECTURE NOTES
FROM THE CLASSES OF DEAN JOSE R. SUNDIANG 6. presentment for payment or

dishonor by non-payment
SAN BEDA COLLEGE OF LAW MENDIOLA, MANILA *drawee either pays the bill or refuses
to pay it
7. notice of dishonor
I. GENERAL CONSIDERATIONS
*in case of dishonor, notice of
dishonor is required to be given to
Q: What is a negotiable instrument? persons secondarily liable, informing
A negotiable instrument is a written contract for the payment of them that the maker or
drawer/acceptor refused to pay or
money which complies with the requirements of Section 1, NIL; which by its
accept the instrument
form and on its face is intended as a substitute for money and passes from
hand to hand as money so as to give the holder in due course the right to 8. protest (required only for FOREIGN
hold the instrument free from personal defenses available to prior parties. bills of exchange)
9. discharge
Q: What are the stages in the life of a negotiable instrument?
Q: What are the primary kinds of negotiable instruments?
BILL OF PROMISSORY 1. Promissory Notes
1. the mechanical act of 1. preparation and signing
2. Bills of Exchange
2. issuance, first delivery to the 3. Checks
2. issuance, first delivery to the
3. PROMISSORY NOTE BILL OF EXCHANGE CHECK
3. negotiation, transfer from An unconditional An unconditional order A bill of exchange drawn
person to another so as to 4. presentment for payment promise in writing made in writing addressed by on a bank, payable on
the transferee a dishonor by by one person to one person to another, demand
another, signed by the signed by the person
4. presentment for 5. notice of maker, engaging to pay giving it, requiring the
applicable only to CERTAIN TYPES on demand or at a fixed person to whom it is
bills of exchange, presentment to 6. determinable future addressed to pay on
drawee in order for him to signify time a sum certain in demand or at a fixed
assent to the order of the **presentment for acceptance is money to order or to determinable future
necessary in promissory notes bearer time, a sum certain in
5. acceptance or dishonor by the drawer already knows that he money to order or to
liable to pay, and his liability is bearer
*drawee either accepts or in
the
Q: Are negotiable instruments legal tender?
1|N EGOTIABL E I N ST RUM EN T S – SUN DIANG N OT ES

No; they are not ‘fully guaranteed’ by the government to be -must be presented for payment within -must be presented for payment within
used for the payment of debts, as required by sec.52 of the new central a reasonable time AFTER ITS LAST a reasonable time AFTER ITS ISSUE
NEGOTIATION
bank act. Also, art.1249, NCC specifically states that negotiable papers
and other mercantile documents do not produce the effect of payment
until they are encashed or when through the fault of the creditor, they
have been impaired. (art.1249, NCC; sec.52,NCBA)
Q: What is the difference between a bill of exchange and a promissory
II. NEGOTIABILITY vs. NON-NEGOTIABILITY
note?
Q: What are the essential requisites of a negotiable instrument?
BILL OF EXCHANGE PROMISSORY NOTE
An instrument to be negotiable must conform to the following
- is in the nature of an unconditional - in the nature of an unconditional
ORDER PROMISE requirements:
(a) It must be in writing, and signed by the maker or drawer;
- signed by the DRAWER - signed by the MAKER (b) Must contain an unconditional promise or order to pay a
sum certain in money;
- requires ACCEPTANCE before - acceptance prior to presentment for
presentment for payment payment is not necessary (c) Must be payable on demand, or at a fixed determinable
future time;
Q: Differentiate a bill of exchange from a check? (d) Must be payable to order or to bearer; and
(e) Where the instrument is addressed to a drawee, he must be
BILL OF named therein with reasonable certainty
-may or may not be drawn on a -always drawn on a (sec.1, NIL)
-payable on demand or at a -always payable on Q: How is negotiability determined?

determinable future 1. By considering only what appears on the face of the
instrument
-requires presentment for -presentment for acceptance is
necessary in the case of 2. By ascertaining the presence/absence of the requisites
under sec.1, NIL
-may or may not be drawn on a -drawn on a deposit of funds in 3. By considering the whole of the instrument
of custody of the
-death of the drawer does not -death of drawer revokes the *NB: if what appears on the face of the instrument is
the drawee’s authority to authority to ambiguous, the provisions of Sec.17, NIL should be followed

Q: Does the phrase ‘a sum certain in money’ mean the same thing as a
‘certain sum of money’? Q: What is the effect should the payee fail to give notice of dishonor to
No, they don’t mean the same thing. ‘A sum certain in money’ an endorser?
refers to a fixed amount, whereas ‘A certain sum of money’ makes no The endorser is discharged
reference to a fixed amount.
Q: Does sec.1(e) apply to a promissory note?
Q: would an additional fee to the principal amount payable and stated Obviously not. There is no ‘drawee’ to speak of, in terms of
on the face of the instrument affect negotiability? promissory note
No, the instrument is still negotiable as per sec.2, NIL
Q: Suppose the instrument gives the holder an option to require
Q: what are the requirements for the said installments? something to be done instead of demanding payment in money, is the
1. The number of installments must be stated instrument negotiable?
2. The maturity dates for each installment must be stated Yes, if the HOLDER is the one given the option. If, on the other
hand, it is the DRAWER/MAKER who can choose to do anything other
Q: Suppose the 2nd installment’s maturity date wasn’t fixed? than pay the holder in money, the instrument is not negotiable.
The instrument is still negotiable, the installment shall be *see: sec.3(d), NIL
payable on demand
Q: When can we say that the instrument is still negotiable when it states
Q: the instrument says ‘I promise to pay Juan php100,000 from my salary a source of funds for the payment of the instrument?
in san beda college of law’. Is it negotiable> The general test is to ascertain whether or not the source of
No, the promise is conditional (on the availability of funds), it funds so stated carries the GENERAL CREDIT of the maker or drawer. If
contravenes sec.1, NIL it does, the instrument is negotiable. If it does not, and it merely carries
the credit of a PARTICULAR fund, the instrument is no longer
Q: Is there a difference between the phrase ‘bearer, Juan dela Cruz’ and negotiable.
‘Juan dela Cruz or bearer’? *Recall: one of the essential requisites of negotiability is that
Yes, the former phrase employs the word ‘bearer’ as an the promise or order to pay a sum certain in money must be
adjective, the latter, a noun. Consequently, the former phrase would UNCONDITIONAL
make an instrument non-negotiable.
Q: If an instrument states a particular fund out of which reimbursement
Q: What is the difference between a negotiable instrument and one that is to be made by the drawee, is it rendered non-negotiable?
is non-negotiable? No, what renders the instrument non-negotiable is when the
*Refer to table contained in the notes on Summary of Doctrines, fund for PAYMENT is particularly specified, not one for reimbursement.
pages 1 and 2

There is a difference between a fund for payment and a fund for Q: Who is a ‘ hol de r’ ?
reimbursement. The ‘holder’ is a payee or endorsee in possession of the
instrument. Depending on the TYPE of instrument, the holder is –
*Notice here that negotiability is NOT affected because the 1. A payee or endorsee who is IN POSSESSION of the
order to pay is still unconditional. The drawee must pay, and then later instrument, if the same is an ORDER instrument; or
on reimburse himself. If there aren’t enough funds for reimbursement, 2. The one IN POSSESSION of the instrument, if the same is a
well that’s between the drawer and the drawee. The important thing is BEARER instrument
that the obligation to pay the payee or holder has been met
unconditionally. Q: What is the difference between Negotiability and Assignability?
Q: When do we say that the su m p aya bl e is ‘ ce rta in’ ? NEGOTIABILITY ASSIGNABILITY

Re: CONTRACTS pertains to special kinds pertains to all manner of
When the amount that is to be paid can be determined on the
INVOLVED of contracts (i.e.: those contracts in general
face of the instrument in accordance with Sec.2, NIL involving negotiable
instruments or
Q: when is an instrument payable on demand? (Sec.7, NIL) documents)
Re: AVAILABLE HDC is free from assignee is not immune
DEFENSES personal defenses from defenses between
Q: When is it payable to bearer? (sec.9, NIL) and among prior parties
Re: CAUSE FOR THE cause is presumed cause is presumed
Q: When the only or last endorsement is one in blank, what is the effect? CONTRACTS
Re: LIABILITIES OF endorser is not liable
As per sec.9(e), NIL, the instrument shall be payable to bearer. ENDORSER unless there be
presentment for
Q: Correlating sec.9(e) and sec.40, NIL, what conclusion can be drawn? payment/acceptance
The cardinal rule in negotiable instruments: once a bearer Re: WARRANTIES a general endorser assignor does not
warrants the solvency of warrant the solvency of
instrument, always a bearer instrument. the principal debtor the principal debtor
*If the only or last endorsement is an endorsement in blank, the Re: ACQUISITION OF A a holder may acquire a acquisition of a better
instrument is payable to bearer under sec.9(e). Sec.40, on the other BETTER RIGHT BY better right than the right by the assignee is
hand, states that ‘where an instrument, payable to bearer, is endorsed HOLDER OR prior endorser (i.e. as in precluded subrogation,
ASSIGNEE the case of a HDC under the assignee merely
specially, it may nevertheless be further negotiated by delivery xxx’. This the shelter rule) steps into the shoes of
means that once an instrument is endorsed in blank, it becomes payable the assignor
to bearer, and even if a subsequent endorser endorses it specially, the
instrument is NOT CONVERTED into an order instrument, but remains a Q: If there is no stipulation as to the time of payment, when is the
bearer instrument which can ‘be further negotiated by delivery’. instrument payable?
On demand, as per sec.7, NIL

Q: May a holder treat a bill as a promissory note, even if there is actually
Q: If an instrument has a stipulation as to the CURRENCY which would no ambiguity on the face of the instrument?
be used for payment, is it rendered non-negotiable? Yes, there are 3 instances when, despite the lack of ambiguity,
No, by ‘sum certain in money’, sec.1 does NOT equate ‘money’ the holder may elect to treat a bill of exchange as a promissory note:
with ‘legal tender’. Parties can therefore validly agree that the ‘money’ 1. When drawer and drawee are the same person (i.e.: in the
may be paid in currency other than pesos. case of manager’s or cashier’s check);
2. Where the drawee is a fictitious person; or
Q: Is the phrase ‘pay to X or order’ the same as ‘pay to the order of X’? 3. Where the drawee does not have capacity to act
Not quite. ‘pay to X or order’ means that the instrument is to be (Sec.130, NIL)
paid either to (a) X, the bearer or (b) to whoever X might want to be
paid (i.e.: his order). On the other hand ‘pay to the order of X’ does not,
at face value, include X as a payee but rather the person/s whom X might II. TRANSFER AND NEGOTIATION
order to be paid.
However, it MAY mean the same thing, if X intends to endorse Q: What is meant by ‘ ne gotia tion’ ?
the instrument to himself, make it payable to himself. In that event, the The transfer of the instrument from one person to another so
distinction between the two phrases disappears. as to constitute the transferee the holder thereof (Sec.191)
Q: If the instrument is ambiguous on its face or bears omissions, how do Q: How is negotiation effected?
we construe it? Depending on the type of instrument involved –
In accordance with Sec.17, NIL 1. An ORDER instrument is negotiated by endorsement,
completed by delivery
Q: If it is not clear whether the instrument is a bill or not, what can the 2. A BEARER instrument is negotiated by mere delivery
holder do?
The holder can treat the instrument as either one or the other Q: What is an endorsement?
at his election (sec.17[e]) An endorsement is a transaction effected by writing on the
instrument or on an attached paper thereto (i.e.: an allonge) of one’s
Q: Suppose there is ambiguity as to whether the instrument is a note or own name and signature, specifying to whom or to whose order the
a bill. What is more advantageous to the holder – to treat it as a note, or instrument is to be payable (sec.30, NIL)
as a bill?
As a promissory note, because of the primary liability of the
maker, and the relatively more expedient steps in obtaining the
discharge of the instrument

Q: What are the types of endorsements? 3. RESTRICTIVE
-the endorsement either (a) prohibits
further negotiation; (b) constitutes
1. SPECIAL
the endorsee the agent of the
-specifies the person to whom or to
endorser; or (c) constitutes the
whose order the instrument is to be
endorsee a trustee; if it prohibits
payable
further negotiation, the instrument
-legal effect: for subsequent
ceases to be negotiable
negotiations, the instrument requires
the endorsement of the person so
4. CONDITIONAL
specified
-payment is conditioned by either the
happening or non-happening of an
2. BLANK
event
-does not specify any person to whom
OTHER TYPES OF ENDORSEMENTS -legal effect: the party required to pay
or to whose order the instrument is
*see: sec.36, sec.38, sec.39, may disregard the condition and go
payable
ahead and pay, however, the person
-legal effect: the instrument is payable
who is paid must hold the payment or
to bearer (if it was originally an order
its proceeds IN TRUST, and wait for
instrument, it ceases to be payable to
the event to happen or not. It does, or
order and becomes payable to bearer.
doesn’t, the endorsee/trustee must
After this, it REMAINS a bearer return the money or its proceeds.
BASIC TYPES OF ENDORSEMENTS instrument, even if a subsequent
*see: sec.9(e); sec.40; sec.34, sec.35 endorser endorses it specially)
5. QUALIFIED
-the endorser negatives personal
**important:
liability by writing the words ‘without
an instrument that STARTED OUT as a
recourse’ or ‘sans recourse’ or others
BEARER instrument may be converted
of like import on the instrument
to an order instrument and
-legal effect: the endorser becomes a
reconverted again to a bearer
mere assignor of the title to the
instrument; but once this is done i.e.:
instrument, but negotiability of the
once an order instrument becomes a
same is not impaired
bearer instrument , it stays a bearer
instrument. The only way to simplify it
is that a bearer instrument may only Q: Under sec.40, what is meant by a ‘ fic titiou s p e rs on’ ? Is this
become an order instrument ONCE – to be interpreted literally?
that is, when it was originally made as
No, there is still a person involved, except that this person does
a bearer instrument and subsequently
endorsed specially. If it became a not have any right to the instrument. This is what is meant ‘fictitious’
bearer instrument because of an
endorsement in blank, it can’t be Q: what is material in determining whether a person is ‘fictitious’?
converted to an order instrument.
The intention of the maker
Point of no return, reached.

Q: what is a blank endorsement? (b) That he became the holder of it before it was overdue and
*see: sec.34 without notice that it has previously been dishonored, if such
was the fact;
Q: Under sec.40, why should the special endorsers be held liable, despite (c) That he took it in good faith and for value; and
the fact that the instrument remains a bearer instrument anyhow? (d) That at the time it was negotiated to him, he had no notice
Because of the accumulation of secondary contracts. The of any infirmity in the instrument or defect in the title of the
endorsements made by these people are, in and of themselves, person negotiating it. (sec.52, NIL
contracts for which they may be held liable.
*The prima facie presumption is that every holder of negotiable paper is
Q: Under Sec.38 (ie. qualified endorsement), to whom does the phrase a HDC (sec.59), however, the same presumption may be refuted and in
‘without recourse’ refer to? ‘Without recourse’ against whom? such an event, it becomes incumbent upon the holder to prove that he
Against the qualified endorser or some person under whom he claims acquired the title as HDC.
Q: Under Sec.39 (i.e.: conditional endorsement), what is the reason that Q: May a payee be considered a holder in due course, considering that
the person paying may disregard the condition? the instrument was simply issued to him and not endorsed?
The relativity of contracts. The payor is not a party to the Yes
principal contract, which is why he may disregard the condition and pay
before it happens. *cross refer sec.52 with sec.191 – sec 191 defines a ‘holder’ as the payee
or endorsee of a bill or note who is in possession of the same, or one
Q: What is conditional here? (sec.39) who is a bearer of the same. ‘Holder’ under sec.52 must be read in the
The endorsement light of sec.191’s definition, thus a payee may be a holder, and since a
holder of a negotiable instrument may become a holder in due course, a
Q: Do all types of restrictive endorsements destroy negotiability? payee may logically become a HDC as well. This was the ruling of the SC
No, only the one which prohibits further endorsement in Eulalio Prudencio et.al. c. CA, 143 SCRA 7, 16.
Q: what are the rights of a HDC?

III. DUE COURSE HOLDING 1. To take the instrument free from personal defenses between
prior parties
Q: Who is a holder in due course? 2. To enforce payment for the full amount against all parties
A holder in due course is a holder who has taken the instrument liable thereon (sec.57)
under the following conditions: Q: What is the Shelter Rule?
(a) That it is complete and regular upon its face; It is the doctrine which allows a holder who derives his title
through a holder in due course, and who is not himself a party to any

fraud or illegality affecting the instrument to have all the rights of the Q: Suppose the instrument was defective, but the defect was not
HDC in respect of all parties prior to the latter. (Sec.58) apparent. Does this destroy due course holding?
No, sec.52 requires that the instrument is complete and regular
*NB: the shelter rule allows an innocent holder to derive his title from a on its face. If the defect was not apparent, the holder may still be
holder in due course. The scenario contemplated by the law is one deemed a HDC.
where the negotiation of an instrument was tainted by fraud or illegality
before it came into the hands of the present holder. The present holder, Q: What are circumstances that destroy due course holding?
therefore, who had nothing to do with the infirmity in the instrument, 1. Irregular and defective instruments
may derive his title from the HDC before him, and will himself be 2. Taking the instrument when it was overdue
deemed a HDC. 3. The holder has notice of the infirmity or defect in the
instrument
Q: What is the exception to the shelter rule? 4. The holder did not take the instrument in good faith
A prior party who was NOT a holder in due course may NOT 5. The holder did not take the instrument for value
purchase the instrument from the sheltered holder (who is of course, a 6. The holder ignored circumstances which should have put him
HDC) and gain a clean title thereto. on inquiry (i.e.: the check was crossed)
7. The holder was not a HDC, and was a party to an illegality
*NB: suppose a prior party had something to do with the fraud tainting during negotiation, and he tried to reacquire the instrument
the negotiation of the instrument. He allows an innocent person to from a subsequent HDC.
purchase it. The innocent person, by operation of law, becomes a
sheltered holder, a holder in due course. May the prior party again
purchase the instrument from the sheltered holder and claim to be free IV. LIABILITIES AND ENFORCEMENT THEREOF
of all personal defenses? Obviously not. The shelter rule cannot be used
to circumvent the law. The rule under sec.58 is not available to the Q: Who are the parties primarily and secondarily liable for a negotiable
person repurchasing the instrument, if he was party to the fraud before instrument?
the sheltered holder acquired the instrument. Such a person is not
allowed to improve his position by reacquiring the instrument from a TYPE OF PARTIES NATURE OF
HDC. In the event of repurchase, the instrument, as regards him, would
(see:
still be subject to both personal and real defenses. This was the ruling in
the case of Fossum v. Hermanos, et. al., 44 Phil 713, 717-718.
*NB: the exception also applies to agents.

BILL OF
General
(see:

General Endorsers
Endorsers of (sec.66) SECONDARY
Acceptor for Honor

(sec.165)
Accommodation Drawer
(sec.29)
Acceptor for IMPORTANT:

-An accommodating party’s liability is not strictly primary and secondary, per se.
It depends on what capacity the accommodating party signed – either as maker,
drawer, endorser or acceptor. This is because the accommodating party, by
lending his name, becomes a surety for the accommodated party. Ergo, the
capacity in which he signs determines his liabilities – liabilities that may either be
primary or secondary. The same principle goes for persons signing as agents if
(see: they fail to sign in accordance with sec.20.
Accommodation -The NIL has special rules for the liability of IRREGULAR ENDORSERS:
rd
1. If the instrument is payable to the order of a 3 person, an irregular
endorser is liable to the payee and all subsequent payees
General 2. If the instrument is payable to the order of the maker or drawer, or is
PROMISSORY (see: payable to bearer, he is liable to all parties subsequent to the maker or
drawer;
Endorsers of 3. If he signs for the accommodation of the payee, he is liable to all parties
subsequent to the payee (sec.64)
(see:
-An irregular endorser is one who signs in a peculiar manner, whose name
appears on the instrument where one would naturally expect another’s. (Ogden,
Negotiable Instruments, 4th Ed., p. 226)
Q: Are the primary and secondary liabilities the same as the liabilities for
warranties?
No, The primary and secondary liabilities of the parties stem
from their obligations to pay the sum certain in money stated in the
instrument. The liabilities for warranties stem from the warranties made
by the parties to an instrument, which warranties are separate and
ancillary contracts to the principal one involving the sum payable stated
in the instrument.

Q: What is the liability of an agent who signs a negotiable instrument on
1. The existence of the drawer, behalf of another person?
genuineness of his signature The agent is NOT personally liable if he signs in the manner
his capacity and authority to
the
prescribed under sec.20, that is if he –
2. The existence of the payee 1. Adds to his signature words indicating that he signs for or
his then capacity to on behalf of a principal or in a representative capacity; and
2. Discloses his principal
1. That the instrument is Failure of an agent to sign in this manner would operate to make him
and in all respects what personally liable, as if he had signed the instrument on his own.
GENERAL purports to
2. That he has good title to
Q: What is the legal effect of a signature per procuration?
3. That all prior parties had
to It operates as notice that the agent has but a limited authority
ENDORSER OF A 4. That the instrument is, at the to sign and the principal is bound only in case the agent so signing acted
of his endorsement, valid within the actual limits of his authority
*secs.66, *see: sec.21
Q: When is a party deemed an accommodation party?
1. That the instrument is
When the person meets the following requisites –
QUALIFIED and all respects what it
to 1. He must be a party to the instrument, signing as maker,
2. That he has good title to drawer, acceptor or endorser;
PERSON NEGOTIATING BY 3. That all prior parties had 2. He must not receive value therefor;
to
4. That he has no knowledge of 3. He must sign for the purpose of lending his name or credit
fact which would impair to some other person
validity of the instrument
render it
Q: May a person who does not sign the instrument be held liable?
GENERALLY, No. But there are exceptions where a person who
did not actually sign the instrument may be held liable –
Q: May a corporation be held liable when one of its officers signs as an 1. One who signs in a trade or assumed name (sec.18)
accommodation party? 2. One who signs through an agent or authorized person
It depends. If the officer was specifically authorized to do so, (sec.19)
the corporation is liable. If not, the act was one ultra vires for which the 3. Incapacitated persons who sign through their legal
corporation cannot be held liable. guardians
4. Forgers of signatures (sec.23)
10 | N E G O T I A B L E I N S T R U M E N T S – S U N D I A N G N O T E S
5. Persons whose signatures were forged but who are Q: When is presentment for payment unnecessary?
precluded from setting up the defense of forgery (sec.23) 1. As far as the DRAWER goes, when he has no right to expect
6. In case of constructive acceptance (sec.137) or require that the drawee or acceptor will pay the
7. Endorsers who sign on an allonge instrument (sec.79)
8. Persons who negotiate by mere delivery (sec.65) 2. As regards the ENDORSER, where the instrument was
made or accepted for his accommodation and he has no
Q: What are the steps in holding the secondary parties liable? reason to expect that the instrument will be paid if
presented (sec.80)
PROMISSORY BILL OF ACCEPTOR FOR 3. Where, after the exercise of reasonable diligence,
or REFEREE IN CASE presentment cannot be made (sec.82)
1. presentment 1. Presentment 1. Protest for 4. Where the drawee is a fictitious person (sec.82)
payment within 5. When presentment has been waived, either expressly or
required period impliedly (sec.82)
the 2. If the bill
dishonored by
2. If the note acceptance, Q: Does non-presentment of a bill relieve the drawer of all liability?
dishonored, of dishonor No, the drawer is only discharged from the liability to the extent
of dishonor be given to caused by the delay or non-presentment. Failure to present on time
be given to endorsers
drawer; protest
does not totally wipe out all liability.
dishonor is
if the bill is a Q: What is acceptance?
The signification by the drawee of his assent to the order of the
3. If the bill drawer to pay a sum certain in money embodied in a bill of exchange
Presentment Q: What are the requisites of acceptance?

Payment; if the
1. It must be in writing;
is dishonored
presentment 2. Must be signed by the drawee;
payment, notice 3. Drawee must assent to paying a sum certain in money and
dishonor must not by any other means
given to
liable
protest must Q: When is presentment for acceptance required?
made if the bill is 1. Where the bill is payable after sight, or in any other case,
foreign
where presentment for acceptance is necessary in order to
fix the maturity of the instrument;
2. Where the bill expressly stipulates that it shall be presented 3. Where, although presentment has been irregular,
for acceptance; acceptance has been refused on some other ground
3. Where the bill is drawn payable elsewhere than at the (sec.149)
residence or place of business of the drawee
(sec..145) Q: What is constructive acceptance?
Acceptance by provision of law, whereby the drawee is deemed
Q: How is presentment for acceptance made? to have accepted the instrument should either of the following
1. By or on behalf of the holder; circumstances arise:
2. At a reasonable hour; 1. The bill was delivered to the drawee and he destroys the
3. On a business day or before the bill is overdue; same;
4. At the proper place; 2. The bill was delivered to the drawee but he refuses to pay
5. To the drawee or the person authorized to accepted or within 24 hours or within such other period as the holder
refuse acceptance on his behalf may allow to return the bill either as accepted or non-
6. If the bill is addressed to 2 or more drawees who are not accepted (i.e.: drawee unduly retains the bill)
partners, presentment must be made to all of them unless (sec.137)
one has the authority to accept or refuse acceptance on
their behalf in which case presentment must be made to Q: What is a notice of dishonor?
that person only; A notice which informs the secondary parties that the
7. Where the drawee is dead, presentment may be made to instrument was either dishonored by non-acceptance or non-payment,
his personal representative; and that the holder of the instrument so dishonored intends to enforce
8. Where the drawee has been adjudged a bankrupt or an the liabilities of the persons so notified
insolvent, or has made an assignment for the benefit of
creditors, presentment may be made to him or to his Q: Does the payee have a legal obligation to inform the drawer that the
trustee or assignee instrument was dishonored?
(secs.144, 145, 146, 72, 85, 73) No, the payee is under no obligation to do so. The notice is only
required to preserve the payee’s right to recover on the dishonored
Q: when is presentment for acceptance unnecessary or excused? instrument, since failure to give notice to the drawer or endorsers
1. Where the drawee is dead, or has absconded, or is a operates to discharge them of their respective liabilities on the
fictitious person or a person not having capacity to contract instrument
by bill;
2. Where, after the exercise of reasonable diligence, Q: If no notice was given, is the drawer completely absolved of liability
presentment cannot be made; to the payee?
No, the contractual liability still subsists
instrument;
Q: When is an instrument considered dishonored by non-payment?
2. when the drawee is a fictitious 2. where the endorser is the person
1. When it is duly presented for payment and payment is person or a person not having to whom the instrument is
refused or cannot be obtained; or capacity to contract presented for payment
2. Presentment is excused and the instrument is overdue and
unpaid (sec.83) 3. when the drawer is the person to 3. where the instrument was made
whom the instrument is or accepted for his
presented for payment accommodation
Q: When is a bill dishonored by non-acceptance?
1. When it is duly presented for acceptance and such 4. where the drawer has no right to
expect or require that the drawee
acceptance is refused or cannot be obtained;
or acceptor will honor the
2. When presentment for acceptance is excused and the bill is instrument
not accepted (sec.149)
5. where the drawer has
countermanded payment
Q: May a person give notice of dishonor to prior parties, even if he was
not authorized to do so? *NB:
Yes, sec.91 states that notice of dishonor may be given by any Notice to these persons under these circumstances is no longer necessary
because they either (a) knew of the dishonor beforehand; or (b) were
agent either in his own name or in the name of any party entitled to give themselves responsible for the dishonor
notice, whether that party be his principal or not; effectively then, a
person may give notice for another even if he was not authorized to do
so Q: May notice of dishonor be waived?
Yes, it may be waived either before the tine of giving notice has
Q: To whom should notice be given to the endorsers, in a case where arrived or after the omission to give due notice, and the waiver may be
the endorsers are partners? either express or implied ( sec.109)
To either of them, pursuant to the principle of mutual agency
between and among partners (Art.1818, NCC) Q: Who are bound by the waiver of notice of dishonor?
If the instrument itself contains the waiver, all parties to it are
Q: When is notice of dishonor excused or unnecessary? bound. If on the other hand, the waiver is written above the signature of
a particular endorser only, then only that endorser is bound.(sec.110)
DRAWER ENDORSER
1. where the drawer and the 1. when the drawee is a
Q: Does the failure to give notice of dishonor affect the rights of a
are the same person or person not
capacity to contract, and subsequent HDC?
endorser was aware of that
at the time he endorsed
No, an omission to give notice of dishonor by non-acceptance Q: when is there an acceptance for honor?
does not prejudice the rights of a HDC subsequent to the omission When the original drawee refuses to accept a bill of exchange
(sec.117) and there is a need to save the credit of certain parties. A third person or
stranger to the instrument accepts the instrument for honor thereby
Q: What is protest? making himself liable to all parties to the bill subsequent to the party for
A formal statement in writing made by a notary public at the whose honor he accepted
instance of the holder declaring that the instrument has been presented
for payment or for acceptance but the same was dishonored. It is Q: What is the nature of the liability of the acceptor for honor?
generally indispensable only for foreign bills of exchange, however, the Secondary, because his engagement is to pay only if the bill is
need for it may also be waived. not paid by the drawer and provided that it has been duly presented for
payment and protested for non-payment and that notice of dishonor is
Q: May protest be made for inland bills? given to him.
Yes, although the NIL only requires protest for foreign bills,
there is no prohibition against making a protest for the dishonor of *NB: The nature of an acceptor for honor’s liability is different from that
inland bills. (sec.152, sec.118) of an ordinary acceptor in this regard, since an ordinary acceptor is
primarily liable the moment he accepts the instrument
Q: In what instances is protest necessary?
1. Where a foreign bill was dishonored by non-acceptance Q: What are the requisites of acceptance for honor?
(sec.152) 1. The bill of exchange has been protested for dishonor by
2. Where a foreign bill, previously accepted, was subsequently non-acceptance (and for better security);
dishonored by non-payment (sec.152) 2. The acceptor must be a stranger to the bill
3. Where a bill is sought to be accepted for honor (sec.161) 3. The holder must consent to the acceptance for honor
4. Where a bill is to be presented for payment to an acceptor 4. The acceptance for honor must be made before the
for honor (sec.167) instrument is overdue
5. where a bill is dishonored by an acceptor for honor 5. The acceptance for honor must be in writing, must indicate
(sec.170) that it is an acceptance for honor, and must be signed by
the acceptor for honor
Q: What are the legal effects of a waiver of protest? ( secs.161, 162, 165)
1. Protest itself is waived;
2. Presentment for payment or acceptance is also deemed Q: who may make a payment for honor?
waived; Any person, for the honor of any person liable on the
3. Notice of dishonor is also deemed waived instrument or for the honor of the drawer (sec.171)
The collecting bank is ultimately liable. The collecting bank is
V. THE SHORT-CUT RULE, TRUNCATION OF RIGHT OF RECOURSE IN liable to the payee and must bear the loss because it is its legal duty to
FORGED CHECKS ascertain that the payee’s endorsement was genuine before cashing the
check. As a general rule, a bank or corporation who has obtained
Q: What is the right of recourse of the parties to a forged check where possession of a check upon an unauthorized or forged endorsement of
the signature forged belonged to the payee? the payee’s signature and who collects the amount of the check from
The short-cut rule holds that the payee whose signature was the drawee, is liable for the proceeds thereof to the payee or other
forged can go directly to the collecting bank, regardless of whether or owner, notwithstanding that the amount has been paid to the person
not the checks were actually delivered to the payee. (Associated Bank, from whom the check was obtained (Westmont Bank v. Ong, cited
et. al. v. CA and Reyes, GR. No 89802, May 7, 1992; Westmont Bank v. above)
Ong, GR No.132250, January 30, 2002) *The theory behind the rule is that the possession of the check is
wrongful and when the money had been collected, the collecting bank
Q: Mario issued a check drawn against his checking account with BOC, can be held liable because it is deemed to have held the money for the
the drawee-bank, to Pablo. Tisco stole the check and forged Pablo’s rightful owner in order for the latter to recover them. The position of
signature as endorser, thereby making it appear that the check was duly the bank taking the check on the forged or unauthorized endorsement
endorsed to him by the latter. Tisco then deposited the check with RCB, is the same as if it had taken it and collected the money without
his bank whom he designated as collecting bank. Determine the endorsement at all and the act of the bank amounts to conversion of the
respective rights of recourse of the parties. (NEGO MIDTERMS – AY checks.
2012-2013)
Pablo, as payee whose endorsement was forged by Tisco and *The rationale is to expedite the right of recourse of the payee, to reach
who lost the note to the latter through theft, may proceed against RCB, by a desirable short-cut, the person who ought to be allowed to recover
the collecting bank, for recovery of the amount. RCB became liable as a directly from the collecting bank, regardless of whether the check was
general endorser when it endorsed the check to the drawee-bank, BOC, delivered to the payee or not
thereby warranting that the check was genuine and in all respects what
it purports to be. RCB, the collecting bank, may only recover against *IMPORTANT:
Tisco, the forger-depositor, because no privity of contract exists -This rule is NOT readily applicable to a case where the signature that
between the maker and the collecting bank, nor between the payee, was forged belonged to the DRAWER, or to OTHER SUBSEQUENT
Pablo, and the collecting bank. The collecting bank may hold the ENDORSERS.
depositor liable because the depositor is its client. Mario, as maker, may
proceed against the drawee-bank and not the collecting bank because -If the drawer’s signature was forged, the drawer may not be held liable
there is no privity between the him as maker and the collecting bank. for the amount on the instrument (although he may certainly be held
liable for the underlying contract).
Q: what is the rationale behind the short-cut rule?
-If the endorser’s signature was forged, the cut-off rule operates to bar instrument 4. Conditional delivery of a complete
recovery from the parties prior to the forged endorsement. A 4. Material Alteration instrument
5. Ultra Vires act of a corporation 5. Fraud in inducement
subsequent holder may not therefore enforce payment against the 6. Fraud in Fact 6. Filling up blanks without authority
drawee, the drawer, or the payee because parties prior to the forgery 7. Illegality to do so
may set it up as a defense (unless of course they are precluded from 8. Vicious force or violence 7. Duress of intimidation
doing just that) 9. Lack of authority 8. Filling up blanks beyond a
10. Prescription reasonable time
11. Discharge in insolvency 9. Transfer in breach of faith
-Obviously then, where the facts of any problem do not present a case 10. Mistake
where it was the PAYEE’S signature that had been forged, application of 11. Ante-dating or post-dating for
illegal or fraudulent purposes
the short-cut rule is not advisable.
Q: Does negotiation by a minor operate to pass title to the holder?

VI. DEFENSES
Yes
Q: What is a personal defense?

*NB: although the defense is a real one, the negotiation still
One which involves the relationships of the parties between
passes title to the holder, the same rule also applies to corporations
and amongst themselves, wherein there is a true and valid underlying
with regards to an ultra vires act – the corporation may raise it as a
contract but where, for various reasons (i.e.: fraud, duress, mistake,
defense but the negotiation still transfers title
prior breach of contract by the holder, etc.), the defendant is excused
from his obligation to perform.
Q: What is delivery?
The transfer of possession of the negotiable instrument by one
Q: What is a real defense?
person to another with the intention to transfer title to the instrument
One which involves the instrument or the underlying contract
itself, wherein there is an absence of one or more of the essential
Q: What is the effect if an instrument which is not complete was
elements of a contract or where the admitted contract is vitiated
delivered?
The delivery will not effect a valid contract in the hands of any
Q: What defenses may be raised against a HDC?
holder as against any person whose signature was placed thereon prior
Only real defenses – those which call into question the
to delivery (sec.15)
instrument or the underlying contract.
Q: When may delivery be deemed valid?

REAL PERSONAL
1. Minority (available only to 1. Failure or Absence of When it is made either by or under authority of the person
2. Illegal making, drawing, accepting or endorsing the instrument (sec.16)
2. 3. Non-delivery of a
3. Non-delivery of an
Q: What are the rules involving delivery?
1. A negotiable instrument must be delivered 3. If the holder of the instrument, after it was filled up, is a
2. Delivery must either be by or under authority of the person HDC, the holder may enforce the instrument as if it were
making, drawing, accepting or endorsing the instrument filled up with the proper authority and within a reasonable
3. Delivery is presumed to have been made if the instrument is time
no longer in the hands of the maker or drawer for the (sec.14)
purpose of issuing it, or the endorser for the purpose of
transferring title Q: when is fraud a real defense? When is it merely a personal one?
4. As between immediate parties and remote parties who are
not holders in due course, the delivery of a complete FRAUD IN EXECUTION/ FRAUD IN INDUCEMENT
FRAUD IN FACTUM
instrument may be established to be conditional or for a
-person is induced to sign an -persons who signs the same is aware
special purpose, and not for transferring title instrument without knowing its that he is signing a negotiable
5. As between immediate parties and remote parties who are character as a note or bill instrument, and intends to sign it, but
not holders in due course, it may be established that there was only induced to do so through
fraud, his consent having been vitiated
was no delivery at all of the complete instrument by it
6. As to holders in due course, it cannot be established that
there was no delivery because delivery as to the HDC is -a REAL defense -a PERSONAL defense
conclusive upon his possession of the instrument
7. As to a HDC, it cannot be established that the delivery was Q: When may an alteration become a defense?
only conditional or for a special purpose When it is material (sec.1, 125)
(sec.16)
Q: Is material alteration a complete defense?
Q: What are the rules with regard to filling up blanks in a negotiable No, only a partial one. A HDC who is in possession of a
instrument? materially altered instrument and who is not a party to the alteration
1. A person in possession of such an instrument has prima may enforce payment thereof according to its original tenor (sec.124)
facie authority to complete the instrument by filling it up
strictly in accordance with the authority given and within a Q: What is the effect of ante-dating or post-dating a negotiable
reasonable time instrument?
2. If a person delivers a blank paper which contains his Ante- or post-dating does not per se affect the instrument. A
signature and which he intends to convert into a negotiable personal defense only arises when the ante-dating or post-dating was
instrument, the person to whom it is delivered has prima done for a fraudulent or illegal purpose
facie authority to fill it up for any amount in accordance
with the authority given and within a reasonable time; Q: what is the effect of forgery?
A forged signature is wholly inoperative and no right to retain Subsequent holder
the instrument, or to give a discharge therefor, or to enforce payment cannot enforce payment
against the drawer,
thereof against any party thereto, can be acquired through or under drawee or payee
such signature, unless the party against whom it is sought to be enforce
such a right is precluded from setting up the forgery or the want of Endorsers prior to the
authority (sec.23) forgery may set up the
real defense of forgery
TYPE OF PARTY Endorsers subsequent to

SIGNATURE the forgery are still liable
BILL OF EXCHANGE Endorsers
Maker is not liable Endorsers precluded
the instrument to from setting up forgery
subsequent as a defense are liable,
whether the despite having endorsed
is an order or a the bill prior to the act
of forgery
Still secondarily If the bill is a BEARER bill

because they of exchange, the holder
that the instrument may still recover from
PROMISSORY genuine and in the drawer because the
respects what forged signature is
purports to unnecessary for his title.
If the note is payable

Q: How does the ‘Cut-ff Rule’ operate?
BEARER, the
signatures may not Parties prior to the forged signature are cut-off from the parties
up as a after the forgery and cannot be held liable for the forgery. These parties
because the signature may validly set up the defense of forgery against any holder, including a
the endorser
unnecessary to pass
HDC.
to the instrument –
maker is still Q: Are there any exceptions to the cut-off rule?
liable on the Yes, prior parties may still be held liable if they are precluded
Drawer is not liable
from setting up the defense of forgery either because of their
the instrument to warranties, representations of their negligence (i.e.: endorsers who had
subsequent anything to do with the forgery prior to its commission may still be held
whether the bill is liable)
order or bearer
Yes, ratification by the party whose signature was obtained
Q: What is the effect of an insertion of a wrong date on an instrument? without valid consent, for example, precludes that party from raising
The act becomes a personal defense between immediate and the defense of lack or vitiation of consent. The principles of estoppel
prior parties, and the HDC has the right to regard the wrongfully and ratification may apply in this case.
inserted date as the true date (sec.13)
Q: Senator Corupto executed a negotiable promissory note payable to VII. DISCHARGE OF AN INSTRUMENT
Simpo or the latter’s order, as a reward for the political support and
friendship given by Simpo to the Senator. Later on, the note was Q: What is discharge?
negotiated to Hovo, a holder in due course. May Hovo enforce the note Release from further liability –
against Corupto? Would your answer remain the same, if it were Simpo 1. AS TO THE PAPER ITSELF: the end of a contractual
who would seek to enforce payment against Corupto? (NEGO obligation
MIDTERMS – AY 2012-2013) 2. AS TO THE PARTIES: the release of some or all of them
1. YES, Hovo may enforce the note against Corupto. Hovo, being from further obligation and liability under the instrument
a holder in due course, possesses the right to enforce the instrument for
the full amount stated thereon against the maker, Corupto; and has Q: Is there such a thing as partial discharge?
taken the instrument free of all personal defenses between prior Yes, as when the instrument (i.e.: the contractual obligation it
parties. Corupto may not set up the defense of want or absence of represents) is not yet discharged, and only part or some of the obligors
consideration against Hovo because the same is merely a personal are released.
defense, and personal defenses may not be raised against a holder in
due course. Q: Suppose all the obligors are released, what happens to the
2. NO, The same answer above would not apply in the event instrument?
that it would be Simpo seeking to enforce the note against Corupto. The The instrument is deemed released as well
note was issued for ‘support and friendship’ – and as such, Corupto may
set up as a personal defense the want or absence of consideration for Q: How is an instrument discharged?
the issuance of the note. ‘Friendship and support’ (in the same manner 1. By payment in due course by or on behalf of the principal
as love and affection) do not constitute ‘value’ or consideration under debtor
the ambit of the negotiable instruments law. Absence or lack of 2. By payment in due course by the party accommodated,
consideration is a defense pro tanto between immediate parties, and where the instrument is made or accepted for his
against a holder who is not a holder in due course. accommodation;
3. By the intentional cancellation thereof by the holder;
Q: May lack of consent be ratified? 4. By any other act which will discharge a simple contract for
the payment of money;
5. When the principal debtor becomes the holder of the accommodated party, payment by the latter is actually payment by the
instrument at or after maturity in his own right principal debtor which discharges the instrument)
(sec.119)
Q: Why does payment by the drawer discharge the instrument under
Q: What is meant by payment in due course? sec.121(a)?
Payment is said to have been made in due course when it is Because the drawer is the party ultimately liable in case the
made at or after maturity date of the instrument to the holder thereof in instrument is drawn payable to the order of third person.
good faith and without notice that his title is defective (sec.88)
Q: Suppose the third person who paid actually did so with the intention
Q: May payment be made by the delivery of another negotiable of acquiring title over the instrument, is the instrument discharged?
instrument? No, in this case, the payor is not considered a ‘third person’
No (Art.1249, NCC) within the contemplation of 119. The payor is either a holder or an
assignee as the case may be.
Q: What is the effect of payment by a secondary party?
The instrument is NOT discharged, but such a party is remitted Q: to whom should payment be made?
to his former rights with regards to prior parties (i.e.: he becomes a To the HOLDER of the instrument
holder again and not just an endorser), and he may strike out his own (see notes on ‘who is a holder?’ – pages 4,5 as discussed above)
and all subsequent endorsements (those made by the people he owed)
and re-negotiate the instrument, EXCEPT when (a) the instrument is Q: Is there a possibility that a payor who had already previously made
payable to the order of third person and the payment was made by the payment may be made to pay again?
drawer; and (b) where it was made or accepted for accommodation and Yes, the rightful holder who may have been unlawfully deprived
has been paid by the party accommodated. (sec.121) of the instrument may still enforce payment against a payor who
previously paid with knowledge of the defect in the previous holder’s
Q: Why is a prior party who reacquires the instrument permitted to title.
strike out endorsements?
Because the endorsements he strikes out are those which are Q: how does cancellation discharge the instrument?
not necessary for his title Depends on WHAT KIND of cancellation was effected –
intentional cancellation discharges the instrument, conversely, if the
Q: why does payment by the party accommodated where the cancellation was NOT intentional, the instrument is not discharged.
instrument is made or accepted for his accommodation discharge the *Intentional cancellation takes place when the holder writes
instrument? the word ‘cancelled’ on the instrument or does… something childish to
Because the payment is in effect one made by the principal it (think: tearing it up, burning it, etc) (sec119)
party (since the accommodating party acts as surety for the
Q: What are the acts which discharge simple contracts? expressly
1. payment or performance 6. By any agreement binding Because the assurance of the
the holder to extend the time and the endorsers is to pay
2. loss of the thing due payment or to postpone to the tenor of the instrument.
3. condonation or remission of the debt holder’s right to enforce agreement to extend the time
4. confusion or merger of the rights of creditor and debtor instrument unless made with payment varies the
5. compensation consent of the party undertaking of the secondary
liable or unless the right (compare art.2079, NCC re:
6. novation recourse against such party same principle
7. annulment or rescission expressly
8. fulfillment of a resolutory condition EXCEPTIONS: (a) the extension
made with the consent of
9. prescription
secondary parties; (b) right
(see: art.1231, NCC; check notes for oblicon) recourse against secondary
was expressly
Q: how are secondarily liable parties discharged? (sec.120)
1. By any act which discharges (art.1231 + other pertinent

of the VIII. CHECKS AND THE RELATIONSHIPS BETWEEN PAYEE, DRAWEE AND
2. By the intentional cancellation An endorser whose endorsement DRAWER
his signature by the struck out and all
3. By the discharge of a prior subsequent to him are relieved
liability on the instrument Q: What is a check?
A bill of exchange drawn on a bank, payable on demand
Discharge here means discharge (sec.185)
some act of the creditor, it does
include discharge by operation of
(i.e. by bankruptcy, Q: When should a check be presented for payment?
prescription, failure to give notice Within a reasonable time after its issue (sec.186)
4. By a valid tender of It is the fault of the holder under

Q: Is a drawee liable upon the issuance of a check?
circumstance that he was not
thereby discharging the No, the drawee is not liable just because he happens to be the
drawee. A check does not operate as an assignment of any part of the
5. By a release of the The release of the principal funds to the credit of the drawer with the bank, the bank is not liable to
debtor unless the holder’s right discharges the instrument and
recourse against the secondarily liable lose their right
the holder unless and until he accepts the same, in which case, the
secondarily liable is recourse against the principal drawee becomes an acceptor (sec.189)
EXCEPTION: when right of

Q: what is a certified check?
against secondary parties
One drawn by a depositor upon funds to his credit in a bank
which a proper officer of the bank certifies will be paid when duly Q: What is a crossed check?
presented for payment A check which bears 2 parallel lines diagonally on the left top
portion. If the crossing of a check is SPECIAL, the name of a bank or
Q: Is certification completely similar to acceptance? business institution is written between the 2 parallel lines (meaning that
No, certification is equivalent to acceptance (sec.187) but they the drawee should pay only with the intervention of that company), if
differ in the sense that (a) certification done at the instance of the the crossing is GENERAL, the words written between the 2 parallel lines
HOLDER results in a discharge while ordinary acceptance does NOT are ‘and Co.’ or ‘for payee’s account only’
discharge; and (b) in certification, the bank debits the drawer’s account
at the time of certification, not after, as in ordinary acceptance Q: Does the NIL govern crossed checks?
No, the Code of Commerce under sec.541 does. Sec.541 of the
Q: How does certification operate? Code of Commerce was patterned after the Bills of Exchange Act of 1882
Upon certification, the bank debits the drawer’s account, in (secs.76,77 of the Bills of Exchange Act of 1882)
effect setting aside the funds to meet the check if and when it is
presented for payment. The funds that were set apart are no longer Q: What is the effect of crossing a check?
within the control of the drawer but have been precisely segregated for Generally, the crossing of a check puts the holder on inquiry
the purpose of paying the check. This is why certification procured by and requires him to ascertain the endorser’s title to the check. Failing in
the holder discharges the secondary parties – because the certified this respect, the holder is declared guilty of gross negligence amounting
check would now operate as an assignment of part of the funds to the to legal absence of good faith (think: holder can no longer become a
credit of the drawer (sec.189). The theory is that the holder, by HDC)
requesting such certification instead of payment, enters into a new Specifically, the effects are –
contract with the bank, and not one within the contemplation of the 1. The check may not be encashed but only deposited in a
drawer or a prior endorser. The drawer and the endorsers are expecting bank
that the check will be presented for payment only and not for 2. The check may only be negotiated once (to the person with
certification, hence they are discharged. the account in the bank)
3. The act of crossing serves as a warning to the holder that
*‘The bank virtually says that the check is good; we have the the check has been issued for a definite purpose so that he
money of the drawer here ready to pay it. We will pay it now if you will must inquire if he has received the check pursuant to that
receive it. The holder says, No, I will not take the money; you may certify purpose
the check and retain the money for me until this check is presented.’ The
money being due and the check presented, it is his own fault if the holder Q: Differentiate a bill of exchange from a check
declines to receive the pay xxx (1 Morse on Banks and Banking, p.920; cited (see page 2 of these notes for tabular presentation)
in PNB V. National City Bank of New York, 63 Phil 711, 717-720)
Q: What is the relationship between and among the drawer, drawee The bank with which a payee-holder of a check deposits the
and payee of a check? same. The payee in this case usually has an account with the bank,
known as the depositary bank or collecting bank
PRESENCE OF PRIVITY OF CONTRACT Q: What is the relationship between the payee and the collecting bank?
DRAWER DRAWEE PAYEE
One of agent and principal. The collecting bank acts as the
AVAILABILITY OF DRAWER agent of the depositor when it sends the check for clearing.
X X
RIGHT OF
DRAWEE
RECOURSE
X * *check clearing is done through a ‘clearinghouse’, an
PAYEE association of banks or other payors for the purpose of settling
X accounts with each other on a daily basis. Each member of the
clearinghouse forwards all deposited checks drawn on other members
DRAWER:
and receives from the clearinghouse all checks drawn on it. Balances are
-has privity of contract with payee
adjusted and settled on a daily basis.
-has privity of contract with drawee
-has right of recourse against drawee bank
Q: Does the collecting bank become the owner of the check deposited
with it?
DRAWEE: No, the check is only being collected from the drawee bank for
-has privity of contract with drawer the principal, the depositor.
-has recourse against drawer, in some instances
-no privity of contract with, or right of recourse against, payee Q: If a check was forged prior to the deposit with the collecting bank,
and the check is subsequently paid, is the collecting bank liable?
PAYEE: Yes, because the collecting bank was the last endorser of the
-privity of contract with drawer check. It endorsed the check for clearing with the drawee bank, and the
-recourse against drawer drawee bank relied on the collecting bank’s warranty, given upon
-no privity of contract or right of recourse against drawee endorsement, that the instrument is genuine and in all respects what it
*EXCEPTION: payee has right of recourse against drawee via tort action purports to be. The liabilities and warranties of a collecting bank are the
under art.19, NCC (abuse of right), if he can prove that (a) drawee has a same as those of a general endorser (see: sec.66).
legal right or duty toward him; (b) the right or duty was exercised in bad
faith; and (c) for the sole intent of prejudicing or injuring another (HSBC v. Q: What is the right of recourse of a collecting bank who was forced to
Catalan, GR Nos. 159590 and 159591; October 18, 2004) reimburse the drawee for a forged check?
The collecting bank may proceed against its client, the
Q: What is a collecting bank? depositor – because it is only with the depositor that privity of contract
exists, and also because the payee-depositor is liable under the same collecting bank; failure to do so makes the drawee liable for negligence
warranties of a general endorser (sec.66, NIL) and absolves the collecting bank of liability (sec.20, PCHC Rules)
Q: Is the drawer allowed to countermand payment on a check? *the 24-hour rule does NOT apply to checks whose forged
It depends. If the drawer has a valid defense against the holder endorsements belong to endorsers, or to check which have been
of the check (i.e.: holder failed to deliver the goods that he promised), materially altered. In these cases, the checks should be return within 10
the drawer may countermand payment. If not, the drawer may be held years (yes, YEARS), since sec.21 of the PCHC Rules states that they
criminally liable under Batas Pambansa Blg.22 which penalizes the should be returned ‘within the period prescribed by law for the filing of
making, drawing or issui9ng a check to apply on account or for value a legal action’ (10 days, pursuant to art.1144, NCC – actions based upon a
knowing that at the time of issue the check is not sufficiently funded. written contract or an obligation created by law prescribe in 10 years
from the time the right of action accrues) (see: Aquino, Banking and
Q: What is the ‘ I ron-Cl a d Ru Negotiable Instruments Law, vol. I, 2009)
le ’?
The rule which prohibits the countermanding of payment of
certified checks (and by analogy, manager’s or cashier’s checks). IX. NEGOTIABLE DOCUMENTS OF TITLE
Because of the nature of these checks, they are considered to be as
good as the money they represent, and may not be countermanded by Q: What is a negotiable document of title (NDT)?
either the payee or the bank. A document used in the ordinary course of business in the sale
or transfer of goods as proof of possession or control of the goods, or
CHECK CLEARING, CLEARING REGULATIONS authorizing or purporting to authorize the possessor to transfer or
receive either by endorsement or delivery, goods represented by such
(Cross-refer with notes on Summary of Doctrines, under the title document.
‘Checks’)
Q: What are the features and functions of NDTs?
*IMPORTANT: 1. They serve as a contract
- The drawee bank is not only bound by the NIL with regards to the 2. They serve as receipt of goods
negotiation or handling of a check, it is also bound by the rules on 3. They operate as transferable documents of title to the
clearinghouse regulations enacted by the Central Bank, through the goods they describe
Philippine Clearing House Corporation (PCHC) and its regional arms.
Q: How are NDTs different from negotiable instruments?
THE 24-HOUR RULE: the drawee bank must return checks or items
cleared through the PCHC within 24 hours (think: especially applicable to
forged checks where the forged signature belongs to the drawer) to the NEGOTIABLE NEGOTIABLE
INSTRUMENTS DOCUMENTS OF TITLE
Re: GOVERNING NCC
Code of Warehouse There is no effect, if the document contains words of
Law negotiability, it remains negotiable despite the stamping on it of the
Trust Receipts Law
Re: PURPOSE Transfer of Credit Transfer of words ‘non-negotiable’ or others of like import
Re: POSSIBILITY OF Holder may be a Holder is not a holder Q: How is a NDT negotiated?
COURSE due course, but a
for
BEARER DOCUMENT ORDER DOCUMENT
Re: MODE OF By By
By delivery By endorsement –
By By
(Art.1508, NCC) (a) in blank; or
Re: An ORDER Universal Convertibility (b) to bearer; or
may be converted to An ORDER (c) to a specified person
*POSSESSION is controlling - the
bearer may be converted into
warehouseman’s obligation follows
BEARER document,
the possessor If the document is endorsed to a
A BEARER back
specified person, he may again
may only be
negotiate the document in blank, to
to an order
bearer or to another specified person
ONCE – if it
(Art.1509, NCC)
originally a
*ENDORSEMENT is controlling – the
warehouseman’s obligation follows
Once a
the endorsement (if endorsed in blank
instrument, always
or to bearer, warehouseman’s
bearer
obligation follows accordingly)
Re: All parties (i.e.: only the
makers, endorsers) to of a NDT
negotiable warranties in favor Q: Does the transfer of a NDT result in the transfer of title to the goods?
are bound by the Yes, because transfer of the document controls the transfer of
respective
goods. Negotiation of a document has the effect of manual delivery so
Endorsers are not
for failure on the part as to constitute the transferee the owner of the goods. The direct
the bailee to deliver obligation of the bailee issuing the document to hold possession of the
goods is owed to the transferee from the moment of negotiation
(Art.1513, NCC)
Q: Suppose the document was not negotiated but merely transferred to
Q: What determines the negotiability?
the holder, what are the effects?
Words of negotiability (art.1507, NCC; Sec.5, WRL)
The person to whom it has been transferred and not negotiated
acquires as against the transferee the title to the goods, subject to the
Q: What is the effect of stamping the words ‘non-negotiable’ on a NDT?
terms of any agreement with the transferor (i.e.: person in possession
becomes an assignee of the goods), and the transferee may convert the *Here lies the crucial distinction between NDTs and NIs. Under
plain transfer to negotiation by compelling the transferor to complete the NIL, a holder in due course may acquire a better right than his
the negotiation process (Art.1515; secs.42,43, WRL) transferor (i.e.: he gets a clean title to the instrument); whereas the
transferee of a NDT acquires merely what the transferor had or could
Q: what is the effect if there was in fact an intent to negotiate the give (owing to the fact that NDTs are found under the law on Sales, the
document but possession of the same is retained by the transferor? maxim applies: nemo dat quod non habet. One cannot sell what he does
The interest of the prior transferee may be defeated if the not have – if the person who deposited the goods with the bailee who
document is subsequently transferred to a purchaser in good faith issued the document is not legally entitled to the goods, no such title to
without notice. The subsequent negotiation of the document under any them will be acquired by the transferee of the document of title EVEN IF
sale or other disposition to any person receiving the same in good faith he is a holder for value)
and for value and without notice of the previous sale, mortgage or
pledge, shall have the SAME EFFECT as if the first purchaser had Q: Suppose the goods were sought to be repossessed by an unpaid
EXPRESSLY AUTHORIZED the subsequent negotiation (sec.48, WRL) seller. May he run after the purchaser of the warehouse receipt?
No, no seller’s lien or right of stoppage in transitu shall defeat
*No, Art.1544 of the NCC on double sales does NOT apply to the the rights of any purchaser for value in good faith to whom the receipt
second sale of a negotiable document like a warehouse receipt. The law has been negotiated, nor shall the warehouseman be obliged to deliver
(WRL) practically negates the will of the first purchaser and assumes or be justified in delivering the goods to an unpaid seller UNLESS the
that buyer 1 willingly permitted sale number 2. receipt is first surrendered for cancellation (sec.49, WRL)
*Read this together with the right of the purchaser to compel
the transferor to complete the negotiation – this is why. Q: What is the significance of the unpaid seller presenting to the
warehouseman the receipt for cancellation? Why can’t the
Q: What are the rights of a person to whom a NDT was duly negotiated? warehouseman deliver the goods prior to the surrender of such a
1. He acquires such title to the goods as the person receipt by the unpaid seller?
negotiating the document to him had or had ability to The surrender for cancellation of the receipt by the unpaid
convey seller means that the unpaid seller has validly reacquired the receipt
2. The direct obligation of the bailee issuing the document to from the holder for value
hold possession of the goods for him as if such bailee had
contracted directly with him Q: May the warehouseman validly refuse to deliver the goods to a
(Art.1513, NCC; Art.41, WRL) person claiming them?
Yes (secs.31, 49, WRL; art.1519, NCC)
*Think: the goods follow the document of title, BUT notice that
NO ADDITIONAL RIGHTS are conferred over the goods to the *Flag this as another key distinction with negotiable
transferee. instruments – under the NIL, the parties liable may NOT validly refuse to
pay a holder in due course (except, of course, when they can raise real *scenario: a thief negotiated the document of title to a purchaser for
defenses against the HDC) value. Did the purchaser for value acquire nothing because the thief had no
title to the goods that he could validly have conveyed? THEORY: the
Q: Who may negotiate a NDT? purchaser for value ACQUIRED a title to the goods, notwithstanding the
1. The owner thief’s title. Art.559, par.1 of the NCC states that ‘The possession of
2. A person to whom the possession or custody of the movable property acquired in good faith is equivalent to a title.
document has been duly entrusted by the owner Nevertheless, the one who has lost any movable or has been unlawfully
(art.1512, NCC; sec.40, WRL) deprived thereof, may recover it from the person in possession of the
same’. The innocent purchaser for value’s title is NOT derived from the
*There’s a massive conflict in THIS particular area of the Civil Code – thief – he has an original title granted by art.559 on the law on property.
negotiation of NDTs, owing to these 2 provisions: His possession is deemed equivalent to a title in and of itself. With regard s
to the right of recovery, the lawful owner would not be able to recover
ART.1512 ART.1518 from the innocent purchaser for value despite the wording of art.559,
A negotiable document of title may be The validity of the negotiation of a
negotiated: negotiable document of title is not
because art.1518 specifically exempts the circumstances of breach of duty,
(1) By the owner thereof; or impaired by the fact that the loss, theft, fraud, accident, mistake, duress or conversion. In this sense,
(2) By any person to whom the negotiation was a breach of duty on art.559 and art.1518 constitute reciprocal exceptions to each other. But
possession or custody of the the part of the person making the what about the earlier discussion regarding the rights of a holder for
document has been entrusted by negotiation or by the fact that the
the owner, if, by the terms of the owner of the document was value? (see page 29) There’s really no real contradiction since it still holds
document the bailee issuing the deprived of the possession of the true that a purchaser for value obtains merely a derivative title from the
document undertakes to deliver same by loss, theft, fraud, accident, transferor. In the case of an innocent purchaser for value and good fait h
the goods to the order of the mistake, duress, conversion, if the
person to whom the possession
who was unaware of the defect in the transferor’s title, he may invoke
person to whom the document was
or custody of the document has negotiated or a person to whom the art.559 and claim the title granted to him by that provision. All the same,
been entrusted, or if at the time document was subsequently the innocent purchaser for value and good faith acquired nothing from the
of such entrusting the document negotiated paid value therefor in thief. His title isn’t based on the thief’s.
is in such form that it may be good faith, without notice of the
negotiated by delivery breach of duty or loss, theft, fraud,
accident, mistake, duress or *A final and interesting point: the above discussion is applicable to a
conversion. BEARER document, one which may be negotiated by delivery without need
of the endorsements of the owner or his representative. If, of course, the
*The question is obvious: if a NDT was negotiated by someone OTHER document is an ORDER document, then the ENDORSEMENT of the specified
than the owner of the duly authorized person (i.e.: in violation of person (i.e.: the owner or his duly authorized agent) is necessary. The thief,
art.1512), would art.1518 serve to validate the negotiation? in order to negotiate it, would need the signature of one of these 2
persons. Since he’s a thief, he can’t lawfully obtain it. He would then have
to forge the signatures. And forgery renders the endorsement inoperative.
This is Dean Sundiang’s analysis. (I ask you, though: Do the provisions of By assignment. A transferee of a non-negotiable receipt merely
the NIL [sec.23] apply suppletorily to the negotiation of NDTs? Would it not steps into the shoes of the transferor, his right may be defeated by
be more in line with civil law to apply the Statute Frauds and deem the other persons who by law are given superior rights. The transferee gains
contract entered into by the thief as unenforceable for violating no additional rights over the goods by virtue of the transfer (sec.4, WRL;
Art.1403(1) because he entered into it by forging the signatures of the art.1515, NCC)
owner or the duly authorized representative and thus entered into the The transferee, however, has a right to compel the transferor to
contract in the name of another person without having been given proper complete the negotiation by endorsement (art.1514, NCC; sec.42, WRL)
authority or legal representation? Just thinking aloud –Kimiko)
Q: What are the obligations of the bailee?
Q: Do the endorsers of a NDT make any warranties? 1. To possess the goods for the persons entitled to them;
No, endorsers are not liable for the failure of the bailee to 2. To deliver the goods upon presentment of the document;
deliver the goods. Only the transferor of the document makes any 3. To cancel the document upon presentment
warranties in favor of the transferee
Q: What is the legal effect if the bailee failed to cancel the document
Q: What are the warranties of a transferor of a NDT? after presentment?
1. That the document is genuine He shall be liable for failure to deliver the goods to anyone who
2. That he has a legal right to negotiate or transfer it purchases the same for value and in good faith
3. That he has knowledge of no fact which would impair the
validity or worth of the document; and Q: What is the primary liability of the bailee?
4. That he has a right to transfer the title to the goods and Failure to deliver the goods without a valid reason makes the
5. That the goods are merchantable or fit for a particular bailee liable for conversion
purpose, whenever such warranties would have been
implied if the contract of the parties had been to transfer Q: Is a warehouseman justified in delivering the goods because the
without a document of title the goods represented thereby claimant alleged that the document was lost or destroyed?
(Art.1516, NCC; Sec.44, WRL) No, loss or destruction does not authorize the warehouseman
to deliver the goods. He cannot determine for himself the fact of loss,
Q: when is a document of title (particularly a warehouse receipt) only a court of competent jurisdiction may do so (Aquino, Banking Law
deemed non-negotiable? and Negotiable Instruments Law, vol. I, 2009)
When it states that the goods received will be delivered to the
depositor or to any other specified person (Sec.4, WRL) Q: If goods were released because of a court order, is the
warehouseman free from all liability?
Q: How may a non-negotiable document of title be transferred?
No, the warehouseman is still liable to a person to whom the 8. Attachment or levy of the goods by a creditor where the
negotiable receipt has been or shall be negotiated for value without document is surrendered or its negotiation is enjoined and
notice of the proceedings or of the delivery of the goods (sec.14, WRL) the document is impounded (sec.25)
The warehouseman’s remedy is to enforce the bond required 9. The document of title is attached by a creditor (sec.26)
by the court or to run after the person who obtained the release of the
goods Q: What are the c ha rge s inc l u de d in a wa re hou se ma n’ s lien ?
1. All lawful charges for storage and preservation of the
Q: May the warehouseman refuse to deliver the goods on account of an goods
adverse claim over them? 2. All lawful claims for money advanced, interest, insurance,
Generally, no. No title to or right to the possession of the goods transportation, labor, weighing, coopering and other
on the part of the warehouseman shall excuse him from liability for charges and expenses in relation to the goods;
refusing to deliver the goods according to the terms of the receipt 3. All reasonable charges and expenses for notice and
(sec.16, WRL) advertisements of the sale, and for the sale of the goods
EXCEPTIONS: (1) The warehouseman’s title or right is derived where default had been made in satisfying the
directly or indirectly from a transfer made by the depositor at the time warehouseman’s lien
of or subsequent to the deposit for storage; (2) The right is based on the
warehouseman’s lien. Q: When is a warehouseman’s lien deemed lost?
1. When he surrenders the possession of the goods
Q: Under the WRL, what defenses may the warehouseman raise for non- 2. When he refuses to deliver the goods when demand is
delivery of the goods? made with which he is bound to comply under the WRL
1. Loss of destruction of the goods without his fault
2. Failure to satisfy bailee’s lien (sec.8)
3. Failure to surrender the NDT(sec.8) X. LETTERS OF CREDIT
4. Lack of willingness by the person claiming the goods to sign
acknowledgement of receipt (sec.8) Q: What is a letter of credit (LOC)?
5. Receipt by the bailee of a request by or on behalf of the An engagement by a bank or other person made at the request
person lawfully entitled to a right of property or possession of a customer that the issuer will honor drafts or other demands for
in the goods, not to make delivery (sec.10) payment upon compliance with the conditions specified in the credit
6. The bailee has information that the delivery about to be (Prudential Bank v. IAC, 216 SCRA 157, 267)
made was to one not lawfully entitled to the possession of
the goods
7. Delivery to a claimant with a better right
Q: How does a letter of credit operate? seller of the credit (this bank is called the advising bank or
notifying bank)
•Buyer and Seller agree on what documents must be presented

1 o The seller may not trust the opening bank (usually because the
opening bank is a foreign and unfamiliar bank), in which case,
•Buyer secures a letter of credit in favor or seller from his bank, he may use the facilities of another, better-known and bigger
2 which is termed the issuing or opening bank bank known as the confirming bank. The confirming bank
usually carries a dollar account maintained by the opening bank,
•Once the credit is established, seller ships goods to buyer and in and thereby assumes the obligation of paying the seller upon
3 the process, obtains the tender documents
presentment of the tender documents. The seller may now
proceed against the confirming bank for the payment of the
•To obtain payment for goods, seller executes a draft and credit. In this regard, the confirming bank’s liability is primary,
presents
as if the credit was issued by it and the opening bank jointly.
4 it to bank, along with tender documents
o Another bank, known as the negotiating bank, may buy or

•Bank pays seller and obtains possession of the documents of title discount a draft drawn against the letter. If the draft
5 contemplated by the LOC is to be drawn on the opening bank
or on another designated bank not found in the city of the
•Buyer reimburses bank for the payment it made to seller
6 seller, any bank in the seller’s city which buys or discounts the
drafts becomes a negotiating bank.
•Bank gives buyer the documents of title upon reimbursement
7 o The paying bank is the bank against whom the drafts are to be
drawn. It may or may not be the opening bank.
•Buyer obtains title over the goods he purchased from seller
8 Q: Who are the parties in a LOC?
Generally, there are at least 3 parties – the buyer, the seller or
beneficiary, and the opening bank.
*Behind the scenes, before the seller and the buyer both get their
ends of the deal, other banks may play a hand in the credit transaction Q: What are the transactions involved in a letter of credit?
– There are at least 3 transactions –
1. The contract of sale of goods between the buyer and seller
o The issuing or opening bank may contract the facilities of 2. The contract of the buyer with the issuing bank, whereby
one of its correspondent banks for the purpose of the issuing bank promises to pay drafts drawn by the seller-
advising the
beneficiary, and the buyer reciprocally promises to Q: Is the issuing bank the only party who may invoke the independence
reimburse the issuing bank principle?
3. The letter of credit proper No, other parties (i.e.: even the beneficiary, in proper cases)
may invoke the principle
*Other contracts include the contract of carriage between the seller and
the carrier for the goods, the contract of surety between the seller and Q: What is the Fraud Exception?
the warehouseman or bailee for the keeping of the goods, and the An exception to the independence principle, which holds that
various credit agreements between intermediary banks regarding the when the beneficiary, for the purpose of drawing on the credit,
negotiation of the drafts drawn against the letter of credit fraudulently presents documents to the confirming or paying bank
which contain material representations of fact that are untrue, and
Q: What is the ‘Independence Principle’? which the beneficiary was aware of, the buyer may seek an injunction
The independence principle is a doctrine embodied in the against payment. (Transfield Phils., Inc. v. Luzon Hydro Corp., GR No.
Uniform Customs and Practice for Documentary Credits (UCP) adopted 146717, November 22, 2004)
by the International Chamber of Commerce, which essentially holds that
the contracts involved in a letter of credit arrangement are to be *Requisites:
maintained in a state of perpetual separation. 1. There is clear proof of fraud
2. It is an abuse of the independent purpose of the LOC and not
*The parties to these different transactions may not co-opt the rights of merely fraud under the main agreement
recourse or remedies found in each transaction, nor are they obligated 3. Irreparable injury might follow if injunction is not granted or the
to go beyond the respective responsibilities of each of the transactions recovery of damages would be severely impaired
in order to determine the propriety or validity of the others.
*This is what differentiates a LOC from other accessory contracts. XI. TRUST RECEIPTS
*A direct consequence of this principle is that banks deal only in paper, Q: What is a trust receipt transaction?
and not in goods. ‘The banker’s issuing agent should be able to sit with a Under the Trust Receipts Law (TRL), a trust receipt transaction
necktie and a white shirt at a desk in a bank and by looking at the papers is any transaction by and between an entruster and an entrustee where
presented to him determine whether the bank is obligated to make the former releases possession of goods to the latter upon the
payment or not. He is not obligated, and indeed, is foreclosed from execution of the entrustee of a trust receipt. By the receipt, the
donning his overalls and going into the field to determine whether the entrustee binds himself to hold the goods in trust for the entruster and
underlying contract has been performed.’ (White and Summers, cited in to sell or otherwise dispose of them, with the obligation to remit the
Bank of America v. CA, 228 SCRA 357) proceeds thereof to the entruster (sec.4, TRL)
Q: What are the obligations of the entrustee? Q: Who bears the risk of loss of the goods?
1. Hold the goods, documents or instruments in trust for the The entrustee, even though he is not the owner of the goods.
entruster and dispose of them strictly in accordance with Loss of goods pending their disposition, does not extinguish the
the terms and conditions of the trust receipt entrustee’s liability, even if the loss was not due to the fault or
2. Receive the proceeds in trust for the entruster and turn negligence of the entrustee (sec.10, TRL)
them over to the extent of the amount owing to the
entruster as appears on the trust receipt
3. Insure the goods for their total value against loss from fire, Ω
theft, pilferage, or other casualties
4. Keep the goods or proceeds thereof separate and capable
of identification as property of the entruster
5. Return the goods, documents or instruments in the event
of non-sale or upon demand of the entruster
6. Observe all other lawful terms and conditions of the trust
receipt
(sec.9, TRL)
Q: What are the rights of the entruster?

1. To receive the proceeds from the sale of the goods, etc.
released under a trust receipt to the extent of the amount
owing to him as appears in the receipt
2. To receive the goods, etc. upon the return of the same by
the entrustee in case of non-sale
3. To enforce all other rights conferred upon him in the trust
receipt
(sec.7, TRL)
Q: What is the right of a purchaser for value and in good faith upon
buying the goods sold by the entrustee?
The purchaser for value and in good faith acquires the goods,
documents or instruments free from the entrustee’s security interest
(sec.11, TRL)

Law On Nego Sundiang Notes

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Law On Nego Sundiang Notes

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RECITATIONS AND LECTURE NOTES

FROM THE CLASSES OF DEAN JOSE R. SUNDIANG 6. presentment for payment or

1|N EGOTIABL E I N ST RUM EN T S – SUN DIANG N OT ES

-payable on demand or at a -always payable on Q: How is negotiability determined?

2|N EGOTIABL E I N ST RUM EN T S – SUN DIANG N OT ES

3|N EGOTIABL E I N ST RUM EN T S – SUN DIANG N OT ES

Q: When do we say that the su m p aya bl e is ‘ ce rta in’ ? NEGOTIABILITY ASSIGNABILITY

4|N EGOTIABL E I N ST RUM EN T S – SUN DIANG N OT ES

5|N EGOTIABL E I N ST RUM EN T S – SUN DIANG N OT ES

6|N EGOTIABL E I N ST RUM EN T S – SUN DIANG N OT ES

Q: what are the rights of a HDC?

7|N EGOTIABL E I N ST RUM EN T S – SUN DIANG N OT ES

*NB: the exception also applies to agents.

8|N EGOTIABL E I N ST RUM EN T S – SUN DIANG N OT ES

Acceptor for Honor

Acceptor for IMPORTANT:

9|N EGOTIABL E I N ST RUM EN T S – SUN DIANG N OT ES

Presentment Q: What are the requisites of acceptance?

Q: Does negotiation by a minor operate to pass title to the holder?

Q: What is a personal defense?

Q: When may delivery be deemed valid?

TYPE OF PARTY Endorsers subsequent to

Still secondarily If the bill is a BEARER bill

If the note is payable

1. By any act which discharges (art.1231 + other pertinent

4. By a valid tender of It is the fault of the holder under

EXCEPTION: when right of

•Buyer and Seller agree on what documents must be presented

o Another bank, known as the negotiating bank, may buy or

Q: What are the rights of the entruster?

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