----------------------- Page 1-----------------------BANCE, SHAYNE AMOR S. Notes in Negotiable Instruments Law| DE LEON, H. Dean R. Villanueva Page 1 of 47 XU LawXU Law Consideration The Negotiable Instruments Law Act No. 2031 Part i Introduction Chapter III Negotiation Chapter I Sec. 30. Whatconstitutes negotiation. An instrument is negotiatedwhen Form and Interpretation it is transferred from one person to another in such a manner as to constitute the transferee the holder thereof. If payable to bearer, it is negotiated by delivery; if payable to order, it is negotiated by the indorsement ofthe holder completed by delivery. Transfer, defined Chapter II v Process by which property is delivered by one person to another. Altiora Peto ----------------------- Page 2-----------------------BANCE, SHAYNE AMOR S. Notes in Negotiable Instruments Law| DE LEON, H. Dean R. Villanueva Page 2 of 47 XU LawXU Law v Transfer of a negotiable instrument from one person to another There are many modes of transfer made insuch manner as to constitute the transferee theholder v A bill of exchange may be transferredin several different ways thereof. and for different purposes which may resultin the acquisition of v There is no negotiation if the transfer does not make the different rights. transferee the holder ofthe instrument. v The NIL does not prescribe an exclusivemethod of transferring negotiable instruments, but only the manner in which their Methods of negotiation independence of equities or defenses might obtain between v The method by which an instrument is negotiated depends the original parties may be preserved. upon whether theinstrument is payable to order or to bearer. v If payable to order: (a)indorsement; and (b) delivery Three methods of transferring a Negotiable Instrument v If payableto bearer: mere delivery. 1. Issue v First delivery of the instrument, complete in form, to a Delivery person who takes it as a holder. v Transfer ofpossession actual or constructive, from one person v First transfer of the instrument toa payee. toanother. v A negotiable instrument's legal life doesnot begin until it is issued by the maker or drawer to thefirst holder. Theft does notconstitute delivery 2. Negotiation v M issues a note payable tobearer but the same was stolen by v Ordinarily involves indorsement. T who deliveredthe note to P. T's acquisition of the notedoes v Negotiation makes it possible for thetransferee to acquire notconstitute delivery for delivery must be voluntary. a better right to a negotiable instrument than the v However,the delivery of T to P constitutes negotiation. transferor had. v Thus, while a thief or finder cannot acquire title to the v Whether the holder is a holder indue course depends upon instrument, by virtue of the theft, he can transfer title to a factors other the fact of negotiation. subsequent innocentpurchaser. 3. Assignment v The less usual method Payment of instrumentby drawee not negotiation v There is no negotiation of a non-negotiable instrument, v The paymentof a check (or other bill) by the drawee bankis not only its assignment. a negotiation and does not make the bank a holder within v Although it may be transferred by indorsement and Section 30. delivery, the assignee acquired the instrument subject to v The bank is netiher the payee nor indorsee. The check is the rules applicable to non-negotiable paper. extinguished andcannot be put into circulation again so as to bind the drawer orindorser. Negotiation v The writing of the nameof the holder on the bank of the check before surrendering it forpayment to the drawee-bank is not an Altiora Peto ----------------------- Page 3-----------------------BANCE, SHAYNE AMOR S. Notes in Negotiable Instruments Law| DE LEON, H. Dean R. Villanueva Page 3 of 47 XU LawXU Law indorsement. Such signature merely serves asa receipt for the v Transfer of instrument is still effected even even when it is money. Upon payment, the check becomes merelya voucher. delivered without indorsement. v Payment effects the discharge of the instrument, not a transfer v The transfer operates as an ordinary assignment, and the of title thereto. assignee is merely placed in the position of the assignor, the former acquiring theinstrument subject to all defenses, real and Bank, no obligation to make partial payment personal, available against the latter. v A bank is under no obligation to makepart payment on a check v Without the indorsement, the transferee would NOT be the up to only the amount of the drawer's funds,where the check is holder of the instrument, he not being the payee, indorsee or drawn for an amount larger than what the drawer has on the bearerthereof. However, the assignee acquire the rightto deposit. have the indorsement of the assignor. When indorsement is v Upon partial payment, the check holder could not be called subsequently obtained, the transfer operates as a negotiation upon to surrender the check and thebank would be without a only as of the time the indorsement isactually made. voucher affording a certain means of showing payment. This rule is based on commercial convenience.(Moran v. CA) [Bance] Meaning, when there is a transfer of an order instrument without indorsement, thereis still a transfer of the NI but itis Assignment, defined a mere assignment, not anegotiation. v An assignment of a bill or note merelymeans a transfer of the title to the instrument, with the assigneegenerally taking only Negotiationv. Assignment such title as his assignor has, subject to all defenses available against his assignor. Negotiation Assignment Type of instrument Refers only to Refers generally to an Assignment of instrument negotiable instruments ordinary contract v Assignment involves a transfer of rights under a contract. The Statusof transferee Holder Assignee transfer of a non-negotiable instrument always constitutes an Defenses Subject only to real Subject toboth real and defenses personal defenses assignment. The word transfer is also used whenreferring to Title of transferee Holder in due course Merely steps into the assignent. When negotiation takes place, the transferee may acquire a better shoes of the assignor becomes a holder. title or greater rights v Absent an express prohibition against assignment or transfer than those possessed written on the face of a non-negotiable instrument, the same by the transferor or may be assigned or transferred. prior party v Thus, a PN marked non-negotiable but notat the same time Indorsements A general indorser Assignor does not stamped non-transferrable or non-assignable may be warrants the solvency warrant the solvency of assigned or transferred. (Sesbreo v. CA) of prior parties prior parties, unless expressly stipulated or the insolvency is known Effect of delivery of ORDER instrument without indorsement Altiora Peto ----------------------- Page 4-----------------------BANCE, SHAYNE AMOR S. Notes in Negotiable Instruments Law| DE LEON, H. Dean R. Villanueva Page 4 of 47 XU LawXU Law to him existing negotiable instrument. Liability Indorser is not liable Assignor is liable even Yes Instrument is negotiated when it is delivered to the unless there be without notice of payee or to an indorsee or the bearer thereof. Hence, presentment and notice dishonor; negotiation is not confined to transfer after delivery of dishonor because a holder may be a payee in possession of the Governing law Act 2031 or the NIL CC 1624-1635 instrument. Reconciling the two schoolsof thought When distinction not material (1) The payee, as the first holder, acquires title to the instrument v If there is no defense to the obligation and only the maker is not by negotiation butby issue or issuance. sought to be held. (2) If the delivery isnot made directly to the payee by the makeror v But whether the transfer of a bill or note is by negotiation or drawer, payee may acquire title by negotiation such as when assignment, the transfer may constitute a sale, exchange, instrument is deliveryto a person other than the payee such as pledge or gift. an agent of the makeror drawer. (De Ocampo v. Gatchalian) (3) There may also be negotiation to the payee when the Payment by means of instrument, merely conditional instrument is deliveredback to him by the last holder. v Payment by means of PN, BoE and other negotiable instruments is merely conditional, meaning, itis subject to the Delivery of negotiable instrument condition that they be converted into cash at maturity. (Art. (1) As to kind Deliverymay be actual or constructive. 1249, CC) (2) As to necessity - Delivery is an essential part of every v This is not the same rule in insurance. In insurance, once a negotiation. Delivery is the operative fact that evidences the promissory note or check in payment of the premium by the intention of the makeror drawer to become bound by it. insurer is made, it renders the policy immediately operative (3) Presumption Delivery is presumed from possession. Except where the policy is silent as to themode of payment, although against a holder in due course, the maker or drawer may one of its condition is that it shallnot be valid or binding until overcome this prima facie presumption by proof that the the first premium is paid. The acceptance, ineffect, waives this instrument was lost orstolen. provision. (Capital Ins. & Surety Co v.Plastic Era Co) Where delivery conditional Can there be negotiation to a payee? Two Schools of Thought No Delivery to the payee by themaker or drawer does not constitute negotiation because the deliveryis part of the creation of a negotiable instrument.Before the writing is delivered, there is no negotiable instrument, no contract Chapter IV as yet. Negotiation on the other hand refers to an Rights of Holders Altiora Peto ----------------------- Page 5-----------------------BANCE, SHAYNE AMOR S. Notes in Negotiable Instruments Law| DE LEON, H. Dean R. Villanueva Page 5 of 47 XU LawXU Law Who is primarily liable v The person primarilyliable on the instrument is the person who by the terms ofthe instrument is absolutely required to paythe same. All other partiesare secondarily liable. (Sec. 192) Primary party v. Secondaryparty Chapter V v The principal distinction between a primarily liable party and a secondarily liable party is that, while the former is Liabilities of Parties unconditionally bound, thelatter is conditionally bound. v Being unconditionally liable, the primary party is absolutely Sec. 60. Liability of maker The maker of a negotiable instrument by required to pay the instrument upon itsmaturity. On the other making it engages that he will pay it accordingto its tenor, and admits the hand, the secondary party undertakes to pay the instrument existence of the payee and his then capacityto indorse. only after certain conditions have been fulfilled,to wit: o Due presentment for payment or acceptance to primary party(Sec. 70) and dishonor by such party (Sec. Liability, defined 184 to 151); v Refers to the obligation of a partyto a negotiable instrument to o Taking of proceedings required after dishonor. pay the same according to its terms. v Generally, the liabilityof all secondary parties to an instrument ends when the primary party pays the full amount of the Classification of parties according to liability instrument. Thus: secondary parties face only potential (1) Primarily liable secondary liability onthe instrument. a. The maker of a promissory note; v Secondary parties are liablein the reverse order in which they b. The acceptor of a bill ofexchange; and c. The certifier of a check. signed theinstrument. (2) Secondarily (conditionall) liable: Liability of maker a. The drawer of a bill; and b. The indorser of a note ora bill. (1) His liability is unconditional and he is the one to whom the holder will look firstfor payment and the one who is expected (3) Not liable: to pay. a. The drawee until he accepts the instrument in which (2) Engages to pay the note according to its terms, subject to no case he becomes an acceptor. condition whatsoever. Due presentment for payment and due When person becomes a party notice of dishonor are not necessary for the purpose of v A person becomes a party to an instrumentby signing his name charging the maker withliability, which is necessary however to thereon. The general rule is that no person is liable on an fix the liability ofany drawer or indorser. instrument unless his signature appears thereon. Altiora Peto ----------------------- Page 6-----------------------BANCE, SHAYNE AMOR S. Notes in Negotiable Instruments Law| DE LEON, H. Dean R. Villanueva Page 6 of 47 XU LawXU Law (3) Promises to pay not only to the payee but to any subsequent necessary proceedings on dishonor be duly taken, hewill pay the amount holder who is legally entitled to the instrument at its maturity thereof to the holder, or to any subsequent indorser who may be date even if the holder does not demandpayment at that time. compelled to pay it. But the drawer may insert in the instrument an express stitpulation negativingor limiting his own liability to the holder. (4) He remains fully liable despite the fact that the instrument is presented for payment late until presecription hasrun. (5) He admits the existence of the payee andhis then capacity (at Liability of drawer the time of signing the note) to indorse. v Hisliability is conditional. Unlike the maker, the drawerdoes not promise to paythe bill absolutely. He makes no warranties but Rationale of the provision engagesto pay after certain conditions are complied with. v The rule operates to prevent the maker fromescaping liability by showing the non-existence and incapacity ofthe payee. The Conditionsthat must be complied with before drawer is liable payee must exist because there is no negotiable instrument (1) The bill is presented for acceptance or for payment; or as the until it is delivered to him. Thepayee must have the capacity to case may be, to the drawee; contract because the note is intended tobe negotiated and not (2) The bill is dishonored by non-acceptance or non-payment, as to be retained with the payee. the casemay be; and (3) The necessary proceedings of dishonor are duly taken. Such Presumption arising from signature: Tan Sia v. YuBiao Sontua proceedings are: v A person placing his name on the face ofa note is prima facie a a. Notice of dishonor is given to the drawer subject to maker and liable as such; and he ispresumed to have acted with certain exceptions; care and to have signed the instrument in question with full b. In case of foreign bills, protest is made followed by a knowledge of its contents. notice of protest. Example: Liability of drawer isthe same as that of general indorser M issues a PN for 500 payable ondemand. P indorses the note v The drawer, therefore is only secondarily liable to the holder, or to A. to any subsequent indorser, who may be compelled to pay it. Upon being sued by A, M cannot say that the agreement His liabilities are conditional in the same manneras the liabilities between him and P was to pay only P300.00 Neithercan he allege that P of a general indorser. is a non-existent nor fictitious person. He isalso precluded from setting v The drawer may, by express stipulation, insert in the up such defenses as minority, insanity orultra vires act of a corporation instrument, negative or limit hisown liability to the holder. [Subsequent indorser refersto any of the indorsers between Sec. 61. Liability of drawer. The drawer by drawing the instrument the drawer and the holder. They are also called intervening indorsers.] admits the existence of the payee and his then capacity to indorse; and engages that on due presentment the instrument willbe accepted or paid, or both, according to its tenor, and that if it be dishonored and the Liability of drawer of a check Altiora Peto ----------------------- Page 7-----------------------BANCE, SHAYNE AMOR S. Notes in Negotiable Instruments Law| DE LEON, H. Dean R. Villanueva Page 7 of 47 XU LawXU Law v The drawer may not unilaterally discharge himselffrom liability Sec. 62. Liability of acceptor. The acceptor by accepting the instrument on checks issued by him merely as securityand not for value to engagesthat he will pay it according to the tenorof his acceptance; and a payee who negotiated the same without his knowledge and admits consent to a holder in the due courseby the mere expediency (a) The existence of a the drawer, the genuineness of his signatures, of withdrawing his funds from the drawee bank. and his capacityand the authority to draw the instrument; and (b) the existence of thepayee and his then capacity to indorse. [Bance: Meaning, the drawer of a check cannot merely withdraw his funds from the drawee bank todischarge liability, Liabilityof drawee before acceptance i.e. avoid payment] v The drawee ofa bill is not liable thereon before acceptance. v By issuing the check, the drawer impliedly represents that funds v He isnot obligated to the payee or any holder toaccept a bill or credits are available for its payment in the drawee bank. althoughhe may be liable to the drawer for breach ofcontract (State Investment House v. CA) if he refuseswithout valid reason to accept the bill. v The drawer can still be made liable under a separate contract v As a general rule, a refusal by the drawee to accept a bill distinct from the instrument. constitutes a dishonor of the instrument which triggers the liability of secondary parties drawer and indorser except Example: those indorsing qualifiedly, that is, without guaranteeing W (drawee) payment. R (drawer) P (payee) A B C (present holder) v Unless the drawee accepts, he owes no dutyto either the payee or any other holder.His only obligation is to the drawer to pay R will only be liable of W dishonors thebills by non-acceptance or non- in accordance with the latter's orders. payment and the necessary proceedings of dishonorare taken. Liability of drawee after acceptance After proceedings are taken: v Once the drawee accepts, he becomes an acceptor. He is in C R, P, A and B. virtually the same position as the maker ofa note v The same results takes place when a drawee bank certifies a If B pays, B may also go after R. check drawn on the bank. v The acceptor is primarily bound on the instrument for by his Drawer v. Maker acceptance, he engagesto pay it according to the terms of his 1. The drawer issues a BoE, while the maker aPN; acceptance, subject to no condition whatsoever. His 2. The drawer is only secondarily liable, while the maker is acceptance,in other words, is a promise to pay. primarily liable; and 3. The drawer can negative, or limit his liability, while the maker Retraction ofacceptance may not do so. v The bill of exchange itself implies a representation by the drawer that the draweeis already in receipt of funds to pay, and Altiora Peto ----------------------- Page 8-----------------------BANCE, SHAYNE AMOR S. Notes in Negotiable Instruments Law| DE LEON, H. Dean R. Villanueva Page 8 of 47 XU LawXU Law the acceptance (admissio of the truth of that representation) v Generally, no one but the drawee may accept; a stranger of makes the drawee primarily liable. volunteer is not bound by acceptance. Ex: When a bill is v The drawee who has accepted cannot retract thisadmission as acceptedfor honor supra protest. against a holder for value, since he has thereby obtained a v While the maker of a note or the drawer ofa bill engages to pay suspension of the holder's remedies against thedrawer and an accordingto the tenor of the instrument, the acceptorengages extension of credit. to pay accordingto the tenor of his acceptance, which is notthe same as the tenorof the bill itself because the acceptance may [Bance: So basically no, the drawee cannot retract his bequalified. acceptance] v Of course, if his acceptance is general or absolute, then he is liable to pay according to the tenor of his acceptance which Payment of check despite stop-payment order incidentally isalso the tenor of the bill itself. v If a drawee-bank accepts or pays a check despite a stop v Thenature of acceptance is important only in thedetermination payment order form the drawer, through oversight or of the kind of liabilities of the parties involved, but not in the otherwise, it cannot refuse to pay the holder or recover what determination of whether a commercial paper is a BoEor not. has been paid; neither may it debit the drawer'saccount unless As long as the commercial paper conforms with the definition the acceptance nor payment nor payment was made prior to ofa BoE, that paper is considered a BoE. the receipt of the order. Effect of acceptance ofan altered bill [Bance: So once acceptance or payment has been made, When a bill is altered without authority by the payee before drawee bank cannot refuse to pay or recover form the payee/holder acceptance andis subsequently accepted by the acceptor asaltered, is what has been paid. It may however debit the account of the drawer theacceptor liable to an innocent holder accordingto the original tenor provided that acceptance or payment was made priorto the receipt of ofthe bill or according to its altered tenor? the order. So if drawee bank after receipt of orderstill paid or accepted Example: A bill issued for P3,000 is altered by P, the payee to a BoE, then it shall suffer the loss.] P8,000 and isaccepted by W. How much is W liable toa A, a holder in due course? Similarity to liability of maker and drawer Thereare two views: v The acceptor has the same liability asthe maker of a promissory (1) Tenor of acceptance the acceptor is liable for note and the drawer of a bill with respect to the existence of P8,000. the payee and his capacity to indorse. a. This is because Sec. 62 provides that the v Like the maker, neither presentment for paymentnor notice of acceptor engages to pay according to the dishonor is necessary to charge him withliability, except where tenor of his acceptance. he is an acceptor for honor. (2) Original tenor of the bill - the acceptoris liable only for P3,000. Liability depends on tenor of acceptance a. This view is in ine with section 132 whichstates that the acceptance of a bill is the Altiora Peto ----------------------- Page 9-----------------------BANCE, SHAYNE AMOR S. Notes in Negotiable Instruments Law| DE LEON, H. Dean R. Villanueva Page 9 of 47 XU LawXU Law signification by the draweeof his assent to the v Theacceptor does not admit the genuineness of theindorser's order of the drawer. This means that the signature becauseit is only the signature of the drawer thatthe acceptor only assents to payaccording to the warrants, although the purported instrument was onthe bill at order of the drawer, andnot what appears to thetime it was accepted. be the order of the drawer. v An acceptoris only held to a knowledge of the signature of the b. It cannot be argued that the acceptor by drawer.By accepting a bill, he only admits the genuineness of accepting an altered bill has assented to the such signature and cannot be charged with knowledge of the alteration for it is difficult how an acceptor wantof genuineness of any other part of the instrument or of could have assented to such if he had no thetitle of the holder. knowledge of the alteration. Distinction between payment and acceptance Warranties of the acceptor v Acceptanceis a promise to perform an act whereas paymentis v Warrants the existence of the payee and his then capacity to the actual performance thereof. indorse v The acceptance ofthe bill is the signification by the drawee of v Admits the existence of the drawer, the genuineness of his his assent to the order of the drawer. But acceptance is not signature and his capacity and authorityto draw the bill. required for checks, for the same are payable ondemand. Defenses precluded Payment amounts to morethan acceptance v That the drawer is fictitious or non-existent v Payment of the amount of a bill check by the drawee implies v That the drawer's signature is a forgery not only acceptance but also compliance with the drawee's v That he has no funds in his handsbelonging to the drawer with obligation. This is founded on the principle that the greater which to pay the bill includes theless. v The drawer has overdrawn his account v Payment amounts tomore than an acceptance, for the second v That the drawer has no capacity tocontract or no authority to is an obligation to pay, while the first is a discharge of the draw a bill. indebtdedness. Thefirst implies not only the drawee's assent to the order of the drawer, but also an admission of his By accepting unconditionally, the drawee becomes liable to a corresponding obligation to pay the instrument and his clear holder, and he cannot allege want or failure of consideration between hi compliance with the obligation. and the drawer. v Acceptance ofthe drawee may also be implied. [The holder is a stranger as regards the transaction between Case:Sumacad v. Province of Samar the drawer and the drawee. (National Bank v. Picornell)] Facts: Provinceof Samar issued a check to P (Postmaster ofBorongan) for the sum of P25k drawnagainst PNB. The postmaster negotiated the Matters not admitted check to A who presented the check to the municipal treasurer of Borongan for payment, but themunicipal treasurer did not pay. Altiora Peto ----------------------- Page 10-----------------------BANCE, SHAYNE AMOR S. Notes in Negotiable Instruments Law| DE LEON, H. Dean R. Villanueva Page 10 of 47 XU Law A sought payment from the Bureau ofPosts which referred the be an indorser, unless he clearly indicates by appropriate words his same to PNB. PNB then asked the Bureau of submitphotostatic copies intention tobe bound in some other capacity. of the check and for A to present the checkto the provincial treasurer and provincial auditor of the province of Samarfor certification. When persondeemed an indorser Before the check could be certified,R withdrew its deposit with v A person signing his name on the back of an instrument is, W, thereby leaving a small balance insufficient to coverthe amount of nothing else appearing, a general indorser and liable as such. the check. A transferred his rights to be whowas unable to cash it. Being an indorser, he is chargeable onlyafter presentment and notice of dishonor. Issue: Was there an implied acceptance by W? Parol evidence inadmissible Held: Yes. In requesting photostatic copies of thecheck in question and v The law absolutely fixes the status of the indorser; it does not requiring A to present the check for certification, PNB voluntarily merelyraise a presumption that he is such. So onewho signs as assumed the obligation of holding so much of thedeposit as would be anindorser cannot show by parol evidence his intention to be sufficient to cover the amount of the check or before allowing the bound in some other capacity, as for example, that he signed withdrawal that exhausted said deposit, of makingthe necessary inquiry merely as an agent or for the purpose only of identifying a on the matter. person on theinstrument. The law requires that he indicatesby The request on the Bureau of Posts and the requirement appropriate words his intention to be bound in some other imposed on A by W would be an empty gesture if W did not thereby capacity on the instrument itself. mean to assume the obligation of paying the check and holding sufficient deposit of R for the purpose. However, such obligation is Reasonfor the rule merely subsidiary, R being primarily liable to paythe same. v Founded upon commercial necessity. v The full and free circulation of negotiable papers which take the Dissenting opintion: J. Padilla place of moneyis a matter of great importance. No, under the facts of the case, no obligation was created on v To require each assignee, before accepting them, toinquire into thep art of W to pay the amount of the check. To hold W liable, the and investigate every circumstance bearing upon the original original check must have been presented to W for payment and W issuance and to take cognizance of all theequities between the should have refused to honor or cash it. The subsequent withdrawal of R original parties would utterly destroy their commercial value of its deposit could not be prevented by Wand if it had refused, it might and seriously impede business transactions. be held responsible for damages for refusing toallow the withdrawal. The only party liable for the payment ofthe check is R. W should Whena person liable as guarantor be held free from any liability, primarily orsubsidiarily. v Aperson who writes, in addition to his signature,words like I hereby guarantee paymentor payment guaranteed or their equivalent, indicates his intention to be bound as a guarantor in Sec. 63. When person deemed indorser. A person placing his signature upon an instrument otherwise as maker, drawer oracceptor is deemed to which case he is not discharged from liability merely because of Altiora Peto ----------------------- Page 11-----------------------BANCE, SHAYNE AMOR S. Notes in Negotiable Instruments Law| DE LEON, H. Dean R. Villanueva Page 11 of 47 XU Law the lack of due presentment or due notice of dishonor. He Asa mere agent for collection, a bank is notbound to know the waives the need for presentment, protest ornotice of dishonor. genuinenessof prior indorsements. v Unlike however an indorser, a guarantor is liable only (1) Anintermediate or collecticing bank which accepts a check subsidiarily after the assets of the principal debtor have been for depositand forwards it to the drawee bank for payment exhausted. stamped all prior indorsements guaranteed does not indorse the check as a general indorser but merely as an Liability as surety agent bank, guaranteeing only prior indorsements not v A person who writes his name on the backof an instrument as the genuineness of the check itself, so thatit is not liable to surety shows his intention to be boundas surety rather than as the drawee bank which paid the check in casethe signature an indorser. As surety, he is primarilyand absolutely liable with of the drawer is forged. (PNB v. CA, 1968) the principal debtor without benefit of exhaustion of the (2) Abank is estopped from raising non-negotiability ofcheck properties of the latter and without also the necessity of (accepts for deposit) on the back of which it stamped its presentment or notice of dishonor. guarantee of all prior indorsements and/or lack of indorsement and subsequently presented those checks Signature made for identification only for clearingwith another bank which on the strength of the v A party is liable only as a guarantor and not as indorser if his guarantee cleared the checks and credited the account of indorsement is made for identification only. the first bank. (Banco de Oro v. Equitable Banking Corp, 1988) Engagement of guarantor (3) A collectingbank which allowed a crossed check payable to A guarantor may sign an instrumenteither payment guaranteed two payees to be deposited by a co-payee in his account or collection guaranteed. with the co-payee later withdrawing the entire proceeds thereof upon presentment with the drawee bank without (a) When a gurantor signs an instrument payment guaranteed or the otherpayee (corporation) having indorsed the check or equivalent words, the signer engages that if the instrument is authorized him to indorse it in its behalf is liable to the not paid when due he will pay it according to its tenor even if other payee for the full amount of thecheck. The collecting the party entitled to payment has not attempted to collect from bank has the duty to ascertain the genuinenessof all prior the party liable for it. indorsements. (Metropolitan bank v. BA Finance (b) When he signs collection guaranteed or equivalent words, the Corporation,2009) signer engages that if the instrument isnot paid when due he will pay it according to its tenor butonly after the party entitled Sec.64. Liability of irregular indorser. Where aperson, not otherwise a to payment has tried to collect from the partyliable for it and party to an instrument, places thereon his signature in blank before has been unable to do so and it isapparent that it is useless to delivery, he is liable as indorser, in accordance with the following rules: proceed against him. (a) if the instrumentis payable to the order of a third person, heis liable to the payee and toall subsequent parties. Liability of agent bank for collection Altiora Peto ----------------------- Page 12-----------------------BANCE, SHAYNE AMOR S. Notes in Negotiable Instruments Law| DE LEON, H. Dean R. Villanueva Page 12 of 47 XU Law (b) If the instrument is payable to theorder of the maker or drawer, or is payable to bearer, he is liable to allparties subsequent to the maker When provision applies or drawer. v Section 64 dealsonly with the liability of an irregular indorserto (c) If he signs for the accommodation ofthe payee, he is liable to all the payee and subsequent parties. The rights and liabilities of parties subsequent to the payee. several irregular indorsers as among themselves are governed by Section 68. Irregular or anomalous indorsement v Section64 has no application to a case where thesignature was v Denotes an indorsement for some purpose other than to placedon the instrument after delivery to the payee. transfer the instrument, or an indorsementby a stranger to the instrument or by one not in the actualor apparent chain of title, Rules as to liability of irregular or anomalous indorser. especially an indorsement made prior to the delivery of the (1) Whereinstrument is payable to the order of a thirdperson instrument to the payee. v The purpose of the indorsement not for transfer is usually to Example: M issues note payable to P or order but P won't accept add the signer's credit to the instrument. unless X indorsesit. So X indorses in blank and the noteis delivered to P. X's name appearsas the first indorser followed by P's name.P When a person an irregular or anomalous indorser thennegotiates to A. v An irregular or anomalous indorser isone who: X is liable to P and A, as asubsequent party, not to to M. o Not otherwise a party to theinstrument; o Places his signature thereon in blank (2) Instrument payableto the order of maker or drawer or to bearer o Before delivery Example: M issues note payableto himself (maker and payee are the The phrase not otherwise a party to an instrument means same) and M cannot circulate the note without X's indorsement.X that the irregular indorser is nota maker, drawer, acceptor, or then signs his name and M indorses anddelivers the instrument to regular indorser thereon. A. X is liable to A, a party subsequent to M, the maker and to v The irregular or anomalous indorser indorsesthe instrument in subsequent parties bot not to M. M is liable toX. The liability ofM is an unusual, singular or peculiar manner. His name appears that of a first indorser, while X, of a second indorser. If the note where we would naturally expect another name. Thus, if an were payable to bearer, X would also be liable to all parties instrument is made payable to the order ofP as the payee, P's subsequent. name should appear on the back of theinstrument as the first indorser but instead, we find the nameof X. In such a case, X is (3) Irregular indorser signing for accommodation of payee an irregular or anomalous indorser. Example: Missues a note to P. P wants to discountthe note with A, v Usually, an irregular or anomalous indorser is an abank, but the bank is not willing to rely onthe financial ability of M accommodation indorser. He is not necessarily so where he and P alone. P then secures X to accommodate him. X without participates in the consideration for theinstrument. Altiora Peto ----------------------- Page 13-----------------------BANCE, SHAYNE AMOR S. Notes in Negotiable Instruments Law| DE LEON, H. Dean R. Villanueva Page 13 of 47 XU Law receiving any valuable consideration, but only for purpose of who negotiates the instrument in the same condition inwhich lending his name and credit to P, indorsesthe note in blank. he received it, making no indorsement at all. X is liable to all parties subsequent toP, the payee. P, is in effect v So this does not govern a blank indorsementwhich indorser is the first indorse, and X the second indorsers. governed by Section 66. Warranties of irregular indorser Warranty liability of one negotiating by delivery and of qualified v Section 64 provides only for the parties to whom an irregular indorser indorser is liable. v The liability ofa person negotiatin a bearer instrument by mere v His warranties are the same as those of a general indorser delivery is the same as the person who negotiatesit by qualified under Sec. 66 inasmuch as his indorsement is in blank, which, in indorsement. itself, is an indorsement without qualification. v Both do not assume to pay the instrument in the event of its dishonor, unless the dishonor is based on any of the four implied warranties enumeratedin Section 65. Sec. 65. Warranty where negotiation by delivery, and so forth. Every person negotiating an instrument by delivery or by a qualified v Theyare merely assigning a credit. indorsement warrants v Their liability differswith respect to the person in whose favor (a) that the instrument is genuine and inall respect what it purports the warranty extends. While the liability of the one who to be; negotiates by mere delivery extends in favor only of his (b) That he has good title to it; immediate transferee, the qualified indorser is liable to all (c) That all prior parties had capacity tocontract; subsequent holders who maketitle through his indorsement for (d) That he has no knowledge of any fact which would impair the validity of the instrument or render it valueless. breach of any of his warranties. But when the negotiation is by deliveryonly, the warranty extends in favor of no holder other than the immediate transferee. Examples: The provisions of subdivision (c) of this section do not apply to (1) M makes a PN payable to bearer anddelivers the same to P persons negotiating public or corporation securities, otherthan bills and who negotiatesit to A either by delivery or a bya qualified indorsement. notes. If the note is dishonored in the hands of A due to the insolvency of M, A cannot recover fromP because P does not warrant M's solvency. Negotiation by delivery/qualified indorsement P however isliable under Sec. 65. v Every indorser makes certain warranties or guarantees about If A subsequently negotiates it to B, thus making it appear as the instrument he is negotiating. This warranty liability is follows: unconditional, i.e. it is not conditioned upon proper M P A B presentment and dishonor of the instrumentand the giving of P will not be liable to B even under Sec. 65 for his warranties notice of the dishonor. only extend to A,his immediate transferee. A however is liable toB for v Negotiation by delivery here pertains to negotiations wherein the latter is hisimmediate transferee. the indorsement is not necessary because the instrument is payable to bearer. The words by delivery refer to a holder Altiora Peto ----------------------- Page 14-----------------------BANCE, SHAYNE AMOR S. Notes in Negotiable Instruments Law| DE LEON, H. Dean R. Villanueva Page 14 of 47 XU Law (2) R issued 10 checks (two of threecrossed checks are bearer comparative or relative negligence checks, and one uncrossed bearer check) payable to P, Inc. X, a sales and the demands of substantive agent of P, indorsed all the checks to ACorp, which deposited the same justice. The proportionate sharing in its current account with BPI. After temporarily crediting the amount may be 50-50 or 60-40. to A Corp's account, BPI debited the amount againstthe account of A Corp upon being informed by P, Inc. that the indorsement by X were 2. Assumes warranty of an indorser forgeries. v A collecting bank where a check is deposited which Under Sec. 65, the warranty of R with respect to the bearer