Nego Reviewer

1 Negotiable Instruments Law Finals reviewer Prof. J.J. Disini 1 Semester A.Y. 2011-2012 st

Janz Hanna Ria N. Serrano Campos Annotations + Additional Cases Special thanks to A2010 legendary digests for the case doctrines Introduction 1. Kinds of negotiable instruments Instruments are negotiable when they conform to all the requirements prescribed by the NIL [Act 2031; Feb. 3, 1911] Forms of negotiable instruments according to the NIL: promissory notes and bills of exchange o PN – evidences a promise to pay money  e.g. certificate of deposit - instrument issued by a bank reciting a deposit of a certain sum. Payable either at a fixed time or on demand, to the depositor therein  bond -an evidence of indebtedness issued by a corporation, public or private, payable at a definite date in the future, usually for a long term o BoE – an order made by one person to another to pay money to a third person  e.g. CHECK (which is always payable on demand)  draft – used mainly in transactions between persons physically remote from each other; an order made by one person (buyer) addressed to a person having in his possession funds of such buyer, ordering the addressee to pay the purchase price to the seller of the goods 2. Parties and the nature of their liabilities  Promissory note: maker and payee Maker: the promissor Payee: the person to whom the promise to pay is amde  Bill of exchange: drawer, drawee, payee Drawer: the person who gives the order to pay Drawee: the addressee of the order Payee: person to whom the payment is to be made o When the payee transfers it to another by signing it at the back he becomes an INDORSER o Indorsee – the person to whom he negotiates  becomes the holder  The primary party liable is the one who is absolutely and unconditionally required to pay the instrument when it falls due PN: maker BoE: no person primarily liable unless the drawee accepts the order of the drawee to pay  BoE: drawer and indorser – secondarily liable 1) A demand or presentment be duly made on the primary party 2) Should said party dishonor such instrument, that a notice of such dishonor be given to the secondary party sought to be charged  An indorser by indorsing impliedly enters into 2 contracts: (1) He is selling/transferring the instrument to his indorsee, thus assuming liabilities similar to that of a seller/transferor of personal property (2) He warrants that he will pay the instrument when the 2 conditions have been fulfilled. 3. Functions of negotiable instruments a. A substitute for money in payment for property or services b. As a means of creating and transferring credit c. To facilitate the sale of goods Although NI do not constitute legal tender, they often take the place of money as a means of payment CC, A1249: although a negotiable instrument may be used as a substitute for money, its validity as a means of payment is conditioned on its being honored by the person bound by its terms to pay it o even should the creditor accept the check, such acceptance will not extinguish the obligation, which remains suspended until the payment of the check is realized o but, if nonpayment is caused by plaintiff’s negligence, payment will be deemed to have been effected, and the obligation for which it was given as conditional payment will be deemed discharged. o The tender of a check is sufficient to compel redemption since such is not an obligation but a right. 4. The concept of negotiability 5. The origin of negotiable instruments 6. History of the NIL 7. Applicability of the NIL Only to negotiable instruments. NIL, 196. Cases not provided for in act – Any case not provided for inthis Act shall be governed by the provisions of exiting legislation, or in default thereof, by the rules of the Law Merchant. Chapter I: REQUISITES OF NEGOTIABILITY NIL, 1. Form of negotiable instruments. - An instrument to be negotiable must conform to the following requirements: (a) It must be in writing and signed by the maker or drawer; (b) Must contain an unconditional promise or order to pay a sum certain in money; (c) Must be payable on demand, or at a fixed or determinable future time; (d) Must be payable to order or to bearer; and (e) Where the instrument is addressed to a drawee, he must be named or otherwise indicated therein with reasonable certainty. *the fact that an instrument does not meet the foregoing requisites will not affect its validity, the only consequence being that it will be governed not by the NIL but by the general law on contracts NIL, 184. Promissory note, defined. - A negotiable promissory note within the meaning of this Act is an unconditional promise in writing made by one person to another, signed by the maker, engaging to pay on demand, or at a fixed or determinable future time, a sum certain in money to order or to bearer. Where a note is drawn to the maker's own order, it is not complete until indorsed by him. NIL, 126. Bill of exchange, defined. - A bill of exchange is an unconditional order in writing addressed by one person to another, signed by the person giving it, requiring the person to whom it is addressed to pay on demand or at a fixed or determinable future time a sum certain in money to order or to bearer. 1. Written form & signature NIL, 18. Liability of person signing in trade or assumed name. - No person is liable on the instrument whose signature does not appear thereon, except as herein otherwise expressly provided. But one who signs in a trade or assumed name will be liable to the same extent as if he had signed in his own name. NIL, 19. Signature by agent; authority; how shown. - The signature of any party may be made by a duly authorized agent. No particular form of appointment is necessary for this purpose; and the authority of the agent may be established as in other cases of agency. “in writing” includes “print” and it includes not only what is written baut also what has been typed Signature binding whether it is in one’s handwriting, or printed, engraved, lithographed, or photographed, so long as it is intended or adopted as the signature of the signer or made with his authority 2. Unconditional order or promise to pay The instrument must contain a promise or an order to pay Mere acknowledgment of a debt does not constitute a promise There should be an express promise on the face of the instrument to pay the money In a BoE, words which are equivalent to an order are sufficient o Order: a command or imperative direction o Mere request or authority to pay does not constitute an order o The instrument is by its nature demanding a right a. When unconditional NIL, Sec. 3. When promise is unconditional. - An unqualified order or promise to pay is unconditional within the meaning of this Act though coupled with:

2 Negotiable Instruments Law Finals reviewer Prof. J.J. Disini 1 Semester A.Y. 2011-2012 st

Janz Hanna Ria N. Serrano Campos Annotations + Additional Cases Special thanks to A2010 legendary digests for the case doctrines (a) An indication of a particular fund out of which reimbursement is to be made or a particular account to be debited with the amount; or (b) A statement of the transaction which gives rise to the instrument. The fact that the right is absolute greatly enhances its ability to pass freely from one person to another As to (a)  unless the reference to the fund clearly indicates an intention that such fund alone should be the source of payment, courts usually decide in favor of negotiability [Example: Pay to the order of X the sum of 100. Reimburse yourself from the rentals of my house.] Powell & Powell v. Greenleaf & Currier. [“For and in consideration of a contract and agreement entered into this day with us…”] General Rule: whenever a bill of exchange or promissory note contains a reference to some extrinsic contract in such a way as to make it subject to the terms of that contract, as distinguished from a reference importing merely that the extrinsic agreement was the origin of the transaction, or constitutes the consideration of the bill or note, the negotiability is destroyed Irving Trust v. Leff. “Void unless and until title to premises…is taken…”  not unconditional 3. Sum payable must be certain NIL, 2. What constitutes certainty as to sum. - The sum payable is a sum certain within the meaning of this Act, although it is to be paid: (a) with interest; or (b) by stated installments; or (c) by stated installments, with a provision that, upon default in payment of any installment or of interest, the whole shall become due; or (d) with exchange, whether at a fixed rate or at the current rate; or (e) with costs of collection or an attorney's fee, in case payment shall not be made at maturity. An instrument cannot function properly as a substitute for money unless the amount for which it stands for is specified and definite If the exact amount can be computed without looking beyond the instrument, then still negotiable 4. Payable in money Since negotiable instruments are intended to be substitutes for money, to properly perform such function they must necessarily be capable of being transformed into money if the holder so wishes If a contract contains a stipulation that payment be made other than Pesos, such will be ineffective and the oblig will only be discharged in legal tender, BUT the instrument is still negotiable An instrument which contains an order or promise to do an act in addition to the payment of money is not negotiable But, if the payee is given the right to repossess the property sold for which the note was given, should payment be not made on time, its negotiability is not impaired. It is when it’s the maker who stipulates something in lieu of money will the instrument be non-negotiable Incitti v. Ferrante. 15,400 Italian lires = money and not a commodity; a note for any number of Italian lire is only another form of expression for the equivalent in dollars. || Money is purely a legal institution; it is impossible without law. Money is what the law or custom makes receivable for payments of taxes and debts 5. Certainty of time of payment (a) When payable on demand NIL, 7. When payable on demand. - An instrument is payable on demand: (a) When it is so expressed to be payable on demand, or at sight, or on presentation; or (b) In which no time for payment is expressed. Example: “I promise to pay X or order the sum of 100 at sight.” || “I promise to pay C or order the sum of 100.” Holder may call for payment at any time Maker likewise has an option to pay at any time, and the refusal of the holder to accept payment will terminate the running of interest; but the obligation to pay remains. (b) Payable at a fixed time “I promise to pay C or order the sum of 1000 on 10/13/2011.” Only on said date, and not before, may the holder demand its payment Should he fail to demand payment, the instrument becomes overdue but remains valid and negotiable  converted into a demand instrument (c) Payable at a determinable future time NIL, 4. Determinable future time; what constitutes. - An instrument is payable at a determinable future time, within the meaning of this Act, which is expressed to be payable: (a) At a fixed period after date or sight; or [I promise to pay X or order the sum of 100 30 days after date] (b) On or before a fixed or determinable future time specified therein; or [I promise to pay C or order the sum of 100 on or before 10/31/2011] (c) On or at a fixed period after the occurrence of a specified event which is certain to happen, though the time of happening be uncertain. [I promise to pay X or order the sum of 100 60 days after Y’s death.] An instrument payable upon a contingency is not negotiable, and the happening of the event does not cure the defect. NIL, 11. Date, presumption as to. - Where the instrument or an acceptance or any indorsement thereon is dated, such date is deemed prima facie to be the true date of the making, drawing, acceptance, or indorsement, as the case may be. NIL, 17. Construction where instrument is ambiguous. - Where the language of the instrument is ambiguous or there are omissions therein, the following rules of construction apply: (a) Where the sum payable is expressed in words and also in figures and there is a discrepancy between the two, the sum denoted by the words is the sum payable; but if the words are ambiguous or uncertain, reference may be had to the figures to fix the amount; (b) Where the instrument provides for the payment of interest, without specifying the date from which interest is to run, the interest runs from the date of the instrument, and if the instrument is undated, from the issue thereof; (c) Where the instrument is not dated, it will be considered to be dated as of the time it was issued; (d) Where there is a conflict between the written and printed provisions of the instrument, the written provisions prevail; (e) Where the instrument is so ambiguous that there is doubt whether it is a bill or note, the holder may treat it as either at his election; (f) Where a signature is so placed upon the instrument that it is not clear in what capacity the person making the same intended to sign, he is to be deemed an indorser; (g) Where an instrument containing the word "I promise to pay" is signed by two or more persons, they are deemed to be jointly and severally liable thereon. (d) Effect of acceleration provisions Option to accelerate maturity is on whom? When still negotiable When rendered non-negotiable MAKER Instrument negotiable whether option is absolute [covered by Sec. 4(b)] or conditional HOLDER  depends on the nature of the If the option can be exercised only upon the Where the holder’s right to exercise the option is provision happening of a specified event or act over which unconditional, the time of payment is rendered he has no control uncertain Option given to the holder to accelerate maturity upon failure of maker to pay any installment [Sec 2(c)] Acceleration of maturity by operation of law RFC v. CA. -At the outset, it should be noted that the makers of the promissory note promised to pay the obligation evidenced thereby "on or before October 31, 1951." Although the full amount of said obligation was not demandable prior to October 31, 1951, in view of the provision of the note

3 Negotiable Instruments Law Finals reviewer Prof. J.J. Disini 1 Semester A.Y. 2011-2012 st

Janz Hanna Ria N. Serrano Campos Annotations + Additional Cases Special thanks to A2010 legendary digests for the case doctrines

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relative to the payment in ten (10) annual installments, it is clear, therefore, that the makers or debtors were entitled to make a complete settlement of the obligation at any time before said date. Utah State NB v. Smith. A future determinable time could be one determinable at some time in the future, as well as one determinable at present, or in advance. If the instrument expressly states that it is payable “on or before” a fixed date, it is payable at the date in question, or, at the option of the payor, at any earlier date selected by him for payment. Puget Sound SB v. Washington Paving Co. “This note shall become due and payable on demand at the option of the payee when t seems itself insecure.”  the wordings of the note gives the payee the unrestricted power to declare the notes due at any time before maturity, and that the right to exercise such power obsessed is not dependent upon nor does it grow out of any act, promise, or agreement of the maker.  non-negotiable Henry v. Madison. The notes being due immediately upon the default, they were due when the subsequent payments were made upon them, and acceptance of the payments were made upon them, and acceptance of the payments thereafter tendered merely operated to reduce the amount due thereon just as payments made after the due date specified in a note without an acceleration clause would so operate. (e) Provision extending time of payment Example: where a note due one year after date provides that the maker may extend it for another year. Effect: the same as a note payable “on or before” two years from date, i.e., it is an acceleration of the maker  STILL NEGOTIABLE Where HOLDER given the option to extend time payment by mere inaction or indulgence for an indefinite time depending on his will = STILL NEGOTIABLE; why? Because w/ or w/o the provision, the holder may choose to by indulgent be not demanding payment at maturity date SB of Halstad v. Bilstad. “It is agreed that if crop is below 8 bushels per acre, this note shall be extended for a year.”  negotiable; The notes would become due in any event, although the exact time could not be determined when they were executed. Security NB of Sioux City v. Gunderson. “The makers, indorsers, guarantors…and the sureties hereon severally waive presentment for payment, protest and notice of dishonor, and consent that the time of its payment may be extended without notice, all defenses on the ground of any extension of time of payment being hereby expressly waived.”  negotiable. They seem intended merely to prevent the discharge of secondary party by extensions of time, but not to alter the specified date of maturity, unless there is an expressed agreement between the holder and the maker for such an extension. Must be payable to order or bearer “words of negotiability”  “payable to ‘order’ or to ‘bearer’”  serve as an expression of consent that the instrument may be transferred Indispensable since the maker assumes greater risks under a negotiable instrument than under a non-negotiable one a. When payable to order NIL, 8. When payable to order. - The instrument is payable to order where it is drawn payable to the order of a specified person or to him or his order. It may be drawn payable to the order of: (a) A payee who is not maker, drawer, or drawee; or [I promise to pay X or order the sum of 100. Sgd, Y] (b) The drawer or maker; or [Pay to the order of myself the sum of 100. Sgd, Y] (c) The drawee; or [Pay to the order of yourself the sum of 100. Sgd, Y.] (d) Two or more payees jointly; or [Pay to the order of X and Y the sum of 100. Sgd, A] (e) One or some of several payees; or [Pay to the order of X or Y the sum of 100. Sgd, A] (f) The holder of an office for the time being. [I promise to pay to the order of the Secretary of ABC Corp. the sum of 100] Where the instrument is payable to order, the payee must be named or otherwise indicated therein with reasonable certainty. b. When payable to bearer NIL, 9. When payable to bearer. - The instrument is payable to bearer: (a) When it is expressed to be so payable; or (b) When it is payable to a person named therein or bearer; or (c) When it is payable to the order of a fictitious or non-existing person, and such fact was known to the person making it so payable; or When the name of the payee does not purport to be the name of any person; or (d) When the only or last indorsement is an indorsement in blank. that the payee is fictitious or non-existing must be known to the maker/drawer; theory: since the payee is incapable of indorsing and since the maker/drawer knew of this fact, he must have intended the instrument to be transferred by mere delivery Wettlaufer v. Baxter. The note payable to Baxter alone, and no words of “to order” or “bearer,” was not a negotiable instrument. These erodes are indiospensable to make the paper a negotiable instrument within the meaning of the act. Ang Tek Lian CA. Where a check is made payable to the order of “cash”, the word “cash” does not purport to be the name of any person', and hence the instrument is payable to bearer. The drawee bank need not obtain any indorsement of the check, but may pay it to the person presenting it without any indorsement. In other words, the bank, to which the check is presented for payment, need not have the holder identified, and is not negligent in failing to do so. Parties must be designated with certainty a. Maker & drawer Must sign the instrument and his signature is usually written at the lower-right hand corner thereof Drawee – lower-left hand corner Payee and successive indorsees negotiate the instrument by signing on the back b. Payee NIL, 8, supra. c. Drawee NIL, 128. Bill addressed to more than one drawee. - A bill may be addressed to two or more drawees jointly, whether they are partners or not; but not to two or more drawees in the alternative or in succession. NIL, 130. When bill may be treated as promissory note. - Where in a bill the drawer and drawee are the same person or where the drawee is a fictitious person or a person not having capacity to contract, the holder may treat the instrument at his option either as a bill of exchange or as a promissory note. Provisions not affecting negotiability NIL, 5. Additional provisions not affecting negotiability. - An instrument which contains an order or promise to do any act in addition to the payment of money is not negotiable. But the negotiable character of an instrument otherwise negotiable is not affected by a provision which: (a) authorizes the sale of collateral securities in case the instrument be not paid at maturity; or (b) authorizes a confession of judgment if the instrument be not paid at maturity; or (c) waives the benefit of any law intended for the advantage or protection of the obligor; or (d) gives the holder an election to require something to be done in lieu of payment of money. But nothing in this section shall validate any provision or stipulation otherwise illegal. PNB v. Manila Oil Refining. The Negotiable Instruments Law, in section 5, provides that "The negotiable character of an instrument otherwise negotiable is not affected by a provision which (b) Authorizes confession of judgment if the instrument be not paid at maturity"; but this provision of law cannot be taken to sanction judgments by confession, because it is a portion of a uniform law which merely provides that, in jurisdictions where judgments notes are recognized, such clauses shall not affect the negotiable character of the instrument. Moreover, the same section of the Negotiable Instruments Law concludes with these words: "But nothing in this section shall validate any provision or stipulation otherwise illegal." The Court is of the opinion thus that warrants of attorney to confess judgment are not authorized nor contemplated by Philippine law; and that provisions in notes authorizing attorneys to appear and confess judgments against makers should not be recognized in this jurisdiction by implication and should only be considered as valid when given express legislative sanction. Omissions not affecting negotiability NIL, 6. Omissions; seal; particular money. - The validity and negotiable character of an instrument are not affected by the fact that: (a) it is not dated; or

4 Negotiable Instruments Law Finals reviewer Prof. J.J. Disini 1 Semester A.Y. 2011-2012 st

Janz Hanna Ria N. Serrano Campos Annotations + Additional Cases Special thanks to A2010 legendary digests for the case doctrines (b) does not specify the value given, or that any value had been given therefor; or (c) does not specify the place where it is drawn or the place where it is payable; or (d) bears a seal; or (e) designates a particular kind of current money in which payment is to be made. But nothing in this section shall alter or repeal any statute requiring in certain cases the nature of the consideration to be stated in the instrument. 10. Rules of Construction NIL, 17. Construction where instrument is ambiguous. - Where the language of the instrument is ambiguous or there are omissions therein, the following rules of construction apply: (a) Where the sum payable is expressed in words and also in figures and there is a discrepancy between the two, the sum denoted by the words is the sum payable; but if the words are ambiguous or uncertain, reference may be had to the figures to fix the amount; (b) Where the instrument provides for the payment of interest, without specifying the date from which interest is to run, the interest runs from the date of the instrument, and if the instrument is undated, from the issue thereof; (c) Where the instrument is not dated, it will be considered to be dated as of the time it was issued; (d) Where there is a conflict between the written and printed provisions of the instrument, the written provisions prevail; (e) Where the instrument is so ambiguous that there is doubt whether it is a bill or note, the holder may treat it as either at his election; (f) Where a signature is so placed upon the instrument that it is not clear in what capacity the person making the same intended to sign, he is to be deemed an indorser; (g) Where an instrument containing the word "I promise to pay" is signed by two or more persons, they are deemed to be jointly and severally liable thereon. Continental Illinois Bank v. Clement. “Where an instrument containing words “I promise to pay” is signed by 2 or more persons, they are deemed to be jointly and severally liable thereon Chapter II: TRANSFER 1. Delivery & Issuance NIL, 16. Delivery; when effectual; when presumed. - Every contract on a negotiable instrument is incomplete and revocable until delivery of the instrument for the purpose of giving effect thereto. As between immediate parties and as regards a remote party other than a holder in due course, the delivery, in order to be effectual, must be made either by or under the authority of the party making, drawing, accepting, or indorsing, as the case may be; and, in such case, the delivery may be shown to have been conditional, or for a special purpose only, and not for the purpose of transferring the property in the instrument. But where the instrument is in the hands of a holder in due course, a valid delivery thereof by all parties prior to him so as to make them liable to him is conclusively presumed. And where the instrument is no longer in the possession of a party whose signature appears thereon, a valid and intentional delivery by him is presumed until the contrary is proved. In re: Marten’s Estate. In mom’s safe an envelope was found, “Please give to S. Fisher in case of death.”  no delivery. 2. Negotiation NIL, 30. What constitutes negotiation. - An instrument is negotiated when it is transferred from one person to another in such 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 of the holder and completed by delivery. NIL, 191. Definition and meaning of terms. - In this Act, unless the contract otherwise requires: "Acceptance" means an acceptance completed by delivery or notification; "Action" includes counterclaim and set-off; "Bank" includes any person or association of persons carrying on the business of banking, whether incorporated or not; "Bearer" means the person in possession of a bill or note which is payable to bearer; "Bill" means bill of exchange, and "note" means negotiable promissory note; "Delivery" means transfer of possession, actual or constructive, from one person to another; "Holder" means the payee or indorsee of a bill or note who is in possession of it, or the bearer thereof; "Indorsement" means an indorsement completed by delivery; "Instrument" means negotiable instrument; "Issue" means the first delivery of the instrument, complete in form, to a person who takes it as a holder; "Person" includes a body of persons, whether incorporated or not; "Value" means valuable consideration; "Written" includes printed, and "writing" includes print. 3. Methods of negotiation If payable to order, requisites: (1) An indorsement by the payee or present holder  indorsement = signature of the indorser usually on the back of the instrument  Indorsement constitutes a transfer or sale of instrument to indorsee  Signifies the agreement of indorser to answer for the amount represent by the instrument in case of default of the maker or party primarily liable (2) Its delivery to the transferee or indorsee, who now becomes the holder If payable to bearer: by mere delivery 4. How indorsement made a. By signature on instrument or on allonge NIL, 31. Indorsement; how made. - The indorsement must be written on the instrument itself or upon a paper attached thereto. The signature of the indorser, without additional words, is a sufficient indorsement. Clark v. Thompson. The use of the allonge was allowable only when the back of the instrument itself was so covered by previous indorsements that convenience or necessity required additional space for future indorsements b. In case of joint payees  both need to indorse to constitute a valid negotiation c. If name misspelled NIL, 43. Indorsement where name is misspelled, and so forth. - Where the name of a payee or indorsee is wrongly designated or misspelled, he may indorse the instrument as therein described adding, if he thinks fit, his proper signature. Young v. Hembree. Payee= “Horn & Faulkner Oil Trust”; indorsed: “”Horn & Faulkner, by LH Horn”  On its face, the indorsement is not that of the payee, And there is no evidence in the record to show that they are one and the same firm or legal entity. 5. Indorsement must be of entire instrument NIL, 32. Indorsement must be of entire instrument. - The indorsement must be an indorsement of the entire instrument. An indorsement which purports to transfer to the indorsee a part only of the amount payable, or which purports to transfer the instrument to two or more indorsees severally, does not operate as a negotiation of the instrument. But where the instrument has been paid in part, it may be indorsed as to the residue. Purpose: to protect the obligors for more than one action on the instrument A note payable by installments, where some installments have been paid, the instrument may still be negotiated for the remaining unpaid installments Blake v. Weiden. According to Sec. 32 of the Uniform Negotiable Instruments Law, “the indorsement must be an indorsement of the entire instrument. An indorsement which purports to transfer to the instrument to two or more indorsees severally, does not operate as a negotiation of the instruments.” || When there has been a purported indorsement of the whole instrument, in separate parts totwo or more transferee, the purported indorsees take legal title to their several shares, or any one or more may sue, provided all the other indorsees are brought in as parties. || Sec. 62 of the Uniform Negotiable Instruments Law states that the indorsement does not “operate as a negotiation,” and suggests that it is entirely inoperative 6. Kinds of indorsements NIL, 33. Kinds of indorsement. - An indorsement may be either special or in blank; and it may also be either restrictive or qualified or conditional

5 Negotiable Instruments Law Finals reviewer Prof. J.J. Disini 1 Semester A.Y. 2011-2012 st

Janz Hanna Ria N. Serrano Campos Annotations + Additional Cases Special thanks to A2010 legendary digests for the case doctrines a.

Basis of classification Blank: where only the signature of the indorser appears b. Special & blank indorsements  has to do with the future method of negotiation, whether by indorsement and delivery or by delivery alone NIL, 34. Special indorsement; indorsement in blank. - A special indorsement specifies the person to whom, or to whose order, the instrument is to be payable, and the indorsement of such indorsee is necessary to the further negotiation of the instrument. An indorsement in blank specifies no indorsee, and an instrument so indorsed is payable to bearer, and may be negotiated by delivery. NIL, 40. Indorsement of instrument payable to bearer. - Where an instrument, payable to bearer, is indorsed specially, it may nevertheless be further negotiated by delivery; but the person indorsing specially is liable as indorser to only such holders as make title through his indorsement. NIL, 35. Blank indorsement; how changed to special indorsement. - The holder may convert a blank indorsement into a special indorsement by writing over the signature of the indorser in blank any contract consistent with the character of the indorsement. A person who negotiates by mere delivery is liable only to his immediate transferee A special indorser however is liable to subsequent holders, unless the instrument is an originally bearer instrument, in which case he is liable only to those who take title through his indorsement. c. Qualified indorsement  lies in the scope of liability assumed by the indorser NIL, 38. Qualified indorsement. - A qualified indorsement constitutes the indorser a mere assignor of the title to the instrument. It may be made by adding to the indorser's signature the words "without recourse" or any words of similar import. Such an indorsement does not impair the negotiable character of the instrument. Fay v. Witte. An endorsement in the form "I hereby assign all my right and interest in this note to Richard Fay in full [signed] Harry C. Witte" was an unqualified endorsement, absent words expressing a different intent. Copeland v. Burke. Writing on the back of a note "I transfer my right, title and interest in the same" is a general, not qualified, indorsement Hutson v. Rankin. d. Conditional indorsement  has to do with the presence or absence of express limitations NIL, 39. Conditional indorsement. - Where an indorsement is conditional, the party required to pay the instrument may disregard the condition and make payment to the indorsee or his transferee whether the condition has been fulfilled or not. But any person to whom an instrument so indorsed is negotiated will hold the same, or the proceeds thereof, subject to the rights of the person indorsing conditionally. Example: instrument on its face payable on 12/31/2011; indorsed by Pee to A “if he marries before 2013”  valid >> should A not fulfill the condition on or before 12/31/2011, he or any holder after him cannot compel the maker to pay him on that date But maker may disregard the condition and pay the holder e. Restrictive indorsement  has to do with the kind of title transferred NIL, 36. When indorsement restrictive. - An indorsement is restrictive which either: (a) Prohibits the further negotiation of the instrument; or [Pay to X only] (b) Constitutes the indorsee the agent of the indorser; or [Pay to X for collection] (c) Vests the title in the indorsee in trust for or to the use of some other persons [Pay to X for Y’s use] NIL, 37. Effect of restrictive indorsement; rights of indorsee. - A restrictive indorsement confers upon the indorsee the right: (a) to receive payment of the instrument; (b) to bring any action thereon that the indorser could bring; (c) to transfer his rights as such indorsee, where the form of the indorsement authorizes him to do so. But all subsequent indorsees acquire only the title of the first indorsee under the restrictive indorsement. White v. NB. The language of the indorsement is without ambiguity, and needs no explanation. In negotiable instruments, people dealing with it rely on the words of the instruments. Allowing parole evidence would be to destroy the integrity of the institution. 7. Indorsement to or by collecting bank A holder of a check may either cash it with the drawee bank, or may deposit it to his credit either in the drawee bank or in another bank Option 1: discharge Option 2 :discharge (effect of payment) Option 3: he would in effect be negotiating the check to such bank, since he would have to indorse the check before the bank will accept if for deposit o If indorsement “for collection” = restrictive indorsement o If indorsement “for deposit” = in most cases, the bank is in fact only a collecting agent. o As a rule, the indorsement made by the depositor of acheck would be in blank, just his signature without any other words Leonardi v. Chase NB. 8. Negotiation by joint or alternative payees or indorsees NIL, 41. Indorsement where payable to two or more persons. - Where an instrument is payable to the order of two or more payees or indorsees who are not partners, all must indorse unless the one indorsing has authority to indorse for the others. 9. Unindorsed instruments NIL, 49. Transfer without indorsement; effect of. - Where the holder of an instrument payable to his order transfers it for value without indorsing it, the transfer vests in the transferee such title as the transferor had therein, and the transferee acquires in addition, the right to have the indorsement of the transferor. But for the purpose of determining whether the transferee is a holder in due course, the negotiation takes effect as of the time when the indorsement is actually made. Simpson v. First NB of Roseburg. Furbee v. Furbee. Whistler v. Forster. 10. Cancellation of indorsements NIL, 48. Striking out indorsement. - The holder may at any time strike out any indorsement which is not necessary to his title. The indorser whose indorsement is struck out, and all indorsers subsequent to him, are thereby relieved from liability on the instrument. 11. Indorsement by agent NIL, 44. Indorsement in representative capacity. - Where any person is under obligation to indorse in a representative capacity, he may indorse in such terms as to negative personal liability. 12. Presumption as to indorsements NIL, 45. Time of indorsement; presumption. - Except where an indorsement bears date after the maturity of the instrument, every negotiation is deemed prima facie to have been effected before the instrument was overdue. NIL, 46. Place of indorsement; presumption. - Except where the contrary appears, every indorsement is presumed prima facie to have been made at the place where the instrument is dated. NIL, 42. Effect of instrument drawn or indorsed to a person as cashier. - Where an instrument is drawn or indorsed to a person as "cashier" or other fiscal officer of a bank or corporation, it is deemed prima facie to be payable to the bank or corporation of which he is such officer, and may be negotiated by either the indorsement of the bank or corporation or the indorsement of the officer. 13. Continuation of negotiable character NIL, 47. Continuation of negotiable character. - An instrument negotiable in its origin continues to be negotiable until it has been restrictively indorsed or discharged by payment or otherwise. Chapter III: HOLDER IN DUE COURSE NIL, 52. What constitutes a holder in due course. - A holder in due course is a holder who has taken the instrument under the following conditions: (a) That it is complete and regular upon its face; (b) That he became the holder of it before it was overdue, and without notice that it has been previously dishonored, if such was the fact; (c) That he took it in good faith and for value;

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(d) That at the time it was negotiated to him, he had no notice of any infirmity in the instrument or defect in the title of the person negotiating it. Rights of a holder in due course **NIL, 57. Rights of holder in due course. - A holder in due course holds the instrument free from any defect of title of prior parties, and free from defenses available to prior parties among themselves, and may enforce payment of the instrument for the full amount thereof against all parties liable thereon. NIL, 58. When subject to original defense. - In the hands of any holder other than a holder in due course, a negotiable instrument is subject to the same defenses as if it were non-negotiable. But 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, has all the rights of such former holder in respect of all parties prior to the latter. *The fact that a golder is not in due course will in no way affect the negotiability of the instrument. It only affects such holder’s rights, and does not necessarily prevent subsequent holders from acquiring the status of due course holders. BPI v. Alfred Berwin & Co. Diaz cannot be compelled to pay the amount of the said promissory notes to any person save the holder of such documents in due course, for said person is the one entitled to receive it. To compel Diaz to pay ABC would be to expose him to the situation in which, having paid the amount of the promissory notes without settling the same, a holder in due course may appear and within all reason demand its full payment. Holder for value a. What constitutes value NIL, 24. Presumption of consideration. - Every negotiable instrument is deemed prima facie to have been issued for a valuable consideration; and every person whose signature appears thereon to have become a party thereto for value. NIL, 25. Value, what constitutes. — Value is any consideration sufficient to support a simple contract. An antecedent or pre-existing debt constitutes value; and is deemed such whether the instrument is payable on demand or at a future time. A negotiable instrument may be given as a gift, but in such cases indorsee will not be a holder in due course Value need not be full and a holder will be one for value even if he gave less than the face value of the instrument, provided that intention of the transferor is to transfer the full amount represented Elgin NB v. Goecke. An indorsee of a negotiable note who has taken it, before its maturity, as collateral security for a preexisting debt and without any express agreement, is deemed a holder for a valuable consideration, and that he holds it free from latent defenses on the part of the maker. b. Bank credit for value When the holder of a check deposits it with his bank (not the drawee bank), such bank is NOT a holder for value || theory: the bank has parted with nothing and that the crediting is a mere bookkeeping entry The bank becomes a holder for value only when the depositor withdraws the amount of the deposited instrument  how determined: first in, first out Merchant’s NB of St. Paul v. Sta. Maria Sugar Co. Mere discounting of the note and placing the amount of said discount to the credit of the holder would not then have constituted a transfer for value because the bank would have parted with nothing, there would have been a mere bookkeeping entry. But if the sum had subsequently been checked out, then value would have passed. NB of Commerce v. Morgan. NBC was a mere collector. TF, NBC was not a holder for value. FNBB was ordered to pay the proceeds of the draft to Morgan. *Campos’ note: The ruling in this case represents the minority view that as long as the balance in the depositor’s account equals or exceeds the amount of the instrument deposited, the instrument cannot be considered withdrawn for the purpose of treating the bank as holder for value (as per sec.26 NIL.)) c. What constitutes a holder for value NIL, 26. What constitutes holder for value. - Where value has at any time been given for the instrument, the holder is deemed a holder for value in respect to all parties who become such prior to that time. A –w/o consideration B –w/o consideration C  D >>> D is a holder for value not only as regards C, but also as regards A & B A –w/o consideration B  C –gift D >>> D is a holder for value as against A&B but not against C d. Where holder has a lien on instrument NIL, 27. When lien on instrument constitutes holder for value. — Where the holder has a lien on the instrument arising either from contract or by implication of law, he is deemed a holder for value to the extent of his lien. If a negotiable instrument is given as a collateral for a debt, the holder has a lien on the instrument If amt on NI < debt, the pledgee is a holder for value for the full amount of the NI If amt of NI > debt, excess over the debt he holds in trust for whomsoever is entitled to it e. Burden of proof NIL, 24. Every negotiable instrument is deemed prima facie to have been issued for a valuable consideration; and every person whose signature appears thereon to have become a party thereto for value. S28  “absence or failure of consideration is a matter of defense as against any person not a HDC” Holder in good faith Due course holding is not affected by the holder’s acquisition of knowledge after he has taken the instrument NIL, 55. When title defective. - The title of a person who negotiates an instrument is defective within the meaning of this Act when he obtained the instrument, or any signature thereto, by fraud, duress, or force and fear, or other unlawful means, or for an illegal consideration, or when he negotiates it in breach of faith, or under such circumstances as amount to a fraud. NIL, 56. What constitutes notice of defect. - To constitute notice of an infirmity in the instrument or defect in the title of the person negotiating the same, the person to whom it is negotiated must have had actual knowledge of the infirmity or defect, or knowledge of such facts that his action in taking the instrument amounted to bad faith. a. Notice; bad faith; effect of suspicious circumstances Question of good or bad faith is a question of fact which must be determined in accordance with the particular circumstances of each case Negligence in tracking down a suspicious circumstance which would put a prudent man on inquiry is NOT OF ITSELF sufficient to prevent recovery, though it may properly be admitted, together with other circumstances as evidence of bad faith But where the suspicious circumstances are so cogent and obvious that to remain passive would amount to bad faith, the holder will be subject to defenses not necessary to prove that holder knew the exact fraud that was practiced, it being sufficient to show that he had notice that something was wrong about his assignor’s acquisition of title Unaka NB v. Butler. To constitute notice of an infirmity in an instrument, or defect of the title of the person negotiating the same, the person to whom it is negotiated must have had actual knowledge of the infirmity or defect, or knowledge of such facts that his action in taking the instrument amounted to bad faith. The purchaser of a negotiable instrument owes no duty to the former holders to actively inquire into the title of the party in possession, and that circumstances of suspicion and gross negligence are not of themselves bad faith, but only evidence tending to establish it. Vicente de Ocampo v. Co. v Gatchalian. Ocampo can't be a HDC because although he had no notice of defect in title, he must also have taken the instrument in good faith. These facts should have put him on guard and inquired into the title of Manuel: a. Anita had no obligation or liability to Ocampo Clinic; b. the amount on the check didn't correspond exactly to Manuel's utang; and c. the check had two parallel lines in the upper left hand corner, which in practice means that the check was for deposit only and cant be converted into cash. SIHI v. IAC. IAC correctly relied on the HELD in Ocampo v. Gatchalian as regards the effects of crossing a check: the check may not be encashed but only deposited in the bank; the check may be negotiated only once—to one who has an account with a bank; and the act of crossing the check serves as a warning to the holder that the check has been issued for a definite purpose so that he must inquire if he has received the check pursuant to that purpose, otherwise he is not a holder in due course. b. Financing company not a holder in good faith as to buyer Many times, pursuant to a previous arrangement with the seller, a finance company pays the full price of the property sold and the note is indorsed to it by the seller, subrogating it to the right to collect the price from the buyer In such cases, the tendency of the courts is to protect the buyer against the finance company in the event that the goods sold turn out to be defective

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Consolidated Plywood Industries v. IFC Leasing. (first of all, the instrument here was determined as not being a negotiable instrument because of the lack of the words of negotiability... nevertheless, the court discussed why the respondent cannot be considered a holder in the course had the instrument been negotiable) the respondent had actual knowledge of the fact that the seller-assignor's right to collect the purchase price was not unconditional, and that it was subject to the condition that the tractors sold were not defective. || The respondent knew that when the tractors turned out to be defective, it would be subject to the defense of failure of consideration and cannot recover the purchase price from the petitioners Salas v. CA. The instrument in order to be considered negotiable must contain the so-called "words of negotiability i.e., must be payable to "order" or "bearer". Under Sec 8 of the Negotiable Instruments Law, there are only two ways by which an instrument may be made payable to order. There must always be a specified person named in the instrument and the bill or note is to be paid to the person designated in the instrument or to any person to whom he has indorsed and delivered the same. Without the words "or order or "to the order of", the instrument is payable only to the person designated therein and is therefore nonnegotiable. Any subsequent purchaser thereof will not enjoy the advantages of being a holder of a negotiable instrument, but will merely "step into the shoes" of the person designated in the instrument and will thus be open to all defenses available against the latter. Comm. Credit Corp v. Orange County. When a finance company actively participates in a transaction of this type from its inception, counseling and aiding the future vendor-payee, it cannot be regarded as a holder in due course of the note given in the transaction and the defense of failure of consideration may properly be maintained. c. Effects of purchase at a discount  does not, of itself, constitute bad faith; if too low, may be considered along with the other circumstances Ham v. Meritt. A large discount does not, by itself, constitute notice of fraud. d. Effect of notice before full payment NIL, 54. Notice before full amount is paid. - Where the transferee receives notice of any infirmity in the instrument or defect in the title of the person negotiating the same before he has paid the full amount agreed to be paid therefor, he will be deemed a holder in due course only to the extent of the amount therefore paid by him. Example: 1. A issued note to order of B 2. B wants to borrow money from C; C willing to lend only if B gets X to sign with him a note in C’s favor 3. X agrees to do so on condition that B indorse to him A’s note as collateral 4. B indorses A’s note to X 5. When note falls due, A refuses to pay X on ground of fraud by B 6. X&B’s note to C falls due, B defaulted, X pays C. 7. X is a holder for value. Pennoyer v. Dubois SB. Pennoyer cites Sec. 54 arguing that the Dubois was a not holder in due course as it had notice of fraud before it paid anything on the COD. Dubois is unaffected by the statute if, when it acquired the notes, “it paid the full amount thereof”. When Dubois gave the COD for the notes , it took the notes for “value”; if it was under an obligation to pay the COD when due, its right to protection as a holder in due course was the same as if it had paid in money. It may be argued that upon notice of fraud, Dubois may have protected itself by enjoining transfer or impounding the COD. The Court believes that since Pennoyer put the notes into circulation and contended they were procured by fraud, bringing proceedings for such a purpose was his duty. To avoid the effects of Sec. 54, Dubois was required to prove that the COD had been negotiated and that it had paid or had become liable to pay someone other than the payee. Dubois’ evidence was sufficient to establish that the FNBC, to whom the COD was paid, was the indorsee and holder which is a prima facie showing that it is a holder in due course. e. Constructive notice not sufficient Just as a purchaser of NI is not put on inquiry, neither is he charged with notices of defenses or equities disclosed by public records, nor is he affected by the doctrine of lis pendens. However, notice to an agent is chargeable against the principal Foster v. Augustanna College. Doctrine of constructive notice does not apply to Foster. Augustanna had no actual knowledge of the assignment to Foster. Augustanna was a purchaser of the note not the mortgage. It is well-settled rule that where a mortgage given to secure a negotiable PN, the note imparts its negotiable character to the mortgagee, and both are bought within the purview of the statutes, and the mortgage is a mere incident to the note, and an indorsement of the note automatically assigns the mortgage, and the attempted assignment of the mortgage without the transfer of the debt it secures is a nullity. || The doctrine of constructive notice is applicable only to person who is dealing with the land itself, which is not the case here. f. Notice of accommodation not notice of defect NIL, 29. Liability of accommodation party. - An accommodation party is one who has signed the instrument as maker, drawer, acceptor, or indorser, without receiving value therefor, and for the purpose of lending his name to some other person. Such a person is liable on the instrument to a holder for value, notwithstanding such holder, at the time of taking the instrument, knew him to be only an accommodation party. An accommodation party is actually a surety for the principal debtor (the accommodated party to whom the name is lent) Example 1. A wants to borrow money from B, who is willing to lend him if C signs a note with A in favor of B  if C agrees, he is an accommodation party 2. If B indorses to X, and X knew C to be only an AP, still X is HDC Complete & regular If a purchaser of an NI takes it prior to its completion or contemporaneously with the act of completion, he is not an HDC Where the instrument is executed in blank and is subsequently filled up and issued to the 1 st holder who has no knowledge of the execution in blank  HDC NIL, 124. Alteration of instrument; effect of. - Where a negotiable instrument is materially altered without the assent of all parties liable thereon, it is avoided, except as against a party who has himself made, authorized, or assented to the alteration and subsequent indorsers. But when an instrument has been materially altered and is in the hands of a holder in due course not a party to the alteration, he may enforce payment thereof according to its original tenor. If the alteration is apparent on the face of the instrument, it renders the instrument irregular, even if the change was authorized Miles CB v. Askin. The ultimate question of WON plaintiff was a holder in due course must be determined by the just, such determination to be based upon its findings as to whether, (1) the check was, in fact materially altered subsequent to its execution and delivery, and (2) if so, was such alteration so manifest and visible as to reasonable impart notice to plaintiff of an irregularity in the check. Bronson v. Stetson. It has been held that the one who entrusts an incomplete instrument to another is bound by anyone who relies in good faith on the genuineness of the instrument although the person entrusted with completing and delivering the instrument exceeded his authority. However, the court turns with reluctance from this. Harrington Nat. Nank v. Beslin ruled that, “in order however that any such instrument may be enforced, it must be filled up strictly in accordance with the authority given and within reasonable time.” Thus, Mrs. Stetson cannot be held to be a holder in due course. Holder at or after maturity & without notice of dishonor An instrument may be dishonored by either non-acceptance or non-payment Dishonor by non-acceptance can refer only to a BoE; takes place when drawee refuses to accept the order of the drawer Dishonor by non-payment: occurs at the time of maturity NIL, 53. When person not deemed holder in due course. - Where an instrument payable on demand is negotiated on an unreasonable length of time after its issue, the holder is not deemed a holder in due course. It is the function of the instrument which must be noted in determining whether reasonable time has elapsed or not With respect to instruments with a fixed maturity but subject to acceleration, the ultimate date of maturity is the date of maturity for the purpose of determining whether a purchaser is an HDC Sec45: the negotiation of an instrument through an undated indorsement establishes prima facie that it was negotiated before it was overdue, and one who denies has the burden of proof.

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Janz Hanna Ria N. Serrano Campos Annotations + Additional Cases Special thanks to A2010 legendary digests for the case doctrines Bliss v. California Coop. Producers. The transferee of an installment note is not a holder in due course as to any part of the note when the transfer has been made after the maturity of one or more but less than all of the installments. || Traynor, dissent: A holder cannot be a holder in due course as to installments that were overdue when he acquired the note, but that he can be a holder in due course as to future installments, which are not overdue unless their maturity dates have been accelerated. The mere fact that one or more installments of an installment note are unpaid when the note is negotiated does not convey knowledge to the transferee of a defense against the note; nor does it reveal such knowledge of circumstances that it can be said that the holder of the note shut his eyes to the facts and in bad faith sought to avoid the knowledge of a defense. A notice of default in the payment of an installment of principal disconnected from other facts does not prevent the transferee from being a holder in due course. Barbour v. Finke. The mere fact that interest due is unpaid, the principal not being due, does not render the note dishonored. It is also a settled rule of the jurisdiction that a mortgage is merely an accident to the note which it secures. Hence the transfer of the debt secured by the mortgage carries with it the security. As Barbour is a holder in due course of the note, she is also a holder in due course of the mortgage Le Due v. First NB of Kasson. The term “overdue” in a demand bill of exchange (as in this case) is applied when a bill has come into the hands of the indorser so long after its issue as to charge him with notice of dishonor, and thus subject it in his hands to the defenses which the drawer had against it in the hands of the assignor. || General rule is that a bill, note or check, payable on demand, must be presented for payment within reasonable time, having in view ordinary business usages and the purposes which paper of that class is intended to subserve. But, without any explanation of the reason, this draft which is outstanding nearly 5 months after its date, the trial court is fully justified in holding it overdue and dishonored when Jordan took it Idaho SB v. Hooper Sugar Co. When Wright indorsed the note and delivered it to NCBSL after its maturity date, such note as to Wright became a demand note. As a demand note it did not become overdue as to Wright until a reasonable length of time after it was indorsed by him. Dunn v. O’Keefe. When party holding a bill of exchange receives notice of its dishonor, he is bound to communicate this to the drawer. But a bill of exchange is NOT a void security in the hands of an innocent indorsee who has no knowledge that the bill has ever been dishonored because a former holder has omitted to give notice to the drawer that the bill has ever been refused acceptance.The drawer is liable to the innocent indorsee. He issued it in an imperfect state and cannot justly complain of the neglect of any indorsee who takes the bill in his state, having no knowledge of any circumstance to vitiate it, and looking merely at the names upon it. 6. Effect of postdating or antedating NIL, 12. Ante-dated and post-dated. - The instrument is not invalid for the reason only that it is ante-dated or post-dated, provided this is not done for an illegal or fraudulent purpose. The person to whom an instrument so dated is delivered acquires the title thereto as of the date of delivery. Triphonoff v. Sweeney. The check is a negotiable instrument. It is full and complete on its face as it satisfies the requirements of the law for an instrument to be negotiable. It is worthy to note that the law does not require an instrument to be dated. It is settled that the instrument is not rendered invalid by its antedating or postdating provided that it is not done for an illegal or fraudulent purpose. 7. Effect of qualified, conditional & restrictive indorsements The status of a holder as HDC is not affected by his taking under a qualified indorsement  it does not necessarily imply that there is a defect in the instrument or in the title of any prior party Neither does conditional indorsement by itself deprive the conditional indorsee or any subsequent holder of the rights of an HDC  the fact that a condition is imposed on the indorsee does not necessarily mean that there is some defect of title or infirmity in the instrument. Restrictive indorsement which prohibits further negotiation will not prevent the indorsee from being HDC, unless he violates the prohibition and indorse the instrument to another, then the latter cannot be HDC Restrictive indorsement which constitutes indorsee as an agent of the indorser  Iee may become HDC if Ier (his principal) is an HDC Restrictive indorsement in trust or for another’s use  HDC 8. Payee as holder in due course Normally, a payee cannot be an HDC because he has dealt directly with the maker/drawer and thus must have knowledge of facts which may create a defense, there may be circumstances under which he is insulated from the maker/drawer by a 3 rd party, e.g. a remitter. Howard NB v. Wilson. That a payee is capable of being a holder in due course at common law has been held almost without dissent. This view is confirmed by the definition of “negotiation” found in Sec 30 of the act, which provides that an instrument is negotiated when it is transferred from person to another in such a manner as to constitute the transferee the holder thereof. As said, the remaining sentence of the section, “if payable to bearer, it is negotiated by delivery; if payable to order, it is negotiated by the indorsement of the holder completed by delivery” was not intended to include all the ways in which an instrument might be negotiated, nor to restrict the comprehensive terms of the preceding sentence. 9. Rights of a purchaser from a holder in due course NIL, 58. When subject to original defense. - In the hands of any holder other than a holder in due course, a negotiable instrument is subject to the same defenses as if it were non-negotiable. But 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, has all the rights of such former holder in respect of all parties prior to the latter. SHELTER principle A holder who derives title to the instrument through an HDC has all the rights of the latter even though he himself satisfies none of the requirements of S52. A purchaser with notice of defect in title who takes from an HDC, acquires all the rights of the latter and is free from defenses If the purchaser from an HDC is a party to the fraud, he does not acquire the rights of his predecessor A payee whose title is defective at the time the instrument was issued to him cannot better it by selling to an HDC and buying it back. A holder who reacquires from an HDC and who, at the time he first held title had knowledge of defense of a prior party – disqualified Pierce v. Carlton. The principle that one who acquires title from a holder in due course may recover, though he himself may have had notice of the infirmity when he acquired the instrument from such holder, was recognized before the enactment of this statute || “But this rule is subject to the single exception that, if the note were invalid as between the maker and the payee, the payee could not himself, by purchase from a bona fide holder, become successor to his rights, it not being essential to such bona fide holder’s protection to extend the principle so far.” And this exception is approved by the general current of authority. Lill v. Gleason. The order note, having been indorsed by the payee (Peerless) in blank, became payable to bearer and negotiable by delivery (Sec. 34 NIL). Thus, when the note was delivered to the bank, the bank became the holder thereof in due course. And when the bank delivered the note to Lill, Lill became the bearer and holder (Sec.191 NIL). Having derived his title from the bank, which was a holder in due course, and not having been a party to any fraud or illegality affecting the instrument, Lill became possessed of all the rights of the bank against the maker (Sec.58 NIL) Fossum v. Fernandez. Fossum is far from being a holder in due course. He was himself a party to the contract which supplied the consideration for the draft, albeit acting in a representative capacity. Also, he procured the instrument to be indorsed by the bank and delivered to himself without the payment of value, after it was overdue, and with full notice that, as between the original parties, the consideration had completely failed. Under these circumstances, recovery on the draft is out of the question. 10. Presumption in favor of due course holding NIL, 59. Who is deemed holder in due course. - Every holder is deemed prima facie to be a holder in due course; but when it is shown that the title of any person who has negotiated the instrument was defective, the burden is on the holder to prove that he or some person under whom he claims acquired the title as holder in due course. But the last-mentioned rule does not apply in favor of a party who became bound on the instrument prior to the acquisition of such defective title. ABC v. Tan Sen Guan. The evidence presented to prove that Asia Banking was a holder of the draft for value is not convincing. To give an authentic account of the transaction, it should have been established by competent evidence how Asia Banking acquired the draft. Asia Banking only presented a local employee of the bank who testified as to the alleged meaning of certain entries made in the bank records. Van Syckel v. Egg Harbor. The court and the jury had no evidence before them that the signature upon the back of the note was the signature of the payee, or that the agent purporting to sign the same was authorized so to do. It seems that such proof would be necessary, in view of Sections 16, 19 and 33 of NIL before a presumption would arise of a valid and intentional delivery. Beacon Trust v. Ryder. The holder of a negotiable instrument is deemed prima facie to be a HIDC. No further burden rests upon him to prove that he or some other person under whom he claims acquired the title as HIDC, except if it is shown that the title of some person who has negotiated the instrument was defective (i.e., negotiation was “in breach of faith”). || The burden of establishing that the payee’s title was defective was on the Ryders.

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Janz Hanna Ria N. Serrano Campos Annotations + Additional Cases Special thanks to A2010 legendary digests for the case doctrines Failing to sustain this burden [their testimonial evidence did not convince the court], they cannot insist that Beacon Trust Co. prove its prima facie case that it is a HIDC. Farmers’ SB v. Koffler. Here there is no defect n the title so far as the maker is concerned. The action is not brought against Davis to charge him as indorsee. It is brought against the defendant as maker. Koffler became bound to on the instrument at the time he delivered it to Davis. Davis indorsed the instrument (at the time he delivered) and made it payable to bearer. Koffler has no defense against Davis. Koffler is interposing a defense which might have been available to Davis only. 11. Transfer of unendorsed instrument NIL, 49. Transfer without indorsement; effect of. - Where the holder of an instrument payable to his order transfers it for value without indorsing it, the transfer vests in the transferee such title as the transferor had therein, and the transferee acquires in addition, the right to have the indorsement of the transferor. But for the purpose of determining whether the transferee is a holder in due course, the negotiation takes effect as of the time when the indorsement is actually made. CB of Lafayette v. Barry. There having been no negotiation of the note sued on, because it was never indorsed by the payee; it is immaterial whether plaintiff acquired the note prior to its maturity. It follows that plaintiff cannot be regarded as a holder in due course, & the instrument sued on is subject to the same defenses as if it were non-negotiable. The defense of want of consideration is therefore available. Chapter IV: DEFENSES AND EQUITIES 1. Defenses & equities in general NIL, 57. Rights of holder in due course. - A holder in due course holds the instrument free from any defect of title of prior parties, and free from defenses available to prior parties among themselves, and may enforce payment of the instrument for the full amount thereof against all parties liable thereon. NIL, 58. When subject to original defense. - In the hands of any holder other than a holder in due course, a negotiable instrument is subject to the same defenses as if it were non-negotiable. But 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, has all the rights of such former holder in respect of all parties prior to the latter. NIL, 55. When title defective. - The title of a person who negotiates an instrument is defective within the meaning of this Act when he obtained the instrument, or any signature thereto, by fraud, duress, or force and fear, or other unlawful means, or for an illegal consideration, or when he negotiates it in breach of faith, or under such circumstances as amount to a fraud. 2. Incapacity NIL, 22. Effect of indorsement by infant or corporation.- The indorsement or assignment of the instrument by a corporation or by an infant passes the property therein, notwithstanding that from want of capacity, the corporation or infant may incur no liability thereon. A contjract entered into be a minor is voidable But under S22, should he indorse a negotiable instrument, although he cannot be held liable thereon, the title to the instrument passes to his indorsee, free from the defense of minority, and free from all personal defenses Example: 1. A makes note payable to B, a minor 2. B indorses to C 3. C indorses to D 4. Upon maturity, D sues maker A 5. A cannot set up defense of minority of B 6. But if A is insolvent, D sues B, B may set up defense of minority Murray v. Thompson. The statement that the infant “passes property therein” entails that the contract of indorsement is not void and that his indorsee has the right to enforce payment from all parties prior to the infant indorser. The incapacity of the minor cannot be availed of by the prior parties. || It was not intended to provide that the indorsee should become the owner of the instrument by title indefeasible as against the infant, or to make the act of indorsement an irrevocable one. The law would not want to deprive the infant of the right to reinvest in himself the title to the instrument against a holder who had knowledge of the indorser’s infancy. 3. Illegality NIL: though a negotiable instrument may have been issued or negotiated for an illegal consideration, only the parties involved in the illegality and subsequent parties who are not holders in due course can be adversely affected by such defect Rodriguez v. Martinez. -From the facts set out in the judgment of the court below, plaintiff Rodriguez acquired the ownership of the note in question by virtue of its indorsement, he having paid the value thereof to its former holder. He did so without being aware of the fact that the note had an unlawful origin, since he was not given notice, as the court found, of any conditions existing against the note. Furthermore, he accepted it in good faith, believing the note was valid and absolutely good, and that defendant Martinez would not repudiate it for the reason that Martinez, had assured him before the purchase of the note that the same was good and that he would it at a discount. Without such assurance from Martinez we can hardly believe that Rodriguez would have bought the note. It is thus inferred from the fact that he, Rodriguez, inquired from the defendant about the nature of the note before accepting its indorsement 4. Forgery a. In general NIL, 23. Forged signature; effect of. - When a signature is forged or made without the authority of the person whose signature it purports to be, it is wholly inoperative, and no right to retain the instrument, or to give a discharge therefor, or to enforce payment thereof against any party thereto, can be acquired through or under such signature, unless the party against whom it is sought to enforce such right is precluded from setting up the forgery or want of authority. NIL, 18. Liability of person signing in trade or assumed name. - No person is liable on the instrument whose signature does not appear thereon, except as herein otherwise expressly provided. But one who signs in a trade or assumed name will be liable to the same extent as if he had signed in his own name. A person whose signature to an instrument was forged was never a party and never consented to the contract which allegedly gave rise to such instrument S23  2 sets of situations (a) Where the signature on the instrument is affixed by one who purports to be an agent but who does not have the authority to bind the alleged principal (b) Where the signature is afficed by one who does not claim to act as an agent and who has no authority to bind the apparent signer In both cases, the signature is wholly inoperative Any party subsequent to the forgery would be unable to acquire any rights against any party prior to the forgery Exception: where the party against whom it is sought to enforce a right is precluded from setting up forgery or want of authority  estoppel o General indorser subsequent to the forgery warrants among other things that the instrument is genuine, and that it is valiud and subsisting at the time of his indorsement o An acceptor is also precluded from claiming that the drawer’s signature is forged, because under S62 he warrants its genuineness Example of an inoperative signature: 1. A makes a note payable to B or order 2. B indorses it specially to C 3. D stole it from C 4. D forges C’s signature and sells instrument to E 5. E indorses it to F [HDC] 6. F can’t go against A or B b/c F’s rights against them have been cut off by C’s forged signature 7. F can’t go against C because C has no privity with him [unless C guilty of estoppel] 8. F may go against E 9. C may go against A & B because he is the real owner of the note.

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SECTION 23 DOES NOT AVOID THE INSTRUMENT BUT ONLY THE FORGED SIGNATURE Gluckman v. Darling. -It is true that silence and acquiescence alone does not estop a defendant in a suit upon an alleged forged instrument from proving the forgery, where the plaintiff had not been prejudiced or damaged thereby. But where the holder of a note has been willfully misled as to the genuineness of an indorsement thereon by one who purports to be the indorser and sustains damage or is prejudiced thereby, the alleged indorser will be stopped from denying the validity of the signature. Strader v. Haley. “precluded” includes ratification. NIL is based largely on the English Bills of Exchange Act. The English law contains a proviso “that nothing in this section shall affect the ratification of an unauthorized signature not amounting to a forgery.” This proviso was not included in the NIL but a footnote was added that a forged signature may be ratified. The dropping of such proviso did not indicate any intention of changing the meaning adopted from the English law. Established rule was that an unauthorized signature not amounting to forgery could be so ratified. || SC concluded that the framers of the NIL intended that under the act, the same as under the prior law, a party may be “precluded” by ratification. San Carlos Milling v. BPI. A bank that cashes a check must know to whom it pays. In connection with the cashier’s check, this duty was therefore upon BPI, and CBC was not bound to inspect and verify all endorsements of the check, even if some of them were also depositors in that bank. It had a right to rely upon BPI’s endorsement when it gave the latter bank credit for its own cashier’s check || It is an elementary principle both of banking and the NIL that a bank is bound to know the signatures of its customers; and if it pays a forged check, it must be considered as making the payment out of its own funds, and cannot ordinarily charge the amount so paid to the account of the depositor whose name was forged. PNB v. Quimpo. A bank is bound to know the signatures of its customers; and if it pays a forged check, it must be considered as making the payment out of its own funds, and cannot ordinarily change the amount so paid to the account of the depositor whose name was forged. This rule is absolutely necessary to the circulation of drafts and checks, and is based upon the presumed negligence of the drawee in failing to meet its obligation to know the signature of its correspondent. If the paper comes to the drawee in the regular course of business, and he, having the opportunity ascertaining its character, pronounces it to be valid and pays it, it is not only a question of payment under mistake, but payment in neglect of duty which the commercial law places upon him, and the result of his negligence must rest upon him. Acceptance & payment under mistake (1) When drawee accepts or pays forged instrument When the drawer’s signature is forged on a bill or check, the drawee who pays it without having detected the forgery cannot charge the amount thereof to the drawer’s account  The forged signature is wholly inoperative and does not give him the right to discharge it It is a general principle of law that money paid under a mistake may be recovered || EXCEPTION: Price v. Neal NIL, 62. Liability of acceptor. - The acceptor, by accepting the instrument, engages that he will pay it according to the tenor of his acceptance and admits: (a) The existence of the drawer, the genuineness of his signature, and his capacity and authority to draw the instrument; and (b) The existence of the payee and his then capacity to indorse. It is clear from this provision that since the acceptor admits the genuineness of the drawer’s signature, he would be precluded by Section 23 from denying liability based on its forgery Price v. Neal. The drawee who paid an accepted bill as well as a non-accepted bill, each of which bore the forged signature of the drawer, could NOT recover the money paid out on either bill | The drawee is bound to know the signature of the drawer and must therefore bear the loss in case it turns out to be forged. First NB of Portland v. US NB of Portland. GEN RULE: Where a holder for value in due course presents to the drawee a bill of exchange to which the name of the drawer has been forged, and the drawee pays the instrument, the holder and drawee alike ignorant that the signature of the ostensibly drawer was forged, and it is subsequently discovered that the signature of the drawer was forged, the drawee cannot recover payment made to the holder. || EXCEPTIONS: This defense is not available to a holder who (1) is guilty of bad faith, or (2) has been negligent. PNB v. Nat’l CB of NY. Acceptance is unnecessary in so far as bills of exchange payable on demand are concerned (e.g., checks). | A check being payable immediately and on demand, bank can fulfill its duty to depositor only by paying the amount demanded. The holder has no right to demand from bank anything but payment, and the bank cannot do anything but pay. | There is however, nothing w/c prohibits presentation of checks for acceptance before they are paid. Where a check is certified by the bank on w/c it is drawn, certification is equivalent to an acceptance. The bank accepts if it chooses. PNB v. CA. The collecting bank is not liable as the forgery existing are those of the drawers’ and not of the indorsers’. The indorsement of the intermediate bank does not guarantee the signature of the drawer. PNB’s failure to return the check to the collecting bank implied that the check was good. In fact, PNB even honored the check even if GSIS has reported two months earlier that the check was stolen and the bank thus should stop payment. PNB’s negligence was the main and proximate cause for the corresponding loss. PNB thus should bear such loss. Upon payment by PNB, as drawee, the check ceased to be a negotiable instrument, and became a mere voucher or proof of payment. RP v. Equitable. The Treasury was the negligent one here since there was a “24 –hour clearing rule,” wherein items that should be returned for whatever reason should be done so within 24 hours. This it failed to do in these two cases. (2) Extensions of Price v. Neal doctrine (a) Overdraft  occurs when a check is issued for an amount more than what the drawer has in deposit with the drawee bank The rule in Price v. Neal creating an exception to the doctrine of payment under mistake, has been extended by the courts to cover the drawee of a bill who honors an overdraft First NB of Portland v. Noble. The payee is entitled to retain the money which he has received as a bona fide purchaser. The typical cases are those where an employee of a bank pays the holder of a check in the mistaken belief that the drawer has sufficient funds on deposit to meet it or in forgetfulness of the fact that the drawer has directed that payment should not be made.|| The forgery cases are said to rest, in part at least, upon the maxim that where the equities are equal the legal title must prevail. That maxim appears applicable where a drawee bank pays a check so skillfully forged as to defy detection. The holder and the drawee are equally without fault, and the holder has the money. Liberty Trust v. Haggerty. Liberty had the right to determine WON to pay. When the bank decided to pay, it was bound to know the state of its account with Haggerty. Having exercised its option to pay or not to pay by honoring the checks, Liberty can't recover the money back from the payee. This is under the general rule that payment of a check by a bank upon which it is drawn, under the mistaken belief that the maker of the check has sufficient funds to his credit to pay the check, is a finality, and the bank can't recover from the payee of the check the amount so paid. || The reasons for this rule are: 1. there's no privity between the payee and the bank; 2. the bank always has the means of knowing the state of the depositor's account by an examination of its books, and therefore the payment is not a mistake within the meaning of the general rule which permits the recovery of money paid under a mistake of fact; and 3. to permit the bank to repudiate the payment would destroy the certainty that must pertain to commercial transactions and give way to uncertainty, delay and annoyance. (b) Stop payment order  one issued by the drawer of a check countermanding his first order to the drawee bank to pay said check; i.e. the drawer is ordering the drawee bank not to pay the check (3) Effect of negligence of depositor  depositor shall bear the loss (4) Effect of payment under forged indorsements  drawee can recover from holder, but NOT from drawer, except if a bearer instruments Great Eastern Life Ins. v. HSBC. This is not a case where the plaintiff's own signature was forged to one of its checks. In such a case, the plaintiff would have known the forgery and would therefore have the duty to promptly notify the bank. Failure to do so would release the bank. || Here, the forgery was that of Melicor, the payee. Therefore, when Great Eastern, the drawer, received its bank statement, it had the right to assume that Melicor had personally endorsed the check because otherwise, HSBC would not have paid it. Jai Alai Corp v. BPI. When the petitioner deposited the checks with the respondent, the nature of the relationship created at that stage was one of agency--the bank was to collect from the drawees of the checks the corresponding proceeds. It is true that the respondent had already collected the proceeds of the checks when it debited the petitioner's account, so that following the rule in Gullas vs. Philippine National Bank, it might be argued that the relationship between the parties had become that of creditor and debtor as to preclude the respondent from using the petitioner's funds to make payments not authorized by the latter.

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5.

Canal Bank v. Bank of Albany. Though the defendants were innocent of any intended wrong, they had obtained money of the plaintiffs on an instrument to which they had no title, and were therefore bound to refund; though notice of the forgery was not given till more than two months after they had received the money, they already received it and transmitted it to their principal. || Where a bank collects a draft without disclosing to the drawee that it is merely collecting as agent, and it is afterwards discovered that the indorsement was a forgery, it is liable as principal in an action, by the drawee. Republic Bank v. Ebrada. Where a check is drawn payable to the order of one person and is presented to a bank by another and purports upon its face to have been duly indorsed by the payee of the check, it is the duty of the bank to know that the check was duly indorsed by the original payee, and where the Bank pays the amount of the check to a third person, who has forged the signature of the payee, the loss falls upon the bank who cashed the check, and its only remedy is against the person to whom it paid the money. || Re: effect of forged instrument: Where the signature on a negotiable instrument if forged, the negotiation of the check is without force or effect (from Section 23 of the Negotiable Instruments Law (Act 2031)). It is only the negotiation based on the forged or unauthorized signature which is inoperative. BDO v. Equitable. In presenting the Checks for clearing and for payment, BDO made an express guarantee on the validity of 'all prior endorsements'. Thus, stamped at the bank of the checks are the defendant's clear warranty: ALL PRIOR ENDORSEMENTS AND/OR LACK OF ENDORSEMENTS GUARANTEED. Without such warranty, EDC would not have paid on the checks. || No amount of legal jargon can reverse the clear meaning of BDO's warranty. As the warranty has proven to be false and inaccurate, the BDO is liable for any damage arising out of the falsity of its representation. BPI v. CA. Under Sec. 23, the general rule is that forged signatures are wholly inoperative and payments through such are ineffectual; the exception is where the party relying on the forgery is precluded from setting up the forgery or want of authority. The court recognizes negligence of the party invoking forgery as an exception; hence general rule does not apply here. BPI claims the clearing guaranty makes CBC wholly liable for forged checks. Records show both BPI (not calling Fernando to confirm pretermination; not verifying Fernando’s signatures; not asking for the promissory note upon pickup of checks) and CBC (opening account for Lopez with only Fernando’s tax account number as ID, not questioning Lopez’ huge deposit and withdrawals) were negligent in the selection/supervision of their employees and thus both liable. Gempesaw v. CA. One thing is clear from the records -that the petitioner failed to examine her records with reasonable diligence whether before she signed the checks or after receiving her bank statements. Had the petitioner examined her records more carefully, particularly the invoice receipts, cancelled checks, check book stubs, and had she compared the sums written as amounts payable in the eighty-two (82) checks with the pertinent sales invoices, she would have easily discovered that in some checks, the amounts did not tally with those appearing in the sales invoices. Had she noticed these discrepancies, she should not have signed those checks, and should have conducted an inquiry as to the reason for the irregular entries. Likewise, had petitioner been more vigilant in going over her current account by taking careful note of the daily reports made by respondent drawee Bank on her issued checks, or at least made random scrutiny of her cancelled checks returned by respondent drawee Bank at the close of each month, she could have easily discovered the fraud being perpetrated by Alicia Galang, and could have reported the matter to the respondent drawee Bank. Tolman v. American NB. When a bank receives money to be checked out by a depositor, it is to be paid only as the depositor shall order. The bank assumes this duty in receiving the deposit. If the bank pays money out on a forged signature, the depositor being free from balme or negligence, it must bear the loss. Snyder v. Corn Exchange NB. -The bank said that Neimann was not a real, bona fide payee, but was in legal contemplation, a fictitious person—and such fact was known to Greenfield when he drew the checks, in his capacity as Snyder’s attorney/agent. Neimann may have been an existing person, but nevertheless, he was a fictitious name within the meaning of the act of assembly as Greenfield only intended to use this name and never intended for him to receive the checks or have any right to them. || A check is payable to bearer when it is payable to the order of a fictitious or nonexisting person, and such fact was known to the person making it so payable. || The intent of the drawer in inserting the name of the payee is the sole test of whether the payee is a fictitious person (5) Effect of negligence of drawee in informing recipient of forgery Clearfield Trust Co v. US. He who presents a check for payment warrants that he has title to it and the right to receive payment. If he has acquired the check through forged endorsement, the warranty is breached at the time the check is cashed. The drawee’s right to recover accrues when the payment is made. There is no other barrier to the maintenance of cause of action. The theory of the drawee’s responsibility where the drawer’s signature is forged is inapplicable here. The drawee, whether it be the US or another, is not chargeable with the knowledge of the signature of the payee. || Prompt notice of discovery of forgery was not a condition precedent to suit. If it shown that the drawee on learning of the forgery did not give prompt notice of it and that damages resulted, recovery by the drawee is barred. (6) Effect of negligence of drawer in case of forged indorsements on checks A drawer cannot be charged by the drawee bank who has paid on a check which on an indorsement has been forged If a check was stolen from the payee or a special indorsee, it is quite obvious that the drawer cannot possibly discover the forged indorsement by a mere examination of his cancelled checks BUT where the indorsement was forged by an employee or agent of the drawer  if due to drawer’s negligence, the forgery is not discovered until it is too late for bank to recover, the drawee may properly charge the amount against the drawer’s account Detroit Piston Ring v. Wayne Country. The estoppel of the depositor, on the ground of negligence, to recover for an unauthorized payment, is based on the failure of the depositor to act as a prudent businessman in issuing his checks. Material Alteration a. In general NIL, 124. Alteration of instrument; effect of. - Where a negotiable instrument is materially altered without the assent of all parties liable thereon, it is avoided, except as against a party who has himself made, authorized, or assented to the alteration and subsequent indorsers. But when an instrument has been materially altered and is in the hands of a holder in due course not a party to the alteration, he may enforce payment thereof according to its original tenor. NIL, 125. What constitutes a material alteration. - Any alteration which changes: (a) The date; (b) The sum payable, either for principal or interest; (c) The time or place of payment: (d) The number or the relations of the parties; (e) The medium or currency in which payment is to be made; or which adds a place of payment where no place of payment is specified, or any other change or addition which alters the effect of the instrument in any respect, is a material alteration. Montinola v. PNB. a comparison between the photostatic copy and the original check reveals discrepancies between the two. The condition of the check as it was produced is such that it was partially burned, partially blotted, badly mutilated, discolored and pasted with cellophane. What is worse is that Montinola's excuse as to how it was lost, that it was mixed up with household effects is not plausible, considering the fact that it involves his life savings, and that before the alleged loss, he took extreme pains and precautions to save the check from the possible ravages of the war, had it photographed, registered said check with the General Auditing Office and he knew that Ramos, since liberation, was not after the possession of that check Bank of Commerce of Sulphur v. Webster. the adding of an additional party to a negotiable instrument subsequent to its execution and delivery discharges the original parties when such change is made without their knowledge or consent || the reason why the addition of a name to a note as a joint maker, after its issuance, materially alters it, is because it changes the number of parties and their relative rights, the rate of contribution, and the character and description of the instrument b. Effect of negligence of drawer of checks General rule denies the drawee bank’s right to charge against the drawer’s account the amount of an altered check But, the drawer’s negligence, before or after the alteration, may estop him from setting up such alteration as against an innocent drawee bank who has paid the check

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6.

7. 8.

Foutch v. Alexandria BTC. The bank is not liable because it was the plaintiff 's negligence which approximately caused the loss and the bank is not guilty of any negligence that contributed to the loss. SB of Richmond v. NB. The issuing of the note could in no sense be considered as proximate cause of the loss. Where a negotiable note was delivered in completed form, the possibility that it might be altered by the willful fraud or forgery of another was too remote to afford basis of an action either in tort or in contract. Critten v. Chemical NB. In this case, Davis falsified the additions or total sat the foor of the pages in the check book. But with a few exceptions he did not alter the amounts expressed in the stubs. In no case did he change in the stubs the name of the payee of the check. It is clear therefore that at all times a comparison of the returned checks with the stubs in the checkbooks would have exposed the alterations made in the checks. Of course the knowledge of the forgeries that davis possessed from the fact that he himself was the forger, was in no respect to be attributed to the plaintiffs. the Court sees no reason why they were not chargeable with such information as a comparison of the checks with the check book would have imparted to an innocent party previously unaware of the forgeries. c. Effect of drawee’s payment or acceptance of altered check. Prevailing view: allows for recovery on the ground that the amount was paid under mistake and under S124, a holder in due course can recover only according to the original and not the altered tenor of the instrument  acceptance according to the order of the drawer Opposite view: S62: acceptor engages to pay according to the tenor of his acceptance and is therefore estopped from recovering Marine NV v. National CB. That an acceptor of a bill of exchange by acceptance only admits the genuineness of the signature of the drawer, and does not admit the genuineness of the indorsements...or any other part of the bill, is elementary and sustained by an unbroken current of authority. The reason is that when the bill is presented for acceptance the acceptor looks to the handwriting of the drawer with which he is presumed to be acquainted...But the acceptor cannot be presumed to have any such knowledge of the other facts upon which the rights of the holder may depend. Wells Fargo v. Union Trust. It makes for the usefulness and currency of negotiable paper to construe the words “according to the tenor of his acceptance” as referring to the instrument as it was at the time it came into the hands of the acceptor for acceptance, for he accepts no other instrument other than the one presented to him-the altered form-and it alone he engages to pay. HSBC v. PBTC. "It is a settled rule that a person who presents for payment checks such as are here involved guarantees the genuineness of the check, and the drawee bank need concern itself with nothing but the genuineness of the signature, and the state of the account with it of the drawee." If at all, then, whatever remedy HSBC has would lie not against PBTC but as against the party responsible for changing the name of the payee. Its failure to call the attention of PBTC as to such alteration until after the lapse of 27 days would, in the light of the above Central Bank circular, negate whatever right it might have had against defendant Bank. Republic Bank v. CA. When an endorsement is forged, the collecting bank or last endorsor bears the loss. However the unqualified endorsement of the collecting bank on the check should be read together with the 24-hour regulation on clearing house operation. Fraud Under Sec55, fraud is among those circumstances which render a party’s title defective. Such defective title cannot be used as a defense against an HDC However, where the fraud practiced on the maker or other signer to a negotiable instrument is of such nature that he is tricked into signing a paper, he cannot be liable, even to an HDC>>> fraud in factum/ fraud in the execution Where the signer knows that the paper he is signing is a negotiable instrument, but is deceived as to its value/terms >> fraud in the inducement CLT v. Panac. At common law a real defense was held in most jurisdictions to exist in those cases in which a person, without negligence, has signed an instrument, which was, in fact a negotiable instrument, but was deceived as to the character of the instrument and without knowledge of it. In such cases, there is no contract because there was no consenting mind, but the signer may be estopped by negligence to deny knowledge of the character of the instrument which he has signed. If he was not negligent he is not liable. Duress Like fraud, is one of those mentioned in Sec55 as making the title of the person employing it defective Normally, cannot defeat the rights of an HDC Complete instrument which is undelivered Complete Incomplete

Delivered Undelivered

9.

OKAY Section 16

Section 14 Section 15

NIL, 16. Delivery; when effectual; when presumed. - Every contract on a negotiable instrument is incomplete and revocable until delivery of the instrument for the purpose of giving effect thereto. As between immediate parties and as regards a remote party other than a holder in due course, the delivery, in order to be effectual, must be made either by or under the authority of the party making, drawing, accepting, or indorsing, as the case may be; and, in such case, the delivery may be shown to have been conditional, or for a special purpose only, and not for the purpose of transferring the property in the instrument. But where the instrument is in the hands of a holder in due course, a valid delivery thereof by all parties prior to him so as to make them liable to him is conclusively presumed. And where the instrument is no longer in the possession of a party whose signature appears thereon, a valid and intentional delivery by him is presumed until the contrary is proved. Delivery of an instrument is a prerequisite for liability If the instrument is complete in all its particulars, but is not delivered, there is no contract But if the instrument is no longer in the possession of a party who has signed it, delivery is presumed until the contrary is proved Thus if a complete instrument is stolen from the maker or drawer, and negotiated to an HDC, such maker/drawer cannot set up defense of nondelivery because it is a defense available only between immediate parties and as regards remote parties not HDCs Cohn v. City of Taunton. An instrument that has once been issued, returned, discharged, and stolen would seem to stand no differently in the hands of a holder in due course than an instrument that has been prepared, signed and stolen before being issued. Smith v. Dotterweich. The oral agreement between the parties testified to by Dotterweich was that the note would be held in Smith’s safe until the loan was procured, otherwise the note would be returned & the insurance policy would be null & void. The loan was never made, therefore there is a failure of the condition which determines the existence of any contract between the parties. In the case of Jamestown Business College Ass’n v Allen, upon which Smith relies to support his contentions, the promissory note was rendered effective by an unconditional delivery. The agreement of the payee to release the maker and cancel the note upon the happening of a future contingency was a condition subsequent which brought the case within the general rule that a contract reduced to writing, and complete in its terms, cannot be contradicted by oral testimony. The oral testimony therein was in direct contradiction of the written contract, as to the existence or validity of which there was no controversy, while in the case at bar the oral testimony tends to show that the writing purporting to be a contract is no contract at all. Incomplete instrument which is undelivered NIL, 15. Incomplete instrument not delivered. - Where an incomplete instrument has not been delivered, it will not, if completed and negotiated without authority, be a valid contract in the hands of any holder, as against any person whose signature was placed thereon before delivery. Not even an HDC can recover on the instrument, for the law is specific that it is not a valid contract in the hands of any holder Example: where payee = blank Pavilis v. Farmers’ Union. The check in controversy was an incomplete instrument when stolen and cannot be enforced in the absence of conduct on the part of the drawer creating estoppel. || It is urged that defendant is chargeable with negligence and is estopped to deny liability. The cases cited are those in which the party sought to be charged upon a negotiable instrument has entrusted an instrument signed in blank to an agent or some other person who has wrongfully completed and negotiated the instrument; an agency or trust was created by means of which the fraud was committed and the fact that there was no authority for completing the instrument was otherwise wrongfully dealt with was no defense. Weiner v. Pennsylvania. Weiner signed the check in blank thus putting it in the power of an unauthorized person to fill it in and present it for payment. The depositor’s act made the loss possible and caused it, and enabled the thief to commit the fraud. Weiner’s act was a bar and an estoppel. To hold

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Janz Hanna Ria N. Serrano Campos Annotations + Additional Cases Special thanks to A2010 legendary digests for the case doctrines otherwise would require the bank to communicate with the drawer as each check was presented, in order to find out if the delivery was intended. This is too much to be expected; and to place the burden of loss or its chance to the depository if it does not interview the maker, is neither fair nor compatible with public interest. Such would affect the very nature of checks which is convenience. Linick v. AJ Nutting. into the hands of a holder in due course, the latter may recover, yet we cannot say under the facts and circumstances of the instant case that defendant was negligent. The loss did not result from completion and negotiation of the check by one entrusted with its possession, and we are not concerned with a breach of duty as between a depositor and drawee. It does not appear that defendant company had reason to mistrust its employee and to anticipate the wrongful taking by him of a check signed in blank, the subsequent completion and negotiation. 10. Incomplete instrument which has been delivered. NIL, 14. Blanks; when may be filled. - Where the instrument is wanting in any material particular, the person in possession thereof has a prima facie authority to complete it by filling up the blanks therein. And a signature on a blank paper delivered by the person making the signature in order that the paper may be converted into a negotiable instrument operates as a prima facie authority to fill it up as such for any amount. In order, however, that any such instrument when completed may be enforced against any person who became a party thereto prior to its completion, it must be filled up strictly in accordance with the authority given and within a reasonable time. But if any such instrument, after completion, is negotiated to a holder in due course, it is valid and effectual for all purposes in his hands, and he may enforce it as if it had been filled up strictly in accordance with the authority given and within a reasonable time. Covers 2 kinds of writings: (1) incomplete instruments – the writing recites enough of the formal requisites to make evident the intention to make the writing operate as a negotiable instrument  any person in possession thereof has a prima facie authority to complete it by filling up the blanks therein (2) a blank paper or a paper so far incomplete that it does not constitute an instrument within the meaning of the definition of this term, but signed >> 2 conditions must be present before presumption of authority to complete may arise: a. delivery of the instrument b. the delivery must have been for the purpose of converting it into a negotiable instrument  Thus, if the paper or writing is delivered without such intention, its subsequent conversion into a negotiable instrument will not render the person signing liable to anybody, not even to an HDC. Simpson v. NB of Roseburg. When the maker of the note left a blank for the name of a payee and delivered the instrument in that condition to another person for value then that person to whom the note was delivered or any subsequent holder could insert his own name, or that of a transferee, as payee 11. Consideration NIL, 28. Effect of want of consideration. - Absence or failure of consideration is a matter of defense as against any person not a holder in due course; and partial failure of consideration is a defense pro tanto, whether the failure is an ascertained and liquidated amount or otherwise. Reiterates Sec. 24 that every instrument is deemed prima facie to have been issued for a valuable consideration Absence of consideration means total lack of consideration Failure of consideration means that something was agreed upon as consideration but for some reason the consideration did not materialize Partial failure of consideration  part of the consideration did not materialize Dougherty v. Salt. SC geld that the note was the VOLUNTARY AND UNENFORCEABLE promise of an executory gift. (no explanation why) || the eight year old child was not a debtor, nor dealt with as one. The aunt was conferring a bounty. The promise was neither offered nor accepted with any other purpose William Barco v. Farbes. One who gives a note in renewal of another note, with knowledge at the time of partial failure of the consideration for the original note, or of false representations by the payee, waives such defense and cannot set it up to defeat or to reduce the discovery on the renewal note. Chapter V: LIABILITY OF PARTIES 1. Liability of primary parties a. In general NIL, 192. Persons primarily liable on instrument. - The person "primarily" liable on an instrument is the person who, by the terms of the instrument, is absolutely required to pay the same. All other parties are "secondarily" liable. NIL, 70. Effect of want of demand on principal debtor. - Presentment for payment is not necessary in order to charge the person primarily liable on the instrument; but if the instrument is, by its terms, payable at a special place, and he is able and willing to pay it there at maturity, such ability and willingness are equivalent to a tender of payment upon his part. But except as herein otherwise provided, presentment for payment is necessary in order to charge the drawer and indorsers. Primarily liable parties: maker of a PN, acceptor of a bill Drawee not a party liable on the instrument until and unless he accepts Secondarily liable parties: indorsers of both note and bill; drawer of a bill Main distinction: former is unconditionally liable while the latter is conditionally liable To be liable, 2nd parties  (1) due presentment or demand to the primary party for payment or acceptance; (2) dishonor by such party; (3) notice of dishonor b. Liability of maker NIL, 60. Liability of maker. - The maker of a negotiable instrument, by making it, engages that he will pay it according to its tenor, and admits the existence of the payee and his then capacity to indorse. First NV of Central City v. Utterback. The NIL says in plain language that the maker of an instrument, by making it, admits the payee’s capacity to indorse it. The act does not say, however, that the maker admits the payee’s capacity to make the contract for which the note was executed, and hence he may have the right to urge such defense against the original payee. BUT again, reiterate the point that the act DOES take from the maker the right to deny the capacity of the payee to indorse and negotiate the note free from defenses available against the payee, even though, as between the original parties, the note was void and unenforceable for any reason c. Status of drawee prior to acceptance or payment; effect of stop order NIL, 127. Bill not an assignment of funds in hands of drawee. - A bill of itself does not operate as an assignment of the funds in the hands of the drawee available for the payment thereof, and the drawee is not liable on the bill unless and until he accepts the same. NIL, 189. When check operates as an assignment. - A check of itself does not operate as an assignment of any part of the funds to the credit of the drawer with the bank, and the bank is not liable to the holder unless and until it accepts or certifies the check.  means that bank may credit payment to Der’s funds A BoE presupposes a debtor-creditor relationship between Der and Dee. Thus, although a Dee is not liable to the Holder until and unless he accepts, the Dee who refuses to accept, may, under circumstances, be liable to the Der for breach of contract or for torts. Araneta v. Bank of America. The financial credit of a businessman is a prized and valuable asset, it being a significant part of the foundation of his business. Any adverse reflection thereon constitutes some material loss to him. Woody v. NB of Rocky Mt. -Upon the refusal or failure of the bank to pay the check of its depositor, the bank is liable for a breach of its contract. The depositor may recover of the bank the amount of his check, with interest and cost; the action being on contract, the recovery is limited to the amount of the check, with interest from date of demand and refusal, and, by virtue of the statute, the costs of the action. ||Notwithstanding that the relation of the bank to its depositor is that of debtor and creditor, a bank may be held liable in tort to its depositor whose check it has wrongfully refused or failed to pay. Singson v. BPI. Existence of a contract between parties doesn’t bar commission of a tort by one against the other and the consequent recovery of damages therefore. Speroff v. First Central Trust. It is elementary that a bank is required by law to act in good faith and exercise reasonable care in its relationship with its depositors. | In this case, the obtaining from Speroff of a purported release from liability for inadvertency or oversight as a condition of the

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order to stop payment of the check was contrary to public policy and did not relieve FCTC from its duty to act in good faith and exercise reasonable care. Chase NB of NY v. Battat. The complaint failed to allege ratification by Arbeedee after learning of the payment by plaintiff to Caracanda and there are no alternative allegations of fact upon which to rest such a cause of action. Our courts have never permitted a bank in a commercial transaction to such as this, after breaching its depositor's instructions to involve him against his will in litigation with a third party in order that the bank may recoup a potential loss resulting from its own error. The doctrine of subrogation or equitable assignment is not properly applicable under such circumstances. A bank may protect itself by contract with its depositor so as to limit liability on a stop payment order. When that has not been done, the common law liability is absolute in the absence of ratification. d. Liability of acceptor NIL, 62. Liability of acceptor. - The acceptor, by accepting the instrument, engages that he will pay it according to the tenor of his acceptance and admits: (a) The existence of the drawer, the genuineness of his signature, and his capacity and authority to draw the instrument; and (b) The existence of the payee and his then capacity to indorse. Majority view: where the alteration consists in raising the amount payable, the acceptor would be liable to HDC only as to its original amount Formal requisites of acceptance NIL, 191, supra. NIL, 132. Acceptance; how made, by and so forth. - The acceptance of a bill is the signification by the drawee of his assent to the order of the drawer. The acceptance must be in writing and signed by the drawee. It must not express that the drawee will perform his promise by any other means than the payment of money. NIL, 133. Holder entitled to acceptance on face of bill. - The holder of a bill presenting the same for acceptance may require that the acceptance be written on the bill, and, if such request is refused, may treat the bill as dishonored. NIL, 138. Acceptance of incomplete bill. - A bill may be accepted before it has been signed by the drawer, or while otherwise incomplete, or when it is overdue, or after it has been dishonored by a previous refusal to accept, or by nonpayment. But when a bill payable after sight is dishonored by nonacceptance and the drawee subsequently accepts it, the holder, in the absence of any different agreement, is entitled to have the bill accepted as of the date of the first presentment. Lawless v. Temple. Acceptance must be in writing because sound policy requires that some substantial and tangible evidence of the contract is more reliable in nature than the statement or recollection of witnesses. The common practice before the NIL was to write the word "accepted" + the signature on the face of the bill. || But based on case law, the signature is both a writing and signing. The name alone is constantly holden to satisfy the requirement. || A drawee may be charged as acceptor although he writes merely his name upon the bill and that anyone taking the bill has the right to fill up a blank acceptance on the same principle that a holder may fill up a blank indorsement Kilgore NB v. Moore Bros. The plain purpose of 132 is to prevent any liability to the holder of a check from arising from the bare oral promise of the drawee bank to pay the check. In the present case, the liability of Kilgore Bank to Moore Brothers depends entirely on the BARE ORAL PROMISE of the drawee bank to pay. As we have said, this should have been in writing (and of course, complying as well with the other two requities). a. Constructive acceptance NIL, 136. Time allowed drawee to accept. - The drawee is allowed twenty-four hours after presentment in which to decide whether or not he will accept the bill; the acceptance, if given, dates as of the day of presentation. NIL, 137. Liability of drawee returning or destroying bill. - Where a drawee to whom a bill is delivered for acceptance destroys the same, or refuses within twenty-four hours after such delivery or within such other period as the holder may allow, to return the bill accepted or non-accepted to the holder, he will be deemed to have accepted the same. NIL, 150. Duty of holder where bill not accepted. - Where a bill is duly presented for acceptance and is not accepted within the prescribed time, the person presenting it must treat the bill as dishonored by non-acceptance or he loses the right of recourse against the drawer and indorsers. Wisner v. First NB of Gallitzin. The drawee to whom a bill is delivered for acceptance is deemed to have accepted it under Section 137 where: 1. he destroys it; 2. where he refuses within 24 hrs after delivery to return the bill accepted or nonaccepted to the holder; and 3. where he refuses within such other period as the holder may allow to return the bill accepted or non-accepted to the holder. WON a demand from the holder for the return of the bill, and a refusal on the part of the drawee, are conditions precedent to an acceptance >> No prior demand from holder is required because to require so is not to the convenience or interest of the holder || The manifest purpose in requiring prompt return of the bill is in the interest of and for the protection of the holder || If this section had in view the protection of the holder, then it was evidently the intention of the legislature that the non-return of the bill within the specified time, regardless of the cause, will make the drawee an acceptor Urwiller v. Plattey Valley SB. 'Presentment for payment and presentment for acceptance are two different acts well known to the law of negotiable instruments. The difference between the object and effect of presentation for these respective purposes is very marked. Payment extinguishes the debt and puts an end to the paper evidencing the same, while acceptance has the very opposite effect. It creates a new liability upon the part of the acceptor, and gives new life to the instrument.' Sumcad v. Samar. When PNB requested photostatic copies of the check from the Bureau of Posts and McGuire to present check to provincial treasurer and provincial auditor for certification, it voluntarily assumed the obligation of holding so much of the deposit of the province of Samar as would be sufficient to cover the amount of the check, or before allowing the withdrawal that exhausted said deposit, of making the necessary inquiry on the matter. It would be an empty gesture if the appellant did not mean to assume the obligation of paying the check and holding sufficient deposit of the drawer for the purpose. Acceptance on a separate instrument NIL, 134. Acceptance by separate instrument. - Where an acceptance is written on a paper other than the bill itself, it does not bind the acceptor except in favor of a person to whom it is shown and who, on the faith thereof, receives the bill for value. NIL, 135. Promise to accept; when equivalent to acceptance. - An unconditional promise in writing to accept a bill before it is drawn is deemed an actual acceptance in favor of every person who, upon the faith thereof, receives the bill for value. Coolidge v. Payson. -A promise to accept a bill amounts to an acceptance to a person who has taken it on the credit of that promise, although the promise was made before the existence of the bill, and although it is drawn in favor of a person who takes it for a pre-existing debt Kinds of acceptance a. General acceptance NIL, 139. Kinds of acceptance. - An acceptance is either general or qualified. A general acceptance assents without qualification to the order of the drawer. A qualified acceptance in express terms varies the effect of the bill as drawn. NIL, 140. What constitutes a general acceptance. - An acceptance to pay at a particular place is a general acceptance unless it expressly states that the bill is to be paid there only and not elsewhere. b. Qualified acceptance NIL, 141. Qualified acceptance. - An acceptance is qualified which is: (a) Conditional; that is to say, which makes payment by the acceptor dependent on the fulfillment of a condition therein stated; (b) Partial; that is to say, an acceptance to pay part only of the amount for which the bill is drawn; (c) Local; that is to say, an acceptance to pay only at a particular place; (d) Qualified as to time; (e) The acceptance of some, one or more of the drawees but not of all. NIL, 142. Rights of parties as to qualified acceptance. - The holder may refuse to take a qualified acceptance and if he does not obtain an unqualified acceptance, he may treat the bill as dishonored by non-acceptance. Where a qualified acceptance is taken, the drawer and indorsers are discharged from liability on the bill unless they have expressly or impliedly authorized the holder to take a qualified acceptance, or subsequently assent thereto. When the drawer or an indorser receives notice of a qualified acceptance, he must, within a reasonable time, express his dissent to the holder or he will be deemed to have assented thereto. (a) Conditional  “Will pay as soon as proceeds of palay are available”

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(b) Partial  “Accepted for 2000 only” for a 5000 note (c) Local  “accepted, payment to be made at PNB” (d) As to time  “accepted, payment to be made 6 months from date” for a bill payable 30 days after date (e) As to drawee c. Trade acceptance d. Banker’s acceptance Checks NIL, 185. Check, defined. - A check is a bill of exchange drawn on a bank payable on demand. Except as herein otherwise provided, the provisions of this Act applicable to a bill of exchange payable on demand apply to a check. RA 265, Sec. 63. Legal character – Checks representing deposit money do not have legal tender power and their acceptance in the payment of debts, both public and private, is at the option of the creditor: Provided, however, That a check which has been cleared and credited to the account of the creditor shall be equivalent to a delivery to the creditor of cash in an amount equal to the amount credited to his account (Central Bank Act) Memorandum check  drawer will pay the holder absolutely, without need of presentment; drawn on a bank and thus has the same effect as an ordinary check Traveler’s check  holder’s signature must appear twice, first when issued and again when cashed Republic v. PNB. A demand draft is not of the same category as a cashier’s check which should fall under the Act. In banking terminology, the term bank draft is used interchangeably with a bill of exchange. A bill of exchange under the NIL (sec. 127) does not operate as an assignment of funds in the hands of the drawee who is not liable on the instrument until he accepts. In fact, the law requires presentment w/in a reasonable time or else the drawer is discharged from liability. Since it is admitted in this case that the drafts in question were never presented either for acceptance or payment, appellee bank never became a debtor of the payees, hence the drafts never became “credits” under the Act. PAL v. CA. PAL was negligent. Making the checks payable to the judgment creditor would have prevented the encashment or the taking of undue advantage by the sheriff, or any person into whose hands the checks may have fallen, whether wrongfully or in behalf of the creditor. The issuance of the checks in the name of the sheriff clearly made possible the misappropriation of the funds that were withdrawn. Fortunado v. CA. In the US, it has been held and recognized that a payment by check or draft or bank bill or currency which is not legal tender is effective if the officer accepts such payment. If in good faith, the redemptioner pays, and the officer receives before the expiration of the time of redemption, an ordinary banker's check, the payment is regarded as sufficient. Mesina v. IAC. Mesina invokes theories on causes and effects of a cashier’s checks such as 1) it cannot be countermanded in the hands of a holder in due course and 2) a cashier’s check is a bill of exchange drawn by the bank against itself. But these are general principles which cannot be aptly applied to the case at bar without considering other things. Mesina failed to substantiate that he is a holder in due course. He refused to say how and why the check was passed to him. He therefore had notice of the defect of his title over the check from the start. a. Certification and its effects NIL, 187. Certification of check; effect of. - Where a check is certified by the bank on which it is drawn, the certification is equivalent to an acceptance. [if by drawee = acceptance] NIL, 188. Effect where the holder of check procures it to be certified. - Where the holder of a check procures it to be accepted or certified, the drawer and all indorsers are discharged from liability thereon. NIL, 189. When check operates as an assignment. - A check of itself does not operate as an assignment of any part of the funds to the credit of the drawer with the bank, and the bank is not liable to the holder unless and until it accepts or certifies the check. New Pacific Timber v. Seneris. A Cashier’s Check is deemed as cash. Moreover, since the check had been certified by the drawee bank, by the certification, the funds represented by the checks are transferred from the credit of the maker to that of the payee or holder, and for all intents and purposes, the latter becomes the depositor of the drawee bank, with rights and duties of one in such situation. The certification is equivalent to acceptance. || The object of certifying a check as regards both parties is to enable holder to use it, as money. When the holder procures the check to be certified, the check operates as an assignment of a part of the funds to the creditors. Wachtel v. Rosen. The general rule is that a check is of right presentable only for payment, and that the bank is under no obligation to certify, although it may do so. || When a bank certifies a check at the request of the holder, a new obligation is created. Under Section 324, the drawer and all the endorsers are discharged from liability if the check is accepted or certified. The acceptance of a bill of exchange, on the other hand, does not discharge the liability. The certification differs in effect from mere acceptance of bills other than checks, in that it is not an added obligation but a substitute obligation RCA of Malolos v. IAC. A finding that Robes-Francisco had sufficient available funds on or before the grace period for the payment of its obligation does not constitute proof of tender of payment by the latter for its obligation within the said period. Tender of payment involves a positive and unconditional act by the obligor of offering legal tender currency as payment to the obligee for the former's obligation and demanding that the latter accept the same. Thus, tender of payment cannot be presumed by a mere inference from surrounding circumstances. At most, sufficiency of available funds is only affirmative of the capacity or ability of the obligor to fulfill his part of the bargain. But whether or not the obligor avails himself of such funds to settle his outstanding account remains to be proven by independent and credible evidence. Tender of payment presupposes not only that the obligor is able, ready, and willing, but more so, in the act of performing his obligation. Ab posse ad actu non vale illatio. "A proof that an act could have been done is no proof that it was actually done.” Bulliet v. Allegheny. the reply of Allegheny that it would honor the check amounted to certification of the bank, thus making it liable || the effect of the bank’s certifying a check at the request of the holder is to create a new obligation on the part of the bank to that holder, the amount of the check passes to the credit of the holder, who is thereafter a depositor to that amount || the obligation of the acceptor is to pay the instrument according to the tenor of his acceptance. It has been said that an acceptor admits everything essential to the validity of the bill, and on this ground he cannot, for example, even set up the defense of want of consideration between the parties. || the acceptor cannot defend on the ground of want of consideration between the drawer and the payee Sutter v. Security Trust Co. A check may be certified by the bank at the request of the payee or the holder, when the check is certified at the request of the drawer or maker before it reaches the hands f the payee therein named. When such a certification is made and there is delivery to the payee, under the circumstances and conditions making him a bona fide holder for value, without notice of defects therein then the instrument is beyond recall by the maker as against the payee. He may only do so (recall) if the payee is not a bona fide holder for value but has obtained the check by fraud perpetrated by him upon the maker. b. Distinction between surrender of check upon payment and negotiation The delivery of the check by the holder to the drawee bank upon its payment is not negotiation > The holder is not transferring title to the instrument but is merely demanding that the bank discharge its contractual obligation to the holder But if holder deposits check to a bank other than the drawee bank > signature at the back of the check = indorsement >>> negotiation c. Clearing of checks Liability of secondary parties NIL, 70. Effect of want of demand on principal debtor. - Presentment for payment is not necessary in order to charge the person primarily liable on the instrument; but if the instrument is, by its terms, payable at a special place, and he is able and willing to pay it there at maturity, such ability and willingness are equivalent to a tender of payment upon his part. But except as herein otherwise provided, presentment for payment is necessary in order to charge the drawer and indorsers. a. Liability of drawer **NIL, 61. Liability of drawer. - The drawer by drawing the instrument admits the existence of the payee and his then capacity to indorse; and engages that, on due presentment, the instrument will be accepted or paid, or both, according to its tenor, and that if it be dishonored and the necessary proceedings on dishonor be duly taken, he will pay the amount thereof to the holder or to any subsequent indorser who may be compelled to pay it. But the drawer may insert in the instrument an express stipulation negativing or limiting his own liability to the holder. PNB v. Picornell. As to Bartolome Picornell, he warranted, as drawer of the bill, that it would be accepted upon proper presentment and paid in due course, and as it was not paid, he became liable to the payment of its value to the holder thereof, which is the plaintiff bank.

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Banco Atlantico v. Auditor Gen. It is apparent that the said three (3) checks were fraudulently altered by Virginia Boncan as to their amounts and, therefore, wholly inoperative. No right of payment thereof against any party thereto could have been acquired by the petitioner. McCornack v. CSB. This provision would seem to be, not for the benefit of the drawee, nor designed to relieve the drawee of the duty to pay out the drawer’s money in accordance with his order, but for the protection of holders of the paper in case the drawee refuses to pay. It provides, not only that the drawer admits the existence of the payee and his capacity to indorse, but that he engages that upon dishonor and the necessary proceedings thereon he will pay the amount to the holder or any subsequent indorser who may be compelled to pay it. There is here no engagement to pay the amount to a drawee who has honored the check. b. Criminal liability for bouncing checks (1) Under BP 22. (2) Estafa under RPC Lozano v. Martinez. PP v. Nitafan. c. Liability of qualified indorser (no secondary liability) and one negotiating by delivery (still secondarily liable) NIL, 65. Warranty where negotiation by delivery and so forth. — Every person negotiating an instrument by delivery or by a qualified indorsement warrants: (a) That the instrument is genuine and in all respects what it purports to be; (b) That he has a good title to it; (c) That all prior parties had capacity to contract; (d) That he has no knowledge of any fact which would impair the validity of the instrument or render it valueless. But when the negotiation is by delivery only, the warranty extends in favor of no holder other than the immediate transferee. The provisions of subdivision (c) of this section do not apply to a person negotiating public or corporation securities other than bills and notes. d. Liability of a general or unqualified indorser NIL, 66. Liability of general indorser. - Every indorser who indorses without qualification, warrants to all subsequent holders in due course: (a) The matters and things mentioned in subdivisions (a), (b), and (c) of the next preceding section; and (b) That the instrument is, at the time of his indorsement, valid and subsisting; And, in addition, he engages that, on due presentment, it shall be accepted or paid, or both, as the case may be, according to its tenor, and that if it be dishonored and the necessary proceedings on dishonor be duly taken, he will pay the amount thereof to the holder, or to any subsequent indorser who may be compelled to pay it. NIL, 67. Liability of indorser where paper negotiable by delivery. — Where a person places his indorsement on an instrument negotiable by delivery, he incurs all the liability of an indorser. NIL, 63. When a person deemed indorser. - A person placing his signature upon an instrument otherwise than as maker, drawer, or acceptor, is deemed to be indorser unless he clearly indicates by appropriate words his intention to be bound in some other capacity. NIL, 40. Indorsement of instrument payable to bearer. - Where an instrument, payable to bearer, is indorsed specially, it may nevertheless be further negotiated by delivery; but the person indorsing specially is liable as indorser to only such holders as make title through his indorsement. Adolph Ramish v. Woodruff. A person placing his signature in the instrument, aside from doing so as maker, drawer or acceptor is deemed to be an indorser unless there is a clear indication through the words of being bound in another capacity. || The tendency of the law is to resolve all doubtful cases towards holding the same to be a commercial indorsement in due course. Wachovia Bank v. Crafton. The contract of indorsement is a substantive contract, separable and independent of the instrument on which it appears, and where it has been made without ratification, and for value, it guarantees to a HDC, among other things that the instrument, at the time of the indorsement, is a valid and subsisting obligation. Horowitz v. Wollowitz. It is not necessary to pass upon the question of the availability to the maker of the defense of usury as against HIDCs, because defendants herein were sued in their capacity, not as makers, but as indorsers of the note in question. e. Liability of restrictive indorser f. Order of liability among indorsers NIL, 68. Order in which indorsers are liable. - As respect one another, indorsers are liable prima facie in the order in which they indorse; but evidence is admissible to show that, as between or among themselves, they have agreed otherwise. Joint payees or joint indorsees who indorse are deemed to indorse jointly and severally. Liability of accommodation party NIL, 29. Liability of accommodation party. - An accommodation party is one who has signed the instrument as maker, drawer, acceptor, or indorser, without receiving value therefor, and for the purpose of lending his name to some other person. Such a person is liable on the instrument to a holder for value, notwithstanding such holder, at the time of taking the instrument, knew him to be only an accommodation party. NIL, 63, supra. NIL, 64. Liability of irregular indorser. - Where a person, not otherwise a party to an instrument, places thereon his signature in blank before delivery, he is liable as indorser, in accordance with the following rules: (a) If the instrument is payable to the order of a third person, he is liable to the payee and to all subsequent parties. (b) If the instrument is payable to the order of the maker or drawer, or is payable to bearer, he is liable to all parties subsequent to the maker or drawer. (c) If he signs for the accommodation of the payee, he is liable to all parties subsequent to the payee. Ingalls v. Marston. Nature of liability must be expressly stated in instances where the instrument was signed other than on its face. West Rustland Trust v. Houston. If the note was given to plaintiff bank merely as a semblance of collateral security, the result was to effect a scheme to deceive the bank examiner. If so, it was an illegal transaction, and it is against public policy to permit defendants to rely upon it as a defense. In such circumstances, the defendants are bound as the face of the note discloses. Goodman v. Gaul. An accommodation party is liable to all subsequent parties except to the party whom he accommodated Clark v. Sellner. It is not dependent on whether or not he has received any or part of his debt. So long as he is one of the joint and several debtors which he is, makes him liable. || Presentment not required Maulini v. Serrano. Where an indorsement is made as a favor to the indorsee, who requests it, not to secure payment, but to relieve himself from a distasteful situation, and where the only consideration for such indorsement passes from the indorser to the indorsee, the situation does not present one creating an accommodation indorsement, nor one where there is a consideration sufficient to sustain an action on the indorsement. PNB v. Maza. Even if defendants never received the value of the notes, even assuming that it is fundamental that an instrument given without consideration does not create any obligation in favor of the payee, however, to fasten liability upon an accommodation maker, it is not necessary that any consideration should move to him. The consideration which supports the promise of the accommodation maker is that parted with by the person taking the note and received by the person accommodated Acuna v. Veloso. In this case the accommodating party and the accommodated party unite in making a joint and several note to a person who advances the face value of the note to one of its makers at the very time of its creation. The consideration for the note, as regards both makers, was the money which the payee advanced to Xavier; and it cannot be said that the note was lacking in consideration as to Veloso because he himself received non of this money. Value was given for the note, and this was enough. Ang Riong v. Ting. A person placing his signature upon an instrument otherwise than as a maker, drawer or acceptor is a general indorser unless he clearly indicates by appropriate words his intention to be bound in some other capacity Sadaya v. Sevilla. Based on that provision (CC), a joint and several accommodation maker who pays on a promissory note may directly demand reimbursement from his co-accommodation maker without first directing his action against the principal debtor provided that (a) he made the payment by virtue of a judicial demand or (b) the principal debtor is insolvent.

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Janz Hanna Ria N. Serrano Campos Annotations + Additional Cases Special thanks to A2010 legendary digests for the case doctrines Prudencio v. CA. In lending his name to the accommodated party, the accommodation party is in effect a surety. However, unlike a contract of suretyship, the liability of the accommodation party remains not only primary but also unconditional to a holder for value such that even if the accommodated party receives an extension of the period for payment without the consent of the accommodation party, the latter is still liable for the whole obligation and such extension does not release him because as far as a holder for value is concerned, he is a solidary co-debtor. 8. Liability of an agent NIL, 19. Signature by agent; authority; how shown. - The signature of any party may be made by a duly authorized agent. No particular form of appointment is necessary for this purpose; and the authority of the agent may be established as in other cases of agency. NIL, 20. Liability of person signing as agent, and so forth. - Where the instrument contains or a person adds to his signature words indicating that he signs for or on behalf of a principal or in a representative capacity, he is not liable on the instrument if he was duly authorized; but the mere addition of words describing him as an agent, or as filling a representative character, without disclosing his principal, does not exempt him from personal liability. NIL, 21. Signature by procuration; effect of. - A signature by "procuration" operates as notice that the agent has but a limited authority to sign, and the principal is bound only in case the agent in so signing acted within the actual limits of his authority. NIL, 69. Liability of an agent or broker. - Where a broker or other agent negotiates an instrument without indorsement, he incurs all the liabilities prescribed by Section Sixty-five of this Act, unless he discloses the name of his principal and the fact that he is acting only as agent. Austin Nichols v. Gross. -If words appear on any part of the check indicating that Gross signed in behalf of the State Street Grocery, that will be sufficient, whether the words appear at the head of the check or on its margin. All that is necessary between the original parties is that these words should be such as to reasonably apprise or put on notice the payee that it was or might be the check of the company, and not of Gross. By such proof the true contract is revealed, and the intention of the parties effected New Georgia NB v. Lippmann. At common law, remedy against agent signing a note w/o authority was not upon note itself, but for breach of implied warranty. || The proviso that the agent or representative shall not be liable on instrument if he was authorized to sign, carries w/ it a fair implication that he shall be liable if not authorized Pratt v. Hopper. -In the case of negotiable instruments, this restriction arises, not by reason of the status of the parties, but by reason of the character of the instrument. When a negotiable instrument is executed by an agent without sufficiently indicating on its face who the principal is, parol evidence cannot be introduced to charge the principal, although the agent executed the instrument as an agent. Insular Drug Co v PNB. The bank could tell by the checks themselves that the money belonged to the Insular Drug Co., Inc., and not to Foerster or his wife or his clerk. When the bank credited those checks to the personal account of Foerster and permitted Foerster and his wife to make withdrawals without there being made authority from the drug company to do so, the bank made itself responsible to the drug company for the amounts represented by the checks. The bank could relieve itself from responsibility by pleading and proving that after the money was withdrawn from the bank it passed to the drug company which thus suffered no loss, but the bank has not done so. The bank will have to stand the loss occasioned by the negligence of its agents. PBC v. Aruego. Sec. 20 of NIL says that an agent who does not disclose his principal is not exempt from liability. Aruego did not disclose that he was signing as a representative of PEFC. For failure to disclose his principal, Aruego is personally liable. 9. Signature by trade name NIL, 18. Liability of person signing in trade or assumed name. - No person is liable on the instrument whose signature does not appear thereon, except as herein otherwise expressly provided. But one who signs in a trade or assumed name will be liable to the same extent as if he had signed in his own name. 10. Presentment for acceptance a. When necessary; effect of non-presentment NIL, 143.When presentment for acceptance must be made. - Presentment for acceptance must be made: (a) Where the bill is payable after sight, or in any other case, where presentment for acceptance is necessary in order to fix the maturity of the instrument; or (b) Where the bill expressly stipulates that it shall be presented for acceptance; or (c) Where the bill is drawn payable elsewhere than at the residence or place of business of the drawee. In no other case is presentment for acceptance necessary in order to render any party to the bill liable. NIL, 144. When failure to present releases drawer and indorser. - Except as herein otherwise provided, the holder of a bill which is required by the next preceding section to be presented for acceptance must either present it for acceptance or negotiate it within a reasonable time. If he fails to do so, the drawer and all indorsers are discharged. NIL, 193. Reasonable time, what constitutes. - In determining what is a "reasonable time" regard is to be had to the nature of the instrument, the usage of trade or business with respect to such instruments, and the facts of the particular case. b. How and when made NIL, 145. Presentment; how made. - Presentment for acceptance must be made by or on behalf of the holder at a reasonable hour, on a business day and before the bill is overdue, to the drawee or some person authorized to accept or refuse acceptance on his behalf; and (a) Where a bill is addressed to two or more drawees who are not partners, presentment must be made to them all unless one has authority to accept or refuse acceptance for all, in which case presentment may be made to him only; (b) Where the drawee is dead, presentment may be made to his personal representative; (c) Where the drawee has been adjudged a bankrupt or an insolvent or has made an assignment for the benefit of creditors, presentment may be made to him or to his trustee or assignee. NIL, 146. On what days presentment may be made. - A bill may be presented for acceptance on any day on which negotiable instruments may be presented for payment under the provisions of Sections seventy-two and eighty-five of this Act. When Saturday is not otherwise a holiday, presentment for acceptance may be made before twelve o'clock noon on that day c. When excused NIL, 148. Where presentment is excused. - Presentment for acceptance is excused and a bill may be treated as dishonored by non-acceptance in either of the following cases: (a) Where the drawee is dead, or has absconded, or is a fictitious person or a person not having capacity to contract by bill. (b) Where, after the exercise of reasonable diligence, presentment can not be made. (c) Where, although presentment has been irregular, acceptance has been refused on some other ground. NIL, 147. Presentment where time is insufficient. - Where the holder of a bill drawn payable elsewhere than at the place of business or the residence of the drawee has no time, with the exercise of reasonable diligence, to present the bill for acceptance before presenting it for payment on the day that it falls due, the delay caused by presenting the bill for acceptance before presenting it for payment is excused and does not discharge the drawers and indorsers. d. Dishonor and its effects NIL, 149. When dishonored by nonacceptance. - A bill is dishonored by non-acceptance: (a) When it is duly presented for acceptance and such an acceptance as is prescribed by this Act is refused or cannot be obtained; or (b) When presentment for acceptance is excused and the bill is not accepted. NIL, 150. Duty of holder where bill not accepted. - Where a bill is duly presented for acceptance and is not accepted within the prescribed time, the person presenting it must treat the bill as dishonored by nonacceptance or he loses the right of recourse against the drawer and indorsers. NIL, 151. Rights of holder where bill not accepted. - When a bill is dishonored by nonacceptance, an immediate right of recourse against the drawer and indorsers accrues to the holder and no presentment for payment is necessary. NIL, 89. To whom notice of dishonor must be given. - Except as herein otherwise provided, when a negotiable instrument has been dishonored by non-acceptance or non-payment, notice of dishonor must be given to the drawer and to each indorser, and any drawer or indorser to whom such notice is not given is discharged. NIL, 117. Effect of omission to give notice of non-acceptance. - An omission to give notice of dishonor by non-acceptance does not prejudice the rights of a holder in due course subsequent to the omission. 11. Presentment for payment

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When presentment necessary; effect of non-presentment NIL, 70. Effect of want of demand on principal debtor. - Presentment for payment is not necessary in order to charge the person primarily liable on the instrument; but if the instrument is, by its terms, payable at a special place, and he is able and willing to pay it there at maturity, such ability and willingness are equivalent to a tender of payment upon his part. But except as herein otherwise provided, presentment for payment is necessary in order to charge the drawer and indorsers. When presentment not necessary (1) As to drawer NIL, 79. When presentment not required to charge the drawer. - Presentment for payment is not required in order to charge the drawer where he has no right to expect or require that the drawee or acceptor will pay the instrument. (2) As to indorser NIL, 80. When presentment not required to charge the indorser. - Presentment is not required in order to charge an indorser where the instrument was made or accepted for his accommodation and he has no reason to expect that the instrument will be paid if presented. (3) As to all secondary parties NIL, 82. When presentment for payment is excused. - Presentment for payment is excused: (a) Where, after the exercise of reasonable diligence, presentment, as required by this Act, cannot be made; (b) Where the drawee is a fictitious person; (c) By waiver of presentment, express or implied. NIL, 151. Rights of holder where bill not accepted. - When a bill is dishonored by nonacceptance, an immediate right of recourse against the drawer and indorsers accrues to the holder and no presentment for payment is necessary. NIL, 111. Waiver of protest. - A waiver of protest, whether in the case of a foreign bill of exchange or other negotiable instrument, is deemed to be a waiver not only of a formal protest but also of presentment and notice of dishonor. Date and time of presentment of instrument bearing fixed maturity NIL, 71. Presentment where instrument is not payable on demand and where payable on demand. - Where the instrument is not payable on demand, presentment must be made on the day it falls due. Where it is payable on demand, presentment must be made within a reasonable time after its issue, except that in the case of a bill of exchange, presentment for payment will be sufficient if made within a reasonable time after the last negotiation thereof. NIL, 85. Time of maturity. - Every negotiable instrument is payable at the time fixed therein without grace. When the day of maturity falls upon Sunday or a holiday, the instruments falling due or becoming payable on Saturday are to be presented for payment on the next succeeding business day except that instruments payable on demand may, at the option of the holder, be presented for payment before twelve o'clock noon on Saturday when that entire day is not a holiday. NIL, 86. Time; how computed. - When the instrument is payable at a fixed period after date, after sight, or after that happening of a specified event, the time of payment is determined by excluding the day from which the time is to begin to run, and by including the date of payment. NIL, 194. Time, how computed; when last day falls on holiday. - Where the day, or the last day for doing any act herein required or permitted to be done falls on a Sunday or on a holiday, the act may be done on the next succeeding secular or business day. Date of presentment of demand notes NIL, 71, supra. Date of presentment of demand bills of exchange Columbian Banking v. Bowen. The only time to be considered here is the time intervening between the last negotiation and the presentment (meaning between time when Trabert negotiated it to Columbia and the time when Columbia presented the said draft to drawee bank for payment, NOT the time when Bowen let go of the draft) Date of presentment of checks NIL, 185. Check, defined. - A check is a bill of exchange drawn on a bank payable on demand. Except as herein otherwise provided, the provisions of this Act applicable to a bill of exchange payable on demand apply to a check. NIL, 186. Within what time a check must be presented. - A check must be presented for payment within a reasonable time after its issue or the drawer will be discharged from liability thereon to the extent of the loss caused by the delay. Ficks v. Jones. Presentment, demand and notice of dishonor are essential prerequisites to an action against the drawer on a check Gordon v. Levine. -Where the drawer, the drawee and the payee of a check are all in the same city or town, the check should be presented for payment before the close of banking hours on the day after its delivery, and its circulation from hand to hand by indorsement does not extend the time for its presentment. If it is presented and paid afterwards the drawer suffers no harm. But if not presented within the time thus fixed, and there is a loss it falls not on him but on the holder. The general rule is that a check must be presented for payment within a reasonable time after it is issued. If it is not so presented and the drawer sustains a loss by reason of the failure of the drawee, he will be discharged from liability to the extent of such loss, continuing liable otherwise. This results from the nature of the instrument which though defined in the negotiable instruments act as 'a bill of exchange drawn on a bank payable on demand' is intended for immediate use and not to circulate as a promissory note, and it consequently would be unjust to subject the drawer to the loss if any resulting from failure to present it for payment within a reasonable time. || 'In determining what is a 'reasonable time' or an 'unreasonable time' regard is to be had to the nature of the instrument, the usage of trade or business, if any, with respect to such instruments and the facts of the particular case.' Morrison v. McCartney. The drawer is treated as in some sort of principal debtor, and he is not discharged by any laches of the holder in not making due presentment thereof, or in not giving him notice of the dishonor, unless he has suffered some loss or injury thereby, and then only pro tanto. PNB v. Seeto. Section 84 of the Negotiable Instrument Law is applicable, but its application is subject to the condition imposed by Section 186, to the effect that the check must be presented for payment within a reasonable time after its issue Crystal v. CA. For a check to be dishonored upon presentment and to be stale for not being presented at all in time are incompatible developments that have variant legal consequences. If indeed the questioned check was dishonored, the redemption was null and void. If it had only become stale, it becomes imperative that the circumstances that caused its non-presentment be determined, for if it was not due to the fault of the drawer, it would be unfair to deprive him of the rights he had acquired as redemptioner. In this case, there is a strong showing that the check was not dishonored, although it became stale, and that Pelagia Ocang had actually been paid the full value thereof. When delay in presentment excused NIL, 81. When delay in making presentment is excused. - Delay in making presentment for payment is excused when the delay is caused by circumstances beyond the control of the holder and not imputable to his default, misconduct, or negligence. When the cause of delay ceases to operate, presentment must be made with reasonable diligence. Manner of presentment NIL, 74. Instrument must be exhibited. - The instrument must be exhibited to the person from whom payment is demanded, and when it is paid, must be delivered up to the party paying it. What constitutes sufficient presentment NIL, 72. What constitutes a sufficient presentment. - Presentment for payment, to be sufficient, must be made: (a) By the holder, or by some person authorized to receive payment on his behalf; (b) At a reasonable hour on a business day; (c) At a proper place as herein defined; (d) To the person primarily liable on the instrument, or if he is absent or inaccessible, to any person found at the place where the presentment is made. (1) By whom – by the holder himself or by a person authorized by him to receive payment Crossed checks  presentment can be made only by a bank

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Janz Hanna Ria N. Serrano Campos Annotations + Additional Cases Special thanks to A2010 legendary digests for the case doctrines Chan Wan v. Tan Kim. Chan Wan is indeed not a holder in due course since he knew that the checks had already been dishonored. However, it does not follow that simply because he was not a HDC, he could not recover on the checks. His only disadvantage is that the negotiable instrument is subject to defenses as if it were non-negotiable. But since lower court did not mention what defenses Tan Kin prove, the case was remanded to the trial court for determination of whether any defense existed between the original parties. Assoc. Bank v. CA. Crossing a check is special where the name of a bank or a business institution is written between 2 parallel lines, which means that the drawee should pay only with the intervention of that company. This means that the drawee should not encash the check but merely accept it for deposit. (2) Time of presentment NIL, 72(b). Presentment for payment, to be sufficient, must be made: (b) at a reasonable hour on a business day NIL, 75. Presentment where instrument payable at bank. - Where the instrument is payable at a bank, presentment for payment must be made during banking hours, unless the person to make payment has no funds there to meet it at any time during the day, in which case presentment at any hour before the bank is closed on that day is sufficient. (3) Place of presentment NIL, 73. Place of presentment. - Presentment for payment is made at the proper place: (a) Where a place of payment is specified in the instrument and it is there presented; (b) Where no place of payment is specified but the address of the person to make payment is given in the instrument and it is there presented; (c) Where no place of payment is specified and no address is given and the instrument is presented at the usual place of business or residence of the person to make payment; (d) In any other case if presented to the person to make payment wherever he can be found, or if presented at his last known place of business or residence. (4) To whom presentment must be made. NIL, 72(d). Presentment for payment, to be sufficient, must be made: (d) To the person primarily liable on the instrument, or if he is absent or inaccessible, to any person found at the place where the presentment is made. NIL, 76. Presentment where principal debtor is dead. - Where the person primarily liable on the instrument is dead and no place of payment is specified, presentment for payment must be made to his personal representative, if such there be, and if, with the exercise of reasonable diligence, he can be found. NIL, 77. Presentment to persons liable as partners. - Where the persons primarily liable on the instrument are liable as partners and no place of payment is specified, presentment for payment may be made to any one of them, even though there has been a dissolution of the firm. NIL, 78. Presentment to joint debtors. - Where there are several persons, not partners, primarily liable on the instrument and no place of payment is specified, presentment must be made to them all. j. What constitutes dishonor by non-payment NIL, 83. When instrument dishonored by non-payment. - The instrument is dishonored by non-payment when: (a) It is duly presented for payment and payment is refused or cannot be obtained; or (b) Presentment is excused and the instrument is overdue and unpaid. k. Effect of dishonor by non-payment NIL, 84. Liability of person secondarily liable, when instrument dishonored. - Subject to the provisions of this Act, when the instrument is dishonored by non-payment, an immediate right of recourse to all parties secondarily liable thereon accrues to the holder. 12. Notice of dishonor a. When necessary NIL, 89. To whom notice of dishonor must be given. - Except as herein otherwise provided, when a negotiable instrument has been dishonored by non-acceptance or non-payment, notice of dishonor must be given to the drawer and to each indorser, and any drawer or indorser to whom such notice is not given is discharged. Gullas v. PNB. As a general rule, a bank has a right of set off of the deposits in its hands for the payment of any indebtedness to it on the part of the depositor. In Louisiana however, the rule is denied and it is held that a bank has no such right without an order from or special assent of the depositor. The basis of this doctrine is the theory of confidential contracts arising from irregular deposits e.g. the deposit of money with a banker. The court decided to adopt the general rule as more in harmony with modern banking practice. b. Form and contents of notice NIL, 95. When notice sufficient. - A written notice need not be signed and an insufficient written notice may be supplemented and validated by verbal communication. A misdescription of the instrument does not vitiate the notice unless the party to whom the notice is given is in fact misled thereby. NIL, 96. Form of notice. - The notice may be in writing or merely oral and may be given in any terms which sufficiently identify the instrument, and indicate that it has been dishonored by non-acceptance or non-payment. It may in all cases be given by delivering it personally or through the mails. c. Time within which notice must be given NIL, 102. Time within which notice must be given. - Notice may be given as soon as the instrument is dishonored and, unless delay is excused as hereinafter provided, must be given within the time fixed by this Act. NIL, 103. Where parties reside in same place. - Where the person giving and the person to receive notice reside in the same place, notice must be given within the following times: (a) If given at the place of business of the person to receive notice, it must be given before the close of business hours on the day following. (b) If given at his residence, it must be given before the usual hours of rest on the day following. (c) If sent by mail, it must be deposited in the post office in time to reach him in usual course on the day following. NIL, 104. Where parties reside in different places. - Where the person giving and the person to receive notice reside in different places, the notice must be given within the following times: (a) If sent by mail, it must be deposited in the post office in time to go by mail the day following the day of dishonor, or if there be no mail at a convenient hour on last day, by the next mail thereafter. (b) If given otherwise than through the post office, then within the time that notice would have been received in due course of mail, if it had been deposited in the post office within the time specified in the last subdivision. NIL, 105. When sender deemed to have given due notice. - Where notice of dishonor is duly addressed and deposited in the post office, the sender is deemed to have given due notice, notwithstanding any miscarriage in the mails. NIL, 106. Deposit in post office; what constitutes. - Notice is deemed to have been deposited in the post-office when deposited in any branch post office or in any letter box under the control of the post-office department. NIL, 107. Notice to subsequent party; time of. - Where a party receives notice of dishonor, he has, after the receipt of such notice, the same time for giving notice to antecedent parties that the holder has after the dishonor. NIL, 113. Delay in giving notice; how excused. - Delay in giving notice of dishonor is excused when the delay is caused by circumstances beyond the control of the holder and not imputable to his default, misconduct, or negligence. When the cause of delay ceases to operate, notice must be given with reasonable diligence. SB of East Moline v. Standaert. In the case, other that the description of the general custom of the bank of notifying indorser, the only evidence tending to prove, even circumstantially, that the notice of dishonor was prepared and mailed to the defendant was the inference from the teller/bookkeeper’s self-serving declaration that she always did her duty and never failed to send out notice of dishonor. Arterburn v. Wakefield. Banks would normally not pay or dishonor a check due to insufficiency of funds in the account of the maker or to a stop payment order by the maker. In which case, if the dishonor or non-payment of the check is due to the stop payment order, then it is covered by the fifth condition of Article 356.114. If on the other hand, nonpayment is due to lack of funds, he has no right to expect or require the bank to pay his check. This situation is covered by the fourth condition of Article 356.114.

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Janz Hanna Ria N. Serrano Campos Annotations + Additional Cases Special thanks to A2010 legendary digests for the case doctrines d.

Place where notice must be given NIL, 108. Where notice must be sent. - Where a party has added an address to his signature, notice of dishonor must be sent to that address; but if he has not given such address, then the notice must be sent as follows: (a) Either to the post-office nearest to his place of residence or to the post-office where he is accustomed to receive his letters; or (b) If he lives in one place and has his place of business in another, notice may be sent to either place; or (c) If he is sojourning in another place, notice may be sent to the place where he is so sojourning. But where the notice is actually received by the party within the time specified in this Act, it will be sufficient, though not sent in accordance with the requirement of this section. e. By whom notice may be given NIL, 90. By whom given. - The notice may be given by or on behalf of the holder, or by or on behalf of any party to the instrument who might be compelled to pay it to the holder, and who, upon taking it up, would have a right to reimbursement from the party to whom the notice is given. NIL, 91. Notice given by agent. - Notice of dishonor may be given by any agent either in his own name or in the name of any party entitled to given notice, whether that party be his principal or not. f. To whom notice must be given (1) If given by agent NIL, 94. When agent may give notice. - Where the instrument has been dishonored in the hands of an agent, he may either himself give notice to the parties liable thereon, or he may give notice to his principal. If he gives notice to his principal, he must do so within the same time as if he were the holder, and the principal, upon the receipt of such notice, has himself the same time for giving notice as if the agent had been an independent holder. Simon v. PBTC. The holder of a note taking it to a bank for collection is familiar with the financial responsibility of the maker and indorsers, and can easily disclose the addresses of those to be charged and request that they be notified in event of default. In the absence of specific instructions, the bank need do no more than promptly report the fact to its principal, and the principal may then notify those to be charged. (2) To whom in general NIL, 97. To whom notice may be given. - Notice of dishonor may be given either to the party himself or to his agent in that behalf. (3) If party is dead NIL, 98. Notice where party is dead. - When any party is dead and his death is known to the party giving notice, the notice must be given to a personal representative, if there be one, and if with reasonable diligence, he can be found. If there be no personal representative, notice may be sent to the last residence or last place of business of the deceased. (4) To partners NIL, 99. Notice to partners. - Where the parties to be notified are partners, notice to any one partner is notice to the firm, even though there has been a dissolution. (5) To joint parties NIL, 100. Notice to persons jointly liable. - Notice to joint persons who are not partners must be given to each of them unless one of them has authority to receive such notice for the others. (6) To bankrupt NIL, 101. Notice to bankrupt. - Where a party has been adjudged a bankrupt or an insolvent, or has made an assignment for the benefit of creditors, notice may be given either to the party himself or to his trustee or assignee. g. In whose favor notice operates NIL, 92. Effect of notice on behalf of holder. - Where notice is given by or on behalf of the holder, it inures to the benefit of all subsequent holders and all prior parties who have a right of recourse against the party to whom it is given. NIL, 93. Effect where notice is given by party entitled thereto. - Where notice is given by or on behalf of a party entitled to give notice, it inures to the benefit of the holder and all parties subsequent to the party to whom notice is given. h. When rule requiring notice not applied (1) In general NIL, 112. When notice is dispensed with. - Notice of dishonor is dispensed with when, after the exercise of reasonable diligence, it cannot be given to or does not reach the parties sought to be charged. (2) When notice of non-acceptance already given NIL, 116. Notice of non-payment where acceptance refused. - Where due notice of dishonor by non-acceptance has been given, notice of a subsequent dishonor by non-payment is not necessary unless in the meantime the instrument has been accepted. (3) Waiver NIL, 109. Waiver of notice. - Notice of dishonor may be waived either before the time of giving notice has arrived or after the omission to give due notice, and the waiver may be expressed or implied. NIL, 110. Whom affected by waiver. - Where the waiver is embodied in the instrument itself, it is binding upon all parties; but, where it is written above the signature of an indorser, it binds him only. People’s NB of Ypsilanti v. Dicks. when the waiver is embodied in the instrument itself it is binding upon all parties; but when it is written above the signature of an indorser, it binds him only. “Embodied in the instrument” means embodied in the original contract, not in detached words on the back of the instrument (4) When not necessary to charge drawer NIL, 114. When notice need not be given to drawer. - Notice of dishonor is not required to be given to the drawer in either of the following cases: (a) Where the drawer and drawee are the same person; (b) When the drawee is fictitious person or a person not having capacity to contract; (c) When the drawer is the person to whom the instrument is presented for payment; (d) Where the drawer has no right to expect or require that the drawee or acceptor will honor the instrument; (e) Where the drawer has countermanded payment. SIHI v. CA. The fact that STATE failed to give Notice of Dishonor to not absolute; there are exceptions under Sec. 114 of NIL (5) When not necessary to charge indorser NIL, 115. When notice need not be given to indorser. — Notice of dishonor is not required to be given to an indorser in either of the following cases: (a) When the drawee is a fictitious person or person not having capacity to contract, and the indorser was aware of that fact at the time he indorsed the instrument; (b) Where the indorser is the person to whom the instrument is presented for payment; (c) Where the instrument was made or accepted for his accommodation i. Legal effect of failure to give notice NIL, 89. To whom notice of dishonor must be given. - Except as herein otherwise provided, when a negotiable instrument has been dishonored by non-acceptance or non-payment, notice of dishonor must be given to the drawer and to each indorser, and any drawer or indorser to whom such notice is not given is discharged. NIL, 117. Effect of omission to give notice of non-acceptance. - An omission to give notice of dishonor by non-acceptance does not prejudice the rights of a holder in due course subsequent to the omission. 13. Protest  SKIPPED 14. Acceptance for honor NIL, 161. When bill may be accepted for honor. - When a bill of exchange has been protested for dishonor by non-acceptance or protested for better security and is not overdue, any person not being a party already liable thereon may, with the consent of the holder, intervene and accept the bill supra

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Janz Hanna Ria N. Serrano Campos Annotations + Additional Cases Special thanks to A2010 legendary digests for the case doctrines protest for the honor of any party liable thereon or for the honor of the person for whose account the bill is drawn. The acceptance for honor may be for part only of the sum for which the bill is drawn; and where there has been an acceptance for honor for one party, there may be a further acceptance by a different person for the honor of another party. NIL, 131. Referee in case of need. - The drawer of a bill and any indorser may insert thereon the name of a person to whom the holder may resort in case of need; that is to say, in case the bill is dishonored by non-acceptance or non-payment. Such person is called a referee in case of need. It is in the option of the holder to resort to the referee in case of need or not as he may see fit. 15. Payment for honor NIL, 171. Who may make payment for honor. - Where a bill has been protested for non-payment, any person may intervene and pay it supra protest for the honor of any person liable thereon or for the honor of the person for whose account it was drawn. 16. Liability of party on indorsement after maturity NIL, 7. When payable on demand. - An instrument is payable on demand: (a) When it is so expressed to be payable on demand, or at sight, or on presentation; or (b) In which no time for payment is expressed. Where an instrument is issued, accepted, or indorsed when overdue, it is, as regards the person so issuing, accepting, or indorsing it, payable on demand. Bishop v. Dexter. The indorsement of a bill or note after due is equivalent to drawing a new bill payable at sight; and demand must be made by the indorsee of the drawer of the bill, or maker of the note, and notice given to the indorser, as in cases of bills payable at sight. It appears that no demand was ever made of Whittlesey, by any of the indorsees of the note, and no notice ever given to the defendant for non-payment; of course, he became discharged of any liability on his indorsement. 17. Instruments payable at a bank NIL, 87. Rule where instrument payable at bank. - Where the instrument is made payable at a bank, it is equivalent to an order to the bank to pay the same for the account of the principal debtor thereon. Binghampton v. FNB. Although Sec.87 authorizes a bank, at which an instrument is made payable, to pay the same for the account of the principal debtor, its language must not be so expanded to mean that it converts the maker into a drawer. 18. Bills in set NIL, 178. Bills in set constitute one bill. - Where a bill is drawn in a set, each part of the set being numbered and containing a reference to the other parts, the whole of the parts constitutes one bill. NIL, 179. Right of holders where different parts are negotiated. - Where two or more parts of a set are negotiated to different holders in due course, the holder whose title first accrues is, as between such holders, the true owner of the bill. But nothing in this section affects the right of a person who, in due course, accepts or pays the parts first presented to him. NIL, 180. Liability of holder who indorses two or more parts of a set to different persons. - Where the holder of a set indorses two or more parts to different persons he is liable on every such part, and every indorser subsequent to him is liable on the part he has himself indorsed, as if such parts were separate bills. NIL, 181. Acceptance of bill drawn in sets. - The acceptance may be written on any part and it must be written on one part only. If the drawee accepts more than one part and such accepted parts negotiated to different holders in due course, he is liable on every such part as if it were a separate bill. NIL, 182. Payment by acceptor of bills drawn in sets. - When the acceptor of a bill drawn in a set pays it without requiring the part bearing his acceptance to be delivered up to him, and the part at maturity is outstanding in the hands of a holder in due course, he is liable to the holder thereon. NIL, 183. Effect of discharging one of a set. - Except as herein otherwise provided, where any one part of a bill drawn in a set is discharged by payment or otherwise, the whole bill is discharged. 19. Liability of transferors or assignors of negotiable instruments CC, 1628. The vendor in good faith shall be responsible for the existence and legality of the credit at the time of the sale, unless it should have been sold as doubtful; but not for the solvency of the debtor, unless it has been so expressly stipulated or unless the insolvency was prior to the sale and of common knowledge. Even in these cases he shall only be liable for the price received and for the expenses specified in No. 1 of Article 1616. The vendor in bad faith shall always be answerable for the payment of all expenses, and for damages. Chapter VI: DISHARGE 1. Discharge of the instrument  effects the extinguishment of the obligations arising thereunder; it relieves all parties from further liability on the instrument NIL, 119. Instrument; how discharged. - A negotiable instrument is discharged: (a) By payment in due course by or on behalf of the principal debtor; (b) By payment in due course by the party accommodated, where the instrument is made or accepted for his accommodation; (c) By the intentional cancellation thereof by the holder; (d) By any other act which will discharge a simple contract for the payment of money; (e) When the principal debtor becomes the holder of the instrument at or after maturity in his own right. a. By payment in due course NIL, 51. Right of holder to sue; payment. - The holder of a negotiable instrument may to sue thereon in his own name; and payment to him in due course discharges the instrument. NIL, 88. What constitutes payment in due course. - Payment is made in due course when it is made at or after the maturity of the payment to the holder thereof in good faith and without notice that his title is defective. (1) Medium of payment – money; if renewal note, then novation (2) By whom made – must be made by or on behalf of the principal debtor, otherwise it would constitute a purchase or negotiation, and the instrument would remain outstanding Fox v. Kroeger. Under Texas statute, the payment by the principal debtor or by the party accommodated discharges the instrument, but payment by a party secondarily liable, other than the principal debtor or party accommodated, does not extinguish or discharge the debt. By sec 121, the party accommodated is excluded from those secondarily liable, payment by whom does not discharge the instrument. The statute requires payment by the principal debtor to discharge a negotiable promissory note, and that the payment thereof by the surety does not discharge the obligation. (3) When check deemed paid by drawee bank If the holder presents a check over the counter of the drawee bank, it is clear that the check is paid or discharged as soon as the holder receives the cash if in bank other than drawee bank, if the bank credits the amount of the check in the depositor’s account, it is equivalent to paying the money to the depositor entry of credit by the clearing house DOES NOT constitute payment (4) To whom made  must be made to the holder; payment to 1 of several payees/joint indorsers is not a discharge unless party receiving has authority to receive for all. Equitable v. IAC. The check was patently ambiguous. By making the check read “Pay to Equitable Banking Corp., order of A/C of Casville Enterprises,” the payee ceased to be indicated with reasonable certainty. As worded it could be accepted as deposit to the account of the party named after the symbols A/C or payable to the bank as trustee or as agent for Casville Enterprises with the latter being the ultimate beneficiary. The ambiguity was to be construed against Nell Co. who caused the ambiguity. In re Harbaugh’s Estate. Payment to the payee of a negotiable instrument when title and possession of the instrument has passed to another before maturity will not protect the maker. || If the holder receives payment through an agent or the surrounding circumstances show that money in discharge of the instrument actually reached his hands he cannot recover merely because he retains possession of the instrument. (5) At or after maturity (6) In good faith and without notice

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Janz Hanna Ria N. Serrano Campos Annotations + Additional Cases Special thanks to A2010 legendary digests for the case doctrines b.

2.

By intentional cancellation NIL, 119 (c). A negotiable instrument is discharged: (c) By the intentional cancellation thereof by the holder NIL, 123. Cancellation; unintentional; burden of proof. - A cancellation made unintentionally or under a mistake or without the authority of the holder, is inoperative but where an instrument or any signature thereon appears to have been cancelled, the burden of proof lies on the party who alleges that the cancellation was made unintentionally or under a mistake or without authority. Jone’s Admin v. Coleman. It is assumed that the date and the signature were originally upon the paper presented. There was no explanation why the same have been destroyed by burning. The presumption is that the burning was intentional and done for the purpose of cancelling the instrument. This presumption can only be overcome by evidence showing that such burning was done “unintentionally, or under a mistake, or without authority.” Plaintiff failed to sustain this burden. c. By any other act which will discharge a contract  e.g.: novation; rendition of services; transfer of property; foreclosure of mortgage Manchester v. Parsons. Negotiable paper in the hands of a holder in due course is not discharged by payment made to his transferor, either before or after the transfer. d. By reacquisition of principal debtor in his own right NIL, 119(e). A negotiable instrument is discharged: When the principal debtor becomes the holder of the instrument at or after maturity in his own right. Schwartzman v. Post. Post was the maker of the note, & primarily liable thereon. It was surrendered to him, & he became the “holder” thereof without fraud or mistake, in “his own right”. DEFINITIONS: Holder – Sec. 2: “Holder means the payee or indorsee of a bill or note who is in possession of it, or the bearer thereof.” || Person Primarily Liable on Instrument – Sec. 3: “The person ‘primarily’ liable on an instrument is the person who, by the terms of the instrument, is absolutely required to pay the same.” || In his own right – merely excludes such a case as that of a maker acquiring the instrument in purely a representative capacity. e. By renunciation of holder NIL, 122. Renunciation by holder. - The holder may expressly renounce his rights against any party to the instrument before, at, or after its maturity. An absolute and unconditional renunciation of his rights against the principal debtor made at or after the maturity of the instrument discharges the instrument. But a renunciation does not affect the rights of a holder in due course without notice. A renunciation must be in writing unless the instrument is delivered up to the person primarily liable thereon. McGlynn v. Granstrom. The requirement of writing in Sec 122 pertains only to renunciation. It does no apply to Sec 119 and 120which talks about discharge. f. Material alteration NIL, 124, supra. NIL, 125, supra. Discharge of secondary parties NIL, 120. When persons secondarily liable on the instrument are discharged. - A person secondarily liable on the instrument is discharged: (a) By any act which discharges the instrument; (b) By the intentional cancellation of his signature by the holder; (c) By the discharge of a prior party; (d) By a valid tender or payment made by a prior party; (e) By a release of the principal debtor unless the holder's right of recourse against the party secondarily liable is expressly reserved; (f) By any agreement binding upon the holder to extend the time of payment or to postpone the holder's right to enforce the instrument unless made with the assent of the party secondarily liable or unless the right of recourse against such party is expressly reserved. a. By discharge of instrument b. By intentional cancellation of signature NIL, 123, supra. NIL, 48. Striking out indorsement. - The holder may at any time strike out any indorsement which is not necessary to his title. The indorser whose indorsement is struck out, and all indorsers subsequent to him, are thereby relieved from liability on the instrument. McCormick v. Shea. A cancellation made unintentionally or under a mistake or without the authority of the holder is inoperative; but where an instrument or any signature thereon appears to have been cancelled, the burden of proof lies on the party who alleges that the cancellation was made unintentionally or under a mistake or without authority. c. By discharge of prior party Roberts v. Chapell. The discharge of a prior party referred to is a discharge by an act of the holder and not a discharge accomplished by operation of law. d. By valid tender of payment by prior party Corley v. French. Every indorser who has waived presentment is liable to the holder without reference to presentment. No steps need be taken by the holder upon maturity to charge the waiving indorser, who engages that it shall be paid according to its tenor, without presentment, and whether proceedings on dishonor be taken or not. e. By release of principal debtor f. By extension of time of payment NIL, 120(f). When persons secondarily liable on the instrument are discharged. - A person secondarily liable on the instrument is discharged: (f) By any agreement binding upon the holder to extend the time of payment or to postpone the holder's right to enforce the instrument unless made with the assent of the party secondarily liable or unless the right of recourse against such party is expressly reserved. Maglione v. Penta. If the plaintiff made a valid and binding agreement with the makers of the note extending the time of payment without the knowledge and consent of the surety, the surety is thereby discharged. g. By renunciation NIL, 122, supra. h. By taking a qualified acceptance NIL, 142. Rights of parties as to qualified acceptance. - The holder may refuse to take a qualified acceptance and if he does not obtain an unqualified acceptance, he may treat the bill as dishonored by non-acceptance. Where a qualified acceptance is taken, the drawer and indorsers are discharged from liability on the bill unless they have expressly or impliedly authorized the holder to take a qualified acceptance, or subsequently assent thereto. When the drawer or an indorser receives notice of a qualified acceptance, he must, within a reasonable time, express his dissent to the holder or he will be deemed to have assented thereto. i. By failure to make due presentment NIL, 70. Effect of want of demand on principal debtor. - Presentment for payment is not necessary in order to charge the person primarily liable on the instrument; but if the instrument is, by its terms, payable at a special place, and he is able and willing to pay it there at maturity, such ability and willingness are equivalent to a tender of payment upon his part. But except as herein otherwise provided, presentment for payment is necessary in order to charge the drawer and indorsers. NIL, 144. When failure to present releases drawer and indorser. - Except as herein otherwise provided, the holder of a bill which is required by the next preceding section to be presented for acceptance must either present it for acceptance or negotiate it within a reasonable time. If he fails to do so, the drawer and all indorsers are discharged. j. By failure to give notice of dishonor NIL, 89. To whom notice of dishonor must be given. - Except as herein otherwise provided, when a negotiable instrument has been dishonored by non-acceptance or non-payment, notice of dishonor must be given to the drawer and to each indorser, and any drawer or indorser to whom such notice is not given is discharged. k. Certification of check at instance of holder

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Janz Hanna Ria N. Serrano Campos Annotations + Additional Cases Special thanks to A2010 legendary digests for the case doctrines NIL, 188. Effect where the holder of check procures it to be certified. - Where the holder of a check procures it to be accepted or certified, the drawer and all indorsers are discharged from liability thereon. l. Effect of reacquisition by prior party NIL, 121. Right of party who discharges instrument. - Where the instrument is paid by a party secondarily liable thereon, it is not discharged; but the party so paying it is remitted to his former rights as regard all prior parties, and he may strike out his own and all subsequent indorsements and against negotiate the instrument, except: (a) Where it is payable to the order of a third person and has been paid by the drawer; and (b) Where it was made or accepted for accommodation and has been paid by the party accommodated. NIL, 50. When prior party may negotiate instrument. - Where an instrument is negotiated back to a prior party, such party may, subject to the provisions of this Act, reissue and further negotiable the same. But he is not entitled to enforce payment thereof against any intervening party to whom he was personally liable. Chapter VII. Other Types of Commercial Papers  SKIPPED Additional Cases: (thanks to http://incessantlylearn.blogspot.com for some of the case doctrines) Traders Royal Bank v CA. The language of negotiability which characterize a negotiable paper as a credit instrument is its freedom to circulate as a substitute for money. Hence, freedom of negotiability is the touchtone relating to the protection of holders in due course, and the freedom of negotiability is the foundation for the protection which the law throws around a holder in due course. This freedom in negotiability is totally absent in a certificate indebtedness as it merely to pay a sum of money to a specified person or entity for a period of time. PNB v Sps Rodriguez. As a rule, when the payee is fictitious or not intended to be the true recipient of the proceeds, the check is considered as a bearer instrument. A check is "a bill of exchange drawn on a bank payable on demand." It is either an order or a bearer instrument. || A review of US jurisprudence yields that an actual, existing, and living payee may also be "fictitious" if the maker of the check did not intend for the payee to in fact receive the proceeds of the check. This usually occurs when the maker places a name of an existing payee on the check for convenience or to cover up an illegal activity.14 Thus, a check made expressly payable to a non-fictitious and existing person is not necessarily an order instrument. If the payee is not the intended recipient of the proceeds of the check, the payee is considered a "fictitious" payee and the check is a bearer instrument. Pacheco v. CA. The first and third elements are not present in this case. A check has the character of negotiability and at the same time it constitutes an evidence of indebtedness. By mutual agreement of the parties, the negotiable character of a check may be waived and the instrument may be treated simply as proof of an obligation. There cannot be deceit on the part of the obligor, petitioners herein, because they agreed with the obligee at the time of the issuance and postdating of the checks that the same shall not be encashed or presented to the banks. As per assurance of the lender, the checks are nothing but evidence of the loan or security thereof in lieu of and for the same purpose as a promissory note. By their own covenant, therefore, the checks became mere evidence of indebtedness. It has been ruled that a drawer who issues a check as security or evidence of investment is not liable for estafa. Mrs. Vicencio could not have been deceived nor defrauded by petitioners in order to obtain the loans because she was informed that they no longer have funds in their RCBC accounts. In 1992, when the Vicencio family asked Virginia to place a date on the check, the latter again informed Mrs. Vicencio that their account with RCBC was already closed as early as August 1989. With the assurance, however, that the check will only stand as a firm evidence of indebtedness, Virginia placed a date on the check. Under these circumstances, Mrs. Vicencio cannot claim that she was deceived or defrauded by petitioners in obtaining the loan. In the absence of the essential element of deceit, no estafa was committed by petitioners. Evangelista v Mercator Finance. Petitioners also insist that the promissory note does not convey their true intent in executing the document. The defense is unavailing. Even if petitioners intended to sign the note merely as officers of Embassy Farms, still this does not erase the fact that they subsequently executed a continuing suretyship agreement. A surety is one who is solidarily liable with the principal. Petitioners cannot claim that they did not personally receive any consideration for the contract for well-entrenched is the rule that the consideration necessary to support a surety obligation need not pass directly to the surety, a consideration moving to the principal alone being sufficient. A surety is bound by the same consideration that makes the contract effective between the principal parties thereto.Having executed the suretyship agreement, there can be no dispute on the personal liability of petitioners. SMC v. Puzon. Note however that delivery as the term is used in the aforementioned provision means that the party delivering did so for the purpose of giving effect thereto. Otherwise, it cannot be said that there has been delivery of the negotiable instrument. Once there is delivery, the person to whom the instrument is delivered gets the title to the instrument completely and irrevocably. | If the subject check was given by Puzon to SMC in payment of the obligation, the purpose of giving effect to the instrument is evident thus title to or ownership of the check was transferred upon delivery. However, if the check was not given as payment, there being no intent to give effect to the instrument, then ownership of the check was not transferred to SMC. | The evidence of SMC failed to establish that the check was given in payment of the obligation of Puzon. There was no provisional receipt or official receipt issued for the amount of the check. What was issued was a receipt for the document, a "POSTDATED CHECK SLIP." || Furthermore, the petitioner's demand letter sent to respondent states "As per company policies on receivables, all issuances are to be covered by post-dated checks. However, you have deviated from this policy by forcibly taking away the check you have issued to us to cover the December issuance." Notably, the term "payment" was not used instead the terms "covered" and "cover" were used. Gonzales v RCBC. The foreign drawee bank, Wilshire Center Bank N.A., refused to pay the bearer of this dollar-check drawn by Don Zapanta because of the defect introduced by RCBC, through its employee, Olivia Gomez. It is, therefore, a useless piece of paper if returned in that state to its original payee, Eva Alviar. There is no doubt in the mind of the Court that a subsequent party which caused the defect in the instrument cannot have any recourse against any of the prior endorsers in good faith. || Under Section 66, the warranties for which Alviar and Gonzales are liable as general endorsers in favor of subsequent endorsers extend only to the state of the instrument at the time of their endorsements, specifically, that the instrument is genuine and in all respects what it purports to be; that they have good title thereto; that all prior parties had capacity to contract; and that the instrument, at the time of their endorsements, is valid and subsisting. This provision, however, cannot be used by the party which introduced a defect on the instrument, such as respondent RCBC in this case, which qualifiedly endorsed the same, to hold prior endorsers liable on the instrument because it results in the absurd situation whereby a subsequent party may render an instrument useless and inutile and let innocent parties bear the loss while he himself gets away scot-free. It cannot be over-stressed that had it not been for the qualified endorsement (“up to P17,500.00 only”) of Olivia Gomez, who is the employee of RCBC, there would have been no reason for the dishonor of the check, and full payment by drawee bank therefor would have taken place as a matter of course MBTC v BA Finance. Where an instrument is payable to the order of two or more payees or indorsees who are not partners, all must indorse unless the one indorsing has authority to indorse for the others. || Bitanga alone endorsed the crossed check, and petitioner allowed the deposit and release of the proceeds thereof, despite the absence of authority of Bitanga’s co-payee BA Finance to endorse it on its behalf. Bataan Cigar v CA. crossing of checks should put the holder on inquiry and upon him devolves the duty to ascertain the indorser's title to the check or the nature of his possession - failure = guilty of gross negligence amounting to legal absence of good faith, contrary to Sec. 52(c) of the Negotiable Instruments Law || SIHI is not a holder in due course. Consequently, BCCFI cannot be obliged to pay the checks. However, that SIHI could not recover from the checks. The only disadvantage of a holder who is not a holder in due course is that the instrument is subject to defenses as if it were non-negotiable. Hence, SIHI can collect from the immediate indorser, George Atrium Mgt Corp v CA. Here, the checks were crossed checks and specifically indorsed for deposit to payee's account only. From the beginning, Atrium was aware of the fact that the checks were all for deposit only to payee's account, meaning E.T. Henry. Clearly, then, Atrium could not be considered a holder in due course.However, it does not follow as a legal proposition that simply because petitioner Atrium was not a holder in due course for having taken the

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Janz Hanna Ria N. Serrano Campos Annotations + Additional Cases Special thanks to A2010 legendary digests for the case doctrines instruments in question with notice that the same was for deposit only to the account of payee E.T. Henry that it was altogether precluded from recovering on the instrument. The Negotiable Instruments Law does not provide that a holder not in due course cannot recover on the instrument. Yang v CA. Although negotiable instruments do not constitute legal tender, they often take the place of money as a means of payment| checks were crossed | Section 24 of the Negotiable Instruments Law creates a presumption that every party to an instrument acquired the same for a consideration or for value | David took the step of asking the manager of his bank to verify from FEBTC and Equitable as to the genuineness of the checks and only accepted the same after being assured that there was nothing wrong with said checks David did not close his eyes deliberately to the nature or the particulars of a fraud allegedly committed by Chandiramani upon the petitioner, absent any knowledge on his part that the action in taking the instruments amounted to bad faith Metrobank v PBCOM. A check is defined by law as a bill of exchange drawn on a bank payable on demand. The Negotiable Instruments Law is silent with respect to crossed checks. Nonetheless, this Court has taken judicial cognizance of the practice that a check with two parallel lines on the upper left hand corner means that it could only be deposited and not converted into cash. The crossing of a check with the phrase “Payee’s Account Only” is a warning that the check should be deposited in the account of the payee. It is the collecting bank which is bound to scrutinize the check and to know its depositors before it can make the clearing indorsement, “all prior indorsements and/or lack of indorsement guaranteed.” Here, petitioner banks have the obligation to ensure that the PBCom checks were deposited in accordance with the instructions stated in the checks. The four PBCom checks in question had been crossed and issued “for payee’s account only.” This could only mean that the drawer, Filipinas Orient, intended the same for deposit only by the payee, Pipe Master. The effect of crossing a check means that the drawer had intended the check for deposit only by the rightful person, i.e., the payee named therein – Pipe Master. HiCement v Insular. Bank was all too aware that subject checks were crossed and bore restrictions that they were for deposit to payee's account only; hence, they could not be further negotiated to it | irregularity - only the treasurer's signature appeared on the deed of assignment | As a banking institution, it behooved respondent to act with extraordinary diligence in every transaction | Its business is impressed with public interest, thus, it was not expected to be careless and negligent, specially so where the checks it dealt with were crossed. | It is then settled that crossing of checks should put the holder on inquiry and upon him devolves the duty to ascertain the indorser’s title to the check or the nature of his possession. - failure: guilty of gross negligence amounting to legal absence of good faith Dino v Judal-Loot. Based on the foregoing, respondents had the duty to ascertain the indorser’s, in this case Lobitana’s, title to the check or the nature of her possession. This respondents failed to do. Respondents’ verification from Metrobank on the funding of the check does not amount to determination of Lobitana’s title to the check. Failing in this respect, respondents are guilty of gross negligence amounting to legal absence of good faith, contrary to Section 52(c) of the Negotiable Instruments Law. Hence, respondents are not deemed holders in due course of the subject check. Go v MBTC. In order to preserve the credit worthiness of checks, jurisprudence has pronounced that crossing of a check has the following effects: (a) the check may not be encashed but only deposited in the bank; (b) the check may be negotiated only once — to one who has an account with a bank; and (c) the act of crossing the check serves as warning to the holder that the check has been issued for a definite purpose so that he must inquire if he has received the check pursuant to that purpose, otherwise, he is not a holder in due course. | The Court has taken judicial cognizance of the practice that a check with two parallel lines in the upper left hand corner means that it could only be deposited and not converted into cash. The effect of crossing a check, thus, relates to the mode of payment, meaning that the drawer had intended the check for deposit only by the rightful person, i.e., the payee named therein. The crossing of a check is a warning that the check should be deposited only in the account of the payee. Thus, it is the duty of the collecting bank to ascertain that the check be deposited to the payee’s account only. BPI v Roxas. As a general rule, under the above provision, every holder is presumed prima facie to be a holder in due course. One who claims otherwise has the onus probandi to prove that one or more of the conditions required to constitute a holder in due course are lacking. In this case, petitioner contends that the element of “value” is not present, therefore, respondent could not be a holder in due course. Yang v CA, supra. BPI v CA. It was quite apparent that the three checks which appellee Salazar deposited were not indorsed. Three times she deposited them to her account and three times the amounts borne by these checks were credited to the same. And in those separate occasions, the bank did not return the checks to her so that she could have them indorsed. Neither did the bank question her as to why she was depositing the checks to her account considering that she was not the payee thereof, thus allowing us to come to the conclusion that defendant-appellant BPI was fully aware that the proceeds of the three checks belong to appellee.|| A prudent man knowing that payment is due him would have demanded payment by his debtor from the moment the same became due and demandable. More so if the sum involved runs in hundreds of thousand of pesos. By and large, every person, at the very moment he learns that he was deprived of a thing which rightfully belongs to him, would have created a big fuss. He would not have waited for a year within which to do so. It is most inconceivable that Templonuevo did not do this FEBTC v Gold Palace. The acceptor, by accepting the instrument, engages that he will pay it according to the tenor of his acceptance. This provision applies with equal force in case the drawee pays a bill without having previously accepted it. His actual payment of the amount in the check implies not only his assent to the order of the drawer and a recognition of his corresponding obligation to pay the aforementioned sum, but also, his clear compliance with that obligation. Actual payment by the drawee is greater than his acceptance, which is merely a promise in writing to pay. The payment of a check includes its acceptance. Samsung v FEBTC. The SC held that the FEBTC should bear the loss. Under Sec. 62 of NIL, among the warranties to be assumed by the acceptor is it admits the existence of the drawer, the genuineness of his signature, and his capacity and authority to draw the instrument. It is incumbent upon the drawee bank to ascertain the genuineness of the signature of its depositor. The respondent bank in this case did not exercise the degree of diligence required to enable it to detect the forgery. Ilusorio v CA. The SC held that Ilusorio was negligent. While it may be true that the signature of Ilusorio was forged by his secretary and that he did not authorized the encashment of these checks (claiming real defense of forgery on his part), Ilusorio’s previous conduct effectively precluded him from claiming forgery as a defense. The mere fact that these checks have been encashed for a period of almost two years, the petitioner should have detected the forgery. Further, the unusual degree of trust which he had accorded his secretary, such as unrestricted access to his credit cards an checkbooks amounts to negligence on his part and the proximate loss of his funds is attributable to this unusual degree of trust and confidence which he reposed to his secretary. PNB v CA. A forged signature, whether it be that of the drawer or the payee, is wholly inoperative and no one can gain title to the instrument through it. A person whose signature to an instrument was forged was never a party and never consented to the contract which allegedly gave rise to such instrument. Section 23 does not avoid the instrument but only the forged signature. Thus, a forged indorsement does not operate as the payee's indorsement. The exception to the general rule in Section 23 is where "a party against whom it is sought to enforce a right is precluded from setting up the forgery or want of authority." Parties who warrant or admit the genuineness of the signature in question and those who, by their acts, silence or negligence are estopped from setting up the defense of forgery, are precluded from using this defense. Indorsers, persons negotiating by delivery and acceptors are warrantors of the genuineness of the signatures on the instrument. || Where the instrument is payable to order at the time of the forgery, such as the checks in this case, the signature of its rightful holder (here, the payee hospital) is essential to transfer title to the same instrument. When the holder's indorsement is forged, all parties prior to the forgery may raise the real defense of forgery against all parties subsequent thereto. Westmont v Ong. DOCTRINE OF DESIRABLE SHORT CUT—plaintiff uses one action to reach, by desirable short cut, the person who ought to be ultimately liable as among the innocent persons involved in the transaction. In other words, the payee ought to be allowed to recover directly from the collecting bank, regardless of whether the check was delivered to the payee or not. || On the issue of laches, Ong didn't sit on his rights. He immediately sought

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Janz Hanna Ria N. Serrano Campos Annotations + Additional Cases Special thanks to A2010 legendary digests for the case doctrines the intervention of Tamlinco’s family to collect the sum of money, and later the Central Bank. Only after exhausting all the measures to settle the issue amicably did he file the action. Traders Royal Bank v. RPN. Petitioner ought to have known that, where a check is drawn payable to the order of one person and is presented for payment by another and purports upon its face to have been duly indorsed by the payee of the check, it is the primary duty of petitioner to know that the check was duly indorsed by the original payee and, where it pays the amount of the check to a third person who has forged the signature of the payee, the loss falls upon petitioner who cashed the check. Its only remedy is against the person to whom it paid the money. || A bank is engaged in a business impressed with public interest and it is its duty to protect its many clients and depositors who transact business with it. It is under the obligation to treat the accounts of the depositors and clients with meticulous care, whether such accounts consist only of a few hundreds or millions of pesos. Allied Banking Corp v Lim Sio Wan. GR: collecting bank which indorses a check bearing a forged indorsement and presents it to the drawee bank guarantees all prior indorsements, including the forged indorsement itself, and ultimately should be held liable therefor ||Exception: when the issuance of the check itself was attended with negligence. Allied negligent in issuing the manager’s check and in transmitting it to Santos without even a written authorization Bank of America v Phil Racing Club. There is no dispute that the signatures appearing on the subject checks were genuine signatures of the respondent’s authorized joint signatories. It is likewise admitted that neither of the subject checks contains any material alteration or erasure. However, on the blank space of each check reserved for the payee, the following typewritten words appear: "ONE HUNDREDTEN THOUSAND PESOS ONLY." Above the same is the typewritten word, "CASH." On the blank reserved for the amount, the same amount of One Hundred Ten Thousand Pesos was indicated with the use of a check writer. The presence of these irregularities in each check should have alerted the petitioner to be cautious before proceeding to encash them which it did not do. PCIB v CA. Pursuant to Sec. 55, it is vital to show that the negotiation is made by the perpetator in breach of faith amounting to fraud. The person negotiating the checks must have gone beyond the authority given by his principal. If the principal could prove that there was no negligence in the performance of his duties, he may set up the personal defense to escape liability and recover from other parties who. Though their own negligence, alowed the commission of the crime. || In this case, we note that the direct perpetrators of the offense, namely the embezzlers belonging to a syndicate, are now fugitives from justice. They have, even if temporarily, escaped liability for the embezzlement of millions of pesos. We are thus left only with the task of determining who of the present parties before us must bear the burden of loss of these millions. It all boils down to thequestion of liability based on the degree of negligence among the parties concerned. PNB v CA. An alteration is said to be material if it alters the effect of the instrument. It means an unauthorized change in an instrument that purports to modify in any respect the obligation of a party or an unauthorized addition of words or numbers or other change to an incomplete instrument relating to the obligation of a party. In other words, a material alteration is one which changes the items which are required to be stated under Section 1 of the Negotiable Instruments Law. Int’l Corp Bank v. CA. The alterations in the checks were made on their serial numbers. – same doctrine as PNB v. CA MBTC v Cabilzo. In the case at bar, the check was altered so that the amount was increased from P1,000.00 to P91,000.00 and the date was changed from 24 November 1994 to 14 November 1994. Apparently, since the entries altered were among those enumerated under Section 1 and 125, namely, the sum of money payable and the date of the check, the instant controversy therefore squarely falls within the purview of material alteration Ty v People. As to the issue of consideration, it is presumed, upon issuance of the checks, in the absence of evidence to the contrary, that the same was issued for valuable consideration. Section 24 of the Negotiable Instruments Law creates a presumption that every party to an instrument acquired the same for a consideration or for value. In alleging otherwise, Ty has the onus to prove that the checks were issued without consideration. She must present convincing evidence to overthrow the presumption.  A scrutiny of the records reveals that petitioner failed to discharge her burden of proof. "Valuable consideration may in general terms, be said to consist either in some right, interest, profit, or benefit accruing to the party who makes the contract, or some forbearance, detriment, loss or some responsibility, to act, or labor, or service given, suffered or undertaken by the other aide. Simply defined, valuable consideration means an obligation to give, to do, or not to do in favor of the party who makes the contract, such as the maker or indorser.” In this case, Ty’s mother and sister availed of the services and the facilities of the hospital. For the care given to her kin, Ty had a legitimate obligation to pay the hospital by virtue of her relationship with them and by force of her signature on her mother’s Contract of Admission acknowledging responsibility for payment, and on the promissory note she executed in favor of the hospital. Dy v. People. In this case, even if the checks were given to W.L. Foods in blank, this alone did not make its issuance invalid. When the checks were delivered to Lim, through his employee, he became a holder with prima facie authority to fill the blanks. This was, in fact, accomplished by Lim's accountant. || Prima facie evidence of deceit was established against petitioner with regard to FEBTC Check No. 553615 which was dishonored for insufficiency of funds. The letter of petitioner's counsel dated November 10, 1992 shows beyond reasonable doubt that petitioner received notice of the dishonor of the said check for insufficiency of funds. Petitioner, however, failed to deposit the amounts necessary to cover his check within three banking days from receipt of the notice of dishonor. Hence, as provided for by law, the presence of deceit was sufficiently proven Sps Violago v BA Finance Corp. A holder in due course, however, holds the instrument free from any defect of title of prior parties and from defenses available to prior parties among themselves, and may enforce payment of the instrument for the full amount thereof. Since BA Finance is a holder in due course, petitioners cannot raise the defense of non-delivery of the object and nullity of the sale against the corporation. The NIL considers every negotiable instrument prima facie to have been issued for a valuable consideration. In Salas, we held that a party holding an instrument may enforce payment of the instrument for the full amount thereof. As such, the maker cannot set up the defense of nullity of the contract of sale. Thus, petitioners are liable to respondent corporation for the payment of the amount stated in the instrument. Cebu Int’l Finance Corp v CA. In the case at bar, the money market transaction between the petitioner and the private respondent is in the nature of a loan. The private respondent accepted the CHECK, instead of requiring payment in money. Yet, when he presented it to RCBC for encashment, as early as June 17, 1991, the same was dishonored by non-acceptance, with BPI’s annotation: “Check (is) subject of an investigation.” These facts were testified to by BPI’s manager. Under these circumstances, and after the notice of dishonor, the holder has an immediate right of recourse against the drawer, and consequently could immediately file an action for the recovery of the value of the check. BPI v Sps Royeca. Settled is the rule that payment must be made in legal tender. A check is not legal tender and, therefore, cannot constitute a valid tender of payment.[23] Since a negotiable instrument is only a substitute for money and not money, the delivery of such an instrument does not, by itself, operate as payment. Mere delivery of checks does not discharge the obligation under a judgment. The obligation is not extinguished and remains suspended until the payment by commercial document is actually realized BPI v Roxas, supra. Villanueva v Nite. If a bank refuses to pay a check (notwithstanding the sufficiency of funds), the payee-holder cannot, in view of the cited sections, sue the bank. The payee should instead sue the drawer who might in turn sue the bank. Section 189 is sound law based on logic and established legal principles: no privity of contract exists between the drawee-bank and the payee. Indeed, in this case, there was no such privity of contract between ABC and petitioner. Miranda v PDIC. In the absence of fraud, the purchase of a cashier’s check, like the purchase of a draft on a correspondent bank, creates the relation of creditor and debtor, not that of principal and agent, with the result that the purchaser or holder thereof is not entitled to a preference over general creditors in the assets of the bank issuing the check, when it fails before payment of the check. However, in a situation involving the element of fraud, where a

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Janz Hanna Ria N. Serrano Campos Annotations + Additional Cases Special thanks to A2010 legendary digests for the case doctrines cashier’s check is purchased from a bank at a time when it is insolvent, as its officers know or are bound to know by the exercise of reasonable diligence, it has been held that the purchase is entitled to a preference in the assets of the bank on its liquidation before the check is paid. EPCIB v Ong. certification = acceptance  Equitable PCI as drawee bank is bound on the instrument upon certification and it is immaterial to such liability in favor of Ong who is a holder in due course whether the drawer (Warliza Sarande) had funds or not with the Equitable PCI Bank Nota Sapiera v CA. It is undisputed that the 4 checks issued by de Guzman were signed by petitioner at the back without any indication as to how she should be bound thereby, therefor, she is deemed to be an indorser thereof. Metrobank v PBCOM, supra. Citibank v Sabeniano. BPI v CA. Ordinarily private respondent may be held liable as an indorser of the check or even as an accommodation party. However, petitioner BPI, in allowing the withdrawal of private respondent’s deposit, failed to exercise the diligence of a good father of a family. BPI violated its own rules by allowing the withdrawal of an amount that is definitely over and above the aggregate amount of private respondent’s dollar deposits that had yet to be cleared. The proximate cause of the eventual loss of the amount of $2,500.00 on BPI's part was its personnel’s negligence in allowing such withdrawal in disregard of its own rules and the clearing requirement in the banking system. In so doing, BPI assumed the risk of incurring a loss on account of a forged or counterfeit foreign check and hence, it should suffer the resulting damage. Lim v Saban. The court affirms the CA’s finding that agency was not revoked since Ybañez requested that Lim stop payment of the checks payable to Saban only after the consummation of the sale. At that time, Saban had already performed his obligation as agent when the Deed of Absolute Sale was executed. To deprive Saban of his commission subsequent to the sale which was consummated through his efforts would be a breach of his contract of agency. Bautista v Auto Plus. 2 check return slips in conjunction with the Current Account Statements would show that the check for P151,200 was drawn against the current account of Claude Bautista while the check for P97,500 was drawn against the current account of Cruiser Bus Lines and Transport Corporation. Hence, we sustain the factual finding of the RTC. Nonetheless, appellate court in error for affirming the decision of the RTC holding petitioner liable for the value of the checks considering that he was acquitted of the crime charged and that the debts are clearly corporate debts for which only Cruiser Bus Lines and Transport Corporation should be held liable. || There is no agreement that petitioner shall be held liable for the corporation's obligations in his personal capacity. Hence, he cannot be held liable for the value of the 2 checks issued in payment for the corporation's obligation Agro Conglomerates v CA. Petitioners became liable as accommodation parties. They have the right after paying the instrument to seek reimbursement from the party accommodated, since the relation between them has in effect became one of principal and surety. Furthermore, as it turned out, the contract of surety between Woodland and petitioner was extinguished by the rescission of the contract of sale of the farmland. With the rescission, there was confusion in the persons of the principal debtor and surety. The addendum thereon likewise lost its efficacy. Ang v Assoc Bank. petitioner signed the promissory note as a solidary co-maker and not as a guarantor. since the liability of an accommodation party remains not only primary but also unconditional to a holder for value, even if the accommodated party receives an extension of the period for payment without the consent of the accommodation party, the latter is still liable for the whole obligation and such extension does not release him because as far as a holder for value is concerned, he is a solidary co-debtor. Gonzales v. PCIB. Clearly, Gonzales is liable for the loans covered by the above promissory notes. First, Gonzales admitted that he is an accommodation party which PCIB did not dispute. The fact that the loans were undertaken by Gonzales when he signed as borrower or co-borrower for the benefit of the spouses Panlilio—as shown by the fact that the proceeds went to the spouses Panlilio who were servicing or paying the monthly dues—is beside the point. For signing as borrower and co-borrower on the promissory notes with the proceeds of the loans going to the spouses Panlilio, Gonzales has extended an accommodation to said spouses. || as an accommodation party, Gonzales is solidarily liable with the spouses Panlilio for the loans. Int’l Corp Bank v Sps Gueco. In the case at bar, however, the check involved is not an ordinary bill of exchange but a manager’s check. A manager’s check is one drawn by the bank’s manager pon the bank itself. It is similar to a cashier’s check both as to effect and use. A cashier’s check is a check of the bank’s cashier on his own or another check. In effect, it is a bill of exchange drawn by the cashier of a bank upon the bank itself, and accepted in advance by the act of its issuance. It is really the bank’s own check and may be treated as a promissory note with the bank as a maker. The check becomes the primary obligation of the bank which issues it and constitutes its written promise to pay upon demand. The mere issuance of it is considered an acceptance thereof. If treated as promissory note, the drawer would be the maker and in which case the holder need not prove presentment for payment or present the bill to the drawee for acceptance. || Even assuming that presentment is needed, failure to present for payment within a reasonable time will result to the discharge of the drawer only to the extent of the loss caused by the delay. Failure to present on time, thus, does not totally wipe out all liability. In fact, the legal situation amounts to an acknowledgment of liability in the sum stated in the check. In this case, the Spouses have not alleged, much less shown that they or the bank which issued the manager’s check has suffered damage or loss caused by the delay or nonpresentment. Definitely, the original obligation to pay certainly has not been erased. Allied Bank v CA. Section 152 of the Negotiable Instruments Law pertaining to indorsers, relied on by respondents, is not pertinent to this case. There are well-defined distinctions between the contract of an indorser and that of a guarantor/surety of a commercial paper, which is what is involved in this case. The contract of indorsement is primarily that of transfer, while the contract of guaranty is that of personal security. The liability of a guarantor/surety is broader than that of an indorser. Unless the bill is promptly presented for payment at maturity and due notice of dishonor given to the indorser within a reasonable time, he will be discharged from liability thereon. On the other hand, except where required by the provisions of the contract of suretyship, a demand or notice of default is not required to fix the surety’s liability. He cannot complain that the creditor has not notified him in the absence of a special agreement to that effect in the contract of suretyship. Therefore, no protest on the export bill is necessary to charge all the respondents jointly and severally liable with G.G. Sportswear since the respondents held themselves liable upon demand in case the instrument was dishonored and on the surety, they even waived notice of dishonor as stipulated in their Letters of Guarantee. Cebu Int’l Finance Corp v CA, supra. Papa v Valencia. The Supreme Court held that, while it is true that the delivery of a check produces the effect of payment only when it is cashed, the rule is otherwise if the debtor is prejudiced by the creditor’s unreasonable delay in presentment. The acceptance of a check implies an undertaking of due diligence in presenting it for payment, and if he from whom it is received sustains loss by want of such diligence, it will be held to operate as actual payment of the debt or obligation for which it was given. It has, likewise, been held that if no presentment is made at all, the drawer cannot be held liable irrespective of loss or injury unless presentment is otherwise excused. The payee of a check would be a creditor under this provision and if its non-payment is caused by his negligence, payment will be deemed effected and the obligation for which the check was given as conditional payment will be discharged.