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NEGOTIABLE INSTRUMENTS




















X wear slippers – sent out
Final exam b4 the last day of classes
Campos & Campos 1994ed
o
Supplemented w newer cases
Intro & Chap 1 for thurs
Course outline : table contents of the book (cover most of the book)
Volunteer recit (last part of the sem)
Grades:
o
60% recit
o
30% final exam
o
10% attendance
Email at the end of the sem plus grade
If absent & called for recit = 5
Computation for recit: get the average
o
Called at random
o
Excuses: medical cert ath start of the class
Negotiable instruments, bills: not usually used in circulation
2nd endorsed checks: banks as a general rule, dnt accept such
o
Banks implemented this rule
o
Think abt this when rdg the 1st chap
Primarily used as instruments for payment
*govt cant revoke our foreign debt
o
Bec Phil foreign debt is in the hands of Phil anks
o
If they revoke the debt, the banks fail
ROP: $100k can transfer this to anthr person
o
But though the face value is 100k, its mrk value might be less
o
As it moves from person to person, value is transferred for a pc of paper
o
NI can be transferred immediately
Grading sys in the tests:
o
1pt: form followed

Ans the Q, law applicable, application to the prob/conclusion w the
prov
o
1pt: correct law cited
o
1pt: conclusion is correct

June 14, 2007
Intro & Chap1
S1. FORM OF NEGOTIABLE INSTRUMENTS - An instrument to be negotiable must
conform to the ff reqs:
a) It must be in writing & 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 the 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.

S52. WHAT CONSTITUES A HOLDER IN DUE COURSE - A Holder in due course is a
holder who has taken the instrument under the ff conditions:
a) That it is complete and regular upon its face;
b) That he became the holder of it before it was overdue, and wo notice
that it had been previously dishonored, if such was the fact;
c) That he took it in good faith and for value;
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.





S1 is impt bec it indicates whether the instrument is negotiable & therefore falls
under the NIL
o
If not negotiable, its governed by exiting legislation (law on contracts) or the
law merchant
If the instrument dsnt comply w the reqs under s1, it is governed by the law on
contracts
Once a NI is indorsed or negotiated, the orig parties to the instruments cant invoke
the defenses they have against each to a holder in due course
o
If its not a NI, the holder of the instrument is subject to all the defenses that
the orig parties have against each other

2 KINDS OF NI:
Promissory note: is a promise to pay

2 parties: maker & payee

Ex) I promise to pay 2k to Virgil order…
Yvette

You’re committing yourself to pay
Bill of exchange: order made to another person to pay a 3rd person

You’re directing payment from 1 person to another

3 parties: drawer, drawee, payee

Drawer: maker of the instrument, signs it & indicates the name of the payee
& addresses it to the drawee

Drawee: the person the instrument is addressed

Order: to pay the 3rd person
*Party: means the person has obligs and rights under that instrument

Rel btwn the drawer & drawee: presumably theres a rel where the drawer tells the
drawee to pay

Ex) To: Kate
Please pay P2000 to Virgil when he passes the Bar exams.
Yvette

X a NI bec theres a condition
o
Condition: a future uncertain event
o
Period: a future & certain event

Ex) To: Kate
Please pay P2000 to Virgil or order on or before July 2, 2007.
Yvette

You’re ordering some1 else to pay the 3rd party

You can order yourself to pay the 3rd party

Ex) To: Yvette
Pls pay P2000…
Drilon 1






Or you can order the drawee to pay you

Ex) To: Kate
Pls pay P2000 to Yvette

Then endorse this to Virgil
It is issued when its delivered to the payee
When the BOE is created, the drawee isn’t yet part of the instrument…only the drawer
is liable

Once the drawee accepts the instruments – signed infront by the
drawee – the drawee becomes liable to the instrument

Thus, the holder can sue the drawee for the amnt (primarily liable)

And the drawer is only liable if the drawee cannot pay – he default,
refuses to accept or fails to accept (2ndarily liable)

NIL: codification of Law Merchant

Never been amended in the Phils (bec Congress dsnt understand it)
o
Amended several times in the US

Law Merchant: set of practices adhered to by businessmen & recognized by the Cts
NEGOTIABLE INSTRUMENTS

Instrument may be transferred from person to person = it’s a medium for exchange

Law dsnt compel one to enter into these transactions but ppl want to enter into these
transactions
o
Bec if one accepts a NI, its possible for the holder to acquire a better title
than his transferor

Determine if the instrument is worth anything and the viability of the person who
makes the promise on the instrument
o
It’s a question of worthiness,
o
The eco value of the instrument & indep of the legal value of the instrument
o
Legal value = legal advantages given to the instrument

Ex) gets an instrument for 10M from Lucio Tan wc is endorsed to you – you’ll
probably take it bec Tan is probably good for it

There’s inherent eco value & is used mainly as a payment instrument

You can negotiate it or give it as a payment for future transaxns

Discount: sell the instrument at a discount
o
You do this when the instrument is worth less in the mrkt as compared to its
face value
o
Ex) 10M PN from Lucio Tan

the mrkt has determined that the chances Tan will pay is 10%, so
instead of buying land for 10M, you buy land for 1M

can be negotiated b4 their maturity, even after their maturity
o
the rights of those parties to a NI negotiated after maturity, are different
from the rights of the orig parties to the instrument

there are diff set of rights
o
ex) if the instrument is negotiated to you after its overdue, you aren’t a
holder in due course as to the orig parties in the instrument BUT you can be
a holder in due course as to the person who negotiated it to you

Cant start its life as a non-NI and then become a NI

It must begin its life as a NI

Every signature is impt & has a meaning even if its in the wrong place

INDORSER

other party to the NI

also have default rights & obligs to the insturment

B indorsed the instrument to you, you aren’t paid by the original maker – you can go
after the indorser (B) who is now liable

The instrument itself tells you what your rights are

NI: the docum is freely transferrable
o
You may or may not know the other ppl

Your rights emanate from the instrument in the writing itself
o
S1: whatever is written on the four corners of the instrument determine
one’s rights

Ability to present evidence outside of the instrument itself is
curtailed
o
This is why the parole evidence rule is impt
o
Parole evidence rule (R132): Whenever a written contract is the pt of
inquiry, testimonial evidence isn’t admissble to alter the terms of the written
contract

Except under certain circums
S1: FORM OF NEGOTIABLE INSTRUMENTS:
A) it must be in writing & signed by the maker or drawer

In order to be a party to the instrument, normally you have to sign
o
But not necessarily in every case (e.g. holder)

Signature: a mark adopted by a person to express one’s consent to the instrument, to
identify oneself or to authenticate the docum to wc its attached/it relates
o
Ex) Chinese stamp
B) must contain and unconditional promise or order…

Uncond: unqualified

S3: such statements in the instruments don’t affect the unconditional order or
promise
a) Indication of a particular fund out of wc reimbursement is to be made or a
particular accnt to be debited w the amnt
b) Statement of the transaxn wc gives rise to the instrument

WON there’s a problem w that transaxn, the instrument continues to be negotiable
o
So long as the order or promise is uncond
o
Just coz the transaxn is mentioned, dsnt mean the order/promise is
dependent on the fulfillment of that transaxn/order/contract

Check: is a BOE, its negotiable
o
Banks dnt pay if the depositor has no money in the bank – thus its
conditional on whether a person has money in their account?!
o
No, its not conditional…bec in BOE reimbursement & debiting presupposes
that na order to pay has been made
Powell & Powell v Greenleaf & Currier

The 2 statements made in the instruments were mere references

Mention of the contract & agreement in the NI cldve affected negotiability if the order
or promise to pay were subj to this condition

“For and in consideration of that transaxn”
o
Dsnt this say that the instrument was dependent on that transaxn?
o
No, was just stating that that transaxn gave rise to the instrument
Drilon 2

o
Irving Trust Co v Leff

“void unless & until title to the premises ____, is taken by Joe Leff”
o
Referred to the payment of the $4,933 payment on the $10k PN

Instrument is non-negotiable bec the instrument didn’t contain an unconditional
promise or order to pay
B) …to pay a sum certain…

Sum is still certain even though there is interest to be paid
o
The exact amnt can be computed
o
Ex) instrument issued 3 yrs, 10mos, 5dys ago…saying 5p.a.
B) …in money

It is in itself value

Its value depends upon market forces
June 19, 2007
Incitti v Ferrante

PN for the sum of 15,400 Italian lires

I: WON the PN is negotiable
o
What is money?
o
WON the note is negotiable if its payble in the money/coins of another
country

Instrument was dated in new Jersey & made payable at the Bank Italia Co. =
presumed payable in New Jersey since no address was indicated

Money isn’t limited to leg currency

Ct expanded the word money to include coins of anthr country as leg tender

Ct was trying to define what money is

Ct:
o
Money isn’t limited to legal tender/lawful currency
o
Money has value by law & not by nature
S7: Payable on demand

2nd par: the ____ doctrine
o
Instrument is payable on demand if its issued, accepted or indorsed if
overdue AS TO ONLY THOSE who indorsed, issued or accepted it
o
Only applies to certain ppl
o
There are certain rules as to when the inst becomes overdue

When ds it become overdue for the purpose of denying a holder in
due course?

S52: to be a holder in due course, you shldve taken the inst b4 it was overdue
o
Thus, wont be a holder in due course under S52
o
However, vis a vis the indorser, you are a holder in due course

Ex) A – B – C – D – E – F
o
F X a holder in due course as to A-D bec acquired it when overdue
o
But under s7, 2nd par…F is a holder in due course as to E, wherein the inst is
payable on demand

Ex) A issued March 10 – B – C –D – E – F June 19
o
Is it overdue in terms of a holder in due course?

Depends on what the law says

o

In the hands of the holder, it must be indorsed w/in a reasonable pd = its
based on the norm
They shld immediately transfer the inst in order for it not to be overdue

Effect of an acceleration prov:

Depends on who can exer the option
o
Maker: N isn’t affected
o
Holder:

N isn’t affected if the cond is smthn he has no control over

N is affected is the exer is uncond since time of payment is
uncertain
Rehabilitaiton Finance

Payment was valid since the PN said “on or b4”
o
Makers are entitled to make a complete setllement of the oblig any time b4
that date
Utah State Natl Bank

Prov in Q: acceleration clause

Note was still N despite the acceleration clause
o
Since the date was still determinable – the date of payment may be fixed by
the payee

Default: is an uncertain event – may or may not happen
o
Its therefore a cond, so why dsnt it affect N?
o
Bec it wsnt under the control of the payee
o
Acceleration prov: can affect N if it makes the time uncertain; if its operation
makes the time when the instrument falls due uncertain

But an acceleration prov per se dsnt affect N bec the inst is due on
the date the parties designated that payment is due (found on the
inst)
Puget

Lang of the note: this note shall become due & payable on demand at the option of
the payee when it seems itself insecure

Non-N

Bec this was a contingency
o
Diff w Interest: happening of this contingency depends upon the maker of
the inst
o
Here: happening of the contingency depends on the holder of the inst

At anytime, they can go to the person & ask for payment
o
It’s the same as a demand inst where you can ask for payment on demand
but why are they diff?
o
Bec theres no compliance w s7

In this case, there was time for payment expressed so cant declare
it to be a demand inst

Its uncertain bec it depends on the holder when it feels insecure
Henry

Lang of the note: For failure to pay any installments as the sme becomes due shall
render the entire oblig then due & payable

They paid subsequent installments & the bank ddnt give any indication that the inst
was due & demandable due to the acceleration prov
Drilon 3










Were claiming they weren’t in default since they paid in subsequent installments so
that the past breaches were forgiven & therefore the entire amnt is not due &
demandable
Bank: it is due & demandable already
Ct: the entire oblig is due & demandable bec there was default
o
Even if there was no ack from the bank that it was due & demandable by
virtue of the acceleration prov, it ddnt militate against the fact the the oblig
is due & demandable
o
The subsequent payments of the drawer was applied to the entire oblig
Here: paid subsequent installments and bank didn’t indicate due and payable
(overdue)
Payor: not in default ‘cause paid subsequent installments so past breach forgiven –
entire amt not due and demandable
Bank: due and demandable ‘cause of acceleration prov
Ct: In favor of bank – acceleration prov didn’t affect negotiability so entire oblig due
and demandable at time of default

State Bank of Halstad

Stll a determinate future time since originally on the inst there was a date due only
that there was a cond that if the crops fall below a certain amnt, there wld be an
extension

Parties intended here that there would still be crops harvested
Secu Natl Bank

It becomes uncertain bec you dnt know what they’ll agree upon
o
That they’ll create an extension
o
Therefore it becomes an uncertain future time thus its non-N

You don’t know if they’ll agree on an extension, thus you wont know the inst will fall
due

Ct said NO, the inst is N

The prov was intended to not release the parties secondarily liable bec they alrdy
gave their consent originally
o
But this has nothing to do w the fact of N

Bec the time when the inst falls due isn’t changed
Words of Negotiability

“Payable to order or bearer”

They’re expression of consent that the inst may be transferred

S8 & s9

Ex) X has a wife in Mla, hes in Davao & he has a gf who dsnt know he’s married
o
Gf & X gets married & she says she needs money for expenses
o
He rights a check payable to “Mrs. X” (they aren’t married yt)
o
Is this payable to order or bearer?
o
Payable to bearer

What matters is what the maker knows & not what the payee knows

Ex) Payable to santa clause, given to a child
o
Payable to bearer bec the maker knows santa claus is ficititous

TRB

Non-N

Bec the lang shows that its only payable to Filriters

Even w the word bearer – this word only describes Filriters

Freedom of negotiability
o
The lang of negotiability wc characterize a negotiable paper as a credit
instrument is its freedom to circulate as a substitute for money
o
Hence, freedom of negotiability is the foundation for the protection wc the
law throws arnd a holder in due course
o
This freedom in negotiability is totally absent in a certification of
indebtedness as its merely to pay a sum of money to a spcfcd person or
entity for a pd of time
o
Its to facilitate transactions
Wettlaufer

Non-N since the PN was written to be payable only to Baxter

Baxter ltr negotiated it: Pay to X or bearer
o
Dsnt this make the inst N? NO
o
What is originally non-N CANT become N by a subsequent transfer in N form

This dsnt convert the inst into a N one

Since from the inception of the note it shld alrdy be N as stated in
s1
Ang




Tek Lian
Is a check payable to cash N or Non-N? its N, payable to bearer
Bec it dsnt purport to be the name of any person – ergo, its payable to bearer
Banking practice: a check payable to cash can be honored by the bank wo asking for
the indorsement of the maker

Ins payable to order (S8)
When > 1 drawee’s named: nature of liab’s joint
Can 2 drawees be named in succession/alternatively? To X or Y: either can indorse
To: X or Y
X or if refuse, to Y
S128: not allowed







drawer = draweecan’t treat it as PN ‘cause in that ins, he’s both drawer and payee
130: drawer and drawee
checks are drawn v. whom? Bank (drawee)order to bank to pay
drawer – Jim
payee – Jim
drawee – bank

PNB

Confession of judgment doesn’t affect negotiability of ins

Affects S5: only if law sanctions confessions of judgment

Here: doesn’t

Advs: makes ct procs more expedient (practically none)

Won’t clog dockets

Penalty if frivolous defense

Drilon 4


Disadv:
1. commission of fraud (lolokohin)abuse and oppression

Sir: If intention to defraud using this clause, ru prohibited by that contractual
prov fr suing other p? No

If u’re defrauded, u’re rt to sue’s inherent – consent vitiated ‘cause of fraud =
voidable

Completely robbed = void

also rt to appeal

Bargains away rt to day in ct and does away w/ rt to appeal

Ct’s WRONG: not invalid

Does it affect negotiability? Won’t ‘cause presence will be disregarded and
voidno effect on ins itself
Pacheco

Is the N charc of the inst subj to the agreement of the parties of the inst? NO

S1 determines the N of an inst

If s1 is complied w the inst is N, regardless of what the parties say

Resolve it w this case:
o
The ruling is only applicable to crim cases
Evangelista

Issue: WON the pets were personally liable
o
They were - they’re solidarily liable based on the land of the PN & the cont
suretyship agreement

“I” = signed by 2 ppl
o
Means each of them
o
Their liablilty is solidary

“we” = signed by 2 ppl
o
Liability is joint

“I/We” = still joint & several
Continental

“the undersigned” = dnt knw if this is singular or plural

Ct said it was solidary since the words used were in the singular

The use of the pronoun in singular form means its solidary
CHAP2: TRANSFER
An inst is issued when it is 1st delivered
In re Martens’ Estate

X delivery

Therefore it can have no effect
Negotiation

Transfer of an inst from 1 person to anthr in such a manner as to constitute the
transferee the holder

Holder: the payee or indosee of a bill or note, who’s in possession

Methods of N:
o
By indorsement
o
By delivery





Assignment:
o
Assignee just steps into the shoes of the assingnor & is subj to all the
defenses the orig parties have against ea other
o
Transfer of an inst wo negotiation
Allonge:
o
Paper attached to an inst where an indorsement is written
o
Used only when the inst itself is full of indorsement
o
Shld be attached so that it forms part of the inst
o
What if you use this b4 the inst is filled up w signatures – what is the leg
effect?

The transfer is merely an assignment

June 21
Young v Hembree

Indorsement wasn’t that of the payee

S43: presupposes that on was wrongly designated
o
Is this being applied here?

Isn’t it relevant to see if the holder was an assignee?




If the face value is 50k, can you just indorse 25k? NO, s32
Whats the leg effect if the I is only part of the face value?
o
Its not a N but a mere assignment
What if the face value is 100k and you I 100k but you rcve 25k for the inst?
o
There’s a discount
o
Valid I bec the discount you rcve is for the consideration that holder has to
wait b4 collecting

Blake v Weiden

Transfer wsnt a negotiation since there were 3 indorsers

Why ddnt it operate as a negotiation if s41 allows the inst to be indorsed to several
ppl?
o
Why did the Ct just consider the transaxn here as assignment
Kinds of indorsements

Spcl & blank I: difference is in the method of subsequent N
o
Inst shld be both indorsed & delivered but for subsequent N:

Spcl: shld be indorsed & delivered

Blank: delivery only
o
Spcl: spcfs a person

Indorser is liable to all person who make title thru his I
o
Blank: spcfcs no indorsee

Payable to bearer

May be converted into a spcl I

Indorser is liable only to its immediate transferee

Qualified & unqualified I:
o
Qualified: indorser is a mere assignor of the title of the inst

“wo recourse” or words of similar import are on the inst

Indorser only assumes the contract of sale/assignment

He dsnt assume to pay if the maker fails to pay

He merely assumes to transfer the leg title of the inst
Drilon 5







What if a subsequent indorser fails to pay? Is he liable?

Ex) A-B-C (qi) –D-E-F
o
Default by E, can F go after C? No, bec of the
qualified I
Only guarantees the leg title of the inst
Thus, relieves him of liability on the inst

What if the inst is defective/forged?
If the holder claims that hes a HDC against A, A can refuse to pay
bec of fraud, bec F isn’t a HDC or even if he is a HDC, the defense is
real & A is still liable

Fay v Witte

PN: indorsed by Witte:
o
I hereby assign all my right & interest in this note to Richard in full

Def: by having assigned the note transferring title, impliedly excluded the 2nd cond or
implication – the promise to pay upon default
o
How ds the word assign here make them blve this defense?
o
What abt the I makes it a QI?

Ct: no exclusion of liablitlyt shld be expressed

Sir: Where from the inst, can you imply that it’s a QI?
Copeland v Burke

I: I transfer my rights, title & interest

What abt this leads you to blve that this is a QI?

Ct: not a QI, the words shld be clear
Hutson v Rankin

What is meant by I? what is I?
o
Its the process transfer constitutes the transferee as holder of the inst = it
transfers

I: for value rcvd we hereby guarantee payment of the w/in note, including interest &
cost at maturity or nay time thereafter demanded

Where ds it indicate, in the I, that theres a transfer of title?
o
The words “guarantee”
o
Sir: Nthng seems to indicate transfer of title, so how can you conclude that
there was transfer of title?

Thru tradition/delivery
o
Sir: what allows you to imply that this is an indorsement?
o
Ct wasn’t clear on this pt…whats written is a guaranty, nothing wc indicates
transfer

What leads the Ct to conclude that it’s a transfer & not a mere guaranty?
Conditional I

Where an addtl cond is added to the liability of the indorser

What is conditional?
o
The indorsement

Leg effect of the I: any person to whom the inst is indorsed holds the proceeds subj
to the rights of the person indorsing conditionally

Ex) A-B-C-(ci)-D-E-F-G-H
o
ci: whether armi will pass the bar

H tries to collect from A, A refuses to pay, so H goes to G = can G refuse to
pay lawfully?

Yes bec their liability is conditioned on the I made
2nd sentence in s39: refers to the holder & the person indorsing conditionally
Sir: theres no transfer of title, theres no I until the condition s fulfilled
o
Since armi hasn’t passed the bar, H isn’t a holder of the inst
o
But since maker, law allows him to disregard the cond on the fixed date &
the holder
o
C-H is bound by the conditional I

Party primarily liable is bound

If A pays, H holds it in trust
o
If the condition never happens, the money shld be returned to C…all the
other Is wc were taken under the cond, are nothing
o




Restrictive I

A) prohibits… = so inst can no longer be N
White v Natl Bank

Why did the bank refuse to pay?
o
Bec of the way the I was worded

Words: “for the accnt of…” = indicates that White is an agent of the bank for the
collection of money

What did White say? His 2 theories?
o
Words were merely directory
o
Custom of bankers

The custom shld control the construction of the contract

Ct: words of the I are controlling, its clear…no need to construe
o
It’s a restrictive I

Sir: isn’t it true that bth parties to the I intended that it ws to be a sale?
o
Yes, so why didn’t the Ct look into this?
o
Do the words of the I trump the intention of the parties?
I to or by collecting bank

When you deposit a check to your accnt, you’re indorsing it to the bank

I if the check is deposited to a bank wc isn’t the drawee bank or is deposited in anthr
bank
o
A restrictive I: you constitute your bank as agent to collect from the other
bank
Leonardi

Check was drawn against Bank of Manhattan Trust

Bank of Bay Biscayne: bank of the P where the check was deposited

Check was sent to Chase Manhattan

Offsetting was btwn Chase & bank of Biscayne

P: suing Chase for having converted the check
o
At the time of the set-off, B was only a collecting agent for them
o
Its my money, Chase cant offset bec at the time of the offset, B was merely
its collecting agent & offset isn’t possible bec Ps don’t owe Chase anything

But if money is held in trust by Chase for L, they can convert the money

Ct: offset is valid & Chase didn’t convert the money
Drilon 6

Rel was one of creditor & debtor
Bec at the time of the offset, the money was alrdy credited to the accnt of
the Ps
Whats the rel btwn B & Chase?
o
Chase was the correspondent bank of B
o
Looked at Florida law: said the rel of the parties was one of agency & once
the money was collected, the rel changed to debtor & creditor wc thereby
o
o






Inst payable to order, & its transferred wo I, what are the holders rights?
o
The holder gets the leg title & can compel the transferor to indorse such
(ss49)
Ds this affect the fact the you’re a HDC?
o
Yes, transferee isn’t a HDC yet

Simpson v 1st Natl Bank of Roseburg

Why didn’t Simpson put her name as payee?
o
She had the option of putting her own name or that of the bank – she put
the name of the bank
o
Then she sued them to compel indorsement
o
Inst was already in her possession, there was no need for I if she put her
name as payee

Q: cld she have placed her name directly?
o
No, bec it was made by Mrs.J to the bank & not to her

In a sit covered by s49 the holder will be entitled to an unqualified I – why an
unqualified I? why not a qualified?
o
Bec the presumption is an unqualified I wo the necessary words
o
Why not a restrictive I? why not a blank I?

Inst was handed wo I, so how can there be words indicating a diff kind of I?
o
An inst w a qualified I is still negotiable

Whys there a preference for unqualified I?
Furbee v Furbee

Is I necessary b4 suit can be brought?
o
No, mere proof that title has transferred is sufficient for the holder to bring
suit against the maker
Whistler v Forster

Griffths did the fraud, how ds this affect the rights of Whistler?
o
Fraud is a personal defense, not a real defense
o
Thus if Whistler was a HDC this wldnt hold

W wsnt a HDC bec when the I was made, he alrdy had knowledge of the fraud




Who can strike out an I? the holder
o
At anytime, any I not necessary
o
Ex) inst payable to bearer: can strike out bec all Is are unecssary
o
Payable to order: cant its necessary for its transfer
NI is presumed to be negotiable until its convertd into a non-NI
such as:
o
When theres a restrictive I
o
When its discharged

Chap 3: HOLDER IN DUE COURSE

Free from certain defenses

BPI v Berwin

Wsnt able to present the orgis of the check

Ct: cant be forced to pay if cant show that the Co is still in possession of the PNs


HDC shld acquire it for value
o
Value means: valuable consideration

P1 may be considered valuable consideration
o
What if it’s a donation? Allowed

The consideration is

US law: consideration refers to a determent that one party shld
suffer for anthr = no detriment in donation so not allowed

When an inst is donated theres no consideration &
therefore theres no value & thus the holder cant bcome a
HDC

Phil law: donation is an act & a contract

But the law says its an act bec of Napoleon who said it was
an act

Phil recogs that donations are contracts w sufficient causa

June 26
Elgin Natl Bank v Goecke

Why was there absence of consideration?

Bec the bank ddnt part w any value for the demand notes indorsed to it
o
Bec mere voluntary delivery by the brewing Co of the note as collateral secu
for the Goecke note & the acceptance of the note as collateral for the preexisting debt & ow agreement for further extension of time or other
agreement dsnt make the bank a HFV

the 2 notes were given as collateral for the initial loan of the brewing Co & the other
was indorsed to it
Holder for Value

if value is given for the inst = person is a HFV
o
is a HFV against all parties who became parties to the inst prior to that time
o
ex) A (consideration) – B (no consideration) – C

C is a HFV against A & B
Holder in GF

One who has no knowledge of an infirmity in the inst or a defect in the title
o
Defect in title: s55

What constitutes notice of defect? S56
o
There shld be actual knowledge or knowledge of such facts that his axn in
taking the inst amnts to bf
o
Actual knowledge:
Unaka

Harris issued a check payable to the order of Butler = order inst

Butler indorsed it in blank to Davis
o
Effect if the last indorsement is in blank?

It becomes payable to bearer (s9), becomes a bearer inst

Davis lost the inst

W&F encashed the check – they rcvd the check from a customer in payment for goods
Drilon 7




W&F is a HFV bec they purchased it for value
Aren’t they obliged to inquire into how he got the inst? Bec he just walkd in w a
bearer inst
o
Purchasers owe no duty to former holders to actively inquire into the title of
the party in possession
o
No duty to inquire

De Ocampo

Gonzales gave the check to Ocampo Clinic for the hospitalization of his wife

Check was written by Gatchalian, not for payment but only for safekeeping – to show
that she was interested in the car of Ocampo Clinic

Ocampo clinic cant collect

What’s Gatchalian’s defense? Fraud
o
She had no intention to transfer her prop
o
They were decived by Gonzales

Why was De Ocampo not a HDC?
o
Check was payable to De Ocampo
o
Circums shldve put them on inquiry

Suspicious Circums:
o
X for the sme amnt
o
Crossed checks
o
Gatchalian had no oblig or liability to Ocampo Clinic = no contract btwn them
wc wld give rise to the issuance of the check

For failing to inquire, they were guilty of gross neglect for not finding out the nature
tile & possession, amntg to legal absence of gf
o
Is this equivalent to actual knowledge?

Bec of the presence of these suspicious circums, burden was on them to show that it
acquired the check in gf
o
Who do you prove a negative fact?

Sir:
o
Even if ocampo & Gatchalian had a pre-existing contract, he wldnt have
applied it to to Gonzales’ debt but to Gatchalian’s

Why is it suspicious that Gonzales is holding a check payable to
Ocampo

Ex) borrowed from Yvette for 5k, sir buys an ipod from lem & lem
says don’t pay me nlng, I owe Yvette, so just write the check to her

Dnst matter if there was a previous transaxn

What matters is that there is a link

He cldve argued tht he wanted to get his wife out alrdy & cant wait
for the check to clear
o
Amnts are diff?

Eh di nya alam kng magkano ang utang nya sa hospital, pero alam
nya magkano ang utang ni Gatchalian sa kanya
o
These suspicious circums can be explained & not necessarily leads to bf

Sir: duty to inquire
o
Stupid to req ppl to inquire, you wont get anywhere
o
If SC says just inquire, why bother inquiring?
o
You wont get anything significant from that inquiry
State Investment

Crossed check: features

Can only be deposited
Can only be indorsed once to the payee who has an accnt w the bank
Check is for a definite purpose

Therefore, theres a duty to inquire if he rcvd the check pursuant to
that purpose
Only indorsee of a crossed check is the collecting bank
o
Can only be deposited to the accnt of the payee
Here it was indorsed more than once
If crossed, is there an infirmity in the inst or defect in the title? NO
o
So what in s52 denies them the status of a HDC?
Duty to inquire into the purpose for wc it was issued
o
Sir: So if don’t, cant be a HDC?

So the banks shld in quire
Act of crossing a checks serves as a warning, that the check has been issued for a
defnte purpose so that he must inquire if he has rcvd the check pursuant to that
purpose, otherwise hes not a HDC
o
This is stupid!
o
Why shld failure to inquire deny you the status of a HDC?
o
o
o







Bataan Cigar

Features of a crossed check:
o
Cant be encashed, deposited only
o
Negotiated only once – to 1 who has an accnt w the bank
o
Warning, that the check was issued for a definite purpose
Atrium

Checks were crossed

Atrium inquired to Hi-Cement as to the purpose of the checks were – were told that it
was payment for the sale of petrol products

Checks were dishonored

Why isn’t Atrium a HDC if it inquired?
o
Bec Atrium knew that the checks were only for deposit to ET Henry’s accnt,
the payee
TRB v Radio Phils

Sm of the checks were crossed

Secu Bank were absolved from liability

If a bank pays a forged check, it must be considered as paying out of tis funds & cant
charge such amnts to the depositor
Yang v CA

Manager checks – payee was David

Stop payment order wsnt followed

It was a crossed check: so how can David be a HDC?
o
David checked if the checks were genuine
o
He had no knowledge of the stop payment order
o
He had no oblig to ascertain the nature of Chandiramani’s title
o
Bec he didn’t negotiate further, he deposited the money in his account

As the 1st holder of the inst?
Drilon 8

No, Chandiramani was 1st, then, David is only an indorsee = this shldt be
allowed
o
Check was payable to his order, the payee, the effects of crossing a check
means the drawer had intended the check for deposit only by the rightful
person – the payee

Wc David did
David is the payee, so there seems to be no violation of the rules, but in reality he
was an indorsee coz he acquired it from sm1 else, and there shld be a duty to inquire
then..so strictly speaking hes not a HDC
o





o
Fraud is a personal defense = if you’re a HDC you can collect
By itself, a huge discount, isn’t conclusive of bf

S54:

You buy an inst, you haven’t paid in full, they you find a defect, whats you’re
defense?
o
HDC wrt the amnt you paid for
o
X a HDC wrt to the amnt not yet paid

Commercial Credit

Moving force used by the CT

Why shld the financing Co assume the risks in these cases?
o
They’re in a btr position to asses the risk

Pennoyer

Pennoyer  Live stock (note   cert of deposit) Dubois
o
Live stock (negotiated the cert of deposit)  1st Natl Bank

Pennoyer: Dubois isn’t a HDC bec he had notice of the fraud after the issuance of the
cert of deposit, but b4 effecting the payment of the cert of deposit
o
Why will this deny Dubois a status of a HDC?

S54: if rcvs notice, prior to full payment, hes deemed a HDC only to
the extent of the alrdy paid

Why ds this apply here?

The issuance of the cert of deposit dsnt amnt to payment
o
Itll amnt to payment when its due
o
What ds this have to do w s54?
o
To avpoid the application of s

Sir: s54 if you pay any amtn after youre aware of the infirmity/defect
o
P: D paid nothing, he paid 100% after he became aware…thus as to the full
amnt, hes not a HDC

D in payment of the inst, they paid paper w paper – the cert of
deposit was latr negotiated to 1st Natl

Inst w D, cert w 1st natl, money w Live stock

In the meantime, D becomes aware of the fraud…after, the cert of
deposits mature so 1st natl can no collect

1st natl collected, D paid!

So P was saying, whyd you do that?
o
P: bec there was no payment of money at the time the transaxn happened,
when he remitted money on the cert of deposit, he knew of the fraud, and
therefore you aren’t a HDC

Ct: in order for D to be a HDC, full payment shldve been made b4 it acquired
knowledge
o
Mere delivery of the cert of deposit was payment – thus even if only
exchange of paper, there was alrdy full payment
o
D parted w the certs b4 it had knowledge, thus it’s a HDC

P: why ddnt D refuse to pay 1st Natl if it alrdy knew of the fraud?
o
Ct: if the cert was negotiated & 1st natl is a HDC, D cant refuse to pay
o
But cldnt have D raised the issue of fraud on a sep inst?
o
Ct: bec the defense of fraud belonged to P, D cldnt have imposed that
defense

Besides it was a sep inst

The defense arose w rel to the inst
June 28

Ham

I wont pay you bec I was defrauded when I issued you the inst

Foster

Whats constructive notice?



Finance Co – not a HGF as to a buyer

Consolidate Plywood

Tractors bought & broke down

IFC Leasing a HDC?

Whats the rel btwn IFC & Consolidated?
o
IFC was the Financing Co in the transaxn w the tractors
o
Consolidated: buyer
o
IPM: seller-assignor
o
IFC: assignee-financing Co

They provided financing for the transaxn

They paid the purchase price of the tractors

IFC a HDC? NO
o
Bec they had actual knowledge that the PN was subj to the cond that the
tractor’s weren’t defective

They had knowledge that the sellers right to collect the price wasn’t
uncond
o
They knew it wld be subj to the defense of failure of consideration & cant
recover the purchase price
o
But it took axn in taking the inst wc amntd to bf = so not a HDC
Salas

Filinvest can recover if it was a HDC
o
SC said that it’s a HDC

Btwn Salas & Consolidated wc will you follow?
o
Most follow Consolidated
o
Inherent for a financing Co to know abt the transaxn bec they will end up
taking money from the buyer – they’re a moving force in the transaxn =
they will have the docums bec they will have to collect from the buyer

Sir: in some cases, they convince the buyer to buy!
o
Sir: Salas is better case law

Bec in IFC it was obiter, it wasn’t jurisprudence - it wasn’t in issue

Drilon 9











Just bec a docum is executed btwn the owner & debtor, means theres constructive
notice?
How ds the doctrine of constructive notice apply to this case?
o
When a transaxn is recorded in the pub registry, theres presumption that the
world is given notice of the transaxn
o
Theres no need for actual notice
Ct: constructive notice dsnt apply in this case since constructive notice only applies
when one is dealing w land, dsnt apply to N notes
It was recorded b4 the note was ..
When does doctrine of constructive notice apply? Only real prop (land, bldg, not
mort and lease)
Ruling: constructive notice on land doesn’t apply to PN to secure a
How could doctrine of constructive notice apply in this case? Claim constructive
notice ‘cause mort recorded before note was
Doctrine of constructive notice – if transaxn’s recorded in pub reg = law gives rise
to presumption: serves as notice to whole world (every1) so doesn’t need actual
notice

S29: Accomodation party

Party to the inst, but has not rcved any value but only signed for the purpose of
lending his name

Liability: hes liable in the capacity in wc he signs = depends in wc capacity he signs
o
Maker – primarily
o
drawer – 2ndarily

HDC who takes the inst, wo knowledge that the person is merely an accommodation
party, dsnt prevent him from being a HDC

Knowledge that the anparty is an accommodation party, isn’t knowledge that theres a
defect in the title

Liab vis a vis HDCtakes ins accomm p’s merely accomm p = still liable

Mean in contxt of disc of a HDC: Campos – knowledge a p’s an accomm p = not
knowledge of infirmity in ins

S29 – accomm still liable to HDC even though aware merely accomm p
Complete inst

When is an inst complete?
o
When it complies w the reqs of s1

Can 1 become a HDC if the inst is undated?
o
Yes, bec if its undated, the date is considered as the date it was issued

What happens if undated ins? Payable on demand

What if the payee is in blank?
o
Allowed, its considered a bearer inst
o
What if a person fills in the name of anthr? Is this a matl alteration wc
makes the inst void?
o
What is the inst is in red, the name of the payee is in blue ink? Shld you
inquire if auth was complied w? If you ddnt ask, are you a HDC?

What if that person lies and says that he had auth? Are you still a
HDC?

An inst incomplete frm the beginning, no 1 can be a HDC?

S14: law contemplates that even if the inst is incomplete, it may be filled up
and the person may still be deemed a HDC
o
S14 – last sent: law contemplates even if ins not filled up even in

accordance strictly w/ auth given = still become HDC
Miles City Bank

Alteration was from what to what?
o
Alteration consisted of changing from 1k to 5k

Case was remanded bec the jury has to det when the matl alteration tk place
o
If altered after execution & delivery, & not a party to the alteration = HDC
o
But if the alteration is obvious as to impart notice – P’s axn amntd to bf

1st issue: WON hes a HDC
o
They need to det if hes a HDC, so that they can det if he can collect as to the
orig tenor of the note

2nd issue: WON the alteration was obvious as to constitute notice?
o
If its obvious on its face bec its matl altered, the inst is irreg and no1 can be
a HDC
Bronson

Not a HDC bec Mears exceeded his auth in filling in the name of the payee

Vis a vis the blank or completion, what is the legal effect if Stetson is a HDC?
o
If she was a HDC, she can enforce payment accdg to s14

WON a party, prior to its completion, is bound to the inst
o
If gave auth to a person to fill up the inst, if the person fills it up exceeding
his auth, you are not bound
o
Except if the inst is w a HDC
o
Even if there was a breach in auth, if its w a HDC, then the party may still be
made liable

S14: even if auth not ffed/breach, in hands of HDC = presumed auth given as seen
filled upindependent WON Stetson’s a HDC (if she is, that part of the prov will
apply)

Stetson wsnt a HDC bec she acquired it prior to its completion
o
It was completed in her presence
*s14: the auth spoken of here, refers to the liability of the party who signed the inst
- the Q of auth is indep of the Q of won a person is a HDC
Bliss

3 notes negotiated to secure payment of Coop’s not to Bliss

I: if installments unpaid, notice of dishonor?

Was Bliss aware of failure to pay past installments? Useless if unaware

As to installment not paid (still due on the note) = HDC? No

HDC as to a certain part of the note (installment not yet matured); not installment
overdue

Partially HDC and partially not? Any subsequent H hold it in same status? (not to
whole ins)

Inquire ins – need to inquire WON past installments are paid: matter WON?

What if don’t? ignorant, can be HDC as to entire ins?

Mat’l to ask ‘cause?

Was Bliss aware of the failure to pay the past instl?

What abt the instl that wasn’t paid, is he a HDC as to that? Since its still demandable?
o
No, hes not a HDC

Ct: purchaser of a note who has knowledge that a past due instl was unpaid when he
acquired the note, he cant be a HDC
Drilon 10

Dissent:

Can’t deny status of HDC ‘cause installment has several maturities, doensn’t mean
entire note overdue ‘cause when law speaks of dishonor = entire ins

Installment note – several maturity dates

2 Knowledge installment not paid = not notice of defect, not infirmity in ins

Partially a HDC as to those that aren’t yet due, and hes not a HDC as to the instls that
were overdue
o
And any subsequent holder will hold the sme status as well
o
So, if you acquire the inst, do you need to inquire if past instls were paid

Knowledge dnst matter

Even if the holder knew the 1st instl wsnt paid, you cant deny him the status of a HDC
bec an instl has several maturities, it dsnt make the entire note overdue

Bec when the law speaks of dishonor, it talks abt the entire inst & an instl note has
several maturity date

Notice of nonpayment of an instl cld be at most evidence of bf, but on its own its not
tantamount to bf
o
Why? Bec 2things constitute bf:

Notice of infirmity of the inst

Defect in the title

Is notice that an instl ws unpaid, is it a defect or infirmity? No
Barbour

There was a default in several interests

Nonpayment of interest, dsnt deprive a person from being a HDC

Barbour knew default in int payment – doesn’t make entire note overdue and
Barbour’s still a HDC
Le Due

Draft was indorsed to Jordan

Inst is payable on demand = has no due date
o
Why is this relevant?
o
Bec it shld be presented w/in reasonable time, if not, its considered overdue

WON the draft is overdue? It was

draft payable on demand – relevant in rel’n to 4mos and 23days

WON draft can be considered overdue

Demand ins relevant ‘cause abt WON it’s overdue: w/in reasonable time

Impt to know ‘cause if overdue = not HDC

Need to know ins was overdue/not

If demand ins, know – based on

Reasonable time fr date of I – ct has to fill in reasonable time otherwise won’t know
when it’s due; when take as H, how know if HDC on a demand ins? Unlike ins
payable on a fixed date – after falls due = not HDC

Demand ins – no date: no idea of overdue

How know if demand ins negotiated to u? – det when

R: charged w/ notice if long issued and haven’t presented

Ex. 1yr after issued, automatically overdue? Depend on bus usages and purpose

Prov in law that says that in the case of an ins payable on demand = won’t be
overdue if it’s negotiated w/in a reasonable time fr its issuance/last nego

Reasonable time = not overdue

- so long as handed fr person to person w/in reasonable time



S193 defines: based on usage of trade

Idaho

When does ins fall due? How long? 6mos – negotiated a yr after I

HDC as to the time – as to Wright, not overdue

Indorsed 2nd time = became demand note

Leg basis: ins payable on demand – S7: indorsed after overdue = becomes payable
on demand (as to person who Is/indorses it after overdue)

- maturity as to him, WON overdue, reckoned fr a reasonable time fr issuance/last
nego

possible for persons after Wright to be HDC


In demand insts: need to look for reasonable time

Dunn

I: O’Keefe not given notice previously dishonored

Ct: O’ Keefe HDC even after dishonor ‘cause she had notive of dishonor only after
she purchased the ins
Triponoff

Postdating of a check dsnt prevent one from becoming a HDC

Does postdating of ins affect negotiability? No

Effect of qualified indorsement? Can u become a HDC? Yes

Condi’l indorsement? Yes

Restrictive indorsement? Yes, if don’t violate condi

Can a payee be a HDC? Yes



QI, CI, RI = person can still be considered a HDC
Payee can be a HDC

Howard Natl Bank

Payee: Howard

Whats the rel of the payee & E?
o
E had accnts in the bank, he had overdrafts
o
Note made by Wilson covered the overdraft

What’s the rel bet Wilson and Elliot? Elliot asked Wilson to make note for him

WON payee can be considered HDC? Howard Nat’l Bank

Rel bet payee and Elliot: Elliot had accts there and there was an overdraft by Elliot
and the note made by Wilson covered that overdraft

What happened to money?

Cover overdraft secured by the bank
July5
S58

Whats the right of a person who derives his title from a HDC?
o
He has all the rights of a former holder wrt the prior parties
o
Theres a diff from derives title & acquires title:

Derives: dsnt necessarily mean you acquire the title

Acquire: a HDC held the note b4 him
o
Rights: holds it free from any defect of title of prior parties, can enforce
payment for the full amnt = he has all the rights of a HDC
Drilon 11












There are diff kinds of HDC – s52 HDC & s58 HDC
S58 HDC dsnt necessarily take the inst from a HDC, so long as he derives his rights
from 1
o
But rights are only as to the parties prior to the HDC
To be a s58 HDC you shld:
o
Derive title from a HDC
o
Cant be a party to the fraud or illegality
Reacquirer: so long as he reacquire from a HDC, you take his rights
If you’re aware of the infirmity,
Ex) note was for a gambling debt, you’re aware of that, but you can be a HDC if you
tk it from a HDC
o
But you aren’t a HDC under s52 bec you had knowledge of a infirmity
Reacquirer: 1st time held the inst, had knowledge of defect/infirmity or participated,
then N to a HDC, then reacquired it = X a HDC
o
1st time he held the inst, had no knowledge or participation, N to a HDC,
then reacquired it = HDC
When you acquire an inst, even w knowledge, so long as not a party to it & you
acquire it from a HDC, then you’re a HDC under s58
When is a reacquirer denied the status of a HDC under s58:
o
If participated in the fraud/illegality

Pierce

Allegation: the 1st time P held title, he was aware of the defect in title
o
Agreed to by the CT

No, cant compel payment from the maker bec was a party to the fraud
Lill

Payment by a party other than the principal debtor dsnt discharge the parties prior to
the 1making the payment
o
Payment operates as a transfer of the inst to the party paying

He signed the inst as an indorser, hes an accommodation party

Lill was a HDC
o
Note was indorsed in blank by the bank = became payable to bearer
o
When delivered by the bank, he became a bearer & holder w the sme rights

Bank was a HDC & he was a HDC even if he knew that it was overdue & unpaid bec of
s58
Fossum

Original payee of the inst was PNB

Explain why the inst makes sense in light of the transaxn
o
Bec the seller was ordering drawee/buyer, to pay its agent/collector wc is
PNB

Did PNB req that the inst be accepted? Yes

But they refused to pay the draft wc remained dishonored

PNB I it in blank wo consideration & delivered it to Fossum

Fossum isn’t a s52 HDC bec he dsnt satisfy s52b
o
He ddnt acquire it b4 it was overdue & had notice of its dishonor
o
Under s52d he had knowledge of the defect/infirmity

Not a HDC under s58
o
Was he a party to the fraud or illegality? He had notice, but was he a party
to it?




When he acquired the inst he had knowledge that the prod wsnt wat it was suppose
to be
Ct said here that he wasn’t a HDC under s58 bec didn’t prove that he derived title
from a HDC
o
Ddnt prove that the bank was a HDC
o
He relied on the presumption under s59 – but s59 means holder under s191
(payee, indorsee in possession or bearer)

S59: 2 kinds of HDC

1st: HDC presumed to be a HDC

2nd: HDC tho the title of his predecessor is defective

Initially hes a HDC & he tries to collect from the party primarily liable, party dsnt
want to pay, indorser dsnt want to pay (hes a prior party to the holder now

Ex) a – b – c – d – e – f - j – f – g – k
o
K trying to collect from J
o
J says that C had defective tilte
o
K wld have to prove that you derive title from a HDC – prove G is a HDC
o
If can prove that G is a HDC, then you are a HDC & K can collect from J

1st: presumption from s59
o
Party can claim that hey, you acquired it from 1 w defective tilte
o
If K can prove she acquired title from a HDC, shes a HDC
o
The burden is shifted on the holder, to reinstate her status as a HDC (burden
is to lk for a HDC to prove shes a HDC)

Last sentence:
o
B & A are parties prior to the defective title & cant shift the burden
o
So if K is collecting from A, saying I have a presumption under s59, A cant
say that C had defective title bec hes a prior party & he cant shift the burden
back to K/holder

If 1 shifts the burden back to the holder, it assumes that the holder isn’t a s52 HDC
o
Bec if you’re a s52 HDC everything dsnt matter
o
S58: HDC as to certain ppl, only to those persons prior to the fraud/illegality
o
S52: you’re free to all attacks
o
S58 & s59 assume that you aren’t a s52 HDC wc is why they only apply to
certain ppl

S59 assumes that you aren’t a HDC under s52
Asia Banking Corp

Snow’s Ltd were selling batiste to Ten Sen Guan

BOE: snows = drawer, payee = snows, ten sen guan = drawee
o
Snows directed ten sen guan to pay snows

Snows I the BOE to Asian Banking wc was accepted b4 they inspected the cargo wc
wsnt batiste but burlap

Was Asian a HDC? NO
o
Bec they only held the BOE for collection & acceptance of the draft by def
(Ten Sen Guan) was conditional

S59 cant apply bec bank wasn’t a HDC, they were merely collecting

Bank failed to prove it was a S52 HDC so they were trying to invoke the presumption
under s59
o
Lets assume that ABC is entitled to the presumption in s59, if so, what can
TSG do to refuse payment
Drilon 12

TSG cant rely on the presumption bec you acquired from a person w
defective title
o
So ABC wld have to prove that it acquired from a HDC, wc they cant bec
Snows wsnt a HDC since they had knowledge of the fraud (knew it was
burlap)
Isnt TSG prohibited from shifting the burden?
o
Who is prohibited from attacking the presumption?
o
Snows cant avail of s59
o
TSG never became a holder of the inst but hes a party to the inst as a
drawee

A drawee isn’t a party to the inst until he accepts it

He became a party to the inst after the inst was alrdy w the
payee…therefore it became a party after the occurrence of the
defective title/fraud
o



Yang

David/payee is claiming to be a HDC, can Yang invoke s59 in order to assail the due
course holding presumption enjoyed by David? No
o
Bec Yang was a prior party to the defective title, thus cant shift the burden
Van Syckel

V is trying to estab that hes a s59 HDC

Ct: no, he has to 1st prove that the I was genuine since the notes weren’t payable to
bearer – they were order notes & title didn’t pass until indorsed by the payee
o
Thus, proof of the payee’s sig is impt

If he proved that the sigs were genuine, then he’d be a HDC

If theres no allegation of forgery/if you dnt raise the sig as an issue, then you don’t
have to prove the genuineness of the sigs?
o
No, wrong reasoning
Farmers State Bank

How ds Koffler prove the presence of defective title?

Check payable to the order of Davis, no negotiation as to the persons who cashed the
check

K wanted to rely on the inference that since it was lost, title of whoever cashed it is
therefore defective

Ct: defense of defective title isn’t available to K bec hes the maker & was party prior
to the defect
o
And he was trying to avail of a defense that was only available only to Davis
o
Davis is a party prior to defective title, bec after he lost is whoever tk the
inst had defective title – so he shldve been prohibited from raising this
defense right?
S49 HDC

Even b4 I hes a HDC bec the transferee acquires the title of the transferor & the
transferor is a HDC & he passes on these rights to the transferee even before I
Commercial Bank of Lafayette

Even if its not I, bec the law says the transferee acquires all the rights of the
transferor – so if the transferor is a HDC, transferee is a HDC as well

4 kinds of HDC:

S52: HDC in all contexts

S58: HDC only as to parties prior to fraud/illegality

S59: presumptions, can overcome attack by proving you acquired from a HDC
o
Can be enforced against all parties but ned to prove that youre a HDC

S49: if a transferee wo I, from a HDC, you become a HDC
 They’re all free from all defenses
 S58,59,49: need not comply w s52 but the enjoy the benefits of s52
o
But s58 applies only to certain parties
Chap4: DEFENSES & EQUITIES

Real defense:
o
Available against all Hs, even against a HDC

Personal defense:
o
Available only against Hs not in due course
o
Cant be invoked against a HDC

*DON’T classify a certain defense as either real or personal – useless
o
Ex) matl alteration
o
Just study the rule wrt that defense
S22: incapacity

If person is incapacitated, can pass/vest title to the inst but cant be held liable on the
inst
Murray

Murray cant be held liable bec hes a minor

Cld the minor attack the validity of the I?
Illegality:

Generally a personal defense, but sometimes a real defense
Rodriguez

Inst arising from a gambling debt

Can Martinez interpose the defenses of illegality? Yes

But Ct said that when Rodriguez acquired the inst, he was a HDC & illegality was a
personal defense

What if the inst was payment for services for appearing in a porn film, H is a HDC, is
it personal or real defense? Personal defenses
o
What if it’s a child porno? Depends if it void for all purposes, then it’s a real
defense
S23: Forgery

Person isn’t bound bec wsnt a party to the inst at all

The sig is wholly inoperative

Unless party is precluded from setting up the forgery/want of auth

Effect: you cant
o
Retain the inst
o
Cant have it discharged
o
Cant enforce payment

Against any party whose sig is forged

Unless, they’re precluded from raising the defense of raising the
defense of forgery
Drilon 13







2 kidns:
o
Sig isfalsified
o
Sig made wo auth
Ex) a b c d e f g
o
Forged sig of C
o
G cant enforce payment against A,B,C
o
But he can make D,E,F liable on the warranty that they made on the inst
(that its genuine)

Bec the defense of forgery isn’t available to them
o
Forgery in effect creates a 2nd inst…its valid as to the parties AFTER the
forgery
Ppl b4 the forgery are insulated from parties after the forgery
NIL who are precluded from raising the defense of forgery?
o
S62: an acceptor

Bec he admits the genuineness of the drawer’s sig & capacity to
indorse

Only warrants the sig of the drawer & not an indorser

Bec hes suppose to know the sig of the drawer
o
Indorser:

Bec he makes a warranty that the inst is genuine

Gluckman

Darling was claiming his sig is forged & if it wasn’t, he isn’t liable on the inst under
s53

Ct: but hes estopped bec he represented that the sig is valid
Strader

Person whose sig is forged, claims that her sig is forged & raises it as a defense

Ct: precluded from using the defense bec she rcvd the proceeds of the checks in cash
& merchandise

She benefitted from the encashment of the checks so she impliedly ratified the
forgeries

Precluded: ds it include ratification?
o
It ds

Won forgery cld be ratified? It can

In order for you to be precluded from raising the defense of forgery must it raise to
the level of estoppels? Must you be estopped from raising the defense of forgery?
o
Shes not estopped, she ratified the acts but shes not estopped
o
Estoppel: if you make a statement & anthr relies on that statement, you cant
change that statement if itll cause prejudice on the person who relief on it
o
Ct: precluded isn’t equivalent to estoppel
San Carlos Milling

S23 was it applied here?

Wstn applied bec the money was paid to the proper payee, San Carlos, & thru the
forgery, he payee was actually paid

It was a subsequent forgery w/in BPI
PNB v Quimpo

Ct ddnt apply s23 here

WON Gozon cld be precluded from raising the defense of forgery?




Gozon says PNB shld return his money since PNB ddnt follow his order – wc is to pay
w a valid sig – thus, for paying under a forged sig, his accnt shld be credited
Is PNB precluded from raising the defense of forgery since they paid the inst? By
paying, you’re precluded from raising the defense that the sig is forged?

July 9
Price v Neal

Price wanted to recover the money to pay on the ground of forgery

His other defense: Neal not a HDC bec its was forged

Ct: he cldnt recover

Gen rule: person who pays under mistake can generally recover

But in NI: payment under mistake, drawee cant recover bec shld know the sig of the
drawer
o
But there are exceptions

Neal = indorsee

Price = drawee

Sutton = drawer

Drawee paid the H and he’s trying to recover

Why did the Ct rule in favor of the H? why not in favor of the drawee?

What was the defense of Neal?
o
That Price was negligent bec he shldve inquired whether the bill was really
drawn on him by Sutton or not

Whats the argument of Price?
o
He shld recover since it was paid by mistake and he can never recover
against the drawer bec theres none & he cant go against the forger bec he
was hanged
o
Leg basis: forgery was proven wc stands even upon an accepted bill

Whats the basis for the Cts decision?
o
Incumbent on Price to check to the sig

Why on him if bth Price & Neal are in gf?

Case was decided b4 s62
1st Natl Bank of Portland

Checks stolen & sig of treasurer was forged

WON 1st natl bank cld recover the amnt from US Natl

Ct: drawee cant recover on the ground of forgery from a H

H shld have no notice of defect on the inst
o
Ds this mean that he’s a HDC? NO

Price v Neal: drawee cant recover on the ground of forgery from a H
o
Not necessarily a HDC

Exception of the rule:
o
H guilty of bad faith
o
H who was negligent

1st natl bank = drawee
o
Asserted that US natl bank is negligent for failing to compare the sigs (since
the Co also had an accnt w them)

US natl bank = collecting bank

Ct: no duty to the drawee bank to ascertain the genuineness of the sig of the drawer
o
As opposed to the duty of the drawee bank to know the genuineness of the
drawer’s sig

Where ds this duty come from?
Drilon 14








Case is a good case for the drawee bec he can argue that the collecting bank was
negligent too bec the drawer also had an accnt w them
o
Also, if the negligence of the collecting bank is earlier than the neg of the
drawee bec he didn’t see the forgery
o
In fact, the drawee bank’s loss is bec of the collecting bank
Thus, so its necessary to determine why theres a duty on the drawee bank
2 exceptions of the Price v Neal doctrine:
o
He guilty of bf

He participated in the forgery/knew it was forged/knew of circums
causing suspicion of its genuineness

+ circums aren’t known to the drawee & not told by the H

= refund the money
o
H guilty of negligence

H cant profit by his mistake if he negligently contributed to
consummation of the mistake, if he mislead the drawee

= shld refund & drawee will be able to assert forgery against the H

if bth were negligent, why make the H suffer?

H: so what if I didn’t detect it? I don’t have a duty to
detect it anyway?
Are either of these exceptions available under s62?
o
How ds S62 relate to Price v Neal?

S62 is the legis affirmation of the Price v Neal doctrine bec it
embodies the practice being used by the law merchant then

States the liab of the acceptor & that if the drawee pays for the inst,
he cant recover

PNB v Natl City Bank of NY & Motor Service Co Inc

Drawee: PNB

Holder: Motor Service

Unknown persons indorsed checks to MSC, wc were drawn against the accnt of
Pangasinan in PNB

Deposited w Natl City bank – PNB credited the money to them

Test in determining the liab of a drawee who pays a forged inst:
o
Neg of the H & the drawee shld be measured against ea other to see wc
party shld bear the loss

*Price v Neal:
o
1st bill not accepted, other bill was accepted = bth were paid
o
Ct ddnt make a distinction btwn the accepted/not accepted bills
o
Just said that drawee cant recover

So why was it impt in this case for the Ct to make a distinction?
o
Bec in Price v Neal: payment includes acceptance
o
Whereas in this case, payment dsnt necessarily mean that the drawee
accepted it

Difference btwn acceptance & payment:
o
Acceptance: X usually applied to checks

But banks can do this thru certification

If accepted, implies subsequent negotiation
o
Payment: oblig is extinguished

Once paid, its extinguished

Bec if paid & accepted: drawee cant recover (s62 applies)

If paid but not accepted: drawee can recover (s62 dsnt apply)





Did the Ct abandon Price v Neal?
o
Ct introduced a new doctrine: that the neg of the 2 (H/drawee) shld be
weighed
o
Sir: they cldve just said that this is an exception to the price v neal doctrine,
when neg is present
Motor service (H) was negligent:
o
2nd check, prior in #, was issued on a later date
o
Given by strangers
o
1st check was indorsed by a sub-agent of the agent of the payee

Ddnt inquire into the extent of their auth
o
2nd check was crossed

Shld be deposited w the bank but MSC accepted it as payment

PNB v CA

GSIS issued a check payable to Polido, I to Go, I to Lim, Lim deposited the money in
PCIB

PCIB stamped at the back of the check a guarantee
o
Why was this stamped? Bec its necessary for clearing
o
Its rule, shld have this stamp in order for to clear

Check was cleared

Forgery: the sigs of the ofcrs of the drawer (GSIS)

Therefore, under s62 PNB can recover bec PNB cant disown the drawer’s sigs
o
This was the final reason

PCIB isn’t liable
o
Warranted only the indorsements, not the drawer
o
Assume that PCIB is neg, wld PNB be entitled to recover? NO bec PNB’s neg
is greater bec it had previous & formal notice that the check was lost & there
was a stop payment request

“the prevailing view is that the same rule applies in the case of a drawee who pays a
bill wo having previously accepted it”
o
Did this reverse the previous PNB ruling?
o
No, rule here refers to bills whereas the PNB ruling refers to checks

Checks: payment is not acceptance

Bill: payment is acceptance
RP






v Equitable Banking; RP v BPI
Equitable & BPI: collecting bank
RP/Treasurer: drawee
The insts on their face were irregular
o
If its apparent on its face, and the treasury & is negligent in nt seeing it, why
isn’t the collecting bank negligent as well if the irregularity was apparent on
its face?
It’s the banks wc started the ball rolling, they were the one’s who induced payment

Samsung v FEBTC

Check was payable to cash or bearer for P999,500

What drove them to ask him?
o
Bec knew that Sempio worked in Samsung
o
And bank procedure was to call the corp, but cldnt reach the ofc so when
they saw him, they asked him instead

Samsung demanded that the bank re-credit their amnt wc they refused
Drilon 15



Samsung wsnt precluded from setting up the defense of forgery
o
Invoking s23
Price v Neal: reiterates the rule for a drawee & holder
This case was btwn the drawer & the drawee
Whats the basis of the COA? How is this related to s62?
GR: the drawee who has paid the forged sig bears the loss
o
Exception: when neg can be traced on the part of the drawer whose sig was
forged

Need to weight the comparative neg btwn the drawer & drawee to
det who shld bear the loss

Liberty Trust Co v Haggerty

Bank precluded from recovering from the payee

Bec:
o
No privity btwn the payee & the bank

Thus the bank had no COA to recover
o
Bank has the means of knowing if the funds are sufficient
o
To permit the bank to repudiate the payment wld destroy the certainty wc
comes w the N of commercial instruments

July 12
PNB v Natl City Bank NY & Motor Service

Pangasinan  IARS  MSI  NCB NY

Gen rule: If sig of Pangasisnan is forged, no 1 after him have the right to retain the
inst/enforce payment/discharge the inst
o
PNB can recover for NCB NY then move down the line backward
o
They can collect on ea other under warranties

As btwn PNB & NCB NY can PNB recover under s23? NO
o
But PNB is precluded – PNB is saying I paid you by mistake, im entitled to
recover
o
But snce he paid & by implication accepted, he admitted the sig of
Pangasinan so he cant claim he’s precluded from raising forgery since he
alrdy admitted the sig

Stop payment order

Is stop order isn’t followed & drawee bank pays, this cant be debited from the
drawers accnt
o
Exception: unless payment discharges a legit debt of the drawer

Why is the drawee precluded to recover?
o
If theres negligence on the part of the drawee in not complying w the stop
payment order, drawee cant recover since the payee isn’t the one who was
negligent

Can the bank deduct the amnt of the check from your accnt? Can you demand
recredit?
o
No, cant debit the amnt of the check & drawer can recover
o
Exception: if drawer was negligent, if it discharges a legit debt of the drawer,
if stop payment order is issued after the bank certified/paid the check

*applies also to PNB v CA

GSIS  ____  Go  Lim  PCIB who collected from PNB

Drawee: PNB

If GSIS’s sig is forged, PCIB has no right to retain etc

But if PNB accepted, hes precluded from raising the defense of forgery

Drawee is only precluded under s62 if he ACCEPTS
o
So know the distinction under acceptance & payment
o
Under Phil law: acceptance isn’t subsumed under payment

Ilusorio v CA

his sig is wholly inoperative
o
can say that the inst is only inoperative by extension that the sig is wholly
inoperative = but whats really inoperative is the sig

bank precluded in raising the defense of forgery?
o
No, but Ilusorio

Applying s23 & disregarding the ruling, can illosorio recover?
o
Bec if he had no neg, the drawee bank had the duty to know if the sig was
genuine
o
Bec under s23 his sig is forged & therefore he had no order to the bank to
pay the payee & the bank is unauth to make payment to the payee

Ds it matter that the check here wsnt certified?
o
If Mla bank wants to maintain the position that the deduction from the accnt
of Ilosorio thus they shld say that the sig is genuine thus they’ll stick to s62
o
It dsnt change the result of this case

What appens in s23? How ds s23 operate in this case?
o
Exception applies
o
Ilusorio is negligent, thus hes precluded from raising the defense of forgery –
he failed to rectify the sit by not preventing the sit






1st Natl Bank of Portland v Noble

Initially check was dishonored but when presented again, it was honored

1st natl bank seeking to recover from US natl bank since 1st natl bank paid by mistake
since Kelleck’s accnt had insufficient funds

1st natl bank cant recover bec it was negligent in encashing the check

Relation to price v neal:
o
Drawee who pays the H of the bill despite the fact that the drawer has no
sufficient funds to cover it, cant recover from the H what he paid under
mistake
o
Rule in Price v Neal: By accepting, drawee is precluded from raising the
defense of forgery, thus cant recover

Applies even if theres no negligence on the part of the drawee

Still applies even if the forgery is so skillfully done
o
Drawee is precluded from recovering the amnt bec it was incumbent on him
to detect the forgery, it’s the drawee’s duty to know the funds of the
drawer…so even if theres no neg in PvN, what more in this case when there
is negligence

Now, we’re talking about forgery of Indorsers:

Difference from drawer’s sig:
o
Drawee bank isn’t under oblig to certify the genuineness of the sig of the
indorsee

Der  Pee  Indrsr  H
o
Dee
Drilon 16














Drawer issues the inst to drawee, payable to payee – payee’s sig is forged
Drawee accepted & paid the H
If drawee wants to collect from the H, can he?
o
Gen rule: drawee can recover bec of s23

Sig is wholly inoperative, no right to retain, no right to enforce
payment, no right to discharge the inst

Thus, as btwn H & drawee, who has no right? The H

If he has no right to enforce payment, he shldnt have been able to
take payment from the drawee

Thus, drawee can recover
Irrelevant if the drawee guarantees previous indorsements
o
Relevant only if he DID issue a guaranty, wc therefore precludes him from
raising the defense of forgery
Why wld anyone say that I guarantee?
o
Its irrelevant bec the H wont invoke forgery anyway
o
It’s the drawee who will invoke the forgery
Why isnt the drawee precluded?
o
Bec of s62 – he guarantees the genuineness of the sig of the drawer & not
everyone else
o
Thus, drawee isn’t precluded from recovering from a H
Case of forged sig of drawer, drawee cant recover bec of s62
o
But in case of the forged sig of the indorse, can recover bec ddnt warrant the
sig of the indorser
If drawee recovers from H, H can recover from the indorser
o
When the H recovers from the indorser, is he recovering from his 2ndary
liability? No, he recovers bec case law (SC) has interpreted s65 & s66 that
the inst is genuine in all resects
o
When the indorser warrants the genuine of the inst in all respects, then he
warrants all the other indorsements
o
Hes not enforcing the inst, bec he has no title to it, hes enforcing the
warranty
o
S65 & s66 dsnt say anything abt the warranty of previous sigs, but SC has
interpreted it this way
If you’re the drawee, and you’re given the instrument
o
H has no right to the inst
o
So give the inst back to the payee/the party whose sig was forged
o
Confiscate the inst & give it to the payee

Great Eastern

GE  Melicor  (forged sig of Melicor bec stolen by Maasim) PNB  HSBC

Can GE had HSBC re-credit their accnt? Yes

Bec GE auth HSBC to pay Melicor & no1 else

Bec of HSBC’s neg, GE can recover what was deducted from their accnt

Apply s23 here:
o
Forged sig of Melicor was of no effect so no title vested in Maasim
o
So PNB bears the loss
Jai-alai

Various clients of Inter-island  payble to inter-island  negotiated to Jai-alai 
deposited to BPI  BPI recover from various clients

Suit btwn jai-alai & BPI








Amnts were originally credited to the amnt of jai-alai, when discovered the forgery,
they debited the amnt again
Suit btwn the collecting bank & H/depositor
S23 applied here:
o
Forged sig is the indorsers
o
Rights of jai-alai wrt the inst: X right to retain, Xenforce payment, X give
discharge

If they enforce payment, BPI can recover bec it was payment by
mistake – thus no C-D rel
o
Under s23, BPI shld be able to recover from jai-alai
Ruling: yes, BPI can recover
o
Jai-alai was also negligent
o
Payments made by BPI were ineffective
Jai-alai having rcvd the checks, is deemed to have given warranty under s65 that the
checks were genuine

Canal Bank

Mont  Bentley (sig forged)  Budd  Bank of NY  defs/bank of Albany

Canal bank (drawee)

Suit btwn drawee & collecting bank

Apply s23, who is entitled?
o
Canal bank is entitled to recover from bank of Albany
o
Bec Albany has no right to the inst bec it acquired the inst from a forged I –
B’s sig was forged & is wholly inoperative

X right to retain, discharge, enforce payment from any party to the
inst

Canal bank when accepted the inst, he became a party to the inst & Albany cant
enforce payment to them
o
Any payment made by canal bank can be recover bec its unenforceable, bec
it paid by mistake
Rep





Bank v Ebrada
BTR  M Lorenzo  Ebrada  RB (drawee)
Lorenzo alrdy dead when check was issued
S23: since the sig of the payee was forged, Ebrada has no right to the inst
S66: ebrada being the last indorser, she guarantees that the inst is genuine in all
respects
o
Significance of this warranty, is that she is precluded from raising the
defense of forgery
o
But she ddnt want to raise the defense of forgery – why? Bec she’s trying to
collect from the inst!

If she raises forgery, shes admitting that you have no title

Banco de Oro

Equitable Visa  various estabs (forged sigs) Trencio  deposited w BDO 
Equitable (drawee bank)

S23 applied:
o
Can E recover from BDO? Yes, Trencio acquired no title bec the forged sigs
were wholly inoperative, thus when deposited w BDO, cldnt enforce
payment/retain/discharge
o
Therefore, Equitable, having paid may recover the amnt paid
Drilon 17



Furthermore, E isn’t precluded from setting up the defense of forgery since they only
warrant the sig of the drawer & not that of the other parties



BPI







v CA
BPI (drawer)  Fernando  deposited to China Bank  BPI (drawee)
X Fernando, but was an imposter
Preterminated a money market placement
forged: the sig of Fernando
accnt opened in China bank w the sme forged sig
s23: since fernando’s sig is forged, BPI can recover from china bank
o
china bank ddnt acquire any title on the inst bec of s23
BPI was neg
but china bank was made to share in the loss bec china bank was also negligent
o
they shldve be suspicious by the huge over the counter wdrawals
immediately after the accnt was open = but what’s the teller suppose to do?
o
misrep when imposter opened an accnt
o
bank tk the word of its own depositor – they tk the identity of Fernando on
the basis of a client’s word = is this neg?
BPI released it on the strength of the representation of CBC that it was Fernando
As far as bpi is concerned, they paid it to the person itself – thus wasn’t neg on part
of bpi
For sir: no neg on bth parties










July 17
Natividad v Gempesaw

Galang knew that even if Gempesaw checked the invoices against the amtns on the
checks, wldnt discover anything

Inexistent sales – were forged invoices

Did Gempesaw have a right to recover from PBCom who paid the amnt of the checks?
Yes, but she shares in the loss bec she was also negligent

Drawee bank is liable bec it contravened the tenor of its oblig by honoring a check w
more than 1 I
o
Bank rules prohibit acceptance of 2nd I wo being cleared by bank officials
o
Bank was held liable based on the CC – A1170
o
Drawer entitled to recredit bec of contract law

But the drawer’s sig isn’t the 1 that’s forged – its the indorser’s sig

S23 dsnt speak of the drawer vis a vis the drawee

Ct employed s23 in saying that Gempesaw is precluded from using forgery to prevent
the bank’s debiting of her accnt

S23: GR a forged sig, being in wholly inoperative, the holder has no right to retain,
enforce payment or give discharge to the inst
o
Unless the party against whom its sought to be enforced is precluded form
setting up forgery/want of auth

Assuming that Gempesaw is invoking the forgery as a defense – wc is why the Ct said
that she was precluded – but what gives her the right to invoke forgery when it
wasn’t her sig wc was forged?
Associated bank v CA

Associated bank: collecting bank

PNB: drawee bank

PNB shld reimburse the amnt to the Province of Tarlac









Liability of PNB for the 50% is passed to Associated Bank
o
PNB isn’t precluded from raising the defense of forgery…actually it was
successful at invoking the forgery since they weren’t held liable
Associated Bank was liable bec of breach of their guaranty
o
So whey were they held liable for the whole amnt?
Why is the neg of Province of Tarlac in the lawsuit btwn PNB & Associated bank?
PNB is collecting from Associated bank, they’ll share the loss/burden if PNB were
negligent
Who could the neg of a non-party affect the liab of parties to a contract?
Here, they’re invoking an exception to the rule, so whats the rule?
Sep the 2 cases: case btwn Province of Tarlac & PNB and PNB & Associated bank
Case btwn Tarlac & PNB:
o
Drawee bank cant debit the accnt of the drawer bec it paid checks wc bore
forged Is
How did the Ct apply s23?

TRB v Radio Phils

Radio stations bought from TRB 3 managers checks

Checks were presented to Secu Bank, TRB honored the checks

WON TRB shld be solely liable for the amnt of the checks

Duty of TRB to det that the check was duly in order by the orig payee
Westmony v Ong

Westmont: since Ong never had possession of the checks nor did he auhtorie
anybody, he ddnt become a H thereof hence he cant sue in his own name
o
Legal basis of Westmont: S51, s191
o
Ct: even in the absence of delivery, such consideration isn’t matl = what P is
dng is a shortcut

Westmont was at fault for being negligent

There’s a leg duty on their part to ascertain Ong’s sig? Why?
o
The bank makes a warranty of prior Is bec of s65

When Westmont collects form the drawee bank, it makes a representation that the I
are genuine under s65 & 66

The warranties under s65 & 66 are directed to whom? When they make these
warranties, to who do they make them to?
o
To the drawee bank
o
Is On the drawee bank? No
o
Is there any privity btwn Ong & the drawee bank? No

What is Ong’s basis for trying to collect the amnt of the check from Westmont?
o
He can collect, he’s the payee, if he has the check – but here, hes not in
possession of the inst
o
Bec of the forgery of Tanlimco, hes entitled to possession of the inst but he
still dnst have it

Pacific Bank can say that Westmont cldve detected the forgery, therefore, if you cldve
detected it – we wouldn’t have to pay
o
But this argument isn’t available to Ong
o
In fact, Ong isn’t even a party to he inst

Wc is westmont’s defense – bec of s16 bec in order for him to be
party to the inst, he shld be delivered to him

If anyone shld complain, it shld be Island Secu who wld demand that PBC re-credit
their acctn & PBC can recover from Westmont
Drilon 18
















Westmont is saying dnt sue use, sue Island Secur – we aren’t privy to that, you cant
make us liable to it
Ex) sm1 stole the inst, forged your sig & I it – can you sue just coz your name is the
inst bec your name appears there? NO, you aren’t a party to the inst
o
SIR: Westmont is correct, Ong cant claim from them – he can only claim
from Island or Tanlimcos family
The 1 ultimately liable is Island Secu
Ultimately liable on the check – Pacific bank bec it’s the drawee bank
Who’s liable for the forgery? Ultimately who is liable is Tanlimco
Ct: sig of the payee (Ong) was forged & the collecting bank erred in making payment
by virtue of the forged sig – thus, Ong shld be allowed to recover from the collecting
bank (Westmont) (based it on s23, sig is wholly inoperative)
PBC has a COA against Westmont – for breach of warranty
Sir: the short cut is suing Island Secu
o
What the Ct said was the long way – he’s reaching/suing some1 who’s not
liable to him
What if Westmont had defenses?
o
Ex) if PBC was neg – can Westmont invoke these defenses against Ong
o
What if there is defenses btwn the parties, can they invoke this against the 1
taking the “short cut”
Lets assume that Island Secu owed money to Tanlimco & the inst, tho it was diverted
to it, & the inst settled a valid oblig btwn Island Secu & Tanlimco
o
Can Westmont raise this as a defense that they may not have followed your
order, but it settled a valid oblig of yours & you weren’t hurt by it
SIR: defenses are available to the 1 taking the short cut?

July 19
Tolman v American Natl Bank

Drawer: tolman

Drawee: American Natl Bank

Potter impersonated Haskell

Potter indorsed it to Haskell & gave it to Homes who encashed it

Ct: Tolman can recover since bank has the duty to pay to the order of the drawer
o
And his order was to pay Haskell – wc wasn’t followed

Fraud of Potter wasn’t complete upon rcpt of the check

And Haskell wasn’t the one who indorsed the check

Check wasn’t payable to bearer bec Tolman intended the check to go to Haskell who
wasn’t a fictitious person
o
Basis: s9 NIL – the inst wldnt need an indorsement if it was payable by
bearer
o
Why did this defense fail? Bec Haskell was not known to be a fictitious payee
to the drawer Tolman when he made the check (S9)

Genuine indorsement is necessary
Snyder v Corn Exchange Natl Bank

Niemann – fictitious person
o
Bec the drawer didn’t intend for him to rcve the proceeds of the check

Greenfield was the agent of Snyder – so the intent of the agent controls?
o
In this case yes, bec of the POA issued by Snyder to the bank, authorizing
Greenfield to draw checks for him on his accnt

Thus, the inst here is payable to bearer



o
So s23 cant apply
If Greenfield acted wo auth, isn’t his sig forged? Did he have auth to issue a check to
Niemann?
o
He was given gen auth to issue checks to ne1

Clearfield Trust Co v US

Drawer: US

Drawee: Treasurer of the US thru the Federal Reserve Bank

Payee: EE

Payee never rcvd the check

Notice to Clearfield Jan 12, 1937…reimbursement demand Aug 31

Sued in 1938

Wheres the delay? In filing suit?

At the date of issue…there was no forgery

Delay was from when Barnes told the US that he didn’t rcve the check – May 10,
1936
o
Nov 10 1936 he executed an affidavit that there was a forgery

8 mos b4 gave notice

More than a yr to seek reimbursement & file suit

They delayed & they are precluded

But Ct said that the US could recover

Delay dsnt preclude the drawer from reimbursement?
o
Need to prove damage to recover

Delay in giving notice wont precluded the drawer from collecting unless it also proves
damages

Clearfield wasn’t able to prove the loss since it cld recover from JC Penny

So why does delay preclude you from raising the defense of forgery?
o
One can only shift the loss to the drawee only on a clear showing that the
drawee’s delay in notifying him of the forgery caused him damage

If the drawer delays in giving notification, he wld be entitled to recover? He wont be
precluded from putting up the defense of forgery
o
What will preclude him? If the collecting bank is able to prove that he
suffered damage
Detroit Piston Ring Co

Culbert made out checks to non-existent persons/past EEs

Ct remanded the case bec couldn’t det if Detroit exerd due care when they discovered
that their production cost was higher than usually

If Detroit’s failure amnts to negligence – remanded

What was the Ct’s standard?

What are the facts necessary to det WON Detroit was negligent?
PCIB

If there’s contributory neg, then the drawer shld bear the loss
o
Premise is that the EE acted w the auth given by the principal
o
But Ct said the EE didn’t act under the auth given to them by the principal

Bth EEs acted in their personal capacity

Bth PCIB & Citibank are liable
o
Bth were negligent in the selection & supervision of their EEs
Material Alteration
Drilon 19




Changes the leg effect of the inst
Sec. 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.

Sec. 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;
(f) 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.

PNB v CA
o
An alteration is material if it alters the effect of the inst
o
Its an unauth change in an inst that purports to modify in any respect the
oblig of a party or an unauth addtn of words/numbers/other change to an
incomplete inst relating to the oblig of a party
o
It changes items wc are reqd to be stated under s1, NIL

effect: it avoids the inst
o
= void inst
o
discharges the parties unless they authorized or consented to the alteration

exception: a HDC not a party to the alteration, may enforce payment accdg to the
orig tenor
o
addcg to the orig terms of the inst & not to the altered terms
Montinola v PNB

Laya was the Provincial Treasurer & ex officio agent of PNB

Ramos assistant agent of PNB

Check was in possession of Montinola

Under Laya’s sig there was an addtn “agent of PNB”

Was a matl alteration bec it changes the nature of the resp of PNB from a mere
drawee to a drawer & drawee

Whats the effect if the same party is the drawer & drawee of the inst?
o
Hes ordering himself to pay
o
Law says that the H has the option of treating it as a PN – making the bank
directly & primarily liable

Whats the effect of matl alteration? The inst is void thus Montinola cant collect

Montinola not a HDC bec its already a stale check
o
Thus he really cant recover

Montinola was a mere assignee of the P30k sold to him by Ramos – thus hes subj to
all the defenses available to the drawer Provincial Treasurer & Ramos

Just bec the inst is materially altered Montinola cant recover?
o
NO, if he was a HDC he could recover accdg to the orig tenor
o
But here, hes not a HDC bec when he rcvd the check, it was alrdy overdue
(violates s52)

o
o
o

Also, under s191 a H is a payee or indorsee of a bill/note & Montinola is
neither – so he’s not a holder
Didn’t take the inst in GF
Inst wasn’t properly negotiated – Montinola is a mere assignee

Ramos only indorsed part of the inst – 30k only not the whole 100k

S32 says the I shld be an I of the entire inst – if it only transfers
part of the amnt payable, it dsnt operate as a negotiation of the inst

No such thing as a partial negotiation

Thus hes subj to all available defenses available to the prior parties

PNB v CA

Issue: Won the alteration of the serial # of the check is a matl alteration? NO

Not a matl alteration – bec its not an essential req for negotiability under s1

Oblig of the parties remains the same…no change in their relations/oblis

If it were detected, the drawee wld be made to pay bec its only an immatl alteration?

If alter the serial # of the check, you can collect on the check?

If the alteration dsnt change any of the reqs under s1, the alteration is immatl &
drawee can still be compelled to pay

Ct said matl alterations are only those in s1? Only those wc affect its negotiability?

So if it has no impact on s1 its not a matl alteration? Yes

So if the isn’t contains 5 Is on the back & sir deletes 4 of them – matl alteration? If he
adds a sig on the back – matl alteration?

If sir holds an order inst wo a blank I and he deletes all the Is, then he has no title to
the inst bec theres no I & the inst goes back to the payee? Bec it has no impact on
s1?

SIR’s point: Malt alteration isn’t limited to s1
Bank of Commerce of Sulphur v Webster

Adds a party wo consent of the guarantors, so they are released

The addtl sig changed the relations of the parties so it’s a matl alteration

Sir: it adds a party, but its beneficial to the guarantors!

Change in relations of the parties:
o
Theres a modification of their rights & obligs
o
It changes the rate of contribution & changes the charac & description of the
inst
Foutch v Alexandria Bank & Trust Co

Altered the amnt & added “for note”

Bec theres a matl alteration, the H isn’t entitled to anything bec the inst is avoided

Therefore Foutch can only recover the diff btwn the orig & altered terms

If the drawer is negligent cant recover from the drawee bank
o
Bec drawer’s have the duty not to leave spaces/blanks wc can invite
alterations

Foutch’s neg:
o
He allowed the payee to fill in the entire check

Negligent bec its in the payee’s handwriting & any alteration cld be
made wo detection by the bank
o
It was written in pencil

Facilitating the alteration

Thus, Foutch is liable for the full amnt – the altered terms? No, just the orig amnt
Drilon 20

Savings Bank of Richmond v Natl Bank of Goldsboro

Drawer: Natl Bank of Goldsboro

Was there neg on the part of Norwood? Yes, the draft used was on plain white paper
wo safety devices
o
Plus it was the bank’s procedure to use these safety devices
o
Drafts were issued outside banking hours

But drawer is only liable for the orig amnt
Critten

Was the drawer neg here? Yes
o
It failed to verify the statements & vouchers wc wldve revealed the alteration

Bank was also negligent in paying bec the alterations were apparent on the check
July 26
Marine Natl Bank

Marine can recover as a drawee bank since it’s an altered check

S124 NIL says an altered inst avoids the inst but a HDC can recver on the orig tenor

Since its an altered check, payee can only recover the orig amnt

Certification only holds the bank for the truth of the facts presumed w/in his
knowledge – only certifies the sig of the drawer
Wells Fargo (barbs)

HSBC v Ppls Bank & Trust Co

HSBC entitled to recover from Ppls bank? No, bec of the CB Circular 9

Absent the circular, they are entitled to recover!
o
Can recover wo the circular: bec of s124 (Marine Natl Bank)

Only assented to pay accdg to its orig terms

Bec relied on the representation of the collecting bank
o
Cant recover wo the circular: bec of s62 (Wells Fargo)

In all instances of matl alteration, the drawee bank shld be able to recover bec of the
warranties – but this isn’t true in all instances (why?)

What is HSBC’s claim for reimbursement?
o
S124 bec HSBC didn’t assent to the alteration, then the inst is avoided as to
the bank thus it paid under mistake & shld be reimbursed
o
Since the inst is avoided, the payment wasn’t due & therefore there was
payment by mistake – reimburse
Rep Bank v CA & 1st Natl City Bank

Was 1st Natl City Bank entitled to recover? NO

Ct applied the 24hr clearing hse rule
o
Aside from this rule, duty of the drawee bank shld be able to detect
alterations/erasures/superimpositions/intercalations since it has control of
the drawer’s accnt, knows his sig, shld have appropriate detecting devices
o
Thus, despite the 24hr rule, bank has the duty to detect the alteration wc
will prevent them from reimbursement from the collecting bank
o
As btwn an innocent H & innocent drawee – it’s the drawee who shdl bear
the loss! – legal basis?

Is there a contrary citation of the law? Contrary to the holding of the Ct?



Ct is saying he shld warrant the entire inst – thus if theres an alteration, he’s resp for
the alteration bec by accepting it, the drawee admits the altered inst
o
S62 is contrary to this bec theres nothing in s62 wc states that the drawee
guarantees the body of the inst
o
S66 is contrary to this is well bec nthng in it states that the drawee has this
duty

FRAUD
CLT Corp v Panac et al

S55 title was defective bec there was fraud

TC: there was no neg on the part of the Sps, thus s15 still applies as a real defense
o
It’s a real defense

Real defense of fraud was still available to the Sps – bec of fraud in the execution –
ddnt know they were signing a NI

CA ruled that the fraud wsnt a real defense
o
Cited a Wisconsin rule

Dissent: s55 dsnt distinguish
o
It ddnt pertain to whether it’s a real or personal defense
o
If theres fraud in the execution, this wld bar a HDC from recovering
o
Fraud in inducement: maker knows the docum he’s signing is a NI =
personal defense
o
Fraud as to execution: maker dsnt know that he’s signing a NI = real
defense

Under what circums wld the party primarily liable be obliged to pay?
o
If they had the means of discovering the fraud
o
If he ratifies

SC: upheld the TC, it’s a real defense
DURESS

Personal defense

But if the duress is so serious, may give rise to a real defense
S16: complete inst wc is undelivered

Complete inst: 1 wc complies w the reqs of s1

NU is Incomplete & revocable until delivery
Cohn et al v City of Taunton

Cohn was a HDC & bec of s16 theres a conclusive presumption of delivery
o
Conclusive presumption of delivery: if the H of the inst is a HDC

How do you dispute the delivery?
o
Show that delivery wsnt made by or under auth of the
making/drawing/accepting/indorsing
o
Delivery was conditional
o
Delivery was for a spcl purpose
o
Delivery wasn’t for the purpose of transferring the prop in the inst

party

Smith v Dotterwiech

Issue on admissibility: parol evidence rule – testimony extraneous to a written
contract/agreement, isn’t allowed (whats not allowed is evidence wc is attempting to
modify/vary the provs of the written contract = inadmissible; exceptions: if you plead
it)
Drilon 21

S15: incomplete & undelivered

Not valid in the hands of ANY holder

Invalid against any person whose sig is on the inst b4 delivery = drawer or maker
o
They’re released
o
Possible that some indorsers signed – they’re released also

Whys there a limitation that the inst is only invalid as against those who signed b4
delivery? Whats the diff btwn those who signed b4 & after delivery?
o
What if the date is blank? What if you don’t know, cant det the date of the
inst – its non-negotiable bec not at a determinable, future time
Pavilis v Farmers Union Livestock Commission

How were the insts incomplete? Bec the manager signed the checks wo any
particulars

Checks were taken by Hoard

Pavilis is trying to recover from the drawer – he gt the checks from Hoard & gave
Hoard $102 in consideration

Applying s15, wld Pavilis be entitled to recover from Farmers Union? No
o
Bec Pavilis was a H of an inst wc was incomplete & delivered by 1 who had
no auth
o
Hoard completed the check wo auth, therefore it wsnt a valid contract as
against Farmers Union
o
Inst is not valid in the hands of any H – such as Pavilis, as against any
person whose sig was placed prior to delivery – and isn’t enforceable against
Farmers since their sig was placed prior to delivery

Wasn’t Pavilis almst able to recover?
o
In certain circums s15 may not apply:

Neg on the part of the maker such that it becomes estoppel
Weiner

Act of signing the check in blank contributed to her loss – she was deemed neg for
dng this

Other theory: weighing of the neg of the drawee bank & drawer

Strict application of s15: inst is invalid & Weiner wldnt be able to recover
o
S15 says H or person who’s sig was placed b4 delivery – but a H takes the
inst b4 presentation of payment thus, not a H
o
Drawee bank isn’t such a H
o
Bec a H is some1 who takes an inst prior to presentment of payment & a
drawee takes it when its paid thus its not a H
Linick v AJ Nutting & Co

Straight application of s15? Yes

So Linick isn’t bound? Yes

Linick wasn’t negligent so he can recover from the drawee bank
S14: incomplete inst wc has been delivered

Blanks in the inst may be filled in by a person in possession to complete the inst =
has prima facie auth to complete the inst

But in order for a person to be bound, party prior to completion – shld be filled up
strictly accdg to auth given & w/in reasonable time



o
If not, parties prior to completion aren’t bound
o
But if HDC – can enforce the inst
Under s13: insertion of a wrong date wont avoid the inst
o
Why ds it say void when s14 says its void only against certain parties (those
prior to completion)?
o
Basis for saying inst is void, when a date inserted is wrong? As if if s13
wasn’t there, the inst is void?

Bec the alteration of a date is a matl alteration under s125 & under
s124 the inst is avoided

But only in instances of s13 will the inst be avoided

Simpson

She put in the name of the bank & then asked the bank for an indorsement

Since the inst was given in blank, there was no name of the payee

Ct said the maker intended that the bank’s name be placed as payee

Ds she have auth to fill in the blank even if she wasn’t the H?
o
Yes , bec law gives auth to the person in possession...not necessarily the
holder

Auth shld be strictly followed in accordance w the auth given & w/in reasonable time
July31
CONSIDERATION: S28

Absence/failure of consideration is a defense against a H not in due course

Partial failure is also a defense

Goes together w: S24 that theres a presumption of valuable consideration

Valuable consideration: consists in a right/interest/profit or benefit accruing to a party
who makes the contract
o
Oblig to give/to do/not to do in favor of a party (Ty v Ppl)
o
There’s a benefit & detriment

Is the contract void or voidable?
o
Since there’s no consideration, shldnt it be void? Bec an essential elem of a
contract

Contract when a maker gives the inst to a payee, in exchange for nothing – isn’t this
a contract of donation?
o
Donation is an act, not a contract
o
But its really a contract (sir)
o
Since it’s a contract of donation, it must be valid!
o
So it’s a valid donation but not a valid NI?
o
If a NI is issued wo consideration, whats the effect?

Ex) dad issues a check to daughter who’s getting married as a gift
o
This NI is invalid?
o
Its wo consideration
o
If the check bounces – can you sue your father for BP22? Yes, can sue even
if at gift
o
If check is invalid for failure of consideration, then cant be liable criminally,
since the check dsnt exist?

If a check is issued for no consideration, bec it’s a gift, it cant be enforced unless HDC
thus if in the hands of any other person, its ineffectual, thus how can it give rise to
criminal liab?
o
This is the weird thing about it
Drilon 22

Theres an inconsistency here – there’s a causa in donation, but there’s no
consideration

Exemplified by Ty v Ppl
A contract of donation is valid, theres sufficient cause/consideration
o
But if you give a check for nothing, we’re saying there’s no consideration
o
There’s sufficient cause – gratuity = thus it’s a valid contract
o
But theres no consideration
o
In a contract of donation, there’s cause but no consideration
o
In contract law, gratuity is a valid causa, but theres no consideration!!
Consideration: from AM contract law
o





Ty v Ppl

It was a valid oblig, rcvd hospital services

There was consideration here! Why?
o
Bec they rcvd hospital services

Elems of a contract: consent, cause/consideration, object

Defense: no consideration, bec she wasn’t the 1 sick – it was her mom & sis who
were sick
Dougherty v Salt

Was there consideration here? No

Why was the note given? Bec the aunt loved her nephew, wanted to take care of the
boy
Barco & Son v Forbes

Fertilizer was worthless – had no effect
o
Some fraud was committed

Wc is a defense in paying the inst

Thus, H shld be able to recover from the inst – but Forbes executed a renewal note

Thus, waived the defense of failure of consideration
o
Sir: so what? There was still no benefit to them? There was still no
consideration! So why is the defense considered waived?
o
There as no benefit bec the fertilizer was worthless
o
Was the H a HDC? No, bec they there was a defect in the transaxn (bec the
fertilizer they gave was worthless & they mustve known this)
o
The failure of consideration is binding on them! And yet, the Ct allowed them
to recover

Drilon 23

CHAP 5: Liability of Parties

Primary liability: those liable to the inst unconditionally

2ndarily liable: to be liable certain reqs shld be satisfied –
o
Presentment for payment to the primary party
o
Dishonor by the primary party
o
Notice of dishonor

Given by the H to the parties sought to be 2ndarily liable

H has the option of running after the parties 2ndarily liable
LIABILITY OF MAKER

S60 Engages to pay accdg to its tenor & Admits existence of payee & capacity to
indorse

If payee is a minor, can maker set up the defense of minority/lack of capacity?
o
No bec his warrants the capacity of the payee to indorse
o
If inst is in the hands of a 3rd party who takes title thru the minor, the maker
cant raise the defense that the payee ddnt have the capacity to indorse
1st Natl Bank of Central City v Utterback

1st Natl bank was trying to collect from Utterback

Utterback was saying Davis Co failed to comply w certain statutes to enable it to
engage in business – thus, he’s not liable

Ct: Utterback is precluded from raising such defense bec of his warranty

He cant deny the existence of the payee (Davis Co) & its capacity to indorse
STATUS OF DRAWEE PRIOR TO ACCEPTANCE/PAYMENT; EFFECT OF STOP ORDER

Whats the effect of the acceptance of a BOE?
o
The drawee becomes a party primarily liable

Consequence: the H can collect from the drawee/acceptor

There’s a transfer of funds to the H

Assignment: what ds this mean here?
o
Why use the word assigned? Why not make available?
o
The drawee then can take the funds of the maker/drawer & use such to
satisfy the inst
o
Assignment operates as a transfer of the funds of the drawer to the drawee

can only do what the drawer can do w the funds
Araneta v Bank of America

bank’s defense: araneta cldnt prove any loss to him, thus cant be awarded temperate
damages
o
evidence of the injury

credit of araneta as a businessman was prejudiced by what the bank did
Woody v Nalt Bank of Rocky mount

no proof of actual damage suffered
Singson v BPI

BPI garnished the accnt of singson when he ws absolved alrdy

Ct: existence of a contract dsnt bar the commission of a trot

Granted nominal damages since the bank remedied the wrong as soon as it was
discovered

*Presence of a contract dsnt preclude the finding of a tort & a breach of contract may
itself be a tort (Air France v Carrascoso)
Speroff v 1st Central Trust Co

Defense of bank: stop payment request contained an exemption for them

Ct: clause was void for being against pub policy & want of consideration
o
Pub policy:

Sir: is it against pub policy for 1 to contract w anthr, that the other
dsnt need to exer care & if there’s damage it’s the other who is held
liable?

SC: banks shld exer EOD bec of the pub interest involved in their
business

So did the Ct follow the pub policy argument? Yes

*as a GR, not illegal for a party to enter into a contract w anthr for
1 not to exer any care & other is held liable

Ex) insurance contract for cars = valid contract
o
Want of consideration:

The statement/release was a new elem wc ddnt exist in their
previous relationship

Drawer rcvd no benefit but suffered a detriment based on the
release
Chase Natl Bank of City of NY v Battat

Stop payment order but drawee (chase) still paid

Why did the bank pay?

Ct: by paying the check to the payee, he was unjustly enriched bec Caracanda had no
leg right to the money

Shldnt have sued the drawer bec he issued a

Who shld the bank sue then?
o
The payee – caracanda
LIABILITY OF ACCEPTOR

Formal reqs of acceptance: s132
o
In writing
o
Signed by drawee
o
Shldnt chnge the promise to pay only in money

Can be on a sep inst s133
o
But the H can req that the acceptance be written on the inst itself

When can you accept?
o
w/in 24 hrs from delivery
o
or w/in time given by
o
b4 drawer signs
o
even if incomplete
o
overdue
o
dishonored
o
non-pyament
o
ergo…bill can be accepted anytime
Lawless v Temple

so long as the inst is signed – this is sufficient

sir: who do you knw that this is an acceptance?
Drilon 24

Bec the drawee signed
What if the drawee signed at the back? Isn’t there a presumption that if dsnt
state in what capacity they signed, they’re considered indorsers?
Follows the sme principle that you can fill up a blank acceptance like a blank I
o
o



Kilgore Nalt Bank v Moore Bros lumber Co

I: WON the oral agreement had the effect of an acceptance? NO

Bare verbal agreement/promise is not sufficient

The agreement was only a promise
o
Isn’t a contract a promise anyway? No its an oblig

What if the conversation was recorded (audio – but transcribed)?
o
This wld reveal the info – documentary evidence
o
So its in writing, so if in writing is this sufficient certification? Or is it still just
evidence of a promise to accept?
CONSTRUCTIVE ACCEPTANCE

Drawee destroys the inst or refuses to return
o
Refusal: active

What if theres failure to return but no demand?
o
2 views:

Mere failure to accept w/in the prescribed time even wo demand for
return constitutes constructive acceptance

Word ‘refuses’ implies previous demand for return such that under
s150 if no acceptance is given w/in the time, it’s the duty of the H
to consider it as dishonor
Wisner v 1st Nalt Bank of Gallitzin

Prompt axn on acceptance by bank is for the benefit of the H

Law reqs 1 to present

Ct: presentation is alrdy equivalent to demand
o
Sir: you’re rdg into the prov wo it being stated there
o
Ct recogd that accdg to the strict letter of the law there has to be a demand
bec law says for there to be constructive acceptance there must be refusal
o
If drawee is just passive & H dsnt demand, theres no refusal to return – thus
there needs to be demand

Thus Ct said mere fact that he presented, this is equivalent to demand

Bec the prov on constructive acceptance is for the benefit of the H to make it easier
to collect & to req him to demand, isn’t to his benefit
Urwiller v Platte Valley State Bank

Check was returned more than 24hr pd

Ds this result in constructive acceptance? NO

Bec the prov dsnt apply to checks

Bec checks are presented for payment & not for acceptance, thus prov dsnt apply
Sumcad v Province of Samar

There was constructive acceptance bec of the acts of the bank wc asked for copies &
when they reqd its presentation

Bank ddnt ask for the orig – but this resulted in acceptance?

All these axns wld be empty gestures if they were taken as not acceptance




Ct recogd that there was constructive acceptance here – more of virtual acceptance
actually
But a check isn’t presented for acceptance, thus s137 shldnt apply? Yes – but it
wasn’t applied by the Ct

Aug2

S134: Acceptance in sep inst wont bind the acceptor unless acceptance is shown to a
person who tk the inst for value & in reliance on the acceptance = extrinsic
acceptance
o
If embodied in the inst, then it’s a normal acceptance

S135: virtual acceptance – bill is uncond accepted b4 its drawn & its binding on the
acceptor & is in favor of a person who tk it for value & in reliance on the acceptance
o
Also sep, but pertains to a future bill
o
Acceptance dsnt need to be shown to the person taking the bill

Bec the reliance on the acceptance is more impt than the actual
physical exhibition

Bec the acceptance isn’t embodied in the inst

If its embodied in the inst, then it’s a normal acceptance
Coolidge v Payson

Coolidge said it wld honor the draft if Williams deemed the bond to comply w the law
of the state of Coolidge

Was a virtual acceptance bec made prior to the actual drawing of the draft

Virtual acceptance CANT be conditional, must be unconditional
o
But an extrinsic acceptance can be conditional
DIFF BTWN A GEN & QUALIFIED ACCEPTANCE

Gen A: wo qualification
o
Acceptance is absolute – no conds

Qualified A: varies the effect of the bill as drawn
o
Thus it’s a matl alteration under s125?

A124: H can demand to have an unqualified A – if not given, can consider it as
dishonored
o
So if rcve a qualified acceptance, need to go to the acceptor & demand an
unqualified acceptance & only then will it be considered dishonored? No, no
need to go back…can be considered dishonored
o
Options of a H in a qualified A:

Accept it

Treat it as dishonored

Take the QA but send a notice to the QA from the parties 2ndarily
liable

So that if the party primarily liable fails to pay, then they
aren’t discharged
o
Effect when a QA is taken:

Drawer & indorsers are discharged unless notice is given to them &
they authorized the H to take the QD or gave assent to such

Are they liable for the whole amnt or the amnt under the
QA?
o
They’re liable for the amnt under the QA
o
Why?

Hows the A binding on the parties 2ndarily liable?
Drilon 25

CHECK

S185: a BOE drawn on a bank payable on demand
o
Payable on demand = this is what differentiates it from a BOE

Wc is why jurisprudence states that not all the rules of the BOE
apply to checks
o
*Check if refused, dsnt amnt to dishonor bec payable on demand
RP v PNB

Under what circums wld escheat be successful? They were looking a diff inst & state
had to prove it was entitled to them – so wc insts?

Whats the standard they adopted to det if the inst is subj to escheat? ]
o
Demand drafts: need to be accepted
o
Cashier/mangers checks: can be escheated

Bec primary oblig of the bank
o
Telegraphic transfer: wsnt this an order? So why was this subj to escheat?

Standard adopted by the Ct: that there’s a C-D relationship btwn the bank &
depositor!!

Demand drafts: no C-D rel until accepted
o
Bec there’s an assignment of funds once its accepted

Manager’s checks: bank is the DR & DEE – once issued, its alrdy accepted in advance,
thus, the H may treat the inst may be treated as a PN & the DR/DEE is considered a
party primarily liable & thus a C-D rel arose
PAL v Hon CA

I: WON giving the check to the sheriff effected payment. NO

Bec it was payable to the sheriff & not to the judgment creditor
o
Ct was saying check shldve been in the name of Tan

Say PAL gave the check in Tan’s name, wld the judgment debt have been paid? No
o
Payment of a check dsnt amnt to payment until its encashed (A1249 CC)

A1249 contemplates a sit that if the inst is impaired in anthr hands (ex. sheriff),
payment is considered effected OR if its encahsed

Payment by check bec a license? This seems unfair

When is payment effective when using a check? (A1249,CC)
o
When encashed; or
o
When thru the fault of the C they’ve been impaired
 THEN DELIVERY OF THE INST PRODUCES THE EFFECT OF PAYMENT
o
Bec once encashed/impaired, its effect retroacts to the date of delivery

But Ct here didn’t come to this conclusion

What if PAL paid cashed to the sheriff? This wldve had the effect of payment

But when the check is encashed by him, it wld be as if they delivered him cash when
they delivered him the check – based on A1249
o
Ct said this shld differentiated from payment in cash since Ct dsnt go into
logical extremes = ergo, if there’s a ruling & apply it & it results in illogical
extremes/absurdity – we shldnt apply it!

We shld only apply rulings wc are logical

Are rulings are only for logical results

If we follow this line of thinking, then no decision is unjust

We don’t abandon a decision bec its logically absurd

A decision is a decision
(sir laughs…mwahahahahahahahaha!!)

Dissents say the maj ruling is illogical

Bec if you say that a check isn’t proper, then they’re nullifying A1249
Bec the moment they delivered the check its no diff from giving money

And yet the maj is saying they have diff effect – but how can this be
if they’re the same?!?
Ct was doing a complete denial here
After this…the Ct starts to argue the facts (bec they were weak in the law)
o
PAL ddnt pay in cash, but in check; payment in cash carries w it cautions
So Ct was saying they shldve paid in the name of the PEE
o
o





Narvasa, dissent:

State shld carry the risk of the sheriff carrying out his duties
Feliciano, dissent:

Pub isn’t the insurer of the sheriff’s integrity – it’s the resp of the State
CIFC v CA & Alegre

Check was dishonored by BPI & deducted the proceeds of the check from the acctn of
CIFC & they ddnt return the check

2 lawsuits:
o
Alegre v CIFC

Sued bec wanted his money

CIFC said they’d pay him, but return the check 1 st = impossible
cond bec its w BPI
o
CIFC v BPI

Compromise agreement entered into – BPI wld debit the money
subj of the check from the current accnt of CIFC & if CIFC is
adjudged liable to Alegre, BPI isn’t liale

They wld hold the money in trust

After Ct decisions: Money alrdy deducted from its accnt & now CIFC also owes Alegre
the same amnt of money = unfair!!

CIFC: NIL shld apply! Acceptance of BPI of the check made it primarily liable on it &
BPI hadn’t validly dishonored the check & that the debiting of BPI the amnt
constituted payment/discharge of CIFC’s liab
o
Deducting the amnt of the check amntd to payment
o
Were citing the prov on constructive acceptance

Did delivery of the check constitute payment? NO
o
Wsnt a valid tender of payment bec of A1249
o
If applied s137, BPI as acceptor wld be primarily liable & CIFC/drawer wld
only be liable if BPI dishonors the inst – bt Ct said this ddnt apply

Ct ddnt have to choose btnw S137 & A1249
o
Effect of acceptance is only to set aside the money from the DWR to the DEE
bank
o
Bottomline is he’s suing bec he hasn’t been paid & under bth circums he
hasn’t been paid on the inst – the constructive acceptance dsnt result in
payment
o
A1249 is clear that delivery of check wo being encashed, it dsnt produce
payment

WON the oblig was discharged? NO
o
Act of deducting by BPI ddnt constitute payment
o
Cant result in payment bec Algre isn’t a party to the compromise agreement
o
Unless it was a stip “pour autrui” – stip in favor of Alegre – this wlde been
binding, but wasn’t favorable to him (A1317)
Drilon 26

Associated Bank v Tan

Tho estab that the bank has a right to debit, this dsnt apply here bec of BF on the
part of Associate Bank wc allowed him to w/draw the amnt tho the check wasn’t
cleared yet
Fortunado v CA

Ds this case support PAL v CA? NO, delivery of the check here had the effect of
payment

Redemption is a right not an oblig – bec no C-D rel

Diff from PAL bec redemption case wc is a right & tender of payment wld still amnt to
payment

What if there was a stop payment order? Wont amnt to payment

A1249 was abandoned & not applied – bec the check wasn’t encashed
o
If say tender of payment constitutes the right, there was no tender of
payment bec the check wasn’t encashed

Abandoned A1249, so whats the basis for saying there’s payment?

Bottomline: liberal stance when it comes to payment of checks bec its redemption &
the policy of the law is to aid in redemption
Mesina v IAC

On what ground ds the Ct justify denial of payment to Mesina?

Bec Mesina failed to show that he was a HDC
o
Isnt he entitled to the presumption of a HDC? No, bec showed that a prior
party had defective title – then burden is shifted to Mesina to prove that he
took title from some1 who was a HDC or derives title from 1

Defective title was from Lim bec it was stolen – thus, can no longer rely on the
presumption that he’s a HDC
o
Thus, Mesina shld prove the elems of S52 – wc he ddnt so hes not a HDC

Since not a HDC , he cant enforce the check against the bank wc dishonors the same
o
Can raise the ff defenses: forgery, complete & undelivered (disputable
presumption of delivery – can prove that it wasn’t made, etc)
o
Since not a HDC, delivery isn’t conclusively presumed, fact that the check
was never delivered to Go, he’s not entitled
Aug 21
CERTIFICATION & its effects

Certification (C): when the bank certifies that itll pay the check

Effect: equivalent to acceptance

188: if H procures the C, parties 2ndarily liable are discharged
o
Are all parties 2ndarily liable discharged? Yes
o
What abt future indorsers? No

Only those at the time when the C is procured

If it’s the DWR wc procures the C, 2ndary parties are released
New Pacific Timber

New Pacific tried to stop the auction sale by depositing the amnt – cashiers check &
cash

Ct: that amntd to payment

Thru C, the funds represented by the check are transferred from the credit of the
DWR to that of the PEE/H

What abt A1249 CC? isn’t there a conflict?

A1249: says the deliver of the check shall have the effect of payment only
when encashed
o
Ct: said that a certified check is equivalent to cash
o
Conflict!!
Checks are cash & cash are leg tender so checks are leg tender = sir this is WRONG!!!
Sir: C of the check is not equivalent to cash
o




Wachtel v Rosen

Won refusal to certify the check amtns to dishonor?

C is a substitute oblig, whereas acceptance is an addtl oblig

Bec in C the 2ndary parties are discharged while in acceptance they aren’t
Roman Catholic Archbishop

Personal check v managers check:
o
Since it was a personal check, it wasn’t leg tender or currency stipd so it
dsnt constitute valid tender of payment
o
Managers check: drawn by the bank on its itself

So long as not in leg tender = no valid tender of payment

Why isn’t a check legal tender?

SIR: Ct said it wrong
o
This part of the case is obiter – bec sir said “for the sake of argument”
o
When they say checks aren’t leg tender, what they’re saying is that checks
cant result in the payment of obligs
o
WRONG! Bec A1249 gives the conds for a check to result in payment

Enchashment or if thru the fault of the creditor they’ve been
impaired
o
So checks can become leg tender if they comply a A1249
o
Correct rule: whatever kind of check it is, in order for it to result in payment,
look at A1249
Bulliet v Allegheny Trust Co

C was sought by the seller

Bank refused to pay bec of a stop payment order from Mitchell

Bank cant raise the defense wc belonging to the DWR since here it was the H who
procured C
Sutter v Security Trust Co

No fraud when she got the check so the bank had an oblig to pay to her & the H

There was a stop payment order – bank ddnt follow this

DWR was the 1 who procured the C
o
He can recall the check or req the bank not to pay if the PEE is not a bona
fide HFV

Bank cant follow the stop payment order if the H holds a certified check if the H is
bona fide HFV or HDC

DWR procures C then the stop payment order can be followed by the bank if NOT a
HDC/bona fide HFV
o
But if a HDC/bona fide HFV, he cant follow the stop payment order = has to
pay

In al instances, the bank, must follow the stop payment order

GR: In a certified check, the bank must ignore the stop payment order bec
alrdy accepted it (s62 applies)
Drilon 27

Can impose personal defenses when: (must concur)

DWR procures the C

& the H isn’t a HDC or not a HFV
o
When these 2 conds apply, the bank can interpose defenses against
the H

In this case, they interposed the defense against the person who procured the fraud
(this is pure case law- NIL says nothing abt the effect of a DWR procuring C [only thing it
says abt it is that money is set aside s189])
o

LIABILITY OF SECONDARY PARTIES

S70 Reqs for them to be liable:
o
Presentment for payment
o
Dishonor

Refusal to accept

But refusal to certify dsnt result in dishonor – thus liability of 2ndary
parties isn’t discharged yet
o
Notice of dishonor given to 2ndary parties

S61: liability of DWR
o
Admits existence of the PEE
o
Engages that upon presentment itll be accepted/paid accdg to its tenor
o
If dishonored, he will pay
o
But he can insert a stip negativing or limiting his own liab

By agreement, the DWR can say ‘I make no warranties & im not 2ndarily liable’
o
Neutralizes his liab
o
On inst itself, says all parties 2ndarily liable hereby waive all the reqs – in
this case, they can immediately be held liable if the primarily liable dsnt pay

Can even be sought after 1st if they even waive presentment
PNB v Bartolome Picornell

Why dd the bill make sense in this case? Why the way the bill is structured makes
sense?
o
DEE: Hyndman, Tavera & Ventura Co
o
PEE: PNB
o
DWR: Picornell

Why wsnt the seller the PEE?
o
Bec they borrowed money from PNB
o
Bec here it’s the agent (Picorneel) ordering its principal(HTV) to pay the
bank

Hey, I borrowed money to buy the tobacco so pay them

PNB was suing the party 2ndarily liable – the DWR = Picornell

1st defense: since there was acceptance alrdy, the DWR is discharged!
o
Ct: NO, acceptance only applies to checks, not to BOE

Defense: agency!
o
If he was the agent of the HTV, then HTV is the DWR of the inst
o
And if the DWR & DEE is the sme person, H can treat it as a bill or note
o
But Ct ruled that he was an agent, bec nothing in the inst wc indicated that
he was signing in representative capacity

So Picornell is liable 2ndarily
Banco Atlantico v Auditor General

She raised the amnts of the check = matl alteration wc shldve avoided the inst

BA wld only be able to recover if it was a HDC only as to the orig tenor of the
inst
Is BA a HDC? NO
o
There was notice of defect in the title or infirmity in the inst = 3rd check
o
1st & 2nd check:
Ct: BA wstn sure it cld collect from the govt so not a HDC = but this isn’t 1 of the
reqs of a HDC
Sir: but isn’t it better if you’re dealing w a stranger? Bec if stranger then all the more
you’re probably a HDC
o





McCornack v Central State Bank

McCornack trying to recover from the bank

Bank’s defense: since PEE is fictitious, then the inst is a bearer inst

Ct: No, DWR ddnt know that the PEE was fictitious so not a bearer inst

Other defense: s61 – said McCornack admitted the existence of the PEE & his capacity
to indorse…so he cant deny the existence of the PEE

Ct: No, he makes no admission
o
S61 is for the protection of the PEE/H bec if the inst is dishonored, then the
DWR engages he’ll pay
o
Pg617
o
And this sec cant be used as an excuse by the bank not to detect forged
indorsements

Sir: strange, lang of the statute is clear!

1st part of s61: there’s an admission
o
Ct: this admission dsnt apply if its the DEE is the one invoking it bec the sec
if for the benefit of H & not the DEE
o
The DEE isn’t reimbursed by the DWR of the inst
BP22

Liability for BP22: criminal

WON you know you don’t have sufficient funds, if you send notice & w/in 5 dyas don’t
pay – liable!

No need to prove knowledge in BP22, just need to send notice & after a certain pd of
time if dnt pay, not liable
Lozano v Martinez

BP22 is constitutional

Arguments that its unconsti:
o
Offends the consti prov forbidding imprisonment for debt
o
Impairs freedom of contract
o
Contravenes EP
o
Unduly delegates legis & exec powers
o
Enactment is flawed in that during its passage the…(nevermind this)

EP:
o
Pets: penalizes the DWR but not the PEE – PEE is also responsible for the
crime bec wo its indispensable participation, by his acceptance of the check
there wld be no crime

*but possible that it’s the PEE wc gets the check knowing that
there’s no funds, then they deposit it to hold the DWR liable
o
Ct: No, arguments says law shld punish the swindler & swindled

Impairment of contracts:
Drilon 28






o
Checks aren’t contracts – they’re substitutes for money
Imprisonment of debt:
o
Pet: it’s a bad debt law – punishes ppl for not paying the check & not the
issuance
o
Ct: no, gravamen of the offense is the act of making & issuing a worthless
check

Justified this by looking at the history

Estafa: shld issue the check when the thing is delivered to you
(simultaneous)

Sir: artificial argument – its just an argument on wc supports your
position
CT really ruled on based on policy consideration:
o
That BP22 was enacted to prevent the issuance of worthless checks
o
Inj to pub, shakes the pillars of business
Sir: NOW, bec of this…flooded w cases regarding BP22
o
So they issued resolutions/ruling: if 1st offense – no imprisonment, just pay
the person, no fine
o
You have to personally serve the notice to the person
o
*they’re making it more difficult to file BP22 cases
o
Ds BP22 encourage the issuance of worthless checks?

Its become a collection mechanism – if this is so, then what shld be
punished is non-payment of the check

The H now is the 1 encouraging the issue of the checks

Aug 23
QUALIFIED INDORSEMENT

Warranty is under s65

Person who N an inst by delivery:
o
Warranty is made only wrt the succeeding indorsee
o
Person who negotiates by delivery is an exception to the rule that anyone
whose sig is on the inst is liable on it – bec a person who N by delivery dsnt
sign the inst

Qualified indorsers:
o
Warranty extends to all subsequent Hs
GENERAL INDORSER

S66 -> Liab/warranties of an unqualified indorser:
o
Same warranties under s65 + warrants that the inst is valid & subsisting at
the time of I
o
Assuming the inst is orig a bearer inst & theres an I on the inst, this I can be
striken out – but if you don’t, are there any advs if you keep the I when it’s a
QI or UQI

Adv: the indorser is liable for the warranties

Is there a diff btwn the liab of a gen I wrt his liab under warranties & his 2ndary liab:
o
Warranties:

Even b4 maturity, H can sue him

No need for notice in order to sue for breach of warranty
o
2ndary liab:

To be enforceable, need to have presentment & notice of dishonor
Ramish v Woodruff








I: WON Ramish is liable as an indorser. HE IS
Ct: adopted the maj rule
o
That the words of guaranty being words of enlargement, it can be inferred
that the transferor’s intent was to assume the burdens of I & the uncond liab
of 1 who guarantees payment
Why isn’t he liable as an indorser?
o
Bec the note had a phrase wc said “to guarantee payment of the sme”
o
Contention: the I as written, isn’t an I – it wsnt properly indorsed

on the back of the inst there was a waiver of presentment & a
guaranty

Addt of these words negative the fact that it was an I

Since the sig had in addt these words – its really not an I
o
Was arguing this bec there was nothing in the words written that there was
an intention to transfer title & an I necessarily includes transfer of title =
therefore it was merely a guaranty
So how dd the Ct arrive at the conclusion that he was an indorser? How do you
conclude that its an I or a QI?
o
Words of guaranty dsnt negative the fact of an I – if dsnt negative the fact
bec they’re words of enlargement
o
Thus, can be inferred that the intent was to assumed the burdens of I & the
uncond liab of 1 who guarantees payment
o
Why are they words of enlargement?

guaranty is I plus something else = means guaranty is bigger

when you issue a guaranty, you necessarily assume I & as a
guaranty your liab becomes uncond as opposed to 2ndary liability

Sapiera v CA

I: WON Sapiera is 2ndarily liable, as indorser.

Sapiera: merely signed for identification of de Guzman

Ct: applied s63 – any1 who signs, deemed an indorser

2ndary liab: needs proceedings – were they taken?
Sapiera

NO, there was no notice to

BPI v CA

Napiza is being made liab for his 2ndary liab as an indorser – bec he signed the back
of the check

Ct: he’s liab as an indorser – but certain circums negative his liab
o
BPI was grossly negligent

Shldve reqd presentment of the bank book
o
Absence of agent-principal rel btwn Napiza & Gayon

Wasn’t Napiza neg in signing the w/drawal slip? Yes, but Ct said this wsnt the
proximate cause of the loss

Ct: neg of the indorsee is a defense for the indorser/neg of indorsee negatives the
liab of the indorser
o
Sir: on what ground? bec theres nthn in the NIL wc says that the liab of the
indorser can be negative by the neg of the indorsee/nthn wc says that it was
dependent upon the diligence of the indorsee – so whyd the Ct rule this way?
o
Ct cldve said: 2 diff rulings 
Yes, you’re liable as indorser (&proceedings were taken, notice was
given to him by his son)
Drilon 29

Cldve ruled that Napiza cldve reimbursed the amnt from the bank –
BPI must recredit the amnt to Napiza’s amnt & this money cldve
been used to pay back BPI = so quits lang
This wldve been btr than their ruling that the neg of the indorsee negatives
the liab of the indorser


o

Wachovia Bank & Trust Co v Crafton

Inst was void

I: WON Wachovia cld recover from the indorser – Crafton, even if the note is void.

Is he liable as indorser of a void inst? YES

Bank cant recover from the 2ndary liab of the indorser since the 2ndary liab cant
exist sep from the inst – so if the inst is void, so is the 2ndary liab

BUT Ct said that the warranties survive so he’s liable based on his warranties

He warranted that the inst was valid & subsisting so he cant now raise that its invalid
Horowitz v Wollowitz

Wollowitz was an accommodation indorser

Suit btwn the H & accommodation indorser

Inst was void – bec of usury

Wollowitz was still liab on the inst




Goodman v Gaul

Accommodated party cant recover from the accommodation party
Clark v Sellner

Is Sellner an AP?

Ct: yes, when he lent his name, he became primarily liable w the other signers & was
like a joint surety
Lim





RESTRICTIVE INDORSER
ORDER OF LIABILITY AMONG INDORSERS –s68

S68: liab in the order they signed – but only applies as among themselves
o
Dsnt apply to Hs – they can go after any indorser
LIABITLITY OF ACCOMODATION PARTY – s29

He signs – thus, hes a party & liab alrdy

Liable to a HFV
o
HFV has been interpreted as a HDC

Whats his liab? Liable only to a HDC
o
He’s liable in the capacity in wc he signed
o
But he can seek reimbursement from the person accommodated

If you know that he’s an AP & not a HDC, you’re precluded from recovering?
IRREGULAR INDORSERS –S64
Ingalls v Marston

2 signed the note on its face, the other 2 signed at the back = all dne when the note
was created & b4 delivery

No proceedings taken on the note

PEE was suing all 4 orig promissors

I: WON Smith & Foss (who signed at the back) were indorsers? YES

Ct: prevailing rule is that if 1 signs at the back, deemed an indorser

Are they accommodation indorsers? They’re irregular indorsers
West Rustland & Trust Co v Houston

Defense: note was given as mere collateral secu & their obligs is only that of sureties

Buck & Houston were known to the bank to be accommodation makers

Ct: if they gave the note as a semblance of collateral secu, then their actually trying
to deceive the examined – this is an illegal transaxn wc is against pub policy
They were accom makers who are primarily & absolutely liable on the inst to a HFV



v Saban
Lim – buyer of the lot
Ybanez – seller of the lot
Saban – agent of Ybanez
WON Lim was an AP. NO
o
Bec lacks reqs for a person to be an AP:

Ddnt rcve value for the sig

Can rcve value for the name used = AP

But if rcve value for the inst itself = X an AP

Signed for the purpose of lending his name
o
Only req satisfied: sign the inst as mkr,dwr,accptr,indorser
At what pt ds the value not emanate from the inst?
o
Ex) sir is the Mkr of a PN 100k, bong is the AP – after sir gets the 100k, he
goes to his bank & w/draws 100k there & gives that to bong as AP – still an
AP?
o
Ex) face value: 100k; for use of name, charged 100; wen sir gets the 100k,
he gets 100 & gives it to bong – is bong an AP? Or bec it was taken from the
proceeds of the inst, not an AP?
o
Intent trumps source(where the money comes from)? Or source trumps
intent?

Intent trumps source

Maulin v Serrano

Who’s the person lending the money? Maulini

Serrano is the broker – facilitates the loan transaxns btwn ppl

Moreno made the note, Serrano was the PEE – was intended for payment of the debt
incurred

Serrano indorsed to Maulini (they had an agreement abt this – coz Maulini ddnt want
his name on the books, so he had Serrano make Moreno make the note out in
Serrano’s name & he wld then indorse it to Maulini)

Serrano’s defense: that he only lent his name for the transaxn

Ct: he wasn’t an accommodation indorser
o
Bec an AP lends his name to the mkr/indorser & not the PEE/indorsee
o
And Serrano lent his name to the PEE/indorsee = Maulini

Moreno(PEE) -> Serrano(I) -> Maulini(HDC) -> Mesina
o
Mesina cant find Maulini, so goes after Serrano = can this be? Is he an AP?

Yes, bec Mesina tk the inst w the belief that she cld collect

Maulini ddnt take the inst from Serrano, knowing he cldnt recover from him bec he
merely accommodated Maulini
Drilon 30



Sir: (dsnt agree w the Ct) he is an accommodation party – but there can be no
recovery bec the accommodated party cant recover from the accommodation party

PNB v MAZA

Absent any consideration, the contract is void

So whyd the Ct rule there was a valid K despite lack of consideration?

Bec they signed the note as Mkr & their liab is primary
Acuna v Veloso

Acuna was trying to recover from Veloso, an AP

Can Acuna recover? Yes

Bec the accommodating party (Veloso) & accommodated party (Xavier) signed the
note together – making a joint & several note
o
As to the creditor, bth of them are joint & several makers

Acuna wsnt a HDC – so how can he recover?
o
Isn’t an AP only liable to a HDC?
o
US cases refer to indorsement after the inst matured – so why is there a
variance of facts here?
Ang




Tiong v Ting
Defense: was an accommodation indorser
Nothing in the check indicates Ang isn’t a gen indorser
So Ang is liable to Ang Tiong

Sadaya v Sevilla

Ct ruled that they were co-guarantors than co-sureties
o
But they cldve ruled either
o
Its an artificial decision –the Ct can take a position & rely on diff basis & they
chose guarantors, why?

Chose guaranty bec of the conds under A2073

Ct ddnt sufficiently justify the rel of guaranty btwn them
o
And guaranty is diff
o
Guaranty v Surety: diff is the benefit of excussion

Ct dsnt justify why theres a benefit of excussion against AP
Agro Conglomerates & Soriano v Ca & Regent Savings Bank

Agro: claims not liable bec signed merely as accommodation maker

POINT OF THE CASE: when it comes to a defense a AP, Ct an look at extraneous
matters – extraneous to the inst itself
Prudencio v CA

They were 3rd party mortgagors

Are they liable as accommodation makers of the inst? NO, bec PNB isn’t a HDC

Not a HDC bec they were immediate parties & they ddnt follow the agreement

So Ct seems to imply that only HDC can recover from an AP
o
Sir: but s29 dsnt say this
o
S29 only says that if you’re a HDC & you have knowledge that he’s an AP =
dsnt affect your right to collect
Aug28
Liab of an agent



What must an A do to negative his liab on the inst?
o
Place words wc indicate that he’s signing as an agent or rep capacity of anthr
person & disclose the name of the principal

No liability
o
If fails to do either = A is personally liable & he cant present PE to indicate
that he’s merely acting as an A

PE admissible if: name of P is disclosed but NO indication of rep
capacity

PE admissible if: name of P disclosed & fact of agency disclosed
o
Sit 1: both fact of agency & P present
o
Sit 2: fact of agency is disclosed & P ISN’T disclosed

PE inadmissible

bec s20 is clear that the A is liable

If you’re allowed to present PE, it wld nullify this sentence

Whats the basis of not allowing PE if the P isnt disclosed?

Not allowed to present E to negative A’s liab – why?

Bec law (s20) is clear that the A is personally liab
o
Sit 3: fact of agency NOT disclosed & P is disclosed

PE admissible

You aren’t modifying but just clarifying bec you aren’t
bringing some1 new into the agreement
o
The H is aware that there’s a name on the inst &
he has advance notice that its possible that the
name there is the P or is a party to the inst

Compliance isn’t all there, but there’s
some E of notice – the name of the P

There’s an indication on the face of the inst of a name of a person,
wc seems to be a disclosure of the name of the P = so part of the
info is there

If there’s a name there, you’re not sure what he is – when you say
he’s my principal – are you modifying the agreement or clarifying?

Clarifying – he’s clarifying the reason why the name is
there

If a party is named on the inst, this fact cant be changed

Bec otherwise, why wld that name be there? (common
sense…hehe)

If prohibited from presenting PE, then putting the name on the inst
wld be useless
*PER: bars intro of parol or extrinsic E to vary the terms of a written agreement to vary
the terms of the parties (only applies to Ks); not allow to modify or add, once you’ve put
an agreement in writing
o
Can you present PE to clarify an agreement? Yes
Austin, Nichols & Co v Gross

Name of the P was indicated (State St Grocery Co) but check ddnt contain the
presence of an agency relationship

PER was admissible to prove that M.Gross signed as an A of the P

Gross is the maj owner of State Grocery
o
It wld be unfair if he wsnt allowed to prove that he was signing for the
Grocery
o
Otherwise, why wld the name of the Grocery be there
Drilon 31

o
New Georgia Natl Bank of Albany v J&G Lippman

P was alleging that the A signed wo auth therefore the H has no COA so it shld be
dismissed

Ct: WON there was auth, the case cant be displaced
o
Lawsuit can proceed against Lippman – the Pres/agent

Main lawsuit was against the P, Lippman the Co
o
Defense: A/pres ddnt sign w auth

I: WON you can sue the A in the alternative if you’re suing the P
o
Bec if you’re suing the P, you’re saying the A has no liab
Pratt v Hopper

Mayer is liab even tho an A in reality, bec ddnt name the P & ddnt say that he was
signing in a rep capacity

PE cant be introduced to charge the P
Insular Drug Co v PNB

I:WON Foerster had implied auth to indorse the checks made out in the name of
Insular Drug Co
o
Ct: he ddnt

Insular sued PNB bec the check payable to them were deposited to Foerster’s accnt &
paid to him

PNB: was claiming that Foerster had implied auth to indorse the checks made out to
Insular Drug
o
Leg basis: if you deal w an A, who has no auth, the P isn’t liable

Exception: when the P clothes the A w apparent auth (the P is liab)

Foerster ddnt have the auth to collect & dsnt have implied auth to indorse the checks
PBC v Aruego

Did Aruego disclose the agency or P? ddnt

So PE isn’t admissible
PRESENTMENT FOR ACCEPTANCE

GR: presentment for acceptance is NOT necessary
o
Exception: s143 – in these instances, you have to present the inst for
acceptance

What are your options if you’re the H of the inst? If the inst isn’t presented w/in
reasonable time from ISSUANCE, whats the effect?
o
DWRS & indorsers (2ndary parties) are discharged (s144)

If they’re discharged & the DEE refuses to accept, there’s no1 the H
can run after (the penalty is heavy)
o
Is this an absolute rule? NO

Bec if given w/in reasonable time from the last N of the inst, can
still present if for acceptance & 2ndary parties aren’t discharged
WHEN IS PRESENTMENT EXCUSED (memorize)

S148: excuses non-presentment
o
DEE is dead/absconded/fictitious person
o
After exer reasonable dil, presentment cant be made
o
Tho presentment is irreg, acceptance is refused on sme other ground

Delay in presentment – when is this excused? S147b

When the H of a bill is drawn payable other than the place of business or
residence of the DEE, & the H has no time, w the exer of reasonable dil to
present the bill

DISHONOR & ITS EFFECTS

whats the effect of dishonor by non-acceptance?
o
S151: Immediate right of recourse against the parties 2ndary liab
o
Even if presentment for acceptance isnt reqd? like a check?

No, if presentment isn’t reqd, non-acceptance dsnt amnt to
dishonor

Checks are spcl – non-acceptance dsnt amnt to dishonor

Unless it falls under s143

Present inst for acceptance, wc dsnt need to be presented for acceptance =
dishonored & you’re reqd to send notices
o
If you don’t – parties 2ndarily liable are discharged
o
Ex) H fails to send notice of dishonor to parties 2ndarily liable, H then N it to
some1 else – can that person collect?

S117: failure to give notice of non-acceptance dsnt prejudice the
right of a HDC subsequent to the omission

BUT the subsequent H must NOT have any notice of the
previous dishonor
PRESENTMENT FOR PAYMENT

Is presentment for payment necessary as a GR?
o
Parties primarily liable – No need
o
2ndarily liable – needed

Presentment for payment is dispensed w under s82
o
Cant be made after reasonable dil
o
DEE is a fictitious person
o
Waiver of presentment
o
When the bill is discharged by non-acceptance
WHEN DO YOU PRESENT AN INST FOR PAYMENT?

On the day of maturity of the inst/the day it falls due

If demand inst – w/in reasonable time AFTER ITS ISSUE (for notes)
o
Except: if BOE – presentment for payment shld be made w/in reasonable
time after its last N
Intl Corp Bank v Sps Gueco

Were presenting a Manager’s check as payment for a car bec Dr Gueco ddnt sign the
joint MTD

Check became stale

Sps Gueco: bank’s fault that’s why the check became stale

Bank: there was excusable delay

SC: the check was a BOE wc was drawn by the bank on itself & accepted in advance
= thus, can be treated as a PN

So presentment is no longer necessary bec the bank became primarily liable on the
check & is a written promise to pay on demand
o
Presentment for acceptance no longer necessary bec the bank was primarily
liable on the check
Drilon 32

Irrelevant for the Ct to say that presentment for acceptance is no longer
necessary bec checks dnt need to be presented for acceptance

Except for instances of s143
I: what is the consequence in the delay in presenting the check for payment?
S186: delay in presentment for payment, discharges the DWR only to the extent of
the loss caused by the delay
o




Columbian Banking Co v Bowen

Was there delay here? None, so Bowen isn’t discharged, still liab on the draft

To det whether there’s delay, it shld be considered from the last N to presentment

There was delay for 2 mos
Fick v Jones

Why cldnt the DWR raise the defense that he was discharged?

There was no presentment, therefore, cant charge the DWR yet
Gordon v Levine

WON the time of presentment was w/in a reasonable time. NO

PEE/G is suing the DWR/L

DWR: it wasn’t presented w/in a reasonable time

There was delay, bec the presentment wsnt w/in a reasonable time
Morrison v McCartney

Was there delay? Yes
o
Bec the DEE’s hse was closed when it was gng to be presented (oct3) & it
later was presented it on Jan 29 (3mos later)

The check was given on Oct 2

But since the DWR ddnt show any loss, Morrison & Hackland cld recover
PNB v Seeto

Where was the delay?
o
Date of check: mar10
o
Cashed by PNB Surigao: mar13
o
Mailed to PNB Cebu: mar 20
o
To reach Cebu: mar30
o
Presented to PNB Cebu: apr9

Seeto’s defense: PNB delayed, if ddnt, there were still sufficient funds in the DWR’s
accnt

What’s the basis of Seeto being discharged, as an indorser? S84 & s66
o
S84: used this to det if presentment for payment w/in a reasonable time
after its issue
o
S66: that due presentment is a cond to the indorser’s liab

Ct said that unreasonable delay in the presentation of the check for payment fully
discharges the indorsers
o
Facts of this case justify this conclusion bec there was unreasonable time
alrdy not only from time of issue but also from the date of Seeto’s I
Aug30
Crystal v CA

If check is dishonored: payment isn’t effective




If stale: circums that caused its non-presentment shld be detd
Whats the leg basis for this?
o
186: only says that the DWR isn’t 2ndarily liable on the inst thus the H clnt
hold him liable to the extent the extent of the loss caused to the DWR
o
Redemption shld be effected w/in a certain time
o
The real leg basis is A1249: payment by check is deemed to effect payment
when encashed, except where thru the fault of the creditor the inst is
impaired

PEE is the creditor, thus, if non-payment is caused by his neg
payment is deemed effected & the oblig for wc the check was given
was given as conditional payment will be charged

Deliver of the NI will have the effect of payment once its encashed,
or if thru the fault of the creditor it has been impaired

When delay in Presentment is excused

A81

Presentation of the inst is dnt by exhibition (A74)

Sufficient presentment: ans who, when, where, to whom (s72)
o
Who: the H or any person authorized
o
When: reasonable hour on a business day
o
Where: proper place (depends on s73)
o
To whom: the person primarily liable on the inst, if absent or inaccessible –
to any person found at the place where presentment is made

If a check is crossed, how shld it be presented:
o
Specially: presentment shld be made to the named bank only
o
Generally: presentment shld be made on any bank
o
If not presented by the bank = no due presentment

Effect of no due presentment:

liab wont attach to those 2ndarily liable

s186: DWR is discharged to the extent of the loss caused
to him by the delay
*this was the ruling in Chan Wan v Tan Kim
Associated Bank & Cruz v CA & Merle Reyes

when is a NI issued? When it is delivered (s16)

checks were payable to Merle Reyes

but the checks were deposited by Sayson

Pet’s defense: no COA against them

What’s Merle’s COA?
o
She had a right to the proceeds of the check
o
Duty: duty of AB had a duty to pay the proceeds of the checks to the proper
PEE

Why ds the bank have this duty?

Bec the checks on their face stated that the PEE was
Melissa RTW & not Sayson = but this order from the DWR
is directed to the DEE bank & not the CB
o
So AB as the CB had no duty to pay her
o
Breach: AB paid the checks to someone else/had no right to rcve the
proceeds of the checks

But AB guaranteed all prior I on the checks

So what’s the breach of AB to Merle?
Drilon 33

AB’s duty is to pay the person who endorsed the inst to them

So why’s Merle butting in this transaxn?
By the nature of a crossed check, this shldve served as a warning to the bank that it
was issued for a particular purpose so AB shld verify the endorsement of the check
o
“AB: are you authorized to rcve payment? Sayson: yes iam!” = useless
exercise!! (sir)
o
If you’re stealing money you wont admit to it
If you’re saying theres ‘conversion’
o
You’re saying there was a duty to pay Melissa’s RTW & if they ddnt, then
when they pay it to some1 else, that’s conversion
o
Why are you saying they had this duty?

The order was directed to the DEE bank

The duty of the CB is to follow the order of the indorser

Wc they did!
Sir: why is there no privity of contract?
o
The inst was never delivered to her so she’s NOT a party to the inst,
so how can she sue!
Other defense: A1249 wsnt complied w
o
In order for payment to be effective, the checks shldve been
delivered to her & encashed
o
The mistake in the delivery resulted in her not being paid – so her
COA was against the DWRs & not the CB
So whyd she win this case?
o
SC it was a shortcut against – save every1 the time & expense of litigation
o
Sir: what if there are defenses btwn them? Btwn the DWR & the DEE? Btwn
indorsers? Cant these defenses be raised?

Will AB be able to raise the defense of these ppl? No
o










PROVS:

When shld you present an inst for payment?
o
Reasonable hour on a business day (s72)

Where? (s73)
o
If specified place = pay there
o
If no place, but add of the person liable for payment is there = pay at the
add
o
No place or add = usual place of business or residence
o
Any other case = wherever he can be found, or last know place of business
or residence

Shld be presented to the person primarily liable (s72)

If dead: shld be made to representative (s76)

Partners: to any1 of them s77

Joint debtors, not partners = present to ALL (s78)
NOTICE OF DISHONOER

Shld state:
o
Due presentment
o
Dishonor
Gullas v PNB

If the bank permitted to off-set against the depositor’s accnt?
o
Maj view: yes





CAB: off-setting was improper
o
Bec they effected the off-set even b4 the notice was rcvd by the indorser
Why’s the notice necessary?
o
Ct: if notice were rcvd, then off-set can be effected
o
If off-set if from rcpt of notice, then Gullas cn do nothing
How can the bank properly do set-off?
o
Recall: that bank deposits are loans, therefore…

In the absence of notice there’s no C-D rel btwn Gullas & PNB so
PNB must make sure that notice was rcvd

Once notice is rcvd, then they become C-D of ea other & leg
compensation may take place

PROVS:

Form: may be in writing or oral

Shld sufficiently identify the inst & indicate that it has been dishonored

May be delivered personally or thru mail

When shld it be sent?
o
Ex) PN given: A-B-C-D-E-F-G-H-I
o
I is the H, he only sends notices to G & E
o
G sends notices to F & B

If I cant collect from F & B even if he cant collect from G

But G can collect from F & B
o
Notice is for the benefit of the previous H or indorser
o
All those who don’t rcve notice frm I are discharged (s89)
State Bank of East Moline v Standaert, et al

State bank’s claim: they sent notice of dishonor
o
Did they have E specifically that that particular notice was sent? None

They only presented testi E
o
State bank had a witness testify that they had a usual practice in sending
notices
o
Also that at the time the EE (the witness) was there, all notices were sent =
perfect record

Is this is admissible? Admissible

They’re testifying to a negative fact = that they never breached
their process

BUT its not sufficient
Arterburn v Wakefield

Arterburn/DWR was saying that no notice was sent to him

Is notice to the DWR to charge him for his 2ndary liable? YES (s89)

S114: states when notice dsnt need to be given to the DWR
o
Used s144 d & e

Ct is making an exception – says automatically s114 applies

Ct here says: that a bank wont dishonor a check that theres no insufficient funds, so
you can assume that the DEE wont pay, therefore no need to send the DWR of the
check notice of dishonor
o
They’re making a very broad exception
o
Wc exempts the H from sending notice to the DWR

This is US case law – not binding on US
o
Sir: this case is persuasive, but its not necessarily true
Drilon 34

o
o
o

Dsnt think it’s a good law
Ex) like BP22 if you issued a check presumption that you knew you ddnt
have funds – but there’s a possibility that
So s114 cant be automatically applied

WHERE notice shld be given:

S108

Can an agent give notice? YES (s91)

What if the agent rcves a notice of dishonor? (s94)
o
Ex) indorser acted thru an agent & the H sent the notice to the agent
o
Agent can send notice:

To the parties liable; or

To his principal

When he ds this, the pd is renewed (same time is given to
him to send notice to other parties)
Simon v Ppls Bank & Trust Co of Passaic

Only duty was to send the notices to the party/principal

o
o







Sept 4
Cont of notice of dishonor
To whom is a notice of dishonor sent?

Party himself or his agent in that behalf
o
Agent shld be authorized to rcve notice
o
So if not authorized, who’s risk is it? who will suffer the negative effect?

The 1 who sent the notice






Party dead:
o
If he knows he’s dead, send to his rep
o
But how can a dead person have a personal rep?

He’s dead! he’s not a person!

So he cant have a personal representative?!

Personal representative: the representative of the deceased estate

Administrator? But he’s appointed in by the Ct

What abt an executor written to a will, but the will hsnt
been probated? Can notice to be sent to him?

So send to executor, if none, the administrator, if none,
then send to the last residence or last place of business of
the deceased
o
Who’s the personal rep? the person sending notice shld look for him? If not
then he shld send it to the last residence or business?
o
If he dsnt make an inquiry, then he cant send the notice?
o
So the law reqs an inquiry? And also try to find the personal rep w
reasonable dil?
what if the notice is to be sent to a partnership?
o
Notice to any1 partner, is notice to the firm evn tho theres a dissolution
What if the parties are jointly liable?
o
Then all the joint persons shld be sent notices, unless 1 has auth to rcve for
the others
What if the 1 who rcves notice is bankrupt?







Notice can be given to the party himself or his trustee or assignee
Can you send notice to the creditors?

No!

What if 1 creditor is the biggest creditor, the bankrupt owes him
90% of his debts – will that be sufficient?

No req in the law that you have to send notice to all of the creditors

In whose notice ds the notice operate?
o
If given by or on behalf of the H, it inures to the benefit of all subsequent Hs
& all prior parties who have a right of recourse against the party to whom its
given
S93: if a person gives a notice for & in behalf of a party entitled to give notice
o
The benefit inures to the benefit of the H & all parties subsequent to the
party to whom notice is given
o
Inures to the benefit of the H? what ds this mean?

It inures to the benefit of all the H & all parties subsequent to whom
notice is given
Diff btwn s92 & s93?
o
Notice inures to the benefit of all subsequent Hs & all prior parties who have
a right of recourse
o
What is meant by “it inures to the benefit”?

They have a COA against all those who rcve notice

Why is this a benefit? Bec those who don’t rcve notice are
discharged/no longer liab

But if notice is give, a subsequent H may go after to those persons
who have been given notice

No need to send notice to those persons who notices were alrdy
sent to by others
Under what circums is notice not reqd to be given?
o
If after reasonable dil, it cant be given or dsnt reach the parties sought to be
charged
Waiver of notice may be done
o
Either b4 the time of giving notice has arrived or after the omission to give
due notice
o
Can be express or implied
When you’ve given a notice of dishonor for non-acceptance, do you have to give
notice of non-payment?
o
NO, but the rule dsnt prohibit you frm dng this
Under what circums is the H reqd to give notice of dishonor for non-payment even if
he’s alrdy sent a notice for non-acceptnace?
o
If after that, the inst is accepted, then not paid

Ppls Natl Bank of Ypsilanti v Dicks

WON they cld be made liable, in the absence of notice of dishonor?

No, cant be liable bec merely indorsers who weren’t bound by the printed waiver

Bec above the agreement, there was no waiver of notice of dishonor

Ds the law req that it be above their sigs? (s110)
o
Law says if the waiver on the face of the inst = applies to all
o
But if the waiver is above the sig of the indorer = binds only him

What ds the law req when it comes to waivers, if you want all the indorsers, all
parties to be bound to it?
Drilon 35

It shld be on the face of the inst = those on the face are considered as
embodied in the inst (s110)
The case explains what “embodied in the inst” means – wc is why the case interprets
it
Ct said it means: embodied in the inst means if its on the face of the inst
If the waiver is at the back, then it shld be above the sig of the person to bind him
If on the face of the inst:
o
Regardless of where the party signs, then all parties are bound
If at the back of the inst:
o
If its above the sig of the indorser, that only binds him
What ds it mean, in that part of the statute, wc refers to the location of the waiver on
the inst in relation to the parties?
An indorser signs at the back
o
Therefore, when s110 says the waiver is above the sig of the indorser = he’s
bound
o
What abt subsequent indorsers?
o









When the DWR isn’t expected to given notice?
S114

DWR & DEE are the same person

DEE is fictitious person or a person not having capacity to contract

DWR is the person to whom the inst is presented for payment

DWR has no right to expect or req that the DEE or acceptor will honor the inst

DWR has countermanded payment
o
So this applies to the BP22 – so that they aren’t entitled to notice of
dishonor?
o
No, notice is always reqd to be given


MKR is the person primarily liab, so he dsnt need notice bec he knows that he’ll pay

State Investment Hse v Ca

As DWR she had no right to expect that the DEE wld pay the checks bec she w/drew
the funds – so no notice needed
Notice to not reqd to be given to the indorser: S115




Whats the leg effect if notice of dishonor isn’t given? Parties are discharged
Are you reqd to give notice of dishonor of non-payment, if you alrdy sent notice of
non-acceptance? Only if after 1st notice is sent, its accepted & not paid
Effect of notice on non-acceptance isn’t given?
o
Dsnt prejudice the rights of a HDC subsequent to the omission
o
Why not have a similar rule in failure to send notice of non-payment?

Bec there’s a presumption that the inst has alrdy matured

Therefore, no subsequent H can be a HDC (s52)

Effect: itll prejudice all subsequent H

But you can be a s58 HDC right? So what abt this

*Skip protest
PAYMENT FOR HONOR

S171




Related to when an inst is dishonored for non-acceptance, the person cant be a HDC
anymore
New bill doctrine:
o
The indorser, issuer or acceptor at maturity = they’re considered to have
drawn an entirely new bill
o
Who are the 2ndary parties who aren’t liable on the new bill? DWR
o
So what abt the old bill?

Whatever rights the H has wrt to the old bill, the parties there are
still liable & 2ndary parties aren’t discharge is given notice

Any party to whom notice is given, all subsequent Hs, even after
maturity, he’s not bound/not discharged (bec the sending of the
notice inures to the benefit of subsequtn parties)
o
H of inst, negotiated to you (5th ka na), after maturity, can you run after the
X,Y,Z who are parties b4 maturity who are 2ndarily liable, bec notices were
sent to them – Can he run after the parties 2ndarily liable under the old bill?

Ds the new bill destroy the old bill?

You’re now the H of the new bill – so are you the H of the old bill
still?

o
A (dwr of the new bill), when A pays…he can run after the parties liable prior
to him? Bec hes still a party liable to the old bill?

So a goes after X, what if X says wait! You ddnt send me notice =
what then?

NO!
o
Are the parties to the new bill, parties to the old bill? Yes
o
They’re all the same parties to the same bill
o
The only effect of a new bill is there’s an addtl right

They’re parties to the old bill except that insofar as the old
bill, they aren’t HDC, they can collect on the parties 2ndarily
liable on the old bill

OR they can collect on those who are parties to the new bill
& its payable on demand
o
Consequence of the new bill doctrine:

The party who indorsed after maturity bec the dwr of the
new bill

And it becomes payable on demand

Therefore, a subsequent on the new bill can become a HDC
(bec a bill indorsed a reasonable time after last negotiation,
can stil be a HDC wrt the parties in the new bill; bt not a HDC
wrt the old bill)

Bishop v Dexter

Dexter (pee) indorsed the note to converse (bishop ws the 3r indorsee alrdy) when it
was alrdy due

Why ds it help Bishop, to assume that the MKR ddnt pay?
o
Bec he can presume that notice was given when the note fell due, &
therefore, he isn’t bound to make a demand or give notice wc will enable him
to recover of the 1st indorser

How ds it help him recover from Dexter?

Ct: indorsement of a bill/note after its equivalent to drawing a new bill payable at
sight & the indorsee shld make a demand & notice given
Drilon 36





No demand was made to the MKR nor notice of non-payment to Dexter – so dexter is
discharged
Ex) sir indorses a PN after maturity to mae, that means that sir is the DWR of the
new bill? Then who’s the DEE? The mkr
If Dexter here is the DWR & the note is put into suit by Dexter or some1 else, then
Dexter knows that the inst wld be honored – so no expectation for it to be paid, so no
notice is reqd (s114) = bec you alrdy had a suit on the inst b4 he negotiated on the
inst & he wsnt able to recover = so notice shldnt be necessary – right?

Inst payable at a bank

S87: whats the consequence of this sec?
o
The MKR is still liable as a primary party

So no need for presentment for payment
o
But the bank is authorized to pay for the inst if presented to him
Binghampton Pharmacy et al v 1st Natl Bank

Binghampton: were saying at the day of maturity, they had sufficient amtn of credit
in Chickasaw bank
o
This is impt bec Chicksaw failed to pay
o
So they were contending that they’re released frm liab bec they ddnt present
the note for payment to the bank

Ct: no need to present it for payment

The oblig of the MRK isn’t a conditional promise to pay only at a spcl place, but is a
promise to pay generally, even tho a place of payment is made

Chickasaw isn’t regarded as a DEE bank – just coz it was payable at a bank, it ddnt
convert the MKR to a DWR

S87 only gave the bank the right to pay the amnt of the notice (it authorizes him to
pay)

No presentment for payment is needed to be made to the MKR bec he remains
primarily liable

Bighampton’s other defense: when they made the inst payable to the bank, it became
an order to the bank to pay it for them

But Ct said this is wrong

Why dd the Ct have to say that s87 dsnt make the MKR into a DWR?
o
Bec they were raising defenses of a DWR – the need for presentment for
payment & that if theres delay in presenting a BOE or check then the DWR is
discharged, to the extent of the loss he suffered
o
But they’re not DWRs, they’re MKRS
o
If on the back, if yopu’re sig is below – you’re bound

If anywhere else, you aren’t bound

Last sentence refers to when its at the back
CHAP6: DISCHARGE
When is an inst discharged?

S119
Renunciation by the H

Can it be oral or verbal? NO

Renunciation shld be in writing or not in writing but by surrender of the inst to the
primary party

McGlynn v Granstorm

McGlynn’s defense was 122 on renunciation – since the K wsnt in writing, no delivery
of inst to the primary party = Granstorm is discharged

Ct: No

S122 dsnt apply bec the renunciation wsnt in writing, there was no deliver to the inst

But there was still a discharge

Construe s122 w s119 & s120
o
Relation of the provs: if the renunciation isn’t in writing, then the inst
isn’t discharge

If renunciation is oral, then s119d applies

What abt s120? S120a applies – wc said that if an inst is discharged under s119, it
ceases to have no force & effect – so all parties are discharged

SIR: the Ct was applying s122
Discharge of 2ndary parties

Are you allowed to cancel an I if your title depends on that I? Yes
McCormick v Shea

Rule: the burden of proving a cancellation was made unintentionally, under mistake,
or wo auth, is on the party alleging such
Roberts v Chappel

Discharge of a prior party refers to a discharge by some act or neglect of the C & dsnt
contemplate a discharge effected by operation of law

Defense on the it was suppose to be paid in a spcl place?
Corley v French

No valid tender of payment
o
Reqs: payable in a spcl place & willingness & ability to pay by the MKR
shld concur

Was deposit enough? NO
o
Bec there was no willingness
Release of Principal Debtor

Release by the act of the H & not by operation of law
Extension of payment

When the agreement is binding on the H & the principal D

Agreement is supported by a consideration

Parties 2ndarily liable are discharged unlesshe assents or right of recourse is
expressly reserved on such party

No consideration:

What if extension is indeterminate?
o
Will this release the parties 2ndarily liable?
Maglione v Penta

F
Renunciation

F
Drilon 37

Failure to make due presentment

This discharges the DWR & Indorsers

When must you present?
o
At the time of maturity

If you delay in presenting, it results in discharge? Ds delay of presenting result in
discharge?
o
Presume its inexcusable delay
o
Where do you draw the line btwn reasonable & unreasonable?

S143:when presentment for acceptance must be made
o
Bills: not reqd to be presented for acceptance

Only in s142 are they reqd to be presented for
Reqacuisition by Prior Party

Ds it presuppose that that prior party paid, after you rcvd notice?
o
Yes, it’s a pre-cond

Party who reacquires it, hes remitted to his former rights

Exceptions in s121: When can that happen?
o
Inst isn’t discharged, otherwise the DWR wldnt be able to recover from
the acceptor wc will be unjust = so its an exception to the re-negotiation

He’s allowed to renegotiation
o
Accommodated party is in effect the principal D, wc is why its exception
bec he cant recover from the accommodation party

Its an exception to both renegotiation & he has a right to
recover
FINALS: comprehensive (dsnt include what we ddnt discuss: protest & bills in set)


Drilon 38

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