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TitleNegotiable Instruments
Tags Crime & Justice Private Law Justice Negotiable Instrument
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Total Pages60
Table of Contents
                            Drawee may be any person
FORMAL REQUISITES OF NEGOTIABLE INSTRUMENTS
	Held: B and C are liable solidarily since “I” dominates. SEE: PNB v. Concepcion Mining, 5 SCRA 745 (1962)
First Acceptance v. Dimayuga
H & BC v. Peoples Bank
State Investment House v. CA
                        
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LECTURE NOTES ON NEGOTIABLE INSTRUMENTS
Act No. 2031

APPLICABILITY OF THE LAW

It applies only to negotiable instruments that meet the requirements laid down in
Section 1 of the law. Otherwise, any case not provided for shall be governed by
the provisions of existing legislation, or in default thereof, by the rules of the law
merchant (Under Section 196, the law merchant refers to the custom of
merchants or rules that have been developed under common law, consisting of
primarily of usages of trade previously proven in court or ratified by legal
decisions. It is also known as the Custom of Merchants). Thus, the Civil Code,
the Bouncing Check Law and the Revised Penal Code provisions on Estafa
applies only to supply any deficiencies in cases not covered by the Act.

1. In the case of GSIS vs. Court of Appeals, 170 SCRA 533, the Supreme
Court on the issue as to whether private respondents were accommodation
parties under Section 29, it said that the arguments were misplaced as the
promissory note executed was not negotiable because it was not payable to
order or to bearer.

WHAT IS A NEGOTIABLE INSTRUMENT

It is a transferable instrument containing an unconditional promise or order to pay
to a holder or to the order of a holder upon issue, possession, demand or at a
specified time.

COMMON KINDS OF NEGOTIABLE INSTRUMENTS

1. Promissory Note is an unconditional promise in writing made by one
person to another, signed by the maker, engaging to pay on demand, or at a
fixed or determinable future time, a sum certain in money or to bearer. The
ORIGINAL parties to a promissory note are the maker (one who makes the
promise and signs the instrument ), the payee ( party to whom the promise is
made or instrument is payable), and SUBSEQUENTLY, the holder ( as defined in
Section 191 is the person to whom the instrument is delivered to, he may be
payee or any subsequent person holding the note (or bill) by delivery or by
delivery and endorsement.

2. Bill of Exchange under Section 126 is an unconditional order in writing
addressed by one person to another, signed by the person giving it, requiring the
person to whom it is addressed to pay on demand or at a fixed or determinable
period of time a sum certain in money to order or bearer. The ORIGINAL parties
are the drawer ( he draws up the bill and gives the order to pay money to a third
party) drawee ( the party upon whom the bill is drawn. He is the person to whom
the bill is addressed and is ordered to pay. Under Section 62, he becomes an
ACCEPTOR when he indicates a willingness to accept responsibility for the
payment of the bill), and the payee ( the partying whose favor the bill is drawn or
is payable to) SUBSEQUENTLY, the holder ( as defined in Section 191 is the
person to whom the instrument is delivered to, he may be payee or any
subsequent person holding the note (or bill) by delivery or by delivery and
endorsement.

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checks fraudulently negotiated or diverted by confidential employees who hold
them in their possession. PCI Bank v. Court of Appeals 350 SCRA 446 (2001)

6. Section 23 on forgery only covers forged signature, or signature
made without the authority of the person whose signature it purports to be.
Forgeries that consist of other alterations are covered by Sec. 124.

(c) Effects of Forgery under Sec. 23 of NIL

Associated Bank v. Court of Appeals
67 SCAD 487, 252 SCRA 620 (1996)

Checks having forged indorsements should be
differentiated from forged checks or checks bearing
the forged signature of the drawer. Under Sec. 23 of
NIL, a forged signature, whether it be that of the
drawer or the payee, is wholly inoperative and no one
can gain title to the instrument through it. A person
whose signature was forged was never a party and
never consented to the contract which allegedly gave
rise to such instrument. Section 23 does not avoid the
instrument but only the forged signature. Therefore, a
forged indorsement does not operate as the payee’s
endorsement.

The exception to the general rule in Sec. 23 is
where “a party against whom it is sought to enforce a
right is precluded from setting up the forgery or want
of authority.” Parties who warrant or admit the
genuineness of the signature in question and those,
who by their acts, silence or negligence are estopped
from setting up the defense of forgery, are precluded
from using this defense. Indorsers, persons
negotiating by delivery and acceptors are warrantors
of the genuineness of the signature on the instrument.

In bearer instruments, signature of payee or
holder is unnecessary to pass the title to the
instrument; hence, when the indorsement is a forgery,
only the person whose signature is forged can raise
the defense of forgery against a holder in due course.

PNB v. Court of Appeals
25 SCRA 693 (1968)

When in a check the signature of the drawer is
forged, as between the drawee and collecting bank,
the drawee bank shall sustain the loss, since the
collecting bank does not guarantee the signature of
the drawer, and in fact the payment of the check by
the drawee bank constitutes the proximate negligence
since it was the primary duty of the drawee bank to
know the signature of its client-drawer.

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(b) The rule only applies to discharge by the act of the holder and not to
discharges by operation of law, such as insolvency.

4. By a valid tender of payment made by a prior party.

5. By a release of the principal debtor, unless the holder’s right of recourse
against the party secondarily liable is expressly reserved.

6. By any agreement binding upon the holder to extend the time of payment
or to postpone the holder’s right to enforce the instrument.

EXCEPT: (a) When made with the consent of other party
secondarily liable;

(b) Unless the right of recourse against such party
is expressly reserved.

7. In the discharging of persons secondarily liable:

(a) The liability of a party secondarily liable is subsidiary.

(b) His liability is similar (but not exactly the same) to that of a guarantor.

(c) Endorsers are liable in the order in which they endorse.

D. PAYMENT BY PARTY SECONDARILY LIABLE: Where the instrument is
paid by a party secondarily liable thereon, the instrument is not
discharged. However, the party so paying is remitted to his former rights
as regards all prior parties, and he may strike out his own and all
subsequent endorsements, and again negotiate the instrument.

EXCEPT: (a) Where it is payable to the order of a third
person, and had been paid by the drawer; and

(b) Where it was made or accepted for
accommodation and has been paid by the
party accommodated. (Sec. 121).

1. The party secondarily liable who pays will have the effect of discharging
the party paying.

2. The party paying is remitted to his former rights against parties prior to
him; if he was formerly a holder in due course, even if at the time of
payment he already had notice of the defects of title, he can enforce his
rights against any of the prior parties free from defenses.

E. RENUNCIATION BY HOLDER: Holder may expressly renounce his rights
against any party to the instrument before, at, or after its maturity. (Sec.
122).

1. An absolute and unconditional renunciation of his rights against the
principal debtor made at or after the maturity of the instrument discharges
the instrument. (Sec. 122).

2. A renunciation does not affect the rights of a holder in due course without
notice. (Sec. 122).

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