OR AT A DETERMINABLE FUTURE TIME When is the instrument PAYABLE ON DEMAND

When it is so stated to be payable on demand or

When no date is mentioned as to payment (pure obligation), or When it is payable on sight.

eg When the creditor demands payment, literally, and no period is involved. The creditor, upon handing the money to the debtor, collects the same two minutes later.

When is it PAYABLE AT A FIXED TIME When the obligor is to pay ON a particular date or ON OR BEFORE a particular date.

“On or before” is construed favorably to the debtor. Under the Civil Code, when the period is fixed, the creditor cannot demand payment, and neither can the debtor demand acceptance earlier than the period. But under the NIL, the creditor must accept the amount even if it is tendered before the expiration of the period.

If, for example, it is payable within 15d from the proclamation of the 2013 elected senators. It not valid if the period states “on or after April 12, 2012” because it is not determinable.

What is the remedy in case of uncertainty in period? Ask the court to fix the period.

4th_{: PAYABLE TO ORDER OR TO BEARER}

What is “payable to order or to bearer”

These are the WORDS OR PHRASES OF NEGOTIABILITY. The instrument can also use “holder” or “possessor”. It is important to know the presence of these words to determine the manner of negotiation.

When is it an ORDER INSTRUMENT

A stipulation that an instrument is “NON-NEGOTIABLE” is immaterial because it is always payable to order in the following cases:



Pay to Jose Cruz or order  Pay to the order of Jose Cruz



Pay to the order of Jose Cruz and Pedro (joint where there are two payees)

 Pay to the order of Jose Cruz or Pedro Cruz (several)  Pay to the order of the holder of office for the time being How is an order instrument negotiated?

By Indorsement of the holder, followed by delivery. Otherwise, the negotiation would be ineffective/

When is it a BEARER INSTRUMENT  Pay to bearer



Pay to Jose Cruz or bearer (NOT “to bearer Jose Cruz” where the designation of “bearer” is only descriptive and thus the instrument is non-negotiable)



Pay to order of Batman (to the order of a fictitious person and such fact must be known to the person making it so payable)



Pay to the order of Adolf Hitler (to the order of a non-existing person and such fact must be known to the person making it so payable)



Pay to the order of cash (to the order of a payee who does not purport

to be a name of any person)



When the last indorsement is in blank How is a bearer instrument negotiated?

By mere delivery. Any indorsement is a mere surplusage.

What are the EFFECTS OF DELIVERY

1.

If the instrument is signed and delivered but there are blanks therein, then the holder-deliveree has the implied authority to fill in the blanks according to the true agreement of the parties

2.

If the instrument is not yet delivered, then it cannot be enforced against the maker or drawer. It is unenforceable.

3.

If the instrument is already completed but not yet delivered, and it falls into the hands of a holder in due course, then the HDC is protected and his rights are not subject to personal defenses EXCEPT Forgery.

Who are LIABLE UNDER A NEGOTIABLE INSTRUMENT

1.

PROMISSORY NOTE: Maker

2.

BILL OF EXCHANGE: Drawer and the Drawee Who Accepts

3.

PN/BE: Endorsers

4. Forgers Who are Endorsers

Endorsers are persons who sign the instrument. Only those whose signature appears in the instrument are liable thereon. In cases of negotiation by delivery, they are liable only to the immediate transferee.

What is the liability of Endorsers?

Their liability may either be general or irregular, as when they sign the instrument but they have no concern therein.

May they sign through agents? YES, as long as the agent discloses the principal and acts within the scope of his authority.

What is NEGOTIATION

Negotiation is the transfer of an instrument as to constitute the transferee the holder thereof.

What are the MODES OF NEGOTIATING AN INSTRUMENT 1. ORDER: Indorsement and Deliver

2. BEARER: Delivery What is an INDORSEMENT

It is negotiation through the signature of the person who has the right over the instrument or document.

Where is the indorsement placed? The law is silent.

- It is customary to be made at the back so as not to confuse the endorser’s signature with that of the maker or drawer, especially in cases of PNs stating “I promise to pay” and there are two signatures appear, the result being the two signatures treated as co-makers. - It may also be made in an ALLONGE, or a separate sheet of paper attached to the instrument where the indorsements can be made.

Are there limits on the number of indorsements?

Under the NIL, there are none. BUT under a Circular of the Monetary Board, banks are prohibited from accepting any check with more than one endorsement to avoid forgeries against banks.

What are the KINDS OF INDORSEMENT

1.

IN BLANK, when the holder merely signs his name

2.

SPECIAL, when the transferee is named and the holder signs

the same. The indorsement need not contain the words of negotiability, eg “Pay to Jose Cruz”. Such words are required only on the face of the instrument and not on specific endorsements.

eg “Pay to order of Jose Cruz only” is a special and restrictive endorsement.

3.

CONDITIONAL, as when it states “Pay to X only if he graduates

on March 2013”. This is also a special indorsement and which does not affect negotiability.

4.

QUALIFIED, if the holder adds “without recourse” to his

signature. There is no recourse to him if the instrument is dishonored.

5.

RESTRICTIVE, as when the endorser states “Pay to Jose Cruz

only” or “Pay to trustee only for the purpose of collection without

authority to enter into subsequent contracts”. This affects and ends the negotiability of the instrument.

What is the EFFECT OF THE SEQUENCE OF ENDORSEMENTS The first in the list is presumed to be the first endorser. As such, subsequent transferees can run after prior endorsers. Thus, in practice, endorsers first sign at the bottom, or sign with a date. eg Pedro Cruz first signed the instrument. Jose Santos then endorsed it to Juan Reyes. Juan Reyes can then run after Pedro and Jose should the instrument be dishonored.

What is the EFFECT OF A MARKED-OFF ENDORSEMENT

When a name is stricken off, the holder cannot run after the stricken off endorser and all the endorsers subsequent to such name because they are relieved from liability as there are no more indorsements in their favor.

Who are the HOLDERS OF AN INSTRUMENT 1. Holder for value

2. Holder in due course

Who is a HOLDER IN DUE COURSE

A holder in due course is one who acquired the instrument under the following conditions (Sec. 52)

a. That it is complete and regular upon its face; b. That he took it in good faith and for value;

c. That he became the holder of it before it was overdue, and without notice that it has been previously dishonored, if such was the fact; 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.

1st_{: COMPLETE AND REGULAR}

When is an instrument complete? No blanks When is it NOT REGULAR?

RE: CROSSED CHECKS: Crossing of checks, or the placing of two parallel

lines on the upper left corner of a check, makes the instrument no longer regular on its face (SIHI Case). This is because such crossing indicates that the check is not intended for encashment but only for deposit to the bank

account of the payee. It may thus be endorsed only once, ie for deposit to the payee’s account.

La Suerte Cigarette Company v. SIHI: The cigarette company sold its

products through agents. The clients deposited post-dated checks with the agents who rediscounted the same with SIHI but appropriated the proceeds. The clients refused to pay the checks because the products were not delivered to them. SIHI thus failed to collect. It was not considered as a HDC.

 If there are alterations it might not appear regular upon its face, it might be considered irregular.

2nd_{: IN GOOD FAITH AND FOR VALUE}

When is it acquired IN GOOD FAITH: When the transaction is above fraud. When it is acquired FOR VALUE

 When the acquisitions is for a valuable consideration under the law on contracts, and

 When the consideration is not contrary to law, morals, good customs, public order and public policy

Example: Law endorses the check he obtained from his client to a

prostitute. The prostitute is not a holder in due course because her services do not constitute a valuable consideration under the contract law. BUT IF the check is endorsed to a massage lady or house cleaner, then the latter is a HDC because the check was acquired legitimately.

3rd_{: BEFORE OVERDUE}

When is an instrument overdue When the date of payment has passed.

Example: If a PN shows that it is payable today and it is negotiated to you

today, you are a HDC because the date of payment, which is today, has not yet passed.

Example: If a check is dated 25 December 2012, but it is negotiated to you

only today, 3 February 2013, you are still a HDC. CHECKS NEVER BECOME

OVERDUE AS THEY ARE ALWAYS PAYABLE ON DEMAND. But under

jurisprudence, the demand for payment must be made within a reasonable period determined on a case-to-case basis, eg six months.

REMEDY OF THE HOLDER: Ask the drawer to re-date it with his

counter-signature.

4th_{: NO NOTICE OF INFIRMITY OR DEFECT OF TITLE}

Can the PAYEE be a HDC



As a general rule, NO because the fourth requirement contemplates a transfer, “at the time it was negotiated to him”. And between immediate and direct parties (payee and maker/drawer), personal defenses are available. The purpose of the principle of HDC is to build confidence in instruments of credit as a money substitute.

 An exception is provided by the SC where the payee is treated as a HDC because of the peculiar circumstances of the case. A owed B, and B owed C. B requested A to make A’s check payable directly to C. C thus sued A for collection, and C was treated as a HDC.

What are the advantages of being a HDC?

1.

He is not subject to personal defenses, EXCEPT Forgery, EXCEPT EXCEPT The maker can still be liable if the forgery is ratified or due to estoppel.

2. Prior parties are liable to him

3. Subsequent transferees acquire the rights of a HDC

NOTE: While a person does not qualify as a HDC but derives his right

from a HDC, then he will have the same rights as the HDC.

Example: Client issued a check to his lawyer. Lawyer indorsed it to

the store owner in payment of his overdue account. The store owner is thus a HDC. If the store owner indorses it to a prostitute, the latter is not a HDC but acquires the rights of the store owner who is a HDC.

Who are the PARTIES IN A NI

A person is liable on an instrument only if his/her signature appears on it (maker, drawer, acceptor, general indorser, irregular indorser, forger).

Irregular indorser: Person is not a party to the instrument but

indorses the instrument

Per Procuration: Signing authority but with limitation.

Exceptions:

a. Person negotiating by mere delivery

The person who negotiated by mere delivery is liable to the person to whom he negotiated the instrument (the immediate transferee) b. Person who was duly represented by his/her agent, subject to two

conditions: that the agent discloses his principal and the agent acts within his authority.

What are the OBLIGATIONS OF THE PARTIES IN A NI

1. MAKER: To pay and to warrant the existence and capacity of the payee because he borrowed from the payee himself

2.

DRAWER: To warrant the existence and capacity of the payee; that upon presentment, the drawee shall honor the check; if it is dishonored, then he will pay after notice

What are the STAGES OF LIFE OF A PN 1. Making

2. Negotiation 3. Payment

Q: In case of promissory notes, do they need to be presented for acceptance?

A: No, they are presented for payment. What are the STAGES OF LIFE OF B/E

1. Drawing/Issue

2. Presentment for Acceptance By the Drawee

Two possibilities:

- Drawee accepts

- Drawee dishonors the check by non-acceptance.

REMEMBER: The drawee is not an original party and only becomes a

party as an acceptor upon his acceptance. And in case he accepts, he is bound only by the terms of his acceptance, and not by the terms of the b/e.

NOTE: Holder goes to the drawee, bringing the bill of exchange.

There must be presentment of instrument for acceptance.

When drawee refuses to return or destroys the bill of exchange when presented for acceptance, it is deemed accepted.

If the bill is dishonored, the holder should give notice of dishonor to all prior parties within a reasonable period. A party not notified shall be discharged.

3. Negotiation

4. Presentment for Payment

Why: Presentment of acceptance is not an assurance of payment.

Thus, there are also two possibilities here.

- Payment by the drawee - Dishonor by non-payment

5. Payment/Discharge

How is PAYMENT OR DISCHARGE EFFECTED?

1.

Payment in due course by the person primarily liable, to the person entitled to receive the payment, at the place agreed upon What is PAYMENT IN DUE COURSE

When it is made at or after the maturity date. If payment is made before the maturity date, then there is no discharge yet because the payor can still further negotiate the instrument. But in practice, a fresh PN is requested after payment is already made.

Who is the person primarily liable:

For PN, maker. For B/E, acceptor. The accommodated party is also primarily liable.

Who is an ACCOMMODATION PARTY

He who signs the instrument as a maker, drawer, acceptor, or endorser but without receiving anything of value therefor and only for the purpose of lending his name. He is liable under the instrument even if the payee knows that he is signing only as an accommodation party.

NOTE: For one to be an accommodation party, he must

have CLEAR INTENTION TO SIGN AND TO BE BOUND

In document Commercial Law Review (Abella) (Page 41-46)