Negotiable Instruments Law – Liabilities of Parties

NEGOTIABLE INSTRUMENTS LAW

Memory Aid

Based on the Outline of the 1994 Edition of Campos & Campos

LIABILITIES OF PARTIES

  1. PRIMARY PARTIES
  • Person primarily liable: person who by the terms of the instrument is absolutely required to pay the same.
  • Sec. 70 (effect of want of demand on principal debtor)

 

  1. Liability of Maker
  2. Promises to pay it according to its tenor
  3. admits existence of payee and his then capacity to indorse

 

  1. Status of drawee prior to acceptance or payment
  • sec. 127 (bill not an assignment of funds in hands of drawee)
  • sec. 189 (when check operates as assignment)

 

  1. Liability of Acceptor
  • Promises to pay inst according to its tenor
  • Admits the following:
  1. existence of drawer
  2. genuineness of his signature
  3. his capacity and authority to draw the instrument
  4. existence of payee and his then capacity to endorse
  • sec. 191, 132, 133, 138 — formal requisites of acceptance
  • sec. 136, 137, 150 — constructive acceptance
  • sec. 134, 135 — acceptance on a separate instrument
  • Kinds of Acceptance:
  1. general
  2. qualified
    1. conditional
    2. partial
    3. local
    4. qualified as to time
    5. not all drawees

 

* sec. 142 (rights of parties as to qualified acceptance)

  • Certification: Principles
  1. when check certified by bank on which it’s drawn, equivalent to acceptance
  2. where holder of check procures it to be accepted/certified, drawer and all indorsers discharged from al liability
  3. check not operate as assignment of any part of funds to credit of drawer with bank, and bank is not liable to holder, unless and until it accepts or certifies check
  4. certification obtained at request of drawer: secondary parties not released
  5. bank which certifies liable as an acceptor
  6. checks cannot be certified before payable

 

  1. SECONDARY PARTIES
  2. Liability of Drawer
  3. Admits existence of payee and his then capacity to endorse
  4. Engages that on due presentment instrument will be accepted, or paid, or both, according to its tenor and that
  5. If it be dishonored, and the necessary proceedings on dishonor be duly taken, he will pay the amount thereof to the holder or to an subsequent indorser who may be compelled to pay it

 

  • drawer may insert in the instrument an express stipulation negativing / limiting his own liability to holder
  1. Liability of Indorsers:
  • Qualified Indorser and one Negotiating by Delivery
  1. Instrument  genuine, in all respects what it purports to be
  2. good title
  3. all prior parties had capacity to contract
  4. he had no knowledge of any fact w/c would impair validity of instrument or render it valueless
  • in case of negotiation by delivery only, warranty only extends in favor of immediate transferee

 

  • Liability of a General or Unqualified Indorser
  1. instrument genuine, good title, capacity of prior parties
  2. instrument is at time of indorsement valid and subsisting
  3. on due presentment, it shall be accepted or paid, or both, according to tenor
  4. if it be dishonored, and necessary proceedings on dishonor be duly taken, he will pay the amt. To holder, or to any subsequent indorser who may be compelled to pay it

 

  • Order of Liability among Indorsers
  1. among themselves: liable prima facie in the order they indorse, but proof of another agreement admissible
  2. but holder may sue any of the indorsers, regardless of order of indorsement
  3. joint payees/indorsees deemed to indorse jointly and severally

 

  1. Liability of  Accomodation Party
  • Definition: one who signed instrument as maker/drawer/acceptor/ indorser w/o receiving  value thereof, for the purpose of lending his name to some other person
  • AP liable on the instrument to holder for value even if  holder,  at time of taking instrument, knew he was only an AP
  • Liability of Irregular Indorser
    • Where a person not otherwise a party to an instrument, places thereon his signature in blank before delivery, he’s liable as an indorser, in accordance w/ these rules:
  1. Instrument payable to order of 3rd person: liable to payee and to all subsequent parties
  2. Instrument payable to the order of maker/drawer, or payable to bearer: liable to all parties subsequent to maker/drawer
  3. Signs for accommodation of payee, liable to all parties subsequent to payee
  • Sadaya v Sevilla Rules:
  1. a joint and several accommodation maker of a negotiable promissory note may demand from the principal debtor reimbursement for the amt. That he paid to the payee
  2. a joint and several accommodation maker who pays on the said promissory note may directly demand reimbursement from his co-accommodation maker without first directing his action vs. the principal debtor provided:
    1. he made the payment by virtue of a judicial demand
    2. or the principal debtor is insolvent

 

  1. Liability of an Agent
  • Signature of any party may be made by duly authorized agent, establish as in ordinary agency
  • Where instrument contains or a person adds to his signature words indicating that he signs for or on behalf of a principal, he is not liable on the instrument if he was duly authorized, but the mere addition of words describing him as an agent without disclosing his principal, does not exempt from personal liability.
  • Signature per procuration operates as notice that the agent has but a limited authority to sign, and the principal is bound on ly in case the agent in so signing acted within the actual limits of his authority
  • Where a broker or agent negotiates an instrument without indorsement, he incurs all liabilities in Sec. 65, unless he discloses name of principal and fact that he’s only acting as agent

I.  Presentment For Acceptance

When presentment for acceptance must be made

  1. bill payable after sight, or in other cases where presentment for acceptance necessary to fix maturity
  2. where bill expressly stipulates that it shall be presented for acceptance
  3. where bill is drawn payable elsewhere than at residence / place of business of drawee

When failure to present releases drawer/indorser

Failure to present for acceptance of negotiate bill of exchange within reasonable time

 

Reasonable Time

Must consider

  1. nature of instrument
  2. usage of trade or business with respect to instrument
  3. facts of each case

 

How and When Made Sec. 145, 146, 147

When Excused Sec. 148

 

Dishonor and Effects

  • sec. 149 (when dishonored by non-acceptance)
  • sec. 150 (duty of holder where bill not accepted)
  • sec. 151 (rights of holder where bill not accepted)
  • sec. 89 (to whom notice of dishonor must be given)
  • sec. 117 (effect of omission to give notice of non-acceptance)

II. For Payment

Where necessary Sec. 70

Where not necessary Sec. 79, 80, 82, 151, 111

Date and time of presentment of instrument bearing fixed maturity Sec. 71, 85, 86, 194

 

Date of presentment

  • Where instrument not payable on demand: presentment must be made on date it falls due
  • Where payable on demand: presentment must be made within reasonable time after issue, except that in case of a bill of exchange, presentment for payment will be sufficient if made within a reasonable time after last negotiation (but note: though reasonable time from last negotiation, it may be unreasonable time from issuance thus holder may not be HDC under sec. 71)
  • Check must be presented for payment within reasonable time after its issue or drawer will be discharged from liability thereon to extent of loss caused by delay

 

Delay excused Sec. 81

Manner Sec. 74, 72, 75

Place Sec. 73

To Whom Sec. 72, 76, 77, 78

Dishonor by nonpayment Sec. 83, 84

 

Notice of Dishonor

General rule: to drawer and to each indorser, and any drawer or indorser to whom such notice is not given is discharged

 

Form, Contents, Time Sec. 95, 96, 102, 103, 104, 105, 106, 108, 113

 

By Whom Given

  • By or on behalf of the holder or any party to the instrument who may be compelled to pay it to the holder, and who, upon taking it up, would have a right to reimbursement from the party to whom the notice is given
  • Notice of dishonor may be given by an agent either in his own name or in the name of any party entitled to give notice, whether that party be his principal or not
    • Where instrument has been dishonored in hands of agent, he may either himself give notice to the parties liable thereon, or he may give notice to his principal (as if agent an independent holder)

 

In whose favor notice operates

  1. when given by/on behalf of holder: insures to benefit of
    1. all subsequent holders and
    2. all prior parties who have a right of recourse vs. the party to whom it’s given
  2. where notice given by/on behalf of a party entitled to give notice: insures for benefit of a.  holder , and

b. all parties subsequent to party to whom notice given

 

Waiver Sec. 109, 110

Where not necessary to charge drawer

  1. drawer/drawee same person
  2. drawee fictitious, incapacitated
  3. drawer is person to whom instrument is presented for payment
  4. drawer has no right to expect/require that drawee/acceptor will honor instrument
  5. drawer countermanded payment

 

Where not necessary to charge indorser

  1. drawee fictitious, incapacitated, and indorser aware of the fact at time of indorsement
  2. indorser is person to whom instrument presented for paymt
  3. instrument made/accepted for his accommodation

 

Protest

Definition: testimony of some proper person that the regular legal steps to fix the liability of drawer and indorsers have been taken

 

When necessary: sec. 152,

Form and contents: sec. 153

By whom made: sec. 154

Time and Place: sec. 155, 156

For better security: sec. 158

Excused: sec. 159

Waiver: sec. 111

 

Acceptance for Honor

Sec. 161, 131, 171

 

Bills in Set: 178-183

 

Reference:  University of the Philippines

BarOps ’99

Commercial Law – Val Feria, Mina Herrera, Gary Mallari & Rachel Ramos

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About Magz

First of all, I am not a lawyer. I'm a graduate of AB Political Science and went to the College of Law but stopped going to law school for some reasons. I'm a passionate teacher who has been teaching English to speakers of other languages and a person who likes writing and blogging. I lost some important files and software when my computer broke down so the reason I created this website is to preserve the notes, reviewers and digests I collected when I was at the law school and at the same time, I want to help out law students who do not have enough time to go and read books in the library.

Posted on December 19, 2011, in Negotiable Instruments Law and tagged . Bookmark the permalink. 2 Comments.

  1. I appreciate of what you did, you are helping some who needed it, so i hope that i could meet you soon, just keep up always in good doing which can give aid more most specially to law students like me.. again thank you i am the one who could benefit of your blog post…God Bless you Mam.

  2. Just like an accelerator which gives us speed

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