PART 1

INTRODUCTION 3. Postal Money order

Order for payment of money to the payee drawn by one post office upon another under authority of law.

ACT no. 2031 Subject to restrictions and regulations inconsistent with the character of negotiable instrument [only one

Law governing N.I. indorsement is allowed]

Enacted: Feb. 3, 1911 In establishing and operating PMO system, govt is not engaging in commercial transactions but merely

Publication in Official Gazette: March 4, 1911 exercises govtal power for public benefit

Took effect: June 2, 1911 (90 days after publication)

4. Bill of lading
APPLICABILITY OF act no. 2031 (Negotiable Instruments Law) There’s conditional promise or order to pay sum in money
Applies only to negotiable instruments or those qualified in Section 1
CASES NOT PROVIDED FOR BY THE ACT: governed by provisions of existing legislation [default = “law merchant”] 5. Certificate of stock
CIVIL CODE: has no effect on it aside from supplying deficiency for cases not covered by the Act No unconditional promise or order to pay a sum certain in money
Proof of ownership for a designated number of shares in a corporation
CHARACTERISTICS
1. NEGOTIABILITY 6. Warehouse receipt
Attribute which allows n.i. to be passed from one hand to another just like money in No unconditional promise or order to pay sum certain in money
commercial transactions free from ALL PERSONAL DEFENSES available against original owner; in return
holder of n.i will have right to collect the sum payable to him that is “free from any defect in the title of
any of the prior parties or defenses available to them among themselves” [sec 57] TITLE 1
In “Personal Property”, only the true owner has right to transfer/pass the title. BUT in NEGOTIABLE INSTRUMENTS in general
“negotiable instruments”, it is treated like money that whoever finds can hold it against the world even to
the true owner.
CHAPTER 1
Paper is non-negotiable. When transferability is limited or restricted
FORM & INTERPRETATION
SM sells & delivers goods to Reynan. But Reynan didn’t pay bcos it wasn’t the one he
SECTION 1. Form of n.i
ordered. SM sued Reynan for unpaid price. Reynan can successfully raise SM’s breach of
To be negotiable, they must be… [formal requirements]
contract as defense.
a. In writing & signed by maker or drawer
SM assigns the account to Robinsons (bought Reynan’s acct). Reynan can still raise the
i. *instrument = means writing (incl. printed/typed) or reduced to tangible
same defense against Robinsons even if Robinsons have no idea of the dispute between SM &
form otherwise nothing can be passed
Reynan.
ii. No “oral negotiable instrument” – difficult determine liability, vulnerable
Assume Reynan had issued to SM his promissory note for the price of the goods. If SM sues
to fraud
Reynan on the note, Reynan can still raise defense of breach of contract. BUT if SM negotiates
iii. GR: signature @ “lower right hand corner”, but allowed to be anywhere
the note to Robinsons who will be the holder in due course, Reynan can no longer raise the
iv. *signature = prima facie evidence of intention to be bound as
same defense against Robinsons.
maker/drawer
v. Signature is in the instrument BUT intention in signing is NOT CLEAR =
*Bona fide holder. Can be free from “personal defenses” but can be subject to “real defenses”
deemed “indorser” not maker/drawer
b. Contain an unconditional promise or order to pay a sum certain in money
2. ACCUMULATION of secondary contracts i. Bcos money is the standard of value in actual business unlike other
Passing of instrument from one person to another would spring secondary contracts commodities where value may rise and fall
(more involved parties) which means more chances of collection bcos you can proceed ii. BUT ofcourse the promise/order may designate “particular kind of
not only to the maker but also to all transferors. Many will become secondarily liable as current money”
instrument is passed. iii. Money = cash, includes all legal tender.
iv. Not money = gold, silver and bank notes
FUNCTION & IMPORTANCE of NI c. Payable on demand or at fixed or determinable future time
1. Substitute for money d. Payable to order or bearer &
But n.i is different from money bcos n.i is either valuable/worthless depending on financial e. Named if instrument is addressed to a drawee or otherwise indicated with reasonable
ability of parties to them certainty
i. Drawee should be named
ii. Applies only to bills and checks
2. Media of exchange for most commercial transactions (checks)
iii. In order that payee/holder will know whom he is to call for acceptance
Increase purchasing medium in circulation. Safe and convenient means of financial
or payment
transactions. Eliminate risk of dealing in cash. Check used for immediate payment
iv. Not a bill = if order is not addressed to someone
(substitute for money)
v. Promissory note = has no drawee thus payee must be named

3. Medium of credit transaction Commercial Paper

Written promises/ obligations arising from commercial transactions from use of instruments like promissory notes and bills
Promissory notes – intended for circulation of credits; “credit instrument”
of exchange. Either negotiable/non-negotiable. NOT COMMERCIAL PAPER if not arising from commercial transactions
Not all people always have property to turn into cash anytime.
N.i help men without cash in hand to complete business transactions thru promissory
note, bills of exchange and checks Negotiable Instrument
Intended like money to have a definite value to be taken at sight without the need of Those documents as given under section 1.

investigating into the outside facts Doesn’t cover other negotiable documents involving “sale or transfer of goods”
Section 1 helps you whether to take the instrument as security for an oblig or not
FORMS of n.i.
Every n.i = presumed a contract, but not all contract is a n.i. May or may not be a commercial paper
1. Common Forms
n.i. = contractual oblig to pay money
a. Promissory notes
Those which issuer has promised to pay
FORMAL REQUIREMENTS of negotiability
To determine negotiable or not = DEPENDS entirely on “form” and “content”
b. Bills of exchange Consider ALL the ff to determine negotiability:
Those which issuer has ordered third person to pay
a. Whole of the instrument
Checks. Special form or kind of BoE
b. Only what in face of instrument & [not elsewhere]
c. Provisions of NIL esp. Section 1
2. Special Types
APPLICABILITY of formal requirements
*other instruments held negotiable under n.i Law (first 4 are special types of promissory notes. subsection PROMISSORY NOTE BILL OF EXCHANGE
Remaining are special types of BoE) a-d needed to be negotiable a-e needed to be negotiable

a Maker = issuer of promissory note Drawer = issuer of BOE

• Certificates of deposits
b Unconditional promise = contained in PN Unconditional order = in BOE
• Bank notes

• Due bills

• Bonds

• Drafts Non-negotiable Instrument

• Trade acceptances Not negotiable. Documents didn’t meet requirements

• Banker’s acceptances eg. Check which says “Pay to Reynan Cagas” – no longer negotiable if indorsement prohibits further negotiation of the
instrument
Can no longer be negotiated but may be assigned or transferred in the absence of prohibition written on face of instrument
*in case of doubts of negotiability.
TRANSFERS OF NON-NEGOTIABLE INSTR. – governed by Civil Code on assignment of contract rights
Courts have adopted policy to favor negotiability bcos of the significance of n.i in todays society
Person who transfer/assign contractual/non-negotiable rights pass only the rights
NON-negotiable = if instr payable upon contingency
Instruments with LIMITED NEGOTIABILITY
Widely used in commercial transactions but non-negotiable bcos no essential requisites under N.I Law. Governed by other
Promissory Note
laws
Negotiable PN = unconditional promise in writing made by one to another, signed by maker, engaging to pay on demand
1. Letter of credit or at a fixed or determinable future time, a sum certain in money to order or to bearer
I will write a letter to Walmart (addressee) to pay Apple (third party) in money or deliver goods but in turn NON-Negotiable PN = if it gives maker the right to ascertain amount rightly payable
I will provide money or repay walmart. *addressee should be in another place or country. Written promise to pay sum of money. Also called note. May be “demand instrument” BUT is “time instrument”
ORIGINAL PARTIES to PN
2. Treasury warrant This class of NI is a promise paper or two-party paper
Government warrant for payment of money like that issued in favor of public officer or employee covering a. Maker – one who makes promise and signs instrument. Promises to pay the payee or holder (if
payment or replenishment of cash advances for official expenditures. It’s payable out of specific fund or payee further negotiate the instrument). Signature should be on face of instrument.
appropriation b. Payee – to whom instrument is payable. May be specified or not (name, office title).
 Sum to be paid with INTEREST
“I promise to pay” = absolute and unconditional promise to pay payee or holder. Means he must pay not that he might INTEREST @ FIXED RATE
pay. Other substitute phrases: INTEREST @ INCREASED or REDUCED RATE
“I agree to pay” “payable” “to be paid” “I guaranty to pay” “Maker obliges himself to pay” (increased rate if note not paid at maturity and reduced if made on or before)
“I bind myself to pay” “Good for” “due on demand”
“I will pay” Sum to be paid by STATED INSTALLMENTS
“good to payee name or order” “STATED INSTALLMENTS”
“due to payee name or order” Means interest & due date of each instalment must be fixed in the instrument
“I acknowledge to be indebted to payee name or order” and the like
NOT USING “words of negotiability” (order or bearer) & mere acknowledgement of debt, OR bare acknowledgement of
Sum to be paid by stated installments with ACCELERATION CLAUSE
indebtedness
acceleration dependent ON MAKER
= don’t satisfy requirement, doesn’t imply unconditional promise to pay. NOT NEGOTIABLE
s.i with acceleration clause – full payment upon default of installment or interest. Wont make instr payable
= “due to payee name P10,000” “will agree to pay” “I.O.U.” “for value received”
upon contingency bcos time of payment will surely come
= Add WoN: “Due to payee or order” “Due payee or bearer” “IOU P10,000 to be paid on Sept. 30” =
NEGOTIABLE. we can fairly infer written promise to pay
acceleration at HOLDER’S OPTION
non-negotiable!
“to the order of” & “or order”
= promise to pay as ordered or commanded by payee/bearer
Sum to be paid with EXCHANGE
No time for payment is expressed
Refers/applicable to instr payable in foreign currency
= payable on demand
EXCHANGE – the charge for the expense of providing funds at the place where instrument is payable to meet the instrument
“on or before”
issued at another place. Either at “fixed” or “current” rate
= date of maturity, or time when promise to pay is to be fulfilled
STILL NEGOTIABLE – even if theres provision for payment in foreign currency whether payable at fixed or current exchange
Not necessary to specify payee
rate. Bcos “current exchange rate” can be easily ascertained, such rate is a matter of “common commercial knowledge”
= if promise is made to bearer
CURRENT RATE – going rate or market rate
Figures next to the amount in words
Don’t apply to domestic bill
= not essential
RA 8183 – every monetary oblig must be paid in PH currency (legal tender in PH), but parties may agree to settle transaction
Place of payment
in any other currency at time of payment
= not essential, can pay any other place agreed by partners
Can be signed by several persons
= either jointly or jointly and severally
Sum to be paid with COSTS OF COLLECTION or an ATTORNEY’S FEE
STILL NEGOTIABLE – even if there’s added “costs of collection” or an “attorney’s fee” after default on maturity of note
DON’T AFFECT CERTAINTY OF AMOUNT PAYABLE – even if uncertain the increase in amount due takes place after maturity
Bill of Exchange (when instr ceases to be negotiable in full commercial sense)
Negotiable BoE = unconditional order in writing addressed by one to another, signed by giver, and require addressee to
“…with 15% attorney’s fee and costs of collection if not paid on maturity” = NEGOTIABLE
pay upon demand or at fixed determinable future time a sum certain in money to order or to bearer.
“…to pay all costs, charge and expenses incl attorney’s fee incurred by payee in any legal
Order made by one to another to pay money to third person
proceedings for the collection of debt” = NON-NEGOTIABLE we cant ascertain exact value of each from
Negotiability = depends on terms of the order. Immaterial whether drawee obeys order to pay or not. Drawer has his
the face
liability under the law [sec 61]
ATTORNEY’S FEES – courts can reduce the fee if found “unconscionable” or unreasonable. If AF is not specified, it should
Requires 3 parties in its inception
be in reasonable sum
Check – an order bill that is drawn on bank and payable on demand. Most common type of “order paper”
TRASFEREE ACQUIRED INSTR AFTER MATURITY – not a holder in due course, he can hold the instr subject to defenses as
if it’s NON-NEGOTIABLE
ORIGINAL PARTIES to BOE
This class of NI is an order paper or three-party paper
SECTION 3. When promissory or order to pay UNCONDITIONAL
*all 3 need not to be different persons. 2 parties to the bill can be same person (drawer-drawee or drawer-
Note or Bill must be payable absolutely. Not enough there’s promise or order. Should not be subject to any
payee)
condition/contingency except implied conditions of presentments, protests and notice of dishonor as law provides
a. Drawer – issues and draws the order bill. Gives order to pay money to third party. Don’t pay
directly. Signs BOE. Maker if in PN
b. Drawee – whom the bill is drawn/addressed. He is ordered and expected to pay. Becomes acceptor
Why it should be unconditional?
Bcos if its CONDITIONAL = it’s a simple contract rather than n.i. Remains non-negotiable even if condition really did happen
when he indicates willingness to pay the bill (primarily liable and drawee become only a surety -
subsequently and ofcourse would be payable at that time. No one would accept conditional paper for debt, bcos unclear
guarantee). Drawee is the bank in the case of check. Not really party to the bill. Assumes liability
when & how much to receive at maturity
only when he accepts usually by writing word “accepted” and signing his name on the face
Being UNCONDITIONAL = enhances ability of instr to circulate freely from one person to another
c. Payee – reason why bill is originally issued or is payable
*other words aside from “order” to satisfy requirement: Terms not affecting unconditional Liability
“Let the bearer” Additional terms appearing on instr – don’t affect if duty to pay is unaffected by such terms (statement of purpose for
“Drawee will much oblige Drawer to pay Payee or order” which the instrument is issued, the collateral securing it, consideration received in exchange of the instrument like goods
purchased)
ORDER Mere indication from what fund the reimbursement will be taken
• Not a request, demands drawee to make payment Statement of the transaction which gives rise thereto
• NOT AN ORDER: • Instrument mentioning which fund to use for reimbursement
mere request or authority “I request you to pay” “I wish you would pay” “I hope you will pay” “I authorize NEGOTIABLE. cos order to pay is not rendered conditional. Drawee is not limited to the
you to pay” money in his hands which belongs to Drawer
• DOESN’T CONVERT ORDER INTO REQUEST: Fund indicated is not the direct source of payment BUT source of reimbursement (which
Mere use of polite words like “please” is an act after payment)

*BOE characteristics not in PN
• “pay to” – unconditional order to pay (instead of to pay in the case of PN)
• “Jovencio Cinco” – drawer
• “Domingo Lantican” – drawee
• “charge the same amount to the account of” – amount to be paid by drawee is to be
charged against funds of drawer. But this can be omitted
IDEAS & PURPOSE of BOE
a. Drawer’s funds in hands of drawee – drawer has funds in the hands of drawee. Drawer wants the
money to be paid to payee. That’s why drawer draws BOE to order drawee
b. Liability of drawee for nonpayment – if drawee refuse to accept even if he has the money of
drawer, then he becomes liable to drawer (not to payee)
- if drawer has no funds in the hands of drawee, presumption is
that drawer made arrangement to drawee to honor the bill. Thus,
drawee must ask drawer for reimbursement and NOT to a bona
fide holder. For drawee to be liable there must agreement for
drawee to honor order like “debtor-creditor relationship”
SECTION 2.
Certainty of sum payable
Requisite for negotiability to assure clarity and certainty in valuing instrument
PAYMENT OF FIXED AMOUNT OF MONEY
Impt it represents fixed amount to be paid wholly in money since it intends to take place
of money
AMT TO BE PAID – state plainly on face of instr. and determinable from face w/o need to
refer outside source
“SUM CERTAIN” REQUIREMENT IS MET – if holder can determine from instr. amt to be
received at maturity
NOT NEGOTIABLE - if instr call for an act other than payment of money bcos n.i. is
intended as substitute for money
PERMISSIBLE CLAUSES or STIPULATIONS
SUM IS STILL CERTAIN – even if theres clause in instr that it should be paid with interest,
by stated installments, with exchange, with costs of collection or with attorney’s fees, or
• Instrument mentioning usage of particular fund for payment
NON-Negotiable. bcos amount to be paid depends on existence of that fund. Immaterial
whether fund exists or is to yet to be made. Remains non-negotiable even if fund was
found sufficient on maturity. But nonnegotiability don’t make the note uncollectible
TEST OF NEGOTIABILITY. Whether instrument carries the maker or drawer’s general
personal credit
Intention to limit payment to particular fund must be made plain.
IF LANGUAGE IS AMBIGUOUS or OBSCURE =courts usually decide in favor of negotiability
• Instrument containing direction to debit a particular account
NEGOTIABLE. promise/order is not conditional. Payment don’t depend on adequacy or
existence of the account to be debited. Payable absolutely and not out of particular fund.
Instr is paid first then the acct will be debited
• Statement of transaction which gives rise to instrument
NEGOTIABLE. Mere recital of transaction/consideration why instr was issued doesn’t make
it conditional. The instr is to be paid whether the reason really occur
NON-negotiable. if promise/order or oblig to pay is burdened with terms and conditions
of another contract. Nonego regardless of what those terms are
SECTION 4. Certainty of time of payment
TO BE NEGOTIABLE – should be payable on demand (at all events) or at fixed or determinable future
NON-negotiable – if payable upon contingency “condition or event uncertain if will happen or not”
Demand (sight) instrument – holder can call for payment anytime
Term (time) instrument – payable only when time to pay arrives or at definite time
Checks – should be payable on demand
Why time should be certain?
Enforcement – so that holder will know when to enforce
Required – so that liable person will know when he is required to pay (maker, drawee/acceptor)
Arise – so that secondary parties will know when his oblig will arise (drawer, indorser, accommodation party)
Examples:

acceleration provision in installment note “Payable at fixed time”

BASIC TEST – whether holder can determine by computation amount payable when instr
“Payable at fixed period after date” – date of maturity can be determined by counting ___ days from issuance

is due
“Payable at fixed period after sight” – count days from date it is presented to drawee; after instr is seen by drawee
upon presentment for acceptance or accepted by the drawee
“Payable on or before a fixed time” – has option to pay on or before; Payee can demand only “on” date not “before”.
Maker only has option to pay “before”
 *you need to state “YEAR OF MATURITY” bcos it will otherwise not be determinable even if time of payment is certain
“Payable on or before a determinable future time” – on or before start of next school semester
“Payable on the occurrence of specified event” – upon death of his father
“Payable after occurrence of specified event” – 30 days after death of his father
*NON-NEGOTIABLE = if payable days before occurrence of specified event
“Payable upon contingency” – upon reaching age of majority (order is conditional, he may die before reaching that
age; happening of contingency doesn’t cure the defect)
SECTION 5. Acts in addition to payment of money
NON-NEGOTIABLE = GR: if contains promise or order to do any act in addition to payment of money. BASIS. While one
could be indorsed, the other would have to be assigned
EXCEPTIONS:
= BETWEEN THE PARTIES: no recovery on note bcos absence of consideration
If Reynan indorses the note to Penshoppe (a holder in due course)
= Penshoppe can recover from SM bcos “absence of consideration” is ONLY a personal defense not
available to holder in due course
Failure of consideration
- when one of the parties refuse or fail to comply with the agreed consideration
If Reynan really has land but he failed to deliver it to SM bcos he sold it again to Bench who in good faith
registered the sale
= there’s failure of consideration where Reynan cannot recover from SM
Partial failure of consideration (whether failure is an ascertained & liquidated amount otherwise)

SALE of COLLATERAL SECURITIES – - can be a defense Pro tanto

he can sell the ring I pledged as security in case of failure to pay If only 2/3 portion of land was delivered

additional is performed after maturity where it’s no longer negotiable in full commercial sense. = there’s partial failure of consideration, recovery only pro tanto. Reynan can recover only 2/3 of note and

Promise is to pay money only until maturity SM not liable for 1/3

Doesn’t subject the promise or order to the terms or conditions of the pledge SECTION 29. Accommodation Party
CONFESSION of JUDGMENT –
…and I hereby authorize my attorney-at-law to appear at any court of record after oblig becomes due Accommodation bill or note
COJ given after action is brought to save expenses is VALID - One to which accommodation party has put his name, without consideration, for the purpose of accommodating some
WAIVER of BENEFIT GRANTED by law – other party who is to use it, and is expected to pay it
Even if it’s waiver of protest, presentment for payment or demand - it is a loan of one’s credit
ELECTION of holder to require some other act –
Payment of another thing at the option of the holder. As good as instr payable in money Accommodation party
NON-NEGOTIABLE = if at promissor’s option - one who signed the instrument as maker, drawer, acceptor, or indorser without receiving value therefor and for purpose
of lending his name to another party

SECTION 6. - usually expects that accommodated party will pay the bill or note when due
- he is lending his credit to party whom accommodation is made
Effect of omission of DATE
- he is classified accdg to “accommodated party’s” status (i.e if accommodated party is maker then he is liable as if he is
NOT NECESSARY - date in bill/note. Presumed to be dated at time of issuance. BUT necessary if “undated note” – eg
maker)
payable 30 days after date
Instruments can be: anti-dated (date earlier than actual date) or post-dated
Accommodated party
Date stated is not in calendar – deemed as nearest date of the month
- the person who is the reason why accommodation party signs instrument for lending his credit and enabling him to raise
money upon it.
Effect of omission of VALUE
- he impliedly agrees to take up the instrument at maturity and to indemnify accommodation party against consequences
NOT NECESSARY – to state value received bcos consideration is presumed
of nonpayment
Reynan needs P30,000 but no one wants to lend him bcos he has no credit
Effect of omission of PLACE He went to rich relative James. James let Reynan borrow his credit. So James signs promissory note payable
NOT NECESSARY – to specify place where it is made/drawn, or where it is payable
to P (receiving no consideration therefor)
Payment place not specified - “Presentment of payment” should be made [sec 73] ; presumed to be payable at place of
Reynan indorses the note to PNB which discounts the note bcos of James’ credit
residence or business of maker/drawee
= here the promissory note = accommodation note (or bill)
James is the accommodation party
Effect of omission of SEAL Reynan is the accommodated party
NOT NECESSARY – seal BUT advisable that bill/note appear in public instrument para included among preferred credits
with respect to other property of debtor
*If Reynan pay PNB
= Reynan cant enforce note against James bcos Reynan gave no consideration to James and he was merely
Effect of designation of particular kind of current money accommodated by James
NOT NECESSARY – to be paid in legal tender, pwede current money or foreign money, pwede pud note (particular kind of
money) Accommodation Party: LIABILITY TO HOLDER
NOT VALID DEFENSE AGAINST HOLDER FOR VALUE
SECTION 7. When instrument payable on demand Absence of consideration bet “accommodation party” and “accommodated party” even though he knew
Payable on demand NOT ONLY to immediate parties but also to subsequent ones (due and payable immediately after it before he became a holder
delivery)
Overdue instr or if time not expressed – on demand RELATION: Principal debtor and surety
ON DEMAND (used in PN) After paying holder he may recover from accommodated party for reimbursement
“at sight” (used in BOE) – payable as soon seen by party liable The surety for accommodated party is the lending of his name of accommodation party
“on presentation” “on call” “at any time called for”
= the fact that James did not receive any consideration for note would not be a defense in an action
Payable on demand as regards the MAKER brought against him by PNB even if PNB knew that James’ signature was made for Reynan’s
Date last month but issued now (already overdue) accommodation (the accommodation would not serve any purpose if James will not be held liable)

Payable on demand as regards the ACCEPTOR

If after signing note, James keeps it in safe but Reynan steals it then indorses it to PNB and PNB knows
Due yesterday but accepted today pa
that Reynan stole the note
= PNB is not a holder in due course bcos it knows the lack of delivery making James NOT liable (sec 16
Payable on demand as regards the INDORSER
and 58)
Due yesterday but indorsed just now

SECTION 8. When instrument payable to order “without receiving value therefor” MEANING
“to the order of” “or order” “or bearer” “to bearer” “and assigns” – convey consent that instr can be transferred to whoever One of the requisites to be considered Accommodation Party
payee orders U can still be Accommodation Party even if u receive some consideration for the use of your name

Payable to order if: Therefor - refers to instr itself and not to the use of name by way of accommodation

Drawn payable to the order of specified person OR to him OR his order Supreme Court: “only means that no value has been received for the negotiable instr and don’t mean not receiving payment

To order of payee who is not the maker for lending his name”

To order of payee who is not the drawer If James was given P10,000 as consideration of lending his name but not for promissory note he signs

To order of payee who is not the drawee = James does not lose status as an Accommodation Party

To order of drawer
To order of maker – not complete until indorsed by maker Kinds of Accommodation Party

To order of drawee – if he is both drawee and payee. Drawee can pay himself on maturity from funds belonging to drawer 1. Accommodation maker

in his possession James (as accommodation party) issues promissory note payable to Reynan who can then

To order of 2 or more payees jointly it to Nadine

To order of one or some of several payees 2. Accommodation Drawer

To order of holder of office for the time being James (as accommodation party) signs a BoE with Reynan as payee, and Reynan can
indorse to Nadine
3. Accommodation Acceptor
James (as accommodation party) accepts a bill drawn on him by Reynan in favor of himself
Effect if payee is not named/described
and Reynan may indorse it to Nadine
In order instrument – specific person should always be named either before/after the word “order”. If not specified nobody
4. Accommodation Indorser
can give order to collect (nobody can indorse) BUT ok even if not named as long as described with reasonable certainty
James (as accommodation party) simply signs as an indorser in blank, the bill or note
made by Reynan in favor of Nadine, before it is delivered to Nadine
SECTION 9. When instrument payable to bearer
SECTION 10. Criterion of negotiability
Accommodation Party VS. Regular Party
Signs instr without receiving value Signs instr for value
therefor
Signs instr for purpose of lending his
Does not sign for that purpose
name to some other person
SECTION 28. Want of consideration Cannot disclaim or limit his personal
Absence or Failure of consideration May always show by parol evidence that
liability as appearing on instr by parol
- can be a defense to person NOT holder in due course he is only such
evidence
Cannot avail of defense of absence or
May avail said defense against holder
Absence of consideration failure of consideration against holder
not in due course
- aka “want of consideration” not in due course
- total lack of any valid consideration for the contract
- EFFECT: no contract
SM made a promissory note to Reynan in payment for land that don’t exist
 After paying holder may sue for
May not sue any subsequent party for
reimbursement the Accommodated party
reimbursement
although a subsequent party

CHAPTER 3. NEGOTIATION
SECTION 30.
Negotiation
Transfer of negotin from one person to another made in manner as to constitute the transferee the holder thereof
NO NEGOTIATION. If transfer don’t make transferee the holder

Methods of transferring negotin

1. Issue
First delivery of instr (complete in form) to a person who takes it as a holder
First transfer of instr to payee
Negotin’s life start from issuance by maker/drawer to first holder

2. Negotiation
Make transferee of negotin the holder thereof
Ordinarily involves indorsement so that “negotiation” and “indorsement” are used interchangeably

3. Assignment
Transfer of title to an instrument with assignee
Assignee generally taking only such title or rights as his assignor has (subject to all defenses available
against his assignor)
Less usual method. May or may not involve indorsement in the sense of a writing on instr back
Involves transfer of rights under a contract
NOTE: transfer of non-negotiable instr ALWAYS constitute assignment
“transfer” also used to refer to “assignment”
TRANSFEREE BECOMES HOLDER. When negotiation takes place

Methods of negotiation
1. Instrument payable to order
Payable to the payee named therein or
To the indorsee or
Person ordered or authorized by payee to collect (order or authority made thru indorsement followed by
delivery to indorsee)
1st step: indorsement by payee or present holder
2nd step: delivery to next holder

2. Instrument payable to bearer

Negotiated by mere delivery alone w/o indorsement
“bearer”
– person in possession of bill or note payable to bearer
- any person in possession of #2 is always the bearer thereof although he may have NO legal right thereto
- if instr is negotiated to a holder in due course, HIDC may acquire better title than that of transferor

“Delivery”
- transfer of possession (actual or constructive) from one person to another

“Holder”
- payee or indorsee of bill/note (who possess it) or the bearer thereof

If Daniel makes note payable to Reynan or order and Reynan delivers it w/o indorsement
to Kathryn
= NO negotiation. Kathryn by such transfer does not become holder of the note

If instr is a bearer instr

= Reynan can negotiate it without indorsement of any kind simply by handing or mailing
the note to subsequent purchaser

Daniel issues note “payable to bearer.” Note was stolen and Thief delivered note to
Reynan
= Thief’s acquisition of note don’t constitute delivery
NO negotiation to Thief. Delivery must be voluntary.
There’s Negotiation to Reynan. If acted in good faith
*Thief or finder don’t acquire title of instr by virtue of theft
= can only transfer title to subsequent innocent purchaser

*if no negligence of Daniel – he should be relieved from liab

NOT NEGOTIATION. Payment of a check (or other bill) by drawee bank. Doesn’t make bank holder
Bank is neither payee nor indorsee. Check is extinguished and cant be put in circulation again so as to bind
drawer/indorser
NOT INDORSEMENT. Writing of name of holder on back of check before surrendering for payment to drawee-bank
Signature serves only as receipt for money.
UPON PAYMENT. Check becomes merely a voucher. Payment effects a discharge of the instrument not a
transfer of title

Delivery of order instr w/o indorsement