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% recito 30% final examo 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 ruleo 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 ankso If they revoke the debt, the banks fail

ROP: $100k can transfer this to anthr persono But though the face value is 100k, its mrk value might be lesso As it moves from person to person, value is transferred for a pc of

papero 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 citedo 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: KatePlease 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: YvettePls pay P2000…

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

Drilon 1

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 transactionso 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 uncondo 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

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

Drilon 2

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 S52o However, vis a vis the indorser, you are a holder in due course

Ex) A – B – C – D – E – Fo F X a holder in due course as to A-D bec acquired it when overdueo 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

o 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 affectedo 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 happeno 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 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 demandableDrilon 3

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 expenseso 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 childo 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? NOo 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 jointCan 2 drawees be named in succession/alternatively? To X or Y: either can indorseTo: X or YX or if refuse, to YS128: not allowed

drawer = draweecan’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 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

voidno 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

Drilon 4

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 pplo Means each of themo Their liablilty is solidary

“we” = signed by 2 pplo 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 writteno 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 21Young 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 discounto 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

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?

Drilon 5

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 baro 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

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 banko 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

o Rel was one of creditor & debtor o 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

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 indorsemento 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 wordso 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

Drilon 6

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 defenseo 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 holdero At anytime, any I not necessaryo Ex) inst payable to bearer: can strike out bec all Is are unecssaryo 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 Io 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 valueo 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 26Elgin 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 pre-existing 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 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 propo They were decived by Gonzales

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

Suspicious Circums:o X for the sme amnto 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

Drilon 7

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 kanyao 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 anywhereo If SC says just inquire, why bother inquiring? o You wont get anything significant from that inquiry

State Investment Crossed check: features

o Can only be depositedo Can only be indorsed once to the payee who has an accnt w the bank o 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?

Bataan Cigar Features of a crossed check:

o Cant be encashed, deposited onlyo 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 genuineo 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? o 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

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-assignoro IFC: assignee-financing Co

They provided financing for the transaxn They paid the purchase price of the tractors

IFC a HDC? NOo 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

Drilon 8

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

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

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

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 foro X a HDC wrt to the amnt not yet paid

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/defecto 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 payo 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

Foster Whats constructive notice? 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 HDCtakes 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

Drilon 9

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 HDCo 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 upindependent 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 completiono 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

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 overdueo And any subsequent holder will hold the sme status as wello 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

Drilon 10

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 overdraftso 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

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 1o But rights are only as to the parties prior to the HDC

To be a s58 HDC you shld:o Derive title from a HDCo 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

Drilon 11

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 HDCo Ddnt prove that the bank was a HDCo 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 Jo J says that C had defective tilteo K wld have to prove that you derive title from a HDC – prove G is a

HDCo 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 tilteo If K can prove she acquired title from a HDC, shes a HDCo 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 burdeno 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/illegalityo 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

o 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

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? Noo 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 defecto 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 Drilon 12

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 defenseso 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 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? Drilon 13

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 faitho H who was negligent

1st natl bank = draweeo 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

drawero As opposed to the duty of the drawee bank to know the genuineness of

the drawer’s sig Where ds this duty come from?

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 paido Ct ddnt make a distinction btwn the accepted/not accepted billso 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

Drilon 14

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 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

July 12PNB 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 backwardo They can collect on ea other under warranties

As btwn PNB & NCB NY can PNB recover under s23? NOo But PNB is precluded – PNB is saying I paid you by mistake, im entitled

to recovero 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

*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 & paymento Under Phil law: acceptance isn’t subsumed under payment

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

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 sufficiento To permit the bank to repudiate the payment wld destroy the certainty

wc comes w the N of commercial instruments

Stop payment order Is stop order isn’t followed & drawee bank pays, this cant be debited from the

drawers accnt Drilon 15

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

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 applieso Ilusorio is negligent, thus hes precluded from raising the defense of

forgery – he failed to rectify the sit by not preventing the sit

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

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 indorsero 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 recovero 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

Drilon 16

Canal bank (drawee) Suit btwn drawee & collecting bank Apply s23, who is entitled?

o Canal bank is entitled to recover from bank of Albanyo 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 themo 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 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 Io 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 insto 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 guarantyo 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

Drilon 17

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 banko 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 Ongo 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

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 Ongo 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

drawero 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 persono 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,

1936o 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?

Drilon 18

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 principalo 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 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 Also, under s191 a H is a payee or indorsee of a bill/note & Montinola is

neither – so he’s not a holder o Didn’t take the inst in GF o 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 Drilon 19

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

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 deviceso 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 26Marine 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 defenseo 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

Drilon 20

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 party making/drawing/accepting/indorsing

o Delivery was conditionalo Delivery was for a spcl purpose o Delivery wasn’t for the purpose of transferring the prop in the inst

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)

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 releasedo 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 boundo But if HDC – can enforce the inst

Under s13: insertion of a wrong date wont avoid the insto 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

July31CONSIDERATION: 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? Drilon 21

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 gifto 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 o 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/considerationo 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 contracto But theres no consideration o In a contract of donation, there’s cause but no considerationo In contract law, gratuity is a valid causa, but theres no consideration!!

Consideration: from AM contract law

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 22

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 3 rd 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 damageso 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 overdueo dishonoredo 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?

o Bec the drawee signed

Drilon 23

o 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

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 QAo Why?

Hows the A binding on the parties 2ndarily liable?

CHECK S185: a BOE drawn on a bank payable on demand

o Payable on demand = this is what differentiates it from a BOE Drilon 24

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 acceptedo 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?

Noo 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; oro 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

o Bec if you say that a check isn’t proper, then they’re nullifying A1249 o 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

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 1st =

impossible cond bec its w BPIo 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? NOo 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? NOo 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)

Associated Bank v Tan

Drilon 25

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? Yeso 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?

o 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

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 obligso 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) o Can impose personal defenses when: (must concur)

DWR procures the C & the H isn’t a HDC or not a HFV

Drilon 26

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])

LIABILITY OF SECONDARY PARTIES S70 Reqs for them to be liable:

o Presentment for paymento 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 DWRo Admits existence of the PEEo Engages that upon presentment itll be accepted/paid accdg to its tenoro If dishonored, he will payo 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 Coo PEE: PNB o DWR: Picornell

Why wsnt the seller the PEE? o Bec they borrowed money from PNBo 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 insto And if the DWR & DEE is the sme person, H can treat it as a bill or noteo 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

o 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

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 Pg617o 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 contracto Contravenes EPo Unduly delegates legis & exec powerso 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:

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

Drilon 27

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? NO, there was no notice to

Sapiera

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 indorsero 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) 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

o This wldve been btr than their ruling that the neg of the indorsee negatives the liab of the indorser

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

Drilon 28

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

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 signedo 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

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 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

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

Drilon 29

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 diffo 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 presento 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

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

Drilon 30

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 Coo 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 o 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 liabo 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 needo 2ndarily liable – needed

Presentment for payment is dispensed w under s82 o Cant be made after reasonable dilo 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 o 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

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

Drilon 31

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 20o 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 dayo 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?

o 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

Drilon 32

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

PROVS: When shld you present an inst for payment?

o Reasonable hour on a business day (s72) Where? (s73)

o If specified place = pay thereo If no place, but add of the person liable for payment is there = pay at

the addo 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-Io 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 o Dsnt think it’s a good law o Ex) like BP22 if you issued a check presumption that you knew you

ddnt have funds – but there’s a possibility that o 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 agento 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

Sept 4Cont of notice of dishonor

Drilon 33

To whom is a notice of dishonor sent? Party himself or his agent in that behalf

o Agent shld be authorized to rcve noticeo 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 repo 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?

o Notice can be given to the party himself or his trustee or assignee o 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 noticeo The benefit inures to the benefit of the H & all parties subsequent to

the party to whom notice is giveno 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 allo 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?

o 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?

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

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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 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 banko 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

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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 MKRSo 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: DISCHARGEWhen 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? NOo 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

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 madeo 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)

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