(Negotiation)

43. If an instrument payable to the order has been transferred by the holder without
his indorsement, what rights does the transferee acquire?

The transfer vests in the transferee such title as the transferor had therein,
and the transferee acquires, in addition, the right to have the indorsement of
the transferor.

44. When shall such transferee become a holder in due course?

He becomes a holder in due course as of the time of actual indorsement.

45. What are the rights of a prior party to whom an instrument is negotiated back?

The right to reissue and further negotiate the instrument the instrument.

CHAPTER 4- RIGHTS OF HOLDERS

1. Who is considered a holder?

The payee or indorser of a bill or note, who is in possession of it or bearer
thereof.

2. Name the kinds of holders under the Negotiable Instruments Law.

Holders simply
Holders for value
Holders in due course
Holders not in due course

3. What are the rights of a holder?

He may sue on the instrument in his name.
He may receive payment and if the payment is in due course, instrument is
discharged.
He may transfer his rights through negotiation.

4. What constitutes a holder in due course?

A holder in due course is a holder who has taken the instrument under the
following conditions:
a) That it is complete and regular upon its face.
b) That he became the holder of it before it was overdue, and without
notice that it had been previously dishonoured, 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.

5. Must the four conditions be present at all times the holder is in possession of the
instrument?
 Not necessarily present at all times.
6. If the instrument is negotiated to a holder after it was dishonored by non-
acceptance, can the holder be still a holder in due course?
Yes, if he had no notice that it had been previously dishonored at the time it
was negotiated to him.

7. If the instrument was dishonored by non-payment has been negotiated, can the
holder be still a holder in due course?
No, if the instrument was negotiated at maturity.

8. When a holder is not deemed a holder in due course?

Where an instrument payable on demand is negotiated an unreasonable
length of time after its issue, the holder is not deemed a holder in due course.

9. Can there be a holder in due course for part of the instrument?

Yes, where the transferee receives notice of any infirmity in the instrument or
defect in the title of the person negotiating the same before he had pad the
full amount agreed to be paid therefore, he will be deemed a holder in due
course only to the extent of the amount theretofore paid by him.

10. When may title of a person who negotiates the instrument be considered
defective?
The title of a person who negotiates an instrument is defective within the
meaning of this Act when he obtained the instrument, or any signature
thereto, by fraud, duress, or force and fear, or other unlawful means, or for an
illegal consideration, or when he negotiates it in breach of faith, or under
such circumstances as amount to a fraud.

11. Does it necessarily follow that if the title of the person negotiating is
defective, the holder shall also have a defective title?
No, the holder must have had actual knowledge of suspicious circumstances,
and he willfully abstained from making inquiries, his intentional ignorance
may amount bad faith.

12. What are the rights of a holder in due course?

The rights of a holder in due course:
a) He may sue on the instrument in his own name.
b) He may receive payment and if the payment is in due course, the
instrument is discharged.
c) He holds the instrument free from defenses available to prior parties
among themselves.
d) He may enforce payment of the instrument for the full amount thereof
against all parties liable thereon.

13. What kind of defense is a holder in due course free from?

The defenses that cannot be set up against a holder in due course are the
personal defenses or equities.
14. What is the status of a negotiable instrument in the hands of a holder not in
due course?
Negotiable

15. Under what circumstances may a holder not in due course acquire the rights
of a holder in due course?
A holder not in due course may acquire the rights of a holder in due course
provided:
a) He must derive his title through a holder in due course.
b) He must not be a party to any fraud or illegality affecting the instrument.

16. If a holder not in due course has acquired the rights of a holder, is he already
a holder in due course?
No, in respect of all parties prior to him he is a holder through a holder in due
course.

17.Who is deemed a holder in due course?

Every holder is deemed prima facie to be a holder in due course

CHAPTER V- LIABILITIES OF PARTIES

1. What kind of liability has the maker?

Primary

2. What are the warranties of a maker?

The maker warrants the:
a) Existence of the payee
b) Capacity of the payee to contract

3. What is the liability of a drawer?

Secondary

4. What are the warranties of a drawer?

The drawer warrants the:
a) Existence of the payee
b) Capacity of the payee to endorse

5. What is the liability of the drawee?

Not liable until he accepts the instrument in which case he becomes an
acceptor.

6. What is the liability of the acceptor?

Primary

7. What are the warranties of an acceptor?

The acceptor warrants the:
 a) Existence of the drawer and his capacity and authority to draw the
instrument.
b) Existence of the payee and his capacity to indorse

8. In what respect does a maker differ from the acceptor as regards their primary
liability?
The liability depends on the tenor of acceptance.

9. When is a person deemed to be an indorser?

A person placing his signature upon an instrument otherwise than as maker,
drawer or acceptor is deemed to be an indorser, unless he clearly indicates
by appropriate words his intention to be bound in some other capacity.

10. Who is an irregular indorser?

A person, not otherwise a party to an instrument places thereon his signature
in blank before delivery.

11. To whom shall an irregular indorser be liable?

Rules as to liability of irregular or anomalous indorser:
a) When instrument is payable to the order of a third person, he is liable to
the payee but not to the maker.
b) When instrument is payable to the order of the maker or drawer or to
bearer, he is liable to a party subsequent to the maker and to subsequent
parties but not to the maker.
c) When an irregular indorser signs for accommodation of payee, he is liable
to all parties subsequent to the payee

12. When may an instrument be negotiated by delivery?

When it is a bearer instrument

13. What are the warranties of a person who negotiates be mere delivery and
person who makes a qualified indorsement?
One who negotiates by delivery and qualified indorsement (completed by
delivery) warrants:
a) That the instrument is genuine and in all respects what it purports to be
b) That he has a good title to it;
c) That all prior parties had capacity to contract;
d) That he has no knowledge of any fact which would impair the validity of
the instrument or render it valueless

14.To whom shall the warranties of a person negotiating by delivery extend?

The warranties extend in favor of no holder other than the immediate
transferee.

15. To whom shall the warranties of a qualified indorser extend?

The warranties extend to all subsequent holders who make title through his
indorsement for a breach of any of his warranties.
16.What is the liability of the qualified indorser?
Merely as assignor of credit.

17. What are the warranties of a general indorser?

The general indorser warrants:
a) That the instrument is genuine and in all respects what it purports to
be
b) That he has a good title to it;
c) That all prior parties had capacity to contract;
d) That he has no knowledge of any fact which would impair the validity
of the instrument or render it valueless
e) That the instrument is, at the time of his indorsement, valid and
subsisting
f) That the instrument will be honored
g) That the prior indorsements are genuine

18. To whom shall the warranties of a general indorser extend?

To all subsequent holders in due course.

19. Fourth warranty of the general indorser vs. qualified indorser?

General Indorser: valid and subsisting, whether or not he has knowledge of
that fact
Qualified Indorser: warrants that he has no knowledge of any fact which could
invalidate the instrument or render it valueless

20. Between a person negotiating by delivery and a person who makes a

qualified indorsement, who has greater liability?
A person who makes qualified indorsement

21. If a person places his indorsement on an instrument negotiable by delivery,

what liabilities does he incur?
All liabilities of an indorser

22. Respecting one another, what order are indorsers liable?

In the order in which they indorse

23. What is the nature of the liability of joint payees or joint indorsees who
indorse?
Joint and severally, solidary

24.If a broker or agent negotiates an instrument by delivery, who shall be liable? Is

it the agent or the principal?
He incurs all the liabilities prescribed by Sec. 65 unless he discloses the name
of his principal and the fact that he is acting only as agent.

CHAPTER VI- PRESENTMENT FOR PAYMENT

1. What is presentment for payment?
Presentment for payment is the presentation or exhibition of the instrument
for the purpose of demanding and receiving payment

2. Why is it necessary to present for payment?

Presentment to persons secondarily liable, such as drawer and indorsers, is
necessary to charge them with liability.

3. What constitutes tender of payment under NIL?

The ability and willingness on the part of the primary party to pay there at
maturity constitutes tender of payment under NIL.

4. When shall presentment for payment be made?

Where the instrument is not payable on demand, presentment must be made
on the day it falls due. Where it is payable on demand, presentment must be
made within a reasonable time after its issue, except that in the case of a bill
of exchange, presentment for payment will be sufficient if made within a
reasonable time after the last negotiation thereof.

5. What constitutes sufficient presentment for payment?

Presentment for payment, to be sufficient, must be made:
a) By the holder, or by some person authorized to receive payment on his
behalf;
b) At a reasonable hour on a business day;
c) At a proper place as herein defined;
d) To the person primarily liable on the instrument, or if he is absent or
inaccessible, to any person found at the place where the presentment is
made.

6. When does the law allow presentment for payment to one who may not be
primarily liable on the instrument?
If the person primary liable is absent or inaccessible, to any person found at
the place where the presentment is made.

7. Which is the proper place of presentment?

A proper place for presentment is:
a) The place specified in the instrument, if such is specified;
b) The address of the person to make payment, if such is given and no place for
payment is specified;
c) At the usual place of business or residence of the person to make payment, if
the first two places are not specified;
d) If the first three are not available, at the place where he can be found or at
his last known place of business or residence.

8. What is the effect if the holder does not present for payment?
The drawer and indorsers are discharged.
9. How is presentment for payment made?
The instrument must be presented to the person from whom payment I
demanded, and if such instrument is paid, it must be delivered to the party
paying it.

10. Is demand for payment by telephone sufficient?

No, because exhibition of the instrument is not possible.

11. Where the instrument is payable at a bank, at what time shall it be presented
for payment?
Presentment must be made during the banking hours.

12. When may presentment for payment be made after banking hours?
When the person making the payment has no funds to make such payment
during the day, presentment may be made at any hour before the close of
the bank on that day.

13. To whom shall presentment for payment be made if the principal debtor is
dead?
Presentment for payment must be made to his personal representative, if
such there be, and if, with the exercise of reasonable diligence, he can be
found.

14. To whom shall presentment be made in case the persons primarily liable are
partners?
If the persons primarily liable are partners and no place of payment is
specified, presentment for payment may be made to any one of them, even if
such partnership is dissolved.