Qualified Indorser vs General Indorser

Qualified indorser is not liable when consideration is illegal but if

he has knowledge of illegality he will be liable. (Check warranties
of qualified indorser sec 66)
General indorser is liable when consideration is illegal even if he
had no knowledge of such illegality due to his warranty (Check
warranties of general indorser sec 65)
Section 40
Maker made a promissory note payable to P or Bearer, he gives it to P,
who the indorses it to A, then A indorsed to B, B delivered to C, C indorsed to
D, D delivered to E.
M - P or Bearer A B
Ind
ind

C D E
del Ind
del

Who are liable to E?

D being immediate transferor (Check warranties of delivery of
bearer )
C due to his indorsement
But not to
B and A because E does not obtain the PN from them. Essentially,
a prior delivery creates a barrier between the parties who indorse the
instrument as the delivery converts the instrument back into a bearer
instrument and does not need indorsement to be negotiated (See Sec 40)
Exception:
Forgery generally,parties subsequent to the forgery are not
liable, except if he is a party to the forgery.
Section 62: Warranties of Acceptor
Drawer accepted the check for 20,000 when it was altered from
10,000. (the change of 20k to 10k is a material alteration)
Can the bank set up a defense that it is materially altered as against a
holder in due course?
NO. because it guaranteed to pay the 20,00 based on the tenor of its
acceptance. But the Bank does not guarantee that the indorsement genuine .
When can a holder treat a bill of exchange as a promissory note?
1. Sec 17
2. When the drawee and the payee are the same
3. Fictitious drawee
4. Managers checks (as there is a waiver of acceptance for payment)

Effect of such change in treatment: The drawer becomes primarily

liable as if he is the maker as in a promissory note.
When is there a discharge of a negotiable instrument?
See Sec 119
1. Payment in due course by the principal debtor
2. Payment in due course by party accommodated
3. Intentional cancellation of the holder
4. By any other act which will discharge a simple contract for the
payment of money
See Montinola vs PNB
What is the effect of payment made before due date of instrument?
It does not discharge the instrument because it may still be
renegotiated. Such payment is not in due course and does not qualify under
Sec 119.
What is the effect of payment of the instrument with a provision of on or
before (date)?
It discharges the instrument.
Both instances of payment above must be effected by the principal
otherwise, it is not in due course.
Check the following cases:
1. Prudential bank vs CA, GR No. 125536, November 16, 2000
2. BPI vs CA, GR No. 104612