HOLDER IN DUE COURSE (PART 1)

Q: What is the advantage of qualifying as a holder in due course?

A: The advantage is the holder holds the instrument free from all personal defenses. Kaya ang
tanung anung ibig sabihin nun? If you qualified as a holder in due course you should feel secure
because you could be able to enforce the instrument against all prior parties. Kaya halimbawa
pang lima ka sa nakahawak. And you qualified as a holder in due course? Walang problema.
Yung apat na nauna sayo, you could oblige them to pay. At wala silang lusot. Kahit anong
dahilan nila ay di uubra against you as a holder in due course.

Now we have another rule that while a person may not qualify as a holder in due course, but if he
derives his rights from a holder in due course it is as if he was already a holder in due course. Ito
ang tinatawag na SHIELD THEORY. So ganito yan. Let us say I received a check amounting to
₱5000 from a client in payment of my appearance fee. After receiving it from the client I recalled
that I owed the owner of a store near my house in the amount of ₱5000. Kaya ang ginawa ko e
nakipagkita ako to the store owner and ang sabi ko sa kanya ay friend pasensya ka na ah
nakalimutan ko na may utang pala ako sayo na ₱5000 at may katagalan na. Pero alam mo meron
ako ditong tseke that was issued to me by my client. Pwede bang ito na ang ibabayad ko sayo?
So assuming he agreed. He received the check. Ang tanung did he qualify as a holder in due
course? The answer is yes. Yung may ari nung tindahan na yon ay holder in due course. Ngayon
ang sabi nya anung gagawin ko sa check na ito hinayaan ko na ito noon pa. I was no longer
expecting to be paid. So that person went to Quezon Avenue to pick up somebody. So throughout
the night they had fun. And when they are about to part ways kinapa nya yung wallet nya pero
wala yung wallet. Inisip nya na baka naiwan nya sa tindahan. Pero nasa kanya yung tseke. Kaya
ang sabi nya sa babae. Pasensya ka na ah wala akong cash pero meron akong tseke dito. Pwede
bang ito na lang ang ibayad ko sayo? Sabi naman nung babaeng kasama nya. Sir patingin nga
muna nung tseke? Nung sa tingin nya ay regular on its face naman yung tseke eh tinanggap na
nya yung tseke. Ang tanung: Is she a holder in due course? Hindi kasi immoral ang
consideration. Pero ang tanung anung karapatan nya? Ans.: Her rights are those of a holder in
due course. Kasi hindi nga siya holder in due course. Kaya lang she derived her rights from a
holder in due course. She will have exactly the same rights as those of a holder in due course. So
if tumalbog yung check kasi na-dishonor. Pwede nyang habulin yung nagbayad sa kanya nung
tseke na tumalbog. Tapos yung drawer mismo nung tseke pede pa ring habulin. Kasi a holder in
due course holds the instrument not subject to personal defenses. Ang mga halimbawa ng
personal defenses are: Hindi naman natuloy ang transakyon na yan e (no consideration); Hindi
ko naman natanggap yung kabuuang halaga nyan e insufficient consideration); Payment is a
personal defense. Kaya na-dishonor kasi sabi nung nag-issue nung tseke e nabayaran ko na pala
yan. Wala na kong utang. Pero from the eyes of the holder in due course, dahil hawak nya yung
tseke dapat pa rin siyang bayaran. Kaya kung ia-analyze mo pag holder in due course ka para ka
na ring may hawak na pera. Kasi you can enforce it against all prior parties.
Q: What may discharge a negotible instrument?

A: One is payment in due course by the party primarily liable. Kaya ang unang tanung anung
ibig sabihin ng payment in due course? It means payment made at or after maturity to the person
entitled to receive payment. Kaya if the instrument for example wil become due on March 1,
2020 at binayaran na ngayon nung maker. Ang tanung is the instrument considered discharge?
Ans.: Not yet. Hindi pa yon payment in due course. Kailangan bayaran on March 1 or after
March 1 para masabing payment in due course. Hindi pwedeng BEFORE March 1.

Q: To whom payment should be made to qualify the payment as a payment in due course?

A: To the person entitled to receive payment. Kaya if nagbayad ka sa ibang tao. Even if that
person issued a receipt. Hindi yon payment in due course kasi hindi naman siya entitled to
receive the payment.

Q: Who is the party primarily liable?

A: With respect to promissory note, the maker is the party primarily liable. If it is a bill of
exchange, the party primarily liable is the ACCEPTOR. Huwag mong sabihing drawee. A drawee
is not a party. He only becomes a party once he accepts. In that case, ang tawag na sa kanya ay
acceptor. And an acceptor shall be bound by the term of his acceptance.

Another mode to discharge a negotiable instrument is by payment in due course by the

accommodated party. Sino ba yung accomodated party? He is the one in whose favor the
accommodation party signed the instrument. Siya yung inaccomodate nung accommodation
party.

Q: Sino naman yung ACCOMMODATION PARTY?

A: He is the one who signed the instrument without receiving value either as maker, drawer,
acceptor or indorser only for the purpose of lending his name. Yung accommodation party
nakapirma yan. Kaya kung ikaw ay transferee ng negotiable instrument by mere delivery hindi
ka magiging accommodation party. Because the law says to qualify as an accommodation party
he must sign the instrument either as maker, drawer, acceptor or indorser without receiving value
therefor. Payment by accomodated party hindi payment of accommodation party ang makakapag
pa discharge sa negotiable instrument ah.

Another mode of discharging an instrument is by intentional cancelation thereof by its holder.

For example I have your promissory note for ₱10,000. One afternoon, my apo cut using her
scissors my promissory note. Question: Is the note discharge? Ans.: No. Kasi while it may be
canceled but the one who canceled it is not a holder.
What if yung holder mismo eh ACCIDENTALLY naiagay nya sa paper shredder yung
promissory note? Is the note discharge? Ans.: Hindi pa rin kasi hindi naman intentional
cancelation.

What if naaawa na si holder kaya hindi na nya balak singilin pa yung maker. So inilusot na nya
sa paper shredder yung promissory note beyond recognition. Then sinunog pa yung mga gutay
gutay na papel. Yung abo eh finlash pa sa inidoro. Is the instrument discharge? Yes.

Follow up query: Is the obligation extinguished? Ans.: No. Kasi ang intesyon ko ay to condone.
Eh dapat the requirements of a valid condonation under the Civil Code must be followed kasi
₱10,000 yung utang na iko-condone e. So the donation must be in writing and there must be
acceptance by the donee.

Another mode of discharing an instrument is when a person primarily liable on an instrument

becomes its holder at or after maturity. Parang confusion or merger of rights of creditors and
debtors with respect to the same obligation lang yan kung civil law ang pag uusapan. Kaya kung
ako yung maker nung PN at after maturity ako na may hawak nung PN. Discharge na yung PN.

Another mode of discharing an instrument is by any other mode of extinguishing an obligation

for a payment of a sum of money. Kaya papasok dito yung COMPENSATION at
PRESCRIPTION.

Q: What may cause the discharge of a party secondarily liable?

A: Syempre pag na discharge na yung instrument party secondarily liable shall also be relieved
from liability. Sino ba yung party secondarily liable? Sympre unahin mo muna yung DRAWEE.
Susunod INDORSER. Another is a person negotiating the instrument by mere delivery. Gamitan
nyo lang ng logic. Syempre pag na discharge na si person primarily liable, the person secondarily
liable shall be certainly deemed discharge na rin.

Q: What are the stages in the life of a promissory note?

A: Sympre ang una making of the promissory note. Next is the issuance of the note. So naipasa
muna sa payee. If the note is now in the hands of the payee, he has option to retain the note until
the maturity date arrives and then presents it for payment. The maker may pay in which case the
instrument will be discharged. It is also possible that the maker upon presentment will dishonor
the note by non-payment. Pwedeng sabihin ni maker na di ko na babayaran yan. Wala na kong
utang sayo. Kasi may utang ka rin saki kaya nag off-set na. Pwede ring the payee will negotiate
the note sa indorsee. So yung may hawak na eh si indorsee. Pwede rin nyang gawin yung mga
pwedeng gawin kanina ni first holder or negotiate nya sa iba.

Q: What if hindi ikaw ang payee ng PN. Ipinasa lang sayo. Ngayon on maturity date you made a
presentment for payment. Kaya lang dinishonor. So if you are the holder what will you do?

A: If an instrument was dishonored by non-payment, the holder must notify all prior parties of
the fact of dishonor in order to charge them. Any party who was not notified within a reasonable
period shall be relieved from liability.

Q: What are the stages in the life of a BILL OF EXCHANGE?

A: The first stage is the drawing of the bill. The next is the issuance of the bill. After its issuance
there may be two scenarios. Una, pwedeng yung pinag bigyan may have negotiated it OR pwede
ring I-present na lang nya for acceptance ung bill kay drawee. Ito yung tinatawag na
PRESENTMENT FOR ACCEPTANCE. Kapag sinabi nung drawee na hindi ko babayaran yan
baon na baon na yan sa utang sakin. Anong tawag don? DISHONOR BY NON-ACCEPTANCE.

When you make presentment for acceptance there are two possibilities: Buenas ka if the drawee
accepts. Malas mo if the drawee dishonors. In case of dishonor by non-acceptance, the holder
must notify all prior parties in order to charge them.

If the drawee accepted hindi pa rin sigurado na makakasingil ka. Pero ang susunod na gagawin
mo na after the drawee accepted the bill is presentment for payment na.

Q: Alam nyo ba yung CLEARING HOUSE?

A It is a facility of the BSP for the convenient collection of checks drawn on one bank but
deposited with another bank for the purpose of collection. Sa ibaba may PNB di ba. Pagtawid mo
may MetroBank. Punta ka banda sa SanBeda nandun ang RCBC di ba? Pag tinuloy tuloy mo ang
lakad marami pang bangko dyan.

So kunwari binayaran ka ng tseke drawn on BDO C. M. RECTO BRANCH. Gusto mo sanang I-

encash kaya lang ang problema walang parking. So anu gagawin mo ngayon? Sabi mo dun na
nga lang sa banda sa SanBeda may nakita akong pwedeng pag paradahan dun at may RCBC rin
dun. Kaya yung tseke drawn on BDO dun mo ngayon dineposito sa RCBC.

Ang tanung, pag tinanggap ng RCBC yung tseke drawn on BDO at walang clearing house paano
kaya makukulekta yung idineposito sa RCBC? So kung walang clearing house anu kayang
gagawin ng RCBC? Ans.: Yung tagaRCBC yung check mo drawn on BDO hawak hawak nya
maaaring maglalakad siya papunta sa BDO at siya na ang mag-i-encash. Very inconvenient yun.
Ito naman yung halimbawa kung may clearing house. Example RCBC Malacanang natanggap
ang mga tseke drawn on a bank and its branches. Check drawn on BPI Legarda ilalagay yun sa
isang envelope. Check drawn on BPI BUSTILLOS that's another envelope, etc. Basta bawat
branch may kanya kanyang envelope. So at an agreed hour of a day, lahat ng mga bank
representatives will go to the clearing house at sasabihin o BPI Legarda ito ang mga checks
drawn on you. Oh ito naman ang sa inyo BPI Bustillos. Yung mga nakatanggap ng envelope
balik yan sa opisina to process these checks. Signature verification ang unang gagawin dyan sa
opisina. Kapag may clearing house mas convenient. Remember also the rule that if a drawee
bank intends to dishonor a check that it received from a clearing house it should return that check
to the collecting bank within a period of 24 hours. Kaya nga ang sabi 24-hour clearing rule.

HIDC – Forgery Part 2

…the nature of the drawer or the depositor or it maybe the signature of the payee/endorser.
Ngayon, what I’ll recite to you are rulings of the SC on the liability of the drawee bank or the
collecting bank:

Example #1: Ito yung mga pronouncement, when what was forged was the signature of the
drawer (depositor), and the check was collected/presented over the counter for encashment,
walang collecting bank. The drawee bank ultimately suffers the loss.

Example #2: Before, the reason given by SC was: When what was forged was the signature of
the drawer and the check was presented over the counter for encashment, the drawee bank
ultimately suffers the loss because it (drawee bank) failed to property identify the signature of its
depositor.

Example #3: Sinabi din dati, the drawee bank was negligent in identifying the signature of the
drawer.

Example #4: Ang huli, the most recent explanation of the Supreme Court: the drawee bank
committed a breach of contract.

Anong breach of contract? Pag nag open ka ng kahit anong account sa kahit saang banko, ano ba
ang form na binibigay? Bibigyan ka ng specimen signature card. Merong numerical file, merong
alphabetical file (back-up file).

Yung mga matters asked in the specimen signature card, mga basic information, full name,
address, phone number, sex, date of birth. Ngayon, pag tinignan mo yung mga yan, may mga
fine prints doon. Yung instructions nakalagay, “I will pay my withdrawal on the basis of any of
the following signatures.” Maaring nakapirma si depositor, kaya lang doon sa pirma niya,
inuutsan niya banko, kung magbabayad ka ng withdrawal, dapat itong pirma na ito. Kaya pag
nag bayad ng withdrawal based on forged a signature, breach of contract. Yun ang unang ruling.

The other is where what was forged was the signature of the drawer/depositor and the check was
collected through another bank. So yung forged na pirma, pirma ng drawer. Kaya lang yung may
hawak, hindi niya na present for over the counter encashment. Sa ibang banko niya dineposito.
Yung other bank, which is the collecting bank, brings it to clearing, and the check is eventually
processed by the drawee bank. Na clear. Ang tanong, who suffers the loss? Drawee bank pa din.
For the same reason: it was negligent in properly identifying the signature of its depositor. Pwede
mo na lang sabihin the drawee bank had committed a breach of contract.

Ito yung huling scenario, by the way, hindi pa pala. When what was forged is the sign of the
payee – forged endorsement, and the check was presented for over the counter encashment.
Supreme Court said the drawee bank ultimately suffers the loss. It having been negligent in
identifying the payee. Madali din ang trabaho ng banko. Pag may withdraw, bibilangin. Pag may
tatanggapin, bibilangin. Kaya lang ang problema diyan is pag identify ng ka-transaction. Malay
mo, yung ka-transaksyon pala ay identical twin, hindi naman pala yun yung tao talaga. Kaya
sensitive din. Kaya nga yung mga signature verifiers, they undergo training on questioned
documents, tinturo sa kanila yung signs of forgery.

So yun ang unang ruling involving forged endorsement.

Yung pangalawa, when what was forged was the signature of the payee and the check was
collected through another bank, the rulings of the Supreme Court were the collecting bank
ultimately suffers the loss. Reasons given before:

Reason 1 – Collecting bank was negligent in properly identifying the payee.

Most recent prouncement, yung huli, why the collecting bank is liable: – Yung collecting bank
committed a breach of warranty. Bakit? Ano yung warranty? Part of the clearing procedure, kung
ako collecting bank, halimbawa BPI ako, and I received for deposit checks drawn on other bank
(BDO, LB) at tinggap ko lahat yan for collection. Ngayon, ang proseso, dapat bago dalhin sa
clearning, sa likod ng checke may stamp, “all prior endorsements are guaranteed.” Kasama sa
clearing process yan. Kaya kung ikaw ang collecting bank, magdadala ka ng checke sa clearing
house, dapat bago mo dalhin sa clearning house, tatakan mo ng tatakan sa likod yan ng “all prior
endorsements are guaranteed.” So if it turns out an endorsements are forged, lalabas breach of
warranty.