NEGO- LIABILITIES OF PARTIES

Summary of liabilities Warranties of indorsers

CHAPTER V Negotiate by General indorser
Maker Drawer Acceptor
LIABILITIES OF PARTIES Admits the existence of the payee and his then capacity to delivery/qualified indorser (Sec 66)
Liability. This refers to the obligation of a party to a negotiable indorse (Sec 65)
instrument to pat the same according to its terms. Admits the GEGO CA KNOW GEGO CA VAL
existence of the a. That the instrument a. That the instrument
Primarily liable drawer, and the is genuine and in all is genuine and in all
The person primarily liable is one who, by the terms of the respects what it respects what it
genuineness of his
purports to be; purports to be;
instrument, is absolutely required to pay the same. He is signature and his
b. That he has a good b. That he has a good
unconditionally bound. capacity and title to it; title to it;
1. Maker of a promissory note authority to draw c. That all prior parties c. That all prior parties
2. The acceptor of a bill of exchange the instrument had capacity to had capacity to
3. The certifier of a check Engages to pay Engages that: Engages that he contract; contract;
the instrument On due will pay the d. That he has no d. The instrument is
Secondarily (conditionally liable) according to its presentment, the instrument knowledge of any valid and subsisting
The person secondarily liable is conditionally bound. He tenor. instrument will be according to the fact which would
undertakes to pay the instrument only after certain conditions accepted or paid, tenor of his impair the validity Warranty that instrument
have been fulfilled: (1) due presentment for payment or or both, according acceptance of the instrument or will be honored
acceptance to the primary party, (2) dishonor by such party, and to its tenor. render it valueless. He engages that, on due
(3) taking of proceedings required by law after dishonor. *for a person negotiating by presentment, it shall be
1. The drawer of a bill And that if it be delivery, warranties extend accepted or paid, or both, as
2. The indorser of a note or bill dishonored and only to immediate transferee. the case may be, according to
its tenor
the necessary
Not liable proceedings on And that if it be dishonored
1. The drawee until he accepts the instrument in which dishonor be duly and the necessary
case, he becomes an acceptor taken, he will pay proceedings on dishonor be
2. A person who is not a party to the instrument the amount duly taken, he will pay the
• A person becomes a party to the instrument by thereof to the amount thereof to the holder,
signing his name thereon. holder or to any or to any subsequent indorser
• The general rule is that no person is liable on subsequent who may be compelled to
an instrument unless his signature appears indorser who may pay it.
thereon. be compelled to
pay it. SECTION 60
Liability of maker.
The maker of a negotiable instrument, by making it, engages
that he will pay it according to its tenor, and admits the
existence of the payee and his then capacity to indorse.

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NEGO- LIABILITIES OF PARTIES
Warranties of the maker 2. Dishonor by such party, and triggers the liability of secondary parties (drawer and
Maker. The term maker applies only to the maker of a 3. Taking of proceedings required by law after dishonor: indorsers, except those indorsing qualifiedly).
promissory note. It includes an accommodation maker and a. Notice of dishonor given to the drawer • Liability after acceptance. Once he accepts, he
surety who signs as maker. He has the following warranties: b. In case of foreign bills, protest is made becomes an acceptor and is placed in the same position
1. To pay the note according to its terms followed by a notice of protest. as the maker of a note.
2. The existence of the payee • Liability primary. He is primarily liable and engages
3. The payee’s capacity to endorse at the time the maker Drawer v maker to pay according to the terms of his acceptance, subject
signed the note Drawer Maker to no conditions. (Note that the maker engages to pay
Issues a BoE Issues a PN according to the tenor of the instrument).
Liability unconditional. He engages to pay the note according
Secondarily liable Primarily Liable
to its terms, subject to no condition whatsoever. He promises to SECTION 63
Can limit his liability Cannot do so because
pay not only to the payee but to any subsequent holder who is When a person deemed indorser.
liability is unconditional 9
legally entitled to the instrument at its maturity date even if the A person placing his signature upon an instrument otherwise
holder does not demand payment at that time. He remains fully than as maker, drawer or acceptor, is deemed to be an indorser,
SECTION 62
liable despite the fact that the instrument is presented for unless he clearly indicates by appropriate words his intention
Liability of acceptor.
payment late unless prescription has run. to be bound in some other capacity.
The acceptor, by accepting the instrument, engages that he will
pay it according to the tenor of his acceptance; and admits:
Charging maker with liability. Due presentment for payment
a. The existence of the drawer, the genuineness of his • Signature on the back. A person signing his name on
and due notice of dishonor are not necessary for the purpose of the back of an instrument with nothing else appearing,
signature, and his capacity and authority to draw the
charging the maker with liability. Those are necessary only to is a general indorser. Being an indorser, he is
instrument; and
fix the liability of any drawer or indorser. chargeable only after presentment and notice of
b. The existence of the payee and his then capacity to
indorse. dishonor.
SECTION 61 • Intention to be bound in some other capacity. The
Liability of drawer. law requires one to indicate by appropriate words his
Warranties of acceptor
The drawer by drawing the instrument admits the existence of intention to be bound in some other capacity on the
1. The existence of the payee
the payee and his then capacity to indorse; and engages that, on instrument itself. Parole or extrinsic evidence not
2. The payee’s capacity to endorse at the time the
due presentment, the instrument will be accepted or paid, or acceptable.
acceptor accepted
both, according to its tenor, and that if it be dishonored and the • Liability as guarantor. A guarantor is liable
3. The existence of the drawer
necessary proceedings on dishonor be duly taken, he will pay subsidiarily, after the assets of the principal debtor
4. The genuineness of the drawer’s signature
the amount thereof to the holder or to any subsequent indorser have been exhausted. He waives the need for
5. The drawer’s capacity and authority to draw the bill
who may be compelled to pay it. But the drawer may insert in presentment, protest, or notice of dishonor.
Note: The acceptor does not admit the genuineness of the
the instrument an express stipulation negativing or limiting his •
indorser’s signature because it is only the signature of the Liability as surety. A surety is primarily and
own liability to the holder. absolutely liable with the principal debtor without
drawer that he warrants.
Conditions for liability of drawer • Liability before acceptance. He is not liable before benefit of exhaustion of the properties of the latter and
acceptance. Prior that, he is merely a drawee and unless without also the necessity of presentment or notice of
The drawer does not promise to pay the bill absolutely. He dishonor.
makes no warranty but engages to pay after certain conditions he accepts, he owes no duty to either the payee or other
are met: holder;
1. Due presentment for payment or acceptance to the • Refusal by the drawee to accept. This refusal to
accept constitutes a dishonor of the instrument which
primary party (drawee)
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NEGO- LIABILITIES OF PARTIES
SECTION 64
Liability of irregular indorser.
Where a person, not otherwise a party to an instrument, places
thereon his signature in blank before delivery, he is liable as
indorser, in accordance with the following rules:
a. If the instrument is payable to the order of a third
person, he is liable to the payee and to all
subsequent parties.
b. If the instrument is payable to the order of the
maker or drawer, or is payable to bearer, he is
liable to all parties subsequent to the maker or
drawer.
c. If he signs for the accommodation of the payee, he
is liable to all parties subsequent to the payee.
Irregular or anomalous indorser
He is a person who is:
1. Not a party to an instrument- this phrase means that he
is not a maker, drawer, acceptor, or regular indorser
thereon
2. Places thereon his signature in blank
3. Before delivery
Weirdo. He irregular or anomalous indorser indorses the
instrument in an unusual, singular, or peculiar manner. His
name appears where we would naturally expect another name.
Example: If an instrument is made payable to the order
of P as the payee, P’s name should appear on the back
of the instrument as the first indorser but instead we
find the name of X. in such case, X is an irregular or
anomalous indorser.
Warranties. His warranties are the same as of a general
indorser under Section 66 inasmuch as his indorsement is in
blank, which, in itself is an indorsement without qualification.
Section 64 only provides for the parties to whom an irregular
indorser is liable.
Liability of irregular or anomalous indorser
1. Payable to the order of a third person. He is liable to
the payee and all subsequent parties, but not to the
maker.
• Example. M issues a note payable to the order
of P, but secures X’s indorsement prior to
delivery to P. P indorses the note to A.
• X is liable to P and A but not to M.
2. Payable to the order of maker or drawer or to
bearer. He is liable to all parties subsequent to the
maker or drawer.
• Example: M makes a note payable to the order
of M and secures X’s indorsement. M cannot
circulate the instrument without the
indorsement of X. X signs his name and M
indorses and delivers the instrument to A.
• X is liable to A and all subsequent parties but
not to M. But M is liable to X. M’s liability is
that of a first indorser and X of a second
indorser.
3. Signs for the accommodation of payee. He is liable
to all parties subsequent to the payee.
• Example: M makes a note payable to the order
of P. P wants to discount the note with A, a
bank, but the bank is not willing to rely on the
financial ability of M and P alone. P then
secures X to accommodate him. X, without
receiving any valuable consideration therefor,
but only for the purpose of lending his name
and credit to P, indorses the note in blank.
• X is liable to all parties after P. In effect, P is
the first indorser, and X is the second indorser.
SECTION 65
Warranty; where negotiation by delivery and so forth.
Every person negotiating an instrument by DELIVERY or by
a QUALIFIED indorsement, warrants:
GEGO CA KNOW
e. That the instrument is genuine and in all respects what
it purports to be;
f. That he has a good title to it;
g. That all prior parties had capacity to contract;
h. That he has no knowledge of any fact which would
impair the validity of the instrument or render it
valueless.
But when the negotiation is by delivery only, the warranty
extends in favor of no holder other than the immediate
transferee.
The provisions of subdivision (c) of this section do not
apply to persons negotiating public or corporation securities,
other than bills and notes.
• Negotiation by delivery or qualified indorsement.
Negotiation by delivery means negotiating the
instrument in the same condition the holder received it,
making no indorsement at all. Therefore, a blank
indorsement is not negotiation by delivery. On the
other hand, a qualified indorsement is made by adding
to the indorser’s signature the words without recourse
or any other words of similar import.
• Liability merely as assignor of credit. A person
negotiating a bearer instrument by delivery or a person
negotiating by qualified indorsement do not assume to
pay the instrument in the event of dishonor unless the
dishonor is based on any of the 4 implied warranties in
Section 65.
• Immediate transferee only. For a person negotiating
by delivery, warranties extend only to immediate
transferee.
• Sale of public or corporate securities. Brokers and
other persons negotiating public or corporation
securities, other than bills or notes, do not warrant the
capacity of prior parties.
SECTION 66
Liability of general indorser.
Every indorser who indorses without qualification, warrants, to
all subsequent holders in due course:
a. The matters and things mentioned in subdivisions (a),
(b), and (c) of the next preceding section; and
b. That the instrument is, at the time of his indorsement,
valid and subsisting;
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NEGO- LIABILITIES OF PARTIES
And, in addition, he engages that, on due presentment, it shall
be accepted or paid, or both, as the case may be, according to
its tenor, and that if it be dishonored and the necessary
proceedings on dishonor be duly taken, he will pay the amount
thereof to the holder, or to any subsequent indorser who may
be compelled to pay it.
• Valid and subsisting; 4th warranty liability. An
unqualified indorser warrants that the instrument is
valid and subsisting, WON he has no knowledge of that
fact. (As opposed to a qualified indorser who merely
warrants that he has no knowledge of facts that would
invalidate the instrument or render it useless.)
o Example. Hence, if the instrument indorsed
turns out to be invalid, the unqualified indorser
is liable because of the 4th warranty. Whereas,
a qualified indorser is liable only if he was
aware of the cause of the invalidity.
• Warranty that instrument will be honored;
promissory liability. Because of the last paragraph, an
unqualified indorser is liable in case the instrument is
not paid because of the insolvency of any prior party.
A qualified indorser, on the other hand, is liable only
of he had knowledge of such insolvency. The following
conditions must be met (unless waived):
1. Due presentment for payment or acceptance, as the
case may be; and
2. If the instrument is dishonored, the necessary
proceedings on dishonor be duly taken.
Indorser v drawer
Indorser Drawer
Both are secondarily liable
Party to a note or bill Party only to a bill
Does not make admission Admits the existence of
regarding existence of payee payee and his then capacity
and his then capacity to to indorse
indorse
Has warranties No warranties but engages
to pay after certain
conditions are complied SECTION 68
with. Order in which indorsers are liable.
As respects one another, indorsers are liable prima facie in the
General indorser and irregular indorser order in which they indorse; but evidence is admissible to show
General indorser Irregular indorser that, as between or among themselves, they have agreed
Makes blank or special Only makes blank otherwise. Joint payees or joint indorsees who indorse are
indorsement indorsement deemed to indorse jointly and severally.
Indorser after its delivery to Indorses prior to delivery to
payee payee • Among themselves. This section governs the liability
Liable only to parties Liable to the payee and of indorsers only as among themselves. That is, while
subsequent to him subsequent parties unless he there is a presumption that indorsers are liable in the
signs for the order of their indorsement, such presumption may be
accommodation of the payee rebutted by parole evidence that among themselves
in which case he is liable they have agreed otherwise.
only to all parties o Not binding on holder. The holder of an
subsequent to the payee instrument which has been dishonored is not
bound by the above section. As to him, the
indorsers are liable in any order and none of
SECTION 67 them can interpose the defense as a defense
Liability of indorser where paper negotiable by delivery. against him an agreement among themselves
Where a person places his indorsement on an instrument that they are liable in a different order.
negotiable by delivery, he incurs all the liability of an indorser. • Solidary liability of joint indorsees. Joint payees or
joint indorsees who indorse are deemed to indorse
Liability of indorser of bearer instrument jointly and severally. The liability is therefore solidary,
• Negotiation by delivery. A bearer instrument is wherein each one of them is liable for the entire amount
negotiable by mere delivery. One who does so is liable of the instrument.
only to the immediate transferee under Section 65.
• Negotiation by indorsement. A bearer instrument SECTION 69
may nevertheless be indorsed. One who does so incurs Liability of an agent or broker.
liability depending on the nature of his indorsement. Where a broker or other agent negotiates an instrument without
o Special indorsement. He is liable only to indorsement, he incurs all the liabilities prescribed by Section
indorsers who make title through his 65 of this Act, unless he discloses the name of his principal, and
indorsement. the fact that he is acting only as agent.
o Qualified indorsement. He is liable only to
the immediate transferee under Section 65. Liability of an agent or broker
o Unqualified indorsement. He incurs the To escape personal liability, the agent or broker must disclose
liabilities of a general indorser under Section the name of his principal and the fact that he acts only as an
66. agent. parole evidence is not admissible to exempt him from
liability.
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