Divina L. Reyes BM41 Section 40. Indorsement of instrument payable to bearer.

Where an instrument, payable to bearer, is indorsed specially, it may nevertheless be further negotiated by delivery; but the person indorsing specially is liable as indorser to only such holders as to make title through his indorsement. This section seems to cover situations: (1) where the paper originally payable to order is indorsed in blank and later indorsed specially; (2) where the paper originally payable to bearer is indorsed specially. In both cases at common law it was held that such paper could be further negotiated by delivery. This also seems to have been the intent of the framers of the Act. As a rule, instruments payable to bearer are negotiable by (1) mere delivery, or (2) by blank indorsement plus delivery. Under this section, a bearer instrument may be negotiated by a special indorsement, and further negotiated by mere delivery, thus making the instrument still payable to bearer. The special indorser becomes liable as an indorser only to holder who derived his title thru the special indorsers indorsement. This section applies only to instruments which are originally payable to bearer. It does not apply to instruments originally payable to order, even when they become payable to bearer because the only or last indorsement is in blank.

I promise to pay Paulo Aragon or order P10,000. (Sgd.) Mario Paz

Paulo indorses the instrument to Aye by signing his name (indorsed in blank), and delivers the same to Aye. Thereafter Aye specially indorses the note to Bryan as follows:

Pay to Bryan Tan. (Sgd.) Aye Santos

In this case, Bryan cannot negotiate the instrument by delivery, because this section is applicable only if the instrument is originally payable to bearer. The instrument in the hands of Bryan is payable to order which is negotiated by indorsement plus delivery. Negotiation of an instrument payable to bearer but specially indorsed. Where the instrument originally payable to bearer is indorsed, it may nevertheless be further negotiated by delivery. The person indorsing specially is liable as indorser only to such holders as make title through his indorsement. EXAMPLE:

I promise to pay Bryan Tan or bearer P10,000,000 30 days after date. (Sgd.) Aye Santos Suppose Bryan now negotiates the note to Carlo by special indorsement Pay to Carlo (Sgd.) Bryan. Carlo, in turn, negotiates the instrument to Dan by mere delivery. The note remains payable to bearer, but in this case Dan elects to present the note for payment to Aye on maturity and Aye dishonors it, Dan can collect only from Carlo, from whom he derived his title. Dan cannot collect from Bryan because he did not get his title from Bryan. Bryan will only liable to Carlo who derived his title from the indorsement of

Bryan. Supposing Bryan merely delivers the note to Carlo and Carlo to Dan also by merely delivery, and Aye dishonors the note, can Dan collect from Bryan? Yes, because the negotiations are all by mere delivery. This section will not apply to an instrument originally payable to order. Indorsement is not necessary to the holders title in the following cases: (1) When the instrument is payable to order and all indorsements are special except if indorsed back to prior party in which case, all intervening indorsements may be stricken out; (2) When the instrument is indorsed in blank so that the holder can strike out all indorsements subsequent to the blank indorsement; and (3) When the instrument is originally payable to bearer.

Divina L. Reyes BM41 Section 92. Effect of notice given on behalf of holder. Where notice is given by or on behalf of the holder, it inures to the benefit of all subsequent holders and all prior parties who have a right of recourse against the party to whom it is given. Persons benefited by notice given by or on behalf of the holder. a) Holder himself b) All subsequent holders. c) All prior parties who have a right of recourse against the party notified. EXAMPLE:

August 1, 2011 I promise to pay Paulo Aragon or order P10,000. (Sgd.) Mario Paz

Paulo negotiates to Aye, Aye to Bryan, Bryan to Carlo, Carlo to Dan, present holder. Instrument dishonored. Dan notifies Paulo, Aye, Bryan, and Carlo.
a) The notice of Dan to Paulo inures to the benefit of Aye, Bryan, and Carlo.

Such being the case, Paulo is not discharged as to them and they can hold Paulo liable on the basis of the notice given by Dan to Paulo. If any of them is compelled to pay, he can sue Paulo without having the necessity of giving Paulo another notice of dishonor.

b) The notice of Dan to Aye inures to the benefit of Bryan and Carlo, for the same reason but not for the benefit of Paulo because while Paulo is a party prior to Dan who gave the notice, Paulo does not have a right of recourse against Aye. On other hand it is Aye who can hold Paulo liable. c) The notice by Dan to Bryan inures to the benefit of Carlo only but not to Aye and Paulo. d) Suppose that after giving notice, Dan, holder, further negotiates the instrument to Elmer, Elmer to Fred, Fred to Gorge. The notice given by Dan will inure to the benefit of all of them: Elmer, Fred, and Gorge. They need not give another notice of dishonor to Paulo, Aye, Bryan, and Carlo to hold them liable.

Divina L. Reyes BM41 Section 144. When failure to present releases drawer and indorser. Except as herein otherwise provided, the holder of a bill which is required by the next preceding section to be presented for acceptance must either present it for acceptance or negotiate it within a reasonable time. If he fails to do so, the drawer and all indorsers are discharged. The holder of a bill required to be presented for acceptance, within a reasonable time, in order not to discharge the drawer and indorsers, may either: (1) Present it for acceptance within a reasonable time or without unreasonable delay, or
(2) Negotiate it within a reasonable time.

It is opined that a bill that need not be presented for acceptance may nevertheless be presented for acceptance and when dishonored, there arises an immediate right of recourse against secondarily liable. Acceptance is an unnecessary step in case of bills of exchange which are payable on demand. Effect of failure to exercise the option. Failure to present the bill for acceptance or negotiate within a reasonable time shall, unless presentment is excused, discharge the drawer and all indorsers, because they have an interest in having the bill accepted immediately in order to shorten the time for payment and the time of their liability.

Under Section 50. Duty of holder where bill not accepted. Where a bill is duly presented for acceptance and is not accepted within the prescribed time, the person presenting it must treat the bill as dishonored by non-acceptance or he loses the right of recourse against the drawer and indorsers. Where the bill is dishonored by non-acceptance, notice of dishonor must be given to drawer and indorsers to make them liable otherwise the holder shall lose his right to go after them.

Divina L. Reyes BM41 Section 183. Effect of discharging one of a set. Except as herein otherwise provided, where any one part of a bill drawn in a set is discharged by payment or otherwise the whole bill is charged. The rule is that if any part of bills in set is discharged, the other parts are deemed discharged except in the cases mentioned in Sections 179 to 182 where the holders in due course are protected.