NEGOTIABLE INSTRUMENTS LAW • MIDTERMS

CHAPTER I: FORM AND INTERPRETATION (b) On or before a fixed determinable future time specified therein; or
(c) On or at a fixed period after the occurrence of a specified event which is certain to happen,
SECTION 1. though the time of happening be uncertain.

Form of negotiable instruments. – An instrument to be negotiable must conform to the following An instrument payable upon a contingency is not negotiable, and the happening of the event does not
requirements: cure the defect.

(a) It must be in writing and signed by the maker or drawer; SECTION 5.

(b) Must contain an unconditional promise to pay a sum certain in money;
(c) Must be payable on demand or at a fixed or determinable future time; Additional provisions not affecting negotiability. – An instrument which contains an order of a
(d) Must be payable to order or bearer; and promise to do any act in addition to payment of money is not negotiable. But the negotiable character
(e) Where the instrument is addressed to a drawee, he must be named or otherwise indicated of an instrument otherwise negotiable is not affected by a provision which –
therein with reasonable certainty.
(a) Authorizes the sale of collateral securities, in case the instrument be not paid at maturity
Negotiable instrument (foreclosure)
- If all the above are present, it is a negotiable instrument (b) Authorizes a confession of judgment, if the instrument be not paid at maturity
- To be negotiable means to give a party more rights (c) Waives the benefit of any law intended for the advantage or protection of the obligor
- Most common negotiable instruments: PN, check (d) Gives the holder an election to require something to be done in lieu of payment of money
(dacion en pago)
Non-negotiable instrument
- An instrument does not meet the requirements laid down to qualify as negotiable But nothing in this section shall validate any provision or stipulation otherwise illegal.

SECTION 2. Confession of judgment

- Confession of judgment does not affect the validity or negotiability of the document
Certainty as to sum; what constitutes – The sum payable is a sum certain within the meaning of this - However, in the last paragraph, it says that nothing illegal will be made legal.
act, although it is to be paid: - Therefore, while it does not affect the validity or negotiability of the document, a
confessional of judgment is not made legal by this article.
(a) With interest; or - (National Bank v Manila Oil)
(b) By stated instalments;
(c) By stated instalments with a provision that, upon default in payment of any instalment or of SECTION 6.
interest, the whole shall become due; or
(d) With exchange, whether at a fixed rate or at the current rate; or Omissions; seal; particular money. – The validity and negotiable character of an instrument are not
(e) With costs of collection or an attorney’s fee, in case payment shall not be made at maturity. affected by the fact that –

SECTION 3. (a) It is not dated; or

(b) Does not specify the value given, or that any value has been given therefor; or
When promise is unconditional. – An unqualified order or promise to pay is unconditional within the (c) Does not specify the place where it is drawn or the place where it is payable; or
meaning of this Act, though coupled with – (d) Bears a seal; or
(e) Designates a particular kind of current money in which payment is to be made.
(a) An indication of a particular fund out of which reimbursement is to be made or a particular
account to be debited with the [reimbursement]; or But nothing in this section shall alter or repeal any statute requiring in certain cases the nature of the
(b) A statement of of the transaction which gives rise to the instrument. consideration to be stated in the instrument.

But an order or promise to pay out of a particular fund is [conditional]. SECTION 7.

When payable on demand. – An instrument is payable on demand –

SECTION 4.
(a) Where it is expressed to be payable on demand, or at sight, or on presentation; or
Determinable future time; what constitutes. – An instrument is payable at a determinable future (b) In which no time for payment is expressed.
time, within the meaning of this Act, which is expressed to be payable –

(a) At a fixed period after date or sight; or

 NEGOTIABLE INSTRUMENTS LAW • MIDTERMS

Where an instrument is issued, accepted, or indorsed when overdue, it is, as regards the person issuing, (c) When it is payable to the order of a fictitious or non-existing person, and such fact was
accepting, or indorsing it, payable on demand. known to the person making it so payable; or
(d) When the name of the payee does not purport to be the name of any person; or
(e) When the only or last indorsement is an indorsement in blank.
SECTION 8.
Fictitious name
When payable to order. – The instrument is payable to order where it is drawn payable to the order of a - When it is a fictitious name, it is an instrument payable to bearer.
specified person, or to him or his order. It may be drawn payable to the order of: - When it is a real person, it must be interpreted that the maker intended to indorse it to the
person specified
(a) A payee who is not maker, drawer, or drawee; or - (PNB v Rodriguez)
(b) The drawer or maker; or
(c) The drawee; or Payable to cash
(d) Two or more payees jointly; or - Also considered a bearer instrument
(e) One or more of several payees; or - The ban however is still obligated to ascertain the holder’s identity
(f) The holder of an office for the time being. - (Ang Tek Lian v CA)

Where the instrument is payable to order, the payee must be named or otherwise indicated therein SECTION 10.
with reasonable certainty.
Terms, when sufficient. – The instrument need not follow the language of this Act, but any terms are
What if there is no payee named or described? sufficient which clearly indicate an intention to conform to the requirements thereof.
- If there is no payee, there is nobody who could give the order or authority to collect
- There would be nobody who could indorse the instrument, and therefore, no point Unconditional promise to pay
considering it payable - Need not be expressed in precise words
Holder - Sufficient: payable after the war
- Steps into the shoes of the person designated, and will be open to all defences - (Jimenez v Bucoy)
- A holder in due course can go after the maker
- (Salas v CA)

Payable to order SECTION 11.

- When the instrument is payable to a specific person
- Means that it is not negotiable
Date, presumption as to. – Where the instrument or an acceptance or any indorsement thereon is
- Any subsequent holder only has defences against the person specified on the instrument
dated, such date is deemed prima facie to be the true date of the making, drawing, acceptance, or
- (Consolidated Plywood v IFC Leasing)
indorsement as the case may be.
- (GSIS v CA)
SECTION 12.
Money orders from the post office
- Not negotiable
- The government is not engaged in commercial transactions, only the governmental power Ante-dated or post-dated. – The instrument is not valid for the reason only that it is ante-dated or
for public’s benefit post-dated, provided this is not done for an illegal or fraudulent purpose. The person to whom an
- (PECO v Soriano) instrument so dated is delivered acquires the title thereto as of the date of delivery.

Reasonable certainty SECTION 13.

- When the check is ambiguous, when the payee cannot be indicated with reasonable
certainty, it is not longer negotiable When date may be inserted. – Where an instrument expressed to be payable at a fixed period after
- The interpretation must be against the one who caused such ambiguity date is issued undated, or whether the acceptance of an instrument payable at a fixed period after sight
- (Equitable Banking v IAC) is undated, any holder may insert therein the true date of issuance or acceptance, and the instrument
shall be payable accordingly.
SECTION 9.
The insertion of a wrong date does not avoid the instrument in the hands of a subsequent holder in
When payable to bearer. – The instrument is payable to bearer – due course; but as to him, the date inserted is to be regarded as the true date.

(a) When it is expressed to be so payable; or When insertion is authorised:

(b) When it is payable to a person named therein or bearer; or
 NEGOTIABLE INSTRUMENTS LAW • MIDTERMS

1. Instrument is payable at a fixed period after “date,” but is issued without the “date” order to be effectual, must be made either by or under the authority of the party making, drawing,
2. Instrument is payable at a fixed period after sight, but the acceptance is not dated. accepting, or indorsing, as the case may be; and, in such case, the delivery may be shown to have been
conditional, or for a special purpose only, and not for the purpose of transferring the property in the
Effect of inserting a wrong date: instrument. But where the instrument is in the hands of a holder in due course, a valid delivery thereof
1. As to holder with knowledge  Instrument void. by all parties prior to him so as to make them liable to him is conclusively presumed. And where the
2. As to holder in due course  Instrument valid, wrong date is the true date. instrument is no longer in the possession of a party whose signature appears thereon, a valid and
intentional delivery by him is presumed until the contrary is proved.
Presumed authority
- When the date is the one missing, the holder can insert the date Delivery
- (Pacheco v CA) - The final act needed to transfer possession
- The place of issue is where the possession was transferred to a person so authorized to
SECTION 14. receive it
- (Lim v CA; People v Gorospe)
Blanks; when may be filled. – Where the instrument is wanting in any material particular, the person - Note: Public funds are not subject to garnishment (Dela Victoria v Burgos)
in possession thereof has a prima facie authority to complete it by filling up the blanks therein. And a - When there is no delivery to payee, the payee does not acquire any interest on the
signature on a blank paper delivered by the person making the signature in order that the paper may negotiable instrument (DBP-Rizal v Sima Wei)
be converted into a negotiable instrument operates as a prima facie authority to fill it up as such for any
amount. SECTION 17.

In order, however, that any such instrument when completed may be enforced against any person who Construction where instrument is ambiguous. - Where the language of the instrument is ambiguous or
became a party thereto prior to its completion, it must be filled up strictly in accordance with the there are omissions therein, the following rules of construction apply:
authority given and within a reasonable time. But if any such instrument, after completion, is
negotiated to a holder in due course, it is valid and effectual for all purposes in his hands, and he may (a) Where the sum payable is expressed in words and also in figures and there is a discrepancy
enforce it as if it had been filled up strictly in accordance with the authority given and within a between the two, the sum denoted by the words is the sum payable; but if the words are
reasonable time. ambiguous or uncertain, reference may be had to the figures to fix the amount;
(b) Where the instrument provides for the payment of interest, without specifying the date from
When can it be filled: which interest is to run, the interest runs from the date of the instrument, and if the
1. Lack of a material particular instrument is undated, from the issue thereof;
2. Signature on a blank paper, by someone intending to make it negotiable (c) Where the instrument is not dated, it will be considered to be dated as of the time it was
How to fill it up to make it enforceable: issued;
1. In accordance with the authority given (d) Where there is a conflict between the written and printed provisions of the instrument, the
2. Within a reasonable time written provisions prevail;
 Exception: when there is a holder in due course, it is valid and enforceable as if it was in (e) Where the instrument is so ambiguous that there is doubt whether it is a bill or note, the
accordance to the authority given, and within a reasonable time. holder may treat it as either at his election;
(f) Where a signature is so placed upon the instrument that it is not clear in what capacity the
SECTION 15. person making the same intended to sign, he is to be deemed an indorser;
(g) Where an instrument containing the word "I promise to pay" is signed by two or more
Incomplete instrument not delivered. – Where an incomplete instrument has not been delivered, it persons, they are deemed to be jointly and severally liable thereon.
will not, if completed and negotiated without authority, be a valid contract in the hands of any holder,
as against any person whose signature was placed thereon before delivery. Discrepancy in words and figures
- As a general rule, the words win over the figures
Rules when the instrument is incomplete and undelivered: - However, when it makes more sense to believe the figures in order to reflect the promise of
1. The fact that an incomplete instrument, completed without authority, had not be delivered, the maker, the figures should be followed (People v Romero)
is a defense against a holder in due course.
2. The invalidity of the instrument is only with reference to the parties whose signatures appear SECTION 18.
on the instrument before and not after delivery.
Liability of person signing in trade or assumed name. - No person is liable on the instrument whose
SECTION 16. signature does not appear thereon, except as herein otherwise expressly provided. But one who signs in
a trade or assumed name will be liable to the same extent as if he had signed in his own name.
Delivery; when effectual; when presumed. - Every contract on a negotiable instrument is incomplete
and revocable until delivery of the instrument for the purpose of giving effect thereto. As between Solidary obligations
immediate parties and as regards a remote party other than a holder in due course, the delivery, in
 NEGOTIABLE INSTRUMENTS LAW • MIDTERMS

- When someone signed to be solidarily liable, the creditor can go after anyone signed as so SECTION 23.
liable (PNB v Concepcion Mining Company)
- A co-signer in a is solidarily liable if the stipulation says “I” but it is signed by more than one Forged signature; effect of. - When a signature is forged or made without the authority of the person
person (Republic Plants v CA) whose signature it purports to be, it is wholly inoperative, and no right to retain the instrument, or to
give a discharge therefor, or to enforce payment thereof against any party thereto, can be acquired
through or under such signature, unless the party against whom it is sought to enforce such right is
SECTION 19. precluded from setting up the forgery or want of authority.

Signature by agent; authority; how shown. - The signature of any party may be made by a duly Two instances contemplated
authorized agent. No particular form of appointment is necessary for this purpose; and the authority of 1. Forged signature of the drawer
the agent may be established as in other cases of agency. 2. Forged indorsement

Corporations Forged signature of the drawer

- As a general rule, a corporation is seen as an association of persons. Liability of the drawee-bank
- Absent any fraud, there would be no need to pierce the corporate veil, and hold the signatory - A subsequent holder in due course relies upon the genuineness of the signature. A drawee-
liable. (Remo v CA) bank, who released the money absent authenticity of the document, must be held liable for
the loss, being the proximate cause. (San Carlos Milling v BPI; PNB v CA; Citibank NA v
Authority of the agent Cabamongan)
- An agent needs specific authority to indorse checks received in payment. Therefore, a person - When a signature is forged, it is wholly inoperative. A bank is bound to know the signature of
dealing with a corporation, who can act only through an agent, who does not inquire as to its customers. (PNB v Quimpo)
the agent’s authority, will do so at his own peril, and must abide by the consequences.
(Insular Drug v PNB) Liability of the drawer
- Generally, forgery can be invoked, the negotiable instrument being wholly inoperative.
SECTION 20. However, if the drawer was negligent in his duties to ensure the genuineness of the
instrument subsequently indorsed, he is precluded from setting up such defense (MWSS v
Liability of person signing as agent, and so forth. - Where the instrument contains or a person adds to CA; Republic v Equitable Bank)
his signature words indicating that he signs for or on behalf of a principal or in a representative capacity, - Too much trust on an agent is tantamount to negligence, and precludes the defense of
he is not liable on the instrument if he was duly authorized; but the mere addition of words describing forgery (Ilusorio v CA)
him as an agent, or as filling a representative character, without disclosing his principal, does not - There is no liability for the drawer if he had every reason to repose his trust and confidence
exempt him from personal liability. on his agent, or, in the very auditor of the company. (BPI v Casa)

Joint liability of the drawer and the drawee-bank

Disclosure - The doctrine of contributory negligence, applied here, says that the bank is liable for not
- An agent must disclose that he is doing so in representation of the company, in order to ensuring the genuineness of the instrument—but the drawer can also be held liable for letting
escape liability. it be so forged. (Republic v National City Bank of NY)
- Mere indication of words describing himself as agent, without disclosing the principal, does
not except the agent from liability Forged indorsement
- (Philippine Bank of Commerce v Aruego)
Liability of the drawee-bank
SECTION 21. - When there is a forged indorsement, and the bank clears the funds to the holder who
presented the same, the bank is held liable. It is the legal duty of the bank to know that the
indorsement is genuine, before encashing the check. (Great Eastern Life v HSBC)
Signature by procuration; effect of. - A signature by "procuration" operates as notice that the agent
has but a limited authority to sign, and the principal is bound only in case the agent in so signing acted
Liability of the collecting bank
within the actual limits of his authority.
- When the collecting bank stamps a “guarantee,” it assumes that all previous indorsements
have been genuine. The drawee-bank, thus, will not be liable for relying on the testament of
SECTION 22. the collecting bank before it cleared the funds. In fact, the collecting bank is liable to
reimburse the drawee-bank in the event that the latter had pay off its aggrieved client (BDO
Effect of indorsement by infant or corporation. - The indorsement or assignment of the instrument by v Equitable)
a corporation or by an infant passes the property therein, notwithstanding that from want of capacity, - The collecting bank is liable when the checks are crossed/non-negotiable, but it still received
the corporation or infant may incur no liability thereon. the value for the checks, and credited it into the account of a person not so specified on the
instrument. (Associated Bank v CA)
 NEGOTIABLE INSTRUMENTS LAW • MIDTERMS

- The collecting bank is not liable when there was no way for it to confirm the authenticity of (f) Or which adds a place of payment where no place of payment is specified, or any other
the instrument (Manila Lighter Trans v CA) change or addition which alters the effect of the instrument in any respect, is a material
- When the collecting bank grossly erred in making payment by virtue of a forged signature, it alteration.
becomes liable to the payee, and must bear the loss because it has the legal duty of
ascertaining the genuineness of the instrument. (Westmont Bank v Ong) Clearing time of 24 hours
- The drawee-bank must tell the collecting bank of the alteration within 24 hours. The drawee-
Joint liability of the drawee-bank and the collecting bank bank’s failure to do so divests it of a cause of action against the collecting bank. The only
- When the drawee bank is negligent for not processing the transactions, and the collecting remedy is to go after the one who caused the alteration (HSBC v People’s Bank; Republic
bank is negligent by allowing a forger to open an account with them, they are held as both Bank v CA)
negligent. While only the drawee bank is the proximate cause of the loss, the collecting bank
can still be held liable for accepting the proceeds of the forged checks (BPI v CA) Serial numbers
- When the collecting bank failed to verify the authority of the client to negotiate the check - Alteration is not material. Refusal to honour a check due to an alteration is not a valid refusal.
and stamped its “guaranty,” but the drawee-bank is also negligent in failing to see the (International Corporate Bank v PNB; PNB v CA)
restrictions on the check, they are both liable (PCIB v CA)
Change of amount
Joint liability of the drawer and the drawee-bank - Constitutes a material alteration (Metrobank v Cabilzo)
- When the drawer is negligent to allow such forgery upon her indorsement, and the bank is
negligent because it granted approval without authority, the drawer and the drawee-bank Insertion of “Agent”
must be jointly liable, 50-50. (Gempesaw v CA) - Constitutes as a material alteration (Montinola v PNB)
- Isn’t this a forgery though?
Liability of the indorser
- Under Section 66, a general indorser warrants the genuineness of document, in all respects Last clear chance
what it purports to be. Therefore, by indorsing it further to a subsequent holder in due - The person who caused all the trouble, where all regularity ceased
course, it becomes liable for any forgeries. - The one with the last clear chance is liable
o For liability, the cycle therefore reverses. When the collecting bank reimbursed its - (Bank of America v Philippine Racing Club)
clients, the collecting bank can go after the indorser, because the indorser was the
last person who had the instrument. (Jai Alai v BPI)
- The indorser is duty-bound to ascertain the genuineness of the instrument. Therefore, failure
to ascertain such would make him liable to the collecting bank, who had suffered losses from
his negligence (Republic v Ebrada)

ALTERATIONS

SECTION 124. CHAPTER II: CONSIDERATION

Alteration of instrument; effect of. - Where a negotiable instrument is materially altered without the SECTION 24.
assent of all parties liable thereon, it is avoided, except as against a party who has himself made,
authorized, or assented to the alteration and subsequent indorsers. Presumption of consideration. - Every negotiable instrument is deemed prima facie to have been
issued for a valuable consideration; and every person whose signature appears thereon to have become
But when an instrument has been materially altered and is in the hands of a holder in due course not a a party thereto for value.
party to the alteration, he may enforce payment thereof according to its original tenor.
Presumption
SECTION 125. - There is a presumption that there is indebtedness/valuable consideration in an instrument.
- The burden of proof is on the person alleging it
What constitutes a material alteration. - Any alteration which changes: - (Travel-on v CA)
- (Pineda v Dela Rama)
(a) The date;
(b) The sum payable, either for principal or interest; SECTION 25.
(c) The time or place of payment
(d) The number or the relations of the parties; Value, what constitutes. — Value is any consideration sufficient to support a simple contract. An
(e) The medium or currency in which payment is to be made; antecedent or pre-existing debt constitutes value; and is deemed such whether the instrument is
payable on demand or at a future time.
 NEGOTIABLE INSTRUMENTS LAW • MIDTERMS

- A stockholder or an officer of a corporation can validly be an accommodation party for the

SECTION 26. corporation, if he has personally guaranteed the debt (Crisologo v CA)
- Absent any evidence that the officer signed in his personal capacity, he cannot be considered
What constitutes holder for value. - Where value has at any time been given for the instrument, the an accommodation party (Bautista v Auto Plus)
holder is deemed a holder for value in respect to all parties who become such prior to that time.

SECTION 27.
When lien on instrument constitutes holder for value. — Where the holder has a lien on the
instrument arising either from contract or by implication of law, he is deemed a holder for value to the
extent of his lien.

SECTION 28.

Effect of want of consideration. - Absence or failure of consideration is a matter of defense as against

any person not a holder in due course; and partial failure of consideration is a defense pro tanto,
whether the failure is an ascertained and liquidated amount or otherwise.

SECTION 29.

Liability of accommodation party. - An accommodation party is one who has signed the instrument as
maker, drawer, acceptor, or indorser, without receiving value therefor, and for the purpose of lending
his name to some other person. Such a person is liable on the instrument to a holder for value,
notwithstanding such holder, at the time of taking the instrument, knew him to be only an
accommodation party.

Accommodation party
- Signed the instrument as maker, drawer, acceptor, or indorser
- Does not receive value therefor
- Signs for the purpose of lending his name or credit to some other person

“Signed the instrument as maker, drawer, acceptor, or indorser”

- One who signs the document merely as an agent is liable for the value (Maulini v Serrano)
- Accommodation parties are actually sureties, where the creditor can go after the principal
debtor and the accommodation party/surety (Caneda v CA)
- The relationship between the accommodation party and the accommodated is essentially
surety and principal respectively (PNB v Maza)
o Accommodation party, therefore, has the benefit of reimbursement from the
principal debtor (Agro v CA)
o As a surety, the liability is not only primary but also unconditional (Ang v
Associated Bank)
- (Prudencio v CA)
- Benefit of contribution from the co-accommodation parties will only avail when the principal
debtor is insolvent, or when the payment was made after judicial demand (Sadaya v Sevilla)

“Does not receive value therefor”

- The accommodation party is still liable even if he did not receive anything for it, or received
any proceeds from the obligation incurred (Clark v Sellner)

“Signs for the purpose of lending his name or credit to some other person”
- One is validly an accommodation party when he signs for this purpose (Town Savings Bank v
CA)
 NEGOTIABLE INSTRUMENTS LAW • MIDTERMS

ADDITIONAL PROVISIONS SECTION 62

HOLDER IN DUE COURSE Liability of acceptor. - The acceptor, by accepting the instrument, engages that he will pay it according
to the tenor of his acceptance and admits:
SECTION 52. (a) The existence of the drawer, the genuineness of his signature, and his capacity and authority
to draw the instrument; and
What constitutes a holder in due course. - A holder in due course is a holder who has taken the (b) The existence of the payee and his then capacity to indorse.
instrument under the following conditions:
Acceptor = Drawee-bank
(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 has been Warranties:
previously dishonored, if such was the fact; 1. He will pay it according to the tenor of its acceptance
(c) That he took it in good faith and for value; 2. Admits the existence of the drawer, the genuineness of the signature, and capacity and
(d) That at the time it was negotiated to him, he had no notice of any infirmity in the instrument authority to draw/clear the instrument
or defect in the title of the person negotiating it. 3. Admits the existence of a payee, and its capacity to indorse

SECTION 63.
SECTION 57. xxx
When a person deemed indorser. - A person placing his signature upon an instrument otherwise than
Rights of holder in due course. - A holder in due course holds the instrument free from any defect of as maker, drawer, or acceptor, is deemed to be indorser unless he clearly indicates by appropriate words
title of prior parties, and free from defenses available to prior parties among themselves, and may his intention to be bound in some other capacity.
enforce payment of the instrument for the full amount thereof against all parties liable thereon.
SECTION 64.
V. LIABILITIES OF PARTIES xxx
Liability of irregular indorser. - Where a person, not otherwise a party to an instrument, places thereon
SECTION 60. 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
Liability of maker. - The maker of a negotiable instrument, by making it, engages that he will pay it subsequent parties.
according to its tenor, and admits the existence of the payee and his then capacity to indorse. (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.
Applies to promissory notes (c) If he signs for the accommodation of the payee, he is liable to all parties subsequent to the
payee.
Warranties:
1. That he will pay to the tenor of it Liabilities:
2. Existence of the payee 1. To the payee, and to subsequent parties
3. Payee’s capacity to indorse 2. To the maker or drawer, or to all parties subsequent to maker or drawer
SECTION 61. 3. If as an accommodation to the payee: To all parties subsequent to payee

Liability of drawer. - The drawer by drawing the instrument admits the existence of the payee and his SECTION 65.
then capacity to indorse; and engages that, on due presentment, the instrument will be accepted or
paid, or both, according to its tenor, and that if it be dishonored and the necessary proceedings on Warranty where negotiation by delivery and so forth. — Every person negotiating an instrument by
dishonor be duly taken, he will pay the amount thereof to the holder or to any subsequent indorser who delivery or by a qualified indorsement warrants:
may be compelled to pay it. But the drawer may insert in the instrument an express stipulation
negativing or limiting his own liability to the holder. (a) That the instrument is genuine and in all respects what it purports to be;
(b) That he has a good title to it;
Applies to bills of exchange. (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
Warranties: render it valueless.
1. Existence of a payee
2. Engages that, on due presentment, that he will pay according to its tenor, and that if it is But when the negotiation is by delivery only, the warranty extends in favor of no holder other than the
dishonour, that he will pay the amount to the holder immediate transferee.
 NEGOTIABLE INSTRUMENTS LAW • MIDTERMS

The provisions of subdivision (c) of this section do not apply to a person negotiating public or
corporation securities other than bills and notes.

Warranties of the one validly negotiating a bearer instrument:

1. Genuine
2. Good title
3. Prior parties had capacity to contract
4. He has no knowledge of a fact that would impair the validity of the instrument

Negotiation by delivery only:

Warranty is for the immediate transferee only

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;

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.

Warranties of the one validly negotiating a person or order instrument:

a. Genuine, good title, prior parties had capacity to contract
b. Instrument is valid and subsisting, regardless of what he knows
c. On presentment, it shall be paid to its tenor, and that if it is dishonoured, that he will pay the
amount to the holder