Drawer of a BOE Qualified Indorser
Warrants:
a. The existence of payee and his then capacity to indorse b. That the instrument will be accepted or paid upon due presentment by the party primarily liable according to its tenor; and
c. That if dishonored, he will pay the party entitled to be paid. (Sec.
61, NIL.)
Warrants that the: a. Instrument is genuine;
b. he has good title to it;
c. capacity to contract of all prior parties; and
d. no knowledge of any fact which would impair the validity of the instrument.
(Sec.65, NIL.)
NOTE: He is liable to all
parties who derive their
title through his
indorsement.
General indorser Person negotiating by delivery
a. Warrants that: i. Instrument is
genuine
ii. He had good title to it
iii. All prior parties had capacity to contract
iv. Instrument, at the time of indorsement, was valid and subsisting;
b. On due presentment, it shall be accepted or paid, or both according to its tenor
c. If the instrument is dishonored and the necessary proceedings on
Same warranties as a qualified indorser. But unlike a qualified indorser, a person negotiating by mere delivery is liable only to his immediate transferee. (par. 2, Sec.
65, NIL.)
NOTE: Person negotiating
by mere delivery and a
qualified indorser’s
secondary liability is limited, namely, to their warranties
dishonor be duly taken, he will pay the holder.
(Sec. 66, NIL.)
Irregular indorser
a. In an order instrument, liable to the payee and all subsequent parties b. If bearer instrument or payable to order of maker or drawer, liable to all parties subsequent to the maker or drawer
c. If he signs for accommodation of the payee, liable to all parties subsequent to payee.
(Sec. 64, NIL.)
MAKER Maker
The maker of a negotiable instrument, by making such instrument:
1. Engages that he will pay it according to its tenor, and
2. Admits the existence of the payee and his then
capacity to indorse (Sec. 60, NIL).
NOTE: The maker is liable the moment he makes the NI. His
liability is primary and unconditional.
Q: On the right bottom margin of a PN appeared the signature of the corporation’s president and treasurer above their printed names with the phrase “and in his personal capacity.” The corporation failed to pay its obligation. Are the officers liable? A: Yes, persons who sign their names on the face of promissory notes are makers and liable as such. The officers are co-makers and as such, they cannot escape liability arising therefrom (Republic Planters
Bank v. CA, G.R. No. 93073, Dec. 21, 1992).
DRAWER Drawer
The drawer, by drawing the instrument:
1. Admits the existence of the payee and his then capacity to indorse; and
2. Engages that on due presentment the instrument will be accepted or dishonored; and
3. That if 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 (Sec. 61, NIL).
Secondary liability of the drawer
The drawer is secondarily liable to the following: 1. The holder or
2. To any subsequent indorser who may be compelled to pay it (ibid.).
The drawer may limit his liability to the holder The drawer may insert in the NI an express stipulation negativing or limiting his own liability to the holder
(ibid.).
Q: D draws a bill of exchange that states: “One month from date, pay to B or his order Php100,000.00. Signed, D.” The drawee named in the bill is E. B negotiated the bill to M, M to N, N to O, and O to P. Due to non-acceptance and after proceedings for dishonor were made, P asked O to pay, which O did. From whom may O recover?(2011 Bar Question)
A: D, being the drawer. ACCEPTOR Acceptor
The acceptor, by accepting the instrument:
1. Engages that he will pay the NI according to the
tenor of his acceptance; and
2. Admits the existence of the drawer, the genuineness of his signature and his capacity and authority to draw the instrument
3. Admits the existence of the payee and his then capacity to indorse (Sec. 62, NIL).
Party who can accept the bill of exchange
GR: Only the drawee may accept. A stranger or volunteer is not bound by acceptance.
XPN: In case of a bill which is accepted for honor supra protest (Sec. 161, NIL).
NOTE: Drawee does not become liable until he accepts the
instrument in which case he becomes an acceptor. An acceptor engages to pay according to the tenor of his acceptance, which may not be the same as the tenor of the bill itself because the acceptance may be qualified.
Difference between the liability of an acceptor or drawee-acceptor and a maker
While both are primarily liable, the acceptor engages to pay the negotiable instrument according to the tenor of his acceptance. On the other hand, the
maker engages to pay the negotiable instrument according to the tenor of the bill itself.
Q: X draws a check against his current account with Bonifacio Bank in favor of B. Although X does not have sufficient funds, the bank honors the check when it is presented for payment. Apparently, X has conspired with the bank's bookkeeper so that his ledger card would show that he still has sufficient funds. The bank files an action for recovery of the amount paid to B because the check presented has no sufficient funds. Decide the case (1998 Bar Question).
A: The bank cannot recover the amount paid to B for the check. When the bank honored the check, it became an acceptor. As acceptor, the bank became primarily and directly liable to the payee/holder B.
The recourse of the bank should be against X and its bookkeeper who conspired to make X's ledger show that he has sufficient funds.
INDORSER Indorser
A person placing his signature upon an instrument otherwise than as maker or acceptor is deemed to be an indorser, unless he clearly indicates by appropriate words his intention to be bound in some other capacity (Sec. 63, NIL).
NOTE: A person who places his indorsement on an bearer
instrument incurs all liabilities of an indorser (Sec. 67, NIL).
General indorser v. Irregular indorser (2005 Bar Question)
General Indorser Irregular Indorser Makes either a blank or
special indorsement
Always makes a blank indorsement
Indorses the instrument after its delivery to the payee
Indorses before its delivery to the payee
Liable only to parties subsequent to him
Liable to the payee and subsequent parties unless he signs for the accommodation of the payee in which case he is liable only to all parties subsequent to the payee (Sec. 64, 66,
NOTE: The holder or subsequent indorser who tries to claim
under the instrument which had been dishonored for "irregular indorsement" must not be the irregular indorser himself who gave cause for the dishonor. (Gonzales v. Rizal
Commercial Banking Corporation, 508 SCRA 459)
Qualified indorser
A qualified indorser is a person who indorses without recourse (Sec. 65, NIL).
Drawer v. Indorser
Drawer Indorser
Party only to a bill Party either a bill or note
Makes admission as to the existence of the payee and his capacity to indorse
No such admission
Makes no warranties, but engages to pay after certain conditions are complied with
Has warranties
Order of liability among the indorsers
1. Among themselves – Liable prima facie in the
order in which they indorse (Sec. 68) 2. To the holder – In any order
NOTE: Every indorser is liable prima facie to all indorsers
subsequent to him, but not those indorsers prior to him
(Sec. 68, NIL)
Liability of an agent or broker who negotiates an instrument without indorsement
He incurs all the liabilities prescribed to a general indorser unless he discloses the name of his principal and the fact that he is acting only as an agent (Sec.
69, NIL)
NOTE: Parol evidence is NOT admissible to relieve an agent
or broker whose endorsement brings him within the above liability.
Q: Can a collecting bank debit the account of the depositor when the checks indorsed to it (bank) were forged?
A: Yes, because the depositor of a check as indorser warrants that it is genuine and in all respect what it purports to be. Thus, when the checks deposited had forged indorsements and the collecting bank, as a consequence of such forgery, was made to pay the drawee bank, the collecting bank can debit the
account of the depositor for his breach of warranty
(Jai-Alai Corporation Of The Philippines v. BPI, G.R. No. L-29432, Aug. 6, 1975).
Q: Phebean, the drawer issued a check to James. James, subsequently indorsed it to Trude. When Trude is about to encash the check, the drawee Union Bank refused to encash it due to insufficiency of funds. Trude sued James for payment of money. James alleged that the suit should be dismissed because Phebean is an indispensable party. Does James’ argument hold water?
A: No, there is no privity between the drawer and the holder. The drawer is merely secondarily liable. As indorser, the buyer warranted that upon due presentment, the checks were to be accepted or paid, or both, according to their tenor, and that in case they were dishonored, she would pay the corresponding amount. After an instrument is dishonored by non-payment, indorsers cease to be merely secondarily liable; they become principal debtors whose liability becomes identical to that of the original obligor (Tuazon v. Heirs of Bartolome
Ramos, G.R. No. 156262, July 14, 2005).
Q: X is the holder of an instrument payable to him (X) or his order, with Y as maker. X then indorsed it as follows: “Subject to no recourse, pay to Z. Signed, X.” When Z went to collect from Y, it turned out that Y's signature was forged. Z now sues X for collection. Will it prosper? (2011 Bar Question)
A: Yes, because X, as a qualified indorser, warrants that the note is genuine.
WARRANTIES
The following are the warranties a person provides in negotiating an instrument:
1. That the instrument is genuine and in all respects what it purports to be
2. That he has good title to it
3. That all prior parties had capacity to contract 4. That he has no knowledge of any fact which
would impair the validity of the instrument or render it useless.
NOTE: Indorser’s liability as warrantor is distinct from his
liability to pay the instrument. Even a qualified indorser may incur liability for breach of implied warranties. As warrantor, his liability is unconditional.