accepted or paid, or both, according to its tenor, and that if
LIABILITIES OF PARTIES IN NEGOTIABLE
INSTRUMENTS
Sec. 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.
MAKER PRIMARILY LIABLE
• Engagement of the maker is to pay absolutely for the note according to
its tenor
• His liability is primarily and unconditional
• One who has signed an instrument as a maker is presumed to h
ave acted with care and to have signed the instrument with full knowledge of
its contents, unless of course, if fraud is proved
MAKER MUST PAY ACCORDING TO THE TERMS
OF THE NOTE
• The maker bound himself to pay personally. He cannot shift the
obligation without the consent of the payee. He cannot allege that he
spend the money on expenses which should be charged to a trust
administered by a creditor because it is not the payee’s concern to
know how the proceeds should be spent. That is the sole concern of the
maker. The payee’s interest is merely to see that the note is paid according
to its term.
LIABILITY OF 2 OR MORE MAKERS
• When 2 or more makers sign jointly or severally, each of them is
individually liable for the payment of the full amount of their obligation even if
one of them didn’t receive part of the value given therefor, as he would be
considered as an accommodation party
PAYEE’S EXISTENCE, ETC.
• The maker also admits of the existence of the payee and his the
n capacity to indrose
• He is precluded from setting up the following defenses:
o That the payee is a fictitious person because by making the note,
he admits that the payee exists
o That the payee was insane, a minor, or a corporation acting
ultra vires because by making the note, he admits the then capacity of
the payee to indorse
Sec. 61. Liability of drawer. - The drawer by drawing the
instrument admits the existence of the payee and his then capacity to
indorse; and engages that, on due presentment, the instrument will be
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. But the
drawer may insert in the instrument an express stipulation
negativing or limiting his own liability to the holder.
DRAWER SECONDARILY LIABLE
• He engages merely that the bill will be accepted or paid or both,
according to its tenor, and that he will pay only when
1. It is dishonored
2. And the necessary proceedings of dishonor are duly taken
• The liability of the drawer is subject to the two conditions and attaches
only upon their fulfillment
• The drawer, by merely drawing the bill and signing his name in the bill
as such drawer, without more, impliedly engages to be so secondarily liable,
as if he has incorporated the provisions of Section 61 in the bill
• If the bill is not paid, accordingly, if a bill is not paid, the drawer
becomes liable for the payment of its value to the holder provided that notice
of dishonor is given
TO WHOM DRAWER IS SECONDARILY LIABLE
1. The holder
2. Or if any of the indorsers intervening between the holder and the drawer
is compelled to pay by the holder, the drawer, will be liable to that indorser so
compelled to pay
IS DRAWER OF UNACCEPTED BILL PRIMARILY
LIABLE?
• Yes
• It was held that until the bill has been accepted, the drawer is th
e principal debtor and after acceptance, the drawee or acceptor is the
principal debtor and the drawer becomes secondarily liable
PAYEE’S EXISTENCE
• Like the maker, the drawer admits to the existence of the payee and his
capacity to indorse
NEGATIVES HIS LIABILITY
• The law allows the drawer to negative or limit his liability by express
stipulation
• By adding words such as “without recourse” or “I shall not be liable in
case of non-payment or non-acceptance”
Sec. 62. Liability of acceptor. - The acceptor, by accepting the
instrument, engages that he will pay it according to the tenor of his
acceptance and admits:
(a) The existence of the drawer, the genuineness of his signature,
and his capacity and authority to draw the instrument; and
(b) The existence of the payee and his then capacity to indorse.
ACCEPTOR PRIMARILY LIABLE
• Acceptor engages to pay absolutely according to the tenor of its
acceptance
• His liability is not subject to any condition
• The acceptor is the drawee who accepts the bill
• His acceptance immediately places a legal liability on him for the
payment of the bill in favor of one who became a holder thereof after
acceptance, and if he wants to escape liability, it is up to him to show that he
is a mere agent of the drawer, or allege and prove any other defense which
he has to the liability
EFFECT OF MORTGAGE EXECUTED BY
ACCEPTOR
• Where being unable to pay certain bills of exchange which the drawee
has accepted, the latter makes a mortgage in favor of the holder of
said bills upon certain merchandise the value of which is sought to be
collected through said bills, in order to secure the payment of said
amount if the merchandise is sold and the integrity thereof while the sale is
not effected, the execution of said mortgage doesn’t constitute a Novation of
the obligation represented by said accepted bills unless it is expressly stated
in the mortgage
ACCEPTOR TO PAY ACCORDING TO TENOR OF
HIS ACCEPTANCE
• While the maker of a note engages to pay according to the tenor of the
note, an acceptor engages to pay according to the tenor of his
acceptance, not of the bill he accepts
• Tenor of his acceptance may be different from the tenor of the bill, as
the acceptor may accept the bill with qualifications
• If his acceptance is general, the tenor of then bill is the same tenor as
the tenor of his acceptance
WHERE ORIGINAL TENOR IS ALTERED BEFORE
ACCEPTANCE
• Suppose the bill is originally for P1000. Before the drawee X accepts it,
it is altered by the payee B to P4000. Then X accepts it. How much is X
liable to a holder in due course?
• According to one view, X is liable for P4000 and not P1000. Th
e reason is that the tenor of X’s acceptance is for P4000.
EFFECT OF SECTION 124
• Under the first view, what is the effect of Section 124 which provides that
a holder in due course can recover only the original tenor of the instrument?
• It seems that this refers to the original tenor of instrument taken from
the standpoint of the person primarily liable, in X’s standpoint. In
other words, the original tenor of the instrument is P4000, which is the tenor
of X’s acceptance.
• If after his acceptance, a subsequent indorsee alters the bill to re
ad P9000, then X could be liable for P4000 only, the original tenor of his
acceptance, even as to a holder of due course.
ADMISSION OF DRAWER’S EXISTENCE, ETC.
• Drawer’s existence
• The genuineness of the drawer’s signature
• The capacity and authority of the drawer to draw the instrument
• He doesn’t admit the genuineness of the indorser’s signatures
EFFECT OF ACCEPTOR’S ADMISSIONS
1. Acceptor consequently precluded from setting up the defense that the
drawer is non-existent or fictitious because of his admission of the drawer’s
existence
2. Neither can he claim the drawer’s signature is a forgery because he
admits the genuineness of the drawer’s signature
3. Neither can the drawee escape liability by alleging want of
consideration between him and the drawer as by accepting the
bill, he admits the capacity and authority of the drawer to draw
the bill
Sec. 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 INDORSEMENT
• An irregular indorser is one who not otherwise a party to an
instrument, places his signature thereon his signature in blank before
delivery
IRREGULAR INDORSEMENT
• Its an indorsement in an unusual, peculiar, or singular manner
• His name appears where he would naturally expect another name
BEFORE DELIVERY
• It means the initial delivery
• Provision doesn’t apply if the signature was placed after delivery
Liability of general indorser - Negotiable
Instruments
Sec. 66. Liability of general indorser. - Every indorser who indorses
without qualification, warrants to all subsequent holders in due
course: (holders in good faith)
(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.
APPLICATION OF SECTION 66
• Deals with the liability or warranties of one negotiating by general
indorsement, as distinguished from qualified indorsers or persons
negotiating by mere delivery
• It has been held that this section includes an indorser for collection
LIABILITY OF GENERAL INDORSER
1. That the instrument is genuine and in all respects what it purports to be
2. That he has a good title to it
3. That all prior parties had capacity to contract
4. And that the instrument is, at the time of his indorsement, valid and
subsisting
FOURTH WARRANTY OF GENERAL INDORSER
AND QUALIFIED INDORSER, DISTINGUISHED
• While the qualified indorser or person negotiating by delivery warrants
that he is ignorant of any fact that will render the instrument valueless or
impair its validity, the general indorser warrants that the instrument
he is indorsing is valid and subsisting regardless of whether he is
ignorant of that fact or not
THE WARRANTIES OF A GENERAL INDORSER
EXTEND TO THE FOLLOWING
1. Holders in due course
2. Persons who derive their title from holders in due course
3. Immediate transferees even if they are not holders in due course
WARRANTIES DON’T EXTEND TO DRAWEE
• The indorser of a check doesn’t warrant the genuineness of the
drawer’s signature to the drawee who pays it since the drawee is not a holder
in due course
• The warranties provided do not run in favor of the drawee in respect to
the genuineness of the drawer’s signature but only in favor of
subsequent holders in due course
OTHER LIABILITY OF GENERAL INDORSER
• 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 of dishonor be duly taken,
he will pay the amount to the holder, or to any subsequent indorser
who may be compelled to pay it

GENERAL INDORSER IS SECONDARILY LIABLE

• Secondary liability not confined to the four warranties
• He is liable if for any reason, the person primarily liable cannot pay, as
distinguished from the limited secondary liability of the qualified indorser
or of the person negotiating by mere delivery
• The reason for dishonor need not be established. As long as there was
dishonor, this is sufficient.
LIABILITY OF ASSIGNOR
• The vendor in good faith shall be responsible for the existence an
d legality of the credit at the time of the sale unless it should have been
sold as doubtful but not for the solvency of the debtor unless it has
been so expressly stipulated or unless the insolvency was prior to the sale
and of common knowledge