Consideration in the Civil Code is

the same in Negotiable

Instruments Law. And every
contract must be supported by a
valuable consideration.
PRESUMPTION OF CONSIDERATION
AND HOW REBUTTED
Sec. 24. 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 a party thereto for value.
•The existence of consideration is only a
prima facie presumption. The burden of
proof is on the challenger that there was no
valuable consideration.
•This means that the person claiming the that
a payee or an indorsee did not give valuable
consideration for an instrument must prove
that there really was no valuable
consideration given.
Travel On vs. CA
G.R. No. 56169, June 26, 1992
• Arturo S. Miranda had a revolving credit line with Travel-
On. Inc.
• Travel-On filed bto collect 6 checks issued by Miranda
totaling P115,000.00
• Miranda: checks were issued for to "accommodate"
Travel-On's General Manager to show the BOD of Travel-
On that their receivables were still good; these checks
were merely simulated and thus, there was no
consideration
Travel On vs. CA
G.R. No. 56169, June 26, 1992
•ISSUE: Who has the burden in proving
that there is no consideration?
•CA: Placed the burden of proving the
existence of valuable consideration
upon Petitioner Travel On
 Travel On vs. CA
G.R. No. 56169, June 26, 1992
• Was CA correct?
• No.
• It is important to stress that a check which is regular on its face is
deemed prima facie to have been issued for a valuable consideration
and every person whose signature appears thereon is deemed to have
become a party thereto for value. Thus, the mere introduction of the
instrument sued on in evidence prima facie entitles the plaintiff to
recovery. Further, the rule is quite settled that a negotiable instrument
is presumed to have been given or indorsed for a sufficient
consideration unless otherwise contradicted and overcome by other
competent evidence.
Travel On vs. CA
G.R. No. 56169, June 26, 1992
•It was up to private respondent
to show that he had indeed
issued the checks without
sufficient consideration.
Travel On vs. CA
G.R. No. 56169, June 26, 1992
• Was he able to rebut the legal presumption?
• No.
• The Court considers that Private respondent
(Miranda) was unable to rebut satisfactorily this
legal presumption. It must also be noted that
those checks were issued immediately after a
letter demanding payment had been sent to
private respondent by petitioner Travel-On.
 Yang vs. CA
• Yang and Chandiramani entered into an agreement that the latter
would issue to the former a manager’s check in exchange for two
checks that Yang is paying to the order of David.
• Chandiramani didn't show up and the drafts and checks were
allegedly stolen.
• This wasn't true however. Chandiramani was able to get hold of the
drafts and checks. He was even able to deliver to David the two
checks and was able to get money in return. Consequently, Yang
asked for the stoppage of payment of the checks she believe to be
lost, relying on the report of her messenger. The stoppage order
was eventually lifted by the banks and the drafts and checks were able
to be encashed. Yang then filed an action for injunction and damages
against the banks, Chandiramani and David.
Yang vs. CA
•Yang: There is no showing
whatsoever that David gave
Chandiramani any consideration
of value in exchange for the
aforementioned checks.
• Section 24 of the Negotiable Instruments Law creates
a presumption that every party to an instrument
acquired the same for a consideration or for value.
• Thus, the law itself creates a presumption in Davids
favor that he gave valuable consideration for the
checks in question. In alleging otherwise, the
petitioner has the onus to prove that David got hold of
the checks absent said consideration.
• In other words, the petitioner must present
convincing evidence to overthrow the presumption.
• Our scrutiny of the records, however, shows that the
petitioner failed to discharge her burden of proof. The
petitioners averment that David did not give valuable
consideration when he took possession of the checks is
unsupported, devoid of any concrete proof to sustain it.
• Note that both the trial court and the appellate court found
that David did not receive the checks gratis, but instead
gave Chandiramani US$360,000.00 as consideration for the
said instruments. Factual findings of the Court of Appeals
are conclusive on the parties and not reviewable by this
Court; they carry great weight when the factual findings of
the trial court are affirmed by the appellate court
WHAT CONSTITUTES “VALUE”
Sec. 25. Value, what constitutes. - Value is
any consideration sufficient to support a
simple contract. An antecedent or pre-
existing debt constitutes value; and is
deemed such whether the instrument is
payable on demand or at a future time.
CONSIDERATION
• In onerous contracts the cause is understood to
be, for each contracting party, the prestation or
promise of a thing or service by the other; in
remuneratory ones, the service or benefit which
is remunerated; and in contracts of pure
beneficence, the mere liberality of the
benefactor. (Art. 1350, Civil Code)
HOLDER FOR VALUE
Sec. 26. What constitutes holder for
value. - Where value has at any time
been given for the instrument, the
holder is deemed a holder for value in
respect to all parties who become such
prior to that time.
LIEN HOLDER
Sec. 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.
• The holder who has a lien on the instrument is a
holder in due course only up to the extent of his
lien. Thus, a holder who has a lien on the
instrument can only up to the extent of his lien if
there are personal defenses (i.e. lack of
consideration) against him but he cannot collect
at all if there are real defenses available against
him. However, he can still collect the whole
amount of the instrument if there are no
defenses at all.
WANT OF CONSIDERATION VS FAILURE OF
CONSIDERATION
Sec. 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.
Lack of Consideration Failure of Consideration
total lack of any valid consideration neglect or failure of one of the
parties to give, to do or to perform
the consideration agreed upon

embraces transactions where no implies that the giving of valuable

consideration was intended to pass consideration was contemplated
but that it failed to pass
remedy is to annul the instrument Remedies are (1) rescission of the
instrument as to value that was
failed to receive or (2) specific
performance
Absence of consideration means total lack of
consideration.
A makes a promissory note payable to B as a
gift; there is absence of consideration. As
between A and B, there can be no recovery
on the note. But if B negotiates it to C, a
holder in due course, C can recover against
A, because A’s defense of absence of
consideration is personal.
Failure of consideration
•Means that something was
agreed upon as consideration
for a contract but for some
reason the consideration did not
materialize.
• A enters into a contract to sell certain
merchandise to B. In consideration of this
merchandise, B makes a promissory note payable
to A as advance payment thereof. A fails to deliver
the merchandise. There is a failure of
consideration, so that A cannot recover from B. If
B negotiates the note to C, who knew that A failed
to deliver, neither can C recover from A. If C were
ignorant of such defense and is a holder in due
course, C can recover from A.
Partial failure of consideration
• means simply that part of the consideration did
not materialize
• If A delivered part of the merchandise and failed
to deliver the rest, there is a partial failure of
consideration which may be set up as a defense
pro tanto by B against A or a holder not in due
course (i.e. B is not liable to the extent of the
price of the undelivered portion).
Nature of Defense
•Absence or failure of consideration is a
personal defense available only against
holders not in due course. In the hands
of a holder in due course therefore,
the presumption of consideration is
conclusive.
LIABILITY OF AN ACCOMMODATION
PARTY
Sec. 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.
REQUIREMENTS FOR AN
ACCOMMODATION PARTY
(1) he must be a party to the
instrument;
(2) he must not receive value therefor;
and
(3) he must sign for the purpose of
lending his name or credit.
Maulini vs. Serrano
• Serrano - broker
• Maulini - lender
• Scheme: Serrano will deliver the money to
borrower (Padern, Moreno & Co. & Jose
Padern); Borrowers will issue a PN to Serrano
and Serrano will indorse it to real lender Maulini
• Reason: Maulini does not want his name to
appear as lender
(Sgd.) For Padern, Moreno & Co., by F. Moreno,
member of the firm. For Jose Padern, by F.
Moreno. Angel Gimenez.

The note was indorsed on the back as follows:

Pay note to the order of Don Fernando Maulini,

value received. Manila, June 5, 1912. (Sgd.) A.G.
Serrano.
 Is Defendant Serrano an Accommodation
Indorser?
• NIL - accommodation party as "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 the same to
be only an accommodation party."
He was not an accommodation party.
•The accommodation to which
reference is made in the section
quoted is not one to the person who
takes the note — that is, the payee or
indorsee, but one to the maker or
indorser of the note.
It is true that in the case at bar it was an
accommodation to the plaintiff, in a
popular sense, to have the defendant
indorse the note; but it was not the
accommodation described in the law,
but, rather, a mere favor to him and one
which in no way bound Serrano.
•In cases of accommodation
indorsement the indorser makes the
indorsement for the accommodation
of the maker. Such an indorsement is
generally for the purpose of better
securing the payment of the note —
that is, he lend his name to the maker,
not to the holder.
Ang Tiong vs. Ting
• Lorenzo Ting issued a check payable to “cash or
bearer”
• Felipe Ang has indorsement in blank at the back
thereof
• Received by Ang Tiong who presented it to the
drawee bank for payment
• Bank dishonored the check.
•Felipe Ang: Should not be liable
to Tiong because he was an
accommodation party.
Is he still liable on the instrument even if he is
only an accommodation party?
• Yes.
• By the clear mandate of section 29 of the Negotiable
Instruments Law, yet "liable on the instrument to a
holder for value, notwithstanding that such holder at
the time of taking the instrument knew him to be only
an accommodation party."
• To paraphrase, the accommodation party is liable to a
holder for value as if the contract was not for
accommodation.
Is it a defense of Accommodation Party that
he did not receive any consideration?
•No.
•It is not a valid defense that the
accommodation party did not
receive any valuable consideration
when he executed the instrument.
Is it a defense that he should not be liable
because the holder knew him to be an
accommodation party?
• No.
• Nor is it correct to say that the holder for value is
not a holder in due course merely because at the
time he acquired the instrument, he knew that
the indorser was only an accommodation party.
The appellant, again assuming him to be an accommodation indorser,
may obtain security from the maker to protect himself against the
danger of insolvency of the latter, cannot in any manner affect his
liability to the appellee, as the said remedy is a matter of concern
exclusively between accommodation indorser and accommodated
party. So that the fact that the appellant stands only as a surety in
relation to the maker, granting this to be true for the sake of argument,
is immaterial to the claim of the appellee, and does not a whit diminish
nor defeat the rights of the latter who is a holder for value. The liability
of the appellant remains primary and unconditional. To sanction the
appellant's theory is to give unwarranted legal recognition to the patent
absurdity of a situation where an indorser, when sued on an instrument
by a holder in due course and for value, can escape liability on his
indorsement by the convenient expedient of interposing the defense
that he is a mere accomodation indorser.
RIGHTS OF ACCOMMODATION PARTIES
AMONGST THEMSELVES
(1) The accommodation party is generally regarded as a surety for the
party accommodated.
(2) When “the accommodation parties make payment to the holder of
the notes, they have the right to sue the accommodated party fore
reimbursement since the relation between them is in effect that of
principal and sureties, the accommodation parties being the sureties.
The accommodated party cannot recover from the accommodation
party. As between them, the understanding is that he accommodation
party either is (1) to reimburse the amount which the accommodation
party may be obliged to pay, or (2) to pay the instrument directly to the
holder. The real debtor is the accommodated party. As between the
accommodated party and accommodation party, the latter is secondary
liable.
Sadaya vs. Sevilla
• Victor Sevilla, Oscar Varona, Simeon Sadaya were co-
makers of a PN in the amount of 15k
• Proceeds were solely received by Varona
• Bank (BPI) collected from Sadaya the balance of
P5,416.12
• Despite repeated demands, Varona failed to reimburse
Sadaya
• Sadaya filed claim to Estate of Sevilla
Liability to the BPI
• Victor Sevilla and Simeon Sadaya were joint and several
accommodation makers of the 15,000.00-peso PN
• As such accommodation the makers, the individual
obligation of each of them to the bank is no different
from, and no greater and no less than, that contract by
Oscar Varona. For, while these two did not receive value
on the promissory note, they executed the same with,
and for the purpose of lending their names to, Oscar
Varona. Their liability to the bank upon the explicit
terms of the promissory note is joint and several.
Relations of parties to each other
• Surely enough, as amongst the three, the
obligation of Varona and Sevilla to Sadaya who
paid can not be joint and several. For, indeed,
had payment been made by Oscar Varona,
instead of Simeon Sadaya, Varona could not have
had reason to seek reimbursement from either
Sevilla or Sadaya, or both. After all, the proceeds
of the loan went to Varona and the other two
received nothing therefrom.
 Joint Liability
• On principle, a solidary accommodation maker —
who made payment — has the right to contribution,
from his co-accommodation maker, in the absence of
agreement to the contrary between them, and
subject to conditions imposed by law. This right
springs from an implied promise between the
accommodation makers to share equally the burdens
that may ensue from their having consented to
stamp their signatures on the promissory note.
Can Sadaya recover from Sevilla?
• No.
• (1) A joint and several accommodation maker of a negotiable
promissory note may demand from the principal debtor
reimbursement for the amount that he paid to the payee; and
• (2) a joint and several accommodation maker who pays on the
said promissory note may directly demand reimbursement from
his co-accommodation maker without first directing his action
against the principal debtor provided that (a) he made the
payment by virtue of a judicial demand, or (b) a principal debtor
is insolvent.
Lim vs. Saban
• Saban - broker of a property
• Through Saban's efforts, Sps. Ybaez were able to
sell a lot to Lim's
• Ybaez advised Lim's to cancel all teh checks
issued to Saban
• CA: In issuing checks constituting as Saban's
commission, Lim was only acting as
accommodation party to Ybaez.
 Was Lim an Accommodation Party?
• No.
• Section 29 of the Negotiable Instruments Law defines an
accommodation party as a person who has signed the
negotiable instrument as maker, drawer, acceptor or indorser,
without receiving value therefor, for the purpose of lending
his name to some other person. The accommodation party is
liable on the instrument to a holder for value even though the
holder at the time of taking the instrument knew him or her
to be merely an accommodation party. The accommodation
party may of course seek reimbursement from the party
accommodated.
Requirements of an Accommodation
Party
(1) he signed the instrument as maker, drawer,
acceptor, or indorser;
(2) he did not receive value for the signature; and
(3) he signed for the purpose of lending his name
to some other person
 So, was Lim an AP?
• No.
• In the case at bar, while Lim signed as drawer of the checks she
did not satisfy the two other remaining requisites.
• The absence of the second requisite becomes pellucid when it is
noted at the outset that Lim issued the checks in question on
account of her transaction, along with the other purchasers, with
Ybaez which was a sale and, therefore, a reciprocal contract.
Specifically, she drew the checks in payment of the balance of the
purchase price of the lot subject of the transaction. And she had
to pay the agreed purchase price in consideration for the sale of
the lot to her and her co-vendees. In other words, the amounts
covered by the checks form part of the cause or consideration
from Ybaezs end, as vendor, while the lot represented the cause
or consideration on the side of Lim, as vendee
Prudencio vs. CA
• Prudencio's are owners of a land.
• To guaranty the loan extended to their relative's
company (Concepcion & Tamayo Construction
Company, represented by Jose Toribio), they
agreed to the mortgage of land
• PN signed by Toribio and the Prudencio's
Liability
In lending his name to the accommodated party, the
accommodation party is in effect a surety. ... . " However,
unlike in a contract of suretyship, the liability of the
accommodation party remains not only primary but also
unconditional to a holder for value such that even if the
accommodated party receives an extension of the period
for payment without the consent of the accommodation
party, the latter is still liable for the whole obligation and
such extension does not release him because as far as a
holder for value is concerned, he is a solidary co- debtor.
Would the Prudencio's be liable as the
Accommodation Makers?
• There is, therefore, no question that as accommodation makers,
petitioners would be primarily and unconditionally liable on the
promissory note to a holder for value, regardless of whether they
stand as sureties or solidary co-debtors since such distinction
would be entirely immaterial and inconsequential as far as a
holder for value is concerned. Consequently, the petitioners
cannot claim to have been released from their obligation simply
because the time of payment of such obligation was temporarily
deferred by PNB without their knowledge and consent. There has
to be another basis for their claim of having been freed from
their obligation.
But, is PNB a HFV/HDC such that AM be liable
to it?
• No, PNB is not a HDC.
• It was an immediate party who is in privy to the
instrument; it made the Prudencio's believe that
no other conditions would alter the terms
thereof, but PNB still altered it.
WHAT GOVERNS Reimbursement rights of
accommodating parties
When there are two or more guarantors of the same debtor and
for the same debt, the one among them who has paid may
demand of each of the others the share which is proportionally
owing from him.
If any of the guarantors should be insolvent, his share shall be
borne by the others, including the payer, in the same proportion.
The provisions of this article shall not be applicable, unless the
payment has been made by virtue of a judicial demand or unless
the principal debtor is insolvent. (Art. 2073, Civil Code)
Acuña vs. Veloso
• Xavier (agent of Veloso) & Veloso (Principal)
issued a PN to Gonzales (Lender), which PN was
turned over to Acuña
• The case being cited by defendants is not applicable to
the case at bar. The case of Rylee v. Wilkinson
contemplates a situation wherein an accommodation maker
executes a note in favor of an accommodated party. In the
case at bar, the accommodation party and accommodated
party execute a note jointly and severally to a person who
advances the face value of the note to one of its makers at the
very time of its creation. The consideration for the note is
the money advanced to Xavier. Value was given for the
note and that is enough. In equity as between Veloso and
Xavier, Veloso is entitled to the rights as a surety and
Xavier is the real debtor; but as to the creditor who gave value
for the note at the time of its creation, both of Veloso and
Xavier are mere joint and several makers.
NEGOTIATION
WHAT CONSTITUTES NEGOTIATION
Sec. 30. What constitutes negotiation. - An
instrument is negotiated when it is transferred
from one person to another in such manner as to
constitute the transferee the holder thereof. If
payable to bearer, it is negotiated by delivery; if
payable to order, it is negotiated by the
indorsement of the holder and completed by
delivery.
Methods of Transfer
(1) by assignment
(2) by operation of law
(3) by negotiation, which may either be by
indorsement completed by delivery or by mere
delivery
Negotiation

•the transfer of a negotiable instrument

from one person to another made in
such a manner as to constitute the
transferee the holder thereof
Is the payment by the drawee bank
negotiation?
• No.
• The bank is not a payee nor indorsee. Its payment does not
make the bank as a holder.
• The writing of the name of the holder on the bank of the
check (indorsement) before surrendering the check for
payment to the drawee-bank, is not an indorsement. It
merely serves as a receipt for the money. Check merely
becomes a voucher.
• Bank cannot also make part payment or only to the amount
of the drawer's funds.
 What is the status of an
order instrument which is
only delivered and not
indorsed?
• Without the indorsement, the transferee
would not be the holder of the
instrument (he cannot attain the status of
a holder).
• Transferee can however be an assignee,
who has the right to ask or have the
indorsement of the assignor. Negotiation
then operates as of the time of the
indorsement.
Negotiation vs. Assignment
Negotiation Assignment
refers to NI refers to an ordinary contract
transferee is called “holder” transferee is an “assignee”
holder in due course is subject to assignee is subject to both real and
real defenses personal defenses
HDC may acquire better title than assignee merely steps into the shoes
those possessed by the transferor or of assignor
prior party
indorser is liable if there is assignor is liable even without
presentment and notice of dishonor notice of dishonor
governed by NIL governed by NCC
HOW MADE
Sec. 31. Indorsement; how made. - The
indorsement must be written on the
instrument itself or upon a paper
attached thereto. The signature of the
indorser, without additional words, is a
sufficient indorsement.
Indorsement
•the writing of the name of the payee
on the instrument with the intent
either to transfer the title to the same
or to strenthen the security of the
holder by assuming a contingent
liability for its future payment
Endorsement vs. Indorsement
•Endorsement - a public indication of
approval or support
•Indorsement - a signature on a legal or
financial document, especially a check
• While endorsement is sometimes used in place of
indorsement for legal contexts, indorsement is never used in
place of endorsement for a public indication of approval.
• For example,
In order to make this contract valid, I will need your
endorsement. (Correct)
In order to make this contract valid, I will need your
indorsement. (Correct)
• -but-
The president endorsed me as his successor. (Correct)
The president indorsed me as his successor. (Incorrect)
Where can an indorsement be
written?
•On the instrument itself
•Upon a paper attached thereto
How? Blank Indorsement
Special
Indorsement
WHEN IS ALLONGE ALLOWED?
The use of an allonge is allowable only when
there is a physical impossibility of writing
the indorsement on the instrument itself,
and an indorsement on a separate piece of
paper where there is sufficient space on the
instrument for indorsements will be
considered as mere assignment, not a
negotiation.
Clark vs. Thompson
• W/N the indorsement made upon the allonge was
sufficient to make the note negotiable? No.
• Allonge - Upon a slip of paper tacke or pasted on to the
instrument so as to become a part of it.
• But the use of the allonge was allowable only when the
back of the instrument itself was so covered with
previous indorsements that convenience or necessity
required additional space for further indorsements.
INDORSEMENT FOR THE FULL
INSTRUMENT
Sec. 32. Indorsement must be of entire instrument. - The
indorsement must be an indorsement of the entire
instrument. An indorsement which purports to transfer
to the indorsee a part only of the amount payable, or
which purports to transfer the instrument to two or
more indorsees severally, does not operate as a
negotiation of the instrument. But where the instrument
has been paid in part, it may be indorsed as to the
residue.
• An indorsement of a part of the instrument does
not operate as negotiation. But it may constitute
a valid assignment binding between the parties.
The person to whom the instrument is indorsed
would not be considered an indorsee but merely
an assignee and would therefore take the
instrument subject to the defenses available
between the original parties.
Pay to A P10,000
•The whole 10k must be indorsed
•If only “Pay to A P8,000”, leaving the
balance without indorsement is not a valid
negotiation
•Exc. (when partial indorsement allowed):
Where part of the amount of the
instrument has been paid (8k), it may be
negotiated for the balance
Reason behind
•To protect the obligors from more than
one action on the instrument. The
maker and all the prior parties, in
assuming liability, took the risk of only
one cause of action against them.
• So, not allowed: 10k - pay to A 6k and to B 4k
• Not allowed: Partial payment. But if the partial
indorsement is paid, can indorse the balance
• Allowed:
(1) Joint - Pay to A&B
(2) Alternative - Pay to A or B
• Not allowed: indorsement severally (Pay to A
and/or B)
Effect if indorsement does not
comply with Sec. 32
•Transfer is not necessarily void
•It remains valid, not as a negotiation,
but as a mere assignment which
subjects the holder to all defenses on
the instrument
Blake vs. Weiden
• 5 PN's of $ 5,000 each by Corp. to Robert
Weiden (defendant's father)
• Indorsement in back to heirs (share and share
alike)
• Now claiming their individual shares on the 5
PN's
• Was it an indorsement in part? No.
• When there has been a purported indorsement of the
whole instrument, in separate parts to two or more
transferees, the purported indorsees take legal title to
their several shares and may sue together, or any one
or more may sue, provided all the other indorsees are
brought in as parties. (In the case before us defendant
did bring in the other two indorsees, alleging without
contradiction that they had refused to join with him.)
• A study of the history of, and reason for, section 62 leads to the
same answer. The common law looked with disfavor upon any
indorsement that did not transfer the whole instrument at one
time and to one person.
• Thus did the law conform to the "custom of merchants" which
was that a holder of a note could not "apportion such personal
contract, for he cannot make a man liable to two actions,
where by the contract he is liable but to one."
• The last sentence in the quoted excerpt from the Hawkins
case gives us a valuable clue to such mystery as there is in
section 62. The whole purpose of the restrictions there
embodied was to prevent a multiplicity of suits.
DISCOUNTING
Neither does the provision prohibit a transaction
where the indorsee pays the indorser less than
the face amount of the instrument, title
transferring to the indorsee. This is what is called
a “discount” of the instrument. The discount is
given in consideration of the period during which
the purchaser has to wait before he can cash the
instrument with the maker or acceptor, which can
be done only at the maturity of the instrument.
KINDS OF INDORSEMENT

Sec. 33. Kinds of indorsement. -

An indorsement may be either
special or in blank; and it may
also be either restrictive or
qualified or conditional.
Sec. 34. Special indorsement; indorsement in
blank. - A special indorsement specifies the
person to whom, or to whose order, the
instrument is to be payable, and the indorsement
of such indorsee is necessary to the further
negotiation of the instrument. An indorsement in
blank specifies no indorsee, and an instrument so
indorsed is payable to bearer, and may be
negotiated by delivery.
Special
Indorsement
Special Indorsement
•Specifies the person to whom the
instrument is payable
•Followed by the signature of the
indorser
Is it required that there is word of
negotiability in indorsement?
•NO.
•An indorsement need not contain the
words of negotiability, as long as these
appear on the on the face of the
instrument.
Blank Indorsement
Blank Indorsement
•Specifies no particular indorsee
•Consists only of the signature of the
payee or indorser
Effect of Blank Indorsement
•Becomes payable to bearer - Sec. 9 (e)
•M > P (Blank Indorsement) > A = A
becomes a bearer and not an indorsee
(so he can negotiate the same by mere
delivery)
• But the subsequent holder can
convert it to a special indorsement
Sec. 35. Blank indorsement; how
changed to special indorsement. - The
holder may convert a blank
indorsement into a special indorsement
by writing over the signature of the
indorser in blank any contract
consistent with the character of the
indorsement.
RESTRICTIVE INDORSEMENT
Sec. 36. When indorsement restrictive. - An indorsement
is restrictive which either:
(a) Prohibits the further negotiation of the instrument; or
(b) Constitutes the indorsee the agent of the indorser; or
(c) Vests the title in the indorsee in trust for or to the use
of some other persons.
But the mere absence of words implying power to
negotiate does not make an indorsement restrictive.
Prohibits the further negotiation of
the instrument
•Indorsement that kills the negotiability of
the instrument
•e.g. “ Pay to A only” or “Pay to A and to no
other person”
Constitutes the indorsee the
agent of the indorser
• “for deposit” - is a restrictive indorsement and
indicates that the indorsee bank is an agent for
collection and not the payee. It does not render
the check negotiable but prohibits further
negotiation for any purpose except for collection
for deposit in the payee's account in the bank
selected by the payee. (Granado vs. Riverdale)
• “in trust for” - (Subralson-Dickenson Co. vs.
Hopkins)
• “for collection” - is restrictive and merely makes
the indorsee agent for the indorser to collect the
paper, but does not vest him the legal title to the
paper, nor authorize him to sell or indorse the
paper to another. It limits the effect of the
indorsement and warn subsequent takers that the
purpose of the indorsement is not to transfer
ownership of the paper or its proceeds. (Atlantic
City National Bank vs. Commercial Lumber Co.)
•“Pay S.V. White or order for account
Miners' National Bank, Georgetown,
Colorado” -- The effect was merely to
enable White to collect the money for the
bank (White vs. National Bank)
•“For deposit” - The endorsement was
restrictive and that the forwarding bank
was an agent for collection and not the
owner of the item. (Leonardi v. Chase)
EFFECTS OF RESTRICTIVE INDORSEMENT
Sec. 37. Effect of restrictive indorsement; rights of
indorsee. - A restrictive indorsement confers upon the
indorsee the right:
(a) to receive payment of the instrument;
(b) to bring any action thereon that the indorser could
bring;
(c) to transfer his rights as such indorsee, where the form
of the indorsement authorizes him to do so.
But all subsequent indorsees acquire only the title of the
first indorsee under the restrictive indorsement.
QUALIFIED INDORSEMENT
Sec. 38. Qualified indorsement. - A qualified
indorsement constitutes the indorser a mere
assignor of the title to the instrument. It may be
made by adding to the indorser's signature the
words "without recourse" or any words of similar
import. Such an indorsement does not impair the
negotiable character of the instrument.
Without recourse
• without resort to the person who is secondarily liable
after the default of the person who is primarily liable
• In effect, any one who indorses without recourse states
that “all parties to the paper are genuine; I am the
lawful holder of that paper, and I have title to it and
know of no reason why you could not recover on it as a
valid instrument; but I do not guarantee the financial
responsibility of the parties on that paper but I do say
that I hold title to it just the same as any other personal
property.”
• By adding the words “without recourse” above
his signature, he expressly rids himself of the
second contract.
• A qualified indorser therefore merely assumes
the first contract and agrees merely to transfer
legal title to the instrument.
• Unlike a general indorser, the qualified indorser
does not warrant the solvency of the
maker/drawer.
But is it absolute that he has no liability?
• The qualified indorser is not entirely free from
secondary liability. He is secondarily liable on his
warranties as an indorser under Section 65. He is liable
if the instrument is dishonored by non-acceptance or
non-payment due to (1) forgery, (2) lack of good title on
the part of the indorser, (3) lack of capacity to indorse
on the part of the prior parties, or (4) the fact, at the
time of the indorsement, that the instrument was
valueless or not valid and knew of that fact.
CONDITIONAL INDORSEMENT
Sec. 39. Conditional indorsement. - Where an
indorsement is conditional, the party required to
pay the instrument may disregard the condition
and make payment to the indorsee or his
transferee whether the condition has been
fulfilled or not. But any person to whom an
instrument so indorsed is negotiated will hold the
same, or the proceeds thereof, subject to the
rights of the person indorsing conditionally.
• An indorser is liable to pay the instrument in two
conditions: (1) that due demand or presentment
be made on the party primarily liable on the
date of imaturity, and (2) that should the latter
fail to pay on such presentment, a notice of
dishonor be promptly sent to the indorser.
•An indorsement without any other
condition upon which liability is based is
referred to as an unconditional or absolute
indorsement.
•A conditional indorsement is one where an
additional condition is annexed to the
indorser’s liability.
•If the indorsement is conditional, the
person obliged may ignore the condition
and pay it; or dishonor the instrument and
wait until the condition is fulfilled. The
option of paying or not paying pertains to
the maker/drawee. There is nothing
stopping the holder from presenting the
instrument to the maker/ drawee.
Is the refusal of the maker a dishonor?
• No.
• Refusal to pay of the maker/ drawer will not constitute dishonor
if the condition has not yet been fulfilled. But as far as the maker
is concerned he can choose to ignore the conditions because he
is not a party to the conditions. The law gives the maker the
choice to pay the instrument regardless if the condition was not
fulfilled.
• The other option is to look at the indorsement and hold the
payment of the instrument until the fulfilment of the condition.
Holder may not be entitled because the indorsment is
conditional. But once the condition is fufilled, the maker/drawee
should pay.
INDORSEMENT OF BEARER INSTRUMENT
Sec. 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 make title through his
indorsement.
•An instrument which is originally
payable to bear is always payable to
bearer. Hence, even when specially
indorsed, it can be negotiated by mere
delivery.
• A special indorser of an originally payable to
bearer instrument is not liable to a holder who
became a holder through delivery because
delivery was sufficient to transfer title.
• However, a special indorser is liable to special
indorsee/s because they acquire their title over
the instrument through the special indorsement
as they can trace their title through a series of
unbroken indorsements.
INDORSEMENT TO TWO OR MORE
PERSONS
Sec. 41. Indorsement where payable to two or
more persons. - Where an instrument is payable
to the order of two or more payees or indorsees
who are not partners, all must indorse unless the
one indorsing has authority to indorse for the
others.
•But the following are exceptions to the rule
requiring joint indorsement:
•1) where the payee or indorsee indorsing
has authority to indorse for the others, and
•2) where the payees or indorsees are
partners.
INDORSEMENT TO A CORPORATE
OFFICIAL
Sec. 42. Effect of instrument drawn or indorsed to a
person as cashier. - Where an instrument is drawn or
indorsed to a person as "cashier" or other fiscal officer of
a bank or corporation, it is deemed prima facie to be
payable to the bank or corporation of which he is such
officer, and may be negotiated by either the indorsement
of the bank or corporation or the indorsement of the
officer.
MISSPELLED NAME OF INDORSEE
Sec. 43. Indorsement where name is misspelled,
and so forth. - Where the name of a payee or
indorsee is wrongly designated or misspelled, he
may indorse the instrument as therein described
adding, if he thinks fit, his proper signature.
INDORSEMENT BY A REPRESENTATIVE
Sec. 44. Indorsement in representative
capacity. - Where any person is under
obligation to indorse in a representative
capacity, he may indorse in such terms
as to negative personal liability.
• A representative must indorse in the same
manner as an agent of the maker, drawer or
acceptor should in order to escape personal
liability under Section 20.
• In short, (1) he must add words describing
himself as an agent; and (2) at the same time
disclose his principal. Of course, (3) he must be
duly authorized.
TIME AND PLACE OF INDORSEMENT
Sec. 45. Time of indorsement; presumption.
- Except where an indorsement bears date
after the maturity of the instrument, every
negotiation is deemed prima facie to have
been effected before the instrument was
overdue.
Sec. 46. Place of indorsement; presumption.
- Except where the contrary appears, every
indorsement is presumed prima facie to
have been made at the place where the
instrument is dated.
CONTINUATION OF NEGOTIABILITY
Sec. 47. Continuation of negotiable
character. - An instrument negotiable in its
origin continues to be negotiable until it has
been restrictively indorsed or discharged by
payment or otherwise.
STRIKING OUT OF INDORSEMENT
Sec. 48. Striking out indorsement. - The holder
may at any time strike out any indorsement which
is not necessary to his title. The indorser whose
indorsement is struck out, and all indorsers
subsequent to him, are thereby relieved from
liability on the instrument.
The following are effects of striking out:
• 1) indorser whose indorsement is struck out is
relieved from liability on the instrument; and
• 2) all subsequent indorsers are also relieved
from their liability on the instrument.
TRANSFERS WITHOUT INDORSEMENT
Sec. 49. Transfer without indorsement; effect of. - Where
the holder of an instrument payable to his order
transfers it for value without indorsing it, the transfer
vests in the transferee such title as the transferor had
therein, and the transferee acquires in addition, the right
to have the indorsement of the transferor. But for the
purpose of determining whether the transferee is a
holder in due course, the negotiation takes effect as of
the time when the indorsement is actually made.
• Section 49 applies only to instruments payable to
order. This contemplates a case where there is
delivery and payment of value but no indorsement.
There is, therefore, one element lacking for the
negotiation of the instrument, namely, indorsement
by the payee or indorsee. This operates as an
equitable assignment.
NEGOTIATED BACK TO PRIOR PARTY
Sec. 50. When prior party may negotiate
instrument. - Where an instrument is negotiated
back to a prior party, such party may, subject to
the provisions of this Act, reissue and further
negotiable the same. But he is not entitled to
enforce payment thereof against any intervening
party to whom he was personally liable.
Sec. 51. Right of holder to sue;
payment. - The holder of a
negotiable instrument may to sue
thereon in his own name; and
payment to him in due course
discharges the instrument.
(1) sue on the instrument in his own
name; and
(2) receive payment and if the payment
is in due course, the instrument is
discharged
•means to enforce a negotiable
instrument
•This presupposes that there was a
dishonor or a default payment.
(1) at or after the maturity of the
instrument
(2) to the holder thereof
(3) in good faith and
(4) without notice that his title is
defective
Sec. 52. What constitutes a holder in due course. - A holder in due
course is a holder who has taken the instrument under the following
conditions:
(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 previously dishonored, if such was the
fact;
(c) That he took it in good faith and for value;
(d) That at the time it was negotiated to him, he had no notice of any
infirmity in the instrument or defect in the title of the person
negotiating it.
•instrument can be paid without
controversy
• An instrument is overdue after the date of
maturity. On the date of maturity, the instrument
is not overdue, and a holder who acquires the
instrument on that date is a holder in due course
because the principal debtor has the whole day to
pay.
• When the instrument contains an acceleration
clause, knowledge of the holder at the time of
acquisition thereof that one installment or
interest, or both is unpaid, is notice that the
instrument is overdue.
•The fact that the instrument is
overdue is a strong indication
that it was dishonored and the
law puts the potential holder on
inquiry as to whether it was
dishonored and the reason
therefor.
As far as a check is concerned, due date
is any date from date of issue. Also, a
reasonable time for demanding
payment of a check is 180 days from
issue. A check presented for payment
after such time can be dishonored by
the drawee bank for being stale.
One who took the check two and a half
years after it became payable is not a
holder in due course. By then, the check
was stale.
•Holder in Good Faith - holder without
knowledge or notice of equities of any
sort which could be set up against a
prior holder of the instrument
At the time it was negotiated to
him, he had no notice of any
infirmity in the instrument or
defect in the title of the person
negotiating it
1. GR: failure to inquire after notice of facts merely sufficient to
cause a person of ordinary prudence to make inquiry as to an
infirmity in a negotiable instrument and defect in holder’s title,
is not evidence of purchaser’s bad faith so as to bar him from
recovery. The test for determining whether a holder acquires an
instrument in good faith is not whether he was negligent, such
as in failing to make inquiries, but whether his purpose was
dishonest. (No Inquiry Rule)
2. failure to make inquiry, when circumstances strongly indicate
defect, renders the holder not a holder in due course (e.g.
suspicious facts and circumstances and grossly inadequate price)
Where the holder gave no valuable
consideration for the transfer of the
instrument to him, he cannot be a holder in
due course. But the fact that a note is
purchased at a discount does not of itself
raise an inference that the purchaser is
buying a tainted instrument.
Is it required that the words “for
value received” appear in an
instrument?
•No.
•In their absence, the presumption fills
in the gap.
•On the other hand, their presence will
not preclude evidence to show lack of
consideration. The presumption is
prima facie and may be rebutted by
proof to the contrary.
The defective title of a person over an instrument may
result from the following:
1) acquisition of the instrument by fraud;
2) acquisition of the instrument by force, duress or fear;
3) acquisition of the instrument by unlawful means;
4) acquisition of the instrument for an illegal
consideration;
5) negotiation of the instrument in breach of faith; and
6) negotiation of the instrument under circumstances
that amount to fraud.
Defenses include common law defenses outside
those covered in Section 55. They include:
1) mistake;
2) absence and failure of consideration;
3) minority and other forms of incapacity to
contract;
4) lack of authority of an agent; and
5) others.
1)wrong date inserted where the instrument is expressed to be
payable at a fixed period after sight is undated;
2) filling up a blank instrument not strictly in accordance with the
authority given or not within reasonable time, where it was
delivered wanting in a material particular;
3) filling up and negotiating without authority an incomplete and
undelivered instrument;
4) lack of valid and intentional delivery of a mechanically complete
instrument;
5) agent signing per procuration beyond the scope of his authority;
6) forgery; and
7) material alteration.
• May 1942 - Ubaldo Laya (provincial treasurer of MisOr) issued a P100k
PNB check to Mariano Ramos
• Before Ramos can encash the check, he was made a prisoner of war by
the invading Japanese forces.
• December 1944 - Ramos was freed; he needed some cash for himself
and so he went to Enrique Montinola
• “Pay to the order of Enrique P. Montinola P30,000 only. The balance to
be deposited in the Philippine National Bank to the credit of M. V.
Ramos.”
• Montinola promised 85K Japanese notes, but only paid 45k
• Montinola sought to have the check encashed but PNB dishonored the
check
• Under the signature of Laya, the words “Agent, Philippine National
Bank”
 Is Montinola a holder?
• The check was not legally negotiated within the meaning of the
Negotiable Instruments Law.
• Section 32 of the same law provides that "the indorsement must
be an indorsement of the entire instrument.
• An indorsement which purports to transfer to the indorsee a part
only of the amount payable, . . . (as in this case) does not operate
as a negotiation of the instrument." Montinola may therefore not
be regarded as an indorsee.
• At most he may be regarded as a mere assignee of the P30,000
sold to him by Ramos, in which case, as such assignee, he is
subject to all defenses available to the drawer Provincial Treasurer
of Misamis Oriental and against Ramos.
Assuming arguendo that he's a holder, is
he a HDC?
1. Section 52 of said law defines a holder in due
course as a holder who has taken the instrument
under certain conditions, one of which is that he
became the holder before it was overdue. When
Montinola received the check, it was long
overdue.
2. Montinola is not even a holder
because section 191 of the same law
defines holder as the payee or indorsee
of a bill or note and Montinola is not a
payee. Neither is he an indorsee for as
already stated, at most he can be
considered only as assignee
3. Neither could it be said that he took
it in good faith. As already stated, he
has not paid the full amount of P90,000
for which Ramos sold him P30,000 of
the value of the check.
Badges of Bad Faith
4. In the second place, as was stated by the trial court in its
decision, Montinola speculated on the check and took a
chance on its being paid after the war. Montinola must have
known that at the time the check was issued in May, 1942, the
money circulating in Mindanao and the Visayas was only the
emergency notes and that the check was intended to be
payable in that currency. Also, he should have known that a
check for such a large amount of P100,000 could not have
been issued to Ramos in his private capacity but rather in his
capacity as disbursing officer of the USAFFE, and that at the
time that Ramos sold a part of the check to him, Ramos was
no longer connected with the USAFFE but already a civilian
who needed the money only for himself and his family.
• Manuel Gonzales designed a scheme in order to pay off this debt: In
1953, Manuel went to a certain Anita Gatchalian.
• Manuel purported himself to be selling the car of Vicente De Ocampo.
• Gatchalian was interested in buying said car but Manuel told her that
De Ocampo will only sell the car if Gatchalian shows her willingness to
pay for it. Manuel advised Gatchalian to draw a check of P600.00
payable to De Ocampo so that Manuel may show it to De Ocampo and
that Manuel in the meantime will hold it for safekeeping
• De Ocampo was not able to cash on the check
• De Ocampo argued that he is a holder in due course because he is the
named payee.
• De Ocampo is not a holder in due course for his lack of
good faith. De Ocampo should have inquired as to the
legal title of Manuel to the said check. The fact that
Gatchalian has no obligation to De Ocampo and yet
he’s named as the payee in the check hould have
apprised De Ocampo; that the check did not
correspond to Matilde Gonzales’ obligation with the
clinic because of the fact that it was for P600.00 – more
than the indebtedness; that why was Manuel in
possession of the check – all these gave De Ocampo the
duty to ascertain from the holder Manuel Gonzales
what the nature of the latter’s title to the check was or
the nature of his possession.
But, isn't it that there is prima facie
presumption of being a holder in GF?
In the case at bar as the payee acquired the
check under circumstances which should
have put it to inquiry, why the holder had the
check and used it to pay his own personal
account, the duty devolved upon it, plaintiff-
appellee, to prove that it actually acquired
said check in good faith.
Sec. 53. When person not deemed
holder in due course. - Where an
instrument payable on demand is
negotiated on an unreasonable length
of time after its issue, the holder is not
deemed a holder in due course.
“reasonable time”
Sec. 193. Reasonable time, what constitutes. – In
determining what is a “reasonable time” or an
“unreasonable time,” regard is to be had to the
nature of the instrument, the usage of trade or
business with respect to such instruments, and
the facts of the particular case.
Sec. 54. Notice before full amount is paid. -
Where the transferee receives notice of any
infirmity in the instrument or defect in the title of
the person negotiating the same before he has
paid the full amount agreed to be paid therefor,
he will be deemed a holder in due course only to
the extent of the amount therefore paid by him.
Sec. 55. When title defective. - The title of a
person who negotiates an instrument is defective
within the meaning of this Act when he obtained
the instrument, or any signature thereto, by
fraud, duress, or force and fear, or other unlawful
means, or for an illegal consideration, or when he
negotiates it in breach of faith, or under such
circumstances as amount to a fraud.
Sec. 56. What constitutes notice of defect. - To
constitutes notice of an infirmity in the
instrument or defect in the title of the person
negotiating the same, the person to whom it is
negotiated must have had actual knowledge of
the infirmity or defect, or knowledge of such facts
that his action in taking the instrument amounted
to bad faith.
• To constitute notice of defect or infirmity, the
transferee must have actual knowledge, either
(1) of the defect or infirmity, or (2) of such facts
that his action in taking the instruments
amounts to bad faith.
•Mere supicious circumstances may not be
enough (must be actual knowledge).
•If the holder had actual knowledge of
suspicious circumstances, coupled with the
means of readily informing himself of the
facts and he willfully abstained from
making inquiries, his intentional ignorance
may amount to bad faith.
Sec. 57. Rights of holder in due course. - A holder
in due course holds the instrument free from any
defect of title of prior parties, and free from
defenses available to prior parties among
themselves, and may enforce payment of the
instrument for the full amount thereof against all
parties liable thereon.
• Sec. 58. When subject to original defense. - In
the hands of any holder other than a holder in
due course, a negotiable instrument is subject to
the same defenses as if it were non-negotiable.
But a holder who derives his title through a
holder in due course, and who is not himself a
party to any fraud or illegality affecting the
instrument, has all the rights of such former
holder in respect of all parties prior to the latter.
•those that are available against all parties,
both immediate and remote, including
HDC's
•attach to the “res”
•instrument still has value, but is only
unenforceable against the party entitled to
set up the defense
•those which grow out of the
agreement/conduct of a particular person in
regard to the instrument which renders it
inequitable for him
•available only against that person or
subsequent holder who stands in privity
with him
Personal Defenses Real Defenses
1) absence or failure of consideration 1) forgery
2) want of delivery of complete 2) want of delivery of incomplete
instrument instrument
3) insertion of wrong date when necessary 3) duress amounting to forgery
4) filling up of a blank contrary to authority given or 4) fraud in factum or fraud in esse contractus
not within reasonable time 5) minority
5) fraud in inducement 6) marriage in case of a wife
6) acquisition of instrument by force, duress, fear, 7) insanity where the insane person has a guardian
fraud, mistake, intoxication, unlawful means or for an appointed by court
illegal consideration 8) ultra vires act of corporation where there is an
7) negotiation in breach of faith or under absolute prohibition
circumstances amounting to fraud 9) want of authority of agent
8) ultra vires acts of corporations 10) execution between public enemies
9) want of authority of agent where he has apparent 11) illegality of contract
authority
10) insanity where there is no notice of insanity on the
part of the one contracting with insane person
11) form or consideration is illegal
• 2nd par. of Sec. 58
• Under the shelter principle, a person who does not
qualify as a holder in due course can, nonetheless,
acquire the rights and privileges of a holder in due course
if he derives his title to the instrument through a holder
in due course. However, a person who previously held the
instrument cannot improve his position by later
reacquiring it from a holder in due course if the former
holder was a party to fraud or illegal activity affecting the
instrument or had notice of a claim or defense against
the instrument.
•that he derives his title through a HDC
•he was not himself a party to ay fraud
or illegality affecting the instrument
• In 1919 - Fernandez Hermanos (FH) contracted with the American
Iron Products Company, Inc. (AIP), for the latter to build a tail shaft for
one of the ships managed by FH.
• In consideration thereof, a time draft with the PNB was executed by
FH in the amount of $2,250.00 payable in 60 days. But later, FH
dishonored the draft because AIP was not able to comply with the
specifications of the shaft ordered by FH.
• Nevertheless, Charles Fossum, the agent of AIP here in the Philippines
and the person with whom FH was transacting with, was able to
obtain the draft from the bank without consideration (for free).
• Fossum then instituted an action against FH to recover the amount
covered by the draft.
Fossum maintains that he is a holder in due
course; that he inherited that status from the
previous holder (PNB, named payee in the draft);
that as such, he is entitled to payment.
It is a well-known rule of law that if the original
payee of a note unenforceable for lack of
consideration repurchase the instrument after
transferring it to a holder in due course, the paper
again becomes subject in the payee's hands to
the same defenses to which it would have been
subject if the paper had never passed through the
hands of a holder in due course. The same is true
where the instrument is retransferred to an agent
of the payee
PRESUMPTION IN FAVOR OF HOLDER
IN DUE COURSE
Sec. 59. Who is deemed holder in due course. - Every holder is
deemed prima facie to be a holder in due course; but when it
is shown that the title of any person who has negotiated the
instrument was defective, the burden is on the holder to
prove that he or some person under whom he claims acquired
the title as holder in due course. But the last-mentioned rule
does not apply in favor of a party who became bound on the
instrument prior to the acquisition of such defective title.
• GR: Every holder is deemed prima facie to be a
holder in due course
• Exc: When it is shown that the title of any person
who has negotiated the instrument was
defective (e.g. De Ocampo vs. Gatchalian -
instrument was not payable to holder Gonzales),
then burden is shifted to the holder
Asia Banking Corp. vs. Ten San Guan
• Ten Sen Guan ordered from Snow’s Ltd. ten cases of
mercerized batiste to be shipped from New York to Manila.
• Upon the arrival of the merchandise, a draft drawn by
Snow’s Ltd. against Ten Sen Guan was presented to them for
acceptance.
• The delivery of the bill of lading and other documents were
being put on hold pending acceptance of the draft that
is why Ten Sen Guan accepted the same.
• When the cases were opened however, it was found
out that the merchandise wasn't batiste but instead
were burlap.
• Ten Sen Guan then was prompted to return the bill
of lading and other documents and requested Asia
Banking Corporation, the agent of Snow Ltd. to cancel
its acceptance, which the corporation promised to do
so. However it didn't do good its promise since it sued
Ten Sen Guan for the amount of the draft. The trial
court however ruled in favor of Ten Sen Guan.
The corporation alleges that it is a holder for value but
it failed to prove such allegation. If indeed it was a
holder for value, it could have easily proven such fact
by competent evidence but it failed to do so. It wasn't
able to give an authentic account of the transactions. It
being a fact that it is not a holder for value, it is
susceptible to any defenses available to Ten Sen
Guan.
According to the findings, the acceptance was
conditional. The draft was for collection and also,
the evidence established that the corporation has
released Ten Sen Guan from liability from the draft.