• 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.

• Secondarily Liable

• Drawer of Bill

• Indorser of Note or Bill

• Not Liable

• Drawee until he accepts the instrument

• If he accepts- he becomes acceptor

• General Rule

• No person is liable on an instrument unless his signature appears thereon.

• Primary Party vs. Secondary Party

Unconditionally bound

Absolutely required to pay Undertakes to pay instrument

instrument upon maturity only after certain conditions have
been fulfilled:

Due presentment for payment

Or acceptance to primary party

& taking of proceedings required

by law after dishonour

Liable in the reverse order in w/c

they signed instrument

Liability ends when primary party

pays full amount of instrument to
proper party

• Liability of Maker

• Maker is party primarily liable as he is the one to whom holder will look first for payment &
the one expected to pay

• Engages to pay PN according to its terms subject to no condition whatsoever

• Due Presentment for Payment & Due Notice of Dishonor not necessary for purpose of
charging M w/ liability
 • He promises to pay not only P but any subsequent holder who is legally entitled to
instrument at its maturity date even if holder does not demand payment at that time

• Liability of Maker

• Remains fully liable despite the fact that instrument is presented for payment late until
prescription has run

• Admits existence of payee and his then capacity (at the time of signing) to indorse

• Presumption Arising from Signature

• A person placing his name on the face of the note is prima facie the maker & liable as such
& he is presumed to have acted w/ care & signed instrument w/ full knowledge of its
contents

• Example

• M issues PN to P for P10,000.00 payable on demand

• Can he allege that P is a non-existent person? No.

• Can he allege that P was a minor/insane at the time of the issuance of PN? No.

• 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 accepted or paid, or both,
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. But the drawer may insert in the instrument an express stipulation
negativing or limiting his own liability to the holder.

• Liability of Drawer

• The drawer, by simply signing his name as drawer admits existence of payee & his then
capacity to indorse at the time it was executed

• Liability of Drawer Conditional

• The Dr does not promise to pay bill absolutely

• He makes no warranties but engages to pay after certain conditions are complied with:

1. Bill is presented for acceptance or payment, as the case may be, to Dw

2. Necessary proceedings of dishonour are duly taken, such as:

1. Notice of dishonour is given to Dr, subj to exceptions

2. Protest is made followed by notice of protest (for foreign bills)

• Liability of Drawer as General Indorser

• Drawer is ONLY SECONDARILY LIABLE to Holder, or any subsequent indorser who may be
compelled to pay it

• His liabilities are conditional, same as general indorser

• He may by express stipulation, limit his own liability to holder

• Liability of Drawer of Check

• Drawer impliedly represents that funds or credit are available for its payment in the drawee
bank

• Drawer vs. Maker

DRAWER MAKER

Issues BE Issues PN

Only secondarily liable Primarily liable

May negative or limit liability May not do so

• 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.

• Liability of Drawee
BEFORE Acceptance

• Not liable on BE before acceptance

• Not obligated to P or any Holder to accept BE

• Refusal by Drawee to accept BE constitutes a dishonour on instrument w/c triggers liability

of secondary parties: drawer and indorser

• Liability of Drawee
AFTER Acceptance

• Once Dw accepts, he becomes an ACCEPTOR

• Same position as MAKER of PN

• Same as one who CERTIFIES check

• Acceptor is PRIMARILY BOUND on instrument for by his acceptance he engages to pay it

according to the terms of his acceptance subject to no condition

• His acceptance is a “promise to pay”

• Similarity to Maker
• Acceptor admits existence of payee & P’s capacity to indorse

• Neither presentment for payment nor notice of dishonour is necessary to charge him with
liability, exc. Where he is an acceptor for honor

• Retraction of Acceptance

• The Dw who has accepted can’t retract the admission against a Holder for Value, since he
has thereby obtained a suspension of the holder’s remedies against he drawer & an
extension of credit

• Payment of Check despite

Stop-Payment Order

• If Dw accepts or pays check despite stop payment order from Dr, through oversight etc, it
can’t refuse to pay holder or recover what has been paid; neither may it debit Dr’s account
unless acceptance or payment was made prior to receipt of order

• Liability Depends on Tenor of Acceptance

• Acceptance may be absolute or qualified

• If absolute: he engages to pay according to tenor of instrument

• If qualified, liable to the tenor of his acceptance

• Example

• “To Dw: Pay to P the amount of P10,000.00 30 days after sight. Sgd, Dr”

• Absolute acceptance: bound to pay bill unconditionally

• If Dw accepts for only P5,000.00, he is liable for only P5,000.00

• If Dw accepts but payable 90 days after sight, he is bound to pay bill as accepted

• Acceptance of Altered Bill

• Ex. To Dw: Pay to P or order the amout of P10,000.00.”

• P alters the BE to read “P100,000.00”

• Dw accepts BE, is he liable for P10k or P100k?

• Applying Sec. 62 in relation to Sec. 132

• Insert Sec. 132

• Dw is only liable to the original tenor of the BE

• “Assent to the order of the Dr” means “assent to pay according to the order of the Dr” & not
according to what appears to be the order of the Dr.

• Further, under Sec. 124, a HDC may enforce payment of materially altered instrument
according to its original tenor

• Case of FEBTC vs. Gold Palace Jewellry Co. 502 SCRA 604 [2008]

• Payment of a check includes its acceptance

 • Generally, payment & acceptance are 2 different things, but payment is greater and
therefore includes the less

• Sec. 63. When a person deemed indorser. -

A person placing his signature upon an instrument otherwise than as maker, drawer, or acceptor,
is deemed to be indorser unless he clearly indicates by appropriate words his intention to be
bound in some other capacity.

• A person signing his name on the back of the NI is, nothing else appearing, a general
indorser & liable as such

• He is chargeable only after presentment & due notice of honor

• One CANNOT show by parol evidence his intention to be bound in some other capacity as,
e.g., an agent for the purpose only of identifying person on the instrument; law requires that
he indicate by approp. words his intention to be bound in some other capacity on the NI
itself

• The rule is founded upon commercial necessity for full & free negotiation of negotiable
papers

• Liability as Guarantor

• A person who writes, in addition to his signature on the back of NI, “I hereby guaranty
payment of this instrument or “payment guarantee”, indicates his intention to be bound as
guarantor in w/c case he is not discharged from liability merely because of the lack of due
presentment, protest, or notice of dishonour,.

• Waives need for presentment, etc.

• BUT unlike indorser, he is only subsidiarily liable after assents of principal debtor have been
exhausted

• Liability as Surety

• “as surety”

• Shows intention to be bound as surety

• Primarily & absolutely liable w/ principal debtor w/o exhausting properties

• Liability of Agent Bank for Collection

• 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.

Indorsement for some other purpose other than to transfer the instrument, or an indorsement by a
stranger to the instrument or by one not in the actual or apparent chain of title

• ANOMALOUS INDORSER
or
IRREGULAR INDORSER

• A person who

1. Is not otherwise party (maker, drawer, acceptor, or regular indorser) to NI

2. Places his signature in blank

3. Before delivery

• Liability of Anomalous Indorser

• Where NI is payable to order of third person

M  AI  P A

AI is liable to P and A, a subsequent party, but not to M

• Where NI is payable to order of maker or drawer

M  M  AI  A

M’s liability is as first indorser

AI’s liability is as 2nd indorser

AI is liable to subsequent parties but not to M

M is liable to subsequent parties, including AI

• AI signing for accommodation of Payee

• M  P AI  bank/ financial institution

AI is liable to all parties subsequent to P

P is the 1st indorser

AI is the 2nd indorser

• Warranties of Irregular Indorser

• Same as those under Sec. 66

• So, same as those of a regular indorser

• Sec. 65. Warranty where negotiation by delivery and so forth. —

• Every person negotiating an instrument by delivery or by a qualified indorsement

warrants:
• (a) That the instrument is genuine and in all respects what it purports to be;
(b) That he has a good title to it;
(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 render it valueless.

• But when the negotiation is by delivery only, the warranty extends in favor of no holder
other than the immediate transferee. The provisions of subdivision (c) of this section do
not apply to a person negotiating public or corporation securities other than bills and
notes.

• Talks about a bearer instrument or an order instrument w/ qualified indorsement

• Remember: qualified indorsement adds words such as “without recourse” & makes indorser
a mere assignor to NI

• The warranties under Sec. 65 are unconditional – not conditioned upon proper presentment
& dishonour of NI or giving notice of dishonor

• Liabilities of One Negotiating by Delivery & of Qualified Indorser

• Their liabilities are the same

• Both do not assume to pay NI in the event of dishonor unless dishonour is based on the 4
implied warranties under Sec. 65

• Deemed only to be assigning credit

• They do not guaranty M /Dr’s solvency

• Their difference:

• One negotiating by mere delivery extends in favor only to immediate transferee

• Qualifed indorser is liable to all subsequent holders who make title through his
indorsement for a breach of any of his warranties

• Example

• M  P or bearer  A (delivery/ qualified indorsement)

• If PN is dishonoured in the hands of A, P can’t be held liable because P does not warrant M’s
solvency

• What if the instrument was forged?

• P is liable because he warrants that the instrument is genuine

• What if the P had merely stolen the PN?

• P is still liable because he warrants that he “has good title to it”

• What if M was a minor and therefore incapacitated?

• P is still liable as he warrants that all prior parties had capacity to contract

• What if there was absence or failure of consideration on the PN?

• P is still liable for he warrants that he has no knowledge of any fact which would impair the
validity of the NI or render it useless

• Example

• Dr P or bearer  delivered A indorsed B

• P’s warranties only extends to A

• Liability of Collecting/ Issuing Bank

• Last indorser will be liable for amout indicated in the NI even if a previous indorsement was
forged

• A collecting bank which indorses a check bearing a forged instrument and presents it to the
drawee bank guarantees all prior indorsements, including the forged indorsement itself, and
ultimately should be held liable therefor

• Exception

• When the issuance of check itself was attended with negligence

• Sec. 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.

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. instrument is, at the time of his indorsement, valid and subsisting

5. on due presentment, it shall be accepted or paid, or both, as the case may be, according to
its tenor,

6. 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.

• Warranty available to HDC or transferees of a general indorser even if not HDC

 QUALIFIED INDORSER UNQUALIFIED INDORSER

Same warranties under Same warranties under Sec. 65 a, b, c

Sec. 65 a, b, c

But only warrants that he Warrants that the NI is valid & subsisting
HAS NO KNOWLEDGE of WON he has knowledge of that fact
facts that would invalidate
NI or render it useless

Not liable if NI invalid If NI turns out to be invalid, he is still liable

unless he was aware of because of this warranty
the cause of invalidity

Not liable unless he had Warrants that NI will be honoured; liable if

knowledge of insolvency NI unpaid because of prior parties’
insolvency

• Based on transfer of title & do not attach to indorsement for deposit & collection made by P

• N/A to restrictive indorsement (for purposes of collection only)

• After NI is dishonoured by non-payment, indorsers cease to be merely secondarily liable

• They become principal debtors whose liability becomes identical to that of original obligor

• Holder need not proceed against M or Dr before suing indorsers; M or D is not indispensable
in an action against indorsers

• By stamping “prior indorsements and/or lack of endorsements guaranteed, a collecting bank

makes an assurance that it had ascertained the genuineness of all prior indorsements

• It assumes the warranty of an indorser

• In case indorsement is forged or unauthorized, the bank, in paying the check, becomes liable
to the P for the value thereof

• Conditions Precedent to Make Indorser Liable for Payment

• Due presentment for payment or acceptance

• If NI is dishonoured (by non-presentment or non-acceptance, the necessary proceedings on

dishonour be duly taken

• Note

• There is a difference between liability for payment and liability for breach of warranty. An
indorser’s liablity as warrantor is distinct from his liability to pay NI

• Example

• Dr to Dw: Pay to P or bearer the sum of P50,000.00.

• P altered the amount to P80,000.00 and indorsed to B

• A can recover judgment against Dr for P50,000.00 and against P for 30,000.00 for breach of
the warranty of genuineness
 • Indorser vs. Drawer

Indorser Drawer

Party to either PN or BE Only party to BE

Secondarily liable Secondarily liable

Does not admit existence of P & his Admits existence of P & his then
then capacity to indorse capacity to indorse

No warranties but engages to pay after

certain conditions are complied with

• General vs. Irregular Indorser

General Indorser Irregular Indorser

Blank or special indorsement Blank indorsement

Indorses NI after delivery to P Indorses before its delivery to P

Liable only to parties subsequent to Liable to P & subsequent parties

him unless he signs for accommodation
of P, in w/c case he is only liable to
subsequent parties

• Sec. 67. Liability of indorser where paper negotiable by delivery. —

Where a person places his indorsement on an instrument negotiable by delivery, he incurs all the
liability of an indorser.

• Transferor is liable to immediate transferee, no need for indorsement but if there’s nothing
preventing him from indorsing NI

• If he indorses specially, he is liable only to H who make title through his indorsement

• If unqualified indorsement, he incurs liability of general indorser

• Sec. 68. Order in which indorsers are liable. -

As respect one another, indorsers are liable prima facie in the order in which they indorse; but
evidence is admissible to show that, as between or among themselves, they have agreed
otherwise. Joint payees or joint indorsees who indorse are deemed to indorse jointly and
severally.

• Governs liability of indorses among themselves

 • Disputable presumption: every indorser is liable to all indorsers subsequent to him

• May be rebutted by parol evidence

• Hence irregular indorser will not be liable to accommodated party although from the order
in which he indorsed the latter appears subsequent to the former

• As to the Holder

• As to the holder, indorsers are liable in ANY ORDER and none of them can interpose the
defense against him an agreement among themselves that they are not liable in the order of
their indorsements

• Example

• MPABC

• C may enforce payment against P

• P can’t say that he is not the first liable because of his agreement with A and B that B must
be liable first,

• P must pay

• But P may seek reimbursement from B

• Joint Payees or Joint Indorsees

• Deemed to indorse jointly and severally (solidary liability)

• None can escape liability just because proper notice of dishonour was not given to the other

• Parol evidence inadmissible that they signed as co-guarantors only but the one who pays
may demand reimbursement from the other

• Sec. 69. Liability of an agent or broker.

Where a broker or other agent negotiates an instrument without indorsement, he incurs all the
liabilities prescribed by Section Sixty-five of this Act, unless he discloses the name of his principal
and the fact that he is acting only as agent.