Liabilities of Partners

1.) Liability of maker.

1.1) Maker of negotiable P/N warrants that:
• He will pay it according to its tenor;
• The payee exists; and,
• The payee has capacity to indorse. [Section 60, Negotiable Instruments Law]
1.2) The maker is precluded (cannot give) the following defences:
• That the payee is a fictitious person because by making the note, he admits that
the payee exists;

• 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.
1.3) Explain
Liability of maker is primary and unconditional
• The liability of the maker is primary and unconditional. Neither can the maker escape
liability by virtue of the non-benefit to him of the proceeds of the note since that is of
no concern to the payee.
(PNB vs. Macenas, 48 Phil. 207 (1925)).
• Maza and Macenas executed a total of five promissory notes. These were not paid at
maturity. And to recover the amounts stated on the face of the promissory notes, PNB
initiated an action against the two. The special defense posed by the two is that
the promissory notes were delivered to them in blank by a certain Enchaus and
were made to sign the notes so that the latter could secure a loan from the bank.
They also alleged that they never negotiated the notes with the bank nor have they
received any value thereof. The also prayed that Enchaus be impleaded in the complaint
but such was denied. The trial court then held in favor of the bank.
Solidary liability of Joint Maker.
• Consequently, on the basis of petitioner's solidary liability under the promissory note,
respondent corporation filed a complaint against petitioner Palmares as the lone party-
defendant, to the exclusion of the principal debtors, allegedly by reason of the
insolvency of the latter.
2.) Liability of the drawer
2.1) Drawer, by merely signing his name on the bill as drawer, admits that:
• 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;
• Like the maker, the drawer admits to the existence of the payee and his capacity to
indorse.
2.2) The drawer does not engage to pay the bill absolutely. What are his engagements?
• He engages merely that the bill will be accepted or paid or both, according to
its tenor, and that he will pay only when:
• It is dishonored;
• And the necessary proceedings of dishonor are duly taken.
2.3) The drawer may limit his own liability, how?
• 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.”
2.4) The secondary liability of the drawer is for whose favor?
• The holder;
• 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.
3.) Liability of Acceptor
3.1) Liability of an acceptor
• 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.
3.2) Admission of an acceptor
• The existence of the drawer;
• The genuineness of his signature;
• His capacity and authority to draw the instrument; and,
• The existence of the payee and his then capacity to indorse.
3.3) Acceptor is precluded from:
• 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;
• Neither can he claim the drawer’s signature is a forgery because he admits the
genuineness of the drawer’s signature;
• 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.
3.4) Effect of alteration before acceptance
• 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 read P9000, then X could be liable for P4000 only, the
original tenor of his acceptance, even as to a holder of due course.
4.) Liabilities of an AVALISTA
4.1) What is an AVAL?
• Aval is a written contract of guaranty for the payment of a bill of exchange independent
of the liability of the drawer, acceptor or indorser. It is a contract, not found in the
Negotiable Instruments Law, but is based on commercial customs.
4.2) It should always be in writing. TRUE
• There is no oral Aval.
5.) Liabilities of an indorser
5.1) Who is deemed an indorser?
• A person placing his signature upon an instrument other 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. [Section 63, Negotiable Instruments Law]
5.2) 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:
▪ If the instrument is payable to the order of a third person, he is liable to the
payee and to all subsequent parties.
▪ 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.
▪ If he signs for the accommodation of the payee, he is liable to all parties
subsequent to the payee. [Section 64, Negotiable Instruments Law]
5.3) Warranting of one who negotiates by delivery.
• Every person negotiating an instrument by delivery or by a qualified indorsement
warrants:
▪ That the instrument is genuine and in all respects what it purports to be;
▪ That he has a good title to it;
▪ That all prior parties had capacity to contract;
5.4) Liabilities of a qualified indorser.
• Where a person places his indorsement on an instrument negotiable by delivery, he
incurs all the liability of an indorser. [Section 67, Negotiable Instruments Law]
5.5) Liabilities of a general indorser.
• Every indorser who indorses without qualification, warrants to all subsequent holders
in due course:
▪ That the instrument is genuine and in all respects what it purports to be;
▪ That he has a good title to it;
▪ That all prior parties had capacity to contract;
▪ 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. [Section 66, Negotiable Instruments Law]
5.6) Liabilities of a collecting bank as last indorser.
• Where a broker or other agent negotiates an instrument without indorsement, he incurs
all the liabilities prescribed by Section 65 of this Act, unless he discloses the name of
his principal and the fact that he is acting only as agent. [Section 69, Negotiable
Instruments Law]
5.7) Order of liabilities.
• As respects 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.
[Section 68, Negotiable Instruments Law]
• The foregoing rule does not apply to a holder in due course to whom the indorsers are
liable in any order.
• Every indorser is liable to all indorsers subsequent to him, but not those indoresers prior
to him.
• Before dishonor, the obligation of the indorser is only subsidiary.After dishonor by non-
payment, Sec. 84 provides that an immediate right of recourse to all parties secondarily
liable thereto accrues to the holder. Thus, the liability of indorsers becomes principal
and solidary.