c.

warning to holder that check has

been issued for a definite purpose
so that he must inquire if he
received check pursuant to such
purpose, otherwise not HDC
kinds:
a. general (no word between lines, or
co between lines)
b. special (name of bank appearing
between parallel lines)

NEGOTIABLE INSTRUMENTS LAW

MEMORY AID
BASED ON THE OUTLINE OF THE 1994 EDITION OF CAMPOS & CAMPOS

CONTENTS
DEFINITIONS
NEGOTIABILITY
TRANSFER
HOLDER IN DUE COURSE
DEFENSES AND EQUITIES
LIABILITIES OF PARTIES
DISCHARGE

P1
P1
P2
P3
P4
P5
P8

DEFINITIONS
NEGOTIABLE INSTRUMENT
Written contract for the payment of
money, by its form intended as
substitute for money and intended to
pass from hand to hand to give the
holder in due course the right to hold the
same and collect the sum due
PROMISSORY NOTE
unconditional promise in writing made
by one person to another signed by the
maker
engaging to pay on demand, or at a
fixed or determinable future time a sum
certain in money to order or to bearer
where a note is drawn to the makers
own order, it is not complete until
indorsed by him
BILL OF EXCHANGE
unconditional order in writing addressed
by one person to another signed by the
person giving it
requiring the person to whom its
addressed to pay on demand or at a
fixed or determinable future time a sum
certain in money to order or to bearer
check: bill of exchange drawn on a
bank payable on demand. Kinds of
checks:
1. personal check
2. managers/cashiers check drawn
by a bank on itself. Issuance has the
effect of acceptance
3. memorandum check memo is
written across its face, signifying that
drawer will pay holder absolutely
without need of presentment
4. crossed check
effects:
a. check may not be encashed but
only deposited in bank
b. may be negotiated only once, to
one who has an acct. with a
bank

BEARER
Person in possession of a bill/note payable to
bearer
HOLDER
Payee or indorsee of a bill or note who is in
possession of it, or the bearer thereof.
THE LIFE OF A NEGOTIABLE INSTRUMENT:
1. issue
2. negotiation
3. presentment for acceptance in certain bills
4. acceptance
5. dishonor by on acceptance
6. presentment for payment
7. dishonor by nonpayment
8. notice of dishonor
9. protest in certain cases
10. discharge
NEGOTIABILITY
REQUISITES
1. in writing and signed by maker or
drawer
no person liable on the instrument whose
signature does not appear thereon
( subject to exceptions)
one who signs in a trade or assumed name
liable to the same extent as if he had
signed in his own name
signature of any party may be made by a
duly authorized agent, no particular form of
appt. necessary

2. unconditional promise or order to pay

unqualified order or promise to pay is

unconditional though coupled with
a. an indication of a particular fund out of
which reimbursement to be made, or a
particular account to be debited with
amount, or
b. a statement of the transaction which
gives rise to the instrument
an order or promise to pay out of a
particular fund is not unconditional
a sum certain in money
even if stipulated to be paid--a. with interest, or
b. by stated installments, or

Commercial Law Val Feria, Mina Herrera, Gary Mallari & Rachel Ramos

BarOps 99

c. by stated installments with a

provision that upon default in
payment of any installment/interest,
the whole shall become due, or
d. with exchange, whether at a fixed
rate or at the current rate, or
e. with costs of collection or an
attorneys fee, in case payment not
made at maturity

3. payable on demand,
when expressed to be payable on
demand, or at sight, or on presentation;
when no time for payment expressed,
or
where an instrument is issued, accepted
or indorsed when overdue, it is, as
regards the person so issuing,
accepting, or indorsing it, payable on
demand

or at a fixed or determinable future

time
when its expressed to be payable at a
fixed period after date or sight, or
on or before a fixed or determinable
future time fixed therein, or
on or at a fixed period after the
occurrence of a specified event which is
certain to happen, though the time of
happening be uncertain
an instrument payable upon a
contingency
not
negotiable,
and
happening of event doesnt cure it

* relate to sec. 11 ( presumption as to

date) and sec. 17 (construction where
instrument ambiguous)
* note effect of acceleration provisions, p.
30 Campos
* note effect of provisions extending time of
payment, p. 40 Campos
4. payable to order
where it is drawn payable to the order of
a specified person or to him or his order.
May be drawn payable to order of --a. a
payee
not
the
maker/drawer/drawee, or
b. drawer or maker, or
c. drawee, or
d. two or more payees jointly, or
e. holder of an office for time being
when the instrument is payable to order
the payee must be named or otherwise
indicated therein with reasonable
certainty

or bearer,
when expressed to be so payable
when payable to person named therein
or bearer

5.

when payable to order or fictitious/nonexistent person, and such fact known to the
person making it so payable, or
when name of payee doesnt purport to be
the name of any person, or
when the only/last indorsement is in blank
where addressed to drawee: such drawee
named/
indicated
therein
with
reasonable certainty
bill may be addressed to two or more
drawees jointly, whether partners or not,
but not to two or more drawees in the
alternative or in succession
bill may be treated as a PN, at option of
holder, where
a. drawer and drawee are same person
b. drawee is fictitious/incapacitated

EFFECT OF ADDITIONAL PROVISIONS

Gen. Rule: order/promise to do any act in
addition to the payment of money renders
instrument non-negotiable.
Exception: negotiability not affected by
provisions w/c
1. authorize sale of collateral security if
instrument not paid at maturity
2. authorize confession of judgment
3. waives benefit of any law intended for
advantage/protection of obligor
4. give holder election to require something to
be done in lieu of money
CONTINUATION
OF
NEGOTIABLE
CHARACTER
Until
1. restrictively indorsed
2. discharged by payment or otherwise
TRANSFER
DELIVERY
NI incomplete and revocable until delivery
for the purpose of giving effect thereto
as between
a. immediate parties
b. a remote party other than holder in due
course
delivery, to be effectual, must be made by
or under the authority of the party
making/drawing/accepting/indorsing
in such case delivery may be shown to
have been conditional, or for a special
purpose only, and not for the purpose of
transferring the property in the instrument
PRESUMPTION OF DELIVERY
Where the instrument is no longer in the
possession of a party whose signature appears
thereon, a valid and intentional delivery by him
is presumed until the contrary is proved (*if in
the hands of a HDC, presumption conclusive)
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NEGOTIATION
When an instrument is transferred from
one person to another as to constitute
the transferee the holder thereof.
If payable to BEARER, negotiated by
delivery; if payable to ORDER,
negotiated by indorsement of holder +
delivery
INDORSEMENT
Indorser generally enters into two
contracts:
1. sale or assignment of instrument
2. to pay instrument in case of default
of maker
Sec. 31 (how indorsement made)
Sec. 41 (where payable to two or more)
Sec. 43 (indorsement where name
misspelled)
Sec. 48 (cancellation of indorsement)
Sec. 45, 46 (presumptions)
Indorsement must be of entire
instrument. (cant be indorsement of
only part of amount payable, nor can it
be to two or more indorsees severally.
But okay to indorse residue of partially
paid instrument)
Sec. 67 (liability of indorser where paper
negotiable by delivery)
Sec. 63 (when person deemed indorser)
KINDS OF INDORSEMENT
A. as to manner of future method of
negotiation
1. special specifies the person to
whom/to whose order the instrument is
to be payable; indorsement of such
indorsee is necessary to further
negotiation.
2. Blank specifies no indorsee,
instrument so indorsed is payable to
bearer, and may be negotiated by
delivery

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

B. as to kind of title transferred

1. restrictive
prohibits
further
negotiation
of
instrument,
constitutes indorsee as agent of
indorser, or
vests title in indorsee in trust for another
rights of indorsee in restrictive ind.:
receive payment of inst.
Bring any action thereon that
indorser could bring

Transfer his rights as such indorsee,

but all subsequent indorsees acquire
only title of first indorsee under
restrictive indorsement
2. non-restrictive
C. as to kind of liability assumed by indorser
1. qualified-constitutes indorser as mere
assignor of title (eg. without recourse)
2. unqualified
D. as to presence/absence of express
limitations put by indorser upon primary
obligors privileges of paying the holder
1. conditional additional condition annexed
to indorsers liability.
Where an indorsement is conditional, a
party required to pay the instrument
may disregard the condition, and make
payment to the indorsee or his
transferee, whether condition has been
fulfilled or not
Any person to whom an instrument so
indorsed is negotiated will hold the
same/proceeds subject to rights of
person indorsing conditionally
2. unconditional
INDORSEMENT OF BEARER INST.
Where an instrument payable to bearer is
indorsed specially, it may nevertheless be
further negotiated by delivery
Person indorsing specially liable as
indorser to only such holders as make title
through his indorsement
UNINDORSED INSTRUMENTS
Where holder of instrument payable to his
order transfers it for value without
indorsing, transfer vests in transferee
1. such title as transferor had therein
2. right of tranferee to have indorsement of
transferor
for purposes of determining HDC
negotiation
effective
upon
actual
indorsement
HOLDER IN DUE COURSE
HOLDER
Sec. 191
RIGHTS OF HOLDER
1. sue thereon in his own name
2. payment to him in due course discharges
instrument
HOLDER IN DUE COURSE: REQUISITIES
1. complete and regular upon its face
sec. 124 (effect of alteration)
sec. 125 (what constitute material
alterations)
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BarOps 99

2. holder became such before it was

overdue, without notice of any previous
dishonor
sec. 53 (demand inst. nego after
unreasonable length of time: not
HDC)
sec.
12
(effect
antedating/postdating)
3. taken in good faith and for value
sec.
24
(presumption
of
consideration)
sec 25 (definition. of value)
sec. 26 (definition. holder for value)
sec. 27 (lien as value)
4. at time negotiated to him, he had no
notice (sec. 56-def; 54-notice before
full amt. paid) of --a. infirmity in instrument
b. defect in title of person negotiating
1. instrument/signature obtained
through fraud, etc., illegal
consideration/means, or
2. instrument negotiated in breach
of
faith,
or
fraudulent
circumstances
RIGHTS OF HOLDER IN DUE COURSE
1. holds instrument free of any defect of
title of prior parties
2. free from defenses available to prior
parties among themselves
3. may enforce payment of instrument for
full amount, against all parties liable
* if in the hand of any holder (note definition
of holder) other than a HDC, vulnerable to
same defenses as if non-negotiable
RIGHTS
OF
PURCHASER
FROM
HOLDER IN DUE COURSE
General Rule: in the hands of any holder
other than a HDC, NI is subject to same
defenses as if it were non-negotiable.
Exception: holder who derives title through
HDC and who is not himself a party to any
fraud or illegality has all rights of such
former holder in respect to all parties prior to
the latter.
WHO DEEMED HDC
prima facie presumption in favor of
holder
but when shown that title of any person
who has negotiated instrument was
defective (sec. 55when title defective):
burden reversed (now with holder)
but no reversal if party being made
liable became bound prior to acquisition
of defective title (i.e., where defense is
not his own)
DEFENSES AND EQUITIES

KINDS OF DEFENSES
1. real defense attaches to instrument;
the principle that the right sought to
enforced
never existed/there was
contract at all
2. personal defense growing out
agreement; renders it inequitable to
enforced vs. defendant

on
be
no
of
be

DEFENSES
1. INCAPACITY: real; indorsement/assign by
corp/infant: passes property but corp/infant
no liability

2. ILLEGALITY: personal, even if no K

because void under CC 1409

3. FORGERY: real (lack of consent):

a. forged
b. made without authority of person
whose signature it purports to be
General Rule:
a. wholly inoperative
b. no right to retain instrument, or give
discharge, or enforce payment vs. any
party, can be acquired through or under
such signature (unless forged signature
unnecessary to holders title)
Exception:
unless the party against whom it is
sought to enforce such right is precluded
from setting up forgery/want of authority
precluded:
a. parties
who
make
certain
warranties, like a general indorser
or acceptor
b. estopped/negligent parties
* note rules on Acceptance/Payment Under
Mistake as applied to:
1. overdraft
2. stop payment order
3. forged indorsements
4. MATERIAL ALTERATION
Where NI materially altered w/o assent of
all parties liable thereon, avoided, except
as vs. a
1. party
who
has
himself
made,
authorized or assented to alteration
2. and subsequent indorsers.
But when an instrument has been
materially altered and is in the hands of a
HDC not a party to the alteration, HDC may
enforce payment thereof according to orig.
tenor
Material Alteration
1. change date
2. sum payable, either for principal or interest
3. time of payment
4. number/relations of parties
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BarOps 99

5. medium/currency of payment, adds

place of payment where none specified,
other change/addition altering effect of
instrument in any respect

may enforce it as if it had been filled up

properly
LIABILITIES OF PARTIES

*material alteration a personal defense

when used to deny liability according to org.
tenor of instrument, but real defense when
relied on to deny liability according to
altered terms.
6. FRAUD
a. fraud in execution: real defense (didnt
know it was NI)
b. fraud in inducement: personal defense
(knows its NI but deceived as to
value/terms)
7. DURESS
Personal, unless so serious as to give
rise to a real defense for lack of
contractual intent
8. COMPLETE,
UNDELIVERED
INSTRUMENT
Personal defense (sec. 16)
If instrument not in poss. Of party who
signed, delivery prima facie presumed
If holder is HDC, delivery conclusively
presumed
9. INCOMPLETE,
UNDELIVERED
INSTRUMENT
Real defense (sec. 15)
Instrument will not, if completed and
negotiated without authority, be a valid
contract in the hands of any holder, as
against any person whose signature
was placed thereon before delivery
10. INCOMPLETE, DELIVERED
Personal defense (sec. 14)
2 Kinds of Writings:
1. Where instrument is wanting in any
material particular: person in possession
has prima facie authority to complete it
by filing up blanks therein
2. Signature on blank paper delivered by
person making the signature in order
that the paper may be converted into a
NI: prima facie authority to fill up as
such for any amount
In order that any such instrument, when
completed, ma be enforced vs. any
person who became a party thereto
prior to its completion:
1. must be filled up strictly in
accordance w/ authority given
2. within a reasonable time
but if any such instrument after
completion is negotiated to HDC, it's
valid for all purposes in his hands, he

A. PRIMARY PARTIES
Person primarily liable: person who by the
terms of the instrument is absolutely
required to pay the same.
Sec. 70 (effect of want of demand on
principal debtor)
1. Liability of Maker
a. Promises to pay it according to its tenor
b. admits existence of payee and his then
capacity to indorse
2. Status of drawee prior to acceptance or
payment
sec. 127 (bill not an assignment of funds in
hands of drawee)
sec. 189 (when check operates as
assignment)
3. Liability of Acceptor
Promises to pay inst according to its tenor
Admits the following:
a. existence of drawer
b. genuineness of his signature
c. his capacity and authority to draw the
instrument
d. existence of payee and his then
capacity to endorse
sec. 191, 132, 133, 138 --- formal
requisites of acceptance
sec. 136, 137, 150 --- constructive
acceptance
sec. 134, 135 --- acceptance on a separate
instrument
Kinds of Acceptance:
1. general
2. qualified
a. conditional
b. partial
c. local
d. qualified as to time
e. not all drawees
* sec. 142 (rights of parties as to
qualified acceptance)
Certification: Principles
1. when check certified by bank on which its
drawn, equivalent to acceptance
2. where holder of check procures it to be
accepted/certified, drawer and all indorsers
discharged from al liability
3. check not operate as assignment of any
part of funds to credit of drawer with bank,
and bank is not liable to holder, unless and
until it accepts or certifies check

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4. certification obtained at request of

drawer: secondary parties not released
5. bank which certifies liable as an
acceptor
6. checks cannot be certified before
payable
B. SECONDARY PARTIES
1. Liability of Drawer
a. Admits existence of payee and his then
capacity to endorse
b. Engages that on due presentment
instrument will be accepted, or paid, or
both, according to its tenor and that
c. If it be dishonored, and the necessary
proceedings on dishonor be duly taken,
he will pay the amount thereof to the
holder or to an subsequent indorser who
may be compelled to pay it

drawer may insert in the instrument an

express stipulation negativing / limiting
his own liability to holder

2. Liability of Indorsers:

a.
b.
c.
d.

a.
b.
c.
d.

Qualified
Indorser
and
one
Negotiating by Delivery
Instrument genuine, in all respects what
it purports to be
good title
all prior parties had capacity to contract
he had no knowledge of any fact w/c
would impair validity of instrument or
render it valueless
in case of negotiation by delivery
only, warranty only extends in favor
of immediate transferee
Liability of a General or Unqualified
Indorser
instrument genuine, good title, capacity
of prior parties
instrument is at time of indorsement
valid and subsisting
on due presentment, it shall be
accepted or paid, or both, according to
tenor
if it be dishonored, and necessary
proceedings on dishonor be duly taken,
he will pay the amt. To holder, or to any
subsequent indorser who may be
compelled to pay it

Order of Liability among Indorsers

1. among themselves: liable prima facie in
the order they indorse, but proof of
another agreement admissible
2. but holder may sue any of the indorsers,
regardless of order of indorsement
3. joint payees/indorsees deemed to
indorse jointly and severally
4. Liability of Accomodation Party

Definition: one who signed instrument as

maker/drawer/acceptor/
indorser
w/o
receiving value thereof, for the purpose of
lending his name to some other person
AP liable on the instrument to holder for
value even if holder, at time of taking
instrument, knew he was only an AP
Liability of Irregular Indorser
Where a person not otherwise a party
to an instrument, places thereon his
signature in blank before delivery, hes
liable as an indorser, in accordance w/
these rules:
1. Instrument payable to order of 3rd
person: liable to payee and to all
subsequent parties
2. Instrument payable to the order of
maker/drawer, or payable to bearer:
liable to all parties subsequent to
maker/drawer
3. Signs for accommodation of payee,
liable to all parties subsequent to
payee
Sadaya v Sevilla Rules:
1. a joint and several accommodation maker
of a negotiable promissory note may
demand from the principal debtor
reimbursement for the amt. That he paid to
the payee
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 vs. the principal debtor
provided:
a. he made the payment by virtue of a
judicial demand
b. or the principal debtor is insolvent
4. Liability of an Agent
Signature of any party may be made by
duly authorized agent, establish as in
ordinary agency
Where instrument contains or a person
adds to his signature words indicating that
he signs for or on behalf of a principal, he
is not liable on the instrument if he was
duly authorized, but the mere addition of
words describing him as an agent without
disclosing his principal, does not exempt
from personal liability.
Signature per procuration operates as
notice that the agent has but a limited
authority to sign, and the principal is bound
on ly in case the agent in so signing acted
within the actual limits of his authority
Where a broker or agent negotiates an
instrument without indorsement, he incurs
all liabilities in Sec. 65, unless he discloses
name of principal and fact that hes only
acting as agent
I. Presentment For Acceptance
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When presentment for acceptance must

be made
1. bill payable after sight, or in other cases
where presentment for acceptance
necessary to fix maturity
2. where bill expressly stipulates that it
shall be presented for acceptance
3. where bill is drawn payable elsewhere
than at residence / place of business of
drawee
When failure to present releases
drawer/indorser
Failure to present for acceptance of
negotiate bill of exchange within reasonable
time
Reasonable Time
Must consider
1. nature of instrument
2. usage of trade or business with respect
to instrument
3. facts of each case
How and When Made Sec. 145, 146, 147
When Excused Sec. 148
Dishonor and Effects
sec. 149 (when dishonored by nonacceptance)
sec. 150 (duty of holder where bill not
accepted)
sec. 151 (rights of holder where bill not
accepted)
sec. 89 (to whom notice of dishonor
must be given)
sec. 117 (effect of omission to give
notice of non-acceptance)
II. For Payment
Where necessary Sec. 70
Where not necessary Sec. 79, 80, 82, 151,
111
Date and time of presentment of instrument
bearing fixed maturity Sec. 71, 85, 86, 194
Date of presentment
Where instrument not payable on
demand: presentment must be made on
date it falls due
Where
payable
on
demand:
presentment must be made within
reasonable time after issue, except that
in case of a bill of exchange,
presentment for payment will be
sufficient if made within a reasonable
time after last negotiation (but note:
though reasonable time from last
negotiation, it may be unreasonable
time from issuance thus holder may not
be HDC under sec. 71)

Check must be presented for payment

within reasonable time after its issue or
drawer will be discharged from liability
thereon to extent of loss caused by delay

Delay excused Sec. 81

Manner Sec. 74, 72, 75
Place Sec. 73
To Whom Sec. 72, 76, 77, 78
Dishonor by nonpayment Sec. 83, 84
Notice of Dishonor
General rule: to drawer and to each indorser,
and any drawer or indorser to whom such
notice is not given is discharged
Form, Contents, Time Sec. 95, 96, 102, 103,
104, 105, 106, 108, 113
By Whom Given
By or on behalf of the holder or any party to
the instrument who may be compelled to
pay it to the holder, and who, upon taking it
up, would have a right to reimbursement
from the party to whom the notice is given
Notice of dishonor may be given by an
agent either in his own name or in the
name of any party entitled to give notice,
whether that party be his principal or not
Where instrument has been dishonored
in hands of agent, he may either
himself give notice to the parties liable
thereon, or he may give notice to his
principal (as if agent an independent
holder)
In whose favor notice operates
1. when given by/on behalf of holder: insures
to benefit of
a. all subsequent holders and
b. all prior parties who have a right of
recourse vs. the party to whom its
given
2. where notice given by/on behalf of a party
entitled to give notice: insures for benefit of
a. holder , and
b. all parties subsequent to party to whom
notice given
Waiver Sec. 109, 110
Where not necessary to charge drawer
1. drawer/drawee same person
2. drawee fictitious, incapacitated
3. drawer is person to whom instrument is
presented for payment
4. drawer has no right to expect/require that
drawee/acceptor will honor instrument
5. drawer countermanded payment
Where not necessary to charge indorser
1. drawee fictitious, incapacitated, and
indorser aware of the fact at time of
indorsement
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2. indorser is person to whom instrument

presented for paymt
3. instrument made/accepted for his
accommodation
Protest
Definition: testimony of some proper person
that the regular legal steps to fix the liability
of drawer and indorsers have been taken
When necessary: sec. 152,
Form and contents: sec. 153
By whom made: sec. 154
Time and Place: sec. 155, 156
For better security: sec. 158
Excused: sec. 159
Waiver: sec. 111
Acceptance for Honor
Sec. 161, 131, 171
Bills in Set: 178-183

A.
1.

2.
3.

4.
5.
6.

7.

DISCHARGE
Of the Instrument
payment in due course by or on behalf
of principal debtor
Payment in due course:
1. made at or after maturity
2. to the holder thereof
3. in good faith and without notice that
his title is defective
payment in due course by party
accommodated where party is made/
accepted for accommodation
intentional cancellation by holder
if unintentional or under mistake or
without
authority
of
holder,
inoperative. Burden of proof on
party
which
alleges
it
was
unintentional, etc.
any other act which discharges a simple
contract
principal debtor becomes holder of
instrument at or after maturity in his own
right
renunciation of holder:
holder may expressly renounce his
rights vs. any party to the
instrument, before or after its
maturity
absolute
and
unconditional
renunciation of his rights vs.
principal debtor made at or after
maturity discharges the instrument
renunciation does not affect rights of
HDC w/o notice.
Renunciation must be in writing
unless instrument delivered up to
person primarily liable thereon
material alteration (sec. 124: material
alteration w/o assent of all parties liable
avoids instrument except as against

party to
indorsers)

alteration

and

subsequent

B. Of secondary parties
1. any act which discharges the instrument
2. intentional cancellation of signature by
holder
3. discharge of prior party
4. valid tender of payment made by prior party
5. release of principal debtor, unless holders
right of recourse vs. 2ndary party reserved
6. any agreement binding upon holder to
extend time of payment, or to postpone
holders right to enforce instrument, unless
made with assent of party secondarily
liable, or unless right of recourse reserved.
8. Failure to make due presentment (sec. 70,
144)
9. failure to give notice of dishonor
10. certification of check at instance of holder
11. reacquisition by prior party
where instrument negotiated back to a
prior party, such party may reissue and
further negotiate, but not entitled to
enforce payment vs. any intervening
party to whom he was personally liable
where instrument is paid by party
secondarily liable, its not discharged,
but
a. the party so paying it is remitted to
his former rights as regard to all
prior parties
b. and he may strike out his own and
all subsequent indorsements, and
again negotiate instrument, except
where its payable to order of 3rd
party and has been paid by
drawer
where its made/accepted for
accommodation and has been
paid by party accommodated

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