NEGOTIABLE INSTRUMENTS

When date may be inserted

TWO CASES

• where an instrument is payable at a fixed period after date but is issued undated
• where an instrument is payable at a fixed period after sight but the acceptance is undated

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EFFECT OF INSERTION OF WRONG DATE

• The insertion of a wrong date in an undated instrument by one having knowledge of the true date of issue or acceptance will avoid the instrument as to him

EFFECT OF INSERTION OF WRONG DATE

• but not as to a subsequent holder in due course
• in the hands of a holder in due course, the date inserted, even if wrong, is to be regarded as the true date

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STEPS IN ISSUANCE OF N.I.

• The mechanical act of writing the instrument completely and in accordance with the requirements of Sec. 1
• The delivery of the complete instrument by the maker or drawer to the payee or holder with the intention of giving effect to it

APPLICATION OF SECTIONS 14, 15, AND 16

• Sec. 14 applies to a DELIVERED but INCOMPLETE instrument
• Sec. 15, to an INCOMPLETE and UNDELIVERED instrument
• Sec. 16, to a COMPLETE but UNDELIVERED instrument

Blanks, when may be filled

Rules where instrument INCOMPLETE but DELIVERED

AUTHORITY TO FILL UP THE BLANKS

• The holder or the person in possession has prima facie authority to complete an incomplete instrument by filling up the blanks therein.

MATERIAL PARTICULAR

• Any particular proper to be inserted in a negotiable instrument to make it complete

MATERIAL PARTICULAR

• date
• due date
• name of payee
• amount
• rate of interest
• name of the drawer

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AUTHORITY TO PUT ANY AMOUNT

• A signature on a blank paper delivered in order that it may be converted into a negotiable instrument operates as a prima facie authority to fill up as such for any amount.

ILLUSTRATION

RIGHT AGAINST PARTY PRIOR TO COMPLETION

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Incomplete instrument not delivered

Rules where instrument incomplete and undelivered

DEFENSE EVEN AGAINST A HOLDER IN DUE COURSE

• The fact that an incomplete instrument, completed without authority, has not been delivered, is a defense even against a holder in due course.

A real defense exist.There is, however, a prima facie presumption of delivery, which M must rebut by proof to the contrary.

Defense available to parties prior to delivery

Delivery; when effectual; when presumed

Rules where instrument mechanically complete

UNDELIVERED

• Every contract on negotiable instrument even if it is completely written is incomplete and revocable until its delivery for the purpose of giving it effect.

DELIVERY

• Delivery means transfer of possession, actual or constructive, from one person to another with intent to transfer title thereto.

ISSUE

• Issue is the first delivery of the instrument, complete in form, to a person who takes it as a holder.
• Deliver and issue are used interchangeably.

HOLDER

• means the payee or indorsee of a bill or note who is in possession of it, or the bearer thereof

DELIVERED

• Delivery is the final act essential to its consummation as an obligation.
• It may be made also through a duly authorized agent.

IN POSSESSION OF PARTY OTHER THAN A H.I.D.

• There is a prima facie presumption of delivery but subject to rebuttal.

IMMEDIATE PARTIES

• those who are immediate in the sense of having or being held to know of the conditions or limitations placed upon the delivery of the instrument

REMOTE PARTIES

• those who are not in direct contractual relation to each other

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IN POSSESSION OF A HOLDER IN DUE COURSE

• A valid delivery thereof by all parties prior to him is conclusively presumed.

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HOLDERS

HOLDERS

• the payee or indorsee of a bill or a note who is in possession of it, or the bearer thereof entitled to receive the sum for which it calls for

CLASSES OF HOLDERS

• Holders simply (s51)
• Holders for value (s26)
• Holders in due course

MERE HOLDER

• A person who qualifies as a holder but does not meet all the conditions to qualify as a holder in due course is a mere holder (assignee or transferee)

RIGHTS OF A HOLDER

• To sue - A holder may sue on the instrument in his name.
• To receive payment - He may receive payment and if the payment is in due course, the instrument is discharged.

HOLDER IN DUE COURSE

HOLDER IN DUE COURSE

• A holder who has taken the instrument under the following conditons:

HOLDER IN DUE COURSE

• That it is complete and regular upon its face
• That he became the holder of it before it was overdue, and without notice that it had been previously dishonored, if such was that fact

HOLDER IN DUE COURSE

• That he took it in good faith and for value
• 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

PRESENCE OF ALL CONDITIONS

• All the four conditions must concur in order to qualify a person as a holder in due course.

FORGED SIGNATURE

FORGERY

• Couterfeit-making or fraudulent alteration of a writing
• and may consist in the signing of another's name
• or the alteration of an instrument in the name, amount, description of the person and the like
• WITH INTENT THEREBY TO DEFRAUD.

The intent to defraud distinguishes forgery from innocent alteration and spoliation.

APPLIES TO TWO CASES

• where the signature is affixed by one who does not claim to act as an agent
• where the signature is affixed by one who purports to be an agent

EFFECT OF FORGED SIGNATURE

• The signature is wholly inoperative and so no right can be acquired through the forced signature.

A person whose signature was forced as a maker, drawer, payee or indorsee was never a party or never gave his consent. He cannot be held liable by anyone.

FORGERY IS A REAL OR ABSOLUTE DEFENSE EVEN AGAINST A HOLDER IN DUE COURSE.

REAL DEFENSES

• Minority
• Forgery
• Non-delivery of Incomplete Instrument
• Material Alteration
• Ultra Vires acts of a Corporation
• Vicious Force or Violence
• Want of authority
• Prescription

PERSONAL DEFENSES

• Failure or Absence of Consideration
• Illegal Consideration
• Non-delivery of Complete Instrument
• Conditional Delivery of Complete Instrument
• Filling up blank not within authority
• Duress or intimidation
• Mistake

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PERSONS LIABLE ON AN INSTRUMENT

GENERAL RULE

• Only persons whose signatures appear on an instrument are liable thereon.

EXCEPTIONS

• Where a person signs in a trade or assumed name
• The principal is liable if a duly authorized agent signs on his own behalf.
• In case of forgery, the forger is liable even if his signature does not appear

WHEN AGENT MAY ESCAPE PERSONAL LIABILITY

• He is duly authorized
• He adds words to his signature indicating that he is an agent
• He discloses his principal

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A can recover from M and P because his rights against them where not affected by the forgery.

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PERSONS PRECLUDED

TWO GENERAL CLASSES

• Those who by their acts, silence, or negligence, are estopped from setting up the defense of forgery
• Those who warrant or admit the genuineness of the signatures in question

WARRANT THE GENUINENESS

• INDORSERS
• ACCEPTORS
• PERSONS NEGOTIATING BY DELIVERY

EXAMPLES

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ANSWER

• No. Bart is not a holder of the check which never came to his possession although he is the payee named therein.

QUESTION?

• Can B recover from A?

ANSWER

• Yes, B can recover from A under the contract of sale for the price of the goods which B sold to A.

ANSWER

• In fact, A issued the check in question purportedly in payment of the goods bought by him from B.

ANSWER

• No. B has no privity with C. However, for B to run after C, he has to implead A and the cause of action against C is quasi-delict, not under the check.

QUESTION?

• Can B recover from C under the check?

QUESTION?

• Can B recover from D?

QUESTION?

• If X refused to credit back the P100,000 to A's account, has A any cause of action against X?

ANSWER

• No. There is no privity of contract between B and D.

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END

©2016 Atty. Raphael James Dizon